Olam International OLAM
Ten months after our initial short, Olam's FY13 results confirm the thesis: 1.8% ROA, S$800m cash burn, ossified board, no acknowledgement of the over-leverage problem.
Thesis
This September 2013 follow-up to Muddy Waters' November 2012 short of Olam International argues the Singapore-listed agri-commodities trader is 'not changing the old ways.' Carson Block reiterates that Olam's shares 'have no value' because the company has borrowed too much and invested in low-return projects. FY 2013 results bear this out: adjusted return on average assets of just 1.8%, free cash burn of S$800.4 million against S$1.1 billion of acquisitions and investments, and suspiciously thin allowances for doubtful accounts and inventory write-downs. Governance is equally damning — independent directors average 11.4 years tenure (Olam IPO'd only eight years earlier), CEO Sunny Verghese said nothing on the call, and management redefined free cash flow to exclude interest and taxes. The note urges Olam to terminate the Gabon fertilizer project and admit the underlying investment problem.
SCQA
Olam International is a Singapore-listed global agri-commodities trader that, since its 2005 IPO, financed an aggressive acquisition and capex binge with heavy borrowing.
FY 2013 results confirm the pathologies Muddy Waters flagged in November 2012: 1.8% adjusted ROA, S$800m free-cash burn, redefined non-GAAP metrics, and a board too tenured (11.4yr avg) to confront the problem.
Olam must refresh the board, replace the insular top-management bench, abandon the Gabon fertilizer project, stop inventing bespoke performance metrics, and publicly acknowledge that prior investments will not earn their cost of capital.
Without these changes Muddy Waters maintains the equity is worthless; the implicit reward to short-sellers is full downside as debt obligations crush the equity stub.
The three reasons
- 1
Adjusted return on average assets only 1.8%; FY13 free cash burn S$800m
- 2
Board ossified — 11.4yr avg tenure of independents, only one new since 2005 IPO
- 3
Olam refuses to admit problem; redefined FCF and dodged cost-of-debt question
Primary demands
- Refresh the ossified board (avg. independent director tenure 11.4 years, only one new since IPO)
- Replace CEO Sunny Verghese and broaden a too-insular top-management bench
- Terminate the Gabon fertilizer project and admit dredging spend was wasted
- Stop inventing bespoke performance metrics (e.g., redefined free cash flow excluding interest, taxes)
- Acknowledge the over-leveraged, low-return investment problem rather than denying it
KPIs cited
Pattern membership
Where this document fits across the library's 12 rhetorical / structural patterns.
Precedents cited
- Muddy Waters' own initial Olam report dated November 26, 2012
Notable slides (1)
Notes
Three-page Word-style follow-up note (no charts, no slides) to Muddy Waters' November 2012 initial Olam short. Page 1 is the standard Muddy Waters terms-of-service boilerplate; pages 2-3 are the substantive memo. Carson Block reiterates the short, focusing on qualitative governance/accounting red flags rather than reworking the model. Specifically calls out CEO Sunny Verghese's silence on the earnings call, board ossification, and an opaque Gabon fertilizer JV with Tata Chemicals. No new price target — relies on the original 'shares have no value' conclusion. Useful as a specimen of the 'follow-up nudge' short note: low production value, high signal density, qualitative-governance angle.