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Olam Food Ingredients cites market stability and fair valuation as catalysts for eventual IPO

Khairani Afifi Noordin
Khairani Afifi Noordin12/1/2022 09:03 PM GMT+08  • 7 min read
Olam Food Ingredients cites market stability and fair valuation as catalysts for eventual IPO
Olam Food Ingredients (OFI) has launched its first customer solutions centre in Singapore. Pictured above is CEO A. Shekhar (left) and Minister of State for Trade and Industry Low Yen Ling in a photo taken on Nov 15. Photo: OFI
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Agri-food giant Olam Group’s value-added ingredients business, Olam Food Ingredients (OFI), is waiting for stability in the market and fair valuation before it can proceed with its plans to list on the London Stock Exchange, says its CEO A. Shekhar.

He also claims that OFI is a strong ebitda generating company that is not facing any financial pressure to list. “We are well prepared for an IPO at any point in time. For us, the capital market transaction is an important way to create a channel of value, but we do not want to be desperate about it,” Shekhar tells The Edge Singapore in a recent interview.

OFI is one of three of Olam’s operating groups which follows a transformational reorganisation plan to split the company into three distinct and coherent groups in January 2020. The other two operating groups are its food, feed and fibre operating arm Olam Agri and an umbrella category of “remaining business”. This consists of its venture incubator Olam Ventures, shared services provider Olam Technology and Business Services, and a holding company of its “deprioritised” and gestating assets Olam Global Holdco.

Olam intends to demerge OFI via an IPO in 2QFY2022, with a primary listing on the London Stock Exchange and a concurrent secondary listing on the Singapore Exchange. However, on March 24, Olam announced that it is postponing the listing due to less than favourable market conditions caused by the war between Russia and Ukraine, for example.

So when exactly will the IPO take place? Shekhar says that OFI is not looking at another bull run. Instead, it is waiting for stability in the market, which will lead to a return in investor appetite and a fair valuation that can catalyse its growth in the future. He adds: “When the markets offer that to us, we will do it — otherwise, we will run the business as planned to the full potential. We will have a bigger and better business whenever the markets open up, even if it gets too late. For me, an IPO is a date and a point in time. What’s critical is what we build before the IPO and what we do after the IPO.”

Market challenges

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Since its reorganisation plan about three years ago, Shekhar says OFI has managed to tick many of its boxes. The company has successfully brought five of Olam’s product platforms together — cocoa, coffee, dairy, nuts and spices to serve its growing end market categories, namely bakery; beverages; chocolate and confectionery; dairy and desserts; savoury and culinary and snacking.

This has been achieved under “quite incredible market challenges”, he adds. Within three days after the reorganisation was announced, Singapore recorded its first Covid-19 case, followed by a long period of business restrictions imposed in response to the pandemic.

“We managed the reorganisation, transformation and rebranding journey within a remote environment. Along with this, we had to go through a legal separation, and asset distributions carve out, which we ‘amazingly’ got done on Dec 31, 2021,” says Shekhar.

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OFI had also established separate governance with a new board of directors. In September last year, the company appointed Irish businessman Niall FitzGerald, known for his extensive experience in Unilever, as its board of directors chair. It appointed other board members, such as food service company SSP Group CEO Patrick Coveney and former Unilever North America president Amanda Sourry.

OFI now has two pillars of integrated businesses — global sourcing and ingredients and solutions. The former involves farming, origination and sourcing of the raw materials and ensuring sustainability and traceability, while the latter involves value-added processing, innovation and co-creation, among others.

“Take cocoa, for example; we source it from major growing countries from the smallholder farmers and manage the traceability and sustainability impact. And then, we process it at our plant at Boon Lay, followed by running it through the innovation centre before reaching customers and consumer applications in whichever form — bakery, beverage or confectionery cookie. Our strength is combining the global sourcing and ingredients and solutions segments, providing customer-led solutions rather than product-led solutions,” says Shekhar.

For 1HFY2022, OFI’s revenue increased 22.1% y-o-y to $8.1 billion based on a higher sales volume of 3.1% and higher sales prices across its business segments. Ebit, however, decreased by 11.8% to $265 million against the solid comparative period. This was after absorbing the inflationary pressures, especially the sudden surge in energy costs.

Shekhar says that the company was negatively impacted by Russia’s war on Ukraine, which had caused many disruptions, such as rising energy costs. “It pretty much went up overnight,” he adds. Consequently, OFI also had to face higher packaging and fertiliser costs. The good news, however, is that OFI was able to pass on the higher costs of new contracts almost immediately.

Meanwhile, the price volatility of different commodities like coffee and nuts, is a manageable day-to-day business for OFI, says Shekhar. The company can provide its customers with options

offering a replacement for an expensive ingredient with a cheaper but equally suitable ingredient. He also claims that this sets the company apart as a preferred supplier.

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While supply chain and marine freight disruptions are currently easing, there is, however, the continued impact of China’s zero-Covid lockdown. “Overall, macroeconomic uncertainty, demand uncertainty and inflationary pressures continue. But people have been ready for the new normal, and beginning to work like this is business as usual,” says Shekhar.

On Nov 15, OFI opened its new customer solutions centre (CSC) in Singapore, its fourth CSC facility after Chicago, Amsterdam and Bangalore. The launch of the new CSC, which is set to drive its growth in Asia, is part of OFI’s strategy of combining its two business segments and delivering it to its customers.

The CSC can supply ingredients, test products, manufacture and pack them before converting them into a customer’s brand. “There are a lot of companies in the food and beverage business that can create bakery and snacking solutions, but we can provide the back end traceability and deliver the front-end innovation and packaging, as well as everything else. That is OFI’s unique selling proposition.”

New revenue

“The CSC will enable us to accelerate this in Singapore, especially in Asia, the largest and fastest-growing food and beverage industry. Setting up the CSC is an important step in establishing new revenue and margins as it is a cross-sell and upsell of products.”

Over the past 12 months, OFI has made several strategic investments. It has set up a greenfield facility in Brazil, expanded its dairy processing capacity by setting up a new dairy processing factory in New Zealand and made several acquisitions. In June, it acquired Canada’s largest coffee roasters and packaging solutions provider to the “at home” segment, Club Coffee, for C$150 million ($151.7 million).

The acquisition expands OFI’s private label solutions capabilities, in line with its growth strategy. The following month, it acquired the shares of Märsch Import, one of Europe’s leading private label manufacturers. In short, it is a continuous investment process as the company seeks more growth.

“We might spend $100 million this year and $1 million next year, but it has to be on strategy. Secondly, there is no organic or inorganic growth — no buy versus build. We analyse and invest in whichever is better at different points, that drives the strategy.

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