Olam posts losses but food business still robust: CEO

Olam CEO remains optimistic about FY results
Olam CEO remains optimistic about FY results

Temasek Holdings-controlled Olam International posted a loss in the fourth quarter due to a one-time hit, although the commodities trader remains upbeat on its core food business despite the rout in markets.

In a filing to the Singapore Exchange on Monday, Olam reported a loss of S$221.3 million ($157.2 million) in the fourth quarter, including a one-time fair value loss of S$192.6 million from Olam's investment in PureCircle, which produces the natural sweetener stevia.

Despite the loss, Olam said it clocked growth over the year in earnings before interest, tax, depreciation and amortization in three of its five businesses -- nuts and spices, confectionery and commodity financial services. Fourth quarter EBITDA rose 10.5 percent from a year ago, while full-year EBITDA rose 1.5 percent.

The company also has businesses in industrial raw materials and food staples & packaged foods.

Losses in PureCircle are due to a change in the fair value representation of the company, it explained.

Olam chief executive Sunny Verghese told CNBC's Squawk Box the company is now factoring the losses into its balance sheet, as recommended by its auditors. The move doesn't affect equity or cash flow, the company said.

Olam's earnings were also hit as Olam paid for its purchase of the cocoa business of ADM, bought back previously issued bonds and paid for a restructuring of its dairy business in Uruguay.

Jackson Roberto da Silva cuts sugar cane in a field belonging to the Moema sugar mill in Orindiuva, about 530 km (330 miles) northwest of Sao Paulo, Brazil, April 4, 2008
El Nino sends sugar to biggest 1-day gain since 1993

Still, it remains upbeat on the rest of the food and agriculture business as the selloff in the sector is not as severe as those in resources.

"If you see the commodities rout, there is a big distinction between the resources sector versus agriculture. Food and agriculture are typically more recession resistant," said Verghese.

The El Nino weather phenomenon is also hitting yields of most crops, giving prices some support.

With prices of many commodities at depressed levels, Verghese is not writing off mergers and acquisitions though he added that he will be looking out for larger deals that will "move our needle" rather than "bite size transactions."

Cocoa futures soar as global chocolate demand grows

"Our track record is to be counter-cyclical. Today is an opportunity to be counter-cyclical as markets dislocate," said Vergehese at the company's results briefing.

In 2015, Olam acquired Archer Daniels Midland's worldwide cocoa business, making it one of the world's largest cocoa processors.

The company estimates that cocoa beans it handles go into one in every four chocolate bars in the world.

Singapore's sovereign wealth fund Temasek and Japan's Mitsubitshi Corporation are Olam's two largest stakeholders.

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