Famous Brands’ Ground-Breaking Dairy Partnership
In pursuit of the Group’s deliberate strategy to build and expand its manufacturing capability and leverage opportunities in the supply chain, Famous Brands has entered into a ground-breaking joint-venture partnership with the Coega Dairy Company (Coega Dairy), an existing dairy manufacturing business in Port Elizabeth owned by local farmers, factory and farm employees, regarding the supply of cheese products to the Group.
Famous Brands Cheese Manufacturing Company, the new joint-venture entity, (entirely independent from the existing dairy business), has been established for this purpose. Famous Brands will control 51% of the company’s shares, while shareholders of Coega Dairy will hold the balance of 49%. In terms of the agreement, a new state-of-the-art cheese manufacturing plant will be constructed adjacent to Coega Dairy’s existing dairy facility (whose primary business is the production of UHT* long life milk and butter). Coega Dairy will supply milk to the new company, which in turn will produce Mozzarella, cheese slices and cheese spread for the Group. In the immediate term, Debonairs Pizza will be the company’s single biggest customer, with the intention to expand supply over time to the Group’s other brands.
Famous Brands’ CEO, Kevin Hedderwick says, “We have signalled to the market that our goal is to grow the back-end of the business by enhancing our manufacturing capability and capacity, and this is another strategic step in that process.” He continues, “This partnership is compelling for two reasons: the transaction comprises a straightforward greenfield investment with significant earnings potential and a short payback period, and equally importantly, it is an enterprise which will deliver tremendous benefits for those black farmers who partner with us via Coega Dairy, whereby they gain an instant, robust market for their product, and the potential to grow that market over time.”
Coega Dairy’s ownership comprises 19 producer shareholder farms, of which six are community and black-owned. The 225 farm employees employed by the shareholder farms are all historically disadvantaged individuals, as are Coega Dairy’s factory employees. They are also all shareholders in the dairy through the Coega Dairy Empowerment Trust, which has been funded by the Industrial Development Corporation.
Latest-technology equipment, budgeted at R35 million, will be imported from Italy for the custom-designed plant and will be funded by the joint-venture partners in direct proportion to their shareholding in the business. The day-to-day operations of the cheese manufacturing business will be managed by Coega Dairy for an agreed management fee.
In terms of the agreement, the Coega Development Corporation (CDC) will fund construction of the 2 600m² facility and lease the premises to the new company. Construction is planned to commence in November 2012, and is expected to cost in the order of R20 million.
Hedderwick comments, “By locating this business within the CDC node, which was specifically set up by government to attract investment, Famous Brands is helping to contribute to the economy of the Eastern Cape, one of the poorest provinces in the country. We are delighted to have the opportunity to make a meaningful difference in an area of real need.”
“Significantly,” notes Hedderwick, “this transaction is anticipated to create 49 jobs in the new cheese manufacturing company as well as a further five jobs in the existing Coega Dairy business. ”
Coega Dairy CEO, Dr Hennie Kleynhans, says, “This transaction is a fantastic coup for the farmers who own Coega Dairy; it guarantees a market for at least 38 million litres of milk per annum and will in time establish the dairy as one of the biggest in South Africa.”
Hedderwick says, “Coega Dairy’s management team has a collective 106 years of experience in this industry, so we are in good hands. The business has achieved an admirable track record since it was founded in 2011, and is now the preferred supplier of UHT milk and butter to a leading retail group, the largest exporter of UHT milk, and the fastest growing dairy company in South Africa. Coega Dairy is also the first South African dairy to receive the ISO 22000 food safety system certification.”
Kleynhans concludes, “Coega Dairy’s joint-venture with Famous Brands in the new cheese manufacturing business is great reward for the courage and vision which our founding shareholder producers demonstrated in the early days in overcoming financial and regulatory obstacles to invest in their own factory, and start farms which have empowered black farmers, managers and employees. This momentous partnership will have important economic benefits for all of the people of Coega Dairy and the wider community in which we operate.”
Famous Brands Cheese Manufacturing Company is anticipated to commence supply and distribution of Mozzarella cheese to the Debonairs Pizza franchise network in May 2013. The business’s first-year annualised turnover is expected to be in the order of R180 million.FAMOUS BRANDS’ GROUND-BREAKING DAIRY PARTNERSHIP