Olam Third-Quarter Net More Than Triples on Valuation Gain

May 15, 2014 1:17 am ET

(Updates with analyst comment in fourth paragraph.)

May 15 (Bloomberg) -- Olam International Ltd., the Singapore commodity trader being taken over by the city’s state investment company, said third-quarter profit more than tripled largely on a gain from the revaluation of its holding in a Malaysian maker of natural sweeteners.

Net income was S$396.1 million ($317 million) in the three months ended March 31, compared with S$108.5 million a year earlier, Olam said today in a statement. Operating profit after tax and minority interest fell 16 percent to S$102.2 million.

Profit was boosted by a S$271 million gain from the revaluation of Olam’s 18.5 percent stake in PureCircle Ltd. PureCircle was re-classified as an available-for-sale asset after Olam Chief Executive Officer Sunny Verghese resigned from PureCircle’s board. Olam has no plan to sell its stake, Verghese said today.

The results were “in line with estimates,” Tanuj Shori, an analyst with Nomura Holdings Inc. in Hong Kong, said in a note today. “We continue to like its long-term structural story.”

Breedens Investments Pte, a unit of Temasek Holdings Pte., is leading a S$5.3 billion offer for Olam, one of the world’s top three coffee and rice traders, as agricultural assets attract bidders seeking exposure to rising global food demand. The acquisition would draw a line under 2012’s short-seller attack on Olam by Muddy Waters LLC, which questioned its finances and caused its stock to plummet.

Olam’s shares have since recovered from a December 2012 low of S$1.395 and were little changed as at S$2.23 at 12:39 p.m. in Singapore.

Volumes Rise

Operating profit fell on higher depreciation and tax expenses. The value of biological assets fell by S$26.4 million from a gain a year earlier, Olam said.

Commodity sales volumes rose 3.5 percent in the quarter, Olam said. Revenue advanced 2.5 percent to S$4.84 billion.

Temasek was Olam’s second-largest shareholder when Muddy Waters made its criticisms public. Breedens’s offer of S$2.23 a share turned unconditional last month and will remain open until May 23. As of May 12, it had secured 64 percent of Olam shares.

A number of new companies have entered the food industry recently and state-backed groups are playing an ever greater role as countries seek to establish security of food supply, Verghese said today.

“We will keep an open mind” as the new entrants seek to establish themselves in the global food business through partnerships and acquisitions, Verghese said today on a conference call.

Russian Dairy

Olam will focus on improving its struggling Russian dairy venture Rusmoloko and may curtail cashew production in Nigeria, where the nature of the locally grown nut means the trader cannot successfully use its current machinery, executive director Anantharaman Shekhar said on the call.

The company will also need to replant some coffee trees in Laos after a dispute forced it to give up part of its land, for which the government will compensate the company with acres elsewhere, Shekhar said.