Olam International Limited Annual Report 2012 Seeing the Big Picture Shaping Addressing the global supply demand imbalance the Future in the agri-complex How Olam is driving Empowering Our People sustainable growth Leveraging our strengths by Olam International Limited developing global leaders 9 Temasek Boulevard while solving for risk 11-02 Suntec Tower Two Singapore 038989 Growing Responsibly Telephone (65) 6339 4100 Improving small-scale Facsimile (65) 6339 9755 farmer incomes & livelihoods www.olamonline.com Olam is a custodian of our investors’ resources so we need to show how we are growing these resources responsibly, Shaping The Future - CEO and Executive Directors’ Dialogue Pg 14 for profit and for the benefit of all our stakeholders Midstream - Addressing Global Needs Pg 42 CR&S - Supporting Rural Livelihoods Pg 50 Our People - Growing Global Leaders Pg 54 Olam is helping shape the future of agri-commodities by partnering with farmers worldwide to bring new resources into play. Contents 02 Performance Overview 04 Performance Analysis 06 Financial Summary 07 Financial Highlights 08 Chairman’s Statement 10 Board of Directors 14 CEO and Executive Directors’ Dialogue CEO Sunny Verghese and Executive Directors Sridhar Krishnan and A. Shekhar discuss Olam’s approach to sustainable long-term growth 28 Executive Committee 30 Global Presence 32 Business Review Senior managers discuss what is driving global growth in the agri-businesses sector 34 Upstream 38 Origination Coffee in Brazil 42 Midstream 46 New Growth 50 Corporate Responsibility Embracing Change & Sustainability Implementing processes to deliver Change is an inherent and accelerating The foundation of our strategy was laid sustainable products across all factor in today’s business. It is a threat if two decades ago as we developed our geographies we don’t anticipate it, but also a source our business in the emerging markets, 54 Our People of great opportunity if we do. Many of the based on a repeatable model of world’s most successful businesses have adjacency growth. Today we remain 56 Risk Management gained in strength during turbulent times. true to our core, but see new potential as agri-resources grow scarce, global 58 Corporate Governance Commodity markets have seen volatile markets re-balance and consumption Why good Corporate Governance swings in recent years and this has patterns and demand change. In this is vital for success led to stress and pressure on many annual report, we explore the wider participants. Some have withdrawn and 77 Key Information story of how Olam is positioning itself to others have reduced their commitment Regarding Directors be at the forefront of the agri-complex under these market conditions. 81 Corporate Information which has attractive growth prospects. Olam’s business model has proven its Our organisational advantage – our 82 6-Year Financial Analysis strength and resilience to volatility. As a people, culture and values, make us result, we are capitalising on emerging 86 General Information what we are today. opportunities as we implement our 89 Directors’ Report and Audited strategy to build a unique and globally Financial Statements capable company. 1 Performance Overview VOLUME NET CONTRIBUTION EBITDA 10.7m S$ S$ tonnes 1.4b 957.8m S$ S$1.2b 863.0m 8.5m +13.0% +11.0% tonnes +26.3% FY FY FY FY FY FY 2011 2012 2011 2012 2011 2012 SALES REVENUE NET CONTRIBUTION / TONNE NPAT S$17.1b S$145 S$444.6m S$ 15.8b S$129 S$403.8m +8.2% (11.0%) (9.2%) FY FY FY FY FY FY 2011 2012 2011 2012 2011 2012 2 Our Group’s Profit After Tax and Minority by 13.0% to S$1.4 billion. NC per tonne declined on the back of a larger equity Interest, excluding exceptional items, in was lower mainly due to lower NC from base, our Net Asset Value (NAV) per FY2012 declined by 4.6% to S$355.5 the Non-food business segments, share improved from S$1.15 in FY2011 million compared to S$372.8 million which were impacted by adverse market to S$1.45 in FY2012. achieved in FY2011. conditions. The Food category continued We now have a stronger balance sheet to show strong results with robust sales We grew Sales Volume by 26.3% in and liquidity position with increase in volume and NC growth in FY2012. FY2012 compared to FY2011. shareholders’ funds (before fair value While Return on Equity (ROE) and Return adjustment reserve) from S$2.6 billion in Sales Revenue rose 8.2% to S$17.1 billion on Average Invested Capital (ROIC) FY2011 to S$3.5 billion in FY2012. and Net Contribution (NC) increased ROE ROIC EPS 21.3% 14.3% S$0.203 14.2% 10.7% (7.1%) (3.6%) S$0.150 (26.2%) FY FY FY FY FY FY 2011 2012 2011 2012 2011 2012 EQUITY SPREAD CAPITAL SPREAD NET ASSET VALUE PER SHARE* 11.3% 7.1% S$1.45 4.2% 3.5% (7.1%) (3.6%) S$1.15 +25.8% FY FY FY FY FY FY 2011 2012 2011 2012 2011 2012 * Before Fair Value Adujstment Reserve 3 Performance Analysis Sales Volume by Segment (’000 Tonnes) FY2011 FY2012 7,000 Sales volume reached 10.7 million metric tonnes in FY2012, an increase of 26.3% 5,845 6,000 compared to a year ago. All four business segments contributed to the growth in sales 5,000 volume, with robust growth coming from the 4,102 Food segments at 31.5%. Food Staples & 4,000 Packaged Foods led the growth in volumes at 42.5% followed by Edible Nuts, Spices & Beans at 23.2% and Confectionery & Beverage 3,000 Ingredients at 8.4%. Industrial Raw Materials segment, being a Non-food related segment 2,000 1,651 1,570 1,484 1,609 1,591 and therefore more recession sensitive, grew 1,274 its volumes by a modest 3.7%. 1,000 Edible Nuts, Confectionery & Food Staples & Industrial Spices & Beans Beverage Ingredients Packaged Foods Raw Materials Net Contribution by Segment (S$million) FY2011 FY2012 450 420.8 Net Contribution (NC) grew 13.0% to 390.9 390.9 S$1.4 billion in FY2012 with growth coming 400 from the Food segments. Confectionery & 350 Beverage Ingredients segment led the growth 314.4 302.5 296.6 283.9 at 33.8%, followed by Edible Nuts, Spices 300 & Beans at 31.8% and Food Staples & Packaged Foods at 29.2%. NC from Industrial 250 Raw Materials fell by 41.1% largely due to 200 167.2 the Cotton business, which was impacted by adverse market conditions and weak demand 150 for Wood Products. NC from Commodity Financial Services declined from S$25.4 100 million in FY2011 to S$12.1 million in FY2012. 50 25.4 12.1 Edible Nuts, Confectionery & Food Staples & Industrial Commodity Spices & Beans Beverage Ingredients Packaged Foods Raw Materials Financial Services Net Contribution Per Tonne by Segment (S$million) FY2011 FY2012 300 Portfolio Net Contribution (NC) per tonne 262 declined from S$145 in FY2011 to S$129 249 in FY2012, dragged down by lower NC 250 233 from the Non-food category. NC per tonne 212 from the Edible Nuts, Spices & Beans and 200 178 Confectionery & Beverage Ingredients segments improved while margin per tonne 150 from Food Staples & Packaged Foods came down due to a change in product mix arising 101 from larger volumes from Grains, which has a 100 lower NC per tonne compared to the rest of 74 67 the product platforms within that segment. NC 50 per tonne from the Industrial Raw Materials segment, part of Non-food category, declined as a result of a lower NC. Edible Nuts, Confectionery & Food Staples & Industrial Spices & Beans Beverage Ingredients Packaged Foods Raw Materials 4 Value Chain Segmental Analysis Balance Sheet Analysis (S$million) Value Chain Initiatives Net Contribution (S$m) Growth EBITDA (S$m) Growth 12,000 % % Short-Term Debt FY2012 FY2011 FY2012 FY2011 Long-Term Debt 10,000 Supply Chain & VAS 956 864 10.7% 614 572 7.2% 3,148 Equity & Reserves* Margin (%) 6.5% 6.2% 4.1% 4.1% 8,000 Fair Value Adjustment Reserve Margin Per Tonne 105 121 67 80 3,610 6,000 % Share 69.2% 70.7% 64.1% 66.3% 4,341 Upstream 192 170 12.7% 174 154 12.8% 4,000 2,971 Margin (%) 51.0% 55.7% 46.3% 50.5% 2,000 Margin Per Tonne 662 633 600 573 3,531 2,568 % Share 13.9% 13.9% 18.2% 17.9% Midstream & Downstream 234 189 23.8% 170 136 24.8% (323) (125) (2,000) Margin (%) 12.3% 11.5% 9.0% 8.3% FY2011 FY2012 Margin Per Tonne 187 176 137 127 The balance sheet was strengthened during % Share 16.9% 15.4% 17.8% 15.8% FY2012 with increase in equity from S$2.6 Total 1,382 1,223 13.0% 958 863 11.0% billion to S$3.5 billion through a combination of increase in retained earnings and equity raising. Margin (%) 8.1% 7.7% 5.6% 5.5% There was a change between long-term and Margin Per Tonne 129 145 90 102 short-term borrowings during the year as we termed out and diversified our sources of debt The continued execution of our corporate the Upstream and Midstream/Downstream so as to ensure we have sufficient liquidity to strategy through selective and targeted businesses. The NC per tonne and EBITDA support our long-term and short-term capital integration upstream into plantations and per tonne margin for both segments improved. requirements and deal with any liquidity midstream into processing, while optimising the The proportion of total NC and EBITDA coming constraints arising from macroeconomic factors.