Olam unveils 6-year plan to refresh portfolio

SINGAPORE-based agri and food giant Olam International which counts Temasek Holdings as a majority shareholder, has plenty to keep itself busy.

The commodity firm has armed itself with a newly-unveiled six-year plan up to 2024 to pocket some US$1.6 billion by exiting four sectors it appears to have outgrown.

It will also plough US$3.5 billion into the twelve key sectors that are left, ranging from edible nuts, grains, cocoa, cotton to spices where it has a global edge and can ratchet up growth without asking shareholders to cough up more.

But it's the second part of the plan - to suss out options to rearrange the group's diversified portfolio and make its business easier to unpack for the investing fraternity - that could excite the market more.

Towards this end, Olam co-founder and group chief executive Sunny Verghese said the company has issued a Request for Proposals (RFP) to solicit proposals from financial advisers and is expected to pick one by March, following which a plan could be ready as early as the fourth quarter.

"We are engaging financial advisers to explore various options on how to reposition our portfolio based on our strategy and make it more easily understood by investors and analysts so we can get a better reflection of the fair value of the business. We are very excited and open to all ideas," said Mr Verghese at Friday's briefing for the media and analysts.

The company's 2019-2024 refreshed strategy is dubbed "Re-imagining Olam" to keep up with changing trends in food, health and sustainability.

"There may be a different combination of products that may be more coherent together. I have an idea or intuition on what would work but we will leave it to the capital market experts to tell us what investors could like most and how best to position the company."

He also took pains to stress that the company's divestment of the rubber, sugar, wood products and fertiliser assets will be carried out in an "orderly" and "responsible" fashion.

"There is no gun to our heads that we should do this today or tomorrow. We will take our time and do it from a position of strength. There will be absolutely no fire sale," he said, adding that he doesn't expect any major divestment to unfold in the next 12 months.

In tinkering with its portfolio to both prioritise and de-prioritise its assets, Mr Verghese said the company took into account several factors including future growth rates and margins, sustainability (for example, declining sugar consumption) and "differentiating factors" such as if the company had real competitive advantage in those areas.

"Some of the assets did extremely well and others, not so well. But that wasn't the only factor as we weighed other criteria in making the decisions (to divest)," he said.

Olam, which has a market value of some S$5.8 billion and counts Japanese trading house Mitsubishi Corp as its second largest shareholder, operates from "seed to shelf" in over 70 countries and hopes to save around US$200 million under the new business plan.

The group's activities span the agriculture value chain with Olam planning to allocate half its invested capital into midstream processing/ingredients segments.

It has also set targets for certain key financial metrics over the period; they include a return on equity of at least 12 per cent from 2021, a debt-to-equity ratio below 2 times and an earnings before interest, tax, depreciation and amortisation-to-invested capital ratio of at least 13 per cent.

Mr Verghese said: "We don't want the plan to be one of promises but of results".

The market seemed to like Olam's latest plan. The stock snapped two straight days of closing unchanged and finished higher by 1.1 per cent at S$1.82 on Friday, moving further away from its 52-week low of S$1.58 hit on Dec 26 last year.