Group COO’s financial and operating review
|S$ million||2015||2014||% Change|
|Volume (‘000 MT)||12,506.7||14,021.9||(10.8)|
|Net loss in fair value of biological assets||(14.4)||(19.5)||(26.3)|
|Depreciation and amortisation||(237.1)||(209.8)||13.0|
|Net finance costs||(448.9)||(474.5)||(5.4)|
¹As part of the transition to the new financial year from January to December, the financial performance of the Group is reported for the period from January 2015 to December 2015, against the previous corresponding period from January 2014 to December 2014.
In 2015, Olam achieved strong Operational PATMI growth of 20.1% year‑on‑year to S$346.2 million, compared to S$288.1 million in 2014.
Our headline results were negatively impacted by exceptional items totalling S$397.0 million, with reported PATMI declining to negative S$64.3m. The net exceptional loss was primarily on account of the S$192.6 million fair value losses on our equity investment in PureCircle Limited (PCL), which was due to a conservative interpretation of an accounting treatment. There was no change to total equity (including reserves) or cash flow.
Other exceptional items resulted from deliberate actions to optimise operations for future growth – the buy‑back of higher cost debt, restructuring cost for the Dairy operations in Uruguay and ADM Cocoa transaction expenses, which were partly offset by the gain on the sale‑and‑leaseback of Palm plantations in Gabon.
Sales volumes and revenue were lower year‑on‑year by 10.8% and 3.6% respectively as we continued to execute on our business strategy to grow in prioritised platforms while reducing volumes or exiting lower‑margin businesses.
Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) grew by 1.5% to S$1,122.8 million in 2015 compared to S$1,106.6 million in 2014 with growth across three of our segments – Edible Nuts, Spices and Vegetable Ingredients (up 16.3% from S$335.5 million to S$390.2 million), Confectionery and Beverage Ingredients (up 16.7% from S$278.3 million to S$324.9 million) and the Commodity Financial Services business (up from a loss of S$17.9 million to positive S$10.6 million). This was partly offset by reduced contributions from the Food Staples and Packaged Foods (down from S$295.2 million to S$212.1 million) and Industrial Raw Materials segments (down from S$215.6 million to S$185.1 million).
Overall EBITDA and invested capital
The invested capital increased by over S$2.87 billion, primarily from the McCleskey Mills (MMI) and ADM Cocoa acquisitions which are expected to deliver strong EBITDA growth going forward. In spite of this significant increase, EBITDA to average invested capital (EBITDA/IC) declined by only 100 basis points to 8.6%, in testament to our sharp focus on prioritised platforms, as well as balance sheet optimisation.
Strategic partnership and transformational acquisitions
This year, we had several transformational developments. On 28 August 2015, the Company entered into a subscription agreement with international conglomerate Mitsubishi Corporation (MC), setting up a long‑term strategic partnership to collaborate in mutually beneficial business opportunities in Japan and across the world.
As part of this agreement, we raised approximately S$915.0 million of additional equity capital by issuing 332.73 million new ordinary shares to MC at an issue price of S$2.75 per new share, which represented approximately 12.0% of the enlarged issued and paid‑up share capital (excluding treasury shares) of the Company immediately after completion of the subscription agreement. In a separate and independent transaction, MC also acquired approximately 222.0 million secondary shares from the Kewalram Chanrai Group, representing approximately 8.0% of the enlarged issued and paid‑up share capital (excluding treasury shares) of Olam immediately following the issuance of the new shares. Post the completion of both of these transactions, MC is now Olam’s second largest shareholder with 20.0% shareholding of the Company.
We completed two major acquisitions in the year which will position us for further growth. With the acquisition of ADM Cocoa, Olam Cocoa is now among the top three integrated suppliers of cocoa beans and products. With the acquisition and integration of leading peanut sheller MMI, our peanut platform is now integrated across the value chain.
Strategic Plan update
We continue to make progress on our Strategic Plan. To date, our initiatives have released cash of S$1,150.5 million, generated a P&L gain of S$150.3 million and added S$154.6 million to our capital reserves. Our focus continues to be on delivering on six priorities:
- Recalibrate the pace of investments
We incurred gross Capex of S$2,339.5 million in 2015 as compared to S$455.7 million in 2014. The Capex for 2015 includes an investment of approximately S$1,855.4 million for the acquisitions of MMI and ADM Cocoa which were not part of the Strategic Plan Capex guidance.
- Optimise balance sheet
Several initiatives have been undertaken towards optimising working capital utilisation across the supply chain, including a reduction in inventory levels, receivable factoring, securing higher supplier credit and prioritisation of higher margin transactions within each business unit. In addition, various initiatives to optimise the balance sheet and improve returns have also been completed. These include the sale‑and‑leaseback of dairy farming land in Uruguay, almond plantation assets in the USA and Australia, palm plantations in Gabon, the repurchase of long‑term unsecured bonds of US$30.0 million issued by NZ Farming Systems Uruguay Limited (NZFSU) and the repurchase of 7.0% perpetual capital securities and 6.0% fixed rate notes due 2022 aggregating S$54.2 million.
- Pursue opportunities for unlocking intrinsic value
We have completed several initiatives, including the sale of our basmati rice mill in India, the sale of the Dirranbandi cotton gin and the partial sale of the Collymongle gin in Australia, the sale of a 50.0% stake in our Grains origination operation – Olam Lansing Canada, the sale of 9.8% equity stake in our Dairy processing operation – Open Country Dairy (OCD), New Zealand, the sale of 20.0% stake in the SEZ to the Republic of Gabon, the sale of 80.0% stake in our Australian Grains business to Mitsubishi Corporation, sale of equity in our upstream Palm and Rubber joint ventures in Gabon to the Republic of Gabon (RoG) and the sale of 25.0% stake in our Packaged Foods business to Sanyo Foods of Japan.
- Optimise shape of portfolio and reduce complexity
In addition to the partial divestment of our Wood Products business in Gabon, we sold our Timber subsidiary Compagnie Forestière des Abeilles in Gabon. We also exited from the rice distribution business in Côte d’Ivoire, announced the sale of our Australian wool business and closed a vegetable dehydrates facility in the USA.These transactions will help bring a sharper focus to the business and are expected to reduce operating costs going forward.
|Summary of completed strategic plan initiatives
|Sale-and-leaseback of almond plantation assets, Australia||65.4||233.2|
|Divestment of Olam Lansing JV, Canada||6.8|
|Sale of timber assets, Gabon||(14.6)||22.8|
|Repurchase of Bonds and Perpetual Securities||1.0||2.3|
|Sale of 9.8% stake in OCDL, New Zealand||(0.6)||35.1|
|Australian grains JV with Mitsubishi Corporation||28.8||79.8|
|Sale of timber subsidiary in Gabon||(22.6)||7.5|
|Sale of Collymongle Cotton Gin, Australia||6.0||9.9|
|Sale of 20% stake in SEZ to RoG, Gabon||74.8|
|Sale of dairy processing plant, Côte d’Ivoire||17.7||32.7|
|Sale of 10%/20% stake in Palm/Rubber JV to RoG, Gabon||31.9||40.0|
|Sale-and-leaseback of dairy farm land, Uruguay||21.0||70.4|
|Sale of Australian wool business||(2.7)|
|Closure of dehydrates facility, USA||(4.9)|
|Closed in 2014||14||94.5||34.2||612.9|
|Sale of 25% stake in Packaged Foods to Sanyo Foods||106.2||219.1|
|Sale-and-leaseback of palm plantations, Gabon||20.2||184.4|
|Closed in 2015||2||20.2||106.2||403.5|
Summary of financial and operating results
Balance sheet analysis
Our total assets of S$17.7 billion comprised S$2.1 billion of cash, S$8.3 billion of working capital and S$6.7 billion of fixed assets. These were funded by S$5.2 billion of equity, S$5.5 billion of short‑term debt and S$6.8 billion of long‑term debt. Of the S$3,518.6 million increase in overall balance sheet size as compared to end‑December 2014, S$2,425.9 million was on account of the acquisition of ADM Cocoa.
On working capital efficiency, our overall cycle increased from 121 days as at end‑December 2014 to 149 days at end‑December 2015. This was primarily due to the ADM Cocoa acquisition which increased inventory days and was partly offset by the increase in trade creditor days.
Cash flow analysis
We generated positive net operating cash flow of S$154.9 million in 2015. However, free cash flow to the firm was negative S$2,062.6 million primarily on account of an investment of S$1,855.4 million for the MMI and ADM Cocoa acquisitions.
We executed various initiatives to optimise debt tenors and reduce the overall cost of borrowing, which included the buyback of expensive bonds. This resulted in a decline in the relative share of debt capital market instruments in our overall portfolio.
|Cash flow analysis|
|Operating cash flow (before interest and tax)||1,150.8||1,148.3||1,144.9||969.3|
|Changes in working capital||(995.9)||(766.2)||(98.2)||(55.0)|
|Net operating cash flow||154.9||382.1||1,046.7||914.2|
|Free Cash Flow to Firm (FCFF)||(2,062.6)||329.2||164.9||(592.8)|
|Net interest paid||(478.4)||(411.5)||(485.0)||(434.6)|
|Free Cash Flow to Equity (FCFE)||(2,540.9)||(82.3)||(320.1)||(1,027.4)|
|Less: Readily marketable inventory||5,232.9||3,947.9||1,285.0|
|Less: Secured receivables||1,155.8||1,030.4||125.4|
|Adjusted net debt||3,762.0||3,016.6||745.4|
|Equity (before fair value adjusted reserves)||5,226.4||4,320.1||906.3|
|Net debt/Equity (times)||1.94||1.85||0.09|
|Adjusted Net debt/Equity (times)||0.72||0.70||0.02|
Net debt increased by S$2,155.8 million as compared to 2014 primarily due to the acquisition of ADM Cocoa. Net gearing of 1.94 times as at end‑December 2015, was higher than the 1.85 times as at end‑December 2014, but remained within the Strategic Plan target of at or below 2.0 times.
We maintained sufficient liquidity to meet our working capital and capital expenditure requirements, with a total of S$15.6 billion in available liquidity as at end‑December 2015, including unutilised bank lines of S$7.1 billion.
|Segmental review and analysis|
|Segment||Sales volume (‘000 MT)||Revenue||EBITDA||Invested capital
|Edible Nuts, Spices and
|Food Staples and
Note: IC excludes:
- Gabon Fertiliser Project (31 December 2015: S$209.8 million, 31 December 2014: S$182.4 million)
- Long-term Investment (31 December 2015: S$269.2 million, 31 December 2014: S$334.4 million)