08 May 2014 Clover buys DairyBelle’s yoghurt, UHT assets

As Clover gains traction on its ambitions of re-entering the yoghurt market by the first quarter of 2015, the JSE-listed dairy and beverages group has announced plans to buy DairyBelle’s yoghurt and ultra-high-temperature (UHT) milk manufacturing, marketing and distribution businesses for R125-million and R30-million respectively.

“The acquisition of the DairyBelle assets provides Clover with an entry into the highly attractive and profitable yoghurt market, which is one of the major opportunities arising from the expiration of the Danone Southern Africa contracts later this year,” CEO Johann Vorster said.

This follows last year’s announcement by Clover that it would not renew its agreements with Danone, which saw it manufacturing, marketing and distributing dairy products under license from the French food producer.

The partnership was becoming a handbrake to Clover as it prevented the company from acting on its strategy of developing and expanding its own portfolio of value added and branded consumer products.

The company hopes that by combining these assets with its own sales and distribution capabilities it will enable it to develop the Dairybelle brands further and launch its own Clover branded products.

“The deal makes perfect sense,” says Anthony Clark, small and mid cap analyst with Vunani Securities. “Clover wanted to enter the yoghurt arena. They could have started from grassroots but this takes time and management wants a 20% market share within five years. This way, for R120-million Clover gets instant capacity, shelf space, plant & machinery and it gets to take out a weaker competitor in market place.”

Clover will have to re-invest in the brand though. DairyBelle was once an illustrious name but has been losing market share to bigger and better resourced competitors like Danone and Parmalat.

On the UHT side, Clover has a strong presence at the top end of the market. But the category is highly commoditised and supermarket chains like Shoprite and Pick n Pay sell their house brand UHT milk at a loss to entice people into the store. “This makes it a cut-throat market to operate in,” says Clark.

The addition of DairyBelle’s UHT production facilities, in the Western Cape, would also enable the JSE-listed group to improve efficiencies through the more effective use of its raw milk supply in the region.

The group, which aimed to capture 20% of the market over the next five years, was expected to gain market shares of 10% in yoghurt and 19% in UHT milk after the conclusion of the transaction.

The acquisition would enable DairyBelle to narrow its focus to its core business – cheese and niche butter products, explained DairyBelle CEO Pedro Viudez.

The acquisition remained subject to conditions, including competition authority approvals, which were expected to be completed by the end of July 2014.

Meanwhile, Clover on said it expected to post 20% lower earnings for the year to June 2014, as a number of factors weighed on sales volume growth and earnings growth.

The company experienced a “very constrained” trading environment, where the full recovery of raw milk price increases and strong overall inflationary cost pressures would not be achieved. Further, selling price increases on impacted on sales volumes, as did rising inflation.

Unlikely coupling in the DairyWorld/DairyBelle merger?

There have been rumours circulating for some time that all was not well at DairyBelle, once the dairy arm of Tiger Brands. In February 2007, Tiger said it had concluded an agreement to sell its dairy business, DairyBelle, the third-biggest SA dairy player after Clover and Parmalat, to a consortium of investors, which would probably include the management and staff of DairyBelle for an undisclosed sum.

It said in a note to shareholders that the dairy business was not considered to be a strategic core business for the group and that it believed the unit would be better off as an independent dedicated dairy company.

This period of new ownership was brief, with DairyBelle then taken over by upcoming minnow, DairyWorld of Pretoria, owned by the Meyerowitz family, and other shareholders, in 2008.

At the time, it was a hard cultural match to imagine: a large, national, corporate, brand-driven operation being bought out by a much smaller player that was an entrepreneurial, family-owned company – a regional business with a footprint more in the lower end of the market.

Looking at the DairyWorld website today, one discovers a different story! It maintains that DairyBelle purchased DairyWorld in 2005?! Hmm… this does not seem to connect with other JSE-accredited media reports.

Suffice to say, it is now apparent that the DairyWorld arm of the amalgamated DairyBelle company was, in fact, bought by Tiespro 255, in September 2012, a company belonging to biscuit mogul, Rafiq Tayob. It was Tayob, says the website, who:

“…led the historic ownership deal and set about transforming the milk-producing  and  allied  dairy  product  factory  into  an  emerging corporate  establishment,  the  first  for  South  Africa  in  real  terms  of  a  wholly  black-owned business  of Indian origin. As  new  CEO,  Tayob  brought  in  South  Africa’s  leading  industry  experts  and  human  capital  in senior  management,  financial,  production,  branding,  distribution,  logistics,  retailing, merchandising,  marketing,  sales,  procurement  and  liaison  with  dairy  farmers.

The  family business  legacy  he  inherited  from  his  father  and  forebears  has  now  been  extended  to  his daughter,  Tahiya  Tayob,  CA  (SA)  as  the  new  Chief  Financial  Officer.  Former  Clover  Danone’s Key  Accounts  Manager  Jay  Moodley  is  the  new  General  Manager  and  Johan  Du  Preez  is  the Factory Manager.  The transition of ownership and management has been smooth to ensure that  Dairy  World’s  high  standard  and  quality  checks  as  a  significant  producer  of  fresh  milk, milk products and by-products, mainly in the PWV areas and Gauteng and Tshwane.”

Tayob built his company, Kwality Biscuits, based in Bronkhorstspruit, into a significant player (about 12% market share at the time) that was bought by Pioneer Foods and incorporated into its Bokomo Foods division in November 2004.

It was then the second-largest biscuit producer, albeit by a long margin, after NBL, and with no small aspect of its success unashamedly (according to an SA Food Review article) attributed to a strategy of emulating the top-selling biscuit brands and promising consumers “the better biscuit at a better price”. It also enjoyed strong export and private label sales.