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Turning Cashews Into Cash

Olam CEO Sunny Verghese has used his unusual business outlook and passion for socially responsible operations to make his company a global success.

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He tells his investor relations teams to discourage “the wrong kind of investors”, wants more global environmental regulation and taxes and believes that companies have an overwhelming responsibility to their supply chains. Sunny Verghese has an unusual outlook on business.

The Olam CEO has overseen the remarkable growth of the agricultural producer and processor from a sideline operation in Nigeria to a global business spanning 65 countries. The company’s success has come in part by turning social responsibility into a competitive advantage, making a solid business case for the kind of social investment that is only now finding its way into mainstream corporate culture.

Olam began with modest goals in 1989 as an offshoot of the Kewalram Chanrai Group, which had been operating textile factories and cotton spinning operations in Nigeria since the 1960s. When the oil price slumped in the late 1980s, the country began to suffer from an acute shortage of foreign exchange, and businesses struggled to find hard currency to buy inputs and spare parts. In response, the Kewalram Chanrai Group looked for a sector with quick export potential. They began with cashews, and expanded from there.

“When we looked at what was required for us to win in this business, it became evident that the large players were already very well entrenched and we were late to this game,” Verghese says from the company’s Ivorian headquarters in Abidjan. Despite the fragile political situation in Côte d’Ivoire over the past few years, Olam has continued to invest, opening the world’s largest automated cashew processing factory in February in the northern city of Bouaké.

In the late 1980s and early 1990s, the industry was undergoing huge change, as West African economies liberalized and broke up the state monopolies overseeing their commodity exports. The cocoa and cotton boards disappeared and were replaced by a fragmented, poorly structured industry of traders and license-buying agents, who had previously bought at the farm gate on behalf of the government. The rules of the game were changing, and Verghese saw an opportunity to take on the existing players.

“[Before] they could sit in London or New York or the major commodity trading hubs and source their raw material from the government monopolies, without really having to come here, dirty their hands or manage the emerging market risk,” Verghese said. “When the government monopolies started dismantling and disappearing, they started facing significant counterparty risk issues.”

The new traders were not able to manage pricing risk, so when the markets turned against them, they would default, leaving international customers without supplies.

“It was difficult for the customer overseas to come and enforce his contractual obligations in these markets. So counterparty performance and forward selling premiums became big issues under those circumstances,” Verghese explained.

“That’s when we realised that we had a significant opportunity to develop supply chain infrastructure and build counterparty credibility that was very high, so that in other countries, given the volatile pricing environment, we were still able to deliver reliably on a contract.”

Olam thrived in the new African markets, spreading across the continent and into major commodities, such as rice, cocoa and cotton and in niche products, like cashews. To do that, he explained, “we started at the origin and we resorted to buying at the farm gate, or as close to the farm gate as possible.”

But this was only part of the struggle. Creating supply security meant building loyalty and improving the lots of the smallholders that make up the majority of growers.

“Buying from the farmer directly, helping him improve his productivity, providing him [with] microfinance—in terms of loans—or agricultural inputs and market access, helping him to upgrade the quality he was producing, allowed him to dramatically raise his income and his livelihood, and therefore become a loyal supply partner for us.”

Verghese talks in terms that are becoming common in emerging markets and agribusiness. Companies, from brewers to traders, have begun to articulate what the Olam CEO calls “mutuality” to their investors and shareholders.

The reasons, he says, are relatively straightforward. Beyond it simply being “the right thing to do”, being welcomed into a country and being sensitive to its context is fundamental to being able to work there unimpeded.

“We believe in emerging markets it’s relatively easy to get a license to operate from the government but it is tougher to get a license from the community to operate in those markets,” he says. “You can only build a sustainable business in these markets when the community gives you license to operate. If they see you as a foreigner, as an exploiter of their resources, as not adding any value, they don’t want you there.

The growing trend towards consumer activism and responsibility has added momentum to the requirement.

“Our customers, like Nestlé or Unilever, in turn have demand from their consumers who are not satisfied in snacking on a bar of chocolate or drinking a cup of coffee without asking searching questions about where this coffee or cocoa is coming from. Is there any child labor involved? How environmentally sustainable is the supply chain for this product being used in their chocolate or their coffee?”

The company is creating its own “Olam standard” of sustainability, and is in the early stages of an environmental footprinting exercise to work out the carbon impact of its individual products and supply chain.

Verghese can rattle off statistics about the threat that climate change poses to the world’s population, and the links between global energy, water and agricultural supply. He talks about the water requirement per kilogram of meat in the same terms that most CEOs talk about their financial statements. His sense that there is an imperative to act, despite the high cost, is strong, although he acknowledges that to do so alone risks unilaterally imposing a drag on the company. The competition could gain short-term advantage by avoiding unlegislated “obligations”.

“It’s a catch-22 situation,” Verghese says. “We believe that the long-term solution is that carbon should be priced and carbon should be taxed because you cannot influence behaviour if that is free.

“I think stakeholder pressure will intensify to a level where everybody will have to comply with the minimum standard. So we are taking the view that it is the right thing for the sustainability of our business so we should do the right thing here, because if you want a business that is enduring, then we can’t take [that] view.”

The issue of “enduring” business, and the kind of long-term view that encourages corporate responsibility, is difficult in the current funding environment. Olam listed on the Singapore Stock Exchange in 2005 and the demands of “typically transient” shareholders with short-term investment horizons frustrates the strategist in Verghese.

“When we are investing in plantations, say a rubber plantation, the first yield is [after seven years]. The first maturity is [after] 12 years. The cash flow break-even is in 14 years,” he said. “As a CEO there is very little incentive for you to think that far ahead, because analysts are looking at the next quarter and getting upset if you [deliver] below expectations.”

“The problem with the current capital market structures and CEOs and their time horizons persuade people to be very short-term in their outlook.”

Despite this, he has no intention to change tack.

“I tell my team your job is not to go and market the company, your job is to go and de-market the company,” he said. “You have to tell them ‘are you sure you want to invest in us? Because here is the deal: we’re going to be cash flow negative for five years’. Most people would fall off their chair.”

Continuing with the heritage of the company’s early days and trying to improve its footprint “from seed to shelf” is going to become a competitive advantage all over again, as best practice in sustainability becomes more widespread and pervasive.

“One of the reasons why we have succeeded is the way that we have innovated our business model,” he says.

“We feel that benchmarking best practice is an important first step, but is lousy strategy, because at the end of the day, everybody is trying to follow best practice, so if you achieve that goal, you will at best be at the middle of the pack.

“You can never be a leading company, or a very successful company, by just being middle of the pack. If you want to be exceptional, you need to create the next practice.”

Entrepreneurs

From The Arab World To Africa

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Sheikha Hend Faisal Al Qassimi; image supplied

In this exclusive interview with FORBES AFRICA, successful Dubai-based Emirati businesswoman, author and artist, Sheikha Hend Faisal Al Qassimi, shares some interesting insights on fashion, the future, and feminism in a shared world.

Sheikha Hend Faisal Al Qassimi wears many hats, as an artist, architect, author, entrepreneur and philanthropist based in the United Arab Emirates (UAE). She currently serves as the CEO of Paris London New York Events & Publishing (PLNY), that includes a magazine and a fashion house.

She runs Velvet Magazine, a luxury lifestyle publication in the Gulf founded in 2010 that showcases the diversity of the region home to several nationalities from around the world.

In this recent FORBES AFRICA interview, Hend, as she would want us to call her, speaks about the future of publishing, investing in intelligent content, and learning to be a part of the disruption around you.

As an entrepreneur too and the designer behind House of Hend, a luxury ready-to-wear line that showcases exquisite abayas, evening gowns and contemporary wear, her designs have been showcased in fashion shows across the world.

The Middle East is known for retail, but not typically, as a fashion hub in the same league as Paris, New York or Milan. Yet, she has changed the narrative of fashion in the region. “I have approached the world of fashion with what the customer wants,” says Hend. In this interview, she also extols African fashion talent and dwells on her own sartorial plans for the African continent.

In September, in Downtown Dubai, she is scheduled to open The Flower Café. Also an artist using creative expression meaningfully, she says it’s important to be “a role model of realism”.

She is also the author of The Black Book of Arabia, described as a collection of true stories from the Arab community offering a real glimpse into the lives of men and women across the Gulf Cooperation Council region.

In this interview, she also expounds on her home, Sharjah, one of the seven emirates in the UAE and the region’s educational hub. “A number of successful entrepreneurs have started in this culturally-rich emirate that’s home to 30 museums,” she concludes. 

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Kim Kardashian West Is Worth $900 Million After Agreeing To Sell A Stake In Her Cosmetics Firm To Coty

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In what will be the second major Kardashian cashout in a year, Kim Kardashian West is selling a 20% stake in her cosmetics company KKW Beauty to beauty giant Coty COTY for $200 million. The deal—announced today—values KKW Beauty at $1 billion, making Kardashian West worth about $900 million, according to Forbes’estimates.

The acquisition, which is set to close in early 2021, will leave Kardashian West the majority owner of KKW Beauty, with an estimated 72% stake in the company, which is known for its color cosmetics like contouring creams and highlighters. Forbes estimates that her mother, Kris Jenner, owns 8% of the business. (Neither Kardashian West nor Kris Jenner have responded to a request for comment about their stakes.) According to Coty, she’ll remain responsible for creative efforts while Coty will focus on expanding product development outside the realm of color cosmetics.

Earlier this year, Kardashian West’s half-sister, Kylie Jenner, also inked a big deal with Coty, when she sold it 51% of her Kylie Cosmetics at a valuation of $1.2 billion. The deal left Jenner with a net worth of just under $900 million. Both Kylie Cosmetics and KKW Beauty are among a number of brands, including Anastasia Beverly Hills, Huda Beauty and Glossier, that have received sky-high valuations thanks to their social-media-friendly marketing. 

“Kim is a true modern-day global icon,” said Coty chairman and CEO Peter Harf in a statement. “This influence, combined with Coty’s leadership and deep expertise in prestige beauty will allow us to achieve the full potential of her brands.”

The deal comes just days after Seed Beauty, which develops, manufactures and ships both KKW Beauty and Kylie Cosmetics, won a temporary injunction against KKW Beauty, hoping to prevent it from sharing trade secrets with Coty, which also owns brands like CoverGirl, Sally Hansen and Rimmel. On June 19, Seed filed a lawsuit against KKW Beauty seeking protection of its trade secrets ahead of an expected deal between Coty and KKW Beauty. The temporary order, granted on June 26, lasts until August 21 and forbids KKW Beauty from disclosing details related to the Seed-KKW relationship, including “the terms of those agreements, information about license use, marketing obligations, product launch and distribution, revenue sharing, intellectual property ownership, specifications, ingredients, formulas, plans and other information about Seed products.”

Coty has struggled in recent years, with Wall Street insisting it routinely overpays for acquisitions and has failed to keep up with contemporary beauty trends. The coronavirus pandemic has also hit the 116-year-old company hard. Since the beginning of the year, Coty’s stock price has fallen nearly 60%. The company, which had $8.6 billion in revenues in the year through June 2019, now sports a $3.3 billion market capitalization. By striking deals with companies like KKW Beauty and Kylie Cosmetics, Coty is hoping to refresh its image and appeal to younger consumers.

Kardashian West founded KKW Beauty in 2017, after successfully collaborating with Kylie Cosmetics on a set of lip kits. Like her half-sister, Kardashian West first launched online only, but later moved into Ulta stores in October 2019, helping her generate estimated revenues of $100 million last year. KKW Beauty is one of several business ventures for Kardashian West: She continues to appear on her family’s reality show, Keeping Up with the Kardashians, sells her own line of shapewear called Skims and promotes her mobile game, Kim Kardashian Hollywood. Her husband, Kanye West, recently announced a deal to sell a line of his Yeezy apparel in Gap stores.

“This is fun for me. Now I’m coming up with Kimojis and the app and all these other ideas,” Kardashian West told Forbesof her various business ventures in 2016. “I don’t see myself stopping.”

Madeline Berg, Forbes Staff, Hollywood & Entertainment

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Entrepreneurs

Covid-19: Restaurants, Beauty Salons, Cinemas Among Businesses That Will Operate Again In South Africa As Ramaphosa Announces Eased Lockdown Restrictions

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South Africa’s President Cyril Ramaphosa addressed the nation announcing that the government will further ease the country’s lockdown restrictions.

Restaurants, beauty salons, cinemas are among the businesses that will be allowed to operate again in South Africa.

The country is still on lockdown ‘Level 3’ of the government’s “risk adjusted strategy”.

President Ramaphosa also spoke on the gender based violence in the country.

“It is with the heaviest of hearts that I stand before the women and the girls of South Africa this evening to talk about another pandemic that is raging in our country. The killing of women and children by the men of our country. As a man, as a husband, and as a father to daughters, I am appalled at what is no less than a war that is being waged against the women and the children of our country,” says Ramaphosa.

Watch below:

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