Blu-print to halt inefficiency
Additional R277 capex to address ballooning expenditure
DAIRY PRODUCTS and beverages producer Clover says it’s on schedule and hasn’t overspent on implementing its restructuring programme Project Cielo Blu. That’s after the group announced an additional R277m worth of capital expenditure to the R350m it announced for Cielo Blu during its pre-listing circuses late last year. Deputy CEO Manie Roode says the R627m will be utilised in optimising Clover’s operations and for addressing its historical inefficiencies over the next three years. unfolding according to plan. Cielo Blu is a capex programme Clover put in place to address its historical inefficiencies dating back to its days as a farmers’ co-operative, when the Dairy Marketing Board barred the group from setting up production facilities on the coast, except in KwaZuluNatal. Over the past two decades there’s been a steady migration of dairy farmers to the coast, resulting in a mismatch between the source of raw materials at the coast and Clover’s inland production facilities. That’s meant Clover has had to ship raw milk from the coast to its inland facilities at significant costs.
Now that the barriers have been abolished, Clover wants to relocate its facilities closer to its sources through Cielo Blu. That includes moving the production of long-life products from inland facilities to the coastal towns of Pinetown and Port Elizabeth, thereby reducing milk transport cost. The group will also relocate its Johannesburg central beverages production plant to its Midrand facility, optimising its primary distribution and warehousing costs and realising significant production cost savings.
Another constraint Cielo Blu aims to address is a distribution network currently operating significantly above its optimal utilisation. Growth in certain areas and products has resulted in over-utilisation of aggregate chilled and ambient capacity. From traditional dairy products Clover now has a wide-ranging portfolio of brands, including juice beverages, flavoured water and other applications it’s developed over recent years in attempts to reduce its exposure to the cyclical dairy business. It recently said it’s investigating opportunities in carbonated soft drinks. It says overcapacity has left it with limited room for growth.
Roode says the additional R277m is to relocate Clover’s cheese manufacturing factory to the coast, in line with the Cielo Blu project. The group also needs to fund some projects aimed at increasing its collection capacity in certain regions, as well as various value-added packaging initiatives. Roode says Clover is a cash-generative business and will be able to fund the expenditure from internal resources.
Since listing, Clover’s price hasn’t done wonders, marginally gaining 4,7% to the current 1100c/share. The problem is the cyclicality of the group’s business, which makes it hard to forecast its performance for the whole year.