Olam International Limited - Singapore Exchange...•EBITDA decline from lower SIFCA contribution,...

Rebalancing profitable growth and cash flow

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Olam International Limited

FY2014 Results Briefing 29 August 2014 I Singapore


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This presentation should be read in conjunction

with Olam International Limited’s Fourth Quarter

and Full Year FY2014 Financial Results statement

and Management’s Discussion and Analysis for the

period ended 30 June 2014 lodged on SGXNET on

29 August 2014.

Notice


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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 looking statements are intended to be identified by words such as ‘believe’, ‘estimate’, ‘intend’, ‘may’, ‘will’, ‘expect’, and ‘project’ and similar expressions as they relate to the Group. Forward-looking statements involve certain risks and uncertainties because they relate to future events. Actual results may vary materially from those targeted, expected or projected due to several factors. Potential risks and uncertainties includes such factors as general economic conditions, foreign exchange fluctuations, interest rate changes, commodity price fluctuations and regulatory developments. Such factors that may affect Olam’s future financial results are detailed in our listing prospectus, listed in this presentation, or discussed in today’s press release and in the management discussion and analysis section of the company’s Fourth Quarter and Full Year FY2014 results report and filings with SGX. The reader and/or listener is cautioned to not unduly rely on these forward-looking statements. We do not undertake any duty to publish any update or revision of any forward looking statements.


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Highlights – FY2014

Financial Performance

Key Takeaways

Agenda


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Significant progress in first full year of strategic plan execution

Aggregate impact of announced initiatives – Cash release of S$917.1 mn; P&L gain of S$116.4 mn; and addition to capital reserves of S$135.3 mn

Strong growth in reported earnings

67.8% growth in PATMI for FY14 to S$608.5 mn (FY13: S$362.6 mn)

EBITDA maintained at S$1,168.8 mn (FY13: S$1,170.8 mn), despite lower volumes

Operational PATMI lower by 6.7% at S$325.4 mn (FY13: S$348.6 mn), on account of higher amortisation and depreciation expenses

Improved cash flow generation

Higher operating cash flow, lower capex, release of cash from execution of strategic initiatives, offset by higher working capital due to a significant price increase in the confectionery & beverage ingredients segment



7

Voluntary general offer completed

At close, Temasek and concert parties owned ~80.4% of the issued capital and ~90.7% of issued warrants of the Company

Temasek with ~58.5% ownership becomes the ultimate holding company of Olam

Dividend

The Board of Directors recommends an ordinary dividend of 5.0 cents per share for the year (FY2013: 4.0 cents per share)

In celebration of Olam’s 25th anniversary, the Board recommends an additional special Silver Jubilee dividend of 2.5 cents per share



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49.7% reduction in cash Capex - S$583.9 mn for FY14 (S$1,159.9 mn in FY13)

Net of disposals, cash capex was S$206.0 mn in FY14 (S$1,050.6 mn in FY13)

Net gearing of 1.82x, below the FY2016 target of 2.0x

Significant progress on strategic plan execution

SGD Mn

Summary of Stratgegic Plan InitiativesNumber of

Initiatives

P & L

impact

Addition

to capital

reserves

Cash

flow

impact

Closed in FY2013 3 29.5 86.3

Closed in FY2014 11 64.5 16.5 517.6

Initiatives announced, pending completion 3 22.4 118.8 313.1

Total 17 116.4 135.3 917.1


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Financial Performance


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P&L Analysis

• Lower volume due to high base of FY13 (49.5% growth over FY12) and targeted volume reduction in lower margin businesses as per strategic plan

• Lower revenues due to lower volumes and change in product mix

• FY14 recorded a net operational loss on fair valuation of biological assets of S$3.7 mn compared to a gain of S$92.5 mn in FY13

• EBITDA maintained, despite lower volumes, from a strong midstream segment performance

• Significant growth in reported PATMI, including exceptional gains from the successful execution of several strategic initiatives

• Excluding exceptional items, Operational PATMI was lower primarily due to higher amortisation and depreciation charges

SGD Mn

FY2014 FY2013 % Change Q4 FY2014 Q4 FY2013 % Change

Volume ('000 MT) 14,877.3 15,953.5 (6.7) 3,498.3 4,298.5 (18.6)

Revenue 19,421.8 20,801.8 (6.6) 5,757.7 6,495.0 (11.4)

EBITDA 1,168.8 1,170.8 (0.2) 268.7 294.8 (8.8)

PAT 641.3 391.5 63.8 74.8 83.1 (10.0)

PATMI 608.5 362.6 67.8 31.8 56.8 (43.9)

Operational PATMI 325.4 348.6 (6.7) 48.5 47.8 1.5


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• Steady growth in EBITDA from upstream and midstream investments

• Fixed capital growth moderating post FY2013 from strategic plan implementation

• Price-led working capital growth in FY2014, particularly in Confectionery & Beverage Ingredients segment

Historical EBITDA and Invested Capital

610.1

892.8 990.7

1,170.8 1,168.8

0

200

400

600

800

1,000

1,200

1,400

FY10 FY11 FY12 FY13 FY14

EBITDASGD Mn

17.6%

2,063.6 2,927.6

4,335.5 5,347.7 5,552.1

3,404.2

4,841.2

5,280.1

5,581.9 5,798.6

0

2,000

4,000

6,000

8,000

10,000

12,000


Invested Capital

Fixed Capital Working Capital

7,768.8

9,615.6

10,929.6 11,350.7

SGD Mn

20.0%

5,467.9

EBITDA/

Avg IC % 13.7% 13.5% 11.4% 11.4% 10.5%

IC excludes (a) Gabon Fertiliser Project (30-Jun-14: S$184.1 million, 30-Jun-13: S$106.0 million) and (b) Long Term Investment (30-Jun-14: S$407.7 million)


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Segmental Analysis


13

• Strong performance from upstream Almonds, US Peanuts and the dehydrated onion and garlic businesses. Partial discontinuance of mechanical Cashew processing in Nigeria

• Net reduction in invested capital from lower cashew working capital and almond sale-and-leaseback

Edible Nuts, Spices & Vegetable Ingredients

138.6

189.9

265.5

309.4

362.7

0

50

100

150

200

250

300

350

400


EBITDASGD Mn

27.2%

885.3 1,309.3

1,588.1 1,732.2 1,673.3

785.9

1,120.3 1,221.4

1,643.6 1,492.1

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


Invested Capital


2,429.6

2,809.5

3,375.8

SGD Mn

3,165.4

17.3%

1,671.2

EBITDA/

Avg IC % 11.0% 9.3% 10.1% 10.0% 11.1%


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Confectionery & Beverage Ingredients

• EBITDA growth led by favourable coffee trading conditions, higher contribution from midstream processing assets (soluble coffee in Vietnam and Spain and cocoa processing in Côte d’Ivoire)

• Higher invested capital due to an increase in inventory carried at significantly higher prices vis-à-vis FY2013. Fixed capital increased as we invested in upstream coffee and midstream cocoa processing assets

141.8

215.5

288.7

259.4 275.4

0

50

100

150

200

250

300

350


EBITDASGD Mn

18.1%

130.3 179.2 286.1 470.5 503.0

1,505.1 1,604.6 1,431.5 1,670.6

2,626.9

0

500

1,000

1,500

2,000

2,500

3,000

3,500


Invested Capital


1,783.8 1,717.6

2,141.1

SGD Mn

3,129.9 17.6%

1,635.4

EBITDA/

Avg IC % 9.8% 12.6% 16.5% 13.5% 10.4%


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Food Staples & Packaged Foods

• EBITDA impacted by lower Grains and Rice volumes and margins, impact of currency devaluation in Ghana, and upstream Dairy underperformance. Wheat flour mills (Nigeria, Senegal), Packaged Foods (Nigeria), Dairy supply chain, Palm trading & refining (Africa) and the Sugar business performed well during the period

• Working capital decreased due to lower deployment in the grains and rice businesses. Fixed capital increased from investments in the Rice farm in Nigeria, Palm plantations in Gabon and wheat flour mills in Senegal and Cameroon

143.7

201.6

278.4

415.3

339.9

0

50

100

150

200

250

300

350

400

450


EBITDASGD Mn

24.0%

692.4 982.6

1,863.8 2,417.0 2,454.8

284.0

741.9

1,221.9

891.0 656.3

0

500

1,000

1,500

2,000

2,500

3,000

3,500


Invested Capital


1,724.5

3,085.7 3,308.0

SGD Mn

3,111.1

33.6%

976.3

EBITDA/

Avg IC % 17.4% 14.9% 11.6% 13.1% 10.6%


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Industrial Raw Materials

• EBITDA growth despite lower Cotton volumes and market backwardation in Q4. SEZ business performed better than in FY13

• Working capital decreased on account of lower Wood Products and Cotton inventories. Fixed capital increased due to investments in upstream Rubber plantations and the SEZ in Gabon

165.5

263.6

157.8

207.1 215.5

0

50

100

150

200

250

300


EBITDASGD Mn

6.8%

355.6 456.1 597.0 726.3 920.0

764.3

1,373.0 1,360.4

1,376.9 1,020.9

0

500

1,000

1,500

2,000

2,500


Invested Capital


1,829.1 1,957.5

2,103.2 1,940.9

SGD Mn

14.7%

1,119.9

EBITDA/

Avg IC % 18.4% 17.9% 8.3% 10.2% 10.7%


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Value Chain Analysis


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Upstream

• EBITDA decline from lower SIFCA contribution, restructuring of upstream coffee plantation in Laos and upstream Dairy underperformance

• Fixed capital increased due to investments in upstream farming and plantations across Rice, Coffee, Palm, Dairy and Rubber

98.8

141.9 159.4

198.0

162.5

0

50

100

150

200

250


EBITDASGD Mn

13.2%

753.6

1,420.1

1,979.6 2,237.4

2,494.7

195.1

214.1

300.6 276.7

261.2

0

500

1,000

1,500

2,000

2,500

3,000


Invested Capital


1,634.2

2,280.2 2,514.1

2,755.9

SGD Mn

30.6%

948.7

EBITDA/

Avg IC % 16.9% 11.1% 8.0% 8.3% 6.2%


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Supply Chain

• EBITDA decline due to lower trading volumes and margins, particularly in grains, rice, cotton, cashews and wood products

• Fixed capital reduced from the execution of various strategic initiatives. Working capital increased primarily from higher Confectionery & Beverage Ingredients segment inventories, carried at higher prices

405.5

601.3 627.7

691.9 654.7

0

100

200

300

400

500

600

700

800


EBITDASGD Mn

12.7%

485.2 512.8 623.5 721.0 578.2

2,775.2

3,795.4 3,774.1 4,213.3 4,595.8

0

1,000

2,000

3,000

4,000

5,000

6,000


Invested Capital


4,308.2 4,397.6

4,934.3 5,174.0

SGD Mn

12.2%

3,260.4

EBITDA/

Avg IC % 13.6% 16.0% 14.4% 14.9% 13.0%


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Mid/Downstream

• Strong growth in EBITDA from the commissioning of new facilities during the year (Senegal wheat mill, Cocoa processing in Côte d’Ivoire) and improved performance from Packaged Foods (Nigeria), SVI (US), SEZ (Gabon) and soluble coffee (Vietnam, Spain)

• Fixed capital from investments in wheat flour mills (Senegal and Cameroon), palm refineries (East Africa) and cocoa processing (Côte d’Ivoire). Working capital reduced from improved cycle times as well as deconsolidation of the SEZ

105.8

149.6

203.6

280.9

351.6

0

50

100

150

200

250

300

350

400


EBITDASGD Mn

35.0%

824.8 994.7

1,732.4 2,389.2 2,479.2

433.9

831.6

1,205.4

1,092.0 941.6

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


Invested Capital


1,826.4

2,937.8

3,481.2 3,420.8

SGD Mn

28.4%

1,258.7

EBITDA/

Avg IC % 11.8% 9.5% 8.5% 8.8% 10.2%


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1.7

1.5

0.2

FY14Invested Capital

S$3.4B

Upstream Mid/Downstream Supply Chain

Expected EBITDA/IC in plan period: 15-18%



EBITDA/ Avg IC

6%

-1%

1%

18%

EBITDA/ Avg IC

13%

13%

EBITDA/ Avg IC

10%

0%

4%

13%

Fully contributing assets already delivering target returns

1.3

1.0

0.5


Gestating

PartlyContributing

FullyContributing

S$2.8B

5.2


S$5.2B


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Upstream

Total invested capital (IC) of S$2.8 bn (FY13: S$2.5 bn)

S$1.5 bn IC is currently gestating / partly contributing

Fully contributing IC of S$1.3 bn delivered 18% EBITDA/Average IC

Supply chain

S$5.2 bn IC (FY13: S$4.9 bn) delivered 13% EBITDA/Average IC

Mid/downstream

Total IC of S$3.4 bn (FY13: S$3.5 bn)

S$1.7 bn IC is currently gestating / partly contributing

Fully contributing IC of S$1.7 bn delivered 13% EBITDA/Average IC

Gestating & Partially contributing investments to drive growth


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Balance Sheet and Cash Flow

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FCFF improved by S$327 mn despite higher working capital

• Cash flow from operations improved by S$101.7 mn

• Net capex and investments (after release of cash from execution of strategic plan initiatives) reduced by S$844.6 mn

• Higher net working capital of S$605.0 mn, despite reduction in 3 segments, due to significant increase in commodity prices in the Confectionery & Beverage ingredients segment

SGD Mn

Cash Flow Summary FY2014 FY2013 Y-o-Y

Operating Cash flow (before Interest & Tax) 1,175.5 1,073.8 101.7

Changes in Working Capital (944.5) (339.5) (605.0)

Tax paid (53.7) (39.5) (14.2)

Net Operating Cash flow 177.2 694.8 (517.6)

Capex / Investments (206.0) (1,050.6) 844.6

Free cash flow to firm (FCFF) (28.7) (355.7) 327.0

Net interest paid (475.9) (444.6) (31.3)

Free cash flow to equity (FCFE) (504.6) (800.4) 295.8


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Improved gearing, below FY16 target

• Net debt increased vis-à-vis end-FY2013 due to higher price-led working capital

• Gearing lower than June 30, 2013, despite higher debt, due to a higher equity base

*RMI: inventories that are liquid, hedged and/or sold forward

SGD Mn

30-Jun-14 30-Jun-13 Change

Gross debt 9,339.9 8,848.2 491.7

Less: Cash 1,590.1 1,591.0 (0.9)

Net debt 7,749.8 7,257.2 492.6

Less: Readily marketable

inventory3,809.5 3,373.3 436.2

Less: Secured receivables 1,243.8 1,822.4 (578.6)

Adjusted net debt 2,696.5 2,061.5 635.0

Equity (before FV adj reserves) 4,260.4 3,765.0 495.4

Net debt / Equity (Basic) 1.82 1.93 (0.11)

Net debt / Equity (Adjusted) 0.63 0.55 0.08


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5,882.7

2,965.6

131.9

3,765.0

(73.2)

FY2013

Long term debt

Short term debt

Non-controllinginterests

Equity & Reserves

Fair value reserve

SGD Mn 12,672.0

Sources of Funds & Debt mix

4,836.2

4,503.8

22.1

4,260.4

(60.2)

FY2014

13,562.3

3,482.6

650.4

2,767.0

2,439.9

FY 2014

Bank bilaterals

RCF

Bank syndications

Debt capitalmarkets

9,339.9

3,782.5

2,911.4

2,154.3

FY 2013

8,848.2

• Reduction in bank syndications in FY14 using proceeds from the lower cost US$2.22Bn revolving credit facility (RCF), which resulted in a one-time prepayment charge in Q4 FY14

• 2 new debt issuances made post FY2014 inside the prevailing secondary curve:

• S$400Mn 5 year notes @ coupon of 4.25%

• US$300Mn 5.5 year senior notes (issued at 99.337%) @ coupon of 4.50%


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1,590

11,918

3,810

1,244

5,274

Long Term4,836

Short Term4,504

Cash and short-termfixed deposits

RMI* Secured Receivables Bank Lines Available Liquidity Total Borrowings

9,340

Ample liquidity

*RMI: inventories that are liquid, hedged and/or sold forward

• Available liquidity sufficient to cover all repayment and Capex obligations

• Borrowing mix well balanced between short and long term

S$ Mn as on 30 Jun 2014


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Key Takeaways


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Significant progress in the first full year of executing our strategic plan

Improvement in cash flow generation, despite higher working capital

More than half of upstream and midstream investments are currently gestating and are expected to make a larger contribution in the future

Initiated restructuring and rebalancing of the debt portfolio to reduce overall financing cost

Focus will be on balancing growth and cash flow by extracting value from existing investments and selectively investing in new initiatives and opportunities that maximise shareholder value over time

Key Takeaways


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Thank You


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Details of exceptional items

SGD M n

FY2014 FY2013 Q4 FY2014 Q4 FY2013

Fair Valuation of Investment in PureCircle Limited 270.3 - (0.7) -

Sale of Collymongle Cotton Gin, Australia 6.0 - 6.0 -

Sale of Dirranbandi Cotton Gin, Australia 6.1 - 0.2 -

Sale and Leaseback of Almond Plantation Assets, Australia 65.4 - 2.2 -

Sale of Timber Assets, Gabon (14.6) - - -

Sale and Leaseback of Almond Plantation Assets, US - 17.4 - (0.7)

Sale of Basmati Rice Mill, India - 6.1 - 6.1

Gain on Buyback of Bonds 1.0 6.0 - -

Termination of Sugar Refinery Projects - (19.2) - (0.2)

Laos Coffee Impairment (24.4) - 2.3 -

Sale of Timber subsidiary (CFA), Gabon (22.6) - (22.6) -

Sale of additional stake in SEZ, Gabon (5.0) - (5.0) -

Sale of stake in OCDL, New Zealand (0.6) - (0.6) -

Sale of stake in Grains business in Australia 28.8 - 28.8 -

Non-operational Fair Valuation Gain on Biological Assets 17.8 3.8 17.8 3.8

Impairment of Mechanical Cashew Facility, Nigeria (25.3) - (25.3) -

Finance charge on prepayment of higher cost loans (19.8) - (19.8) -

Exceptional Items 283.1 14.0 (16.7) 9.0

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