Olam eyes US$1.6b from sale of rubber, sugar arms under new 6-year plan

SINGAPORE agri-business Olam International plans to sell off four business segments in the next six years to unlock some US$1.6 billion, according to a six-year strategic plan released by the company on Friday before the market opened.

Meanwhile, Olam will invest US$3.5 billion (including US$1 billion in maintenance capex) in 12 business segments deemed attractive or proven, such as dairy, nuts, grains and animal feed.

It will also step up its growth in new segments such as e-commerce for small and medium-sized enterprises, as well as co-manufacturing brands with customers to meet demand.

Chairman Lim Ah Doo said the Olam board has thrown its weight behind the plan and is also picking financial advisers "to explore various options to maximise value for shareholders". He did not go into what these options might be, but the exercise, set to begin in mid-March, will wrap up by the fourth quarter of 2019.

Otherwise, Olam co-founder and group chief executive Sunny Verghese said that the new corporate strategy - for the period to 2024 - builds on an earlier focus on sustainability and digitalisation.

"Now, following a comprehensive review, our strategy is fully focused on harnessing these health and ethical sourcing trends, as well as changing consumer preferences," he said. "Crucially, our strategy will allow us to play a leading role in re-imagining global food and agri-supply chains for the better."

Olam said that it was looking at "balanced capital allocation with selective integration in the value chain", including an emphasis on mid-stream and value-added ingredients. It plans to allocate about half of its invested capital - defined as working and fixed capital - in this area in 2024, up from 39 per cent now.

But the group's rubber, sugar, wood products and fertiliser businesses have all been put on the chopping block, alongside some assets and operations from the surviving segments, as they were deemed not to be aligned with Olam's new priorities.

With these units now earmarked for divestment or partial sell-down, "the divestments will be completed in a responsible and orderly fashion during this plan period", Olam said.

It had already halved its stake in Indonesian sugar-refining subsidiary Dharmapala Usaha Sukses (DUS) in December 2017, selling the 50 per cent interest to sugar giant Mitr Phol Sugar Corp for US$100 million. Results for the nine months to Sept 30, 2018 flagged a lower contribution from Olam's sugar business, on both the reduced income from DUS and margin pressures from price competition.

Under the strategic plan, Olam aims to improve its margins through tactics such as cost management and budgeting, which are expected to yield savings of US$200 million over the course of the programme.

Its financial targets for 2024 include a return on equity of at least 12 per cent (against 9 per cent for the most recently reported full year, to Dec 31, 2017); an earnings before interest, tax, depreciation and amortisation-to-invested capital ratio of at least 13 per cent (up from 8.2 per cent from 2017); and a net debt-to-equity ratio below two times. Net gearing was 1.46 times as at end-2017.