The revamp follows a review last year, and a multi-year plan announced early in 2019 to invest US$3.5bn into key growth areas, such as edible nuts, coffee and cocoa, while divesting other sectors.
The group said the restructuring will allow it to leverage the key trends shaping global food and agriculture, one trend being the shift to more protein-base diets in Asia and Africa.
The streamlining initiative is the group’s first major shift in strategy since 2013 when Muddy Waters LLC questioned Olam’s business model, eventually leading to a takeover by Singapore’s Temasek Holdings Pte, which now holds about 54% of the company, reported Bloomberg. Japanese giant, Mitsubishi Corp., is the second-biggest stakeholder with 17%.
Background
Olam announced a new strategic plan for the period FY19-24 in January 2019, with it subsequently deciding to explore options that would generate further growth by re-organizing its portfolio. In May last year, it appointed Credit Suisse and Rothschilds to conduct that exercise.
Building in part on the recommendation of those advisors, it announced its decision to restructure its portfolio of businesses to create two new coherent operating groups, Olam Global Agri (OGA) and Olam Food Ingredients (OFI).
In terms of the new management structure, A Shekhar has been appointed as the CEO of OFI, he will step down from his current role as Group COO. Sunny Verghese will be at the helm of OGA, in addition to retaining his Group CEO role.
High-growth emerging markets
OGA will focus on high-growth emerging markets, in relation to its business activities in grains and animal feed, edible oils, rice, cotton, and commodity financial markets. OFI consists of Olam’s cocoa, coffee, edible nuts, spices and dairy businesses.
Explaining the rationale behind potentially going down the IPO listing route for both units, an Olam spokesperson told us:
“Over the past 30 years, Olam has built a valuable portfolio of businesses that have achieved leadership positions. By simplifying our businesses across two distinct and coherent groups - OGA and OFI – each with a clear vision for profitable growth, it sharpens our focus and provides opportunities to capitalize on key market trends, while continuing to leverage the benefits of the Olam Group.
“We believe this will enable us to explore potential carve outs and IPOs in a sequential manner and attract additional investors who are aligned with the vision of these two new groups in order to maximize the value of our business.”
Grain and feed business
Olam’s grains and animal feed businesses are built upon destination processing assets in wheat milling and animal feed production in Africa, combined with a global footprint in grains supply chain and bulk ocean freight businesses, he said.
Olam is now “established as the leading animal feed and poultry breeder in Nigeria where it operates a poultry breeding farm, day-old-chick hatchery and animal feed mills, which provide poultry and fresh-water fish feed to local farmers,” noted the spokesperson.
It is also the largest wheat miller in sub-Saharan Africa with facilities in Ghana, Senegal, Cameroon and Nigeria, where it recently completed the acquisition of Dangote Flour Mills to strengthen its position as the market leader in flour and pasta products, he said.
“In grains supply chain, Olam originates, markets and distributes grains into markets in North Asia, South East Asia, Africa, Middle East, Europe, Americas and Asia, while in the ocean freight business, it selectively invests in vessels or enters into long-term charters mainly for handling and risk management of its own captive requirements as well as for third party volumes.”