Olam, under Temasek’s gaze, shifts to slower growth path
Aims to turn free cash-flow positive in 2014, one year ahead of target
Singapore: Olam International Ltd , propped up by Singapore state investor Temasek Holdings after worries mounted over its high debt, bowed to investor pressure and said it will nearly halve its capital spending over the next three years and trim its businesses.
The Singapore-based agricultural commodities company, which came under attack from short-seller Muddy Waters last November and was forced to raise cash as its stock and bond prices tumbled, has been urged to rein in its global expansion plans and generate more cash.
“The change that we want to make, as far as the next three years are concerned, is in addition to our focus on profitable growth. We want to rebalance that with an equal focus on accelerating cash flow generation," chief executive officer Sunny Verghese told a news conference on Thursday after announcing the results of a business strategy review.
The measures include becoming free cash-flow positive by the year to June 2014, one year earlier than previously forecast. It will also seek to cut its stake in a Gabon fertiliser plant, its biggest investment, which has been delayed by about a year.
“Going forward we will move away from specific earnings targets," said Verghese, flanked by Olam’s other board members at the conference.
In a brief statement, Temasek said it was comfortable with Olam’s credit positions and its longer-term prospects.
Olam’s fortunes are increasingly tied to Temasek, which became Olam’s top shareholder with a 24% stake, up from 16%, after subscribing to a $712.5 million cash call in January.
Mandated by the Kewalram Chanrai Group to start Olam in 1989, Verghese spearheaded the company’s expansion beyond trading, into the production and processing of agricultural commodities from cotton to coffee to cashew nuts.
Its approach to add on more upstream and midstream capabilities has loaded it with debt as it bought flour mills and other assets, including a dairy business in Uruguay and almond assets in Australia.
“Olam wants to first let the numbers show there is delivery before they move back to the original path of growth by M&A," said Roger Tan, head of SIAS Research.
“Olam has learned from the Muddy Waters episode the importance of regular communication with investors, especially because of their complex business model."
Olam will reduce capital spending by S$1 billion ($804 million) or more, to between S$1.2 billion and S$1.6 billion, for the period from 2014 to 2016. That compares with an earlier spending plan of S$2.2 billion to S$2.6 billion for the period. REUTERS
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