February 22, 2012

Olam International Limited announced January 30 a partnership with RUSMOLCO for the development of a large scale dairy and grains farming in the Penza region of Russia.

The first step under this partnership is the investment of up to US$75 million by Olam in exchange for 75% of the equity of RUSMOLCO. This translates into RUSMOLCO enterprise value of up to US$130 million (subject to closing conditions, net debt and working capital adjustments at closing). In the first phase of expansion spread over the next 4–5 years, RUSMOLCO will invest to expand the area under grains cultivation from the current 52,000 hectares to 106,000 hectares. In addition, four new modern dairy farms will be constructed, taking the total milking cow population from the current 3,600 heads to 20,000 heads.

The total investment required for Phase 1 will aggregate up to US$400 million to be spent over the next four to five years in a phased manner.

RUSMOLCO plans to establish a training and development centre aimed at inculcating best practices in international farming and milk production. Initially, the centre will focus on training of RUSMOLCO's own staff, which later may be expanded into a national centre to promote adoption of best practice and latest technologies across Russia.

The founder of RUSMOLCO, Naum Babaev will continue as Chairman of RUSMOLCO's Board of Directors, which will also comprise five Olam nominees and one independent director - Andrey Danilenko, Chairman of the National Dairy Producers Union in Russia, who has been specially invited to the Board given his rich experience and deep sector knowledge.

RUSMOLCO provides a strong platform for investment and expansion in the agriculture sector in Russia with attractive growth prospects. In Phase 2, Olam and RUSMOLCO envisage further investments which could include the enhancement of the area under cultivation to 130,000 hectares, increasing the milking cow population to 50,000 heads of cattle, investing in sugar cultivation, milling and refining as well as other adjacent initiatives that are aligned with Olam's strategic plan. At steady state, RUSMOLCO will count as Russia's largest and amongst top 10 global private milk producers as well as a leading grains farming operation in Russia.

Sunny Verghese, CEO of Olam commented: "The investment in RUSMOLCO is another important step towards the implementation of Olam's dairy and grains strategy, which involves selective integration across the value chain with a focus on building end-to-end capabilities. RUSMOLCO brings a strong dairy platform as well as 106,000 hectares of land suitable for agriculture, an attractive platform and asset base that is hard to replicate in a short period of time. Our Russian partner has a deep understanding of the local market and I am confident that this investment is a step forward towards the establishment of a profitable and promising venture for both sides."

Naum Babaev, Founder and Chairman of the Board of Directors of RUSMOLCO commented: "We see enormous potential in partnering with Olam in this venture. Olam's strong financial resources, high calibre management team and experience of operating in over 65 countries create a strong platform for further development of our business. Together, we hope to achieve a dominant position in the industrial milk segment globally. I am excited at the opportunity to continue to participate in RUSMOLCO's development as the Chairman of the Board of Directors of the joint venture."

Olam's grains strategy has been anchored around the creation of a configuration of milling assets in sub-Saharan Africa and building a supply chain business around that core. Investing in grains farming provides a natural hedge to this business model as the upstream presence provides the ability to effectively hedge across multiple years. It is also a first-hand source of valuable information including crop yield and quality. Further, it will directly add volumes to the supply chain, thereby enhancing its Black Sea origination business.

Olam International is a leading global integrated supply chain manager and processor of agricultural products and food ingredients, sourcing 20 products with a direct presence in 65 countries and supplying them to over 11,600 customers. With direct sourcing and processing in most major producing countries for its various products, Olam has built a global leadership position in many of its businesses, including cocoa, coffee, cashew, sesame, rice, cotton and wood products. Headquartered in Singapore, Olam currently ranks among the top 40 largest listed companies in Singapore in terms of market capitalisation.