Olam International is well-positioned to benefit from diversified supply chain operations amid the escalating conflict between Ukraine and Russia, its co-founder and group CEO Sunny Verghese said in a results call.
Verghese said Olam’s direct exposure in both markets is limited — Russia and Ukraine account for only 1% of its sales volume, 0.8% of its sales revenues and 0.4% of its invested capital.
However, he acknowledged that the conflict will have implications on the world’s grains, wheat and edible oil markets as a result of both markets’ saliency in global trade flows.
Leveraging on its diversified supply chain operations, Olam is able to substitute some of its contracts based in Ukraine or Russia with “competing origins” of similar quality or value, such as India and Australia, said Verghese.
Olam has 127 employees in Ukraine and 1938 employees in Russia, Verghese noted. “We are very closely monitoring the developments in the Black Sea between Russia and Ukraine. Our first concern and priority is the safety and health of our people in these two countries.”
Commenting on the economic sanctions imposed on Russia, Verghese said the company is monitoring whether it would include food. “In the past, food has always been exempted from any sanctions. Nobody likes to be accused of sanctioning something that is so essential to daily living,” he added.
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OFI IPO on track
In 2020, Olam announced a reorganisation plan to split the group into three new operating groups — Olam Food Ingredients (OFI), Olam Agri (formerly known as Olam Global Agri) and Olam International via a carve-out, subsequent IPO and a concurrent demerger on a sequential basis.
This was done to simplify and focus its current diverse portfolio of businesses into three coherent operating groups that are more similar in nature, linked by an underlying logic and aligned to key consumer food and agri business trends respectively.
The company is now in the fourth step of execution, which entails OFI’s IPO and demerger as well as Olam Agri’s strategic options.
OFI is slated to list in the second quarter of 2022, with a concurrent primary listing in London and secondary listing in Singapore. OFI’s CEO A Shekhar said the company is “well prepared” for the IPO.
In response to a question on whether the geopolitical tensions in Europe would hurt risk appetite and impact OFI’s IPO, Shekhar said the company will focus on what it can control, which is creating a sustainable business.
“The markets will be markets, we will figure out the balance. Obviously right now nobody really knows and we will see how that evolves,” he added.
Meanwhile, the company is also exploring various strategic options to maximise the value of Olam Agri, which include the potential introduction of strategic partners via a secondary sale of shares by Olam for a significant minority stake in Olam Agri or the potential IPO and demerger of Olam Agri.
Olam reported earnings of $264.9 million in the 2HFY2021 ended December, compared to a loss of $87 million in the previous corresponding period. This is attributed to improved operating profit and lower exceptional losses.
Earnings per share (EPS) for the 2HFY2021 stood at 6.65 cents from loss per share of 3.51 cents. EPS for the FY2021 stood at 18.26 cents, from the 5.73 cents reported in the year before.
Shares in Olam closed 1 cent higher or 0.58% up on Feb 28 at $1.72.
Photo: The Edge Singapore
