UPDATE 1-Olam books 5.7-pct rise in Q1 profits, boosts cash flow

Thu Nov 14, 2013 2:54pm EST

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By Chris Prentice

NEW YORK Nov 14 (Reuters) - Singapore's Olam International Ltd is on pace to generate positive cash flow and to weather commodities price volatility this year, the company said on Thursday as it reported a 5.7-percent rise in profits in the first quarter of fiscal 2014.

Olam is looking to "expand selectively," the global commodities trading firm said in a statement after showing a big boost in cash flow following a strategy review announced last spring.

The merchant booked a profit of S$45.6 million in the three months ended Sept. 30, compared with S$43.2 million in the year-ago quarter, as the company expanded "upstream and midstream" and in supply-chain activities.

The merchant showed a marked turn-around in cash flow at the start of 2014, which reached to S$46 million, jumping from negative S$706.8 million a year ago.

Olam said in April it would become free cash-flow positive by the end of June 2014, following scathing criticism from short-seller Muddy Waters of its business practices and debt levels.

The firm recently offloaded an Australian cotton gin and has signed sale and lease-back deal for its Australian almond orchards.

Even so, lower commodities prices and losses in the company's financial services and volatility trading units led the company's revenues to fall and offset growing volumes in the company's almond and cotton business.

A "diversified portfolio" has left the company "well-placed to navigate the uncertainties and volatility in global commodities markets," said Olam's Managing Director and Chief Executive Officer Sunny Verghese in the statement.

COFFEE, HEDGING UNITS DRAG

Sales revenues dropped 7.9 percent to S$4.3 billion, and volumes fell 0.3 percent to 3.7 billion tonnes.

Olam's financial services and risk management division posted a loss of S$8.3 million, on operating losses in the company's market-making and volatility trading unit.

The unit has been restructured following the review, Olam said.

Launched in 2003, it has a "sell-side approach" to exchange-traded business through Olam's broker/trader network, according to Olam's website.

The company blamed a 27 percent drop in revenue in the company's confectionary and beverage ingredients unit on plunging coffee prices, which have set multi-year lows as global supplies surged.

Olam's revenues got a boost from the almond business, which was a "strong contributor" to 29.9-percent growth in revenues and 8.7-percent growth in sales volumes, according to the statement.

The cotton division also saw strong growth, helping boost volumes in Olam's industrial raw materials division by 4.8 percent.

(Editing by Tim Dobbyn)