Olam reports ‘significant headwinds’ in cocoa business

By Oliver Nieburg

- Last updated on GMT

Olam's cocoa profits hit by weakening cocoa price. ©iStock/PashaIgnatov
Olam's cocoa profits hit by weakening cocoa price. ©iStock/PashaIgnatov

Related tags Coffee International cocoa organization

Olam says lower cocoa prices impacted profitability in its cocoa business in the first half of 2017, but it expects profits in the division will improve.

The Singapore-based agri group posted its first half (H1) and second quarter (Q2) results today.

It reported overall revenue and EBITDA gains (see factbox) in H1, but posted a -5.5% H1 EDITDA decline in its Confectionery and Beverages division (cocoa & coffee).

The company said, although coffee delivered higher EBITDA, its cocoa supply chain “experienced significant headwinds and margin pressures” ​during the period.

Olam key figures

Olam Group

Overall results for Olam Group. Business segments include Edible Nuts, Spices & Vegetable Ingredients, Confectionery & Beverage Ingredients (largest segment by EBITDA), Food Staples & Packaged Foods, Industrial Raw Materials, Ag Logistics & Infrastructure.

  • Volumes +38.7%
  • Revenues +26.5%
  • EBITDA +19.1%

Confectionery & Beverage Ingredients segment in H1

  • Volumes +7.7% (driven by coffee & cocoa)
  • Revenues +6.7% (driven by coffee)
  • Overall segment EBITDA -5.5% (despite an increase in coffee)

Cocoa price declines

Olam Group’s CFO Neelamani MuthuKumar said lower cocoa prices drove the decline.

“Coming from a strong deficit of crop in 2016, moving on to a very strong excess supply in 2017 we had a steep decline in cocoa prices starting in late October of 2016,”​ he said during the company’s earnings call.

The CFO said prices moved from roughly £2,500 ($3,241) per MT towards the end of 2016 to £1,500 ($1,945) in Q2 this year.

“That steep decline led to very tough trading and supply chain marketing conditions that had led to some part of underperformance on a comparative basis,”​ he said, adding that Olam’s cocoa business had a very strong first half in 2016 making the comparison tougher.

“However, the cocoa processing business continues to do well and we are able to track all customers, which had erstwhile moved on because ADM had reduced focus on the cocoa business for the last three years,”​ said MuthuKumar.

Olam acquired ADM’s cocoa business for $1.3bn in 2014​, taking its total capacity from 100,000 metric tons (MT) to 700,000 MT and making it the third largest cocoa processor behind Cargill and Barry Callebaut.

At the time of the acquistion, Olam said its new cocoa business was expected to deliver EBITDA of $180m-200m​ by 2018.

ICCO full year (Oct-Sep) 2016/17 forecast - 000's MT

cocoa beans raw

World Production:​ 4,692 +18.1%

World Grindings​: 4,263 +3.2%

Surplus​: +382

Improvement expected

Shekhar Anantharaman, Olam Group’s chief operating officer (COO), said the company expects its cocoa business will pick up in H2.

“We expect with continued processing viability as well supply chain improvement the second half to be better…,”​ he said during the earnings call.

Olam said in its H1 update it had invested in a cocoa plantation in Indonesia and cocoa processing in Côte D’Ivoire, Germany, Netherlands, Singapore, Canada, Ghana and Nigeria.

Its COO said Olam estimates cocoa prices between £1,500 to £1,700 ($1,945 to $2,206) per MT in the second half due to an expected cocoa surplus.

The International Cocoa Organization (ICCO) forecasts a +18.1 rise in global production for the cocoa year 2016/17 (Oct-Sep) leading to a surplus of 382,000 MT.

Related topics Ingredients Cocoa & Sugar

Related news

Show more

Related products

show more

Tap into the potential of better-for-you candy

Tap into the potential of better-for-you candy

Content provided by Valio | 08-May-2024 | White Paper

The confectionery industry is responding to the trend toward indulgent yet healthier sweets. Explore our Valio Bettersweet™ white paper to learn more about...

Satisfy Your Sweet Tooth with Sustainable Syrups

Satisfy Your Sweet Tooth with Sustainable Syrups

Content provided by Green Plains Inc. | 05-Apr-2024 | Data Sheet

Elevate your products with Green Plains’ premium, low carbon-intensity corn syrups. Drop-in replacements with an up to 40% lower carbon footprint than...

Machu Picchu Foods expands chocolate production lines

Machu Picchu Foods expands chocolate production lines

Content provided by Machu Picchu Foods: Contract manufacturer of chocolates and snacks | 02-Feb-2024 | Product Brochure

Leading Peruvian manufacturer Machu Picchu Foods debuts cutting-edge production lines for filled chocolate bars, truffles, and crispy wafer snacks.

Related suppliers

Follow us


View more