Olam, one of the world’s largest food traders, is to exit sugar and three other commodities as it looks to streamline its business and focus on more attractive markets.
As part of new six-year strategic plan the Singapore-based company will divest its sugar, rubber, wood products and fertiliser units, releasing $1.6bn of cash for reinvestment.
Olam, which is majority owned by Singapore’s state-backed investment company Temasek, will then plough $3.5bn into 12 core businesses, including edible nuts, cocoa, coffee and cotton.
“We want [to] strengthen, streamline and focus our portfolio,” said Olam chief executive Sunny Verghese “We have decided to concentrate on 12 areas where we think Olam already has market leading positions . . . and there are good growth prospects.”
Agricultural traders have been grappling with tough markets conditions and slow farmer selling, which have crimped profitability and margins in bulk commodities like soyabeans, grains and sugar.
Some companies have responded to these shifts by looking to bulk up, while others have expanded into new markets like flavours, fragrances and aquaculture.
For its part, Olam has decided to focus on niche commodities that have been largely overlooked by the industry’s big players. These are companies such as Archer Daniels Midland, Bunge, Cargill, Cofco, Glencore Agri and Louis Dreyfus Company. In an effort to differentiate itself, Olam has put a big emphasis on promoting sustainable food production.
Mr Verghese said Olam had no interest in becoming a big player in grains and oilseeds and investing heavily to buy crops at origin.
“Many of our peers are being forced to buy grains . . . just to utilise their storage,” he said. “Given the fact that farmers are now hoarding and not releasing the grains into the market . . . these companies are finding themselves in a very difficult situation.”
Mr Verghese said the $3.5bn investment programme, which includes $1bn of sustaining capital expenditure, would be a mix of acquisitions and new projects.
“We are not going to have a democratic allocation of capital . . . but in terms of the platforms we are really excited about . . . edible nuts is one, cocoa is another, and we have a fantastic animals seeds and grains business [in] Africa,” he said.
Mr Verghese also said Olam would close part of its asset management and would be looking to reduce costs by $200m between now and 2024.
On divestment, he said Olam would not conduct a fire sale of assets and its sugar, rubber, wood and fertilisers could be sold in stages.
“It could be sequential or some assets could be sold in full,” he said,
Mr Verghese said the decision to exit sugar reflected Olam’s view that consumption will decline over the long-term as more countries introduce sugar taxes.
“That will mean food manufacturers will be innovating to replace sugar with substitutes,” he said. Olam owns two Indian cane mills.
Shares in Olam have fallen 18 per cent of the past year and the company is currently valued at $4.3bn.
Source: Financial Times