Olam Group Limited

Very good morning to all of you, ladies and gentlemen. I'm pleased to see all of you again, this time for the presentation of Olam Group's results for 2024. I'm Hang Hong of Group Investor Relations, and I'm pleased to tell you that we have our senior team with us today. On my right, Group CEO and co-founder, Sunny Verghese. And to his right, CEO of OFI, Olam Food Ingredients, A. Shaker. And on my extreme right, our group CFO, N. Mutukuma. They do not need any further introduction, of course, I think you are all familiar with him. Enough to the cautionary note on forward-looking statements that we'll be giving throughout this presentation. You can read this on your mobile device if you scan the QR code that's provided to you or on the presentation that is downloadable on the webcast. Mutu as Group CFO will provide the context in which our group results were achieved and take us through the group's consolidated P&L, balance sheet and cash flow. Thereafter, the segmentals will be presented by the respective CEOs of the operating groups, Shekhar for OFI and Sunny for Olam Agri and the remaining Olam Group. Then a brief recap of our major reorganisation milestone which we have discussed extensively on Monday. This will be followed by Sunny's thoughts on the business outlook and prospects before he ends with the key takeaways. So thank you for your attention. I'll pause and hand it over to Mutu.

Thank you, Hong Ong. Good morning once again. A warm welcome to the second half and the full year 2024 financial results presentation for the Olam Group. So as this practice, I would like to take the key highlights at a glance for the group. Happy to report that we have almost reached 50 million tons of volumes as a group this year. And also for the first time, we have crossed 50 billion tons. Sing dollars of revenues, even though revenue is not something that we track and report because we do not control commodity prices, but definitely it's a reflection of the size and scale of our business as a group crossing 50 billion Sing dollars. EBIT, which is our key operational metric that we track and report, was up 9% to $1.9 billion, and PATMI stood at $86.4 million, and I will talk about it more primarily on account of significantly higher net finance costs that we incurred during the year because of elevated commodity prices in some commodities of our portfolio, resulting in higher working capital utilization. automatically reflecting higher debt utilization resulting in very high finance costs. So that resulted in a lower conversion of our operational earnings which is EBIT at $1.9 billion down to $86 million. Consequently, our free cash flow to equity was negative $5.9 billion and the gearing went up from 1.73 times to 2.79 times. However, The adjusted gearing, adjusting for readily marketable inventories and secured receivables, stood flat at 0.68 times compared to 0.65 times in 2023, clearly reflecting the liquidity nature of our business. Operational PACME, however, was higher at $216 million compared to the reported PACME of $86 million. Here again, very resilient EBIT growth of 9%. Both the key operating groups, OLAM OFI as well as OLAM Agri, contributing a billion dollars and more each in EBIT contribution and reflecting that in terms of volume growing 12.5%, primarily coming from the OLAM Agri operating group. However, revenue was up by 16.3%, primarily contributed by OFI. And very important to note, and Shekhar will talk about it later in the presentation, OFI delivered a very strong double-digit 29.1% growth on EBIT to 1.07 billion and primarily led by very strong growth in the ingredients and solution segment. Olam Agri achieved also more than a billion dollars of EBIT, 5.8% higher than 2023 EBIT. primarily driven by a very strong growth in the fiber, ag industrials and ag services segment. Here again, no surprises here. Volume, 91% contributed by OLAM Agri, 6.8% by OFI and the balance by the remaining OLAM group. However, in the revenues, as I had indicated earlier, 59% was contributed by OLAM Agri, almost 39% contributed by OFI, supported by very high commodity prices, especially in cocoa, coffee, pepper, and cashews, and that resulted in a very strong EBIT. I talked about it, 53% contributed by OLAM Agri, 55% contributed by OFI, and the balance, a lower contribution from the remaining OLAM group. Invested capital grew by 35% primarily on account of the elevated commodity prices in the OFI portfolio. OFI's invested capital on a year-on-year went up by 47% and as I told earlier, Shekhar will talk about it, and that grew to $26 billion in 2024. Sales volume went up from 44 million tons to almost 50 million tons, primarily contributed by Olam Agri operating group, around 5.5 million tons. Again, here again it is in the food and feed platform and more importantly in the origination and merchandising segment that contributed to bulk of the increase in volumes, especially in grains and edible oil complex. I talked about The EBIT growing from 1.77 billion to 1.93 billion and significant growth, 29% growth year on year EBIT of OFI almost increasing by 240 million and Olam Agri contributing 56 million and the remaining Olam group having a lower EBIT by 134 million resulting in an adjusted EBIT of almost 2 billion dollars for the whole Olam group. I talked about the operation pathway earlier at $216 million, primarily lower in spite of higher EBIT and EBITDA growth because of net finance costs significantly increasing on account of higher utilization of working capital resulting in higher debt and resulting in hence not translating the resilient EBIT growth into bottom line. Clearly, you can see here the growth of 34% on invested capital from $19.75 billion to $26.5 billion, primarily led by working capital utilization, more importantly within the OFI operating group, especially in cocoa, coffee, pepper and cashews, and also in Ola Magri due to year-end higher rice inventory and increasing edible oil prices. As I had indicated, the adjusted net gearing in spite of significant utilization of higher working capital and resulting in higher debt stood almost flat at 0.68 times. And many of you know about the significance of the readily marketable inventories, RMI. However, just for clarification, these are primarily liquid or hedged inventories which can easily be sold down. within a period of 90 days, and almost 75 to 80% of our inventories fall within this category, clearly reflecting the flattish nature of the true gearing for the group, which was very, very comfortably low at 0.68 times. I talked about the free cash flow to almost 5.9 billion negative, primarily led by higher utilization of working capital, resulting in the free cash flow to firms, adjusted for net finance cost at $4.39 billion. In spite of it, very, very comfortable sufficient liquidity with diversified pools of capital, roughly $3.3 billion of cash, $12 billion of readily marketable inventories, $2.8 billion of secured receivables, and almost $7 billion of unutilized bank lines, resulting in a total available liquidity of roughly $25 billion, giving a headroom, a comfortable headroom of $2 billion in spite of very high elevated commodity prices that we saw sustained through 2024, resulting in higher working capital utilization and working for many of our friends here throughout the year and delivering a strong and resilient EBIT and EBITDA growth. And with that, I will hand over to Shekhar to present about Wi-Fi. Thank you.

Thank you, Mutu, and good morning, and let me extend a warm welcome to you again this week in the same location, probably not the same room. When you met at the half-yearly briefing, We were talking about very elevated prices in cocoa. Coffee was just about rearing its head. And we've had a very volatile second half in terms of market prices. And while cocoa and coffee hogs the headlines, but even products like cashew and pepper also had a lot of market volatility. And that's caused a lot of challenges, not just to us, but the whole industry. On the other side, during the same period, what has been very heartening, and that's why I call this challenging yet very optimistic year, because we have, if there was any time in which the resilience of our business model, we didn't need to talk about it at all this year. It came to the fore in terms of what we could do in origin, what we could do in terms of offers to our customers, and supporting, which was, and let me again say, it was challenging, say the least, and continues to be challenging. But the overall capacity of the company, the support of the stakeholders, many of whom are here, and the ability and support of our supplier network as well as our customer network is really what I'd like you to see in the results as we talk through that. So let me start with the challenge. And again, we talked, this is something that many of you are tracking and probably do so even as much as us nowadays. But just a show of hands on how many people know what was the increase in pepper prices this last year? Anyone who knows what happened to the pepper prices? Just hands up. I hope you'll have some questions for me on pepper prices and cashew prices. But cocoa and coffee let me address up front. Then you can ask me what the cashew and pepper prices. Take a look at this chart. We have been in this business for 35 years. We have never seen a year like this. Nobody else in the industry has also seen a year like that. If you take on the left side the cocoa prices, take U.S. or the London market, starting from the free $2,500, hit a peak of $12,000, come down to $6,000, back again somewhere between $8,000 and $9,000 this year. This ends in January, but even the last two months have been equally volatile. Take coffee, if you take Arabicas, started the year last year at $1.60, has gone all the way up to almost $4.40, around $3.65, $3.70 today. What's even fascinating in coffee is the Robusta prices, which were below $2,000, almost touching $6,000, but more importantly, there were times during this year when Robusta was trading higher, physical Robusta was trading higher than Arabica's, which is kind of silly for anybody who drinks coffee or has participated in the coffee industry. So this is, it's been, the word is overplayed, so I don't want to use unprecedented, but it is beyond. anybody's imagination last year as well as even currently so therefore anybody who claims to be able to predict what's going to happen in the next 2 months or 6 months or 12 months at least we would not make that mistake so it is a fairly exaggerated situation it can go either way so this is not about saying it can't go up further or can't go what we know is that There is a fundamental supply-demand aspect to this in each market, which is different. It's not single-size brushes also. Everything is going up or everything is coming down. There are very specific supply aspects. COCO started with a supply deficit at the start of last year, and that became worse through the year. And hence, part of the price and increase is justified because the supply – impact that has happened and that still looks a bit uncertain as we are in this year. So there is clearly a supply-led concern in the cocoa market. Having said that, there is also a lot of speculative money in the market which has also added to the situation on the supply-demand side. And at these prices which have now been there for almost 12 months now, at these elevated levels and unprecedentedly elevated levels, There is certainly demand destruction. There is no one in the industry who has supply cover at the lower prices. And people, everybody from the branded majors to the retailers are calling out some level of demand destruction. Again, nobody knows how much it will be or how long this will be. But there's clearly, while there is a supply deficit which is a real one, there is also a demand adjustment which can more than make up for that supply deficit if these prices continue. So our view is that there could be two bookends. There could be either a very sharp correction exaggerated on the downside as much as it was on the upside or there could be a drifting through the course of this year wherein it stays volatile both sides and any supply led disruption, any further negative news on supply can make these markets again. That's of course nobody knows about that. So we are not trying to manage and just on the coffee, just to kind of close that, is in a similar position today in terms of uncertainty and volatility. But when we started last year, coffee was headed straight for a surplus market. So unlike cocoa, which started the year with a potential deficit, looming deficit, coffee started the year in the first half of the year. Most people, including us, to be honest, believe that the coffee is going to be in a surplus situation through the year. However, there were crop disruptions, especially in the Arabicas, led by Arabicas, but then followed aggressively by Robustas and sometimes even overshooting Arabicas, which led to the situation that we are in, and especially between October and January, the markets really rallied to absolutely crazy levels that we have seen. They've adjusted somewhat, and adjusted when I say somewhat, 80 cents in this market would have been a huge move They have adjusted, but they have also gone up by $2.50. So, therefore, the adjustment is just one-third from where they started last year. Again, in coffee, at this point in time, markets, there was a lot of beyond the fundamentals, a lot of speculative action. And again, this market is poised in a similar way to cocoa. It can supply related concerns, can take this market up, But again, otherwise, if supply-demand kind of forces play through at these price levels, there will be demand destruction and there will be some stability. What we are clear about is probably both cocoa and coffee are not going back to the levels we saw at the start of last year, but they may or may not stay at these levels for the reasons that I mentioned. So it is uncertain, but in a sense, we are not really betting either way on the market going up or going down. as we did not do last year through the year. Our job is really to support the farmer network that we have built over the last 30 years, ensure that we stay and manage how we allocate capital, manage risk, and demand a price for the risk-adjusted return that this business needs in this period of elevated capital and elevated risk. That is really the job we are doing. And that's what hopefully you'll see in the results when you talk about both on the EBIT side in terms of what we are making as well as on the capital side that we are managing significantly better for the two and a half times increase in cocoa and coffee prices and pepper and cashew prices that is not seen in these numbers. You will see that we are managing our capital significantly tighter and allocating it significantly sharper to manage this period. So that is a challenge, but the rest of the presentation I'm going to talk to you about what we believe is also an opportunity which has to be managed cautiously based on these kind of uncertain, unprecedented markets, but also offer an opportunity for our business model, our integrated business model. So taking a look, and I'm going to zoom out a bit and then zoom back into last year. And we have taken, provided a snapshot from 2020, which was the inception, as you know, of our reorganization and inception of O5. In January 2020 is when O5 was born as we reorganized the whole group. So it was a business that was roughly 700 million EBIT that year, and we are ending this almost at a 1.1 billion. Over this period, we have seen COVID, we have seen COVID recovery, we have seen a war, we have seen energy crisis, we have seen inflation, we have seen interest rate hikes, again, fairly unprecedented in a very short period, and we have seen the current price increases and the volatility in these markets. So this business has been truly tested and we believe has demonstrated its capacity to When we announced our mid-term guidance in 21, none of us was aware of what's going to happen in the market. But through this period that none of us anticipated, none of us planned for, this business has delivered a double-digit CAGR. And we had said, guided all of you, that this will be a business that can deliver a high single-digit EBIT CAGR, not based on volume growth, but based on increased EBIT per tonne. So at the bottom you'll see the EBIT per ton, which is an important part, that this business has grown from $200 to $300 a ton. Seems small, but on 4 million tons roughly, that is a significant part of the growth. So we are building this business for participating in volume growth that we want, which is low single digit to mid single digits. but really focused on a high single-digit EBIT growth on a medium-term basis, managing the volatility that will happen and managing, as we have done for the last year, when there is elevated capital, we'll have to seek incremental returns for that elevated capital. So I don't want us to focus only on the 30%. It's easy for me to talk about a 30% growth in EBIT, but I want to really direct us back to... The fact that there's a business being built for delivering a high single-digit EBIT growth on half of that volume, so doubling our margins as we improve returns going forward. And if you see the five-year history, you can see that trend. And now there is a five-year history for OFI on its own, and we have a 35-year history and a proud history at that. But this is the history that I want you to kind of put the current year results in context of. So going to the current year's results, that's a 30% growth in EBIT, but obviously the bigger story here is the elevated capital that we need to look at, where if you look at the bar chart that shows the closing capital, and with a market that's moved like this during the last 24 months, the closing capital is not reflective of the average capital because it's changed through the course of the year. But roughly from $12 billion, we have moved to $17 billion, $5.5 billion increase. It's almost entirely... in inventory and readily marketable inventory. So it's all working capital and almost entirely RMI. So we have to be absolutely clear that this business, and if you look at the revenue of O5, which is there in the other numbers, I didn't talk about this on this chart, but that's a 40% increase in revenue. So the capital has gone into inventory, and the inventory is rotating and will be self-liquidating. Part of it has happened last year. Part of it will happen through the course. It's not all done and dusted all into last year. We are carrying inventory which is hedged and or sold and therefore the risk on that is being managed every day and so therefore all of you should sleep easy just like I do that this is not inventory which can go up and down. We have funded the inventory. We have been very careful about new buying and new selling because that absolutely has to be managed within the capital constraints that we have and the whole industry has. But within that, even though it seems like an increase of $5.5 billion capital, it is very carefully calibrated on 2% volume growth, on a 40% revenue growth, with markets which have gone up 2.5 times. We have an increase in our capital of 5.5 billion on a starting capital of 12 billion. That's, I think, the way the capital should be seen. And we have also been pricing the cost of that capital and the cost of that in the EBIT that we are demanding, and rightfully so, for being able to support our customers. And we are getting that in terms of pricing, some which has flowed in already and some which will flow in through the course of the next year. So, therefore, this is not Therefore, it has to be looked at the incremental EBIT and the incremental capital has to be looked at in relation to the elevated capital and the cost of that, but also in the context of the five-year history wherein we have been doing exactly what we are doing. And if anything, this year has demonstrated our capacity to do more of that with our customers. So moving forward, probably also zoning in on that point I made about capital so that it's crystal clear. We had $12 billion capital to start with. roughly half and half in terms of fixed capital and working capital. Fixed capital has remained more or less at the same level, or very marginal increase. Net of depreciation, we have made some investments, but it's a marginal increase. The entire increase of 5.5 billion is in working capital, and almost entirely in terms of the daily market inventory, so which is the value of inventory lying on our books as of 31st December. Some of it bought inventory that's been sold last year and part of our revenue and some of it which will be sold during the course of this year and will become part of our revenue in 2025. So that is the EBIT and the capital at the overall level. Moving on to the segmental analysis, as I've said many times in the past and as you all who track us know, this business is built on top of a very strong global sourcing strategy. which is our supplier network in all the major producing countries, which has been built over a long 30, 35 years. And that is the foundation on which we are building an ingredient and solution business, whether it's for the private label retailers or for the global brands. So when we look at this business, it's not about increasing volume. It's about providing that stability, the sustainability, the traceability of on the volumes that we have, an increasing amount of sustainable traceable volume that is then manufactured increasingly through our captive processing facilities and delivered to our customers. So when we look at the two segments, it is an integrated business and it is getting even more integrated as we speak. The global sourcing will always remain. Just the volume growth or EBIT growth in the global sourcing is not an indication of the value of the global sourcing segment. It is the base on which the ingredient sourcing is building on top. So it's been stable through this year with a 6% growth on, again, very small volume increase. Has managed capital extremely well, significantly better cycle time. And again, put this into the context of a two and a half times cocoa coffee being 70% of our capital deployed. With that kind of an increase in those prices, the global sourcing has just had a 50% increase in invested capital. So it's managed capital very well, as well as continued to keep our factories running, continued to keep our customers whole, and managed the supplier network. And I can tell you again, it's been very tough. It's been the toughest year to manage and balance all these constituencies and stand by them. And it's been tough for the whole industry. It's been tough for us. So therefore, there's no taking away the fact that that challenge has had its costs. But what we believe we have tried to do is that we try to do it right so that we have a long-term stability of this business protected with our suppliers, with our customers, and obviously with the larger colleagues across the world who have had to manage this volatility daily, every day for the last 12 months and still going on. So it's not been easy, but I want to leave you with the fact that because of the capacity that we have built over the last 30 years, supported by the supplier network, supported by the customer, supported by the stakeholders here who have provided funding with the belief that this is being managed, allocated properly and managed properly for risk and return. That is the reason why we have been able to navigate this and we don't take that lightly. That's an accountability that we deliver. The global sourcing platform is in a very sound place. But on top of that, what is really encouraging is that we have been able to maximize the growth in our ingredient and solutions. When we started the journey five years ago, I didn't point that out, we were roughly a 55% ingredient and a 45% in EBIT terms, global sourcing kind of split. That's gone up to almost 70%, 30%, 70% being ingredient and solution. So the strategy, we have stayed sound to it. Ignore the capital and the noise of the market price and everything else. What we want to communicate is that we are staying absolutely focused on building on top of that global sourcing even better ingredient and solution platform and that is again this year while some of the increased capital and the increased EBIT is there but over a period of time what is important is that we have been growing this business for the EBIT per tonne growing the volumes here significantly more than what we are growing in the global sourcing, and then really going deeper into the chain by way of what we do for private label retailers, for our global brands, what we have done in terms of the whole change in our sustainability impact focus that we announced last year, what we call now as choices for change. So we have been on the sustainability journey for the last 20 years, but we are taking it to the next level. And that's also a solution that we provide very differentially to our customers through our manufacturing, through our innovation, delivering that. We have changed our innovation capacity and invested a lot, and it's still not fully yielding because the investments have been made over the last three years, but we are focused We opened up a new center last year in Chicago. We opened up a front-end innovation center in Shanghai. And today we run with four large global centers in Chicago, Amsterdam, Singapore, and Bangalore with front-end innovation centers in Shanghai, Brazil, Indonesia, etc. All that is huge investments in capability that is still not fully yielded. But we are doing that. It's part of these numbers, but it's still not fully yielding. So we are building this business for the future. In the investments we have made in brick and mortar and the acquisitions that we have discussed with you, we are doing the greenfield investment that we have discussed with you. We are investing in capabilities. We are investing in sustainability. We are investing in digitization. So it is not just about managing... market price or but while we are doing this we are investing in this business for the long term growth, sustained growth in this business. Two points, last point before I kind of hand back is Old Thompson, which was a big investment for us that we made in the middle of 21, and we had discussed that we were running behind thesis in 22 and 23. In 24, it's come back roaring, and we are now back at what we planned for this business. And there was, during the 22 and 23, not that the business was bad or the There was clearly the kind of inflation that we ran into as soon as we acquired that business and the operating aspects of that and the changes that we needed to make to the SKUs and the rationalization of SKUs, the rationalization of customers, pricing, all that took time. So we have gone through that cycle and in 24 and what's more important as we position into 25, that business is striking at full levels. The three greenfield investments that we made in Brazil, coffee, soluble coffee, in New Zealand, dairy, as well as in private table nuts in the U.S. were all fairly sizable investments. All three, again, have been commissioned. There were some delays at the start, but now all three are looking very good in terms of operational parameters, and we feel that that will contribute during 2025 and 2028, getting up to full capacity in these. And these are all put together more than half a billion dollars of greenfield investment. Therefore, it was a sizable investment that we put. So we have been investing behind this business in dollar terms. We have been supporting this business with the capital that is required to extract full value from the working capital and all the changes that have happened and this business has been demonstrating proof of delivery. So the last bit that is there is considering especially that when we started this week we talked to you about the value unlock in Olam Agri. So we are not forgetting about that. We believe that is firstly we have to create value in OFI which we are doing and hopefully I have shown that you in these numbers also but we are also paying attention and not forgetting about the fact that we want to unlock value whether by way of an IPO or by any other strategic option and we will be able to share further news about that as and when that factifies so we are not forgetting that we are not losing sight of that that's happening but as you can imagine these things we can only talk about when it happens Thank you all, and happy to take questions and then heading back to Sunny.