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Olam struggles as Nigeria, other EM currency devaluations hit bottomline

Olam struggles as Nigeria, other EM currency devaluations hit bottomline

Olam International Limited, a trading house with food-commodity operations across 65 countries, says the global race to devalue currencies is wrecking profit.

At least, 26 countries are currently weakening their money all at the same time, Sunny Verghese, its CEO, said Friday in Singapore. The “phenomenon” is leaving companies such as the Singapore-based seller of cocoa, rice, and coffee exposed as not all food material prices can be hedged, he said.

“This is the first time we’ve seen – because of global macro conditions, oil prices – this kind of concurrent sharp devaluation across multiple countries,” Verghese said at a briefing after Olam posted a 12 per cent drop in fourth-quarter profit partly due to currency losses. “Our policy is to stay neutral. But we don’t have fully hedge able markets.”

Devaluations, especially in Russia, Australia, Nigeria, and Brazil, cut earnings before interest, tax, depreciation and amortization by S$30 million, Olam said. The company reported S$502.6 million in Ebitda for the second half of 2014.

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An easing in monetary policy across the world’s central banks since the 2008 credit crisis has reignited currency wars.

In the first four weeks of this year alone, the Swiss dropped their cap on the euro, Singapore unexpectedly weakened its dollar against the greenback to the lowest since 2010 and the European Central Bank began a bond-purchase program known as quantative easing.

Olam has cut the time span of its hedges to three to four days from several weeks to deal with currency uncertainty, Verghese said.

Olam’s net income fell to S$118.7 million ($88m) in the last three months of 2014, dragging half-year profit down 9.7 percent to S$163 million. Operating expenses, excluding overheads, jumped 10-fold, or by S$179.1 million, in the last six months of the year, compared with a year earlier, due to unrealised foreign-exchange losses, Olam said.

While weaker currencies helped export-oriented assets, the extra costs Olam booked on imports and domestic businesses outweighed the benefits, the company said.

Olam’s working currency is the US dollar, as that is what most commodities are priced in. The Singapore-listed company, however, reports its financial results in Singapore dollars.