June 3, 2011

 

Olam to increase milk output by threefold

 

 

Olam International is sticking to its business plan that includes tripling of milk production of its NZ Farming Systems Uruguay (NZFSU) operation in three years time.

 

Olam global head of coffee and dairy, Vivek Verma, said the company planned to inject capital into the Uruguayan operation whether or not the company reached 100% control of NZFSU.

 

Acceptances by shareholders were expected to pick up as the final offer date closed in, he said.

 

Olam has extended its takeover offer to June 14, and in theory the offer period can be further extended as far as August 4. But Verma said a further extension of the closing date was unlikely. "We don't really believe at this stage, unless something else happens to convince us otherwise, that there is any need for a further extension."

 

Olam's most recent disclosure shows it has a holding in NZFSU of 80.71%. If it reaches the 90% threshold it can compulsorily move to 100% ownership under market rules.

 

Prior problems at NZFSU included a lack of management people on the ground in Uruguay or control over land assets and unrealistic business forecasts, Verma said.

 

Olam planned to continue to execute its new business plan.

 

If smaller shareholders remained on board with NZFSU the company was likely to go ahead with a US$110 million (NZD135 million) to US$115 million capital raising through a rights issue.

 

"Though I do feel that from a minority shareholders' perspective the shares will become highly illiquid - from Olam's we've really given shareholders a choice [to sell] at this stage. I think it would be unfair if shareholders expect us to continue to give them choices subsequently. At present Olam was focused on the operational side of NZFSU rather than further development in Uruguay," said Verma.

 

"That has yielded encouraging results to date - the business plan has significantly lower earnings than previously forecast [but] we believe it has got a significant amount of stretch in it - so in all we are talking of almost tripling milk in three years' time. So we were looking at 100 million litres [this financial year] and are expecting to get to 300 million litres in three years' time," Verma added.

 

NZFSU announced this week it had a conditional agreement to sell a Los Naranjos farm in the west of Uruguay, given its remoteness from the other farms owned by NZFSU in the west. A sale would realise a US$1.6 million gain compared to book value.

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