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Feeding a global expansion

Agribusiness giant Olam International is hoping to fuel its growth by expanding in resource-rich Africa.
Tuesday, March 29, 2016 - 05:50

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Olam's sales from Africa rose to S$4.13 billion in 2014 from S$1.7 billion in 2010.

DESPITE a volatile period for commodities markets, Singapore-based players are still holding their own as some of the top revenue generating companies in Singapore.

Several were featured in the S1000 ranking of Singapore-based enterprises by DP Information Group, driven by their overseas operations. Most prominent among this group was Olam International, one of the world's largest agribusiness players, which reported revenue of close to S$20 billion for the year ended December 2015.

"We continued to deliver strong operational performance in 2015 despite significant volatility in global commodity and currency markets," Olam's co-founder & group CEO Sunny Verghese said in a press release to announce its 2015 results. The company was honoured in the Overseas Turnover Excellence category as part of the S1000 awards.

The company did not fare so well on its bottom line, where it posted a loss of S$64.3 million for 2015, after writing down its investment in Malaysian Stevia sugar substitute maker, PureCircle.

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Said Mr Verghese: "Reported performance was impacted by our decision to change the basis of presentation of our equity investment in PureCircle, although this had no impact on our total equity or cash flow position. We continue to believe in the strategic position, operating performance and growth prospects of PureCircle."

GLOBAL BUSINESS

The Singapore-listed firm operates in 70 countries, supplying various products across 16 platforms to over 16,200 customers worldwide. Olam currently ranks among the top 50 largest listed companies in Singapore in terms of market capitalisation and is a component stock in the S&P Agribusiness Index and the DAXglobal Agribusiness Index.

It is the only Singapore firm to be named in the 2009, 2010 and 2012 Forbes Asia Fabulous 50, an annual list of 50 big-cap and most profitable firms in the region.

BETTING ON AFRICA

To fuel future growth, Olam is looking to expand in Africa, where it already has a presence in 24 sub-Saharan countries. The continent is rich in agricultural resources including coffee and cocoa.

Mr Verghese said in a recent interview that Africa's growing middle class and its demand for more packaged food presents increased opportunities for investment in brand-name foods as well as raw materials such as rubber, cotton and lumber.

These opportunities outweighed risks on the continent that range from political unrest to terrorism. "The risks are slightly higher, but the rewards are better. It's a good bet to make," Mr Verghese said in an interview with Bloomberg earlier this month.

Olam's sales from Africa rose to S$4.13 billion in 2014 from S$1.7 billion in 2010. Meanwhile, its packaged food operations in Nigeria, Ghana and South Africa have registered sales of US$350 million to US$400 million a year since they were established in 2005.

In Nigeria the company's brands are ranked the top two in five food categories. There are a total of eight food categories. Olam is also a leading maker of creams and wafers and confectionery sweets.

In January, the firm acquired Nigeria-based Amber Foods for US$275 million, a transaction that will double Olam's wheat milling capacity and makes it a leading pasta player in the world's most populous African nation.

The size of the Nigerian flour market is over US$2 billion, growing at 3.5 per cent annually, while the pasta market is growing at the rate of 8.0 per cent every year.

Said managing director & CEO of Olam Grains, K C Suresh: "Nigeria is a high growth milling market with volumes expected to reach five million tonnes in 2020 as population growth and urbanisation increase the demand for wheat-based products."

Despite its overall expansion in Africa, the firm will cap the total capital employed in any one country to 10 per cent, Mr Verghese revealed in the interview.

"We don't think we will get into many more new countries - there'll be one or two countries we'll get into. It's going to come from getting deeper into and investing more in our existing geographies," he said.

LONG TERM

"Africa's growth will be long term, and it will continue to grow for the next 40 to 50 years. We have particularly good operating and risk management capabilities to manage the African risk slightly different, or better, than a lot of others."

"The long-term trends in the agri-commodity sector remain attractive, and Olam is well positioned to benefit from this as a core global supply chain business with selective integration into higher value upstream and mid/downstream segments," the company said in a statement accompanying its 2015 results announcement.

"Olam believes its diversified and well-balanced portfolio with leadership positions in many segments provides a resilient platform to navigate current uncertainties in global markets."

Looking ahead, analysts expect global agriculture commodity prices to head lower as global supply remains high.

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