In line with the Group’s strategy to build Supply Chain capability and capacity, Famous Brands has acquired a state-of-the-art tomato paste manufacturing plant, Cape Concentrate, situated in the Coega precinct in the Eastern Cape. The practically unused facility, constructed in 2010 at a cost of R200 million, was bought out of liquidation at a significantly discounted purchase consideration, and below the threshold of a categorised transaction in terms of the Listings Requirements of the JSE Limited. The acquisition will be funded from cash reserves.
Kevin Hedderwick, Famous Brands’ Group Strategic Advisor responsible for M&A activity, says, “This acquisition will enhance the Group’s capability to manufacture licensed products for our franchise network as well as provide security in respect of a significant menu item and manufacturing ingredient. We also plan to expand the customer base for this product beyond our own internal customers, capitalising on the shortage of tomato paste which exists in the South African market.”
Illustrating the strategic potential of this business, Hedderwick notes, “The local industry is unable to supply growing demand for the product, and some 30-35 000 tons of tomato paste are imported by South Africa annually to meet the shortfall.”
He adds, “Famous Brands itself currently imports in the order of 1 500–2 000 tons of tomato paste per year for use primarily in our Sauce and Spice plant, which manufactures sauce products for the Group’s 2 600-strong restaurant network as well as for our retail (trade) customers.”
Hedderwick comments, “In terms of supply, we are satisfied that we can expediently establish a local supplier network to provide the required raw material volumes. In addition, the plant and premises are in immaculate condition, so we have effectively acquired a turn-key facility – at a small percentage of its true value.”
Management’s intention is to model the new business on the Group’s very successful empowerment venture, Famous Brands Fine Cheese Company (FBFCC), formerly Coega Cheese Company.
“In 2013 we established FBFCC as a green-field venture, in which we co-opted local farmers to supply milk for the production of Mozzarella, cheese slices and cream cheese for the Group. When the dairy was initially commissioned in May 2013, our milk intake volumes were in the order of 16.5 million litres per annum. That volume has grown to 38 million litres of milk per annum. This joint venture has been a spectacular success for all of the partners in the business,” Hedderwick says.
The new company will comprise a strategic alliance partnership between local farmers, who will grow tomatoes on contract, and Famous Brands, which will be responsible for providing the customer base, as well as managing the production and route-to-market functions.
The partnership will provide much needed employment in an economically distressed area (some 35 jobs will be created in the plant itself), and deliver substantial financial benefit for the farmers who will gain an instant, robust market for their produce and the potential to develop that market over time.
Hedderwick says, “As soon as possible, we will actively recruit previously disadvantaged farmers in the area for our supplier network. We will also tap into our existing FBFCC farmer base to gauge their interest in this new opportunity.”
It is anticipated that the operation will be commissioned early in the 2017 calendar year.
Hedderwick concludes, “The success we have achieved with FBFCC is extremely encouraging and has provided us with a blueprint for similar empowerment ventures; this acquisition is not only a major strategic coup for Famous Brands, but will boost a province which is in desperate need of investment.”
Reference: Reference: Famous Brands website www.famousbrands.co.za