Olam Group Limited

A very good morning to all ladies and gentlemen gathered here with us in this room today for the presentation of Olam Group's second half and full year results for the period ended December 2023. A very happy new year as well, a happy Lunar New Year while we're still in the month of February. And to those who have joined us on the live webcast, a very warm welcome. I'm Hang Hung of Olam Group's Investor Relations. First and foremost, it's my responsibility to point out this cautionary note on forward-looking statements here on this slide, so please read that carefully. Now, surely many of you already know our leaders here, whom I'm pleased to introduce again, co-founder and group CEO, Sunny Vergis. And on this right, CEO of OFI, Olam Food Ingredients, A. Shaker. And seated at the extreme right, on my right, is Group CFO and Mutukuma. As per usual, we will hear from our Group CFO, Mutu, on the group's results, the second half and the full year consolidated results of the group. OFI CEO, Shekhar, will follow on with the operations and financial results of OFI. Sunny, as the CEO of Olam Maghri, will present the performance of Olam Maghri, as well as that of the remaining Olam Group businesses. We will hear his take on our business outlook and prospects, and in particular, the latest update around our reorganisation plan, before closing the presentation with today's take-home messages. We will then open up the floor and webcast for questions. In fact, you may start posting your questions now, for those who are online, which we will address during the Q&A session. As this is a forum for earnings, we'll focus on questions pertaining to the financial results and the business and operational updates, which are the subject for the day. We do hope you'll ask more questions on these areas and less on those on commodities market and outlook, which we can take offline separately. So thank you for attention. I will pause here and hand it over to Mutu. Thank you.

Thank you, Hangong. Once again, a very warm welcome, ladies and gentlemen, for our full year results briefing for 2023. I'd like to take this opportunity to first begin with what has been a very strong second half 2023 performance, both in comparison to the first half of 2023, as well as in comparison to the H2 2022. You can see from the slide that we had a 23 million tons of volumes, yet 12% increase year on year compared to H2 2022. EBITDA at $1.3 billion, a 13.4% increase on a year-on-year basis. EBIT stood at $952 million, a 19.3% increase over H2 2022. And PAT was a whopping $234 million in the H2 compared to $157 million in H2 2022 and $116.7 million in the first half of 2023, both an increase of 49% and 100% respectively. And PACME stood at $231 million compared to $200 million this time in 2022, a 15.5% increase. Mind you that in 2022, we had made a divestment of our equity stake, 35.43%, in Olam Agri to SALEC, the food security company of Kingdom of Saudi Arabia, and even after a very strong increase in minority interest, we have been able to deliver a 15.5% growth in our PATMI at $231 million, and operational PATMI stood at $274 million for the second half, a marginal 10% decline, as indicated due to a very strong increase in minority interest. With that, I will move on to the full year annualized results for 2023. A 44 million tons of volume, a 3% increase. Revenues at $48 billion, roughly 12% decrease due to decrease in commodity prices in most of our portfolio, barring a few commodities, especially in Wi-Fi. EBIT at $1.8 billion, a 10% increase. up from a 10% increase, and more importantly, EBIT over invested capital, the pre-tax ROIC, which is a key operational metric that we track and report, increased from 8.4% to 9.1% on a year-on-year basis. Free cash flow to equity was lower at $914 million, primarily due to increase in working capital that we had witnessed, especially in the last quarter of 2023. FATMI, as I had earlier indicated, stood at $278 million, a decline of 55%, primarily due to increase in minority interest due to the equity stake sale that we had done in late 2022 to SALIC. Gearing increased to 1.73 times, still very comfortable, again due to increase in working capital that we witnessed in the second half of 2023. In terms of operating group-wide performance, OFI delivered 11% growth in EBIT to $829 million, primarily led by strong growth in ingredients and solution segment, and more importantly, adjusted EBIT stood at $874 million. OLAM AGRI, again, achieved 13% growth in EBIT at $968 million, primarily driven by strong growth in processing and value-added segment, and I will talk about it later in detail. Patme had talked about decline, 55.7%, significant increase in higher net finance costs of roughly $400 million. Again, I will talk about it, as well as lower share of profit from Olamagri due to the increase in minority interest. There was increase in net capex working and interest paid that led to a negative free cash flow equity. Working capital cycle time marginally increased, but we are very comfortable that we have been able to keep a very tight control on our working capital cycle time. And we have very sufficient liquidity of $21.3 billion. and net gearing marginally increased to 1.73 times, still very, very comfortable. But more importantly, adjusted for readily marketable inventories and secured receivables was at a very healthy 0.65 times compared to similar levels that we had in December 2022. More importantly, we are launching a share buyback scheme of up to maximum of 5% based on the current general mandate that we have from our shareholders and hopefully continue to do the same after the mandate renewal that we will have in the forthcoming AGM in April 2024. We are pleased to announce and recommend a final dividend of 4 cents per share, an increase of 1 cent per share compared to the interim dividend that we declared of 3 cents. In terms of consolidated results by operating group, you can see that, as per trend, 90% of the volumes were contributed by OLAM Agri, roughly 7.4% by OFI, and the rest 3% by the rest of the OLAM group. Similar trend in revenues, roughly 65% contributing from OLAM Agri, 32% from OFI, and the remaining 3% from the rest of the OLAM group. 55% or roughly $927 million of EBIT contributed by OLAM AGRI, $829 million or 47% of EBIT contributed by OFI, and the rest by the rest of the remaining group. In the case of invested capital, 60% of the invested capital is represented by OFI, 28% by OLAM AGRI, and 13% from the rest of the remaining OLAM group. As I had earlier indicated, sales volume is up by 3% at the portfolio level, but particularly the growth came from OLAM Agri, especially in the grains and edible oil trading that we witnessed in the second half of 2023. Remaining OLAM group also witnessed a growth in sales volume, primarily due to increase in volume by Jeeva in its Indonesian operations, thereby having a total sales volume of 44 million tons for the full year. We had improved operational performance in EBIT, a 10% increase on year-on-year. Here again, OFI had an $83 million of increase in EBIT, Olam Agri of $110 million, and the remaining group had a lesser loss of $30 million, thereby contributing to an overall of $1.8 billion of EBIT for the full year 2023. Adjusted EBIT also was roughly $1.826 million post-adjusting for amortization. Operation PACME at the group level was $458 million. You can see the bridge that we have. What is stuck is that in spite of increase of $163 million of EBIT or operational performance growth, we had a massive increase in our interest costs, primarily driven by increase in interest rates. Overall, the working capital was a marginal increase, but that did not impact the increase in net finance costs, but primarily driven by increase in interest rates that we witnessed throughout 2023. And also, as highlighted earlier, the increase in minority interest due to the sale of equity stake to SALIC that contributed to a negative $150 million on an year-on-year basis, thereby having outpat me at $280 million. We had a very marginal increase in invested capital, which stood at $19.75 billion, roughly similar quantum of $10 billion in fixed capital and $9.8 billion in working capital. And gearing, as I had indicated earlier, stood at 1.73 times. But more importantly, adjusted gearing was at a very healthy 0.65 times after adjusting for readily marketable inventories and secured receivables. That brings us to the free cash flow. Free cash flow was at $915 million negative in 2023. Here again, the primary differences are due to changes in working capital of roughly a billion dollars, as well as a swing in the investment because of the big divestment that we had in terms of the realization of sale of equity stake of roughly $1.24 billion that we recorded in the end of 2022, consequent to the sale of our 35.43 equity sale to SALEC, the food security company of Kingdom of Saudi Arabia. However, our operating free cash flow firm stood at a positive $215 million. As indicated earlier, we have a very strong liquidity position at $21.3 billion, contributed by $3.5 billion of cash, $6 billion of readily marketable inventories, roughly $2 billion of secured receivables, unutilized bank lines of roughly $10 billion, taking to us unutilized and available liquidity of $21.3 billion, a very healthy $5 billion of headroom compared to the gross borrowings bestowed at $16 billion end of 2023. We from the OLAM group, once again, take this opportunity to wish you all the best for the year of Wood Dragon. And now I will hand over to Shekhar to take us through the OFI operating and financial performance. Thank you.

SHEKHAR MENONI- Thank you, Motu, and great to be back with all of you again to take you through the operating results for OFI. Let me start by wishing you all a very happy 2024 and hope good health and prosperity for all of us. As Motu highlighted already, it's amidst a very tough operating macroeconomic condition. The business overall has done very well. And I'm pleased to report that OFI, in terms of operating results, as well as the strategic progress we have made in how we are wanting to reshape that business, on both those, we are quite pleased with the performance. And when you look at the operating performance in terms of trajectory, there is both how H2 improved over H1 of last year, as well as H2 of prior period. And on an overall basis, at an EBIT level, we had 11% increase in EBIT. And what is also pleasing is the change in the portfolio mix on how the growth has been significantly higher in the ingredient and solution segment, and I'll just talk about that in a moment, which saw a 31% growth. So you can see the portfolio mix changing from what was a 50-50 global sourcing and ingredients and solutions business. It is now roughly a 65, a two-thirds, one-third kind of a portfolio mix. Important to state here, which I have said that probably every time we meet, that this is an integrated business. So this is not about moving away from global sourcing into 100% leading solution business. Our differentiation is based on a very strong global sourcing platform a sustainable, traceable origination platform that we have built over the last 35 years, on top of which we are building greater capabilities to deliver ingredients and category solutions to our customers. So it is that combined business that is growing at 11%, but our investments over the last three, four years have been predominantly in the ingredient solutions business, and we can see that trajectory growing, which also gives confidence of the strategy. We are staying focused on that strategy. And this is despite the fact that some of the businesses in that segment are still gestating and are not at full potential. So there is, therefore, greater scope for this business to grow as well. You look at the margin structure. Again, you'll see the change in margin structure. So the fact that we are moving and pivoting this business to an ingredient solution business is predominantly not just because you want to do that strategically, but there's also greater value to what we can offer to our customers as well as what value we can make. And that is reflective in the margins per ton. You know that margins percentage can be not as accurate because of prices going up and down, but margins per ton is a real reflection on how that growth is. You're aware that the market, especially in some of the products that are in OFI, have been quite volatile through the year. But despite that, we have maintained our invested capital at almost just over 2% increase for delivering 11% overall increase in EBIT earnings, which means that obviously we have grown our returns, and that's, again, quite pleasing. So moving on to the segmental, the focus last year was on really not on volumes. So you will see what Muthu pointed out, roughly 300,000 tons reduction in volume. And we've been very calibrated and very deliberate on the volumes that we want to do, the customers where we want to support that volume growth, and it has not been really chasing volume. And some part of the volume reduction came in global sourcing, and you'll see that commensurate impact on capital as well as earnings. One part of the earnings was also impacted because of almonds, which we have talked about in the prior period, as well as peanut business, the shelling business in the US. So those were some of the reduced areas where we reduced volumes voluntarily. But otherwise, the cocoa business, the coffee business, the rest of the nuts business, the rest of the world in spices, all grew quite robustly and quite deliberately in terms of where we were focused on. going to the ingredient solution which is kind of been the big growth for last year uh and it's again it's very focused growth coming out of investments that we have made in the last three four years so to call out a business that we made a big investment in in 2021 second half uh old thompson so that business faced some challenges in the first 12 to 18 months which i have talked to you about but uh because as soon as we took over we had a a big inflationary impact and we were therefore in the process of re-contracting and that took a while and there's always a lead lag but very pleased to say that through 23 and certainly in the second hour 23 those are falling through and therefore you can see that big shift in the performance there. Also the synergies that we were focused on in terms of integrating that business with our global sourcing business in Vietnam and other origins, that's also been beginning to pay dividends and therefore now we are running that as an integrated business and we have managed to increase our footfall and skews with customers and retailers that we acquired through that. So quite pleased with the improvements there. It is still a business that we are building on and investing behind, but one part of the growth and one part of the shortfall that we saw in the prior period because of the high inflation and lead lag in pricing I think we quite feel good about that. Both the INS segments in cocoa and coffee, again, witnessed a lot of impact of energy price increase in 22. Again, they've come out of that and have priced effectively. It's not about increasing our prices, but coming back to the pricing margins that we were anticipating from those businesses. That's also happened very well. Both those businesses have had a very sharp recovery from 22. The other two parts of the businesses, the dairy where we have invested, you've seen reports in the second half when we expanded our capacity in Malaysia as well as set up a new processing in New Zealand. Again, very strong ingredient solutions focus areas. have performed very well and as has the rest of the world industrial spices that I talked about. Probably the only area which has not performed as well as the US industrial spices where we have seen a bit of demand contraction and that remains an area where we are focused that's caused the entire industry is carrying extra inventory and we also have our share because we have a large market share there. So overall, it's been a well-rounded performance. It's been a performance coming off where the business has shown resilience in coming out of the massive inflationary impact and being able to reprice and get back to margins. It's been coming out of investment that we have made. And so it's a well-rounded performance with more to come as these businesses get to full potential and full capacity. Again, here, invested capital went up more, obviously, because of both the fixed capital investments as well as the working capital investment. But you can see the big jump in eBuyIC in terms of returns. And that's where there's a higher margin, higher return business, of course, very based on the large global sourcing platform that we have built. To leave you with, I just want to kind of recap this slide you've all seen before. This was the basis for setting up OOFI. We had five large global leadership positions that we had built over the last 35 years. These products were complementary in the nature of capabilities that we had, the customers that we were accessing, the end use categories that we were serving, as well as the channels that we were using to service those customers. Putting these together on a very strong global sourcing, sustainable, traceable platform, and then building the capabilities for ingredient solutions is what we have been deliberately focused on over the last four years. That's a process that will take a long time, but we are quite pleased to see the results even in this period. What I want you to take back is this is a business that we created four years ago. The world has seen a lot of COVID, a COVID recovery, a war, inflation, higher interest rates, but the strategy speaks for itself in the resilient execution and recovery despite these tailwinds, some which we can do something about, and some we have to react faster and better than anybody else. And so through this cycle, we have grown the business quite substantively, we've grown the returns quite substantively, and we are making targeted investments where it matters in this business, whether it's organic or inorganic. And also, investing behind uh... capabilities improvement so you've seen announcements a steady stream of announcements be set up a single for innovation center number of twenty two uh... announced i'm opening in uh... second half of last year and an expanded capacity that you're going to uh... open in the same uh... data this year in the u s so we are investing a lot behind innovation board behind category insights consumer insights to provide greater value to our customers on top of the strong origination, supply security, traceability that we already have. And that customer-first focus also bringing all of OFI across all product groups, across all channels to all our customers through our dedicated key account management. And you've seen recently in this year, at the start of the year, we announced the Food and Beverage Solutions Group, which is going to more focus on this value-added space in providing that focused attention to the customers. So it is a business in the making still, and there is a long way to go, but we're very happy with the progress, and I hope you'll all see proof points of that, both in the financial delivery as well as in the execution against the strategy that we have. Thank you, and I'll hand over to Sunny now.