Clover turns over new leaf

28 November 2010 - 02:00 By Lucky Biyase
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Five years of ambitious planning and preparation are about to bear fruit for Clover Industries now that shareholders have thrown their weight behind the company's decision to seek a listing on the JSE.

Clover, which began when a group of farmers in Mooi River in the KwaZulu-Natal Midlands came together to start a butter factory and distribution system around 1898, plans to float its ordinary and preference shares in the food producers and preference shares sectors of the JSE, respectively.

At present Clover's ordinary and preference shares trade on an over- the-counter market facilitated by the company.

The full listing is planned for December 14. For this reason, the trade in over-the-counter shares will be suspended tomorrow to facilitate the migration of trade to the JSE and the offering of ordinary shares.

Although converted from a co-operative to a public company in 2003, limited access to capital has hampered Clover's growth.

"It all finally changed in May this year, with the capital restructuring of the company. Before this, the ordinary shares in the company were linked to delivery agreements, which means you had to be a producer to own ordinary shares," chief executive Johann Vorster said.

He said the delinking enabled the investors other than dairy producers to buy ordinary shares.

"This is a major achievement for us because it will increase our liquidity and unlock value for current shareholders," Vorster said.

Clover plans to raise up to R500-million, the bulk of which will be used to fund its primary capital project, dubbed Project Cielo Blu.

Cielo Blu is aimed at removing inefficiencies in its supply chain incurred as a result of the pre-1994 Agricultural Marketing Boards, which forced the company's operations to be located in Gauteng, Free State and some parts of KwaZulu-Natal while its sources of production are based at the coast.

"The listing will be a major milestone for Clover. As a public company, our corporate and consumer brands will be aligned. This will contribute positively to the growth of our business as well as strengthen our position in the markets where we choose to operate," Vorster said.

Cielo Blu will bolster capacity expansion programmes through the relocation of production facilities closer to milk sources in order to cut transportation and related costs.

The project will also facilitate the expansion of key production and distribution points and warehouses to create sufficient capacity to support growth.

At present Clover has to transport to 14000 distribution points for its customers in the fast-moving consumer goods (FMCG) sector, which include pork producer Eskort and consumer goods conglomerate Unilever.

Its milk products are moved from the coastal towns of Port Elizabeth in the Eastern Cape and Pinetown in KwaZulu-Natal, to where the company now plans to move its production of long-life items.

"Moving our production facilities closer to the source and expanding our distribution platform will save costs and eliminate bottlenecks in the supply chain," Vorster said.

"This will create significant growth opportunities and, because of our critical mass, enable us to access new markets."

Vorster said Clover was giving itself two to three years to complete the strategy and capital restructuring despite higher raw milk costs.

"The thrust is to put our facilities where they need to be," Vorster said.

For the year ended June, Clover's gross margin grew to 27.8% from 26.3%. Vorster attributed the growth to a better product mix, reduced production and packaging costs and cost-cutting initiatives.

The company posted an operating profit of R320.8-million, adjusted for exceptional items, compared with R48.6-million last year.

Vorster said since Clover had already moved from being a co-operative to a company, a JSE listing should not prove difficult.

"We are now au fait with running a public company and the strategy going forward will be to build a company that focuses on profitable brands."

Expansion will be based on three stages, he added. "Organic growth will precede anything else followed by expansion of capacities and these will be complemented by mergers and acquisitions.

"We want to see the company at number one or two in the FMCG market in the next five years."

Vorster said the trend would be set by the expansion programmes of retail stores such as Shoprite and Massmart, with whom Clover has a strong relationship, and these would deliver new customers to the company.

Clover used to be in a joint venture with French company Danone and Fonterra, a New Zealand-based co-operative.

Despite selling its 45% stake in the Danone venture, Clover is still conducting profitable business with the company.

"We still derive a profit of about R260-million through procuring milk and providing merchandising and sales services for Danone," Vorster said.

The joint venture between Clover and Fonterra, which was approved by the Competition Tribunal in 2005, focuses on the marketing of bulk dairy ingredients and the supply of food service products to various quick-service restaurants throughout sub-Saharan Africa.

Timeline

1898: Farmers meet in Mooi River during October to discuss establishing a butter factory. At follow-up meetings the name Natal Creamery Ltd crops up and co-operative principles are approved.

1899: Joseph Baynes starts the first butter factory in then Natal on his farm Nel's Rust.

1906: Natal Creamery takes over Johannesburg Milk Supply Company.

1923: Natal Creamery is registered under the Co-operative Societies Act of 1922.

1932:Natal Creamery is operating in 32 centres countrywide.

1943: The operation of a 100% co-operative-style system gets the stamp of approval, and the name Natal Creamery is changed to National Co-operatives Dairies.

1994: Clover SA (Pty) Ltd is established as an operational company by the co-operative.

2003: The conversion of National Co-operative Dairies from a co-operative to a public company takes place during November. A name change to Clover Industries is also approved.

2005: Hosken Consolidated Investments (HCI) acquires 25.1% shareholding as a BEE partner.

2007: HCI exercises its option to increase its ordinary shareholding to 34.9%.

2010:Repurchase of 34.9% ordinary shares from HCI and conversion of preference shares to debt-only instruments - a move not well received by some preference shareholders.

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