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Olam extends disposal spree with Uruguay land sale

Olam International continued its quest to release value from assets built up during a multi-year takeover spree by selling for $53.7m Uruguay farmland acquired with a dairy purchase.

Olam said that it had sold 1,769 hectares of land in western Uruguay to farm operator Nalmer, although it will keep the land on a lease for two years while it switches dairy cattle on the site to other farms.

In western Uruguay, Olam sold 6,002 hectares to Galperin Group, although this site will be retained on a longer-term lease, of 12 years, "renewable upon mutual consent".

The sales, which will release a pre-tax profit of $18.0m, are being made from land the Singapore-based agricultural trader acquired with New Zealand Farming Systems Uruguay, the struggling dairy operator in which Olam acquired a majority stake in 2010, and completed its takeover late in 2012.

Releasing cash

The deals also extends the range of disposals that Olam has made since coming under fire from Muddy Waters last year over the extent of dent built up during its acquisition binge.

"The transactions are aligned with Olam's strategy to pursue profitable growth and generate positive free cash flow," said Vivek Verma, the Olam's managing director and global head of dairy.

"Not only do we free up cash for redeployment into other more value-accretive projects, we also retain the upstream dairy farming economics, which remain fundamentally and structurally attractive in the long-term due to increasing demand and supply constraints."

'Restructuring programme'

While Olam has failed to break out the performance of New Zealand Farming Systems Uruguay (NZFSU) since the full takeover, the group has acknowledged that its dairy business "underperformed" in the 2013 financial year, in part thanks to the Uruguay business.

"Although strong milk prices were favourable to the upstream dairy business, the positive impact was offset by lower milk production at our dairy farming operations in Uruguay, NZFSU, as a result of poor weather conditions persisting through the year," the Singapore-based group said in its annual report.

The annual briefing also said that Olam had "embarked on a restructuring programme" at NZFSU "to focus our management team on improving the operational metrics."

NZFSU reported a loss of $7.6m for the year on revenues of $63.1m in the end of June 2012, its last public results, following an $8.7m loss the year before.

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