Olam accounting concerns: statement refutes three contentions in CLSA report

Issues raised include export incentives, differences in audited and unaudited accounts and negative EVA.

According to DBS, Olam issued a statement refuting three contentions made in a recent CLSA report, namely that export incentives make up a large proportion of Olam's profits, poor controls arising from differences between audited and unaudited accounts, and negative EVA. DBS believes the group has adequately addressed these issues.

While Olam has addressed these concerns, DBS believes several issues have emerged as a result of this event: (1) given the complexity of its operations, the group needs to strengthen its consolidation process, in order to eliminate changes between unaudited and audited statements; (2) more detailed disclosure is needed as to geographical contributions in order to prevent similar misunderstandings in the future; (3) the market may have already placed a higher discount rate on the counter due to this event, given Olam’s vulnerability to contentions, albeit baseless. For this reason, DBS is assigning a higher beta in their valuation.

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