Olam bids goodbye to FY16 profit target of US$1bn

It's eyeing on free cash flow.

According to CIMB, Olam has conducted an extensive strategy review to balance the goals of profit growth vs. free cash flow generation. It will sacrifice some profit growth for stronger cash flow generation.

CIMB noted that management conceded that it will not achieve the US$1bn profit target by FY16.

Here's more:

The group has set four quantitative and qualitative goals for FY14-16. These are to: 1) be free cash flow positive by FY14 (previously FY15), 2) reduce its gearing limit from 2.5x to 2.0x, 3) reduce the complexity of its business model, and 4) improve investors’ understanding of its business model.

Near-term earnings will disappoint as the group embarks on house-keeping. Impairments are probable. The lower level of investments imply a slower rate of inorganic growth. In the longterm, however, this is a positive move as it ensures a more disciplined manner of growth.

We expect ROE to improve as the group shifts toward an asset-light strategy.

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