One of the key drivers of our profitability is the volume of products supplied. Given our integration and end-to-end supply chain capabilities, we seek to match the supply of our products with demand from our customers. The volume of agricultural products we supply is largely within our control and is a function of the extent of our supply chain infrastructure in the origins (producing countries) and the markets (consuming countries). Volumes include proportionate share of volumes from jointly controlled entities and associates. We measure and track our profitability in terms of Gross Contribution (GC) and Net Contribution (NC) per tonne of product supplied.

GC is calculated as the total revenue from the sale of goods and services plus other income and share of gains or losses from jointly controlled entities and associates, less interest income, cost of goods sold (raw material costs plus other direct costs, including packing costs etc.), shipping and logistics expenses, claims and commissions, net gains or losses from changes in fair value of biological assets, net measurement of derivative instruments, non-controlling interests and nonrecurring exceptional items which were recorded for the year.

For the purposes of determining NC, finance costs excluding interest on debt for fixed capital investments, net of interest income are reduced from the GC. For analysing the performance of the Group, our share of profits from jointly controlled entities and associates has been included in the GC and NC. The proportionate share of volumes has also been included for the calculation of GC and NC per tonne.

For every transaction, we target a minimum NC per tonne of product supplied based on the investment, risks, complexities and value added services that we provide to our customers to meet their specific requirements. We are focused on enhancing these margins by providing value-added services such as vendor managed inventory solutions, organic certification, traceability guarantees, fair trade produce certification, customised grades and quality, processed ingredients supply, proprietary market intelligence and risk management solutions.

We believe that reporting profit measures of GC and NC provide valuable additional information on our underlying earnings trends to our shareholders. The terms GC and NC are not defined terms under the Singapore Financial Reporting Standards (FRS) and may not, therefore, be comparable to similarly-titled profit measurements reported by other companies. These measures are not intended to be substitutes for, or superior to, FRS measurements of profit. GC and NC are key metrics used by management to measure the progress of Olam in the execution of its strategic plan. We believe that the communication and explanation of the GC and NC profit measures are essential in order for readers of Olam’s financial statements to understand fully the performance of the Company and the Group.

Production of our agricultural products is seasonal in nature. The seasonality of the products in our portfolio depends on the location of the producing country. The harvesting season for most of the agricultural products for countries situated in the Northern Hemisphere generally falls between October and March. Similarly, countries in the Southern Hemisphere have harvesting seasons between April to September. It is also not unusual to experience both delays and early starts to the harvesting seasons in these segments based on actual weather patterns in that particular year.

In addition to an early or delayed harvesting season, the precise timing and size of arrivals of these products can also vary based on the farmer’s selling decisions, which is mainly a function of his view on prices and his inventory holding capacity. The majority of our Origins are located in the Northern Hemisphere. Consequently, our earnings tend to be relatively higher in the second half of the Financial Year (January to June) compared to the first half (July to December). Based on this seasonality, we expect the phasing of our earnings to be as follows: