Olam Group Limited

Ladies and gentlemen, good evening to all who are present in person today with us in the room, and to those who have joined remotely online on our webcast of our management briefing of our half-year results for the period ended June 2023. I'm Hang Hung of Olam Group Investor Relations. Today, I have the company of our senior management team at this results briefing, led by our co-founder and group CEO, Sunny Vergis. Group CFO, Anne Mutukuma, and CEO of OFI, Olam Food Ingredients, A. Shekhar. As always, we are pleased to share with you our group results for the first half of this year, as well as the results of the operating groups. Our Group CFO, Mutukuma, will take us through the consolidated Olam Group financial results. OFI CEO Shekhar will follow on with the financial and operating results of OFI. Sunny, as the CEO of Olam Agri, will then discuss the performance of Olam Agri as well as the remaining Olam Group businesses. Along with his views on our business outlook and prospects, Sunny will also share with us the latest update around our reorganization plan. He will also close the presentation with today's take-home messages. We will open up the floor and webcast for questions and answers, and you may now post your question on the webcast, which we will address after the presentation. I'll pause here and hand over to Mutu to begin. Thank you.

Thank you, Hangong. Good evening, everybody. Apologies for bringing you on a Friday evening. I know how much you would like to complete this as early as possible. But my style always has been, as some of you would have seen, is to stand and present The fact that I am sitting and presenting should connote the comfort with which we are sitting today in presenting the first half and our cautiously optimistic outlook for the rest of the year. So I will begin with this presentation. First, I hear that the cautionary note has been presented by Hangung. So we are the three presenters today. The agenda for us is I take the group, H1 2023 H1, Results, the first slide that you are seeing today is at a glance. We had a 21.3 million tons of sales volume, marginally lower than the first half of last year. All the numbers that are being presented here is in comparison to the first half of 2022. And as you all know, the first half of 2022 for Olam Group was extremely and exceptionally strong. And in light of that, we believe that we have done a very creditable job in terms of the results that we are presenting to you. Our revenues for the first half stood at 25 billion Sing dollars, mildly down by 13 million, primarily due to reduction in sales volumes, in which I'll talk about it in the later slides. We had an EBIT, which is a key operational metric that we will track and report, at $820 million, up 1.1%, compared to the $811 million that we delivered in first half of 2022. translating into an operational PATMI of $184 million, a reduction of 62%, as you all know, primarily on account of significantly higher interest costs due to the rapid increase in interest rates that we witnessed through nine months of 2022 and still some more, that as we have seen in the first half of this year as well. Adjusting for one of exceptional losses, which we had already announced a couple of weeks back, Our reported PATMI stood at $48 million, and however, our gearing was flat at 1.74 times compared to 1.73 times this time last year. In terms of us operating Group 5's performance, disaggregating the EBIT of $820 million, OFI, Olam Food Ingredients, delivered an EBIT of $277 million, and adjusting for certain adjustments they delivered, a higher $299.7 million, higher than this time last year. Olam Agri, however, had a 9% decline in terms of the EBIT at $559 million, against a very strong exceptional first half that we witnessed in 2022. As explained earlier, our PATMI reduced by 89% to $48 million, and operational PATMI stood at $184 million, a reduction of 62%. However, our balance sheet continues to remain very strong and resilient and has been impacted by increase in higher working capital. And this is primarily due to some timing differences that we saw, especially in Olam Agri. Olam Agri, as you know, we have a significant business in South America in terms of our origination and merchandising segment. And there, the crops, especially in the grains and oilseeds, were considerably delayed in Brazil and Argentina. which picked up as we had predicted in the second quarter of this year, and we had significantly ramped up volumes, and that meant that these sales volumes are bunched up towards the end of June, and that resulted in a higher working capital utilization, which we believe is purely a timing issue. However, the working capital cycle, because of the reason that I talked about increased marginally, but definitely under control, And OFI, in spite of increasing volumes, they had had a very, very tight control on working capital. We have, needless to add, sufficient liquidity of $21.9 billion of headroom that we have with the diversified pools of capital. And thanks to all the bankers here and the continued support, we are in a quite comfortable position as we speak. And the gearing stood at 1.74 times. But as you know, adjusting for the readily marketable inventories and secured receivables our real net debt to equity stood at 0.86 times as at the end of H1 2023. The board of directors are happy to declare an interim dividend of 3 cents per share compared to the 4 cents per share in H1 2022. We now look at the volumes more in detail, volumes, revenue, EBIT and invested capital more in detail, segregated by operating group wise. No surprises here. Olam Agri continues to dominate the volume share at 89% of the 21.3 million tons that we had done sales volume in first half of 2023, 8% from OFI and 2.8% from the rest of the group. Revenue following the similar trend line of volumes, roughly 66% or $19 billion by Olam Agri, 31.2% contributed by OFI and the rest by the rest of the group. EBIT at $820 million, $559 million or 68% was contributed by Olamagri, 33.8% or $277 million was contributed by OFI in the first half, and a minus 2% or minus 16 million was contributed by the rest of the group. Again, a very significant positive trajectory compared to a minus $72 million that we witnessed in the first half of 2022 for the rest of the group. Invested capital more or less remained flat at $19.8 billion, 57% contributed by OFI, very consistent with the prior years, roughly 30% from Olam Agri and the remaining 13% from the rest of the group. I earlier talked about the reduction in sales volume of roughly 3%, down from 22.4 million to 21.3 million. The bulk of this reduction in volumes have come from the trading volumes of the food and feed segment and the origination and merchandising sub-segment of Olam Agri, roughly 1.2 million tons, and OFI had a marginal decline of 100,000 tons. The rest of the group had higher volumes of 100,000 tons, overall delivering a 21.3 million tons of sales volume in the first half of 2023. Very steady operation performance with EBIT at high $820 million and a 1.1% increase compared to the $811 million. Almost everybody went up in terms of OFI delivering $9 million compared to last year, higher. Olam Agri, again, as I had indicated earlier, against a very strong exceptional first half performance. For example, all of you may recall that cotton or fiber, had delivered an EBITDA of $126 million in the first half of 2022, which was actually higher than the full year EBITDA for that particular segment. And that clearly demonstrates that it was an exceptional outlier event. And we believe that if you look at the historical trend of the EBITDA delivery and the profitability and earnings delivery of Olam Agri in the last three years, 2019 to 2021, we have on average delivered 55% of our earnings in the first half and 45% in the second half. We believe we have come back to this original historical trend in 2023, with 2022 first half being an outlier, clearly triggered by the Russia-Ukraine conflict that started on 24th of February in 2022. The remaining group, as I had highlighted, had delivered, moved, from a negative position to a positive position of minus 72 million to minus 16, a positive swing of 55 million, clearly contributed by our palm plantation in Gabon and also our Rusmalko operations in the dairy operations in Russia. As I had earlier indicated, our operational PACME is significantly lower at 184 million, notwithstanding a very strong EBIT delivery, contributed by, as you can see, a significant increase in net finance cost of 246 million. All of you are aware that the rapid increase in benchmark interest rates started in the second quarter of last year. So bulk of the increase in interest rates impact did not impact us in the first half of last year. But compared to the first half of last year, now in the first half of 2023, obviously there is a significant increase in absolute quantum of increase in interest costs. However, as you know, bulk of our businesses where we are able to pass on the increase in interest rates, especially in working capital, to an increase in sales price, albeit at a lag. With that, we have been able to deliver $184 million of operational PACME and adjusting for the on-off exception losses, primarily the almond orchards in Australia, the yield loss that we had guided you with a public announcement a few weeks back. Our reported PACME stood at $48 million for the first half. As indicated earlier, our invested capital remains unchanged at $19.9 billion. We had an increase in working capital primarily due to the timing differences that I talked about, especially in the Olam Agri operating group. However, that's offset by a reduction in fixed capital in the overall portfolio at $9.8 billion compared to $10.3 billion combination of divestments that we had done through the second half of last year, as well as some foreign currency impact due to the significant devaluation of Nigerian Naira against the U.S. dollars. Our gearing stood at flat at 1.74 times compared to 1.73 times this time last year, and adjusting for readily marketable inventories and secured receivables, our real net debt to equity stood at 0.86 times. We had a free cash flow of negative $4.53 million, primarily on account of increase in working capital that I talked about. Otherwise, we had a very healthy operating cash flow generation in the first half of this year. And after servicing a significant interest cost of $254 million, we had a negative $484 million of free cash flow to equity in the first half of this year. Thanks to all of you, the bankers here, we have a very strong, continue to have very strong liquidity position, close to $3.4 billion of cash in short-term fixed deposits, $5.6 billion of readily marketable inventories, around $800 million of secured receivables, and more importantly, close to $12 billion of unutilized bank lines, all adding up to close to $22 billion of total borrowings per headroom that we have. and looking at the overall gross borrowings of $16 billion that we have as at the end of June 2023, a very healthy $6 billion of headroom that we have as a portfolio. With that, I will hand over to Shekhar to talk about the business performance of Olam Food Ingredients. Thank you.

Thank you, and let me extend my warm welcome to all of you. We are even more pleased with your support because you're spending this time with us on a Friday evening, so thank you once again. I'm here to share the operating results for 05. I will also talk about the one-off almond loss that we had announced earlier. But on the operating results, we are very pleased with the first half. you will see that there is a 3.5% EBIT growth. But it tells the story of two things. One, last year, global sourcing had an exceptional first half. and you will see a reduction, but that reduction is actually below what we anticipated. So in a sense, global sourcing has performed well, even though you see a reduction compared to last year. It's on the back of a very strong performance across multiple platforms. Coffee, dairy, cocoa all had exceptional starts in the first half of the year. What we are more pleased with is the performance of the ingredients and solutions, which is where, as you know, we have invested in and are continuing to invest in. And we are seeing a very smart rebound from, again, a business that was hit immediately after the impact of the war and energy prices increased, et cetera. But that has had a very smart rebound. Pricing changes have happened with the customers. and you can see the EBIT trajectory, which is very pleasing. And so, therefore, this overall improvement of 3.5% EBIT is on the back of a roughly 19% drop in global sourcing, but which is against a very strong first half and a very sharp correction in ingredients and solution, which is where the higher margin, higher return part of OverFi's portfolio is growing. And another part that you'll see on the graph on the left, which I'd like to call out, Last year, because of the differences between global sourcing and INS that I just called out, it almost a 50-50 share in the EBIT, whereas now you will see that it's a kind of a 65-35% share between IS and GS, which is also the direction of travel that we have signaled, and that's what you should expect to see going forward in terms of the EBIT split, and again, being a higher margin and higher return part of the business. Again, Many of you here who look at our capital efficiency very closely, and like Mathu was pointing out earlier, we have managed this EBIT growth with a very strong focus on managing our operating cycle times, our invested capital. So while we have some expansion in our fixed capital based on the committed investment that we had made, but the working capital has been managed very efficiently, and that can be seen in the split of the fixed capital working capital. And this, as many of you who track our markets in the O5 portfolio, we have cocoa and coffee, which has seen some tremendous high prices, especially on the London market, where both cocoa and coffee in this year have seen an increase of over 40% each. So despite that, this management of working capital, the increase in EBIT, the focus on ingredient and solutions is a very pleasing operating result for the first half. looking at it with a little bit more detail between the various segments and the products within the segment. So if you look at the global sourcing, like I mentioned, last year we had the dairy business, the coffee business, and the cocoa global sourcing business off to a very, very good start. So that's corrected itself. And this year, Out of those businesses, we still see cocoa performing very well, coffee performing very well. It was a bit of a slower start in Q1 but has picked up smartly in Q2. And dairy is the only place where global sourcing has seen some knock-on effects of China where the demand has been – the reopening or the expected demand increase from reopening has been much more subdued than was initially expected. and that is dragging down some of the volume and EBIT impact for the first half. Nuts and spices have seen some impact of lower demand or destocking or a mix of both in the U.S., and you see some impact of that, but a lot of that is also in the ingredient and solutions segment, not so much in the global sourcing for those two products. So overall, if we look at how This business has managed its capital, or this part of the business across our five platforms has managed, has been, again, quite – so while there's been a reduction of EBIT, it's had a very sharp reduction. So the 18 percent reduction in capital is after the high prices that you are seeing in cocoa and coffee, is after a 5 percent – on just a 5 percent reduction in volume. So the operational efficiencies have been very, very strongly pushed in these businesses So we feel very pleased. And an important thing which I underline every time, that our business and OFI's future strategy is based on a very strong foundation of the global sourcing, our sustainable, traceable, integrated business, on top of which we are building a value-added business, whether it's in value-added ingredients or private label. And so the global sourcing remains a very, very important part of our business. and will remain a business that we are probably not investing more in in terms of capital, but it's a place where we are investing heavily in deepening our origination capacity, in deepening our digitization capacity, in deepening the sustainability impact, which is the basis on which we are winning in the value-added segment and the ingredient solution segment. So moving on, I want to spend a couple of minutes on the almond impact, which is – one of non-recurring and a fairly unprecedented situation that we have seen in the Australian harvest. As you know, we have a very large presence in the almond orchards in Australia, and we are the largest grower and have a large market share in Australia. So across all growing regions, we had a major impact on yield. And obviously in our business, in the agricultural business, yield, Going up and down is par for the course, and that is business as usual. But you had a situation here that despite us seeing fruit on trees post-harvesting, us looking at the nut count as just before harvest, not just us in our surveys that we do regularly at the same point of time every year, Even the industry estimates and the Almond Board of Australia does these estimates just before harvest in January. Nobody really looked at yield reduction. But as the harvest started flowing in and different varieties started getting harvested and they all happened at different points of time for different growing areas, we saw an unprecedented almost 35% to 40% reduction in yield. So a lot of now what we are seeing Building back is conjecture because the industry, whether in Australia or U.S., has never seen an impact of this kind. So this is truly an unprecedented impact. And now as you put pieces together, it is probably a combination of pollination intensity because of lower amount of bees available, which was way back in August, So we also had known that, but after that, when the food started forming on the trees in October and between October and January, when all the nut counts, and we had done multiple nut counts during that period, we had thought that that pollination intensity would not have had an impact. Now that has perhaps had a, it was a wet and a cold summer in Australia between December and January or November to January, And so the combination of the lower pollination intensity as well as the cold in the growing period thereafter, it is now believed that that combination, which has been a fairly unprecedented combination, has created that impact for the yield for last year. So it has not impacted, and the biggest question in our minds and probably in your minds would be that, has it impacted the long-term tree health? And we believe it's not, and we have done, again, multiple surveys pre-harvest, post-harvest, and the shoots after the harvest, which is the first indication of the tree health, is looking good. Of course, there is a long time between now and the next harvest, which will be next March, and there will be multiple times we'll be looking at a more intensive survey. But at this point in time, based on our own internal teams, external surveys we have got done from experts both from Australia and the U.S., as well as what the industry has done and other growers have done, We believe that there's no long-term impact to tree health, and this is a one-off, very material, but one-off non-recurring yield impact, which is why we decided to announce that ahead as soon as we were clear that roughly about 75% of the crop which has been harvested has been processed. So there could be some changes to the final volume and sales and sales prices, but we believe that it won't be a material difference to this number. and hence decided that that was important to call out in advance. I'd be happy to take any questions in the Q&A, but I just wanted to give you some flavor of why this happened, what's our assessment of the long-term impact, and how we are also going to manage this even more closely going forward. So with that, moving on to the last part, which is what I wanted to really look through the ingredient and solution part of the business, and I highlighted that it's almost a 24% growth in EBIT, albeit there was an impact of energy cost increases in Europe, et cetera, last year in the first half. But net of that, when we look at this EBIT growth is on almost flat volumes, higher pricing, and a much higher EBIT per ton. And that really gives us the confidence, and that is the important parts to highlight, that All the cost increases, inflation increases, we have been able to pass on. There is, therefore, on the same volume, a higher EBIT per ton and a higher revenue, both of which have resulted in this EBIT. So we believe that these EBITs per ton are sustainable, and as some of the newer plants, and we have We will be commissioning the dairy processing plant in New Zealand. We have just commissioned one part of the soluble coffee facility in Brazil. We are looking at commissioning the second half or first quarter, the nuts facility in the U.S. So when all these plants come on stream and the capacity and there will be EBIT growth at a higher margin and a higher capacity, return on capital. So we feel very happy with the growth, happy with the portfolio shape between ingredient solutions and global sourcing. But again, I'd like to call out that the global sourcing remains the benchmark, the foundation, on top of which we are building a very strong, differentiated, value-added ingredients business, which is the future for OFI. So with that, I'll hand over to Sunny to take over for the rest of the group.