Olam Group Limited

A very good morning to all participants at this management conference and briefing for the financial results for the first half of 2021. This earnings call is now live on webcast and teleconference. I'm Hang Hung of Olam Investor Relations and I'll be introducing the speakers from our senior management team and taking you through our agenda today. But first things first, please read our financial statements and the management discussion and analysis of the first half results of 2021. If you don't have these in front of you, you can find them under the Downloads tab on this webcast or on our OLAM Group website. A cautionary note here on forward-looking statements that may be expressed during this briefing. The speakers for today are Olam's co-founder and Group CEO, Sunny Vergis, who is dialing in remotely today. And to my left, A. Shekhar, Executive Director of Olam and the CEO of Olam Food Ingredients, OFI. And to my extreme left is Group CFO, M. Mutukumar. Like before, Mutu will take us through the Group Consolidated Financials, and following that, Shekhar, as CEO of OFI, will present the segmental performance of OFI, as well as any important updates around this new operating group. Sunny, as CEO of OLAM Global Agri, OGA and OIL, will take us through the financial performance of the two operating groups and will likewise share important updates. He will further discuss the group's outlook and prospects and conclude the presentation with the key takeaways before we take questions. I'll pause here and hand over the time to Mutu to present his presentation. Thank you.

Thank you, Hangung. Good morning, everybody. I am very pleased to be here today to present best ever at performance, operating and financial performance of OLAM Group since inception. We had a fantastic first half of 2021, especially comparing the impact that we had in the first half of 2020 due to the pandemic. we had 11.5% increase in volume to 22.4 million tons. More importantly, a healthy 34% increase in revenue to $22.8 billion. And one of the two important operating metrics that we track and report, EBIT, grew a healthy 51.4% to 642 million. And the second important metric that we track and report, our operational PACME, grew a whopping 116%. on a year-on-year basis to $437 million. We had a negative $400 million of free cash flow to equity, primarily because of the capex and the acquisitions that we have done during the first half of this year, including the acquisition of Old Thompson, which was just under a billion dollars. Gearing stood at 1.6 times as compared to 1.29 times this time last year. In terms of the highlights, as I had talked about, from a reported PACME perspective, we grew 27%, primarily because we had a lot of exceptional income in the first half of 2020, which were not there in 2021. However, as I had indicated earlier, our operational PACME grew 116%, up to $437 million, as compared to $202 million in the first half of 2020. We have a very strong cash position of $3.5 billion with ample liquidity of $18.5 billion, which I will talk about later during this presentation. We have continued to access diversified pools of capital, and we have also strengthened the balance sheet recently with the concluded rights issue of $601.7 million that we completed in July. We are very pleased to announce that our Board of Directors have declared an interim dividend of 4 cents up from 3.5 cents that we had declared as an interim dividend in first half of 2020. If you look at the consolidated results by operating groups, in terms of the volume, roughly 90% of our volumes came from OGA, 8.5% from OFI and the balance from OIL. In terms of revenue, 68% of our revenue came from OGA, roughly 30% from OFI and the balance from OIL. In EBIT terms, we had 63.5% of our EBIT contributed by OGA. 49.3% by OFI, offset by EBIT losses from OIL, which houses our divestment assets as well as gestating assets. We have a total of $18 billion of invested capital, asset first half of 2021, out of which roughly 63% is constituted by OFI, 20% by OGA and the balance by OIL. I talked about volume growing by 11.5% toward 22.4 million tonnes in the first half of 2021, mainly contributed by both the operating groups, OFI and OGA, with OGA having significant increase in grains trading volumes as well as rice trading volumes. And as expected, oil had a lower volume as we continue to divest the identified non-core assets during the first half of this year. EBIT up a healthy 51.4% to $642 million, and both again contributed strongly by the operating groups OFI and OGA to $642 million from $424 million first half of last year. Operational PACME, as I had talked about, more than doubled to $437 million, here again contributed by strong performance, contribution by EBIT growth, reduction in net finance cost, offset by higher provision of taxation because of higher profitability and also, as I indicated earlier, lower exceptional items during this first half of 2021, thereby moving from $202 million to $437 million of operational PATMI in the first half of 2021. Our invested capital grew 15% on a year-on-year basis, primarily because we had invested in in both organic and inorganic capits during the first half of this year from $15.5 billion to roughly $18 billion. We also had increase in working capital due to volume growth that I had explained earlier as well as a secular increase in commodity prices across most of our products in our portfolio. Our net gearing stood at 1.6 times, and adjusting for readily marketable inventories as well as secured receivables, it stood at 0.56 times as of 30 June 2021. Our free cash flow to equity was at negative $400 million, primarily due to the significant CapEx investments that we have done during the first half of this year. We have ample liquidity supported by $3.5 billion of cash, roughly $5.5 billion of readily marketable inventories, close to $2 billion of secured receivables, and more importantly $7.5 billion of unutilized bank lines, totaling up to $18.6 billion of available liquidity, which gives us a headroom of a comfortable $3.5 billion. With that, I will hand over to Shekhar, the CEO of OFI, to present the segmental performance. Thank you.

Thank you, Muthu, and good morning to all of you. Thank you for joining us today. So I will be taking you through the half yearly reserves for OFI. But just before I start, just want to give you a snapshot of OFI. As you are all aware that last year in January 2020 we announced the reorganization of within the OLAM Group and the five businesses which are leading global platforms, cocoa, coffee, nuts, spices and dairy came together to form what we now call OFI. And what really brought these businesses together were the common customers that they serve, the common categories, end-use categories that we serve in bakery, confectionery, beverage, snacking and culinary, and the common channels through which we service these customers, whether it is the large global CPG companies or the regional brands or the private label retailers or the food service outlets. and the common channels by which we service these customers and the common capabilities right from origination through sustainability, through digitization and the innovation capacity that we are building on top of that. It is these four things, the common customers, the common capabilities, the common channels and the common end-use categories that we service that brings this business together and it's a substantive business. In 2020, despite the pandemic, which affected certainly the first half of the business, OFI is a $12.5 billion in turnover, roughly over a billion in EBITDA and about $800 million in EBIT. But more importantly, has a global network with a smallholder farmer base of 2.6 million farmers across the globe with over 100 manufacturing facilities servicing over 8,000 customers. So it's a large substantive business today. What really is exciting about this combination which has given us a lot of focus, it has given us a portfolio of five on-trend business platforms which are global leaders in their own right and they are they provide us a mix and provide our customers more importantly a mix of plant-based ingredients which Find a variety of use across very large, attractive and growing end-use markets. And I mentioned bakery, culinary, snacking, beverages. These are all high growth rates, 5-6% per annum. And the opportunity that... is in front of OFI is to be able to combine the capacity across these products to deliver real applications and value added solutions and in that we are very unique in the industry in the way we can combine our back end sustainable traceable chains supply chains creating significant sustainable impact across the chain and then delivering these products and solutions to our customers across the globe And that's what has made us a very trusted partner to over 8,000 customers covering a large number of the global food brands that you'll all recognize, the large private label retailers as well as the food service chains and outlets that each one of us go to every day. And all this is brought together by a very solid management team. Deep knowledge in the local markets that we operate in, deep expertise in the businesses that we deliver, and in the capabilities that drive the value to our customers. So that is the power of the O5 business, which was born 18 months ago, and I hope that you will see the power of this business transmitted through the half-yearly results that it's my pleasure to share with you. So for the first half of this year, As Mutu had highlighted, we have EBIT growth of 23% and it is across both the segments that we report in, the global sourcing as well as the value-added ingredient segment. I'll talk about both these segments individually in a minute. So a very substantive 22% growth in earnings. We have also invested during this period and there have been various announcements that we have done both in terms of our organic investments in the soluble coffee manufacturing facility in Brazil, in a dairy manufacturing facility in New Zealand which are both coming up and will Come on stream sometime end of 22, early 23. But also we have done some inorganic acquisitions. Early on in the year, we announced acquisitions in the spices business, in the chili pepper business in the U.S., and then followed by a large private table business, the whole Thompson business that you're all aware of. So that, along with the higher prices in some of the commodities, the raw material pricing, that has contributed to an increase in the invested capital also. But overall, very pleased with the strong recovery from the first half of last year, which was deeply impacted by COVID for the business. And we already saw growth in the second half of last year. But this growth on top of that is very, very pleasing. So if I look at the two segments, and again, we have mentioned these are the two segments that we started reporting from first half of last year. They are both very important parts of an integrated platform. So the global sourcing offers us the capacity to work across all the producing countries for the raw material, to be able to manage the raw material in a food safe form and manner, creating sustainable impact through the chain and delivering them to our manufacturing facilities where we do the value added solutions and the value added ingredient solutions for our customers. So both these segments are very interlinked. and very important to the larger business and the larger value that we provide to our customers. So on the global sourcing, we saw a 42% growth in EBIT on an overall invested capital increase of 6.5%. There was volume growth, but more importantly, significant margin growth. And this was I must part of it was because of a very poor first half last year. But even otherwise, the overall margin growth that we have seen and experienced across all the platforms has been quite encouraging. And we are very pleased with that. I must call out in this segment an exceptional performance by the coffee supply chain business, which had seen almost two, three years of very depressed prices. But starting from the second half of last year, the prices have corrected, and of course in the recent past few months, the prices have gone up quite strongly because of the drought and frost in Brazil. So today, that business, because of the focus on the supply chains, our capacity to manage these supply chains despite the various disruptions, has done very well on the volume, but more importantly, on the value that we are bringing out through our specialty coffee, through our certified sustainable coffee that we supply to all the major roasters in the world. In addition to that, the nuts business again in cashew and hazelnuts, which had got impacted prior period, has also had a very, very good performance in the first half. And the dairy supply chain, which was hurt by the COVID, especially in China last year, has also had a very good performance this year. We have been a bit slow in terms of the origination volumes and the cocoa bean side, which was facing margin pressures in the first quarter of this year. But that has been changing as we speak in the last couple of months of the first half. So it is poised well for the second half where the real seasons in West Africa start. So overall a very good performance on global sourcing and that global sourcing and the power that it adds to the value added ingredients is very critical for the overall performance of O5. So on the ingredients and solutions and this is an area where we are investing quite heavily in the manufacturing capacity, in the innovation capabilities, in the category expertise. So a lot of investments in this place both organic and inorganic. But we are seeing a 13% growth in earnings, albeit on the top of a 60% growth in the investment, which has been on the area that I outlined. And again here, I would like to call out the performances of Solible Coffee. Spices Group Limited Group Limited Group Limited Group Limited And then last but not the least, the dairy processing manufacturing businesses where we provide value-added blends out of Malaysia. That business has also expanded capacity and is looking at a significant growth going forward. So overall, the ingredients and solutions business on top has grown 13% on top of a 42% growth in the global sourcing business, overall contributing to a 23% growth in EBIT for OFI as a whole. So, and this brings me to the last bit that I wanted to share with you, which is an important milestone in OFI's journey to be an independent publicly listed company that we had announced some time ago. We are on course for a listing in H1 of 2022. The separation and carve-out within the larger Olam Group will happen by the end of this year and along with the listing which is planned in the first half of 2022, we will also be de-merging OFI at that point of time along with the listing. So we had advised you that we are doing a thorough analysis of various stock exchanges that we are considering for the listing and pleased to announce that we now intend to have a structure with a primary listing on the premium segment of the London Stock Exchange along with a concurrent listing in Singapore and we believe that this will give us Thank you very much. The deep, diverse capital markets of London, the large institutional investor base there, as well as the very good understanding and research coverage of this industry. And at the same time, the listing in Singapore will enable us to retain our existing strong shareholder base here, as well as tap into the greater investor appetite in Asia. So, very pleased with this and obviously this will, over the next 10 to 12 months, there will be various points of time when we will be sharing the progress of this proposed listing. And in closing, what I'd like to say is that the H1 results for 2021 and our outlook for the second half, will, we believe, will give us a strong momentum going into 2022 as we take this business to the global investors and we will continue to be very deliberate and disciplined in terms of backing our growth strategy during this time, extracting full value for what we have already invested in and integrating some of the acquisitions that we have done as well as investing further behind our growth. So, with that, I'll hand over to Sunny to talk about another very exciting crown jewel that we have in the Olam Fort. Sunny.