1. Why was Olam vulnerable to a short-seller attack in 2012?

2. Identify one or more businesses that you think Olam should divest. Give your reasons.

3. What are the lessons learnt from Olam's investment and financial decision-making?

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The year 2016 marked a milestone for Olam International Limited ("Olam") as it was the first year after Olam had set a new vision of "becoming the most differentiated and valuable global agribusiness by 2040". The company had come a long way from its early days as a small trader that exported cashew nuts from Nigeria to India. Over the years, Olam had grown into a multi-country, multi-product integrated agribusiness. In 2016, Olam was one of the 30 largest Singapore Exchange-listed companies by market capitalisation and recorded annual turnover of S$20.6 billion (US$14.2 billion). Olam's corporate strategy could be explored in terms of three chronological phases: (i) 1989-2005; (ii) 2006-2012; (iii) 2013-2016. During the first phase, Olam's core business was in supply chain management sourcing (also known as origination), primary processing, logistics, trading and marketing of agri-commodities. Based on an 'asset-light' business model, Olam grew organically through the expansion of its core business, as well as by capitalising on adjacent business opportunities that had synergy with its existing businesses in terms of customers, suppliers, costs, channels and/or capabilities. Through these adjacency expansions which Olam considered a repeatable formula for organic growth, Olam gained economies of scale by expanding into new products, customer segments and geographic markets. Between 2006 and 2012, Olam began to diversify upstream into plantation investments and midstream into value-added processing, in alignment with its adjacency expansion-based organic growth model as well as its inorganic growth strategy. During this phase, Olam made more than 20 major acquisitions and greenfield investments, which were supported by multiple rounds of capital-raising. In November 2012, a short seller's negative research report triggered crisis in Olam, which temporarily put the brakes on its expansion drive. The third phase (2013-2016) saw Olam conducting a strategic review, re-calibrating its strategic plan, implementing restructuring initiatives, and working towards new goals and its new vision. During this period, Olam's capital-raising efforts were boosted by financial support from two strategic investors, with one becoming its majority shareholder and the other becoming a substantial shareholder. In 2015, Olam had charted out its strategic plan for the next three-year cycle (FY2016-FY2018). At the close of FY2016, how had Olam fared in executing its strategic plan? What challenges lay in wait for Olam in the road ahead, as it set to realise its new vision of becoming the most differentiated and valuable global agribusiness? COMPANY BACKGROUND In 1989, Sunny Verghese, then a project manager of the Kewalram Chanrai ("KC") Group in Nigeria, was tasked with the mission of establishing an agribusiness division. The KC Group was a diversified family-owned enterprise based in India. From 1990 to 1995, the KC Group's agribusiness operated as Chanrai International Limited, which had its headquarters in London, UK. In 1995, Olam International Limited was incorporated in Singapore. A year later, at the invitation of the former Singapore Trade Development Board (renamed International Enterprise Singapore), the KC Group moved its entire agribusiness operations to Singapore. Subsequently, Olam took over the ownership of the Group's agribusiness. Sunny Verghese was appointed Olam's Group Managing Director and CEO, a job title he held for nearly 20 years. Murli Kewalram Chanrai, then Non-Executive Chairman of the KC Group, became Olam's Non-Executive Chairman. On 11 February 2005, Olam was listed on the Main Board of the Singapore Exchange (SGX) and its Initial Public Offering (IPO) was 15.2 times oversubscribed. Olam's market capitalisation was S$929 million at the IPO issue price and S$5.6 billion towards the end of 2016. Exhibit 1 shows the share price movement of Olam vis--vis the Straits Times Index from its IPO till end 2016. Over the same period, Olam registered a six-fold increase in revenue from S$3.4 billion in 2005 to S$20.6 billion in 2016. Exhibits 2A to 2C provide a summary of Olam's financials from FY2007 to FY2016. Since its inception, Olam's growth in terms of product portfolio and geographical reach had progressed at a steady pace. By 2005, Olam had expanded from one country (Nigeria) and one product (cashew nuts) to 14 products across 40 countries in Africa, Asia, Europe, the Middle East, North America and South America. Between 2006 and 2009, Olam extended its footprint to Oceania and was a market leader in edible nuts, coffee, cocoa, cotton, rice and sesame. By 2014, Olam had expanded to 44 products across 65 countries, compared 20 products across 60 countries in 2009. In 2016, Olam had five business segments: (i) edible nuts, spices and vegetable ingredients; (ii) confectionery and beverage ingredients (cocoa and coffee); (iii) food staples (rice, sugar and dairy products) and packaged foods; (iv) industrial raw materials, agricultural logistics and infrastructure; (v) commodity financial services. Olam's segment information from FY2007 to FY2016 is shown in Exhibit 2D In terms of value chain, Olam was involved in upstream activities, supply chain management, midstream value-added processing, and downstream operations. As at end 2016, Olam's upstream investments included "almond orchards in Australia and US, pistachio and walnut orchards in the US, peanut farming in Argentina, coffee plantations in Laos, Tanzania, Zambia and Brazil, cocoa plantation in Indonesia, rice farming in Nigeria, palm and rubber plantations in Gabon, dairy farming in Uruguay and Russia, and the development of tropical hard wood forest concessions in the Republic of Congo." In the midstream part of the value chain, Olam had investments in "peanut shelling in the US, mechanical processing of cashew in Cte d'Ivoire, hazelnut processing in Turkey and Georgia, spice grinding in Vietnam, soluble coffee manufacturing in Vietnam and Spain, cocoa processing in Cte d'Ivoire, Germany, [the] Netherlands, Singapore, Canada, Ghana and Nigeria, and wheat milling Nigeria, Ghana, Senegal and Cameroon."3 Olam's downstream activities included biscuits and candy manufacturing and downstream distribution, juice and dairy beverages, instant noodles, seasonings and tomato paste distribution in West African markets. In less than three decades, Olam had achieved a scale that placed it in the league of global agribusinesses, although I was still much smaller than the dominant players in the industry. Figure 1 shows Olam's 2016 revenue vis--vis that of major companies in the agribusiness industry. Figure 1: Revenues in 2016 of major agribusiness companies (US$ billion)4 Revenue (US$ bn) 120.0 100.0 107.2 80.0 63.7 62.3 40.0 20.0 49.8 42.7 414 22.0 14.2 0.0 Cargill COFCO ADM Louis Dreyfus Bunge Wilman Glencore Agriculture Olam Callebaut Source: Authors At the time of writing, the agribusiness industry was dominated by Archer Daniels Midland Company ("ADM"), Bunge Limited ("Bunge"), Cargill Incorporated ("Cargill"), and Louis Dreyfus Company ("Louis Dreyfus"); these four firms were collectively known as the 'ABCDs'.5 In Asia, Singapore-headquartered Wilmar International Limited and Beijing-headquartered COFCO were major agribusiness players. After acquiring SGX-listed Noble Group's agribusiness and the Netherlands-based Nidera, COFCO had reached a size that was comparable to that of the 'ABCDs'. Glencore Agriculture was 50% owned by Glencore plc, one of the world's largest global, diversified natural resource companies. Barry Callebaut was the world's leading manufacturer of chocolate and cocoa products, a segment where Olam had significant presence after its acquisition of ADM's global cocoa business. Exhibit 3 provides a more detailed description of the aforementioned companies. OLAM'S INORGANIC GROWTH STRATEGY (2006-2012) In 2006, after becoming a listed company, Olam began to look at expanding its global presence through acquisitions, in addition to organic growth: Given that growth through acquisitions is a new phase for us, we want to be very disciplined about the way we approach M&A. We would follow more of a string-of-pearls based approach rather than a big, bet-the-company approach. Thus, no individual transaction is expected to exceed 10% of our market capitalisation, with an expected focus on transactions that are closer to 5% of our market capitalisation. On an aggregate, we do not envisage spending more than 15% of our market capitalisation on acquisitions in any given year. We also intend to make sure that these transactions are clearly value accretive and not just earnings enhancing. We also intend to close deals that have a reasonable margin of safety from their intrinsic value. In this regard, we would like to make sure that the expected synergy value to stand alone value ratio is at least 1.30 times.6 In implementing its inorganic growth strategy, Olam assembled a core deal team of three executives who had a combined experience of over 45 years in the field of mergers and acquisitions. In addition, Olam appointed to its board several directors with experience in investment banking, mergers and acquisitions, investments or private equity. Between FY2007 and FY2008, Olam invested S$680.9 million in nine acquisitions, which were expected to produce a net earnings accretion of S$80.0 million by FY2011.8 In FY2009, Olam announced further acquisitions, five of which involved distressed assets (Exhibits 4A to 4D). However, the company sought to clarify that "our strategy for acquisitions is not based solely on buying distressed assets, but also assets at fair value as long as we can bring our capabilities to bear to extract synergies that will make these acquisitions both earnings and value accretive."9 The company asserted that it did not regard mergers and acquisitions as a strategy per se, but as a tool for executing its corporate strategy. In 2009, companies all over the world had to grapple with the negative impact of the global financial crisis. To prepare for the challenges ahead, Olam conducted a study of 50 agri-commodity companies and found that leaders, integrated value chain players and focused companies had higher total shareholder return, 10 Olam also analysed the distribution of profit pool within the various segments of the agribusiness value chain. For example, in the cocoa business, Olam found that 2% of the profit pool was in origination of cocoa, where Olam was a dominant player, while 5% of the profit pool was in upstream cocoa harvesting. 11 In the sugar business, 4.4% of the profit pool was in global trading (one of Olam's many business activities), while 70% was in sugar milling. 12 Following its strategy review in 2009, Olam decided on a growth strategy based on value chain extensions that could bring in larger profit pools. For its next step, Olam rolled out a six-year strategic plan (FY2010-FY2015) that sought to realise its ambition of quadrupling its intrinsic shareholder value over the plan period. Olam projected that it would have to grow its revenue from US$6.0 billion to US$12.5 billion, which in turn, would require total capital of about US$5.5 billion and equity of about US$1.75 billion. 13 The strategic plan also set a net-profit- after-tax (NPAT) target of US$454 million for FY2015, up from FY2009's NPAT of S$252 million (US$179.6 million 14).15 A significant part of the strategic plan involved Olam moving upstream into plantations and farming, and midstream into value-added processing (Exhibit 5). For example, Olam planned to achieve, through inorganic growth, a global leadership position in the almond business with an integrated value chain.16 Olam's other ambitions included establishing a significant presence in palm and rubber. It had chosen to venture into palm and rubber plantations in Africa instead of the main palm- and rubber-producing countries in Asia, as it believed it would be rewarded with twice the returns due to "cheaper land acquisition costs, lower labour costs, slower wage price inflation, regulatory arbitrage opportunities, lower competitive intensity and higher perceived risk of execution in Africa." 17 With the perceived advantages that Africa potentially had to offer, Olam was also keen to commit to other investments in the continent. With an eye to leveraging its latent capabilities, the company also turned its sights on starting three new businesses-packaged food distribution in Africa, construction of a US$1.3 billion port-based ammonia- urea fertiliser manufacturing facility in Gabon, and a business in commodity financial services (CFS). The CFS business, which became Olam's fifth business segment, started with three principal activities in its first year: options market making, risk management solutions, and commodity fund management. In the first year of its FY2010-FY2015 strategic plan, Olam invested S$585 million in upstream initiatives including dairy farming in Uruguay. The company also invested S$234 million to expand its supply chain and value-added services, and S$643 million in midstream initiatives including tomato paste manufacturing in California and wheat milling in Nigeria and Ghana. 18 By 2011, Olam had grouped its supply chain activities under a wider value chain segment that extended to the company's risk management of agricultural products and its CFS business. 19 Olam's upstream segment included activities relating to farming (annual row crops), plantations (perennial tree crops), dairy farming and forest concessions; its midstream and downstream segments included activities relating to secondary processing, contract manufacturing, branded distribution and private labelling. Olam's diversification had created new revenue streams. Buoyed by its strong financial performance in the first two years of its strategic plan, Olam was confident that it could achieve its original FY2015 NPAT target of US$454 million at least two years ahead of the plan. Consequently, the company raised its NPAT target for FY2016 to US$1 billion. The rapid pace of expansion, both organic and inorganic, had more than doubled Olam's number of employees from 5,000 in 2005 to 13,000 in 2012. Olam believed that a critical success factor in developing an organisational advantage in this industry was by growing its Global Assignee Talent Pool (GATP) of managers. Hence, the number of GATP managers had more than quadrupled from 168 2005 to 750 in 2012.20 Olam perceived these managers have its DNA, understand its business model and systems, and share its values and culture. To facilitate transfer of its core competencies, Olam deployed its GATP managers to its adjacent new businesses.21 FINANCING GROWTH FROM 2005 TO 2012 From FY2005 to FY2012, Olam raised approximately S$1.7 billion of equity capital. From its IPO in 2005, Olam raised S$267 million in gross proceeds from the listing of 368.4 million new shares and 62.8 million shares from existing shareholders at S$0.62 per share. The net proceeds accrued Olam was S$217.4 million. 22 In April 2008, Olam received S$307 million in gross proceeds from a non-renounceable preferential offering (or rights issue) of 155.6 million new shares at S$1.97 each. A year later, in July 2009, the company raised S$437.5 million in gross proceeds from a placement of 273.46 million new shares at S$1.60 per share to Temasek Holdings' wholly-owned subsidiaries, representing approximately 13.74% of Olam's enlarged capital. Temasek Holdings, Singapore's sovereign wealth fund, became Olam's second largest shareholder. Between June and July 2011, Olam launched a three-tranche equity fundraising exercise comprising private placement of 94.4 million shares at S$2.60 each, a non-renounceable preferential offering of 97.3 million shares at S$2.56 each, and the issue of 94.4 million shares at S$2.60 each to a wholly- owned subsidiary of Temasek Holdings (Exhibit 6). The issues raised a total of S$740 million in gross proceeds and resulted in an increase in Temasek Holdings' stake in Olam to 16.32%. Olam's founding shareholder, Kewalram Chanrai Holdings Limited, remained its largest shareholder with a deemed interest of 19.67%.23 Commenting on the fund raising, Olam's CEO, Sunny Verghese, was positive that Olam would be "well-positioned financially to continue the execution and delivery of its six-year [FY2010-FY2015] strategic plan, and capitalise on the organic and acquisition growth opportunities available."24 Other than equity, Olam also obtained financing through bank debts, leases, medium-term notes, bonds and convertible bonds. By the end of FY2012, Olam's total borrowings hit S$7.5 billion. In March 2012, Olam tapped a new funding source by issuing S$275 million of 7% perpetual capital securities, a bond- like instrument that could be classified as equity under prevailing accounting rules. In Olam's Annual Report 2012,25 A. Shekhar, Olam's Executive Director, expressed confidence that Olam would not be raising further equity until FY2016. This was because the company had not only raised its equity base, but also "successfully tapped the debt capital markets as well as the bond markets, to build a debt profile and tenor to match our more asset-intensive investment profile."26 AN UNEXPECTED CRISIS In late November 2012, Carson Block of Muddy Waters, a short seller that made financial gains from betting that a company's share price would fall, raised red flags on Olam at a London conference. A week later, on 27 November, Muddy Waters released its 133-page report that questioned Olam's accounting practices, acquisitions, business model and solvency. The report considered Olam's revenue recognition on negative goodwill27 and biological gains as "aggressive accounting". The report suggested that "Olam runs a high risk of failure. Its 'asset heavy' strategy appears to be an off-the-rails CapEx [capital expenditure] and acquisition binge."28 Muddy Waters also alleged that "the vast majority of the [Olam's] acquisitions we have researched are of low quality assets."29 On 28 November 2012, Olam released its own 45-page report to rebuke Muddy Waters' allegations. Olam retorted that it was in no risk of insolvency, and that its accounting policies adhered to the Singapore Financial Reporting Standards. The report also defended Olam's business model as "yielding the intended results" and highlighted the company's "proven track record of unlocking value through acquisitions and pursuing profitable organic growth". 30 Despite Olam's rebuttal and filing of a defamation suit against Muddy Waters and its founder in retaliation, its share prices dropped by 14% in a week. Olam's unrated bonds and perpetual securities also took a beating. A Straits Times article dated 1 December 2012 (Saturday) reported that "Olam's perpetual bond, issued at par with a 7 per cent yield, traded at a record low of 75.439 cents to a dollar on Thursday [29 November 2012], according to Bloomberg data. Barely a day earlier, this bond was done at 93.421 cents. Yesterday, it was changing hands at 76.442 cents with a yield of 14.661 per cent.32 The article also highlighted that yields on Olam's five-year bond, issued at par with a 5.75 per cent coupon, jumped to a record of 10.034 per cent. In addition to issuing an immediate rebuttal, Olam also formed board subcommittee to conduct an internal review. The subcommittee comprised Olam's Non-Executive Chairman, chairman of Olam's audit and compliance committee, as well as two independent directors. In January 2013, Olam announced that the subcommittee had found Muddy Waters' accusations to "have no basis in fact and provide no reason for concern."33 As yet another response to the short seller's attack, Olam raised US$712.5 million in gross proceeds in January 2013 from a rights issue comprising US$750 million of 6.75% bonds due 2018 and US$387.4 million in warrants (see Exhibit 6 for details). A former Morgan Stanley investment banker commented that the issue was so attractive that it should have been described as the "sale of the century". 34 According to his calculations, excluding the warrants' value, the effective yield for the bonds was about 13%. Earlier, Olam had announced that the rights issue was "a decisive action on the part of the Company to further enhance its liquidity position and underscores the Company's ability to continue to access debt and equity capital even in current market conditions. "35 While the rights issue was underwritten by the Joint Lead Managers of the issue, the entire issue was also sub-underwritten by Temasek Holdings. Olam's CEO, Sunny Verghese, spoke of Temasek Holdings' action as a reflection of "the support and confidence a discerning and sophisticated investor places in our Company, our strategy and the integrity of our management team."36 Temasek Holdings' Senior Managing Director, Investments, David Heng said: "...We are supportive of its [Olam's] publicly known strategy to take the opportunity, in recent years, to add on more upstream and midstream capabilities and capacities. While no business is without risks, we remain comfortable with Olam's credit position and longer term prospects..."37 In addition to underwriting the rights issue, Temasek Holdings also bought Olam shares in the market. By 8 February 2013, Temasek Holdings had increased its stake in Olam to 21%, thus becoming its largest shareholder. 38 Two months later, Temasek Holdings held 24% of Olam. 39 STRATEGIC REVIEW AND STRATEGY RE-CALIBRATION At Olam, we plan across two three-year cycles... In the last of the two three-year planning cycles (FY10-FY15), we deliberately chose the strategy of moving away from being a pure supply chain manager (asset light) to a selectively integrated player across the value chain (asset medium), in order to participate in the more attractive profit pools in the agri-value chain and improve overall portfolio margins and returns. As anticipated, this has led to increased fixed capital intensity, negative free cash flows and lower returns in the near-term. Performance has also been impacted by significant gestation (especially for upstream), as well as the steep learning curve on project execution and in building new organisational capabilities. While some of our investments have not gone as per plan and we have had to contend with their underperformance, overall, our investment track record has been good. Many of our investments have been concluded at attractive valuations (especially in the aftermath of the global financial crisis), which has given us access to attractive parts of the value chain and significantly improved our competitive position in the industry.40 Olam's investments that had "not gone as per plan" included its entry into fertiliser manufacturing and dairy farming. In 2010, Olam partnered the Government of the Republic of Gabon ("RoG") in an 80/20 joint venture to invest in a greenfield fertiliser manufacturing project in Gabon. Olam forecasted that the project would be operational by 2014, cost US$1.3 billion and yield a return on equity of 46%. With a senior management team that had combined cross-functional experience of over 100 years, Olam was confident that it could manage the project risks. In 2011, Tata Chemicals Limited agreed to invest in the project, but pulled out in 2014. Since then, Olam had been attempting to deconsolidate its fertiliser business, but as at end 2016, it had met with little success and its capital investment in the project totalled S$224.8 million. Olam entered the dairy farming business by acquiring 100% of New Zealand Farming Systems Uruguay ("NZFSU") through share purchases and takeover offers between 2009 and 2012. Incorporated in 2006, NZFSU was set up to apply New Zealand's dairy farming systems in Uruguay. NZFSU ran up losses annually between 2006 and 2012. An independent adviser's report by Grant Samuel highlighted the Uruguayan climate (in particular, droughts) and the difficulties of tweaking the "New Zealand model to suit local Uruguayan conditions" as two business risks faced by NZFSU.41 In 2015, Olam incurred a restructuring cost of S$76.9 million when it scaled down its underperforming dairy farming operations in Uruguay. In Russia, Olam's dairy farming business also performed below expectations. While Olam had overcome the Muddy Waters crisis with the backing of Temasek Holdings, it had to take stock of its ambitious expansion drive and re-calibrate its strategic goals and focus. In FY2013, Olam carried out a strategic review for FY2014-FY2016. It considered feedback from internal and external sources, and various stakeholders relating to its strategy, business model, strategy execution, pace of growth and financing. Following the review, Olam set twin objectives of sustaining profitable growth and speeding up generation of positive free cash flow. Olam announced that it would focus on four key priorities of accelerating free cash flow generation, reducing gearing ratio, reducing complexity in the business model, and promoting better understanding of the company. More specifically, Olam aimed to lower capital expenditure by over S$1 billion and release approximately S$1.5 billion in cash during the FY2014-FY2016 period. The company also targeted annual cost savings of S$80 million to S$100 million by FY2016 from running more efficient operations. In FY2014, the first full year after the strategic review, Olam reported that it had reduced its gross cash capital expenditure by 49.7% from a year ago to S$583.9 million. Having made 36 acquisitions and 27 greenfield investments from 2005 to 2014, Olam began to take stock of its portfolio of companies and assets, and decided that some could be divested (Exhibits 4C and 4D). Following its exit from lower- margin businesses such as rice distribution in Cte d'Ivoire, Olam's annual sales volume and annual sales revenue declined for the first time in its post-IPO history. We have made good progress in this first full year of our revised Strategic Plan. There has been disciplined execution across multiple initiatives which have focused on the continuing optimisation of our balance sheet, as well as unlocking the intrinsic value across various platforms. While a few of these initiatives have resulted in lower growth for some businesses, it has helped achieve a better balance between delivering profitable growth and achieving free cash flow generation. We will continue on this path of extracting full value from existing operations and investments, while continuing to invest in selective growth opportunities that can enhance shareholder value over time. By the end of FY2015, Olam had released S$1.15 billion of cash and realised a total capital gain of S$304.9 million from its restructuring initiatives that included partial or full divestments of certain businesses and sale-and-leaseback of some upstream assets. The year 2015 also saw a marked change in Olam's approach towards acquisitions, with Olam making fewer but larger acquisitions, instead of its customary 'string-of-pearls' based approach. Only two acquisitions were completed in 2015. Olam acquired ADM's worldwide cocoa business for US$1.2 billion and the third largest peanut sheller in the US, McCleskey Mills, for US$178 million. The acquisition of ADM's cocoa business, which was Olam's largest acquisition in its history, turned Olam Cocoa into one of the world's top three cocoa processors alongside Barry Callebaut and Cargill. ADM, which had earlier sold its chocolate business to Cargill, cited volatility as a motivation for the sale of its cocoa business. However, Olam believed that the integration of growing with processing and marketing would help Olam better manage the cocoa sector's volatility.43 The second deal in 2015 - the acquisition of McCleskey Mills - transformed Olam into the most vertically integrated player in the US peanut industry.44 INVESTMENTS BY TEMASEK HOLDINGS AND MITSUBISHI CORPORATION In March 2014, one year after becoming Olam's largest shareholder, Temasek Holdings led a consortium that included Olam's founding shareholders and management to launch an all-cash voluntary general offer ("VGO") for all shares in Olam. The offer price of S$2.23 a share, a 12% premium over the pre-announcement price, valued Olam at S$5.3 billion (US$4.2 billion).45 Through the offer, Temasek Holdings intended to "provide Olam with a stronger long term shareholder base to support Olam's strategy and growth plans over the medium to long term". 46 Observers commented that the bid was "timely and strategic, given growing concern over global food security and a wave of consolidation in the agri-commodities sector". 47 The Singapore stock market reacted positively to news of the takeover, and Olam's bonds also rallied in the debt market. Olam's perpetual securities jumped 10.23% to S$100.53 following news of Temasek Holdings' takeover bid. 48 Alan Greene, a Moody's Vice President-Senior Credit Officer, observed that "Olam will benefit from the financing halo effect with Temasek firmly in the picture".49 In May 2014, following the completion of the VGO, Temasek Holdings became Olam's majority shareholder with a 58.5% stake. In a press release announcing Olam's FY2014 results, CEO Sunny Verghese said that "Temasek's recent investment to become the new majority shareholder in Olam will provide a strong base for a more resilient future for the Company. "50 Olam also noted that its capital- raising exercises demonstrated "the strength of Olam's credit position following the completion of the VGO, which s already having a favourable impact on our cost of borrowing". 51 In September 2015, Mitsubishi Corporation ("MC"), Japan's largest general trading company with US$63.9 billion in revenue in FY2015, took a 20% stake in Olam through placement of new shares by Olam and acquisition of secondary shares from the KC Group, thereby becoming Olam's second largest shareholder. Temasek Holdings remained as Olam's majority shareholder, although its stake had decreased to 51.4%. MC was selected by Olam "through a competitive bidding process"52 to raise growth capital, and with MC's investment, Olam had secured equity capital of S$915 million. MC's Living Essentials Group, which constituted about 30% of MC's net income in FY2015, operated "businesses in fields including distribution, retail and restaurants, providing consumers with products such as foods, clothing, daily consumer necessities and medical goods". 53 Olam's business relationship with MC continued well into the 2010s. In May 2013, MC's Sanyo Foods acquired 25.5% stake in Olam's instant noodles business in Nigeria for US$20 million. In June 2014, as one of its restructuring initiatives, Olam sold 80.0% equity of its wholly-owned subsidiary, Olam Grains Australia to MC for US$64 million. In August 2014, Olam sold 25.0% stake in its packaged foods business to Sanyo Foods for US$187.5 million. With an extensive network of small-scale farmers, processing capabilities and distribution networks in Africa, Olam hoped to join forces with MC in upstream, midstream and downstream businesses in the continent. 54 In April 2016, MC and Olam strengthened their partnership by forming a 70/30 joint venture, MC Agri Alliance Ltd ("MCAA") in Japan. Leveraging on Olam's supply chain networks and track record in sustainability and traceability, as well as MC's distribution and sales network in Japan, MCAA intended import and distribute coffee, cocoa, sesame, edible nuts, spices, vegetable ingredients and tomato products in the Japanese market. We have concentrated our effort on establishing a strong and stable shareholder base with like-minded long-term partners. This is key to building a resilient and sustainable business.55 Sunny Verghese Co-Founder and Group CEO, Olam MORE DEVELOPMENTS AND OUTLOOK AHEAD In 2016, given the positive outlook for the global animal feed industry56, Nigeria's supply deficit in animal feed and consumer demand for locally produced protein, Olam decided to enter the animal feed and protein business in Nigeria. With its US$150 million investment, Olam set up two poultry and fish feed mills, poultry breeding farms and a hatchery to produce day-old chicks in Nigeria. This new business was grouped under Olam's expanded grains and animal feed platform, and was expected to capitalise on Olam's strengths in sourcing, expertise in Nigeria, and ability to utilise bran from its flour mills and its network to source corn and soy locally. elevation Having garnered decades of experience in Africa, where its businesses had delivered better-than- expected performance, Olam continued to maintain a strategic focus on the continent as a separate "vertical". 57 Olam also decided to make selective investments in agricultural logistics, which included and port facilities in Russia, Ukraine and Gabon. The company believed that building its own logistics infrastructure would help support its core business of trading and supply chain management. For its three-year FY2016-FY2018 strategic plan, based on a set of criteria to guide investment choices and capital allocation decisions, Olam prioritised its portfolio into four clusters as follows: Cluster 1 - edible nuts, cocoa, grains, coffee, cotton, and spices and vegetable ingredients (SVI); Cluster 2-packaged foods business (PFB), edible oils (palm), rubber, dairy, and commodity financial services (CFS); Cluster 3- rice, wood products, and sugar and sweeteners; Cluster 4-fertilisers and Gabon Special Economic Zone. Cluster 1 businesses were Olam's top priority businesses and operated in attractive markets where Olam enjoyed dominance. Hence, Olam intended to expedite further investments to build and defend its international leadership position in this cluster. The businesses in Cluster 2 were in attractive markets, but were still in the stage of gestation. Olam's intention was scale up these businesses once their underlying models proved to be successful. Cluster businesses were smaller and 'asset-light', but the company was confident of maximising returns. As for the two businesses in Cluster 4, Olam designated them as "non-core" and planned to "deconsolidate these businesses and partially monetise these investments at the appropriate time."58 In addition to clusters, Olam also re-designated its newer businesses in adjacent markets and value chain steps as 'new cores' (Exhibit 7): New core #1 - selective upstream; New core #2 - selective New core #3 - CFS; New core #4 - digital. downstream; For new core #4, Olam had established a 'Digitalising Olam' task force to evaluate eight initiatives (Exhibit 7). One app that was under development was the Olam Farmer Information System, which Olam hoped, would have a database of 500,000 farmers from all over the world by 2020.59 Another project in the works was the 'Olam Direct' programme, which would offer an online platform for small- scale farmers to sell their products and look for service providers such as banks, insurers, and manufacturers of fertilisers and agrochemicals. For its digital initiatives, Olam hoped to leverage its "sourcing network of over 4.3 million farmers, of whom the vast majority were smallholders in emerging markets". 60 Olam had also joined a blockchain consortium that included Louis Dreyfus and Cargill as members. With IBM as its technical partner, the consortium was developing a supply chain and trading system for cotton. While Olam's 'new core' businesses offered opportunities and payoffs, they also carried threats and risks. One notable example was CFS (new core #3), which comprised three platforms in 2016: (i) risk management solutions; (ii) market-making, volatility trading and asset management; (iii) trade and structured finance. CFS, which was adversely affected by depressed commodity market conditions, registered EBITDA losses three out of the four financial years between 2013 and 2016 (Exhibit 2D). In 2015, Olam's packaged foods business in Africa (new core #2) was battered by currency devaluation. Despite this temporary setback, Olam was optimistic about distributing packaged food products manufactured by MC's subsidiaries in Africa.61 Plantation and farming activities (new core #1) are asset-intensive, require substantial capital investment, and are confronted by challenges such as environmental sustainability, climate change, land condition, water availability, food safety, labour supply, and commodity price volatility. As an illustration of the risks faced by upstream operations, in December 2016, Olam was accused by Washington DC-based environmental group Mighty Earth of bulldozing rainforests in Gabon to make way for palm oil plantations.62 In February 2017, Olam reached a "truce" with Mighty Earth - Olam would suspend forest clearing in Gabon for at least a year, while Mighty Earth agreed to suspend its campaign targeting Olam's oil palm and rubber operations for the same period.63 As Olam neared the half-way mark of its FY2016-FY2018 strategic plan, it seemed an opportune time for the company to pause, reflect, and contemplate. One issue concerned the sustainability of Olam's 'new core' businesses and whether Olam should continue with its diversification strategy. Another issue had to do with resource allocation. How could Olam ensure that its resources were not spread too thinly over its core and 'new core' businesses? And how should Olam manage the risk of over-leverage? Then, what should its next three-year strategic plan focus on? Finally, what other possible challenges could lie in wait in Olam's journey ahead? EXHIBIT 1: SHARE PRICE MOVEMENT OF OLAM VIS--VIS STRAITS TIMES INDEX (2005-2016) 378.00% 328.00% 278.00% 228.00% 178.00% 128.00% 78.00% 28.00% -22.00% -72.00% May- Augov Apr-28- Oct-23- Source: S&P Capital IQ. Apr-1 Oct-1 Apr-04-2008 Olam 2008 L-da14-201 n-09-2 Straits Times Index Mar-07 Mar-10-2 ep-09-2 Olam International Limited (SGX:032) - Share Pricing FTSE Straits Times Index ("FSSTI)- Index Value Dec-09-2 3-10-201 ec-08-2 Balance Sheets (S$ million) Cash and short-term deposits Trade receivables Inventories Derivative financial instruments EXHIBIT 2A: OLAM'S FINANCIALS (2007-2016) 2015 2016 (restated) 20151 2014 2,143 2,143 1,590 1,591 1,111 6,692 6,692 4,686 4.154 4,410 3,584 2.584 784 784 Other current assets (including advance payments to suppliers) 2,033 2,307 2,329 1,673 1,151 Current assets Property, plant and equipment (PPE) Intangible assets Biological assets Deferred tax assets 11,278 11.300 8.526 8,284 8.275 8,727 5.001 3,733 2013 2012 2011 2010 2009 2008 2007 2,144 872 672 534 339 237 1,656 1,495 1,495 1,613 2,373 1.597 1.596 977 733 724 508 7.414 1,966 1,790 1,163 1,926 554 606 1.302 2.310 657 350 838 388 966 1,237 783 684 927 556 13,029 4.279 2,615 5,367 4,722 3,367 3,144 3,428 2,621 1.577 1.054 514 403 129 1,314 1,115 809 649 686 660 486 342 127 130 96 451 336 1,387 1,108 782 631 453 182 20 0 0 96 62 62 23 35 38 43 64 75 37 8 890 899 899 835 558 483 412 467 401 2 2 148 269 269 408 0 0 0 19 0 25 81 30 31 557 23 20 9 10 11 24 10 8,296 7,434 7,350 6,190 5,509 4,442 2.981 2,132 1,148 621 326 Investments in jointly controlled entities and associates Long-term investments Other non-current assets Non-current assets Total assets Trade payables and accruals Borrowings Derivative financial instruments Provision for taxation Other current liabilities Current liabilities Deferred tax liabilities Borrowings Non-current liabilities Total liabilities Share capital Treasury shares Perpetual capital securities 2,201 1,754 21,325 18,712 18.650 14,716 13.793 12,717 11,708 7,133 4.881 4,900 2,941 1,754 1,588 1,748 1,134 1,096 648 659 520 255 5,983 5,512 4,504 2,965 3,148 3,610 1,998 988 540 540 382 395 1,116 2,287 608 404 1,016 489 85 82 82 80 50 33 25 35 11 24 25 384 445 445 428 278 334 112 99 58 52 56 9,641 8,333 8,333 6,982 5,436 5,765 7,130 3,686 3,130 3,472 1,821 506 420 319 266 241 194 177 141 63 0 7,688 6,782 6,782 4,836 5,883 4,341 2.971 2,207 1,176 1,125 924 8,194 17,835 15,535 15,434 7.202 7,101 5,102 6,124 4.535 3,148 2,348 1.239 12,084 11,560 10,300 10,278 6,034 4,369 4,601 2,745 1,129 924 3.088 3.082 3.082 2,163 2,077 2.077 1.577 1 202 709 705 398 (190) (96) (96) (96) (96) (96) 0 0 0 0 0 930 238 238 237 277 277 0 0 0 0 0 Reserves 1,570 1.855 1.894 1.896 1.434 1.148 668 570 337 (67) 35 Equity attributable to owners of the Company 5,398 5,079 5,118 4.200 3.692 3,406 2.245 1,772 1,046 638 433 236 241 Total equity 5,634 23,469 20,855 Non-controlling interests Total liabilities and equity Notes: 5,320 5,359 4,222 3,824 3,528 2,302 1,771 1,046 16.306 1 In 2015, Olam changed its fiscal year-end from 30 June to 31 December. Accordingly, FY 2015 was for an 18-month period from 1 July 2014 to 31 December 2015. 2 The 2015 figures were restated in 2016 due to (i) changes in accounting standards relating to financial instruments and biological assets, and (ii) the completion of purchase price allocation exercise of ADM Cocoa business acquisition. Source: Annual Reports of Olam International Limited EXHIBIT 2B: OLAM'S FINANCIALS (2007-2016) (CONTINUED) 241 22 132 122 57 (1) 0 0 0 638 433 20,793 15,384 13.828 12,580 7.805 5,415 5,239 3,178 2015 Income Statements (S$ million) Sales of goods and services Other income Cost of goods sold and other expenses Depreciation and amortisation 2016 (restated) 20151 2014 2013 2012 2011 2010 2009 2008 2007 20,587 28,231 28,231 19,422 20,801 17,094 15,803 10,455 8,588 8,112 5,456 47 142 142 (19,467) Net gain/(loss) from changes in fair value of biological assets 14 452 90 (26,922) (26,922) (18,422) (19,811) (16,288) (15,090) (9,993) (102) (87) 14 96 111 51 125 187 157 41 22 (8,248) (7,753) (5,188) 80 54 0 0 0 (354) (387) (342) (215) (199) (129) (92) (69) (41) (34) (17) Finance income 30 50 50 14 17 0 0 0 0 0 0 Finance costs (446) (836) (836) (519) (518) (438) (344) (227) (239) (201) (147) Share of results from jointly controlled entities and associates Profit before taxation Income tax expense Profit for the year Attributable to owners of the Company Attributable to non-controlling interests 22 2 2 2 21 37 28 13 41 0 0 433 178 238 748 497 438 510 420 258 165 126 (94) (126) (142) (107) (105) (34) (65) (60) (6) 3 (17) 339 52 96 641 392 404 445 360 252 168 109 351 54 98 608 363 371 430 360 252 168 109 (12) (2) (2) 33 29 33 15 0 0 0 0 339 52 96 641 392 404 445 360 252 168 109 20152 Summarised Cash Flows Statements (S$ million) 2016 (restated) 20151 2014 2013 2012 2011 2010 2009 2008 2007 Profit before taxation 433 178 238 748 497 438 510 420 258 165 126 Adjustments for non-cash, non-operating and other items 811 1,528 1,468 427 577 456 301 41 88 204 159 Interest Net cash flows from/(used in) operating activities Net Net change in working capital items income, interest expense and tax paid Purchase less disposal of property, plant and equipment Net investment in subsidiaries, associates and others cash flows used in investing activities Net cash flows from financing activities Net effect of exchange rate changes Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end Bank overdrafts and structured deposits Cash and short-term deposits per balance sheet (228) (1,393) (1,393) (944) (340) (307) (2,095) (1,099) 267 (874) (311) (396) 620 (519) (519) (299) 250 187 (720) (444) (444) (259) (831) (865) (666) (1,689) (1,689) 53 (832) (832) (530) (484) (400) (339) (216) (201) (206) (1,623) (323) (163) (181) (220) (383) (578) (658) (344) (135) (854) 412 (711) (161) (67) (43) (148) (218) (1,386) (2,133) (2,133) (206) (1,051) (1,248) (901) (821) (525) (215) (261) 899 3,204 3,204 501 1,493 1,212 2,526 1,902 199 952 363 (113) 119 119 (34) (8) 16 (71) 8 19 (49) (21) 20 671 671 (38) 684 167 (69) 235 105 (23) (80) 1,919 1,248 1,248 1,286 602 435 504 269 164 187 267 f period 1,939 1,919 1,919 1,248 1,286 602 435 504 269 164 187 205 224 224 342 305 509 437 168 265 175 50 2,144 2,143 2,143 1,590 1,591 1,111 872 672 534 339 237 Notes: 1 In 2015, Olam changed its fiscal year-end from 30 June to 31 December. Accordingly, FY 2015 was for an 18-month period from 1 July 2014 to 31 December 2015. 2 The 2015 figures were restated in 2016 due to (i) changes in accounting standards relating to financial instruments and biological assets, and (ii) the completion of purchase price allocation exercise of ADM Cocoa business acquisition. Source: Annual Reports of Olam International Limited EXHIBIT 2C: OLAM'S FINANCIALS (2007-2016) (CONTINUED) 2015 Borrowings (S$ million) Bank overdrafts Bank loans Term loans from banks Medium-term notes Obligation under finance leases Convertible bonds, unsecured Other bonds Current Term loans from banks Medium-term notes Obligation under finance leases Convertible bonds, unsecured Other bonds Non-current 2016 (restated) 20151 2014 2013 2012 2011 2010 2009 2008 2007 190 196 196 298 261 446 437 168 265 175 50 3,220 3,662 3,662 4,083 2,116 2,071 2,670 1,288 1,239 1,615 496 1,843 1,319 1,319 109 308 281 302 840 366 0 0 720 0 0 0 248 349 200 0 128 70 450 10 6 6 6 4 1 1 0 0 0 0 0 321 321 0 28 0 0 0 0 0 0 0 8 8 0 0 0 0 0 0 0 5,983 5,512 5,512 4,504 2,965 3,148 3,610 2,296 1,998 1,860 996 4,233 3,381 3,381 1,309 2,354 3,106 1,714 1.228 1,008 935 703 2,984 2,947 2,947 1,700 1,724 249 350 249 0 190 221 112 102 102 52 22 30 22 0 0 0 0 0 0 0 576 565 567 540 730 168 0 0 352 1,199 1,218 389 345 0 0 6,782 4,836 5,883 4,341 2,971 2,207 1,176 1,125 0 0 924 359 352 7,688 6,782 2015 Minimum Lease Payments (S$ million) Finance leases Not later than one year Later Later than five years Operating leases4 Not later than one year 2016 (restated) 2015 2014 2013 2012 2011 2010 2009 2008 2007 15 16 16 9 2 2 0 0 0 0 than one year but not later than five years 66 61 61 44 27 13 6 0 0 0 0 133 116 116 37 0 18 17 0 0 0 0 214 193 193 90 33 33 25 0 0 0 0 99 88 88 67 54 62 23 19 12 12 5 Between two and five years 229 202 202 143 65 55 32 16 11 17 4 Later than five years 581 537 537 271 6 9 5 7 3 4 5 909 827 827 481 125 126 60 42 26 33 14 Notes: 1 In 2015, Olam changed its fiscal year-end from 30 June to 31 December. Accordingly, FY 2015 was for an 18-month period from 1 July 2014 to 31 December 2015. 2 The 2015 figures were restated in 2016 due to (i) changes in accounting standards relating to financial instruments and biological assets, and (ii) the completion of purchase price allocation exercise of ADM Cocoa business acquisition. 3 Present values of minimum lease payments under finance leases are shown under current and non-current borrowings. 4 Future minimum lease payments under non-cancellable operating leases are not recognised as liabilities. Source: Annual Reports of Olam International Limited Segment Information (S$ million) Edible nuts, spices and vegetable ingredients (SVI) Confectionery and beverage ingredients Food staples and packaged foods (PFB) Commodity financial services (CFS) Sales to external customers Edible nuts, spices and vegetable ingredients (SVI) Confectionery and beverage ingredients Food staples and packaged foods (PFB) Commodity financial services (CFS) EXHIBIT 2D: OLAM'S SEGMENT INFORMATION (2007-2016) 2015 2016 (restated) 2015 2014 2013 2012 2011 2010 2009 2008 2007 3,981 6,073 6,073 3,452 3,205 2,563 2,183 1,489 1,200 1,169 783 7.711 9.569 9,569 5,049 5,273 5,902 6,361 4,080 3,783 3,189 2,178 Industrial raw materials, agricultural logistics and infrastructure 2,784 3,903 3,903 3,655 4,601 4,041 3,790 2,296 1,465 1.727 1,062 6,111 8,686 8,686 7,265 7,721 4.586 3,467 2,590 2,140 2,027 1,433 0 0 0 2 0 20,587 28.231 28,231 19,422 20.802 17,094 15,803 10.455 8,588 8.112 5,456 332 567 539 363 310 218 163 110 82 81 33 407 429 472 275 259 269 204 132 117 118 112 Industrial raw materials, agricultural logistics and infrastructure 135 255 255 207 98 211 151 100 83 75 330 351 351 415 218 158 111 47 68 54 (1) 8 8 (25) (20) 0 21 21 1 0 0 1,203 1,610 1,625 1,169 1,171 803 525 347 350 274 3,643 3,463 3,481 3,167 3,375 2.810 2,430 1,671 839 561 432 6,109 5,799 5,718 3,130 2,141 1,717 1,784 1,636 1.266 1,047 762 2.127 2.127 2,121 2,209 2,017 1.829 1,120 674 822 224 4,522 3,230 3.231 3,111 3,308 3,085 1.724 976 675 497 441 154 83 83 3 46 2 65 0 0 16,874 14,702 14,640 11,532 11,035 9,675 7,769 5,468 3,454 2,927 1,859 Cluster 1 Cluster 2 Cluster 3 Cluster 4 Edible Nuts, SVI Cocoa, Coffee Cotton Grains EBITDA Edible nuts, spices and vegetable ingredients (SVI) Confectionery and beverage ingredients Industrial raw materials, agricultural logistics and infrastructure 2.446 Food staples and packaged foods (PFB) Commodity financial services (CFS) Total allocated segment assets less segment liabilities Segment products by clusters 3.4 Edible nuts, spices and vegetable ingredients (SVI) Confectionery and beverage ingredients Industrial raw materials, agricultural logistics and infrastructure Food staples and packaged foods (PFB) Commodity financial services (CFS) Notes: allocation exercise of ADM Cocoa business acquisition. Rubber Wood Products Edible Oils, Dairy, PFB CFS Rice, Sugar and Sweeteners. Fertilisers, GSEZ 1 In 2015, Olam changed its fiscal year-end from 30 June to 31 December. Accordingly, FY 2015 was for an 18-month period from 1 July 2014 to 31 December 2015. 2 The 2015 figures were restated in 2016 due to (i) changes in accounting standards relating to financial instruments and biological assets, and (ii) the completion of purchase price 3 Segment classifications: (i) Edible nuts, spices and vegetable ingredients (SVI) - edible nuts (including cashew, peanuts, almonds, hazelnuts, pistachios, walnuts, sesame, and beans), spices and vegetable ingredients (including pepper, onion, garlic, capsicums, and tomato); (ii) confectionery and beverage ingredients - cocoa and coffee; (iii) industrial raw materials, agricultural logistics and infrastructure - cotton, wood products, rubber, fertiliser, and Gabon Special Economic Zone (GSEZ including ports and infrastructure); (iv) food staples and packaged foods (PFB) - rice, sugar and sweeteners, grains and animal feed, edible oils, dairy, packaged foods; and (v) commodity financial services (CFS) - risk management solutions, market-making, volatility and asset management, trade and structured finance. (FY2016 Annual Report, p. 84) 4 In FY2015, Olam organised its portfolio into four clusters for the FY2016-2021 planning period. Cluster 1's platforms are in attractive markets where Olam has a strong competitive position. Cluster 2's platforms are in attractive markets, but the investments in these platforms are still gestating and the models are yet to be proven. Cluster 3's platforms are smaller businesses with very high returns. Cluster 4's platforms are non-core and Olam intends to deconsolidate these businesses. The new animal feeds business under the "food staples and packaged foods" segment is not included in any cluster. (FY2015 Annual Report, p. 26) Source: Annual Reports of Olam International Limited EXHIBIT 3: INDUSTRY COMPETITION Archer Daniels Midland Company ("ADM") Listed on the New York Stock Exchange ("NYSE") and headquartered in Chicago, U.S.A., ADM was one of the world's largest agricultural processors of oilseeds, corn, wheat, and other agricultural commodities, and a leading manufacturer of protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients. ADM operated through the following business segments: agricultural services, corn processing, oilseeds processing, WILD Flavors 64 and specialty ingredients, and "other" (mainly financial business). ADM had built a global value chain that included "approximately 500 crop procurement locations, 250 ingredient manufacturing facilities, 38 innovation centres and the world's premier crop transportation network."65 Hans Christian Jensen, ADM's Director of Global Ocean Freight, said: "ADM's ability to offer logistics services and throughout the value chain is one of the things that sets us apart, and we are growing our logistics capabilities around the globe."66 expertise In 2016, ADM posted revenues of US$62.3 billion and net earnings attributable to controlling interests of US$1.28 billion. Its three main segments (agricultural services, corn processing and oilseeds processing) contributed 44.7%, 15.2% and 35.5% of the revenues, respectively.67 As at January 2017, ADM had a 23.9% stake in Wilmar International Limited ("Wilmar"), which was a major customer of ADM's agricultural raw materials. ADM's chairman and CEO, Juan R. Luciano, had been a non-executive director of Wilmar since 2012. ADM and Wilmar had also formed a joint venture Olenex that owned specialty oils and fats, palm refining, and tropical oils processing plants in Europe. Bunge Limited ("Bunge") Founded in 1818, headquartered in the state of New York and listed on the NYSE, Bunge operated in North and South America, Europe and Asia Pacific. In 2016, Bunge registered US$42.7 billion in revenue and US$750 million in net earnings attributable to controlling interests. Bunge operated five business segments: agribusiness, edible oil products, milling products, sugar and bioenergy, and fertiliser, with 70.4% of its revenue generated by its agribusiness segment.68 Bunge's integrated, global agribusiness revolved around its core grain and oilseed value chains, with Bunge purchasing, storing, transporting, processing and selling agricultural commodities and commodity products. Its food and ingredients businesses produced and sold edible oil-based products and milled grain products. For its integrated sugar and bioenergy business, Bunge sold sugar and ethanol derived from sugarcane, as well as energy derived from the sugar and ethanol production process, I engaged in global trading and merchandising of sugar and ethanol. Bunge also produced, blended and distributed nitrogen, phosphate and potassium fertilisers to its grain suppliers in South America. In December 2016, Bunge formed a joint venture with Wilmar by selling the latter a 45% equity stake in its Vietnam soybean crush operations. Cargill Incorporated ("Cargill") Headquartered in Minneapolis, U.S., Cargill was a privately-held company with operations in four business segments: animal nutrition and protein; food ingredients and applications; origination and processing; and industrial and financial services. Cargill was involved in the global supply chain of grain and oilseed - origination, trading, processing, and distribution. EXHIBIT 3: INDUSTRY COMPETITION (CONTINUED) Its animal nutrition and protein segment provided animal nutrition products and services to commercial producers in the aquaculture, beef, dairy, pork, poultry and pet food industries, as well as meat and poultry products to food manufacturers, foodservice companies, retailers, and industrial customers. Cargill's food ingredients and applications segment included food and bio-industrial ingredients, cocoa and chocolate, edible oils, industrial specialties, malt, salt, starches, and sweeteners and texturisers. In 2016, Cargill reported sales and other revenues of US$107.2 billion and net earnings of US$2.38 billion,69 Louis Dreyfus Company ("Louis Dreyfus") Founded in 1851 and headquartered in Rotterdam, the Netherlands, Louis Dreyfus was a merchandiser and processor of agricultural products. It had presence in more than 100 countries across five continents. It organised its businesses in two segments: the value chain segment and the merchandising segment. The value chain segment comprised platforms that had a fully integrated asset network ranging from origination to distribution. The platforms included oilseeds (such as soybeans, soybean meal and oil, seeds, meal and oil, palm oil, lecithin, biodiesel, and glycerin), grains (such as wheat, corn, sorghum, barley, rye, oats, and ethanol), sugar, rice, juice, fertilisers and inputs (such as fertilisers, crop protection products, seeds, and basic chemicals), and freight. The merchandising segment included platforms that had a more merchant-oriented business model, which included coffee, cotton, dairy, finance and metals. As one of the largest family-owned businesses in the world, Louis Dreyfus posted US$49.8 billion in consolidated net sales and US$310 million in net income in 2016.70 COFCO Headquartered in Beijing, China, COFCO was a state-owned enterprise and the largest food processing company in China. With its international production and procurement platform and trade network, COFCO was a major supplier of grains (such as rice, wheat, and corn), oilseeds, sugar and cotton. COFCO's other businesses covered packaged foods, dairy, meat, liquor, biochemical, finance, and real estate. COFCO had investments in several companies listed in Hong Kong (including China Agri- Industries Holdings, China Foods, China Mengniu Dairy Company and China Meat Holdings), and in Mainland China (including China TUNHE Sugar and Jiugui Liquor). COFCO also owned Womai.com, an online grocery company. In 2016, COFCO reported annual revenue of 442.65 billion RMB (US$63.7 billion).71 COFCO International was the overseas investment and management platform for COFCO's agribusiness. COFCO owned a 60% stake in COFCO International, with the rest owned by private equity firm HOPU, Temasek Holdings, IFC and Standard Chartered Bank. 72 In December 2015, COFCO Agri Ltd. was formed as a subsidiary of COFCO International after the parent company acquired full ownership of Noble Agri Ltd, the global agribusiness of Singapore-listed Noble Group. Noble Agri Ltd. posted annual revenue of US$16.9 billion for the year ended 31 December 2015.73 COFCO Agri was involved in agricultural trading and processing businesses. In February 2017, COFCO International completed its acquisition of Nidera of the Netherlands, a major global agribusiness and trading company with annual turnover of US$18.5 billion in 2015.74 The former planned to integrate the operations of its new subsidiary (Nidera) with those of COFCO Agri Ltd. EXHIBIT 3: INDUSTRY COMPETITION (CONTINUED) Wilmar International Limited ("Wilmar") With headquarters in Singapore, Wilmar was one of the largest agribusiness companies in Asia and one of the largest companies listed on Singapore Exchange. It operated in four segments: tropical oils, oil seeds and grains, sugar, and others (fertiliser and shipping). The tropical oils segment covered the entire value chain from plantations and palm oil mills to processing, merchandising, branding and distribution of palm oil and lauric-related products including oleochemicals, specialty fats and biodiesel. The oilseeds and grains segment comprised processing, merchandising, branding and distribution of non-palm and lauric edible oils, oilseeds, flour, rice, and food products such as wheat and rice noodles. In addition to being one of world's largest oil palm plantation owners, Wilmar was also the largest processor and merchandiser of palm and lauric oils, and the largest producer of consumer-pack edible oils in the world. nitrogen, phosphorus and potassium compound fertilisers for the oil palm sector. manufactured Wilmar had also. Wilmar's fertiliser operations were primarily located in Indonesia, where the company expanded its fertiliser operations into Malaysia, the world's second biggest producer of palm oil after Indonesia. In 2016, Wilmar registered revenue of US$41.4 billion and net profit of US$972.2 million. The tropical oils, oil seeds and grains, and sugar segments contributed 40.5%, 43.0% and 14.2% of its revenue, respectively.75 Glencore Agriculture As at end of 2016, Glencore Agriculture was 50% owned by Glencore plc ("Glencore"), which was one of the largest natural resource commodity companies in the world. Glencore operated three business segments: metals and minerals, energy products, and agricultural products. In December 2016, Glencore Agriculture was established as a standalone business after Glencore sold 50% of its agricultural products division to Canada Pension Plan Investment Board and British Columbia Investment Management Corporation. Headquartered in Rotterdam, the Netherlands, Glencore Agriculture described itself as a "market leader in originating, handling, processing and marketing agricultural commodities, including grain, oilseeds, pulses, sugar, rice, cotton, vegetable oils, protein meals and biodiesel". 76 It had operations in 35 countries across five continents. Its revenue and earnings before interest and taxes (EBIT) in 2016 were approximately US$22.0 billion and US$500 million, respectively. These figures represented Glencore's agricultural products division's 11 months' results on a 100% consolidated basis and one month on a 50% proportionate consolidated basis.77 Barry Callebaut ("BC") Headquartered in Zurich, Switzerland, BC was the world's leading manufacturer of chocolate and cocoa products. It was a business-to-business company, serving "the entire food industry - from global and local food manufacturers to artisanal and professional users of chocolate, such as chocolatiers, pastry chefs, bakers, hotels, restaurants or caterers". Its core activities included cocoa origination, cocoa processing, and cocoa product and chocolate manufacturing. BC reported CHF6.7 billion (US$6.8 billion) in revenue and CHF220 million (US$230 million) in net profit after tax in 2016.78 Year Type2 EXHIBIT 4A: OLAM'S MAJOR ACQUISITIONS, DIVESTMENTS, JOINT VENTURES AND GREENFIELD INVESTMENTS Company name or description of assets 2007 ACQ Rudra International Limited 2007 ACQ Universal Blanchers LLC Open Country Cheese Company Limited 2007 ACQ 2007 JV 2001 Chinatex 2008 ACQ 2008 ACQ Grains and Oils Queensland Cotton Holdings Limited' Key Foods Ingredients LLC 2008 ACQ Naarden Agro Products B.V. 2008 ACQ 2008 2008 GREEN PT Dharmapala Usaha Sukses Nauvu Investments Pte Lid Soluble Open coffee manufacturing facility Country Dairy Limited Olam Alimentos S.A. (Industrias Martin Cubero) Assets of Girdharilal Sugar and Allied Industries Limited 2009 ACQ 2009 ACQ 2009 ASSET 2009 JV Olam Wilmar Investment Holdings 10 2009 JV JV with Modandola Group11 Netherlands Stake (%) Value (S$m) Principal activities Import/export of commodities, cotton, cotton yam and fabric Peanut blancher and ingredient processor Production and export of cheeses and whey powder Dehydrates Country UAE 100 3.6 USA 100 111.9 New Zealand 19.9 27.4 China 35 20.7 Oilseeds and cotton business Australia 195.4 Cotton USA 12.7 7.2 Supply chain manager of industrial casein 18.2 Sugar refinery 176.4 Vietnam NA 65.2 Coffee New Zealand 24.75 105.0 Dairy processor Argentina 100 10.1 India NA 14.9 Sugar mill assets Bermuda 50 72.2 Nigeria 49 183.8 Sugar refinery and wheat milling Indonesia Singapore Palm oil, natural rubber and sugar assets in Africa Peanut shelling and blanching Sweeteners (PureCircle Limited's business) (continues on Exhibit 4B) Notes In 2015, Olam changed its fiscal year-end from 30 June to 31 December. Accordingly, FY 2015 was for an 18-month period from 1 July 2014 to 31 December 2015. ACQ = acquisition of shares; ASSET = acquisition of assets; JV = joint ventures; GREEN = greenfield investments; SALE = divestments; SALE&LB= sale and leaseback Numbers in brackets refer to the stakes in the companies/businesses that have been sold. 3 4 exchange rate on 6 Transaction values were extracted from Olam's announcements or its annual reports. Transactions denominated in another currency were converted to S$ equivalent using the the last business day of the month of transaction. (MAS website: https://secure.mas.gov.sg/msb/Exchange Rates.aspx). In FY2009, Olam sold its 19.9% stake in Open Country Cheese Company Limited (OCC) as part of the acquisition of a 24.99% stake in Dairy Trust Limited (DTL), the holding company of OCC. DTL was subsequently renamed Open Country Dairy Limited (OCD) and Olam's stake in OCD was later adjusted to 24.75%. Olam did not provide further details on the joint venture with Chinatex after FY2007. The takeover of Queensland Cotton Holdings Limited (QCH), a company listed on the Australian Securities Exchange, started in March 2007. By 3 October 2007, Olam had acquired 100% equity interest in QCH for a total cash consideration of S$195,385,000 (inclusive f transaction costs of S$2,354,000). In October 2007, Olam acquired 100% of the issued share capital of Hong Kong Key Foods Limited (KFI) and its wholly owned subsidiary Qingdao Key Foods Corporation Limited and intangible assets from a company affiliated with KFI (headquartered in the U.S.) for a cash consideration of S$12.7 million. (FY2008 Annual Report, p. 136) In November 2007, Olam and Wilmar International Limited formed a 50:50 JV, Nauvu Investments, to invest in integrated palm oil, natural rubber and sugar assets in Africa. The JV's three major initiatives were a 27% stake in SIFCA Group and two investments in SIFCA's oil palm businesses. Olam's share of these investments was US$122 million. 10 In July 2008, Olam and Wilmar International Limited (Wilmar) formed a 50:50 JV, Olam Wilmar Investment Holdings (OWIH), to invest in a 20% stake in PureCircle Limited, a company listed on the AIM market in London with a market capitalisation of US$530 million. 11 In September 2008, Olam announced the formation of a 49:51 JV with Nigeria's Modandola Group to set up a sugar refinery in Nigeria a The year 2016 marked a milestone for Olam International Limited ("Olam") as it was the first year after Olam had set a new vision of "becoming the most differentiated and valuable global agribusiness by 2040". The company had come a long way from its early days as a small trader that exported cashew nuts from Nigeria to India. Over the years, Olam had grown into a multi-country, multi-product integrated agribusiness. In 2016, Olam was one of the 30 largest Singapore Exchange-listed companies by market capitalisation and recorded annual turnover of S$20.6 billion (US$14.2 billion). Olam's corporate strategy could be explored in terms of three chronological phases: (i) 1989-2005; (ii) 2006-2012; (iii) 2013-2016. During the first phase, Olam's core business was in supply chain management sourcing (also known as origination), primary processing, logistics, trading and marketing of agri-commodities. Based on an 'asset-light' business model, Olam grew organically through the expansion of its core business, as well as by capitalising on adjacent business opportunities that had synergy with its existing businesses in terms of customers, suppliers, costs, channels and/or capabilities. Through these adjacency expansions which Olam considered a repeatable formula for organic growth, Olam gained economies of scale by expanding into new products, customer segments and geographic markets. Between 2006 and 2012, Olam began to diversify upstream into plantation investments and midstream into value-added processing, in alignment with its adjacency expansion-based organic growth model as well as its inorganic growth strategy. During this phase, Olam made more than 20 major acquisitions and greenfield investments, which were supported by multiple rounds of capital-raising. In November 2012, a short seller's negative research report triggered crisis in Olam, which temporarily put the brakes on its expansion drive. The third phase (2013-2016) saw Olam conducting a strategic review, re-calibrating its strategic plan, implementing restructuring initiatives, and working towards new goals and its new vision. During this period, Olam's capital-raising efforts were boosted by financial support from two strategic investors, with one becoming its majority shareholder and the other becoming a substantial shareholder. In 2015, Olam had charted out its strategic plan for the next three-year cycle (FY2016-FY2018). At the close of FY2016, how had Olam fared in executing its strategic plan? What challenges lay in wait for Olam in the road ahead, as it set to realise its new vision of becoming the most differentiated and valuable global agribusiness? COMPANY BACKGROUND In 1989, Sunny Verghese, then a project manager of the Kewalram Chanrai ("KC") Group in Nigeria, was tasked with the mission of establishing an agribusiness division. The KC Group was a diversified family-owned enterprise based in India. From 1990 to 1995, the KC Group's agribusiness operated as Chanrai International Limited, which had its headquarters in London, UK. In 1995, Olam International Limited was incorporated in Singapore. A year later, at the invitation of the former Singapore Trade Development Board (renamed International Enterprise Singapore), the KC Group moved its entire agribusiness operations to Singapore. Subsequently, Olam took over the ownership of the Group's agribusiness. Sunny Verghese was appointed Olam's Group Managing Director and CEO, a job title he held for nearly 20 years. Murli Kewalram Chanrai, then Non-Executive Chairman of the KC Group, became Olam's Non-Executive Chairman. On 11 February 2005, Olam was listed on the Main Board of the Singapore Exchange (SGX) and its Initial Public Offering (IPO) was 15.2 times oversubscribed. Olam's market capitalisation was S$929 million at the IPO issue price and S$5.6 billion towards the end of 2016. Exhibit 1 shows the share price movement of Olam vis--vis the Straits Times Index from its IPO till end 2016. Over the same period, Olam registered a six-fold increase in revenue from S$3.4 billion in 2005 to S$20.6 billion in 2016. Exhibits 2A to 2C provide a summary of Olam's financials from FY2007 to FY2016. Since its inception, Olam's growth in terms of product portfolio and geographical reach had progressed at a steady pace. By 2005, Olam had expanded from one country (Nigeria) and one product (cashew nuts) to 14 products across 40 countries in Africa, Asia, Europe, the Middle East, North America and South America. Between 2006 and 2009, Olam extended its footprint to Oceania and was a market leader in edible nuts, coffee, cocoa, cotton, rice and sesame. By 2014, Olam had expanded to 44 products across 65 countries, compared 20 products across 60 countries in 2009. In 2016, Olam had five business segments: (i) edible nuts, spices and vegetable ingredients; (ii) confectionery and beverage ingredients (cocoa and coffee); (iii) food staples (rice, sugar and dairy products) and packaged foods; (iv) industrial raw materials, agricultural logistics and infrastructure; (v) commodity financial services. Olam's segment information from FY2007 to FY2016 is shown in Exhibit 2D In terms of value chain, Olam was involved in upstream activities, supply chain management, midstream value-added processing, and downstream operations. As at end 2016, Olam's upstream investments included "almond orchards in Australia and US, pistachio and walnut orchards in the US, peanut farming in Argentina, coffee plantations in Laos, Tanzania, Zambia and Brazil, cocoa plantation in Indonesia, rice farming in Nigeria, palm and rubber plantations in Gabon, dairy farming in Uruguay and Russia, and the development of tropical hard wood forest concessions in the Republic of Congo." In the midstream part of the value chain, Olam had investments in "peanut shelling in the US, mechanical processing of cashew in Cte d'Ivoire, hazelnut processing in Turkey and Georgia, spice grinding in Vietnam, soluble coffee manufacturing in Vietnam and Spain, cocoa processing in Cte d'Ivoire, Germany, [the] Netherlands, Singapore, Canada, Ghana and Nigeria, and wheat milling Nigeria, Ghana, Senegal and Cameroon."3 Olam's downstream activities included biscuits and candy manufacturing and downstream distribution, juice and dairy beverages, instant noodles, seasonings and tomato paste distribution in West African markets. In less than three decades, Olam had achieved a scale that placed it in the league of global agribusinesses, although I was still much smaller than the dominant players in the industry. Figure 1 shows Olam's 2016 revenue vis--vis that of major companies in the agribusiness industry. Figure 1: Revenues in 2016 of major agribusiness companies (US$ billion)4 Revenue (US$ bn) 120.0 100.0 107.2 80.0 63.7 62.3 40.0 20.0 49.8 42.7 414 22.0 14.2 0.0 Cargill COFCO ADM Louis Dreyfus Bunge Wilman Glencore Agriculture Olam Callebaut Source: Authors At the time of writing, the agribusiness industry was dominated by Archer Daniels Midland Company ("ADM"), Bunge Limited ("Bunge"), Cargill Incorporated ("Cargill"), and Louis Dreyfus Company ("Louis Dreyfus"); these four firms were collectively known as the 'ABCDs'.5 In Asia, Singapore-headquartered Wilmar International Limited and Beijing-headquartered COFCO were major agribusiness players. After acquiring SGX-listed Noble Group's agribusiness and the Netherlands-based Nidera, COFCO had reached a size that was comparable to that of the 'ABCDs'. Glencore Agriculture was 50% owned by Glencore plc, one of the world's largest global, diversified natural resource companies. Barry Callebaut was the world's leading manufacturer of chocolate and cocoa products, a segment where Olam had significant presence after its acquisition of ADM's global cocoa business. Exhibit 3 provides a more detailed description of the aforementioned companies. OLAM'S INORGANIC GROWTH STRATEGY (2006-2012) In 2006, after becoming a listed company, Olam began to look at expanding its global presence through acquisitions, in addition to organic growth: Given that growth through acquisitions is a new phase for us, we want to be very disciplined about the way we approach M&A. We would follow more of a string-of-pearls based approach rather than a big, bet-the-company approach. Thus, no individual transaction is expected to exceed 10% of our market capitalisation, with an expected focus on transactions that are closer to 5% of our market capitalisation. On an aggregate, we do not envisage spending more than 15% of our market capitalisation on acquisitions in any given year. We also intend to make sure that these transactions are clearly value accretive and not just earnings enhancing. We also intend to close deals that have a reasonable margin of safety from their intrinsic value. In this regard, we would like to make sure that the expected synergy value to stand alone value ratio is at least 1.30 times.6 In implementing its inorganic growth strategy, Olam assembled a core deal team of three executives who had a combined experience of over 45 years in the field of mergers and acquisitions. In addition, Olam appointed to its board several directors with experience in investment banking, mergers and acquisitions, investments or private equity. Between FY2007 and FY2008, Olam invested S$680.9 million in nine acquisitions, which were expected to produce a net earnings accretion of S$80.0 million by FY2011.8 In FY2009, Olam announced further acquisitions, five of which involved distressed assets (Exhibits 4A to 4D). However, the company sought to clarify that "our strategy for acquisitions is not based solely on buying distressed assets, but also assets at fair value as long as we can bring our capabilities to bear to extract synergies that will make these acquisitions both earnings and value accretive."9 The company asserted that it did not regard mergers and acquisitions as a strategy per se, but as a tool for executing its corporate strategy. In 2009, companies all over the world had to grapple with the negative impact of the global financial crisis. To prepare for the challenges ahead, Olam conducted a study of 50 agri-commodity companies and found that leaders, integrated value chain players and focused companies had higher total shareholder return, 10 Olam also analysed the distribution of profit pool within the various segments of the agribusiness value chain. For example, in the cocoa business, Olam found that 2% of the profit pool was in origination of cocoa, where Olam was a dominant player, while 5% of the profit pool was in upstream cocoa harvesting. 11 In the sugar business, 4.4% of the profit pool was in global trading (one of Olam's many business activities), while 70% was in sugar milling. 12 Following its strategy review in 2009, Olam decided on a growth strategy based on value chain extensions that could bring in larger profit pools. For its next step, Olam rolled out a six-year strategic plan (FY2010-FY2015) that sought to realise its ambition of quadrupling its intrinsic shareholder value over the plan period. Olam projected that it would have to grow its revenue from US$6.0 billion to US$12.5 billion, which in turn, would require total capital of about US$5.5 billion and equity of about US$1.75 billion. 13 The strategic plan also set a net-profit- after-tax (NPAT) target of US$454 million for FY2015, up from FY2009's NPAT of S$252 million (US$179.6 million 14).15 A significant part of the strategic plan involved Olam moving upstream into plantations and farming, and midstream into value-added processing (Exhibit 5). For example, Olam planned to achieve, through inorganic growth, a global leadership position in the almond business with an integrated value chain.16 Olam's other ambitions included establishing a significant presence in palm and rubber. It had chosen to venture into palm and rubber plantations in Africa instead of the main palm- and rubber-producing countries in Asia, as it believed it would be rewarded with twice the returns due to "cheaper land acquisition costs, lower labour costs, slower wage price inflation, regulatory arbitrage opportunities, lower competitive intensity and higher perceived risk of execution in Africa." 17 With the perceived advantages that Africa potentially had to offer, Olam was also keen to commit to other investments in the continent. With an eye to leveraging its latent capabilities, the company also turned its sights on starting three new businesses-packaged food distribution in Africa, construction of a US$1.3 billion port-based ammonia- urea fertiliser manufacturing facility in Gabon, and a business in commodity financial services (CFS). The CFS business, which became Olam's fifth business segment, started with three principal activities in its first year: options market making, risk management solutions, and commodity fund management. In the first year of its FY2010-FY2015 strategic plan, Olam invested S$585 million in upstream initiatives including dairy farming in Uruguay. The company also invested S$234 million to expand its supply chain and value-added services, and S$643 million in midstream initiatives including tomato paste manufacturing in California and wheat milling in Nigeria and Ghana. 18 By 2011, Olam had grouped its supply chain activities under a wider value chain segment that extended to the company's risk management of agricultural products and its CFS business. 19 Olam's upstream segment included activities relating to farming (annual row crops), plantations (perennial tree crops), dairy farming and forest concessions; its midstream and downstream segments included activities relating to secondary processing, contract manufacturing, branded distribution and private labelling. Olam's diversification had created new revenue streams. Buoyed by its strong financial performance in the first two years of its strategic plan, Olam was confident that it could achieve its original FY2015 NPAT target of US$454 million at least two years ahead of the plan. Consequently, the company raised its NPAT target for FY2016 to US$1 billion. The rapid pace of expansion, both organic and inorganic, had more than doubled Olam's number of employees from 5,000 in 2005 to 13,000 in 2012. Olam believed that a critical success factor in developing an organisational advantage in this industry was by growing its Global Assignee Talent Pool (GATP) of managers. Hence, the number of GATP managers had more than quadrupled from 168 2005 to 750 in 2012.20 Olam perceived these managers have its DNA, understand its business model and systems, and share its values and culture. To facilitate transfer of its core competencies, Olam deployed its GATP managers to its adjacent new businesses.21 FINANCING GROWTH FROM 2005 TO 2012 From FY2005 to FY2012, Olam raised approximately S$1.7 billion of equity capital. From its IPO in 2005, Olam raised S$267 million in gross proceeds from the listing of 368.4 million new shares and 62.8 million shares from existing shareholders at S$0.62 per share. The net proceeds accrued Olam was S$217.4 million. 22 In April 2008, Olam received S$307 million in gross proceeds from a non-renounceable preferential offering (or rights issue) of 155.6 million new shares at S$1.97 each. A year later, in July 2009, the company raised S$437.5 million in gross proceeds from a placement of 273.46 million new shares at S$1.60 per share to Temasek Holdings' wholly-owned subsidiaries, representing approximately 13.74% of Olam's enlarged capital. Temasek Holdings, Singapore's sovereign wealth fund, became Olam's second largest shareholder. Between June and July 2011, Olam launched a three-tranche equity fundraising exercise comprising private placement of 94.4 million shares at S$2.60 each, a non-renounceable preferential offering of 97.3 million shares at S$2.56 each, and the issue of 94.4 million shares at S$2.60 each to a wholly- owned subsidiary of Temasek Holdings (Exhibit 6). The issues raised a total of S$740 million in gross proceeds and resulted in an increase in Temasek Holdings' stake in Olam to 16.32%. Olam's founding shareholder, Kewalram Chanrai Holdings Limited, remained its largest shareholder with a deemed interest of 19.67%.23 Commenting on the fund raising, Olam's CEO, Sunny Verghese, was positive that Olam would be "well-positioned financially to continue the execution and delivery of its six-year [FY2010-FY2015] strategic plan, and capitalise on the organic and acquisition growth opportunities available."24 Other than equity, Olam also obtained financing through bank debts, leases, medium-term notes, bonds and convertible bonds. By the end of FY2012, Olam's total borrowings hit S$7.5 billion. In March 2012, Olam tapped a new funding source by issuing S$275 million of 7% perpetual capital securities, a bond- like instrument that could be classified as equity under prevailing accounting rules. In Olam's Annual Report 2012,25 A. Shekhar, Olam's Executive Director, expressed confidence that Olam would not be raising further equity until FY2016. This was because the company had not only raised its equity base, but also "successfully tapped the debt capital markets as well as the bond markets, to build a debt profile and tenor to match our more asset-intensive investment profile."26 AN UNEXPECTED CRISIS In late November 2012, Carson Block of Muddy Waters, a short seller that made financial gains from betting that a company's share price would fall, raised red flags on Olam at a London conference. A week later, on 27 November, Muddy Waters released its 133-page report that questioned Olam's accounting practices, acquisitions, business model and solvency. The report considered Olam's revenue recognition on negative goodwill27 and biological gains as "aggressive accounting". The report suggested that "Olam runs a high risk of failure. Its 'asset heavy' strategy appears to be an off-the-rails CapEx [capital expenditure] and acquisition binge."28 Muddy Waters also alleged that "the vast majority of the [Olam's] acquisitions we have researched are of low quality assets."29 On 28 November 2012, Olam released its own 45-page report to rebuke Muddy Waters' allegations. Olam retorted that it was in no risk of insolvency, and that its accounting policies adhered to the Singapore Financial Reporting Standards. The report also defended Olam's business model as "yielding the intended results" and highlighted the company's "proven track record of unlocking value through acquisitions and pursuing profitable organic growth". 30 Despite Olam's rebuttal and filing of a defamation suit against Muddy Waters and its founder in retaliation, its share prices dropped by 14% in a week. Olam's unrated bonds and perpetual securities also took a beating. A Straits Times article dated 1 December 2012 (Saturday) reported that "Olam's perpetual bond, issued at par with a 7 per cent yield, traded at a record low of 75.439 cents to a dollar on Thursday [29 November 2012], according to Bloomberg data. Barely a day earlier, this bond was done at 93.421 cents. Yesterday, it was changing hands at 76.442 cents with a yield of 14.661 per cent.32 The article also highlighted that yields on Olam's five-year bond, issued at par with a 5.75 per cent coupon, jumped to a record of 10.034 per cent. In addition to issuing an immediate rebuttal, Olam also formed board subcommittee to conduct an internal review. The subcommittee comprised Olam's Non-Executive Chairman, chairman of Olam's audit and compliance committee, as well as two independent directors. In January 2013, Olam announced that the subcommittee had found Muddy Waters' accusations to "have no basis in fact and provide no reason for concern."33 As yet another response to the short seller's attack, Olam raised US$712.5 million in gross proceeds in January 2013 from a rights issue comprising US$750 million of 6.75% bonds due 2018 and US$387.4 million in warrants (see Exhibit 6 for details). A former Morgan Stanley investment banker commented that the issue was so attractive that it should have been described as the "sale of the century". 34 According to his calculations, excluding the warrants' value, the effective yield for the bonds was about 13%. Earlier, Olam had announced that the rights issue was "a decisive action on the part of the Company to further enhance its liquidity position and underscores the Company's ability to continue to access debt and equity capital even in current market conditions. "35 While the rights issue was underwritten by the Joint Lead Managers of the issue, the entire issue was also sub-underwritten by Temasek Holdings. Olam's CEO, Sunny Verghese, spoke of Temasek Holdings' action as a reflection of "the support and confidence a discerning and sophisticated investor places in our Company, our strategy and the integrity of our management team."36 Temasek Holdings' Senior Managing Director, Investments, David Heng said: "...We are supportive of its [Olam's] publicly known strategy to take the opportunity, in recent years, to add on more upstream and midstream capabilities and capacities. While no business is without risks, we remain comfortable with Olam's credit position and longer term prospects..."37 In addition to underwriting the rights issue, Temasek Holdings also bought Olam shares in the market. By 8 February 2013, Temasek Holdings had increased its stake in Olam to 21%, thus becoming its largest shareholder. 38 Two months later, Temasek Holdings held 24% of Olam. 39 STRATEGIC REVIEW AND STRATEGY RE-CALIBRATION At Olam, we plan across two three-year cycles... In the last of the two three-year planning cycles (FY10-FY15), we deliberately chose the strategy of moving away from being a pure supply chain manager (asset light) to a selectively integrated player across the value chain (asset medium), in order to participate in the more attractive profit pools in the agri-value chain and improve overall portfolio margins and returns. As anticipated, this has led to increased fixed capital intensity, negative free cash flows and lower returns in the near-term. Performance has also been impacted by significant gestation (especially for upstream), as well as the steep learning curve on project execution and in building new organisational capabilities. While some of our investments have not gone as per plan and we have had to contend with their underperformance, overall, our investment track record has been good. Many of our investments have been concluded at attractive valuations (especially in the aftermath of the global financial crisis), which has given us access to attractive parts of the value chain and significantly improved our competitive position in the industry.40 Olam's investments that had "not gone as per plan" included its entry into fertiliser manufacturing and dairy farming. In 2010, Olam partnered the Government of the Republic of Gabon ("RoG") in an 80/20 joint venture to invest in a greenfield fertiliser manufacturing project in Gabon. Olam forecasted that the project would be operational by 2014, cost US$1.3 billion and yield a return on equity of 46%. With a senior management team that had combined cross-functional experience of over 100 years, Olam was confident that it could manage the project risks. In 2011, Tata Chemicals Limited agreed to invest in the project, but pulled out in 2014. Since then, Olam had been attempting to deconsolidate its fertiliser business, but as at end 2016, it had met with little success and its capital investment in the project totalled S$224.8 million. Olam entered the dairy farming business by acquiring 100% of New Zealand Farming Systems Uruguay ("NZFSU") through share purchases and takeover offers between 2009 and 2012. Incorporated in 2006, NZFSU was set up to apply New Zealand's dairy farming systems in Uruguay. NZFSU ran up losses annually between 2006 and 2012. An independent adviser's report by Grant Samuel highlighted the Uruguayan climate (in particular, droughts) and the difficulties of tweaking the "New Zealand model to suit local Uruguayan conditions" as two business risks faced by NZFSU.41 In 2015, Olam incurred a restructuring cost of S$76.9 million when it scaled down its underperforming dairy farming operations in Uruguay. In Russia, Olam's dairy farming business also performed below expectations. While Olam had overcome the Muddy Waters crisis with the backing of Temasek Holdings, it had to take stock of its ambitious expansion drive and re-calibrate its strategic goals and focus. In FY2013, Olam carried out a strategic review for FY2014-FY2016. It considered feedback from internal and external sources, and various stakeholders relating to its strategy, business model, strategy execution, pace of growth and financing. Following the review, Olam set twin objectives of sustaining profitable growth and speeding up generation of positive free cash flow. Olam announced that it would focus on four key priorities of accelerating free cash flow generation, reducing gearing ratio, reducing complexity in the business model, and promoting better understanding of the company. More specifically, Olam aimed to lower capital expenditure by over S$1 billion and release approximately S$1.5 billion in cash during the FY2014-FY2016 period. The company also targeted annual cost savings of S$80 million to S$100 million by FY2016 from running more efficient operations. In FY2014, the first full year after the strategic review, Olam reported that it had reduced its gross cash capital expenditure by 49.7% from a year ago to S$583.9 million. Having made 36 acquisitions and 27 greenfield investments from 2005 to 2014, Olam began to take stock of its portfolio of companies and assets, and decided that some could be divested (Exhibits 4C and 4D). Following its exit from lower- margin businesses such as rice distribution in Cte d'Ivoire, Olam's annual sales volume and annual sales revenue declined for the first time in its post-IPO history. We have made good progress in this first full year of our revised Strategic Plan. There has been disciplined execution across multiple initiatives which have focused on the continuing optimisation of our balance sheet, as well as unlocking the intrinsic value across various platforms. While a few of these initiatives have resulted in lower growth for some businesses, it has helped achieve a better balance between delivering profitable growth and achieving free cash flow generation. We will continue on this path of extracting full value from existing operations and investments, while continuing to invest in selective growth opportunities that can enhance shareholder value over time. By the end of FY2015, Olam had released S$1.15 billion of cash and realised a total capital gain of S$304.9 million from its restructuring initiatives that included partial or full divestments of certain businesses and sale-and-leaseback of some upstream assets. The year 2015 also saw a marked change in Olam's approach towards acquisitions, with Olam making fewer but larger acquisitions, instead of its customary 'string-of-pearls' based approach. Only two acquisitions were completed in 2015. Olam acquired ADM's worldwide cocoa business for US$1.2 billion and the third largest peanut sheller in the US, McCleskey Mills, for US$178 million. The acquisition of ADM's cocoa business, which was Olam's largest acquisition in its history, turned Olam Cocoa into one of the world's top three cocoa processors alongside Barry Callebaut and Cargill. ADM, which had earlier sold its chocolate business to Cargill, cited volatility as a motivation for the sale of its cocoa business. However, Olam believed that the integration of growing with processing and marketing would help Olam better manage the cocoa sector's volatility.43 The second deal in 2015 - the acquisition of McCleskey Mills - transformed Olam into the most vertically integrated player in the US peanut industry.44 INVESTMENTS BY TEMASEK HOLDINGS AND MITSUBISHI CORPORATION In March 2014, one year after becoming Olam's largest shareholder, Temasek Holdings led a consortium that included Olam's founding shareholders and management to launch an all-cash voluntary general offer ("VGO") for all shares in Olam. The offer price of S$2.23 a share, a 12% premium over the pre-announcement price, valued Olam at S$5.3 billion (US$4.2 billion).45 Through the offer, Temasek Holdings intended to "provide Olam with a stronger long term shareholder base to support Olam's strategy and growth plans over the medium to long term". 46 Observers commented that the bid was "timely and strategic, given growing concern over global food security and a wave of consolidation in the agri-commodities sector". 47 The Singapore stock market reacted positively to news of the takeover, and Olam's bonds also rallied in the debt market. Olam's perpetual securities jumped 10.23% to S$100.53 following news of Temasek Holdings' takeover bid. 48 Alan Greene, a Moody's Vice President-Senior Credit Officer, observed that "Olam will benefit from the financing halo effect with Temasek firmly in the picture".49 In May 2014, following the completion of the VGO, Temasek Holdings became Olam's majority shareholder with a 58.5% stake. In a press release announcing Olam's FY2014 results, CEO Sunny Verghese said that "Temasek's recent investment to become the new majority shareholder in Olam will provide a strong base for a more resilient future for the Company. "50 Olam also noted that its capital- raising exercises demonstrated "the strength of Olam's credit position following the completion of the VGO, which s already having a favourable impact on our cost of borrowing". 51 In September 2015, Mitsubishi Corporation ("MC"), Japan's largest general trading company with US$63.9 billion in revenue in FY2015, took a 20% stake in Olam through placement of new shares by Olam and acquisition of secondary shares from the KC Group, thereby becoming Olam's second largest shareholder. Temasek Holdings remained as Olam's majority shareholder, although its stake had decreased to 51.4%. MC was selected by Olam "through a competitive bidding process"52 to raise growth capital, and with MC's investment, Olam had secured equity capital of S$915 million. MC's Living Essentials Group, which constituted about 30% of MC's net income in FY2015, operated "businesses in fields including distribution, retail and restaurants, providing consumers with products such as foods, clothing, daily consumer necessities and medical goods". 53 Olam's business relationship with MC continued well into the 2010s. In May 2013, MC's Sanyo Foods acquired 25.5% stake in Olam's instant noodles business in Nigeria for US$20 million. In June 2014, as one of its restructuring initiatives, Olam sold 80.0% equity of its wholly-owned subsidiary, Olam Grains Australia to MC for US$64 million. In August 2014, Olam sold 25.0% stake in its packaged foods business to Sanyo Foods for US$187.5 million. With an extensive network of small-scale farmers, processing capabilities and distribution networks in Africa, Olam hoped to join forces with MC in upstream, midstream and downstream businesses in the continent. 54 In April 2016, MC and Olam strengthened their partnership by forming a 70/30 joint venture, MC Agri Alliance Ltd ("MCAA") in Japan. Leveraging on Olam's supply chain networks and track record in sustainability and traceability, as well as MC's distribution and sales network in Japan, MCAA intended import and distribute coffee, cocoa, sesame, edible nuts, spices, vegetable ingredients and tomato products in the Japanese market. We have concentrated our effort on establishing a strong and stable shareholder base with like-minded long-term partners. This is key to building a resilient and sustainable business.55 Sunny Verghese Co-Founder and Group CEO, Olam MORE DEVELOPMENTS AND OUTLOOK AHEAD In 2016, given the positive outlook for the global animal feed industry56, Nigeria's supply deficit in animal feed and consumer demand for locally produced protein, Olam decided to enter the animal feed and protein business in Nigeria. With its US$150 million investment, Olam set up two poultry and fish feed mills, poultry breeding farms and a hatchery to produce day-old chicks in Nigeria. This new business was grouped under Olam's expanded grains and animal feed platform, and was expected to capitalise on Olam's strengths in sourcing, expertise in Nigeria, and ability to utilise bran from its flour mills and its network to source corn and soy locally. elevation Having garnered decades of experience in Africa, where its businesses had delivered better-than- expected performance, Olam continued to maintain a strategic focus on the continent as a separate "vertical". 57 Olam also decided to make selective investments in agricultural logistics, which included and port facilities in Russia, Ukraine and Gabon. The company believed that building its own logistics infrastructure would help support its core business of trading and supply chain management. For its three-year FY2016-FY2018 strategic plan, based on a set of criteria to guide investment choices and capital allocation decisions, Olam prioritised its portfolio into four clusters as follows: Cluster 1 - edible nuts, cocoa, grains, coffee, cotton, and spices and vegetable ingredients (SVI); Cluster 2-packaged foods business (PFB), edible oils (palm), rubber, dairy, and commodity financial services (CFS); Cluster 3- rice, wood products, and sugar and sweeteners; Cluster 4-fertilisers and Gabon Special Economic Zone. Cluster 1 businesses were Olam's top priority businesses and operated in attractive markets where Olam enjoyed dominance. Hence, Olam intended to expedite further investments to build and defend its international leadership position in this cluster. The businesses in Cluster 2 were in attractive markets, but were still in the stage of gestation. Olam's intention was scale up these businesses once their underlying models proved to be successful. Cluster businesses were smaller and 'asset-light', but the company was confident of maximising returns. As for the two businesses in Cluster 4, Olam designated them as "non-core" and planned to "deconsolidate these businesses and partially monetise these investments at the appropriate time."58 In addition to clusters, Olam also re-designated its newer businesses in adjacent markets and value chain steps as 'new cores' (Exhibit 7): New core #1 - selective upstream; New core #2 - selective New core #3 - CFS; New core #4 - digital. downstream; For new core #4, Olam had established a 'Digitalising Olam' task force to evaluate eight initiatives (Exhibit 7). One app that was under development was the Olam Farmer Information System, which Olam hoped, would have a database of 500,000 farmers from all over the world by 2020.59 Another project in the works was the 'Olam Direct' programme, which would offer an online platform for small- scale farmers to sell their products and look for service providers such as banks, insurers, and manufacturers of fertilisers and agrochemicals. For its digital initiatives, Olam hoped to leverage its "sourcing network of over 4.3 million farmers, of whom the vast majority were smallholders in emerging markets". 60 Olam had also joined a blockchain consortium that included Louis Dreyfus and Cargill as members. With IBM as its technical partner, the consortium was developing a supply chain and trading system for cotton. While Olam's 'new core' businesses offered opportunities and payoffs, they also carried threats and risks. One notable example was CFS (new core #3), which comprised three platforms in 2016: (i) risk management solutions; (ii) market-making, volatility trading and asset management; (iii) trade and structured finance. CFS, which was adversely affected by depressed commodity market conditions, registered EBITDA losses three out of the four financial years between 2013 and 2016 (Exhibit 2D). In 2015, Olam's packaged foods business in Africa (new core #2) was battered by currency devaluation. Despite this temporary setback, Olam was optimistic about distributing packaged food products manufactured by MC's subsidiaries in Africa.61 Plantation and farming activities (new core #1) are asset-intensive, require substantial capital investment, and are confronted by challenges such as environmental sustainability, climate change, land condition, water availability, food safety, labour supply, and commodity price volatility. As an illustration of the risks faced by upstream operations, in December 2016, Olam was accused by Washington DC-based environmental group Mighty Earth of bulldozing rainforests in Gabon to make way for palm oil plantations.62 In February 2017, Olam reached a "truce" with Mighty Earth - Olam would suspend forest clearing in Gabon for at least a year, while Mighty Earth agreed to suspend its campaign targeting Olam's oil palm and rubber operations for the same period.63 As Olam neared the half-way mark of its FY2016-FY2018 strategic plan, it seemed an opportune time for the company to pause, reflect, and contemplate. One issue concerned the sustainability of Olam's 'new core' businesses and whether Olam should continue with its diversification strategy. Another issue had to do with resource allocation. How could Olam ensure that its resources were not spread too thinly over its core and 'new core' businesses? And how should Olam manage the risk of over-leverage? Then, what should its next three-year strategic plan focus on? Finally, what other possible challenges could lie in wait in Olam's journey ahead? EXHIBIT 1: SHARE PRICE MOVEMENT OF OLAM VIS--VIS STRAITS TIMES INDEX (2005-2016) 378.00% 328.00% 278.00% 228.00% 178.00% 128.00% 78.00% 28.00% -22.00% -72.00% May- Augov Apr-28- Oct-23- Source: S&P Capital IQ. Apr-1 Oct-1 Apr-04-2008 Olam 2008 L-da14-201 n-09-2 Straits Times Index Mar-07 Mar-10-2 ep-09-2 Olam International Limited (SGX:032) - Share Pricing FTSE Straits Times Index ("FSSTI)- Index Value Dec-09-2 3-10-201 ec-08-2 Balance Sheets (S$ million) Cash and short-term deposits Trade receivables Inventories Derivative financial instruments EXHIBIT 2A: OLAM'S FINANCIALS (2007-2016) 2015 2016 (restated) 20151 2014 2,143 2,143 1,590 1,591 1,111 6,692 6,692 4,686 4.154 4,410 3,584 2.584 784 784 Other current assets (including advance payments to suppliers) 2,033 2,307 2,329 1,673 1,151 Current assets Property, plant and equipment (PPE) Intangible assets Biological assets Deferred tax assets 11,278 11.300 8.526 8,284 8.275 8,727 5.001 3,733 2013 2012 2011 2010 2009 2008 2007 2,144 872 672 534 339 237 1,656 1,495 1,495 1,613 2,373 1.597 1.596 977 733 724 508 7.414 1,966 1,790 1,163 1,926 554 606 1.302 2.310 657 350 838 388 966 1,237 783 684 927 556 13,029 4.279 2,615 5,367 4,722 3,367 3,144 3,428 2,621 1.577 1.054 514 403 129 1,314 1,115 809 649 686 660 486 342 127 130 96 451 336 1,387 1,108 782 631 453 182 20 0 0 96 62 62 23 35 38 43 64 75 37 8 890 899 899 835 558 483 412 467 401 2 2 148 269 269 408 0 0 0 19 0 25 81 30 31 557 23 20 9 10 11 24 10 8,296 7,434 7,350 6,190 5,509 4,442 2.981 2,132 1,148 621 326 Investments in jointly controlled entities and associates Long-term investments Other non-current assets Non-current assets Total assets Trade payables and accruals Borrowings Derivative financial instruments Provision for taxation Other current liabilities Current liabilities Deferred tax liabilities Borrowings Non-current liabilities Total liabilities Share capital Treasury shares Perpetual capital securities 2,201 1,754 21,325 18,712 18.650 14,716 13.793 12,717 11,708 7,133 4.881 4,900 2,941 1,754 1,588 1,748 1,134 1,096 648 659 520 255 5,983 5,512 4,504 2,965 3,148 3,610 1,998 988 540 540 382 395 1,116 2,287 608 404 1,016 489 85 82 82 80 50 33 25 35 11 24 25 384 445 445 428 278 334 112 99 58 52 56 9,641 8,333 8,333 6,982 5,436 5,765 7,130 3,686 3,130 3,472 1,821 506 420 319 266 241 194 177 141 63 0 7,688 6,782 6,782 4,836 5,883 4,341 2.971 2,207 1,176 1,125 924 8,194 17,835 15,535 15,434 7.202 7,101 5,102 6,124 4.535 3,148 2,348 1.239 12,084 11,560 10,300 10,278 6,034 4,369 4,601 2,745 1,129 924 3.088 3.082 3.082 2,163 2,077 2.077 1.577 1 202 709 705 398 (190) (96) (96) (96) (96) (96) 0 0 0 0 0 930 238 238 237 277 277 0 0 0 0 0 Reserves 1,570 1.855 1.894 1.896 1.434 1.148 668 570 337 (67) 35 Equity attributable to owners of the Company 5,398 5,079 5,118 4.200 3.692 3,406 2.245 1,772 1,046 638 433 236 241 Total equity 5,634 23,469 20,855 Non-controlling interests Total liabilities and equity Notes: 5,320 5,359 4,222 3,824 3,528 2,302 1,771 1,046 16.306 1 In 2015, Olam changed its fiscal year-end from 30 June to 31 December. Accordingly, FY 2015 was for an 18-month period from 1 July 2014 to 31 December 2015. 2 The 2015 figures were restated in 2016 due to (i) changes in accounting standards relating to financial instruments and biological assets, and (ii) the completion of purchase price allocation exercise of ADM Cocoa business acquisition. Source: Annual Reports of Olam International Limited EXHIBIT 2B: OLAM'S FINANCIALS (2007-2016) (CONTINUED) 241 22 132 122 57 (1) 0 0 0 638 433 20,793 15,384 13.828 12,580 7.805 5,415 5,239 3,178 2015 Income Statements (S$ million) Sales of goods and services Other income Cost of goods sold and other expenses Depreciation and amortisation 2016 (restated) 20151 2014 2013 2012 2011 2010 2009 2008 2007 20,587 28,231 28,231 19,422 20,801 17,094 15,803 10,455 8,588 8,112 5,456 47 142 142 (19,467) Net gain/(loss) from changes in fair value of biological assets 14 452 90 (26,922) (26,922) (18,422) (19,811) (16,288) (15,090) (9,993) (102) (87) 14 96 111 51 125 187 157 41 22 (8,248) (7,753) (5,188) 80 54 0 0 0 (354) (387) (342) (215) (199) (129) (92) (69) (41) (34) (17) Finance income 30 50 50 14 17 0 0 0 0 0 0 Finance costs (446) (836) (836) (519) (518) (438) (344) (227) (239) (201) (147) Share of results from jointly controlled entities and associates Profit before taxation Income tax expense Profit for the year Attributable to owners of the Company Attributable to non-controlling interests 22 2 2 2 21 37 28 13 41 0 0 433 178 238 748 497 438 510 420 258 165 126 (94) (126) (142) (107) (105) (34) (65) (60) (6) 3 (17) 339 52 96 641 392 404 445 360 252 168 109 351 54 98 608 363 371 430 360 252 168 109 (12) (2) (2) 33 29 33 15 0 0 0 0 339 52 96 641 392 404 445 360 252 168 109 20152 Summarised Cash Flows Statements (S$ million) 2016 (restated) 20151 2014 2013 2012 2011 2010 2009 2008 2007 Profit before taxation 433 178 238 748 497 438 510 420 258 165 126 Adjustments for non-cash, non-operating and other items 811 1,528 1,468 427 577 456 301 41 88 204 159 Interest Net cash flows from/(used in) operating activities Net Net change in working capital items income, interest expense and tax paid Purchase less disposal of property, plant and equipment Net investment in subsidiaries, associates and others cash flows used in investing activities Net cash flows from financing activities Net effect of exchange rate changes Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end Bank overdrafts and structured deposits Cash and short-term deposits per balance sheet (228) (1,393) (1,393) (944) (340) (307) (2,095) (1,099) 267 (874) (311) (396) 620 (519) (519) (299) 250 187 (720) (444) (444) (259) (831) (865) (666) (1,689) (1,689) 53 (832) (832) (530) (484) (400) (339) (216) (201) (206) (1,623) (323) (163) (181) (220) (383) (578) (658) (344) (135) (854) 412 (711) (161) (67) (43) (148) (218) (1,386) (2,133) (2,133) (206) (1,051) (1,248) (901) (821) (525) (215) (261) 899 3,204 3,204 501 1,493 1,212 2,526 1,902 199 952 363 (113) 119 119 (34) (8) 16 (71) 8 19 (49) (21) 20 671 671 (38) 684 167 (69) 235 105 (23) (80) 1,919 1,248 1,248 1,286 602 435 504 269 164 187 267 f period 1,939 1,919 1,919 1,248 1,286 602 435 504 269 164 187 205 224 224 342 305 509 437 168 265 175 50 2,144 2,143 2,143 1,590 1,591 1,111 872 672 534 339 237 Notes: 1 In 2015, Olam changed its fiscal year-end from 30 June to 31 December. Accordingly, FY 2015 was for an 18-month period from 1 July 2014 to 31 December 2015. 2 The 2015 figures were restated in 2016 due to (i) changes in accounting standards relating to financial instruments and biological assets, and (ii) the completion of purchase price allocation exercise of ADM Cocoa business acquisition. Source: Annual Reports of Olam International Limited EXHIBIT 2C: OLAM'S FINANCIALS (2007-2016) (CONTINUED) 2015 Borrowings (S$ million) Bank overdrafts Bank loans Term loans from banks Medium-term notes Obligation under finance leases Convertible bonds, unsecured Other bonds Current Term loans from banks Medium-term notes Obligation under finance leases Convertible bonds, unsecured Other bonds Non-current 2016 (restated) 20151 2014 2013 2012 2011 2010 2009 2008 2007 190 196 196 298 261 446 437 168 265 175 50 3,220 3,662 3,662 4,083 2,116 2,071 2,670 1,288 1,239 1,615 496 1,843 1,319 1,319 109 308 281 302 840 366 0 0 720 0 0 0 248 349 200 0 128 70 450 10 6 6 6 4 1 1 0 0 0 0 0 321 321 0 28 0 0 0 0 0 0 0 8 8 0 0 0 0 0 0 0 5,983 5,512 5,512 4,504 2,965 3,148 3,610 2,296 1,998 1,860 996 4,233 3,381 3,381 1,309 2,354 3,106 1,714 1.228 1,008 935 703 2,984 2,947 2,947 1,700 1,724 249 350 249 0 190 221 112 102 102 52 22 30 22 0 0 0 0 0 0 0 576 565 567 540 730 168 0 0 352 1,199 1,218 389 345 0 0 6,782 4,836 5,883 4,341 2,971 2,207 1,176 1,125 0 0 924 359 352 7,688 6,782 2015 Minimum Lease Payments (S$ million) Finance leases Not later than one year Later Later than five years Operating leases4 Not later than one year 2016 (restated) 2015 2014 2013 2012 2011 2010 2009 2008 2007 15 16 16 9 2 2 0 0 0 0 than one year but not later than five years 66 61 61 44 27 13 6 0 0 0 0 133 116 116 37 0 18 17 0 0 0 0 214 193 193 90 33 33 25 0 0 0 0 99 88 88 67 54 62 23 19 12 12 5 Between two and five years 229 202 202 143 65 55 32 16 11 17 4 Later than five years 581 537 537 271 6 9 5 7 3 4 5 909 827 827 481 125 126 60 42 26 33 14 Notes: 1 In 2015, Olam changed its fiscal year-end from 30 June to 31 December. Accordingly, FY 2015 was for an 18-month period from 1 July 2014 to 31 December 2015. 2 The 2015 figures were restated in 2016 due to (i) changes in accounting standards relating to financial instruments and biological assets, and (ii) the completion of purchase price allocation exercise of ADM Cocoa business acquisition. 3 Present values of minimum lease payments under finance leases are shown under current and non-current borrowings. 4 Future minimum lease payments under non-cancellable operating leases are not recognised as liabilities. Source: Annual Reports of Olam International Limited Segment Information (S$ million) Edible nuts, spices and vegetable ingredients (SVI) Confectionery and beverage ingredients Food staples and packaged foods (PFB) Commodity financial services (CFS) Sales to external customers Edible nuts, spices and vegetable ingredients (SVI) Confectionery and beverage ingredients Food staples and packaged foods (PFB) Commodity financial services (CFS) EXHIBIT 2D: OLAM'S SEGMENT INFORMATION (2007-2016) 2015 2016 (restated) 2015 2014 2013 2012 2011 2010 2009 2008 2007 3,981 6,073 6,073 3,452 3,205 2,563 2,183 1,489 1,200 1,169 783 7.711 9.569 9,569 5,049 5,273 5,902 6,361 4,080 3,783 3,189 2,178 Industrial raw materials, agricultural logistics and infrastructure 2,784 3,903 3,903 3,655 4,601 4,041 3,790 2,296 1,465 1.727 1,062 6,111 8,686 8,686 7,265 7,721 4.586 3,467 2,590 2,140 2,027 1,433 0 0 0 2 0 20,587 28.231 28,231 19,422 20.802 17,094 15,803 10.455 8,588 8.112 5,456 332 567 539 363 310 218 163 110 82 81 33 407 429 472 275 259 269 204 132 117 118 112 Industrial raw materials, agricultural logistics and infrastructure 135 255 255 207 98 211 151 100 83 75 330 351 351 415 218 158 111 47 68 54 (1) 8 8 (25) (20) 0 21 21 1 0 0 1,203 1,610 1,625 1,169 1,171 803 525 347 350 274 3,643 3,463 3,481 3,167 3,375 2.810 2,430 1,671 839 561 432 6,109 5,799 5,718 3,130 2,141 1,717 1,784 1,636 1.266 1,047 762 2.127 2.127 2,121 2,209 2,017 1.829 1,120 674 822 224 4,522 3,230 3.231 3,111 3,308 3,085 1.724 976 675 497 441 154 83 83 3 46 2 65 0 0 16,874 14,702 14,640 11,532 11,035 9,675 7,769 5,468 3,454 2,927 1,859 Cluster 1 Cluster 2 Cluster 3 Cluster 4 Edible Nuts, SVI Cocoa, Coffee Cotton Grains EBITDA Edible nuts, spices and vegetable ingredients (SVI) Confectionery and beverage ingredients Industrial raw materials, agricultural logistics and infrastructure 2.446 Food staples and packaged foods (PFB) Commodity financial services (CFS) Total allocated segment assets less segment liabilities Segment products by clusters 3.4 Edible nuts, spices and vegetable ingredients (SVI) Confectionery and beverage ingredients Industrial raw materials, agricultural logistics and infrastructure Food staples and packaged foods (PFB) Commodity financial services (CFS) Notes: allocation exercise of ADM Cocoa business acquisition. Rubber Wood Products Edible Oils, Dairy, PFB CFS Rice, Sugar and Sweeteners. Fertilisers, GSEZ 1 In 2015, Olam changed its fiscal year-end from 30 June to 31 December. Accordingly, FY 2015 was for an 18-month period from 1 July 2014 to 31 December 2015. 2 The 2015 figures were restated in 2016 due to (i) changes in accounting standards relating to financial instruments and biological assets, and (ii) the completion of purchase price 3 Segment classifications: (i) Edible nuts, spices and vegetable ingredients (SVI) - edible nuts (including cashew, peanuts, almonds, hazelnuts, pistachios, walnuts, sesame, and beans), spices and vegetable ingredients (including pepper, onion, garlic, capsicums, and tomato); (ii) confectionery and beverage ingredients - cocoa and coffee; (iii) industrial raw materials, agricultural logistics and infrastructure - cotton, wood products, rubber, fertiliser, and Gabon Special Economic Zone (GSEZ including ports and infrastructure); (iv) food staples and packaged foods (PFB) - rice, sugar and sweeteners, grains and animal feed, edible oils, dairy, packaged foods; and (v) commodity financial services (CFS) - risk management solutions, market-making, volatility and asset management, trade and structured finance. (FY2016 Annual Report, p. 84) 4 In FY2015, Olam organised its portfolio into four clusters for the FY2016-2021 planning period. Cluster 1's platforms are in attractive markets where Olam has a strong competitive position. Cluster 2's platforms are in attractive markets, but the investments in these platforms are still gestating and the models are yet to be proven. Cluster 3's platforms are smaller businesses with very high returns. Cluster 4's platforms are non-core and Olam intends to deconsolidate these businesses. The new animal feeds business under the "food staples and packaged foods" segment is not included in any cluster. (FY2015 Annual Report, p. 26) Source: Annual Reports of Olam International Limited EXHIBIT 3: INDUSTRY COMPETITION Archer Daniels Midland Company ("ADM") Listed on the New York Stock Exchange ("NYSE") and headquartered in Chicago, U.S.A., ADM was one of the world's largest agricultural processors of oilseeds, corn, wheat, and other agricultural commodities, and a leading manufacturer of protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients. ADM operated through the following business segments: agricultural services, corn processing, oilseeds processing, WILD Flavors 64 and specialty ingredients, and "other" (mainly financial business). ADM had built a global value chain that included "approximately 500 crop procurement locations, 250 ingredient manufacturing facilities, 38 innovation centres and the world's premier crop transportation network."65 Hans Christian Jensen, ADM's Director of Global Ocean Freight, said: "ADM's ability to offer logistics services and throughout the value chain is one of the things that sets us apart, and we are growing our logistics capabilities around the globe."66 expertise In 2016, ADM posted revenues of US$62.3 billion and net earnings attributable to controlling interests of US$1.28 billion. Its three main segments (agricultural services, corn processing and oilseeds processing) contributed 44.7%, 15.2% and 35.5% of the revenues, respectively.67 As at January 2017, ADM had a 23.9% stake in Wilmar International Limited ("Wilmar"), which was a major customer of ADM's agricultural raw materials. ADM's chairman and CEO, Juan R. Luciano, had been a non-executive director of Wilmar since 2012. ADM and Wilmar had also formed a joint venture Olenex that owned specialty oils and fats, palm refining, and tropical oils processing plants in Europe. Bunge Limited ("Bunge") Founded in 1818, headquartered in the state of New York and listed on the NYSE, Bunge operated in North and South America, Europe and Asia Pacific. In 2016, Bunge registered US$42.7 billion in revenue and US$750 million in net earnings attributable to controlling interests. Bunge operated five business segments: agribusiness, edible oil products, milling products, sugar and bioenergy, and fertiliser, with 70.4% of its revenue generated by its agribusiness segment.68 Bunge's integrated, global agribusiness revolved around its core grain and oilseed value chains, with Bunge purchasing, storing, transporting, processing and selling agricultural commodities and commodity products. Its food and ingredients businesses produced and sold edible oil-based products and milled grain products. For its integrated sugar and bioenergy business, Bunge sold sugar and ethanol derived from sugarcane, as well as energy derived from the sugar and ethanol production process, I engaged in global trading and merchandising of sugar and ethanol. Bunge also produced, blended and distributed nitrogen, phosphate and potassium fertilisers to its grain suppliers in South America. In December 2016, Bunge formed a joint venture with Wilmar by selling the latter a 45% equity stake in its Vietnam soybean crush operations. Cargill Incorporated ("Cargill") Headquartered in Minneapolis, U.S., Cargill was a privately-held company with operations in four business segments: animal nutrition and protein; food ingredients and applications; origination and processing; and industrial and financial services. Cargill was involved in the global supply chain of grain and oilseed - origination, trading, processing, and distribution. EXHIBIT 3: INDUSTRY COMPETITION (CONTINUED) Its animal nutrition and protein segment provided animal nutrition products and services to commercial producers in the aquaculture, beef, dairy, pork, poultry and pet food industries, as well as meat and poultry products to food manufacturers, foodservice companies, retailers, and industrial customers. Cargill's food ingredients and applications segment included food and bio-industrial ingredients, cocoa and chocolate, edible oils, industrial specialties, malt, salt, starches, and sweeteners and texturisers. In 2016, Cargill reported sales and other revenues of US$107.2 billion and net earnings of US$2.38 billion,69 Louis Dreyfus Company ("Louis Dreyfus") Founded in 1851 and headquartered in Rotterdam, the Netherlands, Louis Dreyfus was a merchandiser and processor of agricultural products. It had presence in more than 100 countries across five continents. It organised its businesses in two segments: the value chain segment and the merchandising segment. The value chain segment comprised platforms that had a fully integrated asset network ranging from origination to distribution. The platforms included oilseeds (such as soybeans, soybean meal and oil, seeds, meal and oil, palm oil, lecithin, biodiesel, and glycerin), grains (such as wheat, corn, sorghum, barley, rye, oats, and ethanol), sugar, rice, juice, fertilisers and inputs (such as fertilisers, crop protection products, seeds, and basic chemicals), and freight. The merchandising segment included platforms that had a more merchant-oriented business model, which included coffee, cotton, dairy, finance and metals. As one of the largest family-owned businesses in the world, Louis Dreyfus posted US$49.8 billion in consolidated net sales and US$310 million in net income in 2016.70 COFCO Headquartered in Beijing, China, COFCO was a state-owned enterprise and the largest food processing company in China. With its international production and procurement platform and trade network, COFCO was a major supplier of grains (such as rice, wheat, and corn), oilseeds, sugar and cotton. COFCO's other businesses covered packaged foods, dairy, meat, liquor, biochemical, finance, and real estate. COFCO had investments in several companies listed in Hong Kong (including China Agri- Industries Holdings, China Foods, China Mengniu Dairy Company and China Meat Holdings), and in Mainland China (including China TUNHE Sugar and Jiugui Liquor). COFCO also owned Womai.com, an online grocery company. In 2016, COFCO reported annual revenue of 442.65 billion RMB (US$63.7 billion).71 COFCO International was the overseas investment and management platform for COFCO's agribusiness. COFCO owned a 60% stake in COFCO International, with the rest owned by private equity firm HOPU, Temasek Holdings, IFC and Standard Chartered Bank. 72 In December 2015, COFCO Agri Ltd. was formed as a subsidiary of COFCO International after the parent company acquired full ownership of Noble Agri Ltd, the global agribusiness of Singapore-listed Noble Group. Noble Agri Ltd. posted annual revenue of US$16.9 billion for the year ended 31 December 2015.73 COFCO Agri was involved in agricultural trading and processing businesses. In February 2017, COFCO International completed its acquisition of Nidera of the Netherlands, a major global agribusiness and trading company with annual turnover of US$18.5 billion in 2015.74 The former planned to integrate the operations of its new subsidiary (Nidera) with those of COFCO Agri Ltd. EXHIBIT 3: INDUSTRY COMPETITION (CONTINUED) Wilmar International Limited ("Wilmar") With headquarters in Singapore, Wilmar was one of the largest agribusiness companies in Asia and one of the largest companies listed on Singapore Exchange. It operated in four segments: tropical oils, oil seeds and grains, sugar, and others (fertiliser and shipping). The tropical oils segment covered the entire value chain from plantations and palm oil mills to processing, merchandising, branding and distribution of palm oil and lauric-related products including oleochemicals, specialty fats and biodiesel. The oilseeds and grains segment comprised processing, merchandising, branding and distribution of non-palm and lauric edible oils, oilseeds, flour, rice, and food products such as wheat and rice noodles. In addition to being one of world's largest oil palm plantation owners, Wilmar was also the largest processor and merchandiser of palm and lauric oils, and the largest producer of consumer-pack edible oils in the world. nitrogen, phosphorus and potassium compound fertilisers for the oil palm sector. manufactured Wilmar had also. Wilmar's fertiliser operations were primarily located in Indonesia, where the company expanded its fertiliser operations into Malaysia, the world's second biggest producer of palm oil after Indonesia. In 2016, Wilmar registered revenue of US$41.4 billion and net profit of US$972.2 million. The tropical oils, oil seeds and grains, and sugar segments contributed 40.5%, 43.0% and 14.2% of its revenue, respectively.75 Glencore Agriculture As at end of 2016, Glencore Agriculture was 50% owned by Glencore plc ("Glencore"), which was one of the largest natural resource commodity companies in the world. Glencore operated three business segments: metals and minerals, energy products, and agricultural products. In December 2016, Glencore Agriculture was established as a standalone business after Glencore sold 50% of its agricultural products division to Canada Pension Plan Investment Board and British Columbia Investment Management Corporation. Headquartered in Rotterdam, the Netherlands, Glencore Agriculture described itself as a "market leader in originating, handling, processing and marketing agricultural commodities, including grain, oilseeds, pulses, sugar, rice, cotton, vegetable oils, protein meals and biodiesel". 76 It had operations in 35 countries across five continents. Its revenue and earnings before interest and taxes (EBIT) in 2016 were approximately US$22.0 billion and US$500 million, respectively. These figures represented Glencore's agricultural products division's 11 months' results on a 100% consolidated basis and one month on a 50% proportionate consolidated basis.77 Barry Callebaut ("BC") Headquartered in Zurich, Switzerland, BC was the world's leading manufacturer of chocolate and cocoa products. It was a business-to-business company, serving "the entire food industry - from global and local food manufacturers to artisanal and professional users of chocolate, such as chocolatiers, pastry chefs, bakers, hotels, restaurants or caterers". Its core activities included cocoa origination, cocoa processing, and cocoa product and chocolate manufacturing. BC reported CHF6.7 billion (US$6.8 billion) in revenue and CHF220 million (US$230 million) in net profit after tax in 2016.78 Year Type2 EXHIBIT 4A: OLAM'S MAJOR ACQUISITIONS, DIVESTMENTS, JOINT VENTURES AND GREENFIELD INVESTMENTS Company name or description of assets 2007 ACQ Rudra International Limited 2007 ACQ Universal Blanchers LLC Open Country Cheese Company Limited 2007 ACQ 2007 JV 2001 Chinatex 2008 ACQ 2008 ACQ Grains and Oils Queensland Cotton Holdings Limited' Key Foods Ingredients LLC 2008 ACQ Naarden Agro Products B.V. 2008 ACQ 2008 2008 GREEN PT Dharmapala Usaha Sukses Nauvu Investments Pte Lid Soluble Open coffee manufacturing facility Country Dairy Limited Olam Alimentos S.A. (Industrias Martin Cubero) Assets of Girdharilal Sugar and Allied Industries Limited 2009 ACQ 2009 ACQ 2009 ASSET 2009 JV Olam Wilmar Investment Holdings 10 2009 JV JV with Modandola Group11 Netherlands Stake (%) Value (S$m) Principal activities Import/export of commodities, cotton, cotton yam and fabric Peanut blancher and ingredient processor Production and export of cheeses and whey powder Dehydrates Country UAE 100 3.6 USA 100 111.9 New Zealand 19.9 27.4 China 35 20.7 Oilseeds and cotton business Australia 195.4 Cotton USA 12.7 7.2 Supply chain manager of industrial casein 18.2 Sugar refinery 176.4 Vietnam NA 65.2 Coffee New Zealand 24.75 105.0 Dairy processor Argentina 100 10.1 India NA 14.9 Sugar mill assets Bermuda 50 72.2 Nigeria 49 183.8 Sugar refinery and wheat milling Indonesia Singapore Palm oil, natural rubber and sugar assets in Africa Peanut shelling and blanching Sweeteners (PureCircle Limited's business) (continues on Exhibit 4B) Notes In 2015, Olam changed its fiscal year-end from 30 June to 31 December. Accordingly, FY 2015 was for an 18-month period from 1 July 2014 to 31 December 2015. ACQ = acquisition of shares; ASSET = acquisition of assets; JV = joint ventures; GREEN = greenfield investments; SALE = divestments; SALE&LB= sale and leaseback Numbers in brackets refer to the stakes in the companies/businesses that have been sold. 3 4 exchange rate on 6 Transaction values were extracted from Olam's announcements or its annual reports. Transactions denominated in another currency were converted to S$ equivalent using the the last business day of the month of transaction. (MAS website: https://secure.mas.gov.sg/msb/Exchange Rates.aspx). In FY2009, Olam sold its 19.9% stake in Open Country Cheese Company Limited (OCC) as part of the acquisition of a 24.99% stake in Dairy Trust Limited (DTL), the holding company of OCC. DTL was subsequently renamed Open Country Dairy Limited (OCD) and Olam's stake in OCD was later adjusted to 24.75%. Olam did not provide further details on the joint venture with Chinatex after FY2007. The takeover of Queensland Cotton Holdings Limited (QCH), a company listed on the Australian Securities Exchange, started in March 2007. By 3 October 2007, Olam had acquired 100% equity interest in QCH for a total cash consideration of S$195,385,000 (inclusive f transaction costs of S$2,354,000). In October 2007, Olam acquired 100% of the issued share capital of Hong Kong Key Foods Limited (KFI) and its wholly owned subsidiary Qingdao Key Foods Corporation Limited and intangible assets from a company affiliated with KFI (headquartered in the U.S.) for a cash consideration of S$12.7 million. (FY2008 Annual Report, p. 136) In November 2007, Olam and Wilmar International Limited formed a 50:50 JV, Nauvu Investments, to invest in integrated palm oil, natural rubber and sugar assets in Africa. The JV's three major initiatives were a 27% stake in SIFCA Group and two investments in SIFCA's oil palm businesses. Olam's share of these investments was US$122 million. 10 In July 2008, Olam and Wilmar International Limited (Wilmar) formed a 50:50 JV, Olam Wilmar Investment Holdings (OWIH), to invest in a 20% stake in PureCircle Limited, a company listed on the AIM market in London with a market capitalisation of US$530 million. 11 In September 2008, Olam announced the formation of a 49:51 JV with Nigeria's Modandola Group to set up a sugar refinery in Nigeria a