SINGAPORE, Feb 28 (Reuters) - Singapore-based Olam International on Thursday said it planned to invest more on expanding its cocoa business, while reporting a 34-percent fall in quarterly profit partly due to lower contributions from its coffee and rice operations.
That comes after the global food and agri-business this week acquired an 85-percent stake in the parent of Indonesia’s largest cocoa processor, boosting its presence in the sector in Asia, where appetite for chocolate is growing rapidly in many markets.
“As far as cocoa strategy is concerned, it is one of our crown jewel businesses,” Chief Executive Officer Sunny Verghese said at Olam’s results briefing, adding that it would invest across areas including origination, processing and research.
He said he expected a slight international surplus of 100,000 tonnes from the upcoming cocoa crop, with prices remaining steady this year.
Meanwhile, Verghese said that profit-margins in the company’s coffee business would be under pressure in the first-half of 2019. Coffee bean prices have been low due to oversupply.
However, he added that an estimated combined surplus of robusta and arabica varieties of coffee of 9 million bags could be revised down to 5 million bags for reasons including adverse weather conditions in key producer Brazil.
“If you have any further weather-related surprises, this market could potentially rally. However, based on fundamentals, given the significant stock overhang the market reflects fair value,” Verghese said.
Arabica coffee futures on ICE rebounded on Wednesday after plunging to a five-month low the previous session. May London cocoa settled up 10 pounds, or 0.6 percent, at 1,719 pounds per tonne.
Olam, whose largest investors are Temasek Holdings and Japanese trading house Mitsubishi Corp, last month outlined its plans to invest $3.5 billion into key growth areas, such as edible nuts, coffee and cocoa, over the next few years, while exiting some other businesses.
Its operational profit, which excludes exceptional items, fell to S$72 million ($53.4 million) in the fourth quarter from S$109.7 million a year ago. Olam said improved performance from cocoa, packaged foods and wood products was offset by lower contribution from its peanut, coffee, rice and dairy businesses.
$1 = 1.3491 Singapore dollars Reporting by Aradhana Aravindan, additional reporting by Naveen Thukral; Editing by Joseph Radford