02 Jul

SOS Cuetara sees record olive oil harvest in 2007-2008

Sos Cuetara SA expects a record olive oil harvest in 2007-2008, against a medium-term backdrop which does not anticipate any surprise negative factors weighing on earnings, chairman Jesus Salazar said.

In an interview with Thomson Financial News, Salazar said: Next year’s (olive oil) harvest is very, very good It’ll probably be a record. In the medium term, we don’t foresee any crises.

As conditions affecting the group’s operations continue to improve, Salazar said he expects second quarter earnings to come in slightly better than those of the first, and to be on track to reach a 1.6 bln eur sales target for the full-year, amid gradually more stable margins. This is a year of normalisation, in which EBITDA should gradually reach 10 pct of total sales,” he said, nothing that EBITDA margin on olive oil is expected to reach 10 pct by year-end compared to around 4 pct in 2006, with rice margins seen at 8-9 pct and biscuit margins at 15-16 pct.

With a solid balance sheet, 500 mln eur debt and 700 mln eur shareholders funds, Salazar does not see any problem financing the group’s ambitious expansion plans in the US and Italy as the company ploughs ahead with its goal to become a global leader in Mediterranean food products.

In Italy, the company will continue to use debt to finance acquisitions until it succeeds with plans to list its businesses there on the Milan stock exchange.

“We’re in talks with companies and there are some very good opportunities … We have various interesting options,” Salazar said of its Mediterranean neighbor. The IPO is targeted for 2009, when SOS expects its Italian olive oil division to post 1 bln eur in sales, up from about 500 mln eur currently, thanks to the forecasted growth through acquisitions.

But Salazar said the timing of the listing could be accelerated if a major deal is closed sooner rather than later.

If we’re lucky with a big operation, we could go for a listing sooner … We’re going to need it; we want to finance all of our expansion in Italy through the market, he said.

In the US, SOS continues to eye various acquisition targets in olive oil, vegetable oil, rice and other related products, which the company plans to finance through a mix of a preference share issue, capital hike and debt.

“We have some enormous buy (opportunities) which, if successful, we’d have no problem financing … We could invest 1 bln eur, for example, without any problem,” he said, noting that SOS has on three occasions made acquisitions of companies double its size.

SOS is targeting sales from the US to account for 50 pct of the total by 2012, Salazar noted. Despite its aggressive global acquisition drive, the groups strategy does not foresee further plans in the biofuels sector following completion of its Andujar factory, which Salazar expects to come on stream in April 2008.

He said that as a vegetable oils company, SOS could not remain on the sidelines of a new process that has such a direct impact on raw materials, but noted: We don’t plan to have more installations We’re not a renewables company.” However, SOS will continue to focus on protection against poor crops and volatile market conditions to ensure more stable prices for olive production. The plan forms part of its Land Project announced in April.

SOS currently controls 15 pct of global market share in olive oil, and expects olive oil demand to double over the next ten years after soaring 75 pct from 1991 to 2005. The only cap is production, which is why we’ve launched our Land Project to boost olive plantations and increase capacity,” Salazar said, noting: Ten years from now, SOS’ main asset will be its reserves.

The company will not use debt for this project, resorting rather to capital from investment funds, the majority of which Salazar said are from the US. Thus, the cost of acquiring land with the aim of cultivating 10,000 hectares per year falls on the investment funds, which will split future profits 50:50 with SOS.

Not only are foreign companies interested in SOS’ Land Project, but also in the company as a whole, Salazar said, noting that he receives approaches from interested parties every week, without fault.

The day we receive a serious, sensible offer which takes into account the company’s worth beyond just its stock market value, I will then with great sadness inform the board and shareholders and let them decide,” he said.

Meanwhile, the chairman plans to continue gradually building his current about 17 pct stake in the company up to 29.99 pct – the new limit on holdings without being forced to launch a full takeover bid from Aug 1.

Salazar does not plan to launch a full bid for the company.

We’re in the stock market to finance growth … My intention is to keep buying until the maximum allowed … but at 20 mln eur each 1 pct, every move has its pace, and I don’t want to cut the (30 pct) free float … I’m going at the speed I can.

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