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The Straits Times
Published on Nov 15, 2012
Olam's profit up 26%, fuelled by grains

Firm's 'niche strategy' in grain market pays off, doubling sales

By melissa tan

A BOOST from its relatively new grain business lifted food commodities supplier Olam International's first-quarter earnings.

Net profit jumped 26.2 per cent to $43.2 million for the three months to Sept 30, from the same period the year before.

Revenue shot up 45.2 per cent to $4.69 billion as the firm's sales volume doubled.

An increase in grains, which Olam entered into less than three years ago, was largely responsible for the 97.7 per cent year-on- year leap in sales volume, the company said.

Mr Shekhar Anantharaman, executive director of finance and business development, told a briefing yesterday that part of the surge in grain sales volume was due to fears of a Russian ban on grain exports following a severe drought in the country.

The grain business is part of Olam's food staples and packaged foods segment, which recorded a 36.7 per cent year-on-year growth in net contribution to $111 million for the first quarter.

Olam's "niche strategy" in the grain market, where it focuses on Russia, Ukraine, Australia and South Africa, "worked far better than we expected", chief executive Sunny Verghese told the briefing.

The food staples and packaged foods segment was dragged down by sugar and dairy, which faced "unfavourable trading conditions", the company noted in a statement.

Net contribution from Olam's edible nuts, spices and beans segment climbed 22.3 per cent to $97.7 million from the preceding year.

Net contribution from the confectionery and beverage ingredients segment, which includes coffee and cocoa, grew 10.5 per cent year-on-year to $69.8 million.

But the industrial raw materials segment recorded a 4.2 per cent fall in net contributions to $29.1 million, partly due to a lacklustre performance from wood products.

Mr Verghese said the firm does not plan to invest significantly more money in the wood business as the industrial raw materials segment was more susceptible to recession.

He added that Olam plans to execute around 55 "growth initiatives" over the next four years across its spectrum of businesses, which would happen mainly in this financial year and the next.

The firm is not planning additional investments in its fertiliser business, Mr Verghese said, and has already completed most of its planned investments in dairy and rice, but will continue to invest in sugar, grains and palm.

Olam is a "very small player" in palm, he noted.

Earnings per share stood at 1.6 cents for the first quarter, up from 1.4 cents the corresponding period a year ago. Net asset value per share was $1.351 as at Sept 30, down from $1.3944 as at June 30.

Olam shares fell eight cents or 4.3 per cent to $1.76 yesterday, their lowest level since July.

The stock has fallen 17 per cent since the start of this year, making it the third-worst performer on the benchmark Straits Times Index, according to Bloomberg.
Even STI component stock is never safe

Olam Plunges After Muddy Waters’ Block Questions Accounts

By Jesse Westbrook and Shruti Date Singh - Nov 20, 2012 7:44 AM GMT+0800.
Olam International Ltd. (OLMIF), the commodities trader part owned by Singapore’s state-owned investment company, plunged the most in four years after short seller Carson Block said he’s betting against the shares because he questions the company’s accounting methods.

The supplier of 20 agricultural goods from cocoa to rubber fell 21 percent in over-the-counter trading in New York yesterday, according to data compiled by Bloomberg, after Block said the company is booking profits on transactions before it’s clear how the deals will work out over time. Singapore-based Olam is “heavily” indebted and aggressive in how it reports what the company calls biological gains on investments, he told the Ira Sohn Investment Conference in London.

Olam is “dismayed at the nature and lack of substance” of Block’s comments and wasn’t contacted before by him or his Muddy Waters LLC research firm, Chief Executive Officer Sunny Verghese said in an e-mailed statement. He’s waiting for a report from Muddy Waters and “will strongly defend Olam’s excellent reputation for transparency and good governance,” he said.

Block, 36, has successfully bet against Chinese companies that trade in North America after questioning their accounting methods. One target, tree-plantation operator Sino-Forest Corp., slumped 74 percent before eventually filing for bankruptcy protection in March last year.

‘Leap of Faith’

Olam will fail and recoveries for investors will be “negligible,” Block said. “It’s a leap of faith to think the company is being honest with its valuation” gains, he said.

It fell 0.9 percent in Singapore yesterday to S$1.74 before the 29 cent plunge to $1.10 in New York. It has fallen 18 percent in Singapore this year compared with a 12 percent gain in the benchmark Straits Times Index.

Hong Kong- and Mississauga, Ontario-based Sino-Forest Corp. plunged before being suspended in August last year after a June 2011 report from Muddy Waters accused it of fraud.

Block took a short position in Sino-Forest by borrowing and selling the stock, aiming to profit by repaying the borrowed shares at a lower price. Sino-Forest filed for bankruptcy protection in March. The Ontario Securities Commission accused several executives including the former CEO Allen Chan of involvement in a “complex fraudulent scheme” to inflate assets and revenue.

Block Targets

Other companies targeted by Muddy Waters include New Oriental Education & Technology Group Inc. Block said last month he’s “more convinced than ever” that the Beijing-based company is misleading investors. In February, Muddy Waters issued its fifth report on Focus Media Holding Ltd., claiming the Chinese advertising company overstated its network.

“As it pertains to Sino-Forest, he was able to unearth something others weren’t,” said John Goldsmith, deputy head of equities at Montrusco Bolton Investments Inc. in Toronto, who sold his Sino-Forest shares for a loss in June 2011, seven days after Muddy Waters published its report on the company. “He, ultimately, was proven correct. You have to at least listen.”

Olam was founded in 1989 in Nigeria by the Kewalram Chanrai Group as an export company to secure foreign currency, according to Olam’s website. Today, Olam is the fifth-largest publicly traded global wholesaler of agricultural products ranked by revenue, after Bunge Ltd., Archer-Daniels-Midland Co., Noble Group Ltd. and Glencore International Plc., according to data compiled by Bloomberg.

Biological Assets

The company supplies food to 12,300 customers in 65 countries and employs more than 18,000 people, the website says. Temasek Holdings Pte, Singapore’s state-owned investment company, holds 16 percent of Olam, according to data compiled by Bloomberg.

The company’s first-quarter net income of S$43.2 million ($35.3 million) included an operation gain of S$10.1 million on account of “fair valuation of biological assets,” Olam said in a Nov. 14 statement. It said then that it started making such valuations in the third quarter of fiscal 2012 and “hence there was no operational gain/loss booked in the corresponding period” a year earlier.

Overall, Olam said its quarterly profit rose 26 percent while sales gained 45 percent to S$4.69 billion. Net debt was $5.7 billion as of Sept. 30, according to data compiled by Bloomberg.

To contact the reporters on this story: Jesse Westbrook in London at; Shruti Date Singh in Chicago at

To contact the editor responsible for this story: Simon Casey at
I will be really really surprise if there are some problems with Olam accounts. IMO, Olam case seems more to be a stir-fry news kind of story. Those who have some exposure with Africa will know their presence there
(14-06-2012, 12:13 AM)karlmarx Wrote: [ -> ]
(13-06-2012, 10:09 AM)egghead Wrote: [ -> ]Between Noble and Olam, I prefer Noble anytime.

I see and understand Noble's "Asset Medium" and "Pipeline" strategies. Essentaily, this means that Noble invests in and builds up the supply chain. In most acquisitions, e.g. coal mines, the main idea is to secure the marketing rights; develop the supply chain facilities (e.g. transports, ports, etc) and recycle the capital by selling some of these assets but retaining the marketing rights. This can be seen in the recent deal relating to the M&A of Gloucester Coal to Yancoal.

I much prefer noble as well. But to my dismay, the shortists hasn't been as enthusiastic in selling down this stock. ;(

hi karlmarx, yr patience has paid off, noble should look much cheaper now since yr last post
We should bear in mind:
1) Olam's core business is very much just a commodities trader and, by virtue of that and the fact that the company is involved in many commodities, the group is always carrying big, long positions in many commodities and their markets. The fact is that world prices of many commodities have fallen by quite a big margin in the recent months; under such market conditions, many and most traders would be exposed to losses, either realised or on a re-valued basis from negative movement of commodity prices, or from trade counterparties reneging on their contracts. The actual and accounting losses will only catch up over time, as markets and prices and events evolve.
2) Olam is heavily geared to the tune and in excess of SGD9.5b gross, and SGD7.2b nett, as at 30Sep12, against a group equity of SGD3.4b. It is quite fair to say that Olam has been an aggressive borrower in the banking and debt markets for quite many years now.

If big hidden lossess or frauds are later discovered in this over-sized and over-borrowed commodities house, it is possible that the resultant impact could become shattering to Olam's investors and creditors, and may be also to the larger markets.
There must be a reason why this guy made such statement , can Olam resort to legal action ?
(20-11-2012, 06:05 PM)valueinvestor Wrote: [ -> ]There must be a reason why this guy made such statement , can Olam resort to legal action ?

Sure Olam can take legal action. All the companies that Block targeted previously have threatened to sue him. But so far, none have succeed in bringing him down.
(20-11-2012, 08:40 AM)shanrui_91 Wrote: [ -> ]Even STI component stock is never safe

alternatively, Temasek Holdings doesn't mean safe.
Looking at the volume today, it seems like Mr Sunny Verghese has bought shares on the open market to defend the share price! Big Grin
Muddy waters searches for wrong doings in corporate world.

Valuebuddies searches for under valued ideas usually backed by real assets or high operating cashflows backed by decent dividend yields.

Olam in this case just like other fallen darlings of yester-years such as Raffles Edu, Midas or even peer comparison Noble doesn't really fit valuebuddies primary investment objectives - either undervalued by real assets or generating positive free cashflows that translates into decent dividend yields.

Hence, buddies can form their own investment judgement and make wise choices.