SINGAPORE - As Olam turned out its pockets to prove that it had not lost its pants yesterday, it refuted Muddy Waters' claims about its accounting practices and accused the US research firm's team of a "shocking lack of understanding of basic accounting standards."
This was in response to a 133-page report on Tuesday in which Muddy Waters had accused Olam of fiddling with its negative goodwill and gains on biological assets in an effort to pad the bottom line.
Where the acquisition of assets with negative goodwill was concerned this could not be further from the truth, Olam insisted yesterday.
"Olam saw an opportunity post the global financial crisis of acting counter-cyclically and acquiring assets and businesses at a deep discount to their fair value - as a result, some acquisitions resulted in a negative goodwill," it said.
In other words, it simply managed to strike good bargains.
Among the allegations was Muddy Waters' claim of a discrepancy between the S$118.2 million of negative goodwill in Olam's FY2010 annual report, which was S$29.2 million higher than the negative goodwill in the group's filing on the Singapore Exchange website for Q4 FY2010.
"This assertion is totally incorrect as (Muddy Waters) is comparing a GROSS number of S$118 million which was stated in the annual report to a NET number of S$87.6 million in the Q4 FY2010 SGX (filing)," Olam's report said.
This S$87.6 million figure would have been net of transactional and related expenses of S$29.1 million and a one-off impairment charge of S$1.4 million, which would have added up to the higher annual report figure of S$118 million.
Olam also defended several of the negative-goodwill acquisitions that Muddy Waters had attacked, including its 2009 purchase of SK Foods.
Muddy Waters had alleged that the book value of SK Foods' assets was only US$80.3 million at the time of acquisition, compared to a figure from Olam's end that valued property, plant and equipment at S$189.9 million.
In turn, Olam countered yesterday that Muddy Waters had included SK Foods assets from only one location and left out assets from another location.
"It is not true that most of our acquisitions have resulted in negative goodwill," A Shekhar, Olam's executive director for finance and business development told analysts and the media yesterday.
Olam's report listed 11 different acquisitions from 2006 to 2012 which had generated a total positive goodwill of S$166.7 million.
Sunny Verghese, Olam's CEO, reiterated yesterday that the firm had no influence, "none at all" over the inputs that the independent valuers used to come up with the fair value of these acquisitions.
Where biological asset gains were concerned, Olam did not refute specific examples raised by Muddy Waters, but laid out the assumptions used in arriving at the valuations, which included the average life of plantation trees, soil type for determining estimated yield and annual rate of inflation.
It also defended itself on the capital expenditure score. Among Muddy Waters' key assertions was that there had been a "non-operational capex" of S$875 million in Olam's FY2012 that could not be accounted for.
In response, Olam's report yesterday listed 12 specific projects and one "others" category, with a breakdown of the capex that had been allegedly unaccounted for, which added up to S$874.9 million.
Its palm and fertilizer interests in Gabon accounted for the largest chunk at S$339.2 million, various Nigeria-based interests in rice and cashews took up another S$89.9 million, while the "others" category represented S$61.6 million.
In trying to counter Muddy Waters' allegations about specific investments, Olam was compelled to include information detailing the number of cows at one of its operations and how much milk these bovine creatures had produced.
At the briefing held yesterday, the trading firm's exasperation was palpable.
"This is privileged information... but now we've got to say that this is how much money we have made on this asset in this country... it's definitely not competitively in our favour," Mr Verghese said.
While the firm has promised a more detailed report refuting Muddy Waters' allegations within the next one or two days, it was clear about putting its foot down.
"After that, we are not going to keep doing a tit-for-tat . . . we've got a business to run," Mr Verghese said.