Blu-print to halt in­ef­fi­ciency

Ad­di­tional R277 capex to ad­dress bal­loon­ing ex­pen­di­ture

Finweek English Edition - - COMPANIES & MARKETS - ANDILE MAKHOLWA andilem@fin­

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.


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