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Talley's target disappoints Olam

Friday 3rd September 2010

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A presumed jewel in the Affco crown, Open Country Dairy, failed to perform to expectations in the last financial year, says Singaporean food and commodities group, Olam International. 

Affco owns 35% of Open Country, and is subject of a takeover bid from private New Zealand food processor, Talley's Group. 

Olam owns a further 25% of Open Country and is exposed to another under-performing kiwi investment, New Zealand Farming Systems Uruguay. 

Olam mounted a takeover for the NZX-listed Uruguayan dairy venture last month. 

Open Country Dairy was one of two investments by Olam International that disappointed the Singapore-based food and commodities group in 2010. 

The cheese and dairy ingredients company provided a return on equity of just 0.5% in the 12 months ended June 30, according to an analysts' briefing on Olam's annual results, posted to the Singapore stock exchange.  

The 4.6% return on capital from Open Country was the second-worst of 19 investments around the globe in the latest year and less than one third of Olam's 13.9% weighted average return.

A Malaysia-based sweetener manufacturer, PureCircle, was the group's other disappointing asset.

"With the exception of our minority investments in PureCircle and Open Country Dairy, all other acquisitions and investments in JVs and associates had a profitable year," Olam said.

"Both PureCircle and OCD are expected to perform better in FY2011 and track our investment thesis from FY2012 onwards," it said.  

Olam owns 25% of Open Country, and 20% of PureCircle.

The Singaporean company is in pole position to take over NZ Farming Systems Uruguay after raising its offer to 70 cents a share, chasing off a rival bidder and winning support from the target's board. 

Open Country was formed in 2001 to take advantage of the Dairy Industry Restructuring Act, which removed Fonterra Cooperative Group's export monopoly and forced the cooperative to supply rival processers with raw milk at regulated rates.  

The milk processor's ownership is the subject of an upstream takeover by fishing and food company Talley's Group, which will end up holding 52% of the dairy producer if its bid for 100% of Affco Holdings is successful.  

Olam lifted net profit 43% to S$359.7 million in its latest full year, with a 22% increase in sales to S$10.56 billion.  

Chow Hung Hoeng, associate general manager of investor relations, said the company plans to hold on to its Open Country investment, with no current intentions to sell.  New Zealand dairy businesses have been an attractive option for offshore investors in recent months, with Olam joining Hong Kong-based Natural Dairy (NZ) Holdings and China's Bright Dairy & Food Co. in looking to buy into local businesses.  

Olam's food agri-business operations, which cut across all parts of the value chain, with upstream assets, where a commodity is actually produced, ranging from African palm and rubber, almonds in Australia, rise in Nigeria, timber in Gabon and peanuts in Argentina.  

Its midstream and downstream assets, which processes and distributes the good, includes the Open Country investment along with investments such as cocoa processing in Nigeria, spice grinding in Vietnam, peanut manufacturing in the US, sugar refining in Indonesia, and casein processing in Poland to name a few.

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