Olam International yesterday unveiled plans to generate free cashflow more quickly, reduce its gearing and capital expenditure and to make its businessless complex.

The agri‐commodities trader now aims to have positive free cashflow from the 2014 financial year onwards, a year earlier than its original target of FY2015.

It will also shave $1 billion off  its planned capital expenditure to between $1.2 billion and $1.6 billion.

By FY2016  ‐ the  time by which it should have achieved its goal of US$1 billion in profit after tax in its initial plan ‐ Olam will reduce its gearing ceiling from 2.5 times net debt over equity to 2 times, and save $80‐100 million each year in overheads by improving operating efficiencies.

Olam will also place some of its best manufacturing and processing assets into an asset securitisation structure akin to a private business trust structure, and lease back these assets, thereby releasing cash
and improving returns.

These measures, along with others such as closing down poorly‐performing profit centres, will release an estimated $500 million in cash,said chief executive Sunny Verghese. Another strategy of unlocking intrinsic value in the firm will release an estimated $1 billion, he added.

This includes pursuing joint ventures or strategic alliances, selling a minority stake or floating some of its businesses, and divesting non‐ core assets.

To reduce the complexity of its business, Olam will invest and grow only five of its 16 platforms (edible nuts, spices and vegetable ingredients, coffee, cocoa and grains), Mr Verghese added. For the rest, it will either restructure, maintain at status quo or invest with strategic partners.

Source: AmFraser