{ "docId": "019dd923-622c-750b-8b96-063645a867ac", "docSlug": "ad39e81239e4", "documentTitle": "Olam International Ltd. (SGX:O32)", "authorId": "51_Muddy_Waters", "authorName": "Carson Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2012-11-27 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 5, "pageCount": 133, "prevPage": 4, "nextPage": 6, "slideType": "executive_summary", "function": "diagnose_problem", "density": "dense", "nDataPoints": 6, "notes": "This is a text-heavy research note page. It contains specific quantitative claims about Olam's financial performance and asset revaluations.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-063645a867ac/5", "deckHref": "/decks/019dd923-622c-750b-8b96-063645a867ac", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-063645a867ac.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-063645a867ac#slide-5", "components": [ { "bbox": null, "kind": "callout", "text": "Olam is an extreme example of an increasingly important conflict in modern finance: the clash between accounting and business reality.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-25b3-7229-bef7-014bcfe5f5c3", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.062, "w": 0.716, "x": 0.142, "y": 0.289 }, "kind": "paragraph", "text": "Muddy Waters does not believe in the “gestation period” – particularly after studying the almost three-year old acquisition of Crown Flour Mill. As we discuss in this report, CFM’s assets at the time of acquisition were worth only a fraction of what Olam booked, and CFM has only been generating a 0.9% PAT margin while burning cash.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "473e5bb2-865d-4d46-9330-610a4af40065", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.052, "w": 0.716, "x": 0.142, "y": 0.136 }, "kind": "paragraph", "text": "Olam is an extreme example of an increasingly important conflict in modern finance: the clash between accounting and business reality. When accounting gets the upper hand, the results can be toxic for investors – particularly when combined with heavy debt levels.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "50523050-7382-4b0f-b854-3473efa9aa3a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.072, "w": 0.716, "x": 0.142, "y": 0.475 }, "kind": "paragraph", "text": "The acquisition of bankrupt SK Foods is an example of a transaction in which Olam significantly upped the book values of acquired assets. The re-valuation allowed Olam to book negative goodwill that equated to 26.2% of Olam’s FY2010 PAT. Olam increased the book value of SK’s assets by S$73.1 million.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "838e303d-f2f3-4888-b1ac-53b42903fba1", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.062, "w": 0.716, "x": 0.142, "y": 0.688 }, "kind": "paragraph", "text": "Olam seems to be falling into the same Accounting Gain – CapEx vicious cycle that ensnared Enron. Olam has been very upfront about its goal to generate US$1 billion (S$1.2 billion) in PAT by FY2016. However, non-cash accounting gains equate to 37.9% of PAT from FY2010 through FY2012.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "9ff8fdb4-c258-407d-b489-a9660a4960c6", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "Olam's insistence that investors accept a “gestation period” for its investments seems akin to what a degenerate gambler might say to his friends and family in order to get more money to gamble.", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-25b3-7229-bef7-0488976e4b30", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.062, "w": 0.716, "x": 0.142, "y": 0.833 }, "kind": "source-note", "text": "Footnotes 1, 2, and 3 detailing data sources and calculation methodologies.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f5504668-f11f-4075-8b49-ce43a35918af", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.021, "w": 0.115, "x": 0.142, "y": 0.105 }, "kind": "title", "text": "Introduction", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "80fc26ba-3dc1-4cff-bf05-ab865bcac8c6", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Audience Definition", "slug": "audience-definition", "agent": "Storyteller", "layer": "slide", "matchId": "26ced88a-d5b1-4dd0-9791-5768d86e4a48", "evidence": "Muddy Waters does not believe in the 'gestation period' – particularly after studying the almost three-year old acquisition of Crown Flour Mill.", "confidence": 0.7 }, { "name": "Executive summary", "slug": "executive-summary", "agent": null, "layer": "slide", "matchId": "31540712-f00c-4b45-ba95-9e40903eaa31", "evidence": "This slide serves as an executive summary of the report on Olam.", "confidence": 0.9 } ], "frameworks": [], "arcBeats": [ { "to": 10, "from": 1, "beatId": "81eaf60a-ff66-4507-89b7-214e22a252f0", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "The Monster", "beatSlug": "overcoming-monster-the-monster", "evidence": "Introduction to Olam's issues", "position": 0, "confidence": 0.8, "parentBeatName": "Hook", "parentBeatSlug": "hook" } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }