Olam Group Limited · SGX:VC2
Olam — Olam International — Investor Presentation (April 2013)
42 slides from Olam's investor presentation, Apr 25, 2013
Slide 1: Strategy Review
Strategy Review Re-balancing profitable growth and cash flow 25 April 2013 | Singapore
Slide 2: Cautionary note on forward-looking statements
Cautionary note on forward-looking statements This presentation may contain statements regarding the business of Olam International Limited and its subsidiaries (‘Group’) that are of a forward looking nature and are therefore based on management’s assumptions about future developments. Such forward
Slide 3: What has changed: Re-balancing profitable growth and cash flow
What has changed Re-balancing profitable growth and cash flow Strategic Plan: FY2014 - FY2016 3
Slide 4: Agenda
Agenda • Context and summary • Olam strategy and business model • Execution progress • Strategic Plan FY2014 - FY2016 Strategic Plan: FY2014 - FY2016 4
Slide 5: Context
Context • One of the key processes at Olam is to conduct an annual strategy review of our market context, strategic options, tactics and targets • Further to the Board’s letter to shareholders in the Offer Information Statement (OIS) dated 2nd January 2013, this year’s strategy review was undertaken
Slide 6: Context: Key questions
Context: Key questions • What are the challenges and opportunities in the Agri sector? Strategy and • Are we pursuing the right strategy? business model • Is our business model too complex? • Is the execution of our strategy effective? • How can we further reduce and mitigate our Execution execution
Slide 7: Summary: Four priorities and six pathways established
Summary: Four priorities and six pathways established This year’s Strategy Review and stakeholders consultation have established 4 additional priorities: 1 2 3 4 Promote Accelerate free Reduce Reduce better under- cash flow gearing complexity standing of generation Olam’s business … 6 pathways were
Slide 8: Summary: Four Key Priorities
Summary: Four Key Priorities 1 • Become free cash flow positive by FY2014 Accelerate free • Reduce planned capex by ~ S$1B cash flow • Target to release cash of ~S$1.5B through balance sheet generation optimisation and unlocking intrinsic value 2 • Reduce gearing boundary condition from <2.5x to <2.
Slide 9: Context
Context • This strategy review is based on current market and economic conditions • The Company will continue to update its plans to optimise growth opportunities in the future • The Board will continue to monitor our current investments and assets and identify opportunities at the Group, platform o
Slide 10: Agenda
Agenda • Context and summary • Olam strategy and business model • Execution progress • Strategic Plan FY2014 - FY2016 Strategic Plan: FY2014 - FY2016 10
Slide 11: Market context: The agri-sector is attractive with favourable long-term dynamics
Market context: The agri-sector is attractive with favourable long-term dynamics Rising demand Supply constraints • Growing population • Declining arable land • Increasing food consumption per • Decline in productivity capita with rising incomes • Impact of urbanisation • Dietary shift to protein an
Slide 12: Our Vision: what we want to be and why remains unchanged
Our Vision: what we want to be and why … remains unchanged To be a leading, global, selectively integrated Vision supply chain manager of agri-commodities and food ingredients Governing To maximise long term intrinsic value for Objective our continuing shareholders Strategic Plan: FY2014 - FY2016 12
Slide 13: Olam Business Model: Focused, differentiated and defensible
Olam Business Model: Focused, differentiated and defensible • Focus on a single commodity asset class: agri-sector • Make careful choices on ‘where to play’ and ‘how to play’ - Leverage core supply chain: continue to develop the core supply chain platform common to all Olam’s business segments - Lea
Slide 14: Olam Business Model: Portfolio focused on agri-sector but broadly diversified
Olam Business Model: Portfolio focused on agri- sector but broadly diversified 16 PLATFORMS ACROSS 5 SEGMENTS Edible Nuts, Confectionery Food Staples Commodity Industrial Spices & & Beverage & Packaged Financial Raw Materials Beans Ingredients Foods Services 1 3 5 11 16 Edible nuts Coffee Dairy Natu
Slide 15: Olam Business Model: Proof of execution with leadership positions across diverse platforms
Olam Business Model: Proof of execution with leadership positions across diverse platforms Confectionery Edible Nuts, Spices Food Staples Industrial & Beverage & Beans & Packaged Foods Raw Materials Ingredients • Cashew: #1 global • Coffee: Top 3 • Grains: #2 grains exporter • Cotton: #1 private pla
Slide 16: Olam Business Model: Starting with core Supply Chain capabilities built over 24 years
Olam Business Model: Starting with core Supply Chain capabilities built over 24 years Olam 3.5M Supply Chain >12,300 growers customers Global Origination & Sourcing Primary Processing Inland & Marine Logistics Trading Value Added Services Risk Management (examples) Strategic Plan: FY2014 - FY2016 16
Slide 17: Olam Business Model: Selective expansion into higher return upstream and mid/downstream
Olam Business Model: Selective expansion into higher return upstream and mid/downstream opportunities Selective Selective Upstream Olam Supply Chain Mid / Downstream Global Origination Farming & & Sourcing Value-added plantations Primary processing Processing Inland & Marine • Perennial tree crops L
Slide 18: Agenda
Agenda • Context and summary • Olam strategy and business model • Execution progress • Strategic Plan FY2014 - FY2016 Strategic Plan: FY2014 - FY2016 18
Slide 19: Results Achieved: Additional Performance Metrics
Results Achieved: Additional Performance Metrics • Two additional metrics in line with decision to rebalance profitable growth and cash flow across both our product segments and value chain segments: EBITDA / Average EBITDA Invested Capital (IC) • Good indicator for operating • Good indicator for re
Slide 20: Results Achieved: Strong earnings growth with continued investments at portfolio level
Results Achieved: Strong earnings growth with continued investments at portfolio level INVESTED CAPITAL (END OF YEAR) EBITDA Fixed Capital Working Capital Strategic Plan: FY2014 - FY2016 20
Slide 21: Results Achieved: Invested Capital and EBITDA by product segment and value chain steps
Results Achieved: Invested Capital and EBITDA by product segment and by value chain steps BY SEGMENT BY VALUE CHAIN STEP 2.9 Note: *CFS=Commodity Financial Services Strategic Plan: FY2014 - FY2016 21
Slide 22: Significant increase in segment earnings with continuing investments (1/2)
Significant increase in segment earnings with continuing investments (1/2) INVESTED CAPITAL EBITDA • Strong earnings growth as CAGR: 38% S$265M investments in Almonds, S$190M Edible Nuts, Hazelnuts and Spices & S$139M Dehydrated Veg pay-off Beans • Some drag from tomato FY10 FY11 FY12 processing CAG
Slide 23: Significant increase in segment earnings with continuing investments (2/2)
Significant increase in segment earnings with continuing investments (2/2) INVESTED CAPITAL EBITDA • Sizable CAGR: 39% S$278M investments in Dairy and Packaged Food S$202M Food yet to fully Staples & mature S$144M Packaged Foods FY10 FY11 FY12 CAGR: -2% • Reduced earnings S$264M in FY12 driven by un
Slide 24: Results Achieved: Strong performance in the Supply Chain value chain segment
Results Achieved: Strong performance in the Supply Chain value chain segment Supply Chain INVESTED CAPITAL (END OF YEAR) EBITDA • Strong EBITDA growth with stable returns • FY12 impacted by adverse cycles in specific platforms (Cotton, Wood) Fixed Capital • Low prices in Working FY12 contributed Cap
Slide 25: Results Achieved: Investments still maturing in Upstream value chain segment
Results Achieved: Investments still maturing in Upstream value chain segment Upstream INVESTED CAPITAL (END OF YEAR) EBITDA • Growing investments in Coffee, Dairy, Palm and Rubber • Investments still gestating. Our Palm, Rubber, Coffee and part of our Californian Almond Plantation projects Fixed hav
Slide 26: Results Achieved: Investments still maturing in Mid/downstream part of the value chain
Results Achieved: Investments still maturing in Mid/downstream part of the value chain Mid/downstream INVESTED CAPITAL (END OF YEAR) EBITDA • Recent investments across portfolio 49% S$2.9B not yet at full potential - Cashew S$1.8B processing in Ivory Coast S$1.3B - Crown Flour Mill Fixed in Nigeria
Slide 27: Investment projects categorised by stage of evolution
We have assessed our investment projects and categorised them based on stage of evolution Fully Partially Contributing Contributing Gestating projects projects projects • Projects that have • Projects (upstream) • Projects that are still reached maturity that have started gestating and have not (ups
Slide 28: Results Achieved: Significant upside potential from Upstream & Mid/downstream at full maturity
Results Achieved: Significant upside potential from Upstream & Mid/downstream at full maturity Upstream Supply Chain Mid/downstream EBITDA/Avg IC 4.4 Expected EBITDA/IC Expected EBITDA/IC Expected EBITDA/IC in plan period: 15-18% in plan period: 10-13% in plan period: 13-16% Strategic Plan: FY2014 -
Slide 29: Results Achieved: Some investments are below plan and are being actively addressed
Results Achieved: Some investments are below plan and are being actively addressed Upstream Mid/downstream • NZFSU (Dairy Farming) • Olam Tomato Processing, Uruguay California • Girdharilal Sugar Milling, India • PureCircle (Sweeteners), Malaysia Strategic Plan: FY2014 - FY2016 29
Slide 30: Key conclusions from Business Model and Investment Performance
Key conclusions from Business Model and Investment Performance • Continued attractiveness of the agricultural sector in areas that Olam has selected for participation • Effective strategy on the back of a strong and differentiated business model • Positive results achieved to date, taking into accou
Slide 31: Agenda
Agenda • Context and summary • Olam strategy and business model • Execution progress • Strategic Plan FY2014 - FY2016 Strategic Plan: FY2014 - FY2016 31
Slide 32: Four priorities and six pathways established
Four priorities and six pathways established This year’s Strategy Review and stakeholders consultation have established 4 additional priorities: 1 2 3 4 Promote Accelerate free better under- Reduce Reduce standing of cash flow gearing complexity Olam’s generation business … 6 pathways were developed
Slide 33: Pathway 1: Recalibrate pace of investments
Pathway 1: Recalibrate pace of investments 1 Recalibrate pace of investments FY10-12 Capex Extract full value from existing spent was investments S$3.3B Reduce pace of capex and acquisitions by ~S$1B compared to previous plan (S$1.2-1.6B capex for FY14-16) Re-balance between long gestation and faste
Slide 34: Pathway 2: Optimise Balance Sheet
Pathway 2: Optimise Balance Sheet 2 Optimize Balance Sheet Sale and Leaseback of upstream assets to reduce asset intensity, generate cash flow and improve overall returns (proof of concept already established with US Almond orchards) Release an Fixed asset securitization to generate cash, reduce est
Slide 35: Pathway 3: Pursue opportunities for unlocking Intrinsic Value
Pathway 3: Pursue opportunities for unlocking Intrinsic Value 3 Pursue opportunities for unlocking Intrinsic Value Pursue JV / strategic alliances in select platforms (e.g. PFB, Dairy, etc.) Assess value impact of equity ‘carve-out’ via minority stake sale or flotation (grow to full potential; gener
Slide 36: Fertiliser (Gabon Fertiliser Company) update
Fertiliser (Gabon Fertiliser Company) update • In line with the priorities of the Strategic Plan FY2014-FY2016, we would seek to de-consolidate/sell down our stake in the Gabon Fertiliser Business (GFC) by the end of the plan period or after commissioning, in stages. To this end, we would prefer to
Slide 37: Pathway 4: Reshape portfolio and reduce complexity
Pathway 4: Reshape portfolio and reduce complexity 4 Reshape portfolio and reduce complexity Reshape portfolio • Invest and Grow: Edible Nuts, Spices & Vegetable Ingredients, Coffee, Cocoa, Grains • Grow with Strategic Partners: Packaged Food Business, Palm Oil, Rubber, Fertilisers, SEZ • Optimise:
Slide 38: Pathway 5: Improve operating efficiencies
Pathway 5: Improve operating efficiencies 5 Improve operating efficiencies Achieve S$50-60M (~10%) annual reduction on existing overhead cost base Streamline region and country structures; reduce support cost through shared services Release an estimated Streamline manufacturing overheads ~S$80-100M
Slide 39: Pathway 6: Enhance stakeholder communication
Pathway 6: Enhance stakeholder communication 6 Enhance stakeholder communication Supplement existing disclosure with details on investment performance Strategy-in-Action: Set up a calendar of field visits to various Olam operations globally Organise ‘Investor days’ for platform/ segment-wise present
Slide 40: Summary of four priorities and 6 pathways
Summary of four priorities and 6 pathways 1 Accelerate free 2 3 4 Promote better cash flow Reduce gearing Reduce complexity understanding of generation Olam’s business • Become free cash • Reduce gearing • Optimise portfolio • Enhance flow positive by boundary condition and rationalise stakeholder F
Slide 41: In Summary
In Summary • The Board has undertaken a comprehensive review of Olam’s business with extensive input from various stakeholders • Olam operates in a sector (agri-sector) with positive Supply & Demand fundamentals and attractive long-term prospects • Olam has a strong, differentiated and sustainable b
Slide 42: Thank You
Thank You Strategic Plan: FY2014 - FY2016 42
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