Good morning to all who have taken the time to log in on this call at very short notice. I'm Hung Hoeng, Investor Relations at Olam Group. This morning, Olam Group announced the next steps in our reorganisation plan, detailing the objectives of this updated plan, as well as the reasons behind it. Now, we have Sunny Verghese, the Co-Founder and Group CEO of Olam Group, and N. Muthukumar, Group CFO of Olam Group, present with me to provide more details behind the updated plan. Sunny will give a brief presentation of the updated reorganisation plan, after which we can take your questions from those who are on the conference line, as well as those who have logged into the webcast. Without any further ado, I will hand this over to Sunny to kick off the presentation.
Thank you, Hung Hoeng. Good morning to you all, and thank you for joining us in this call this morning. The objective is to give you an update on our reorganisation plan. As a context and background, as you are all aware, we announced the reorganisation plan of the Olam Group in January of 2020. The plan envisaged that we will carve out the Olam Group into three distinct new operating entities: OFI, Olam Food Ingredients, Olam Agri, and the remaining Olam Group. The remaining Olam Group had three component parts: Olam Global Holdco, which warehoused all our operating assets. We had three farming and upstream plantation assets. We had operating businesses like Rusmolco and Caraway, and we had a non-operating asset as well.
The plan was to unlock the underlying shareholder value in the Olam Group through a series of carve-outs, various capital-raising options, both in the public and private markets. We wanted to provide you an update at the end of the five-year journey that we have been on at this point in time. Also, given that we have recently concluded the sale of the remaining stake that the Olam Group had in Olam Agri, we wanted to take this opportunity to revisit the reorganisation plan and provide you further updates in the key direction of travel in terms of the next steps in our reorganisation plan. The first thing that I want to say is that we are pursuing now three broad objectives and trying to solve three key issues.
The first objective for us is to right-size the capital structure of the remaining Olam Group, make it debt-free, and self-sustaining. Our second objective is to inject $500 million of equity into OFI. You will all recall that OFI was supposed to do a listing in April-May of 2022, but given the developments in the market, including the recovery from the COVID pandemic, followed by the Russia-Ukraine conflict, followed by high inflation and high interest rates, and also the subsequent war in the Middle East, and finally, we had very high commodity prices, particularly in product markets like cocoa and coffee, all of this delayed our plans in terms of pursuing the IPO option that we had set ourselves out to do. Given that, we believe that it is time for us to inject $500 million of equity into OFI, and that is the second objective.
Around that, we will look at the other options in unlocking the value in OFI and also pivoting the OFI business from an erstwhile commodity business to a more value-added ingredients and solutions business. Our third objective, what we are trying to solve for, is to responsibly divest the remaining assets and businesses in the remaining Olam Group and gradually, progressively return this money to shareholders as a special dividend. These are the three new objectives as far as the next steps in our reorganisation plan are concerned. In order to fund the execution of these three steps, we have two broad sources of funds that will be made available to Olam in this process.
The first source of funds that we are expecting to receive is on the completion of the 100% sale of Olam Agri to SALIC in the two tranches of the remaining 65% stake. It is the first source of funds. We would expect to receive about $2.58 billion gross from the remaining sale of 64.57% of the Olam Agri stake. That is one source of funds that we will have available to us. The second source of funds that we will have available to us is the progressive liquidation and return of capital to shareholders as we responsibly divest the remaining assets and businesses within the Olam Group. That would be the next three steps that we will be taking, and these are the two main sources of funds that we will be having.
In addition to this, we will resume our share buyback program under the existing shareholder mandate that we have. We have a forthcoming AGM on the 25th of this month, and we will renew our share buyback mandate in order to facilitate and enable us to continue with the share buyback program. With that brief introduction, we are delighted to open this up for questions from all of you who are participating today. Over to Hung Hoeng for the Q&A.
Thank you, Sunny, for the brief presentation. We open up the time for questions. First, we would like to take some questions from the conference line. Operator, can you see if there are questions? Can you read out the names of those who have the questions?
Thank you. At this time, if you would like to ask a question on the phone, please press *11 and wait for a name to be announced. If you would like to cancel your request, you can press *11 again. One moment, we will be contacted with questions. As a reminder, if you would like to ask a question, please press *11. There are no questions from the conference line at this time. Please continue.
I will move on to the questions that have come through the webcast. The first question has come from [Lianna Cao Bao]. Could you please share more details about the timeline of OFI's IPO plan? Will it be a dual listing? Has the impacts of the recent tariffs trade war been priced in?
Yeah, I think your question about the timing of the IPO of OFI, the timing is subject to, as we have said in the past, the performance of OFI to the market conditions in terms of the geopolitical conditions and the market conditions itself. We have to take into account all of these factors before deciding on the timing of the IPO. What is within our control is to be prepared and ready for an IPO at the earliest possible or practical timeframe, but it will take some time for us to have market conditions, performance of the business, the underlying commodity markets, et cetera, all being in favour of a successful launch of the IPO.
In the meanwhile, we are injecting additional equity capital into OFI, this $500 million, and around that, we will explore all of the strategic options to raise capital for profitable growth, to pivot the business further to a value-added ingredients and solutions business, and that is what we will be focused on. In terms of the second question, if I've understood the question right, you wanted to understand the implications of the current tariff war and the change in trade flows as a result of that. Yes, agricultural commodities will be subject to tariffs between the countries concerned, and particularly between the U.S. and China. We believe that given the broad nature of production from multiple countries and the broad nature of consumption or demand also emanating from multiple countries, the impact on this, as we have seen in Trump 1.0, is quite minimal during this period.
While there will be some impact, we believe that the total production and availability of various agricultural commodities and raw materials, and the consumption of various agricultural commodities and raw materials, are all currently based on global trade flows, and we would expect that these trade flows will not be subject to dramatic shifts in production and consumption, as we saw in Trump 1.0 tariffs. We expect that while there will be an impact, this impact can be contained and can be managed and can be navigated, as was the case in Trump 1.0 tariffs as well.
Thank you, Sunny. I will move on to the next question. This question is relating to the remaining Olam Group. The first question is, why is there a need for the remaining Olam Group to be debt-free now? What prompted this change of strategy? We will go on to the second question after this.
Yeah, so there are many, many interconnected steps that we need to take as a result of the strategic update that we are giving today on the reorganisation plan. In order to implement the three steps that we identified, it is necessary for us to make sure that the remaining Olam Group, all the assets and businesses, we are able to solve for the and make the remaining Olam Group debt-free and self-sustaining so that we can undertake the next steps with regard to what we want to do for OFI and what we want to do with regard to returning money to our shareholders. In order to fulfil those objectives of returning capital to our shareholders and also to undertake the next steps in the reorganisation plan, it was important to resolve the remaining issues with regard to the remaining Olam Group.
In that context, it was important that the remaining Olam Group is completely debt-free and self-sustaining till we are able to responsibly divest the remaining assets and businesses of the Olam Group and return that money to our shareholders. Our decision is that the value now in the Olam Group comes from three sources. First is the value of Olam Agri, which has now been crystallised through the sale of the balance 64.57% to SALIC. That is one source of value. The second source of value will be in returning capital to our shareholders, particularly in the remaining assets and businesses of the remaining Olam Group, which has nearly $2 billion worth of investments in that business.
Once that business in the remaining Olam Group is fully unencumbered without any debt, it is easier for us to responsibly divest and monetize the value of these remaining assets and businesses by progressive return of capital to our shareholders, as and when these assets and businesses are responsibly divested by us. Third, the source of value creation is to realize the full potential value of OFI. Now that Olam Agri has been sold 100%, and we are going to responsibly, gradually divest the remaining assets and businesses of the remaining Olam Group, we can focus our efforts in really capturing or realizing the full potential value of OFI and pivot OFI into being a truly value-added ingredients and solutions company and pursue the profitable growth opportunities that we have in that business. The way we will create value is through these three steps.
One way of ensuring that we are able to enable these interconnected steps from being executed is to make sure that we have an unencumbered remaining Olam business whose underlying value can be fully realised through progressive divestments of these businesses and assets and return the money to shareholders, which will be a source of value creation for our shareholders from the whole of Olam Group.
The second question related to the remaining Olam Group is, what is the pace of divestments for the assets in remaining Olam Group? What is the strategy for the Olam Global Holdco? I think she meant the listed. The second question is relating to the remaining Olam Group divestment of assets, the timeline. What is therefore the strategy for the listed company Olam Group Limited after all the assets have been divested?
Okay, so firstly, all of the remaining businesses and all of the remaining assets in the Olam Group are fully self-contained and are organised in a way that they can continue to operate in a self-sustaining way. Each business, whether it's OPG or ORG or Rusmolc o or Caraway and all the other assets and businesses in the Olam Group are fully self-contained with a fully independent team that is able to execute the plans for OFI, for the remaining Olam Group. Coming to the question of the timing of the divestment of these assets, that would be very difficult to predict specifically and exactly. What we want to clarify is that there will be no fire sale of these assets. We will, with intent, pursue the responsible divestment of these businesses, but it is difficult to predict given the nature of the remaining businesses and assets.
We have about roughly 10 remaining businesses and assets in the remaining Olam Group, and we have already initiated a process of exploring the pathways of finding the right long-term owners of these businesses. We want to make sure that as we responsibly divest these businesses, they go into the hands of the right long-term owners for these businesses, and therefore these businesses are businesses that these new owners or the new shareholders will want to invest and grow these businesses. We will make sure that our responsibility of these businesses going to the right hand so that they will continue to invest and grow these businesses, we are able to meet that objective.
The specific timeline, whether it will take one year or two years or more, to effectively, responsibly divest this and get it into the hands of the new long-term owners of this business that will protect and build on the franchise value of these businesses, and that is where the future of the remaining colleagues in these businesses will be protected, is what we will try to pursue. We cannot be completely sure at this point in time of putting specific timelines of when and how each asset will get divested, but we have dedicated teams now working on the responsible divestment and monetisation of these assets.
These assets are all self-governed and have a dedicated complement of skills and team members who will be able to sustain these businesses, and particularly now that all these businesses will be debt-free, will have no challenges from that count, and they can focus on finding the right long-term owners of this business and focus on making sure that these businesses can fetch us the right value, the fair value, so that we can return this money progressively as we make these divestments back to our shareholders as special dividend.
Related to the last question on the timeline, what is the target valuation you have in mind for the divestments of the remaining of all the assets in the remaining group?
Yeah, that also is again impossible for us to predict or forecast. All that we know is currently we have an investment as at the end of December 2024, including working capital as well as fixed capital. We have about $1.8 billion of fixed capital, $1.83 billion of fixed capital, and we have about $147 million of working capital employed in this business, a total invested capital of roughly $1.98 billion in the remaining Olam Group businesses and assets. We would expect to get the fair value from these businesses after we have restructured the business and made that entire business debt-free, and therefore any and all capital that we will raise from the responsible divestment of these businesses will go back to shareholders progressively as a special dividend.
We cannot be exact on the extent of capital that we will be able to realise from the divestment of these assets. Also, we will not be able to say for certainty the exact timeline of the sale of these assets. This process will start, and the work to make this happen is now underway in the company.
Just going back to the question that was posed by one of the callers, what is the plan for the listed company Olam Group Limited, assuming all the assets have been divested in the remaining Olam Group and OFI listed separately?
Yes, at this point in time, we have only one listed company, which is the group as a whole. When we progress with the next steps in our OFI value creation plan, OFI will eventually be listed independently. All of these options of what will be the ultimate structure of the remaining Olam Group once all the assets are substantially divested and taken care of, we will provide regular updates to you as to the progress. We would hope at this point in time, as we are speaking, our plan is to make sure that we are able to raise capital in OFI first, then pursue other strategic options, including concurrent listing of OFI in Europe and in Singapore, while we also keep room open for other private options, strategic options that we could look at as well.
We are working on all of these plans with regard to OFI. As and when we make definitive progress, the one thing that is in our control now is we will be injecting this $500 million of equity capital into OFI that will position it to pursue profitable growth and to implement some of the strategic options that we are evaluating, including the pursuit of a successful IPO in Europe and Singapore on a concurrent basis. As far as the remaining Olam Group is concerned, based on the progress of it, it is not that every single one of the assets in the remaining Olam Group will be treated exactly the same way. They are all in different stages of development.
We will have a tailored approach to all the underlying assets and remaining businesses in the Olam Group, and that is how we will monetise the remaining value that we see in the rest of the Olam Group, and that we will do progressively and return capital to shareholders progressively as we responsibly divest these businesses and assets.
We have two questions on OFI. When will the injection of capital into OFI happen? Can you give us more colour on what value-added ingredients and solutions OFI will be embarking on? How different is that from the current business model?
On the first question, sorry, what was the first question?
When will the $500 million capital injection?
Yes, we expect to be able to inject that $500 million within the next three months. Within the next three months, we would hope to be in a position to be able to inject the additional $500 million of equity into OFI. That is the current plan. The second part of your question in terms of.
What are the ingredients and value-added solutions?
Yeah, so the OFI business, when we carved out and separated it, was a business which had 65%-70% of its total revenues and margins coming from the global supply chain part of that business, which is a little bit more of a commodity kind of business. Over the course of the last four or five years, OFI has succeeded in pivoting that ratio from almost the other way around. 30%-35% of our business today is the global sourcing business, but 65%-70% of our business is now value-added ingredients and solutions business. Our emphasis in terms of the incremental capital that we are investing will be focused largely to pivot and change the portfolio shape of OFI more and more to the value-added ingredients and solutions segment contribution coming from there rather than the global sourcing business.
Global sourcing is extremely important for the eventual and future success of OFI and is also a very important part of the way the OFI business is currently differentiated. It provides a lot of strength, and that is what investors and shareholders see as the future value creation and growth potential of OFI. We will continue to pivot the business more and more to the value-added and ingredients and solutions side of the OFI business.
This question on the share buybacks, at what stage would we reintroduce the share buyback?
We will start, we already have a shareholder mandate which will expire at our AGM on the 25th of April. We will be seeking to renew that shareholder mandate post that. We will start buying back under the existing mandate very soon. We will start the buyback, and we will then, after securing a renewal of the buyback mandate from our shareholders on the 25th of April, we will continue that buyback program.
Now moving on to the popular subject of none other than the U.S. tariffs, the question is, what is the percentage of sales to the U.S. directly by the OFI and the entire Olam Group, excluding Olam Agri?
Yeah, the main business, if you exclude Olam Agri, will be from OFI in terms of the U.S. being a large market for many of our ingredients. That includes cocoa, that includes coffee, that includes edible nuts, it includes our spices and vegetable ingredients business. The U.S. is an important market for OFI in terms of imports. The business is very global in terms of where we are sourcing from. Products like cocoa and coffee largely originate from Africa and are manufactured in Europe and as well as the US, as well as in Africa. Therefore, it depends and it varies from product to product. The U.S. is an important market for OFI in terms of its various ingredients.
We have seen in Trump 1.0, these flows are largely still protected because as far as cocoa is concerned, there are four countries in the world which account for more than 74%-75% of the world's production of cocoa. As far as almonds are concerned, 84% of the world's production of almonds is in the U.S. Agricultural commodities can only be grown in certain agroclimatic conditions, and it's quite specific where it can be grown. We are aligning our supply chains to navigate through the impact of these tariffs. Going by what we have experienced and seen in Trump 1.0, where we had similar tariffs, but this time it is more aggressive, we were able to successfully navigate through that, both in OFI as well as in Olam Agri.
In the remaining Olam Group, the U.S. as a market, et cetera, is limited, and therefore we expect a limited impact in the remaining Olam Group, positive or negative. The tariffs can be both positive and negative. We see that typically food, the food trade will happen because of the nature of the concentration of production and the concentration of demand and consumption, et cetera. It is very difficult to change that fundamentally. We are aware of it. We are modeling the impacts. We are fortunately a global business. We participate in all of the global trade flows for each underlying commodity that we have. We are able to navigate this better than being focused and concentrated on just one source of supply or just one source of demand. We would expect to navigate this reasonably well.
There's a question on the funding for the $500 million capital injection into OFI. What is the source of funds for that $500 million capital injection, given that the proceeds from the sale of Olam Agri will not be available until the end of this year, if not next year?
We have already identified for you, in order to meet the three objectives, we have two broad sources of funds that we will be relying on. One source of fund will be the proceeds from Olam Agri sale, which is expected to be about $2.58 billion that will be available to us. The second is the proceeds that we will get from the divestment of the remaining assets and businesses within the remaining Olam Group. We also have internal accruals and cash flows that we generate. Irrespective of the timing of the flows that will be available to us, we also have internal resources that we can rely on to be able to fund this.
In the next three to four months, if we are funding the equity injection into OFI to the tune of $500 million, we believe that we have the internal resources to be able to invest this even ahead of the expected proceeds from the Olam Agri sale or the expected divestment proceeds from the sale of the remaining assets and businesses in the Olam Group. We feel comfortable that we will be able to invest that as per the timelines that we have mentioned for the OFI equity injection.
I have no more questions on the webcast at the moment. Can we go back to the conference line to see if there are questions waiting for us, Operator?
As a reminder, if you'd like to ask a question, please press *11. There are no questions from the phone line. Please continue.
Okay, one question that's come up from the webcast. This is in relation to the U.S. tariffs on the impact of U.S. tariffs on OFI. Would the new tariffs be passed on to consumers through price increases?
Yeah, typically if those tariffs become imposed, it gets imposed, then those tariffs will have to be passed on. In the past, our experience has been to the extent of the stickiness of the demand, is it core demand, is it discretionary demand, is it non-discretionary demand, is it core staples demand, that will determine how much of that can be passed on and how soon. In all cases of tariffs and duties in the past, these tariffs and duties are ultimately, unfortunately, have to be borne by the consumer because that has been the market practice in the past. It depends on which country, what is the extent of tariffs and how much can be passed on, and are there substitute origins that produce the same thing that can be shifted to.
For example, China imports about 110 million tons of soybeans, a large part of this which is to be imported from the U.S. Now a large part of it is being imported from Brazil, which has become the world's largest producer and exporter of soybeans, which was not the case in the past. The U.S. was the major producer and exporter of soybeans, but now Brazil has overtaken them. Brazil, we expect this year, will ship at least 70 million tons of soybeans from Brazil potentially to the U.S. There is Argentina, there is Paraguay, and other countries which will also contribute to that. It really depends on which origin, what is the share of that origin in world trade, is the nature of demand discretionary, or is the nature of demand a staple demand.
In the case it is a staple demand, there are more chances of passing the entire tariffs through. If it is discretionary demand, you have to see whether the demand will, there will be a reduction in demand. Typically, if they can substitute with some other product or instead of drinking so many cups of coffee, they can reduce the cup of coffees that they have, because all of that is habit. It's very difficult to change a habit. If you're having three, four cups of coffee, it's very unlikely that you will, even though it's discretionary demand, find it easy to change. All of these factors will play a role in determining the stability of the demand, substitutability, and whether it's core or whether it is discretionary or non-discretionary will all have a role to play.
The basic answer to the question is yes, if tariffs go up, commodity prices will go up, and those increased prices will be passed on to the consumer. In the case of core staple demand, there's no substitutability. It is very difficult for the demand to be really impacted. In the case of discretionary demand, there's a little bit more of a chance of some demand destruction. We have a view in each of these commodity markets in terms of the nature of the core demand, staple demand, discretionary demand. We are preparing ourselves to navigate through that based on our experience of the past and our strength in the supply chain.
There's a follow-up question on the timing of the divestments as well as the OFI IPO. Assuming that the divestments of the remaining of the assets at the remaining Olam Group has been done and it occurs before the OFI IPO, will that change or impact the OFI ownership or management structure?
All these questions, we will provide you regular updates as we progress within these three steps. We have clearly identified to you what the three steps are. It is impossible for us to predict the timelines. It is a function of a lot of factors, some of which are in our control, a lot of which are not in our control. All that we are trying to share with you today is what are the next steps in this process and how we are geared and resourced to executing these next steps. In order to execute these three next steps, we have a sense of how we will fund and finance the execution of these three next steps. As and when there is any material development and progress or otherwise in these next steps that we have outlined to you today, we will keep you informed.
We do not want to precisely say that in November of this year, this will happen and that will happen. We are not doing that. We are clearly laying out a plan and the direction of travel and the next steps we want to take. We are telling you how we will fund and resource our ability to execute these steps. We are also telling you how we are organized to execute these steps in OFI and in the remaining Olam Group and also in the 100% sale of the Olam Agri business. We are well geared and structured and resourced to be able to execute these steps. All that we cannot do precisely today is to give you exact timings of when all of this will happen. We are focused and are executing this with intent and with clarity.
We will keep you updated on the progress of the next steps, and you will become aware of it as and when it happens. For example, the monetization of the remaining assets in the remaining Olam Group is not all going to happen on one day at one time. It will happen over a period of time, but progressively and gradually as they happen, we will return money to shareholders as part of the value creation plan. Similarly, we will first inject $500 million of equity into OFI and will not need to wait till an ultimate IPO or any private strategic option, et cetera, is realized. Everything will happen as we execute this plan. Some of it is very clear.
When you asked about the injection of equity capital into OFI, we believe in the next three, four months, the $500 million of equity capital will be injected into OFI. That is quite clear to us. The overall program for OFI, we will pull the trigger based on the conditions that I laid out to you. The performance of the business, the market conditions, the IPO, public market and capital market conditions, the private market conditions, all of that will play a factor in the timing of the next steps beyond the initial injection of $500 million of equity capital in OFI.
Sunny, there are two questions coming from one of the wires. The first question is, you have said that Olam Group will navigate the challenges arising from the U.S. tariffs. Does that mean that you have plans to change your supply chain or shift the base of operations to a different country or regions? That's the first question. I will move on to the second question after you've taken this.
Yeah, no, I already said we are a global company. We participate in over 90% of the trade flows in each commodity. In some cases, we participate in every country that is involved in the supply chain for the commodities that we participate in. We are not a regionally focused or single country focused company. The rule of participation for us is that we are to be present in at least 90% of the producing regions for all the commodities that we trade or supply. We already have that franchise, we already have that network, and we have a very strong supply chain organization that gives us a lot more flexibility to adapt our business model to take and navigate through these uncertainties caused by the current tariff issue.
The second question posed is, which European stock exchange is Olam Group considering to concurrently list OFI and in Singapore? Is the London Stock Exchange still one of the options?
We will consider listing in one of the European exchanges along with the concurrent listing in Singapore. Which specifically the European exchange that we will choose, when we make those determinations, we'll keep you updated and briefed. From what I know, the U.K. is still part of Europe, not part of the European Union. We will keep our options open in concurrently investing in the U.K., in Europe as well as Singapore concurrently.
I think I've exhausted all the questions on the webcast. While that is still coming in, as we are into the 45-minute mark, can I ask if the operator have people on the line waiting to ask a question?
Once again, to ask a question, please press *11. We have no questions from the line. Please continue.
Thank you. There are no further questions on the webcast as well. Sunny, Muthu, would you have anything to wrap up the call?
Good morning to you all, and thank you once again for joining us on this webcast at short notice. We are excited about this update on the reorganization plan, and we believe it is right for all stakeholders. We will be very focused and organized in executing this plan. As Sunny had talked about, there are a few variables which are under our control, and there are many variables which are not under our control, but we will do our best to ensure a successful implementation of this updated reorganization plan. Thank you.
Thank you. Thank you very much.
Thank you for participating.