Strategy Report Olam International Annual Report 2018 Re-imagining Olam Offering tomorrow’s products and services Strategy Report Olam International Limited Annual Report 2018 olamgroup.com About this report Contents Strategy Report Strategy report This chapter offers narrative about our strategy, our 2 Our financial and performance and key market factors and trends. It can be performance highlights read independently as an 8 Chairman’s letter Executive Summary or as part of the full report. 10 Group CEO review 26 Our business model Governance Report This section gives detailed 28 Our strategy in action information about our rigorous governance framework and those 40 Group COO review responsible for ensuring it is 76 Manufactured Capital followed. Shareholder information is also held within this chapter. 80 Human Capital 85 Social Capital Financial Report 92 Natural Capital Our figures and respective notes are enclosed within this chapter. 101 Intellectual Capital It should be read in conjunction 104 Intangible Capital with the Strategy Report to give a balanced account of internal and Integrated Impact external factors. 108 Statement 111 Engaging stakeholders 114 Risk Management 118 General information Navigating the Strategy Report Our Value Chain Edible Nuts Confectionery Food Industrial Raw Commodity and Spices and Beverage Staples and Materials, Financial Ingredients Packaged Infrastructure Services Foods and Logistics Our Capitals Front cover image: At Olam Spices’ Innovation and Quality Centre in Fresno, California, USA, Hein Tran creates Financial Manufactured Human Social Natural Intellectual Intangible innovative recipes for customers using our high quality spice ingredients. Our Vision To be the most differentiated and valuable global food and agri-business (by 2040) Our Governing Objective To maximise long-term intrinsic value for our continuing shareholders Our Purpose Re-imagining Global Agriculture and Food Systems How we win 1 2 Our success has and always A focus on niche Defensible niche strategies commodities and businesses in mainstream commodity will come from innovating with leadership positions categories our business model ‘The Olam Way’. 3 4 A unique African footprint A model to out-origin We have built deep industry and operating capability our competition expertise, distinctive 5 6 capabilities and differentiated Differentiated value-added A uniquely shaped our business sufficiently to solutions and services to portfolio ensure profitable growth. customers Where we operate Farming and Supply Processing and plantations chain ingredients Selective upstream Selective mid/downstream • Perennial tree crops • Global origination • Value-added • Broad acre row crops and sourcing manufacturing • Forest concessions • Primary processing • Branding and • Dairy farming • Inland and marine distribution (Africa) logistics • Merchandising • Trading • Value-added solutions and services • Risk management As set out in our refreshed Strategic Plan, by 2024 we will be a global food and agri-business that delivers food, feed and fibre along with innovative solutions to our customers. This supports our customers’ growing need for sustainable and transparent supply chains with a clear focus on tomorrow’s consumer preferences. Our financial and performance highlights Our financial and performance highlights Volume Edible Nuts and Spices Food Staples and Packaged Foods 5.1% 82.5% 1,690.5 27,104.3 Sales volume by segment (’000 metric tonnes) Confectionery and Industrial Raw Materials, Beverage Ingredients 32,867.6 Infrastructure and Logistics 5.6% (2017: 22,534.6) 6.8% 1,836.3 2,236.5 Edible Nuts Confectionery and Food Staples and Industrial Raw Materials, and Spices Beverage Ingredients Packaged Foods Infrastructure and Logistics Sourcing volume by region (’000 metric tonnes) Americas Asia, Australia 37.8% and Middle East 22.0% 32,867.6 (2017: 22,534.6) Africa 10.6% Europe 29.6% 2 Olam International Limited Annual Report 2018 Revenue Edible Nuts and Spices Food Staples and Packaged Foods 14.1% 47.6% 4,312.0 14,506.3 Revenue by segment (S$ million) Confectionery and Industrial Raw Materials, Beverage Ingredients 30,479.0 Infrastructure and Logistics 23.4% (2017: 26,272.5) 14.9% 7,129.8 4,530.9 Edible Nuts Confectionery and Food Staples and Industrial Raw Materials, and Spices Beverage Ingredients Packaged Foods Infrastructure and Logistics Sales revenue by region (S$ million) Americas Asia, Australia 16.9% and Middle East 43.0% Europe 30,479.0 24.7% (2017: 26,272.5) Africa 15.4% olamgroup.com 3 Our financial and performance highlights continued Invested Capital and EBITDA By business segment (S$ million) (%) 14,812.2 1,235.8 Edible Nuts and Spices 100 3,609.9 339.9 Confectionery and Beverage Ingredients Food Staples and Packaged Foods 80 Industrial Raw Materials, Infrastructure and 4,935.1 444.0 Logistics 60 Commodity Financial Services 40 4,577.9 288.8 20 1,571.7 176.2 117.6 (13.1) 0 Invested Capital EBITDA By value chain segment (S$ million) (%) 14,812.2 1,235.8 Upstream 100 4,061.2 148.0 Supply chain Midstream and downstream 80 5,151.3 405.2 60 40 5,599.7 682.6 20 0 Invested Capital EBITDA Edible Nuts, Spices and Food Staples and C ommodity Financial Services Upstream Vegetable Ingredients Packaged Foods Supply chain Confecti onery and Industrial Raw Materials, Midstream and downstream 4 OlamBeverage International Ingredie nLimitedts Annual ReportA 2018g Logistics and Infrastructure For the 12 Months Ended 31 December (S$ million) 2018 2017 % Change Profit and Loss Statement Sales Volume (‘000 Metric Tonnes) 32,867.6 22,534.6 45.9 Sales Revenue 30,479.0 26,272.5 16.0 Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) * 1,235.8 1,327.9 (6.9) Earnings Before Interest and Tax (EBIT) * 843.0 947.2 (11.0) Profit Before Tax * 375.4 630.8 (40.5) Profit After Tax and Minority Interest 347.8 580.7 (40.1) Operational Profit After Tax and Minority Interest * 346.6 431.5 (19.7) Per Share Earnings Per Share basic (cents) 9.2 18.6 (50.5) Operational Earnings Per Share basic (cents) * 9.2 13.3 (30.8) Net Asset Value Per Share (cents) 193.4 200.1 (3.3) Net Dividend Per Share (cents) ^ 7.5 7.5 - Balance Sheet Total Assets 23,446.8 22,298.5 5.1 Total Invested Capital 14,812.2 15,832.4 (6.4) Total Debt 11,268.2 11,587.9 (2.8) Cash & Cash Equivalents 2,480.4 1,986.4 24.9 Shareholders’ Equity 6,325.4 6,443.6 (1.8) Cash Flow Operating Cash Flow Before Interest and Tax 1,154.7 1,369.2 (15.7) Net Operating Cash Flow After Changes in Working Capital and Tax 2,085.3 2,203.9 (5.4) Free Cash Flow to Firm 1,530.4 1,484.4 3.1 Free Cash Flow to Equity 1,066.3 1,020.4 4.5 Ratios Net Debt to Equity (times) ** 1.32 1.46 (0.14) Net Debt to Equity (times) adjusted for liquid assets ** 0.29 0.51 (0.22) Return on Beginning-of-period Equity (%) ^^ 5.3 10.8 (5.5) Return on Average Equity (%) ^^ 5.3 10.1 (4.8) Return on Invested Capital (%) 4.5 5.4 (0.9) EBITDA on Average Invested Capital (%) 8.1 8.2 (0.1) Interest Coverage (times) # 1.7 2.2 (0.5) * Excludes exceptional items ^ Proposed final dividend of 4.0 cents is subject to shareholders’ approval at the 24th Annual General Meeting. ** Before Fair Value Adjustment Reserves # EBIT (including exceptional items) on total interest expense ^^ Excludes impact of capital securities distribution on net income and capital securities on equity olamgroup.com 5 Our financial and performance highlights continued Sales Volume Earnings Before Interest, Tax, (’000 metric tonnes) Depreciation and Amortisation (S$ million) 32,867.6 1,327.9 1,235.8 1,129.0 1,202.8 22,534.6 1,085.2 14,415.8 14,021.9 12,506.7 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 restated restated restated restated 1,527.2 1,549.2 1,569.7 1,691.5 1,690.5 360.5 393.5 331.8 438.4 339.9 1,437.1 1,689.5 1,687.5 2,063.6 1,836.3 275.6 284.0 407.2 327.7 444.0 9,356.4 7,904.9 9,496.1 16,909.3 27,104.3 295.2 212.1 330.2 359.7 288.8 1,701.2 1,363.1 1,662.5 1,870.2 2,236.5 215.6 185.1 135.2 197.3 176.2 (17.9) 10.6 (1.6) 4.8 (13.1) Sales Revenue Invested Capital (S$ million) 30,479.0 (S$ million) 26,272.5 20,587.0 19,771.9 19,052.6 16,649.0 15,832.4 14,374.7 14,812.2 11,560.7 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 restated restated restated restated 3,692.3 4,227.2 3,981.1 4,492.0 4,312.0 3,363.6 3,463.0 3,642.7 3,603.9 3,609.9 5,721.8 6,859.6 7,711.0 8,136.8 7,129.8 3,246.9 5,680.9 6,109.5 5,347.0 4,935.1 7,187.3 5,391.2 6,110.8 9,767.1 14,506.3 3,075.1 3,230.6 4,522.1 4,678.3 4,577.9 3,170.6 2,574.6 2,784.1 3,876.6 4,530.9 1,872.0 1,917.5 2,220.9 2,104.9 1,571.7 (0.1) 0 0 0 0 3.2 82.6 153.8 98.3 117.6 Profit After Tax Operational Profit After Tax and and Minority Interest Minority Interest (S$ million) (S$ million) 431.5 597.2 580.7 363.8 346.6 294.3 295.6 351.3 347.8 (114.9) 2014 2015 2016 2017 2018 restated restated 2014 2015 2016 2017 2018 restated restated Edible Nuts and Spices Industrial Raw Materials, Infrastructure and Logistics Confectionery and Beverage Ingredients Commodity Financial Services Food Staples and Packaged Foods 6 Olam International Limited Annual Report 2018 Earnings Per Share Return On Equity^^ (cents) (%) 24.0 16.3 18.6 10.8 6.8 11.5 11.5 6.7 11.0 9.2 13.3 7.8 7.7 6.4 5.3 (3.2) (5.2) 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 restated restated restated restated Earnings Per Share (cents) Return on Beginning-of-period-equity Operational Earnings Per Share (cents) Return on Beginning-of-period-equity excluding exceptional items Net Asset Value Per Share Shareholders’ Equity (cents) ($$ million) 200.1 193.4 6,443.6 6,325.4 179.7 190.8 167.3 5,079.1 5,398.3 4,171.5 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 restated restated restated restated Number of Customers** Top 25 Customers’ Share of Total Sales Revenue (%) 22,900 22,000 23.0 22.7 19,800 17.0 16,200 15.1 13,800 13.0 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 restated restated restated restated ^^Excludes impact of capital securities on net income and capital securities on equity **Figures for 2014 (restated) are computed based on 30 June year-end basis.