Clover aims to raise R500m in JSE listing

| Friday December 3, 2010 00:00

 

The company, which currently has dairy producers as its main shareholders, will list on the JSE on December 14 and will issue 47,6-million shares to certain institutional investors and existing shareholders at between R9 and R12 a share.

Investors would be required to buy shares worth a minimum of R100, 000.

CEO Johann Vorster on Monday said that R350-million of the funds raised would go towards its Project Cielo Blu, which was aimed at improving inefficiencies in its supply chain network, expanding its capacity for current and future growth and to improve the company's profitability.

A further R120-million to R150-million would go towards reducing Clover's debt, while any remaining funds could possibly be used to buy out minority shareholders or for possible acquisition opportunities, he added.

The company, which was established in 1898 as a cooperative of dairy producers, processes about 650-million litres a year of milk and related products.

It was until the 1980s, precluded from setting up production facilities in South Africa's coastal regions, except KwaZulu-Natal, owing to regulation.

This has resulted in logistical and distribution-related inefficiencies, owing to the fact that many of the milk producers from which it sources inputs were located in the coastal areas.

Project Cielo Blu will entail moving all Clover's ultra high temperature processed milk, also known as long-life milk, processing facilities from Gauteng to the coast. This would result in savings on transport costs.

The company will also convert its Midrand facility to accommodate its beverages storage, production and warehousing capabilities and will close down its Mayfair facility, where the beverages business was currently located.

These changes were expected to result in lower transport costs, increased production capacity, lower fixed costs and lower raw material costs.

The improved beverages production and distribution infrastructure was expected to result in further 'robust' growth for this product division. Further, Clover indicated that its facilities were running close to capacity, which could result in future constraints to growing the business and to a potential loss in sales from an inability to deliver more volumes.

Project Cielo Blu would, thus, also include the expansion of the Midrand, Polokwane, Nelspruit, Queensburgh, East London, Bloemfontein and Port Elizabeth distribution facilities, among others.

Ambient storage capacity would be increased by about 46% to 20, 898 pallets, up from the current 14, 342 pallets. Chilled storage capacity would be increased by about 22% to 31, 158 pallets, compared with the current 25, 457 pallets.

The project would be implemented over the next five to seven years.

Vorster noted that, as demand for Clover's product grows, it would require additional supply from the milk producers, thus benefiting both the company and the producers.

He indicated that the constant migration from citizens in the lower living standards measure (LSM) brackets to the higher LSM brackets, was leading to higher demand for Clover's products, particularly fresh milk.

There was significant potential growth in dairy and beverages consumption in South Africa, owing to the fact that the distribution of wealth and accessibility to such products has, in the past, been an inhibitor on demand for these products.

Clover has ensured that it has a strong relationship with organised retail and trade groups and ensures that, as these retailers move into formerly unserviced areas, its products are strongly represented in these areas.

Meanwhile, the company has also initiated Project Reset, through which it aims to stimulate volume growth by ensuring that its products are competitively priced.

Clover has also started implementing measures to mitigate cyclicality in its business.

Vorster explained that about every four years, there is a surplus of milk, either nationally or internationally. In 2009, this surplus had been particularly bad, owing to the global economic crisis, which resulted in an international surplus, as well as a local surplus of milk, leading to downward pressure on pricing.

Simultaneously, input costs, such as transportation increased, with Clover unable to lift its selling prices to recover the higher input costs.

However, the company has exited the majority of bulk products sales, has implemented a milk procurement policy in terms of which it can buy milk as it requires and, in the case of certain suppliers, at reduced prices when there is an oversupply of milk on the market, and diversified its portfolio into higher margin branded goods.

CFO Jacques Botha noted that the company's dairy business has been growing at a 10% compound annual growth rate (CAGR), while its beverages division has been growing at about 12% CAGR in the past few years.

Vorster emphasised that, given the scope of growth still in South Africa, Clover would initially continue to focus its attention on the local market over the next two to three years, before considering further expansions into Africa.It already has a number of wholly-owned and joint-venture operations in Swaziland, Botswana, Namibia and West Africa.Nigeria was seen as a big opportunity for the company, with Vorster saying that, as food retailer Shoprite enters that market, Clover would also gain entry to that market.It would only be able to supply long-life milk to this market, though, owing to distribution constraints.Clover will be listed under the Food Producers sector of the JSE._ -(Engineeringnews)