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Famous Brands to develop a new dairy business

It has announced a 51% shareholding in a new joint venture.

CAPE TOWN – Ever-hungry franchise operator Famous Brands (JSE:FBR) has, for a moment, turned its attention away from developing new franchise formats to developing new businesses on the back-end of its supply chain.

The company has announced a 51% shareholding in a new joint venture company called the Famous Brands Cheese Manufacturing Company which has been established to manufacture mozzarella cheese, cheese slices and cheese spread.

Coega Dairy Company, a Port Elizabeth-based dairy manufacturing business owned by local farmers, factory and farm employees, will hold the remaining 49% of the shares.

The cheese manufacturing venture will add to Famous Brands other manufacturing operations, which include the production of fruit juice, roasted coffee, sauces, chicken fillets and burger patties as well as ice cream. Manufacturing contributed 35% to group turnover and 22% to operating profit in the financial year to February.

A new manufacturing plant will be built alongside Coega Dairy’s existing dairy where UHT long life milk and butter are produced.  The latest in cheese making equipment, valued at R35m, will be imported from Italy and will be paid for by the partners in proportion to their shareholding.

The Coega Development Corporation (CDC) will fund construction of the 2 600m² facility and lease the premises to the new company.  Construction will begin in November 2012, and is expected to cost about R20m.

In a separate deal, CDC is also developing a new warehousing and distribution centre for Famous Brands which has outgrown its Port Elizabeth-based distribution centre.

Coega Dairy will supply milk to the new company and will manage the plant for a fee.

“The transaction comprises a straightforward greenfield investment with significant earnings potential and a short payback period,” says Famous Brands CEO Kevin Hedderwick. “We will participate in the margin and profits from that facility, but as importantly, we will supply our franchisees with mozzarella cheaper than they can source it elsewhere.”

For the farmers the deal is pure sweetmilk. “This is a fantastic coup for the farmers who own Coega Dairy,” says Coega Dairy CEO, Dr Hennie Kleynhans. In the feast or famine world of milk production this deal guarantees a market for at least 38m litres of milk per annum. “In time it will help to establish the dairy as one of the biggest in South Africa.”

The dairy was founded in 2011 and is supported by 19 producer shareholder farms, of which six are community and black-owned. Farm-workers and factory employees are also shareholders in the dairy through the Coega Dairy Empowerment Trust which was funded by the IDC. The dairy is now the preferred supplier of UHT milk and butter to a leading retail group and is SA’s largest exporter of UHT milk. 

In the immediate term, Debonairs Pizza will be the company’s biggest customer; but the longer-term intention is to expand supply to the group’s other brands.

It is expected that the company will begin to supply mozzarella to the Debonairs Pizza franchise network in May 2013. By this time some 55 jobs should have been created in the new plant and dairy. 

The business is expected to turnover about R180m in its first-year.

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