Olam Group Limited · SGX:VC2
Olam — Olam International — FY2011 Earnings Presentation
78 slides from Olam's earnings presentation, Aug 29, 2011
Slide 1: FY2011 Full Year Results Briefing
Olam International Limited FY2011 Full Year Results Briefing 29th August 2011 | Singapore 1 •1
Slide 2: Notice
Notice This presentation should be read in conjunction with Olam International Limited’s Fourth Quarter (Q4 FY2011) and Full Year FY 2011 Financial Results for the period ended 30 June 2011 statement lodged on SGXNET on 29 August 2011. 2
Slide 3: 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 4: FY2011 Full Year Results
FY2011 Full Year Results Consolidated P&L Analysis Segmental Analysis Balance Sheet Analysis Strategy Update Q&A 4
Slide 5: Consolidated P&L Analysis
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Slide 6: Summary
(in S$ million) % Change Sales Volume (MMT) 8.452 7.006 20.6 Net Contribution (NC) 1,222.8 900.7 35.8 Profit After Tax 372.8 271.8 37.1 (Excluding exceptional items) Non-controlling interests 14.7 0.3 - PAT margin (%) ce) oO 7 (Excluding exceptional items) EIS 2.6% Yolam 6 The Brand Behind The Brand
Slide 7: Exceptional Items
(in SS million) FY2011 FY2010 - Negative goodwill & Gain on remeasurement of investments upon 91.8 118.2 business combination - Non Operational Gain 9.5 - - Acquisition expenses (8.7) (29.2) - Impairment of Investments/ Assets (35.6) (1.4) ¥oLAM 7 The Brand Behind The Brands
Slide 8: Sales Volume
Sales Volume ¥ Sales Volume: 8.452 million metric tons ¥ Volume grew by 1.445 million metric tons V ¥ 20.6% growth over FY2010 ¥ Volume growth across all 4 segments ¥oLAM 8 The Brand Behind The Brands
Slide 9: Sales Volume
Edible Nuts, Spices & Beans 1,275 1,108 15.0 Confectionery & Beverage 1,484 1,288 15.2 Ingredients Food Staples & Packaged 4,102 3.207 57.9 Foods Food Category Total 6,860 a Industrial Raw Materials 1,591 1,403 Consolidated Total —s 7,006 =
Slide 10: Sales Volume Growth: Segmental Contribution
Sales Volume Growth: Segmental Contribution Sales Volume (1,000 Mts) 10
Slide 11: Net Contribution
Net Contribution ¥ Net Contribution (NC): S$ 1222.8 million ¥ 35.8% growth over FY2010 % NC per ton increased from $$128.5/ton in FY2010 to $$144.6/ton in FY2011 ¥oLAM 11 The Brand Behind The Brands
Slide 12: Net Contribution Growth: Segmental Share
Net Contribution Growth: Segmental Share Net Contribution (S$ M) 12
Slide 13: Net Contribution & NC/MT Growth: Segmental Analysis
Net Contribution & NC/ MT Growth: Segmental Analysis 13
Slide 14: Net Contribution Growth: Sources
Net Contribution Growth: Sources Net Contribution (S$ M) 14
Slide 15: Share Options Expensing (FRS 102)
Share Options Expensing (FRS 102) The impact of FRS 102 (Employee Share Options ‐ ESOS expensing) on the Financial Statements is as follows: *Non Cash Charge 15
Slide 16: Overhead Expenses
Overhead Expenses ¾ Increase on account of acquisitions completed during the year is S$ 91.2 m (50.9% of the net increase) ¾ Strengthening of local currencies vis-à-vis USD has also contributed to increase in Overhead Expenses 16
Slide 17: Key Earnings Metrics
Key Earnings Metrics ¥ Reported Net Profit : $$444.6 m e 23.6% growth over FY2010 ¥ Operational Net Profit After Tax (Excluding Exceptional Items): $$372.8 m e 37.1% growth over FY2010 ¥ Reported Earnings per Share (EPS) ¢ 20.27 cents/share in FY2011 vs 17.89 cents/share in FY2010 ¢ 13.3% growth ove
Slide 18: Key Return Metrics
Key Return Metrics ROE (BOPE) • 21.3% in FY2011 vs 29.3% in FY2010 • Equity Spread (ROE‐KE) 11.3% ROE (Average) • 18.7% in FY2011 vs 22.2% in FY2010 ROIC (Average) • 14.3% in FY2011 vs 14.0% in FY2010 • Total Capital Spread (ROIC‐WACC) 7.1% 18
Slide 19: Segmental Analysis
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Slide 20: Segmental Analysis: Summary
Segmental Analysis: Summary 20
Slide 21: Value Chain Segmental Analysis
Value Chain Segmental Analysis 21
Slide 22: Well Diversified Sourcing: Origins
Well Diversified Sourcing: Origins 22
Slide 23: Well Diversified Sales: Markets
Well Diversified Sales: Markets 23
Slide 24: Balance Sheet Analysis
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Slide 25: Balance Sheet Summary: Strong and resilient Balance Sheet
Balance Sheet Summary: Strong and resilient Balance Sheet • Investment in fixed term assets funded through permanent capital • Investment in working capital funded through a combination of long term and short-term debt 25
Slide 26: Commodity Prices: Olam Basket
Commodity Prices: Olam Basket 26
Slide 27: Working Capital Analysis
Working Capital Analysis ( S$M ) 27
Slide 28: Improved working capital efficiency
Improved working capital efficiency Stock (days) and Debtor (days) and Trade Creditor (days) Advance to Suppliers (days) Cash-to-cash cycle (days) 28
Slide 29: Inventory Analysis
Edible Nuts, Spices & Beans 950 559 391 Confectionery & Beverage Ingredients 1,119 977 142 Food Staples & Packaged Foods 792 634 158 Industrial Raw Materials Mol 554 2,584 e000 85.3% of inventories sold forward or hedged ¥oLAM 29 The Brand Behind The Brands
Slide 30: Strong liquidity profile
Strong liquidity profile *RMI: inventories that are liquid, hedged, or sold forward 30
Slide 31: Balance sheet Analysis: Gearing
Balance sheet Analysis: Gearing Including equity raised post Balance Sheet date, the proforma Net Debt/ Equity will be 1.86x and the proforma Adjusted Net Debt/Equity will be 0.45x 31
Slide 32: Adjusted Net Gearing
Adjusted Net Gearing Net debt/Equity as of Net debt/Equity as of June 30, 2010 (x) June 30, 2011 (x) *RMI: inventories that are liquid, hedged, or sold forward 32
Slide 33: Financial Summary
Financial Summary Volume grew by 20.6% to 8.452 million MT Net Contribution grew by 35.8% to S$ 1,222.8 million with NC per ton growing 12.5% to S$ 145 Profit after tax (excluding exceptional items) grew by 37.1% to S$ 372.8 million Earnings per Share (excluding exceptional items) increased by 29.9%
Slide 34: FY2011 Full Year Results
FY2011 Full Year Results Consolidated P&L Analysis Segmental Analysis Balance Sheet Analysis Strategy Update Q&A 34
Slide 35: Strategy Update
Strategy Update 29th August 2011 •DRAFT
Slide 36: We assessed key industry trends in 2009 to identify growth ideas
We assessed key industry trends in 2009 to identify profitable new growth ideas Supply Demand • Growing population • Decline in agricultural productivity • Increasing food consumption per • Declining arable land capita with rising income • Urbanisation impact • Dietary shift to protein and fat rich
Slide 37: 6-yr corporate strategy (FY10-15) to increase margins & quadruple intrinsic value
And announced a 6-yr corporate strategy (FY10-15) to increase margins & quadruple intrinsic value Our governing objective is to maximise long term intrinsic value for our continuing shareholders Pursue 3 key drivers: 1) Open up Capital Spreads (ROE-KE, ROIC-WACC); 2) Increase the Rate of Profitable
Slide 38: Selective integration into upstream & midstream value chain segments
Key thrust was selective integration into excess return upstream & midstream value chain segments Agri Business Value Chain Upstream Supply Chain Midstream Downstream (New Core) (Original Core) (New Core) •Sourcing/origin- •Secondary •Contract mfg •Plantations (perennial tree ation processing •Priva
Slide 39: Strategy update: Taking stock
Strategy update: Taking stock How well has Olam executed the new six year corporate strategic plan (FY10-15)? Is the new Strategy effective/working? How well has Olam performed vs. competitors as it executes this new Strategy? 39
Slide 40: We have executed well against this plan
We have executed well against this plan No. of initiatives based on 2009 plan • Gilroy Foods (US) • Britannia Foods (UK) • Almonds processing (AUS) • Soluble coffee manufacturing (Vietnam) 44 • Cocoa grinding (IVC) 5 • Wheat milling (Nigeria/Ghana) • Sugar refining (Indonesia/Nigeria) • Cashew mecha
Slide 41: Investing US$1.94 billion in the first 2 years of the plan
We committed to the strategy by investing US$1.94 billion in the first 2 years of the plan 2010 2011 Total US$M Cashflow Committed Cashflow Committed Cashflow Committed Cashew 18 41 24 24 41 65 Peanuts - - - - - - Almonds 277 277 25 100 302 377 Spices & Vegetable Ingredients 100 100 11 11 111 111 Co
Slide 42: Strong trajectory towards achieving our FY2015 targets
As a result, we are on a strong trajectory towards achieving our FY2015 targets PAT (S$M) Exceeded budget by 103% (63%*) over last 2 yrs Exceeded by 94% (62%*) (US$454M) Exceeded by 118% (65%*) 373 272 Target based on 2009 plan Actual Operational PAT * Based on operational PAT 42
Slide 43: Our margins are growing & returns are improving
Our margins are growing & returns are improving - 2 key objectives of the new strategy NPAT Margin FY2010A 2.6% FY2011A 2.4% Equity spread EPS Change FY2010A 19% NPAT margin FY2010A 22% FY2011A 11% FY2015F ≥ 4% FY2011A 29% Earnings Equity per Spread Intrinsic Share FY2015F Value CAGR ≥ 10% FY2015F ≥
Slide 44: Has Olam's new strategy been effective?
Has Olam’s new strategy been effective? • 1 Does our strategy allow us to perform consistently across economic & commodity cycles? • 2 Does our strategy allow us to beat the market? 3• Does our strategy tap into a true source of competitive advantage? 4• Does our strategy rest on privileged / propri
Slide 45: Consistent track record of sustained growth across cycles
Consistent track record of sustained growth across economic & commodity cycles Vol: 22% CAGR PAT: 37% CAGR PAT margin expansion: 2.0% to 2.8% Commodity 373 down cycle Global financial 272 crisis PAT (S$M) 182 Operational 151 8.5 PAT (S$M) 7.0 4.9 5.7 Vol (M MT) 3.2 3.8 2.6 45
Slide 46: And created significant additional intrinsic value
And created significant additional intrinsic value Return on Equity Earnings per share (%) (S$, cents) 26% 23% CAGR CAGR (Reported) (Operational) 05 06 07 08 09 10 11 05 06 07 08 09 10 11 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Operational EPS 46
Slide 47: Our business model is resilient and insulates us from cycles
Our business model is resilient and helps insulate us from economic & commodity cycles • 80% of portfolio is food based; hence largely recession resistant against economic down cycles • 71% of net contribution is from supply chain services and therefore minimally impacted by price volatility • Our s
Slide 48: Built true sources of competitive advantage: a uniquely shaped portfolio
Built true sources of competitive advantage: a uniquely shaped portfolio Defensible Leadership position and relevant Global scale Selective Unique integra- tion portfolio across Focussed value on single chain asset class Well diversified across scale platforms- Global footprint 48
Slide 49: We have outperformed our peers
We have outperformed our peers PBT growth ROE (2007-10 CAGR) (2007-10 Avg) 40% 38 30 20 10 8 8 7 0 -10 Comp Comp Comp -7 Comp Comp Comp Comp Comp Olam Olam ADM Viterra Wilmar Bunge Olam A B C D C A D B Source: Bloomberg 49
Slide 50: We have built true sources of competitive advantage
We have built true sources of competitive advantage Defensible Leadership position and relevant Global scale Selective Unique integra- tion portfolio across Focussed value on single chain asset class Well diversified across scale platforms- Global footprint 50
Slide 51: Portfolio focused on a single commodity asset class but broadly diversified
Portfolio focused on a single commodity asset class: agri-complex but broadly diversified Single Commodity Agri-Complex class Edible Nuts, Confection & Food Staples Commodity 5 Segments Industrial Spices & Beverage & Packaged Financial Raw Materials Beans Ingredients Foods Services Edible nuts Coffe
Slide 52: We have built true sources of competitive advantage
We have built true sources of competitive advantage Defensible Leadership position and relevant Global scale Selective Unique integra- tion portfolio across Focussed value on single chain asset class Well diversified across scale platforms- Global footprint 52
Slide 53: Until 2007, portfolio focused on the asset light supply chain core
Until 2007, portfolio focused on the asset light supply chain core FY2007 Upstream Supply chain Mid/down stream Edible nuts, Edible nuts Spices Spices Confection & Coffee Bev. Ingredients Cocoa Dairy Food Grains/Rice Staples and Packaged Sugar/Swtnr Foods Palm Packaged Foods Natural Fibres Industria
Slide 54: Now well diversified across scale platforms & value chain
Now well diversified, across scale platforms & value chain - Uniquely shaped portfolio FY2011 Upstream Supply chain Mid/down stream Edible nuts, Edible nuts Spices Spices Confection & Coffee Bev. Ingredients Cocoa Dairy Food Grains/Rice Staples and Packaged Sugar/Swtnr Foods Palm Packaged Foods Natu
Slide 55: We have built true sources of competitive advantage
We have built true sources of competitive advantage Defensible Leadership position and relevant Global scale Selective Unique integra- tion portfolio across Focussed value on single chain asset class Well diversified across scale platforms- Global footprint 55
Slide 56: Built a unique and highly defensible portfolio
Built a unique and highly defensible portfolio Olam ADM Bunge Cargill Dreyfus Glencore Noble Wilmar Edible nuts Spices & Vegetable Ingredients Sesame Coffee Cocoa Dairy Grains Rice Sugar Sweeteners Palm PFB Cotton Wool Wood Products Rubber Fertilisers CFS Presence in products(#) 18 4 2 6 7 3 7 7 56
Slide 57: We have built true sources of competitive advantage
We have built true sources of competitive advantage Defensible Leadership position and relevant Global scale Selective Unique integra- tion portfolio across Focussed value on single chain asset class Well diversified across scale platforms- Global footprint 57
Slide 58: Achieving relevant scale & leadership positions
Achieving relevant scale & leadership positions Global Leader Regional/global leader Regional Leader • Spices • Rice/grains • Fertiliser • Edible nuts • Sugar/sweeteners • Packaged foods • Natural fibres • Palm • Cocoa • Rubber • Coffee • Dairy • Wood Products 58
Slide 59: A differentiated delivery model
A differentiated delivery model • Leadership supply with • Farmgate sourcing Olam DNA (632 strong Global model through 1.5M Assignee talent pool) grower and supplier relationships Superior • Operate as one company • Providing differentiated Organisational origination, marketing solutions & • Entrepr
Slide 60: A unique portfolio & delivery model
We have built true sources of competitive advantage: A unique portfolio & delivery model Defensible Leadership Superior and relevant Organisational origination, position Global scale advantage trading, & risk manage- ment Olam’s skills Selective Unique Competitive Delivery integra- tion portfolio Ad
Slide 61: Olam's differentiated strategy – deployment across value chain
Olam’s differentiated strategy – deployment across value chain Mid/down Upstream Supply chain stream • Constrained supply • Industry consolidation • Higher consumption of driven by land and processed/packaged environmental factors: food Growing demand due Agri- to pop. growth, change Trends in dieta
Slide 62: Deployment of Strategy: Upstream
Deployment of Strategy: Upstream Olam’s competitive advantage Results Contributing Multiple • Mitigating agri-risk 2.2M ha products/ • Almonds: US, Australia • Transferable best origins practices • Dairy: Uruguay • Palm: W. Africa SIFCA • Integrating into existing • Peanuts: Argentina Synergies orig
Slide 63: Deployment of Strategy: Supply chain
Deployment of Strategy: Supply chain Olam’s competitive advantage Results • Present in 85% of • Global leadership in 8 out of 14 producing regions platforms and a path to leadership • Farmgate procurement across all platforms by FY2016 Global model, out-origining competition • Significant network be
Slide 64: Deployment of Strategy: Mid/Downstream
Deployment of Strategy: Mid/Downstream Olam’s competitive advantage Results Contributing High asset • Long term offtake • Cocoa: Nigeria, UK utilisation contracts • Coffee (soluble): Vietnam • Dairy: NZ • Grains: Nigeria Control of • Favourable location • Spices: US, Vietnam, China choke (e.g. port
Slide 65: Our strategy rests on privileged/proprietary insights
Our strategy rests on privileged/proprietary insights Privileged farmer relationships & extensive local networks in 65 countries built over the last 22 years Participation choices driven by privileged insights (e.g. invest in upstream assets with cost advantage) Privileged access/ Control of key cho
Slide 66: Our strategy puts us ahead of trends
Our strategy puts us ahead of trends Agri-Complex Megatrends Key opportunities Structural demand-supply Upstream plantations/ imbalances in key commodities farming Higher consumption of Mid/down stream processed/packaged food M&A in supply chain as well Industry consolidation as upstream & midstream
Slide 67: Our strategy is granular on where to compete
Our strategy is granular on where to compete Number of initiatives over next 5 years ~60 initiatives over 5 yrs Source: Olam internal data, Bain analysis 67
Slide 68: Our strategy gives us flexibility to respond to the economic environment
Our strategy gives us flexibility to respond to changes in the economic environment Same strategy but higher aspirations A FY09 Strategy Full potential Plan Accelerate all value B Balanced Plan Slower growth accretive initiatives Pursue selected value that are on strategy Minimalist Plan accretive i
Slide 69: Our strategy balances commitment & flexibility
Our strategy balances commitment & flexibility Select examples Step up Cotton execution • Leadership: #10 player to #2; 12% share focus for • Expanded footprint beyond Africa & Asia to Australia, US & Brazil supply chain • Increased value added services - Ginning and warehousing business Expand Almo
Slide 70: Rolling forward strategic plan to FY2016 & revising aspirations
Rolling forward strategic plan to FY2016 & revising our aspirations At the end of the first 2 years of executing the new 6 year plan, we are well ahead of our original strategic plan target and are poised to achieve our prior FY15 PAT goal of US$454M at least two years ahead of plan, driven by stron
Slide 71: FY2016 revised aspirations: US$1B PAT
FY2016 revised aspirations: US$1B PAT US$1B in PAT by 2016 Relevant scale amongst peers ROE > 25% PAT margin >4% EPS Growth >20% CAGR No further equity dilution planned for target earnings 71
Slide 72: Achieving relevant scale & leadership positions
Achieving relevant scale & leadership positions PAT US$1B • Rubber Regional Leader 100% <US$50M • Wood Products Global Leader >US$50M • Sugar/sweeteners Regional/Global 80 • Dairy Global Leader • Palm Regional Leader 60 • Natural fibres Global Leader >US$100M • Cocoa Global Leader 40 • Coffee Global
Slide 73: Uniquely shaped & well diversified portfolio
Uniquely shaped & well diversified portfolio PAT by value chain (US$M) CAGR CAGR 09-16 11-16 1,000 30-34% 25-27% (S$1,229M) 303 Supply Chain (S$373M) 126 (S$182M) 73
Slide 74: Capital allocated in line with strategy
Capital allocated in line with strategy 2016 Total Capital Employed 74
Slide 75: Strong operating cashflow outlook
Strong operating cashflow outlook Free cash flow profile 2011 2012 2013 2014 2015 2016 Free cash flow Net cash position 75
Slide 76: CR&S: A core part of our beliefs & business model
CR&S: A core part of our beliefs & embedded in our business model Improve rural livelihood of farmers/growers (launched the Olam Livelihood Charter) 6 programs under the livelihood charter involved crop financing of $21m, $2.4m in training to 58,000 farmers with a buy back of $102m Full compliance w
Slide 77: Summary
Summary Defensible Leadership Superior and relevant Organisational origination, position Global scale advantage trading, & risk manage- ment Olam’s skills Selective Unique Competitive Delivery integra- tion portfolio Advantage model across Focussed Repeata- value on single ble and chain asset scalab
Slide 78: Thank You
Thank You s ™~ — a <— - di if _ ~ ed 78 The Brand Behind The Brands 7 OLAM e e