Olam International

Doubling every 3 years? That's not sustainable, I feel.

Business Times - 20 Jun 2011

Olam's strategy: Long-term sustainability

Acquisitions, capital raising necessary for growth: CEO

By FELDA CHAY

THE market has yet to give its stamp of approval to Olam International's recent acquisitions and capital raising - done in the name of expanding the business - but chief executive Sunny Verghese is unfazed.

During an interview with BT last week, Mr Verghese acknowledged that ventures such as its mega US$1.5 billion project in the Republic of Gabon have a long gestation period, and will not be earnings accretive in the near horizon. The company's recent move to raise funds through a share placement is also dilutive, he conceded.

But he is convinced that such moves are essential to keep the commodity supplier growing over the longer term, and that the argument will be won when the results start showing.

'Now as a CEO, and also as the owner of a business and a substantial shareholder, I have to make capital choices and investment decisions based on the vantage point of view of a continuing shareholder. Olam cannot just be driven by analyst or stock market pressures to deliver in the short term. We have to deliver sustainably over the long term.

'We have to believe that somebody is going to own this business forever, and think of what is in the best interest of that owner, how we can develop a strategy and make capital choices and investment decisions that will allow us to maximise the long-term intrinsic value of this continuing shareholder.'

Since Olam announced its Gabon fertiliser plant and palm plantation projects, its shares have fallen from the $3.25 they closed at before the deal was announced, to $2.59 last Friday - a whopping 20.3 per cent drop.

While the project is just one of the reasons why Olam's shares have tumbled - other reasons include an analyst report that raised questions on Olam's accounting restatements, and macroeconomic fears - investors are clearly unwilling to invest in the firm given that the project, Olam's largest to date, will only yield earnings in its financial year 2014.

The company's recent share placement has not helped. Since announcing its $740 million fund raising two weeks ago, its shares have tumbled 24 cents amid fears that earnings per share (EPS) will be diluted.

This could well be true, but Mr Verghese is quick to point that the group's EPS remains on track to double every three years. Under Olam's six-year plan that spans the financial years 2010-2015, the group set itself the target of earning US$480 million by FY2015 - quadruple the US$120 million that it earned in FY 2009. According to Mr Verghese, this means that earnings should grow at about 25-26 per cent each year. And so far, Olam has 'significantly exceeded this target of 26 per cent earnings growth'.

'So while we have raised additional equity and we will get diluted, we are hoping that on an EPS basis, growth over this period will be at 25-26 per cent. Which means our actual earnings growth could be 30 per cent, but because of dilution, we will still grow at 25-26 per cent.

'If you grow at such rates, you are doubling every three years. And we have developed a strategy and a pathway to be able to do that over the next few years.'

Of the funds raised from its recent fund raising exercises - which includes a US$1.25 billion syndicated-term loan facility and the $740 million equity placement - 40 per cent will go towards expanding its upstream business.

Another 45 per cent will go into its mid-stream manufacturing and processing division, while 10 per cent will be allocated to the group's supply chain core. The remaining 5 per cent will be reserved for Olam's downstream business.

The group's expansion upstream will see it invest in more coffee plantations, and Mr Verghese said it is looking to invest in plantations in Tanzania. Olam already has coffee plantations in Laos.

Olam is also going to expand its dairy farming activities in Uruguay - an initiative that has seen the firm launch its second offer for all of the shares of New Zealand Farming Systems Uruguay. 'Similarly we are going to invest in almond plantations in the US, palm and rubber plantations in Africa, rice farming, peanut cultivation, soyabean cultivation. We are also looking at getting more hard wood and teak forest concessions,' said Mr Verghese.

Plans for its mid-stream business include further investments in sugar milling, soluble coffee manufacturing, cashew processing, cocoa processing, industrial chocolate manufacturing, the packaged foods business - where a few acquisitions are in the pipeline, said Mr Verghese. Olam will make these investments using its tested approach: by making acquisitions that are bite-sized, taking up just 3-4 per cent of its market value. This amounts to some US$200-300 million per acquisition.

'We generally don't do large, company transformation deals. We follow a string of pearls kind of approach so that if one of those transactions or acquisitions go wrong, we are not risking the whole company. And that has been the track record. It has been a very successful model.'

Still, he left the door open to large transformation mergers and acquisitions. Referring to Olam's merger talks with French commodities firm Louis Dreyfus Commodities (LDC) that ultimately petered out, Mr Verghese said: 'While we considered the Louis Dreyfus merger, that is an exception. That is not the norm.

Olam should be very, very careful - over-aggressive projections and predictions usually end up in tears!

Business Times - 03 Sep 2011

CORPORATE FOCUS
Olam's US$1b profit target realistic?

Several analysts offer differing views on the giant commodity player's ambitious 2016 goal. By Mindy Tan

COMMODITY player Olam International earlier this week unveiled ambitious new targets - notably, to double its previous goal to US$1 billion profit after tax (PAT) by FY2016.

During the FY2011 full-year results briefing on Monday, Olam - in which Temasek Holdings is a major shareholder - said it was on track to hit its previous target of US$454 million at least two years ahead of schedule.

In a report released on Wednesday, Royal Bank of Scotland (RBS) analyst John Rachmat was the most bullish on Olam, maintaining a 'buy' recommendation, with a target price of $3.80.

'Olam has now demonstrated its ability to grow its earning in both up- and down-cycles in the commodity space. Its sales volume has grown 22 per cent compound annual growth rate (CAGR) over the 2005-11 period and its PAT has grown 37 per cent CAGR over the same period,' he said. 'In my opinion, it is very likely they will deliver on their PAT target. Of course, all this depends on commodity price swings between now and 2016.'

CIMB analyst Lee Wen Ching, however, disagrees. 'We think Olam's US$1 billion target appears slightly aggressive on a core net profit basis (stripping fair value gains on biological assets and negative goodwill), as that would imply a higher CAGR between FY11 and FY16 as compared to what it has achieved so far since listing,' she said.

'Furthermore, it is now growing from a higher base, implying that absolute growth will have to be much stronger to achieve that target.'

Separately, an analyst who declined to be named noted that Olam's PAT target is based on the assumption of potential mergers and acquisitions.

However, given that their palm oil and Gabon urea investments constitute a significant portion of their capital spending, their M&A pipeline might be less intensive than in the last few years. As such, while still positive on Olam's growth, he is less bullish than before.

The group, which said it would undertake 65 initiatives over the next five years to achieve its PAT target, has been quick to put its plan in motion. On Wednesday, Olam announced the acquisition of an India-based 3,500 tonnes crush per day (TCD) sugar milling facility and a 20MW cogeneration facility by way of Hemarus Industries, with plans to enhance the sugar milling capacity to 5,000 TCD.

Following its FY11 full-year results briefing, Olam's shares surged more than 11 per cent on Wednesday. Yesterday, Olam's shares, which have been in the top 20 volume list since Wednesday, saw 9.6 million shares change hands. The stock hit a high of $2.51 in morning trading, before slumping to $2.40. Olam closed eight cents down at $2.41 yesterday.

Commenting on the stock price movement, CIMB's Ms Lee said: 'We believe the stock surged on the first day on strong headline numbers. However, excluding non-core gains, core net profit of $302 million was below both ours and consensus expectations.'

On Monday, Olam posted a 38 per cent gain in fourth quarter net profit to $127.4 million, and revenue of $4.62 billion - a 46 per cent surge from the same period last year. tanmindy@sph.com.sg

Business Times - 06 Sep 2011

Olam in talks to acquire Indian spices firm: report

By MINDY TAN

COMMODITY player, Olam International is in talks to acquire privately held Indian spices company, Vallabhdas Kanji Ltd (VKL), The Times of India reported yesterday.

Olam - in which Temasek Holdings is a major shareholder - declined to comment when contacted, saying they do not have the practice of commenting on media reports.

The company is in advanced discussions to clinch a deal, said the report, after the Mariwala family mandated an investment bank for a stake sale, citing people aware of the matter.

Vallabhdas Kanji's managing director, Ajay Mariwala told the newspaper that the company has been running a process to bring a strategic investor, and would announce any developments when ready.

Olam has hit the acquisition trail hard since its commitment to double its FY2016 goal to US$1 billion profit after tax (PAT), announced during their FY2011 full year results briefing last week.

Last week, Olam announced the acquisition of an India-based 3,500 tonnes crush per day (TCD) sugar milling facility and a 20MW cogeneration facility by way of Hemarus Industries, with plans to enhance the sugar milling capacity to 5,000 TCD.

Some of the key acquisitions made by Olam to consolidate its position in the spices business have included California-based Key Food Ingredients (KFI) and Gilroy Foods.

In its financial statement, Olam said that the integration of the acquired companies in the spices and vegetable ingredients business (namely Gilroy, SK Foods, and KFI), had been successfully completed and 'they are now co-located together in Fresno, California, to better extract synergies'.

Separately, Olam subsidiary NZ Farming Systems Uruguay yesterday posted a net comprehensive loss for the year ended June 30 of US$ 1.59 million, performing better than the previous year's loss of US$11.29 million.

Turnover almost doubled year-on-year from US$22.54 million to US$43 million.

Olam's counter ended yesterday down one cent, or 0.415 per cent, at $2.40.

Business Times - 15 Nov 2011

Olam's Q1 earnings up 15.1%

Earnings rise to $34.2m; revenue up 31.6% at $3.23b

By FELDA CHAY

COMMODITIES supplier Olam International saw a 15.1 per cent year-on-year jump in first-quarter net profit, with an overall rise in sales volumes helping to lessen the impact of lower net contribution from its cotton business.

The group, among the world's largest cotton traders, said yesterday that earnings rose to $34.2 million from $29.7 million for the three months ended Sept 30, 2011.

Earnings per share was 1.4 cents (on enlarged share base), as compared with 1.43 cents last year.

Revenue rose 31.6 per cent to $3.23 billion from $2.45 billion a year ago, with turnover rising for all of its business segments.

Olam's results may put to rest fears that it would suffer the fate of its cotton trading peers, many of whom have been hit with losses because of defaults by cotton farmers in the US.

The company's chief executive Sunny Verghese told reporters that it saw one default from a farmer in the US, but that had already been accounted for in FY2011, and would have no impact on the current financial year.

Mr Verghese also said that net contribution from the cotton business was positive in Q1, albeit lower than a year ago.

The worst may also be over for the cotton market, which has seen much price volatility on the back of issues such as drought in the US. Cotton prices almost doubled from late 2010 to June this year, only to fall back to its original price level in July.

'We believe that the unprecedented volatility seen in the cotton markets in the last cropping season seem to have now stabilised as we enter the new cropping season,' said Olam in its financial statement.

Demand for cotton is also expect to remain strong. Going forward, Mr Verghese said that he expects cotton demand from China, the world's biggest user of the fibre, to continue growing, but at a slower pace than before.

The group added that it is currently in acquisition and joint venture discussions with various parties, and that it remains positive about its prospects for fiscal year 2012.

Mr Verghese said that the company was 'very confident' of achieving its FY2016 net profit target of US$1 billion.

Overall sales volume for the quarter rose 17.7 per cent to 1.9 million tonnes. Net contribution surged 24.1 per cent to $251.9 million, supported by growth across its food business segments. The industrial raw materials business, which includes cotton and wood, saw a 17.4 per cent drop in net contribution to $30.4 million.

'The wood products business performed below expectations. While the prices for the products in the segment have stabilised at lower levels, demand continues to remain soft,' said Olam.

Olam's business segments include food, industrial raw materials and the commodity financial services business.

Net asset value per share was $1.1121 as at end-September, higher than the 78.7 cents on June 30. Cash and cash equivalents held came to $964.8 million compared with $453.2 million a year ago.

Olam did a $740 million share placement earlier this year.

Yesterday, the group's shares rose 2.1 per cent to close at $2.43.

The Straits Times
Jan 31, 2012
Olam in tie-up to pour up to $1b in dairy venture
Plan to develop Russian facility into biggest milk plant in Europe, Asia

By Melissa Tan

COMMODITY trader Olam International is teaming up with a Russian firm to invest as much as US$800 million (S$1 billion) in what may be the biggest cow farm and milk production facility in Europe and Asia.

Olam's investment comes hot on the heels of a recent surge in interest in commodity players. These firms have seen their stocks being run up as more people turn to investing in scarce resources.

It will capitalise on the surging market for food resources, particularly milk, which was the best performing commodity on world markets last year.

The deal with Russian Dairy Company (Rusmolco), the largest milk producer in Russia's Penza region, gives it an immediate market presence.

The first phase involves Olam buying a 75 per cent stake in Rusmolco, which then plans to increase its milking herd from 3,600 to 20,000 cows, lifting annual milk output to nearly 208 million litres.

Rusmolco will also double its grain cultivation area from 52,000ha to 106,000ha.

Olam told the Singapore Exchange yesterday that the total investment in the first phase will 'aggregate up to US$400 million to be spent over the next four to five years'.

Out of the US$400 million in the first phase, up to $320 million will come from Rusmolco, with support from the Russian government, which does not tax dairy and agricultural activities.

After the first phase is completed by around 2017, a second stage could increase the herd to 50,000 within four years. Olam and Rusmolco are also considering expanding the grain-growing area to 130,000ha and investing in sugar cultivation, milling and refining.

The second phase will involve an investment of between US$350 million and US$400 million from the two firms, said a Bloomberg report.

'At a steady state, Rusmolco will have an annual milk production of 500 million litres, making it the leading milk producer in Russia and among the top 10 private milk producers globally,' Olam said.

Its chief executive Sunny Verghese said the proposed scale of the dairy venture would make it the largest dairy farm and milk production site in Europe and Asia, according to Bloomberg.

The firm has been in Russia since 1993. It described the country yesterday as 'one of the most attractive markets for dairy farming today', due to a high demand for milk and a large, widening gap between supply and demand.

Olam also pointed to a need for a 'modern, reliable supplier of high-quality milk' and the low cost of cattle feed due to the availability of fertile agricultural land at 'competitive prices'.

Mr Verghese noted that Rusmolco 'brings a strong dairy platform as well as 106,000ha of land suitable for agriculture, an attractive platform and asset base that is hard to replicate in a short period of time'.

This deal is the latest in a string of acquisitions. Olam bought a 75.2 per cent stake in Spain's Macao Commodities Trading for €15 million (S$24.7 million) last month. Last October, it bought parts of an Indian spice export business for US$18 million, and in August it bought an Indian sugar mill for US$73.8 million.

The move comes on the back of rising commodity prices and a surge in investor interest in the sector.

Commodity shares have recovered sharply since the beginning of the year after a decline towards the end of last year.

Olam shares fell 11 cents to close at $2.53 yesterday before its announcement, but the stock has posted a 40-cent gain from its closing price of $2.13 on Dec 30 - a 19 per cent rise.

The shares of fellow commodity player Noble Group closed at $1.33 yesterday, up 18 per cent since Dec 30.

Even firms dealing in hard commodities like rig-building have seen their counters move upwards. Sembcorp Marine rose from $3.82 on Dec 30 to close at $4.75 yesterday - a gain of 24 per cent.

melissat@sph.com.sg

Business Times - 10 Feb 2012

Olam acquires Nigerian biscuits, candy maker

Commodities trader paying US$167m for Titanium Holding Co group

By FELDA CHAY

OLAM International has bought a Nigerian biscuits and candy maker for US$167 million, a deal it says will help it achieve its aim of growing the profit contribution of its packaged food business.

The commodities trader said yesterday that it has acquired Titanium Holding Company SA and its subsidiaries. Titanium owns Nigeria's second largest biscuits and candy franchise with a turnover of some US$162 million last year. The price consideration is subject to working capital adjustments at completion.

Biscuits and candy are 'large and fast growing categories' in Nigeria, which in turn is the second largest market in Africa when it comes to packaged foods consumption.

'As these segments are fairly consolidated within Nigeria, an acquisition of a leading player would (give Olam) a market leadership position without creating excess capacity or competition,' said Olam in a statement. 'The transaction is also immediately management, earnings and cash flow accretive,' said Olam's senior vice-president and head of packaged foods, M Ramanarayanan.

The group had outlined in its corporate strategy last year that its packaged food business is expected to grow and contribute at least US$100 million to the group's profits by FY2016.

Olam will fund the acquisition through internal accruals and borrowings. It expects the investment to deliver 17-18 per cent in Ebitda (earnings before interest, taxes, depreciation and amortisation) margin, and generate in excess of 29 per cent equity internal rate of return.

Titanium has an 18 per cent market share of Nigeria's biscuit sector, and a 28 per cent market share of the sugar candy industry. The two businesses are enjoying market growth rates of 10-12 per cent and 12-15 per respectively, which has allowed the business to deliver a CAGR (compound annual growth rate) of 26 per cent in revenue over the last five years.

Olam's acquisition of Titanium comes hot on the heels of a dairy investment. It said late last month that it has teamed up with Russian dairy farm player Rusmolco for the large-scale development of dairy and grains farming in the Penza region of Russia. It will invest up to US$75 million for a 75 per cent stake in Rusmolco through a combination of capital injection and purchase of Rusmolco shares.

Yesterday, Olam's shares closed 1.4 per cent lower at $2.72.

A supposed "blue chip" playing on its growth story with more and more debt. Makes it hard to believe that this can be sustainable. When interest rate starts creeping up, it should make interesting headlines.

To be frank, I am worried about people buying into Olam. They keep on buying and buying other companies. What do they want to do? By buying and buying, they would keep on incurring expenses and as a result, they carry with them huge debt. I seriously think they should just focus on a few good business and grow it, instead of growing by Merger and Acquisiton (M&A).

The Straits Times
May 19, 2012
Play of the week
Rough week for Olam after dispiriting results
A 23 per cent drop in fiscal Q3 earnings results in shares falling to three-year low

By Anita Gabriel SENIOR CORRESPONDENT

INVESTORS loathe bad news surprises as much as companies loathe delivering them. Toss in a risk-repellent market, as we have now, and a certain nosedive awaits the company's shares.

That unenviable spotlight over the week was hogged by Olam International, after it revealed disappointing quarterly earnings with a downbeat prognosis on Tuesday.

Investors wasted no time dumping Olam shares in the ensuing days, shunning other commodity counters such as Wilmar International and Noble Group which also had a rough week.

Over the five trading sessions, Olam's shares lost 34 cents or 16per cent to end the week at a three-year low of $1.73.

The main culprits responsible for Olam's 23per cent drop in fiscal third-quarter earnings were the non-food segments, namely cotton and wood products.

Net profit fell to $98.7million, or 3.97 cents per share, for the three months ended March as revenue fell 10.8 per cent to $4.2billion.

Maybank Kim Eng Research said the latest results show that Olam is not immune to risks as it expands both upstream and downstream businesses.

The research house said in the event of a downturn, the significant capital expenditure Olam has ploughed into inorganic merger and acquisition activities in recent years may pose an earnings drag.

There was no shortage of earnings and target price cuts from analysts following the news.

DBS Group Research has trimmed the firm's margin outlook on expected softer commodity prices. Given the lower earnings estimate, the research house has cut its target price for the counter to $2 from $2.75.

OCBC Investment Research held its earnings estimates for financial years 2012 and 2013 intact but cut its fair value to $2.24 from $2.63 given heightened risk aversion amidst the global uncertainties.

While OCBC and DBS recommend a hold on the counter and Maybank has cut its call to sell, OSK-DMG Research maintains its buy recommendation, albeit with a lower target price of $2.56 on optimism over the firm's food segment.

anitag@sph.com.sg

Nigeria? What do we normally associate Nigeria with? I missed this piece of news but little wonder why Olam share price has been doing since and Capital Group appears to be right in their relentless selling

(10-02-2012, 06:11 PM)Musicwhiz Wrote: Business Times - 10 Feb 2012

Olam acquires Nigerian biscuits, candy maker

Commodities trader paying US$167m for Titanium Holding Co group

By FELDA CHAY

OLAM International has bought a Nigerian biscuits and candy maker for US$167 million, a deal it says will help it achieve its aim of growing the profit contribution of its packaged food business.

The commodities trader said yesterday that it has acquired Titanium Holding Company SA and its subsidiaries. Titanium owns Nigeria's second largest biscuits and candy franchise with a turnover of some US$162 million last year. The price consideration is subject to working capital adjustments at completion.

Biscuits and candy are 'large and fast growing categories' in Nigeria, which in turn is the second largest market in Africa when it comes to packaged foods consumption.

'As these segments are fairly consolidated within Nigeria, an acquisition of a leading player would (give Olam) a market leadership position without creating excess capacity or competition,' said Olam in a statement. 'The transaction is also immediately management, earnings and cash flow accretive,' said Olam's senior vice-president and head of packaged foods, M Ramanarayanan.

The group had outlined in its corporate strategy last year that its packaged food business is expected to grow and contribute at least US$100 million to the group's profits by FY2016.

Olam will fund the acquisition through internal accruals and borrowings. It expects the investment to deliver 17-18 per cent in Ebitda (earnings before interest, taxes, depreciation and amortisation) margin, and generate in excess of 29 per cent equity internal rate of return.

Titanium has an 18 per cent market share of Nigeria's biscuit sector, and a 28 per cent market share of the sugar candy industry. The two businesses are enjoying market growth rates of 10-12 per cent and 12-15 per respectively, which has allowed the business to deliver a CAGR (compound annual growth rate) of 26 per cent in revenue over the last five years.

Olam's acquisition of Titanium comes hot on the heels of a dairy investment. It said late last month that it has teamed up with Russian dairy farm player Rusmolco for the large-scale development of dairy and grains farming in the Penza region of Russia. It will invest up to US$75 million for a 75 per cent stake in Rusmolco through a combination of capital injection and purchase of Rusmolco shares.

Yesterday, Olam's shares closed 1.4 per cent lower at $2.72.

---

Never understand the trio - Olam, Noble and Wilmar. Particularly Olam and Noble - business model is hard to understand - always incurred more debts with rising business volume.

We have another wannabe in CWT but owner is an accountant by training - will monitor CWT for sometime to see if their German acquisition proved to be any different.

(19-05-2012, 07:29 AM)Musicwhiz Wrote: The Straits Times
May 19, 2012
Play of the week
Rough week for Olam after dispiriting results
A 23 per cent drop in fiscal Q3 earnings results in shares falling to three-year low

By Anita Gabriel SENIOR CORRESPONDENT

INVESTORS loathe bad news surprises as much as companies loathe delivering them. Toss in a risk-repellent market, as we have now, and a certain nosedive awaits the company's shares.

That unenviable spotlight over the week was hogged by Olam International, after it revealed disappointing quarterly earnings with a downbeat prognosis on Tuesday.

Investors wasted no time dumping Olam shares in the ensuing days, shunning other commodity counters such as Wilmar International and Noble Group which also had a rough week.

Over the five trading sessions, Olam's shares lost 34 cents or 16per cent to end the week at a three-year low of $1.73.

The main culprits responsible for Olam's 23per cent drop in fiscal third-quarter earnings were the non-food segments, namely cotton and wood products.

Net profit fell to $98.7million, or 3.97 cents per share, for the three months ended March as revenue fell 10.8 per cent to $4.2billion.

Maybank Kim Eng Research said the latest results show that Olam is not immune to risks as it expands both upstream and downstream businesses.

The research house said in the event of a downturn, the significant capital expenditure Olam has ploughed into inorganic merger and acquisition activities in recent years may pose an earnings drag.

There was no shortage of earnings and target price cuts from analysts following the news.

DBS Group Research has trimmed the firm's margin outlook on expected softer commodity prices. Given the lower earnings estimate, the research house has cut its target price for the counter to $2 from $2.75.

OCBC Investment Research held its earnings estimates for financial years 2012 and 2013 intact but cut its fair value to $2.24 from $2.63 given heightened risk aversion amidst the global uncertainties.

While OCBC and DBS recommend a hold on the counter and Maybank has cut its call to sell, OSK-DMG Research maintains its buy recommendation, albeit with a lower target price of $2.56 on optimism over the firm's food segment.

anitag@sph.com.sg