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  "documentTitle": "Olam International Ltd. (SGX:O32)",
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  "authorName": "Carson Block",
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  "presentationDate": "2012-11-27 00:00:00",
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  "notes": "The slide uses a comparative framework to frame Olam as a potential corporate failure similar to Enron.",
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      "text": "We have every reason to expect that Olam’s CapEx binge will end disastrously.",
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      "text": "Olam announced Mr. Kumar’s resignation on June 20, 2012. Between June 6, 2012 and June 26, 2012, Olam purchased 52.2 million of its shares at a total cost of S$95.5 million. Olam bought 31.2 million of these shares (59.8%) subsequent to the announcement.",
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      "text": "Enron’s CapEx binge seems to have been spread over fewer projects than Olam’s. Despite the presumably greater concentration of management attention Enron’s international CapEx projects could command, some of them did famously poorly. Olam is a different company obviously, but the myriad CapEx problems we identify in this report indicate that Olam is replicating Enron’s lack of success. Enron had the advantage that it was initially an asset heavy company (it owned and operated pipelines). Olam is new to this. Rather than Olam making fewer and higher quality acquisitions, it seems to generally be purchasing troubled businesses. It has demonstrated no acumen for turning operations around – in fact, SK Foods gives the opposite impression. As the Crown Flour Mill acquisition shows, the reality of Olam’s asset acquisitions can vary greatly from the hype. We have every reason to expect that Olam’s CapEx binge will end disastrously.",
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      "text": "This report extensively covers Olam’s use of non-cash accounting gains to book theoretical future profits in present periods, and the unhealthy incentives that creates. We will not repeat that discussion. What is worth noting is that Enron’s use of “mark to model” accounting, which accomplished much the same thing (i.e., estimating future economic benefits, and then booking present gains based on the estimates), was likely integral in its failure. Enron employees joked that they were encouraged to spend $10 in cash to buy $5 of accounting profits. Given our opinion that Olam management lacks the discipline necessary to prudently manage its trading business, and the numerous CapEx issues we have detailed in this report, it seems reasonable to conclude that Olam is caught in the same vicious cycle.",
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      "text": "In our view, it takes a lot of discipline to be a public trading company. The antithesis of this discipline is to set a PAT growth target of approximately 200% over four years. But Olam top management owns a significant number of Olam shares, just as Enron management had significant stock options. The interim result in both cases is high debt levels and substantial cash burns.",
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      "text": "It quickly became clear after Enron collapsed that CEO Jeffrey Skilling’s unexpected departure months earlier was a sign of the Company’s intractable problems. It is possible that the same will be said about the apparently unexpected June 2012 resignation of Olam’s then-CFO, Krishnan Ravi Kumar. Mr. Kumar left Olam to join Saudi Telecom in Riyadh, Saudi Arabia. Mr. Kumar had headed Olam’s corporate finance and treasury function for almost 20 years. We understand that some analysts were surprised by Mr. Kumar’s departure, and some thought Mr. Kumar could have been next in line to run Olam.",
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      "text": "169 http://olamonline.com/olam-international-announces-senior-management-changes-2\n170 Source: Bloomberg.",
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