Olam Group Limited · SGX:VC2
Olam — Olam International — H1 FY2008 Earnings Presentation
78 slides from Olam's earnings presentation, Feb 14, 2008
Slide 1: 0
0
Slide 2: Olam International Limited H1 FY2008 Results Briefing
Olam International Limited H1 FY2008 Results Briefing 14th February 2008 Singapore 1
Slide 3: Presentation to be read with H1 FY2008 financial results statement
This presentation should be read in conjunction with Olam International Limited’s First Half (Interim), FY2008 (H1 FY2008) Financial Results for the period ended 31st December 2007 statement lodged on SGXNET on 14th February 2008. 2
Slide 4: 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 5: Results Presentation: Outline
Results Presentation: Outline Results: H1 FY2008 - Consolidated P&L Analysis Results: H1 FY2008 - Segmental Analysis Results: H1 FY2008 - Balance Sheet Analysis Industry Trend and Analysis Olam’s Strategic Response M&A Update Outlook & prospects Q&A 4
Slide 6: Results: H1 FY2008 Consolidated P&L Analysis
Results: H1 FY2008 Consolidated P&L Analysis 5
Slide 7: Background to the results
Background to the results Acquisitions consolidated in H1FY2008 Universal Blanchers (UB) Queensland Cotton Holdings (QCH) Naarden Agro Products BV (NAP) PT Dharmapala Usaha Sukses (DUS) Key Food Ingredients (KFI) The consolidated results of H1FY2008 not strictly comparable to H1FY2007 6
Slide 8: Snapshot of Results: H1 FY2008
Snapshot of Results: H1 FY2008 H1FY2008 H1FY2007 % Inc % Inc Description Existing New Existing Total Total Total business Business Business Volume 2,068,685 268,622 2,337,307 1,816,418 28.7% 13.9% (metric tons) Revenue 2,903,890 421,083 3,324,973 2,367,488 40.4% 22.7% (S$’000) Net Contribution 172,0
Slide 9: Consolidated P&L Analysis: Sales Volume
Consolidated P&L Analysis: H1 FY2008 Sales Volume: 2.337 million metric tons 28.7% growth over H1 FY2007 Volume growth across all 4 segments 8
Slide 10: Sales Volume Growth: Segmental Contribution
Sales Volume Growth: Segmental Contribution Sales Volume growth 28.7%, 520,889 mts $2400 222.7 2,337.3 2200 154.2 2000 80.3 63.7 1,816.4 43% 1800 30% 12% 1600 15% 1400 Sales Volume 1200 (1,000 Mts) 1000 800 600 400 200 0 H1 FY2007 Edible Nuts, Confectionery Food Staples & Fibre & Wood H1 FY2008 Spic
Slide 11: Consolidated P&L Analysis: Total Revenue
Consolidated P&L analysis: H1 FY2008 Total Revenue: S$3,325 million 40.4% growth over H1 FY2007 Revenue growth across all 4 segments 10
Slide 12: Sales Revenue Growth: Segmental Contribution
Sales Revenue Growth: Segmental Contribution Sales growth 40.4%, S$957.5 million 308.1 3,325.0 $3,300M 302.9 3,000 255.1 2,700 32% 2,367.5 91.4 2,400 31% 27% 2,100 10% 1,800 Sales Revenue (S$ M) 1,500 1,200 900 600 300 0 H1 FY2007 Edible Nuts, Confectionery Food Staples & Fibre & Wood H1 FY2008 Spic
Slide 13: Sales Revenue Growth: Sources
Sales Revenue Growth: Sources Sales growth 40.4%, S$957.5 million 232.5 3,325.0 $3,300M 725.0 3,000 24% 2,700 2,367.5 2,400 2,100 76% 1,800 Sales Revenue (S$ M) 1,500 1,200 900 600 300 0 H1 FY2007 Volume Price H1 FY2008 12
Slide 14: Consolidated P&L Analysis: Gross Contribution
Consolidated P&L Analysis: H1 FY2008 Gross Contribution (GC) : S$305.9 million 55.0% growth over H1 FY2007 GC growth across all segments 13
Slide 15: Gross Contribution Growth: Segmental Share
Gross Contribution Growth: Segmental Share GC growth 54.9%, S$108.5 million $320M 32.1 305.9 280 29.9 24.9 30% 240 21.6 27% 197.4 23% 200 20% Gross Contribution 160 (S$ M) 120 80 40 0 H1 FY2007 Edible Nuts, Confectionery Food Staples & Fibre & Wood H1 FY2008 Spices & Beans & Beverage Packaged Foods
Slide 16: Gross Contribution Growth: Segmental Share
Gross Contribution Growth: Segmental Share GC growth 54.9%, S$108.5 million $320M 42.4 305.9 280 66.1 240 39% 200 197.4 Gross Contribution 160 61% (S$ M) 120 80 40 0 Q1FY2007 Volume Growth Margin Growth Q1FY2008 15
Slide 17: Interest Costs
Interest Costs Total increase in interest costs S$34.435 million or 52.3%. H1 FY2008 H1 FY2007 Increase % Increase (S$’000) (S$’000) (S$’000) Interest 100,237 65,802 34,435 52.3% Expenses Sales 3,324,973 2,367,488 957,485 40.4% Interest Rate 7.21% 7.13% 0.08% 1.12% Interest variance due to interest
Slide 18: Consolidated P&L Analysis: Net Contribution
Consolidated P&L Analysis: H1 FY2008 Net Contribution (NC) : S$205.6 million 56.3% growth over H1 FY2007 NC growth across all segments 17
Slide 19: Net Contribution Growth: Segmental Share
Net Contribution Growth: Segmental Share NC growth 56.3%, S$74 million $210M 18.4 205.6 200 26.6 180 14.9 25% 160 14.1 36% 140 131.6 20% 120 19% Net Contribution (S$ M) 100 80 60 40 20 0 H1 FY2007 Edible Nuts, Confectionery Food Staples & Fibre & Wood H1 FY2008 Spices & Beans & Beverage Packaged Foo
Slide 20: Net Contribution Growth: Sources
Net Contribution Growth: Sources NC growth 56.3%, S$74 million $210M 29.3 205.6 200 44.7 40% 150 131.6 60% Net Contribution (S$ M) 100 50 0 H1 FY2007 Volume Growth Margin Growth H1 FY2008 19
Slide 21: Impact of FRS 102
Impact of FRS 102 The following two employee Share Schemes come under the ambit of FRS 102: Employee Share Subscription Scheme (ESSS) Employee Share Options Scheme (ESOS) The impact of FRS 102 on the Financial Statements is as follows: Prior Period 6-Mth FY2008 Carried Forward Total S$’000 S$’00
Slide 22: Consolidated P&L Analysis: SG&A
Consolidated P&L Analysis: H1 FY2008 SG&A increased by 71.5% to S$152.5 million in H1 FY2008. H1 FY2008 H1 FY2007 Change SG&A (S$ million) 152.5 88.9 71.5% SG&A / Sales ratio (%) 4.59 3.76 (0.83) 21
Slide 23: Consolidated P&L Analysis: NPAT and EPS
Consolidated P&L Analysis: H1 FY2008 Net Profit After Tax (NPAT): S$46.9 million 23.1% growth over H1 FY2007 Earnings per Share (EPS) 23.2% growth over H1 FY2007 3.03 cent/share H1 FY2008 vs 2.46 cent/share H1 FY2007 (based on weighted average no. of shares) 22
Slide 24: Results: H1 FY2008 Segmental Analysis
Results: H1 FY2008 Segmental Analysis 23
Slide 25: Segmental Analysis H1 FY2008: Summary
Segmental Analysis H1 FY2008: Summary Olam Consolidated • Turnover S$3,325 million • Volume 2.337 mmts • NC S$205.6 m • NPAT S$46.9 m Edible Nuts, Spices Confectionery & Food Staples & Fibre & Wood & Beans Beverage Ingredients Packaged Foods Products • Turnover $426.5 m • Turnover $1,147.6 m • Turno
Slide 26: Segmental Analysis: Edible Nuts, Spices & Beans
Segmental Analysis: Edible Nuts, Spices & Beans H1 FY2008 H1 FY2007 Description % Change Amount S$/Ton Amount S$/Ton Volume 306,045 225,773 35.6% (metric tons) Revenue 426,549 1,394 335,111 1,484 27.3% (S$’000) Net Contribution 33,588 110 19,435 86 72.8% (S$’000) 25
Slide 27: Segmental Analysis: Confectionery & Beverage Ingredients
Segmental Analysis: Confectionery & Beverage Ingredients H1 FY2008 H1 FY2007 Description % Change Amount S$/Ton Amount S$/Ton Volume 448,110 384,444 16.6% (metric tons) Revenue 1,147,608 2,561 892,512 2,322 28.6% (S$’000) Net Contribution 62,602 140 47,710 124 31.2% (S$’000) 26
Slide 28: Segmental Analysis: Food Staples & Packaged Foods
Segmental Analysis: Food Staples & Packaged Foods H1 FY2008 H1 FY2007 Description % Change Amount S$/Ton Amount S$/Ton Volume 1,077,918 923,716 16.7% (metric tons) Revenue 1,011,959 939 709,042 768 42.7% (S$’000) Net Contribution 60,197 56 33,594 36 79.2% (S$’000) 27
Slide 29: Segmental Analysis: Fibre & Wood products
Segmental Analysis: Fibre & Wood products H1 FY2008 H1 FY2007 Description % Change Amount S$/Ton Amount S$/Ton Volume 505,234 282,486 78.9% Turnover 738,857 1,462 430,823 1,525 71.5% Net Contribution 49,238 97 30,832 109 59.7% 28
Slide 30: Well Diversified Sourcing: Origins
Well Diversified Sourcing: Origins Sourcing Volume H1FY2008 Sourcing Volume H1FY2007 27.1% 14.7% Africa Americas 25.6% 15.7% Africa Americas 10.3% Europe Europe 5.3% 51.9% 49.4% Asia & Middle East Asia & Middle East 29
Slide 31: Well Diversified Sales: Markets
Well Diversified Sales: Markets Sales Turnover H1FY2008 Sales Turnover H1FY2007 14.1% 12.5% Americas Americas 24.2% 29.1% Africa Africa 24.7% Europe 25.6% Europe 37.0% 32.8% Asia & Middle East Asia & Middle East 30
Slide 32: Well diversified: Customers
Well diversified: Customers Top 5 Customer Share Segment of Total Sales Edible Nuts, Spices & Beans 2.04% Confectionery & Beverage Ingredients 11.56% Food Staples & Packaged Foods 2.73% Fibre & Wood Products 0.94% 31
Slide 33: Results: H1 FY2008 Balance Sheet Analysis
Results: H1 FY2008 Balance Sheet Analysis 32
Slide 34: Balance Sheet Analysis: Summary
Balance Sheet Analysis: Summary (Figures in S$’000) H1 FY2008 FY 2007 % Change Goodwill and Intangibles 103,208 96,203 7.3% Fixed Assets & Investments 458,040 232,932 96.6% Current Assets Debtors 389,067 508,193 (23.4%) Stocks 1,242,701 1,163,203 6.8% Cash & Cash Equivalents 285,039 237,607 19.9% Ad
Slide 35: Fixed Assets and Investments
Fixed Assets and Investments (in S$ million) H1 FY2008 FY2007 Increase Fixed Assets 431.1 151.8 279.3 Investments 26.9 81.1 54.2 Total 458.0 232.9 Increase in fixed assets mainly on account of consolidation of the acquisitions 34
Slide 36: Balance Sheet Analysis: Ratios
Balance Sheet Analysis: Ratios H1 FY2008 FY2007 Change Current Asset Ratios Debtors (days) 21 34 13 Stock (days) 75 85 10 Advance to Suppliers (days) 22 19 (3) Trade Creditors (days) 20 19 1 Current Ratio (x) 1.49 1.57 35
Slide 37: Balance Sheet Analysis: Debtors
Balance Sheet Analysis: Debtors 77.4% of Debtors secured by Letter of Credit / Docs of Title. Debtor quality good. No additional provisions created over June 2007 36
Slide 38: Balance Sheet Analysis: Stock
Balance Sheet Analysis: Stock Increase / (in S$ million) H1 FY2008 FY2007 Decrease Edible Nuts, Spices & 176.9 182.2 (5.3) Beans Confectionery & 732.1 586.3 145.8 Beverage Ingredients Food Staples & 168.3 296.0 (127.7) Packaged Foods Fibre & Wood Products 165.4 98.7 66.7 Total 1,242.7 1,163.2 79.5 8
Slide 39: Balance Sheet Analysis: Cash & Borrowings
Balance Sheet Analysis: Cash & Borrowings Cash and Fixed Deposits increased by 19.9% to S$285.0 million Borrowings: Only 54.3% of our total credit facilities were used as of 31st Dec. (in S$ million) H1 FY2008 % Share Short Term Banking Facilities 2,185 50% Committed Banking Facilities 651 15% MTN /
Slide 40: Balance Sheet Analysis: Gearing
Balance Sheet Analysis: Gearing H1 FY2008 FY 2007 After Before After After After Intangibles Intangibles Intangibles Intangibles Intangibles and before Leverage (x) and Fair and before and Fair and Fair Fair Value Value Adj. Fair Value Value Adj. Value Adj. Adj. Reserve Adj. Reserve Reserve Reserve
Slide 41: Balance Sheet: Analysis of Gearing
Balance Sheet: Analysis of Gearing Adjusting: hedged, liquid inventory 4.60 x $2,400M 1,800 Net 1,200 -1,040 1.66 x Debt/Equity (x) -301 600 -702 0 Net Debt/Equity Adj. Stock Adj. Debtors Adj. Net Debt/Equity 40
Slide 42: Finance Costs on Borrowings: Interest Spreads
Finance Costs on Borrowings: Interest Spreads Facility Type 2004-05 2005-06 2006-07 Current Short Term 120-140 bps 80-100 bps 50-70 bps 30-50 bps Medium Term - 110-120 bps 80-90 bps 70-80 bps Long Term - 130-140 bps 100-115 bps 85-100 bps Wt. Avg Cost 120-140 bps 100-120 bps 75-90 bps 65-80 bps ¾ We
Slide 43: Credit Facilities
Credit Facilities We secured a A$200m 5-year syndicated term loan facility in Oct 2007 for acquisition of QCH In Dec 2007 and Jan 2008, we have been able to raise additional short term credit facilities of over US$250m at similar spreads to finance increases in working capital: All bank facilities f
Slide 44: Long-term Financing
Long-term Financing We have more than doubled revenues and profits without diluting existing shareholders’ interest over the past 3 years post-IPO in Feb 2005 We have successfully re-geared balance sheet to an optimum gearing level of 4.6X (or 1.66X adjusted gearing) through a combination of higher
Slide 45: Impact of FRS 39
Impact of FRS 39 Impact on P&L is reduction in profits of S$0.539 million. Reduction in equity as of 31 December 2007 is S$156.1 million. FRS 39 allows for hedge accounting to be applied when strict effectiveness criteria are met. We have assessed the effectiveness of our hedging instruments and hav
Slide 46: Industry Trend & Analysis
Industry Trend & Analysis 45
Slide 47: Industry Trend: Agricultural Commodity Super cycle?
Industry Trend: Agricultural Commodity Super cycle? Prices across a whole range of agricultural commodities including cashew, cocoa, coffee, corn, palm oil, peanuts, rice, rubber, sesame, soybean, wheat, wood products, all at, near or hitting historical highs. Cotton and sugar prices beginning to mo
Slide 48: Agricultural Commodity Trends: structural factors
Agricultural Commodity Trends: structural factors 1. Traditional sources of demand for agri-commodities was food and feed. Now a new source of demand emerging - fuel. Ethanol production capacity grew 35% in 2007 and is expected to grow 58% in 2008. Mandated demand for ethanol likely to double by
Slide 49: Agricultural Commodity Trends: structural factors
Agricultural Commodity Trends: structural factors 2. We are in the midst of an agri-commodity up-cycle triggered by: Soaring population growth World population at the start of the 20th Century was less than 2 billion people. Current world population is estimated at 6.5 billion. UN estimates wo
Slide 50: Soaring population growth
Soaring population growth 49
Slide 51: Agricultural Commodity Trends: structural factors
Agricultural Commodity Trends: structural factors 3. We are in the midst of an agri-commodity up-cycle triggered by: Rising incomes & demand for higher quality food Commodities follow the “Rule of Saturation”. As real income grows from about $5,000 to $20,000 per capita (purchasing power parity ru
Slide 52: Agricultural Commodity Trends: Rising incomes & demand growth
Agricultural Commodity Trends: structural factors Rising incomes & demand growth ¾ For example, domestic textile demand in China growing at 20%. 51
Slide 53: Agricultural Commodity Trends: Rising incomes & demand growth
Agricultural Commodity Trends: structural factors Rising incomes & demand growth 52
Slide 54: Agricultural Commodity Trends: Rising incomes & demand growth
Agricultural Commodity Trends: structural factors Rising incomes & demand growth Cotton Rice Peanuts Soybean Sesame Oil 53
Slide 55: Agricultural Commodity Trends: Severe supply constraints
Agricultural Commodity Trends: structural factors 4. We are in the midst of an agri-commodity up-cycle triggered by: Severe supply constraints 54
Slide 56: Agricultural Commodity Trends: Increasing urbanisation
Agricultural Commodity Trends: structural factors 5. We are in the midst of an agri-commodity up-cycle triggered by: Increasing urbanisation Increased population 2 density from 43 people / km 2 to 63 people / km (47% increase). Cities outgrow into surrounding farmlands. Growing demand for infr
Slide 57: Agricultural Commodity Trends: Severe supply constraints
Agricultural Commodity Trends: structural factors 6. We are in the midst of an agri-commodity up-cycle triggered by: Severe supply constraints a long period of under investment by commodity producers, therefore relative supply inelasticity, long investment gestations to bring productive capacities
Slide 58: Agricultural Commodity Trends: GMO and productivity breakthroughs
Agricultural Commodity Trends: structural factors 7. GMO and productivity breakthroughs: Adoption of improved planting material (GMO or BT seeds) and increased input intensiveness raising farm yield and productivity. 57
Slide 59: Olam: Strategic direction
Olam: Strategic direction 58
Slide 60: Strategic direction: Key Rules of the Game
Strategic direction: Recap: 5 Key Rules of the Game Rule 1: Global Leadership and High Absolute Market Share Rule 2: Strong Presence in Key Origins Rule 3: Strong End-market Presence Rule 4: Direct End-customer Relationship Rule 5: Differential Value Chain Integration 59
Slide 61: Strategic direction: Global supply chain manager
Strategic direction: As global supply chain manager, we need to: Build scale economies, secure control over supply, customer and develop pricing power Be integrated along entire supply chain but no rigid orthodoxy that each business has to be similarly integrated Degree of integration for each busin
Slide 62: Strategic Direction: Integrated global supply chain manager
Strategic Direction: We are an integrated global supply chain manager: Backward integration in selected plantation crops only, not all crops - we do not envisage ourselves becoming a plantation company Forward integration into value-added processing, eg. ingredient manufacturing, for supplying to pr
Slide 63: Olam's strategic response: Organic growth as usual
Olam’s strategic response: Organic ‘growth - as - usual’ Bringing existing businesses to full potential by growing volumes: Expand procurement reach (width and depth) in existing origins Expand into new origins New customers in existing markets New customers in new markets 62
Slide 64: Olam's strategic response: M&A Policy
Olam’s strategic response: Selective earnings and value accretive acquisitions with clear strategic fit with our existing businesses M&A Policy Frequency • We would seek to build our M&A expertise over a multi-year period through a series of small deals (string of pearls) • Sweet spot deals: 5%-10%
Slide 65: Inorganic Growth: Track Record
Inorganic Growth: Track Record 8 value-accretive transactions announced since February 2007 Acquisition Investment Olam’s Status/Date Integration Incorporated (US$ Stake of Status in Q1 million) (%) Completion FY2008 Results Chinatex Grains & Oils 13.5 35 Not n/a No Completed Queensland Cotton 136.3
Slide 66: Inorganic Growth - QCH Integration
Inorganic Growth - QCH Integration Wk 1 Wk 2 Wk 3 Wk 4 Wk 5 Wk 6 Wk 7 Wk 8 Wk 9 Wk 10 Wk 11 Wk 12 Week Jul 16 Jul 23 Jul 30 Aug 6 Aug 13 Aug 20 Aug 27 Sep 3 Sep 10 Sep 17 Sep 24 Oct 1 starting: Taskforce Mobilization for initiative activity: implementation Prepare Validate 1st cut of strategy & char
Slide 67: QCH Prospects
QCH Prospects Accounting policies of QCH have been brought in line with Olam’s, including mark-to-market of all open derivative positions prior to 30 Jun 2007; S$5.2m losses booked in H1 FY2008 and some earnings volatility to be expected in H2 FY2008 Guidance remains that QCH is expected to report f
Slide 68: QCH Prospects (cont'd)
QCH Prospects (cont’d) 7-year drought has broken – Rains in NSW and Queensland since Jan 2008 increases possibility of better cotton crop in the next planting season and hence a return to normal crop in subsequent season QCH’s performance is expected to improve; more guidance to be given nearer to s
Slide 69: Joint Ventures with Chinatex
Joint Ventures with Chinatex Approval from relevant Chinese government authorities for 35% investment in CTGO has been delayed This development is not expected to have a significant impact on our earnings expectations in the near term (current sustainable earnings of CTGO is US$5-6m p.a.) Olam will
Slide 70: Nauvu Investments – Plantation (Palm-CI)
Nauvu Investments – Plantation (Palm-CI) Short-term initiatives: Increase own plantation yield from current 11.6 to 15 tonnes/ha through sustainable replanting, correction for under-investment in fertilisers and improvement in plantation management and harvesting techniques Consolidate PHCI (acquire
Slide 71: Nauvu Investments – Refining (Newco)
Nauvu Investments – Refining (Newco) Short-term initiatives: Consolidate Cosmivoire and UCI facilities, which now have high unit costs, to reduce materials, packaging costs and overheads in buying, distribution and logistics function Mid to long-term initiatives: Consolidate factories with 300K tonn
Slide 72: Nauvu Investments – Rubber
Nauvu Investments – Rubber Expected to benefit from global growth of 4% p.a. fuelled by tyre industry growth, which accounts for 70% of total consumption; China demand alone is growing at 10% p.a. Favourable prices in the medium term, est. at US$1,800- 2,300/tonne Well-positioned for increased produ
Slide 73: Olam's strategic response: Expand into new product adjacencies
Olam’s strategic response: Expand into new product adjacencies ¾ Palm oil ¾ Soybean ¾ Wheat ¾ Rubber ¾ Fertilizer ¾ Other edible nuts (almonds, hazelnuts, pecans, macadamia, walnuts). 72
Slide 74: Olam's strategic response: Selective backward integration into plantations
Olam’s strategic response: Selective backward integration into plantations Select commodities Select geographies Oil Palm Africa Peanuts Argentina Rubber Brazil Sugar India ¾ Supply chain managers who control supply of certain agri-commodities through plantation ownership, such as palm and rubber, w
Slide 75: Olam's strategic response: Customised Marketing Solutions & Services
Olam’s strategic response: Providing Customised Marketing Solutions & Services Organic certification Traceability Customised grades and qualities Vendor-managed inventory (VMI) solution Risk management solutions Proprietary market intelligence Value-added processing 74
Slide 76: Olam's strategic response: Value chain integration
Olam’s strategic response: Value chain integration ¾ Sugar milling and refining ¾ Edible oil crushing and refining ¾ Wheat milling ¾ Rice milling ¾ Cotton ginning ¾ Soluble coffee processing ¾ Cocoa grinding and processing ¾ Peanut ingredient manufacturing ¾ Spice grinding and dehydrates ¾ Fertilize
Slide 77: Olam's strategic response: Selective forward integration
Olam’s strategic response: Selective forward integration into private label and packaged food distribution (PFB) Select geographies: Africa Russia & Eastern Europe Central Asia 76
Slide 78: Thank You
77 The Brand Behind The Brands