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Fan Milk in West Africa, 1950s to 2014 1 Fan Milk: “We share the dream about a brighter future for Africa and West Africa in particular”

Photo source: Tech-solutions.dk

Fan Milk is a manufacturer and retailer of refrigerated beverages and frozen dairy products, with leading positions in several West African countries, including Ghana, Nigeria, Togo, Benin, Burkina Faso, and Cote d'Ivoire. Its products include FanYogo (one of the world’s first frozen yogurts), FanExtra (frozen yogurt with vitamins), Fanice (frozen dessert), FanGold (ice cream), Fantastic (flavored yogurt drink), FanChoco and FanVanille (flavored beverages), FanDango (energy fruit drink), and Tampico (fruit drink). Most products are sold in single-serving pouches and stackable containers.

Fan Milk offers its frozen dairy products, juice, and juice drinks in countries with a total population of almost 300 million people – including 120 million urban consumers – inhabiting six West African nations. Overall, in 2013, Fan Milk distributed through a network of regional agents and 31,000 independent vendors in West Africa, selling 1.8 million products daily.

The sight and sound of blue-shirted sellers pushing white Fan Milk carts and riding bicycles with coolers, while ringing their bells looking for sales, is part of the landscape of most cities in the region. Brand recognition for Fan Milk is high: reaching 94% in Nigeria, 97% in Ghana, and 100% in Togo in a 2012 survey. Across its markets, consumers view the brand as being affordable, fresh, tasting good, and for everyone.

Fan Milk’s business in West Africa dates back to the 1950s. During several visits to West Africa in the mid 1950’s, a Danish entrepreneur, Erik Emborg, saw a potential market for locally produced dairy products. Several West African countries had recently gained independence and the region was thriving. The combination of national pride within

                                                            1 This note was prepared from public sources by Will Mitchell (September 2014), with thanks to Bendikt Wahler.

the new countries, available infrastructure from the colonial and local heritages, strong agriculture bases, and potential for new industry paved the way for high hopes. Although refrigerated dairy products were not part of consumers’ tastes or broader cultural values at the time, Emborg decided it would be worth experimenting with producing and distributing small containers of refrigerated milk directly into local communities, which he hoped would be attractive in the hot climates.

By 2012, Fan Milk International reached sales of about $150 million across its Fan Milk businesses in West Africa. Sales had increased from $108 million in 2008.

In 2013, Fan Milk International, the Danish parent of the Fan Milk businesses in West Africa, was acquired by Danone (global food products, with a 49% stake) and the Abraaj Group (a Dubai-based growth markets private equity investor, with a 51% stake) for about $300 million. In the coming years, Danone plans to acquire a controlling stake in the Fan Milk business. The acquisition is part of Danone’s expansion in Africa. In 2012, for instance, Danone paid $700 million to increase its 29% stake of Centrale Laitiere in Morocco (the country’s leading dairy business, with about $750 million sales and $50 million net revenue) to a 67% holding.

Ghana

Combining his skills in trading with his connections to people in Denmark with expertise in dairy technology, Erik Emborg created one of the first dairy businesses in Ghana in 1960. Dairies and fresh milk were not widely available in West Africa, so the manufacturing process reconstituted milk from milk powder, sourced from Denmark.

The company, initially specializing in pasteurized milk, was called the Ghana Milk Company. In 1962, the Fan logo was introduced and the company became known as Fan Milk Limited, offering ice cream, yoghurt, and ice lollies in addition to milk. The company quickly became profitable.

Fan Milk’s Ghana business is headquartered in the capital, Accra, whose 2.3 million people are about 9% of the country’s population. Fan Milk also has a distribution center in Kumasi, about 250 kilometers and a three and a half hour drive inland of Accra. Kumasi, which also has more than 2 million people, is the only other metropolitan region in Ghana with population of more than 1 million.

Fan Milk distributes its products through a network of bicycle vendors, pushcarts, and kiosks throughout

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the country. Fan Milk supplies the carts, bicycles, and refrigerated containers for the products, typically selling or renting them to the vendors. Vendors purchase the items and then sell them at a mark up, with their earnings based on sales.

Fan Milk has since become a household name in Ghana. It is a common sight to see ice cream carts and bicycles with Fan Mark logo on beaches and streets selling the products.

Early years in Ghana (photo source: www.fanmilk.com)

Today (photo source: cp-Africa.com)

Fan Milk Limited was the first foreign invested company in Ghana to become a Public Limited Liability company, in 1967, and among the first Companies to be listed on the Ghana Stock Exchange, in 1990. As of the 2000s, Fan Milk’s top two shareholders held more than half of the equity, with the Danish parent Fan Milk International

holding 37% and the Danish Industrialization Fund for Developing Countries holding 25%.

In 2013, the managing director of Fan Milk Limited was a Danish ex-pat, supported by local executives in roles such as sales, human resources, IT, internal audit, project management, and production. Board members include several highly experienced leaders from Ghana and elsewhere in Africa, as well as the Managing Director of Fan Milk International and Emidan in Denmark. Following the acquisition by Danone and Abraaj in 2013, two executives from Abraaj joined the Fan Milk Limited board.

Photo source: SpyGhana.com

Following the acquisition by Danone and Abraaj, Fan Milk Limited announced that it would reduce its investment in Ghana during 2014. The country’s managing director said that the board had made this decision owing to recent electricity shortages in the country that had caused storage and distribution problems in Ghana and, in turn, had affected revenue. Nonetheless, he stated that Fan Milk remained committed to Ghana.

Nigeria

In 1961, Erik Emborg created a sister company to the Ghanaian business, Fan Milk Nigeria Plc. The Nigerian company began operations in 1963 with a recombination plant in Ibadan (the capital city of Oyo State, 125 kilometers north of Lagos, about 90 minutes by road) and a distribution center in Lagos, with fewer than 30 employees. Initially, the product range was white milk, chocolate milk, cottage cheese, and set yoghurt. As in Ghana, the main outlet was bicycle vendors, who were supplied with cold products from a group of smaller depots.

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Photo source: https://twitter.com/fanmilklg

Fan Milk in Nigeria expanded during the 1970s and 1980s. In the 1970s, Fan Milk introduced yogurt drink, ice lollies, ice cream, and recent advances in Tetra Pak packaging (developed in Sweden). The new products became popular and generated financial resources to set up more distribution depots. In 1981, Fan Milk established a second recombination plant in Kano (about 1,000 kilometres north-east of Lagos).

Fan Milk in Nigeria (photo source: Odemsay.com)

When the Nigerian company was established, the foreign owners held 96 per cent of Fan Milk Plc. In the late 1970s, though, the government introduced the Nigerian Enterprises Promotion Decree, which required major local ownership. In response, Fan Milk Plc increased its capital and invited Nigerians to invest, which led to 60 per cent Nigerian participation.

During the 1980s and 1990s, import restrictions, economic difficulties, political coup d’états, devaluations, and shortages of fuel in Nigeria – and throughout West Africa – weakened Fan Milk. In 1998, the foreign investors and the Industrialization Fund for Developing Countries in Denmark agreed to an infusion of capital which helped Fan Milk Plc in Nigeria restructure finances, refurbish cold rooms, increase the number of depots, and introduce a new

fruit drink, Tampico.

Photo source: http://www.modernghana.com

Tampico succeeded rapidly in Nigeria and was introduced to Fan Milks’ other markets. The investment in distribution and logistics supported Fan Milk’s spread throughout Nigeria. The expansion and rehabilitation program returned the Nigerian business to profitability by the early 2000s.

With the new investment, and following democratization of Nigerian politics in 1999, control of the company returned to Danish hands. In 2011, Fan Milk International, which continues to maintain its headquarters in Aalborg, Denmark, held controlling interest of 62% of the shares of Fan Milk Plc, while the Internationalization Fund for Developing Countries held 19%.

Fan Milk Plc has continued to expand in Nigeria. In 2011, for instance, the company set up a distribution center in Benin City (300 km east of Lagos), by leasing a one-million liter capacity cold room in the city to serve markets in east Nigeria. By 2014, Fan Milk had 21 offices and distribution outlets in Nigeria, including 13 of the country’s 36 states and Federal Capital Territory of Abuja. Seven of the offices were in Lagos State, which has 12% of the country’s 175 million people. (Nigeria has 12 urban areas in 10 states with a population of more than 1 million).

Fan Milk Plc now directly employs about 400 employees in the country, while providing indirect employment to thousands of others, from bicycle distributors to agents and franchise holders, as well as suppliers and vendors across the spectrum of its business activities. In 2011, the managing director of the Nigerian operation was a Danish ex-pat, supported by a board that included Danish, Nigerian, and West African members. The board chair was chancellor of a Nigerian university and president of the Nigeria Stock Exchange.

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Other West Africa

Fan Milk International operates subsidiaries in several countries in West Africa, including Togo, Benin, Burkina Faso, and Cote d'Ivoire. Investment in Togo began in 1985, in collaboration with the Industrialization Fund for Developing Countries. Political and economic development in the Francophone countries led to trade agreements, which created opportunities for Fan Milk to develop sales and distribution companies in the neighboring countries. Exports from Ghana started to Benin began in 1992 and to Burkina Faso in 1996. Fan Milk continued by investing in Code d'Ivoire in 2002. The company further expanded to Liberia in 2009, but closed this operation in 2012 when the market did not live up to expectations.

Photosource: Africardv.com

Business Model across Markets

Fan Milk’s business model follows several principals across its markets.

First, it emphasizes urban markets, with lesser coverage in suburban and rural locations. This simplifies its logistics activities, while targeting areas with density of potential demand.

Second, it has begun to expand its market segments, now offering larger packages that cater to families, hotels, and restaurants. Nonetheless, over 90% of sales continue to be individual servings in the “on the go” channel. Hence, its products continue to be “impulse buys” sold outdoors in traffic, in front of schools, and office buildings, much different than “planned” purchases during indoor retail shopping.

In the “on the go” channels, Fan Milk faces a curious constraint to price changes in many of its markets, due to bill sizes. In much of West Africa, other than Ghana, currencies come in large bills and people typically do not have small change (in Nigeria, for

instance, the naira trades at about 6 cents/$US, whereas the Ghanaian cedi trades at about 30 cents/$US) – so low cost products such as Fan Milk’s have a hard time adjusting prices to account for cost inflation or shocks to inputs (e.g., following the Chinese milk-powder scare and currency shifts). As a result, retail price changes tend to involve only steep-step adjustments.

Third, in most countries, Fan Milk relies strongly on intermediaries as agents who manage the independent distributors. This allows the company to work with people who have strong local knowledge of demand conditions and of potential employees in the distribution network.

The wide-spread distribution network sometimes creates control issues. During 2012, for instance, Fan Milk acknowledged that children below the age of 18 had been selling the company’s products on the streets in Liberia, contrary to the nation’s goals for child education and in violation of the company’s policies. Fan Milk’s country manager in Liberia, though, said that the company was not responsible for the violations, because the children were employed by distribution agents. Fan Milk closed the Liberian business shortly after the controversy surfaced.

Moreover, Fan Milk has been willing to adapt the agent model to local conditions. In Nigeria, they partially switched to a more tightly controlled agent network after losses at Nigeria’s Fan Milk Plc in the mid 2000s. The difference tends to reflect both the availability of potential intermediary partners and how reliably they can defend contractual relationships in local legal systems.

Photo source: www.vconnect.com

Fourth, while Fan Milk’s markets continue to be West Africa, the company has built a global supply chain to support the end market business. Fan Milk continues to import raw materials and packaging materials as well as equipment for its dairy plants and distribution of finished goods. As it has grown, the company has built a global supply chain that now includes more than 200 suppliers in Europe, Africa, China, and elsewhere.

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Photo source: http://simplexdesign.dk/referencer/

A central sourcing and logistics group, Emidan (based in Denmark), handles the majority of purchases for the Fan Milk businesses. Emidan’s products include raw materials (e.g., milk powder, vegetable oils, stabilizer, flavors), packaging materials (e.g., plastic, disposables, cups, containers), and other materials (e.g., freezer and coolers, crates, pallets, bicycles). In addition to serving Fan Milk, Emidan provides sourcing services for other firms.

Ongoing Experimentation

Throughout its history, Fan Milk has had a philosophy of “working out ways that work”. The company has experimented actively within and across countries with products and business models. It has then used what it has learned from the experiments to build robust local businesses.

Through its experiments, Fan Mill has developed new distribution techniques to keep up with the changing competitive climate. For example, over time they have added motor bikes and solar powered kiosks to the network. Recent experiments with mobile kiosks, initiated in Nigeria, are responding to growth in more sophisticated retail infrastructure.

Product development also has benefited from experiments in the company’s markets. Development activities now typically involve cooperation with the local Fan Milk companies in West Africa, as well as with international suppliers and laboratories, and the technical staff in Denmark.

Fan Milk has also experimented with local partnerships. In 2012, for instance, it worked with the Lagos city government on traffic initiatives, as well as an effort to combine sales of Fan Milk products with related collection of refuse.

Market Trends

Several trends stand out across Fan Milk’s West African markets.

Growth: Ghana and Nigeria continue to undergo strong growth, though Cote d’Ivoire and Fan Milk’s Togo Group countries (Togo, Benin, and Burkina Faso) currently face consumer challenges due to economic uncertainty.

Demographics: The markets are young, with the main consumer group being between 16 and 34; this young group earns over half of national income.

Urbanization. Much of the population base is shifting to cities. Urbanization is increasing at about 4% per year in the region.

Convenience food: Demand for convenience food is rising along with urbanization and the demographic trend of younger consumers.

Retail channels: Informal retail channels continue to dominate, but there is growing interest in larger indoor retail venues in the largest cities. Growth of indoor retail includes chains such as Spar (from the Netherlands) and Shoprite (from South Africa), smaller non-chain formats, and many informal corner stores that over time expand their premises and upgrade facilities with cool storage. Despite growth rates, large supermarkets will likely remain a marginal phenomenon for the next decade or so, while the informal “mom & pop” stores will be more relevant drivers of the retail revolution in West Africa. In addition, online commerce may leapfrog specialty retail concepts.

Media: Internet and social media channels are increasingly important, with more than half of urban consumers having internet access and owning smart phones. Nonetheless, television and word of mouth remain critically important.

Questions What is the basis of Fan Milk’s success? How should Fan Milk respond to ongoing

changes in retail channels and consumer demand?

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What are the benefits for Fan Milk of the independent agent system? What are the advantages of bringing the agent system in-house in Nigeria, rather than contracting with intermediary agents to manage the distribution network as Fan Milk typically does in other markets?

What challenges will Danone face in integrating Fan Milk into its global business?

The exhibits provide information that will help address these questions.

Sources http://en.wikipedia.org/wiki/Fan_Milk http://www.fanmilk.com http://www.fanmilk-gh.net/ http://www.fanmilk-nig.net/ Multiple other on-line sources

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Exhibit 1a. Fan Milk International A/S (Denmark) Financials ($US million) Fan Milk International ($US million) 2012 2011 2010 2009 2008

Revenue $150 $128 $132 $108 $108

Gross profit $88 $73 $74 $63 $57

EBIT $26 $22 $25 $20 $15

Profit after tax $10 $10 $10 $8 $6

Gross profit % 59% 57% 57% 58% 52%

Return on sales 7% 8% 8% 8% 5%

By country: 2012 results Revenue share EBITDA

Ghana 48% 33%

Nigeria 37% 24%

Togo Group (Togo, Benin, Burkina Faso) 11% 13%

Cote d'Ivoire 4% down

Liberia closed 2012

 

Exhibit 1b. Fan Milk Limited (Ghana) Financial Trends ($US million)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Income Statement

Revenue  

$28.7  

$34.3 $34.8 $41.7 $43.2 $57.7 $69.8 $66.7  

$77.3 

$59.1

Gross Profit  

$12.7  

$15.7 $16.5 $19.9 $20.8 $30.8 $37.3 $35.0  

$40.6 

$33.0

Selling General & Admin Exp.  

$7.2 $8.8 $9.9 $13.8 $13.7 $17.4 $20.7 $20.7 $23.7 $21.2

Depreciation & Amort.  

$1.2 $1.5 $1.7 - - - - - - -

Other Operating Expense/(Income)  

$0.1 $0.1 - - - - - -$0.1 -$0.1 -$0.1

Other Operating Exp., Total  

$8.5  

$10.4 $11.6 $13.8 $13.7 $17.4 $20.7 $20.6  

$23.6 

$21.1

Operating Income  

$4.2 $5.3 $4.9 $6.1 $7.1 $13.4 $16.6 $14.4 $17.1 $11.9

Interest Expense  

-$0.1 -$0.2 -$0.3 -$0.2 -$0.1 -$0.1 -$0.1 -$0.1 -$0.2 -$0.2

Interest and Invest. Income  

$0.1 $0.0 $0.1 - $0.2 $0.3 $0.8 $1.0 $2.1 $0.8

Net Interest Exp.  

$0.0  

-$0.2 -$0.2 -$0.2 $0.1 $0.2 $0.6 $0.9  

$1.9 

$0.6

Currency Exchange Gains (Loss)  

$0.0 $0.1 $0.0 - - $0.4 - - $0.1 $0.1

Other Non-Operating Inc. (Exp.)  

$0.1 $0.1 $0.1 $0.3 $0.1 $0.1 $0.1 $0.0 - -

EBT Excl. Unusual Items  

$4.2  

$5.2 $4.7 $6.1 $7.3 $14.0 $17.4 $15.3  

$19.0 

$12.6

Gain (Loss) On Sale Of Assets  

$0.0 $0.1 $0.1 - $0.1 $0.1 $0.0 $0.1 $0.1 $0.1

EBT Incl. Unusual Items  

$4.2  

$5.3 $4.8 $6.1 $7.4 $14.1 $17.4 $15.4  

$19.1 

$12.7

Income Tax Expense  

$1.1 $1.4 $1.3 $1.7 $1.8 $3.5 $4.3 $3.9 $4.9 $3.4

Net Income  

$3.1  

$3.9 $3.5 $4.4 $5.5 $10.6 $13.0 $11.5  

$14.3 

$9.2

Balance Sheet

Total Assets $13 $17 $20 $24 $26 $36 $46 $51 $51 $43 Total Liabilities $7 $8 $8 $8 $9 $11 $11 $13 $18 $11Total Equity $7 $10 $12 $16 $17 $25 $35 $38 $32 $33 Full Time Employees x 380 374 x x 407 444 457 444 567

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Exhibit 1c. Fan Milk Plc (Nigeria) Financial Trends

$ million 2006 2007 2008 2009 2010 2011

Turnover $18.5 $31.3 $39.9 $38.8 $42.3 $47.3

Cost of sales $24.8 $21.3 $23.5 $27.8

Distribution expenses $7.4 $7.0 $8.5 $10.0

Administrative expenses $6.2 $7.3 $6.6 $7.6

Profit after tax -$1.0 -$2.1 $1.3 $1.6 $3.1 $1.7

Shareholders' funds $3.8 $5.9 $7.2 $8.8 $11.9 $13.2

Employees x x 490 464 427 355

Exhibit 1d. Fan Milk Plc (Nigeria) Distribution Expenses and Cost of Production, 2008-2010

Distribution expenses 2008 2009 2010

Distribution expenses: Total $7.4 $7.0 $8.5

Salaries 21% 25% 22%

Transportation 24% 23% 23%

Depreciation on milk crates & containers 2% 5% 1%

Sales promotion 3% 5% 7%

Advertising 6% 4% 2%

Electricity, water, diesel 2% 2% 3%

Cooling centre rents 2% 2% 3%

Depreciation on bicycles & boxes 2% 2% 7%

Uniforms 1% 1% 1%

Repairs & maintenance 38% 32% 31%

Cost of production 2008 2009 2010

Cost of production: Total $24.8 $21.3 $23.5

Materials consumed 78% 70% 72%

Factory expenses

Repairs and maintenance 5% 8% 6%

Salaries and wages 6% 8% 8%

Depreciation on machinery 6% 8% 8%

Fuel 3% 4% 4%

Electricity and water 2% 2% 2%

Housing 0.2% 0.5% 0.0%

Depreciation on buildings 0.4% 0.5% 0.5%

Uniforms and protective clothing 0.3% 0.3% 0.3%

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Exhibit 2. Fan Milk Countries: Populations, Official Languages, GDP/capita

Country Official

language

population (million; ~2013)

Top city share of

population

Top 3 cities

GDP/capita (PPP) 2012

GDP growth: 2012/2002

Nigeria English 175 12% 16% $2,294 156%

Ghana English 27 9% 19% $1,765 157%

Cote d'Ivoire French 22 17% 24% $1,757 99%

Burkina Faso French 16 15% 27% $1,304 136%

Benin French 10 8% 13% $1,364 106%

Togo French 10 26% 58% $906 108%

Liberia English 4 28% 47% $564 110%

Denmark $32,333 102%

Other West Africa

Niger French 17 21% 60% $573 94%

Mali French 15 12% 15% $1,047 114%

Senegal French 14 18% 41% $1,675 114%

Guinea French 11 13% 15% $921 101%

Sierra Leone English 6 13% 28% $1,171 146%

Guinea-Bissau Portuguese 2 20% 41% $1,028 97%

Gambia English 2 35% 66% $1,679 105%

Exhibit 3. Countries in West Africa

Photo source: wikipedia.org

Note: Fan Milk operates in Benin, Burkina Faso, Cote d'Ivoire, Ghana, Nigeria, and Togo. From 2009 to 2012, the company also operated in Liberia.

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Exhibit 4. Distributions of Ethnicity among Countries in Which Fan Milk Has Operated Nigeria Burkina Faso Liberia Cote d'Ivoire Benin Ghana Togo Data year 2013 1995 2008 1998 2002 2010 2010 African (37 tribes) 99% Adja 15% Akan 42% 47% Bariba 9% Bassa 13% Mande/Bissa 1% Bobo 7% Dagbani/Mole 17% Dendi 3% Edo 3% Efik-Ibibio 7% European / Lebanese Ewe 14% Fon 39% Fula 7% Fulani 11% 10% Ga-Adangbe 7% Gio 8% Gola 4% Grebo 10% Guan 4% Gurma 5% 6% Gurunsi 5% 3% Hausa 21% Igbo 18% Ijaw 2% Jola Kanuri 4% Kissi 5% Kpelle 20% Krous 11% Kru 6% Lobi 7% Lorma 5% Mande 7% Mande: Northern 17% Mande: Southern 10% Mandinka Mano 8% Mossi 48% Ottamari 6% Senufo 5% Serer Soninke Tiv 3% Tuareg 3% Voltaiques / Gur 18% Wolof Yoa / Lokpa 4% Yoruba 21% 12% Other 10% 20% 3% 5% 2% 1%

 

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Exhibit 5. Status of Voids in Market-Based Institutions (VIMBI) of Fan Milk Countries

Country

Mean scales (0-1; H= support

business activities)

R: Rules clarity (World

Bank, 2013)

I: Physical infrastructure

availability (WEF, 2013)

C: Low corruption (Transparency International,

2012)

LB: Labor quality &

flexibility (World Bank, 2013)

LG: Contract reliability

(World Bank, 2013)

C: Capital availability

(World Bank, 2013)

Denmark 0.88 0.94 0.85 0.90 0.86 0.89 0.85

Ghana 0.52 0.32 0.43 0.45 0.37 0.75 0.81

Nigeria 0.40 0.34 challenges 0.27 0.40 0.24 0.75

Liberia 0.36 0.54 0.41 0.41 0.43 0.08 0.31

Burkina Faso 0.35 0.40 0.32 0.38 0.37 0.40 0.25

Benin 0.29 0.23 0.38 0.36 0.37 0.16 0.22

Côte d'Ivoire 0.28 0.11 0.46 0.29 0.34 0.23 0.22

Togo 0.23 0.18 challenges 0.30 0.31 0.14 0.25

Other W. Africa                     The Gambia 0.34 0.27 0.54 0.34 0.30 0.50 0.09

Mali 0.33 0.28 0.44 0.34 0.28 0.39 0.25

Sierra Leone 0.31 0.22 0.31 0.31 0.19 0.15 0.69

Niger 0.26 0.16 0.34 0.33 0.15 0.39 0.22

Senegal 0.24 0.16 0.37 0.36 0.21 0.13 0.19

Guinea-Bissau 0.23 0.29 challenges 0.25 0.22 0.13 0.28

Guinea 0.22 0.09 0.28 0.24 0.34 0.24 0.11

Note: High values of the VIMBI scales (i.e., closer to 1) indicate strong support for business activities on the relevant dimension. For comparison, Denmark ranked #4/185 countries globally for mean value of the six indices in 2013 (behind Singapore, New Zealand, and Hong Kong), while Guinea ranked #182/185 (ahead of the Central African Republic, Republic of the Congo, and Afghanistan).

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Exhibit 6. Fan Milk Plc (Nigeria) Direct Solicitation for Kiosk Vendors (2014) Here is a FANtastic Opportunity to partner with the market leader, Fan Milk Nigeria Plc! Earn up to N80,000 – N150,000 ($500 - $900) monthly - by becoming a Fan Milk Mobile Kiosk Agent. With N207,500 ($1,300) as a starting capital, you will receive 1 Fan Milk Mobile Kiosk (Generator and freezer inclusive) and N50,000 ($300) worth of Fan Milk products to start your business. All you need is a registered business name, an entrepreneur's thirst, and a zeal for success. Hurry now and invest towards your independence to BECOME YOUR OWN BOSS!

Exhibit 7. Fan Milk videos   Production & distribution in Ghana: https://www.youtube.com/watch?v=GQ5rt4MhpMw [12/2009; in

Danish] Post-acquisition strategy in Ghana: https://www.youtube.com/watch?v=dH5F6idcY-U [Bloomberg TV;

3/2014] Lait Vanille ad: https://www.youtube.com/watch?v=krcFkkCNmuw [2012] Fan Milk Nigeria YouTube channel: https://www.youtube.com/user/fanmilkplc [2013-2014]

Photosource: www.ifu.dk

Exhibit 8. On-line Comments after the Acquisition by Danone and Abraaj in 2013 http://www.cp-africa.com/2013/06/25/leading-west-african-dairy-company-fan-milk-acquired-for-300-million-by-abraaj-group/

Fan is an iconic brand and is a true African business success story. Great to see them get this liquidity event.

Hopefully a win for their employees and shareholders. These guys are the greatest FMCG [fast market consumer goods] success in Africa and have created more

wealth for small folks while getting them well exercised riding bikes around. I’ve always said that Fan Milk probably lifted more people out of poverty than the Nigerian govt … [along

with] the coming of recharge card sellers.

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Exhibit 9a. Background on Danone (acquired Fan Milk in 2013 [49%], with Abraaj Private Equity [51%])

Danone, founded in 1899, is a French food company with 105,000 employees and revenue of $21 billion in 2013.

 Photo source: Danone.ca

Segments: Danone sells dairy products and yogurt (e.g., Activia, Actimel), bottled water (e.g., Aqua, Volvic, Evian), baby foods (e.g., Aptamil, Nutrilon), and medical nutrition products (Nutricia). The company serves individual consumers, retail chains, and traditional market outlets, as well as specialized distribution channels of hospitals, clinics, and pharmacies.

Geography: Danone has operations in Eastern and Western Europe, North and Latin America, the Middle East, and Asia, as well as recent expansion in Africa (initially Morocco, Egypt, and South Africa).

Build, borrow, and buy growth strategy: Over the years, Danone has grown through multiple acquisitions (e.g., Kronenbourg, Evian, Beneral Biscuit, Nabisco biscuits Europe, Numico baby foods) and divestitures (e.g., its original glass making business and its biscuits division), as well as through innovative internal development, especially in its dairy products division. Danone also has had an active joint venture and minority investment strategy, particularly in emerging markets such as China (Mengniu, Bright Dairy, and Hangzhow Wahaha), Vietnam, India (Yakult and Britannia Biscuits), Pakistan (Continental Biscuits), Colombia (Alqueria), Saudi Arabia (Al Safi), Morocco (Centrale Laitiere), and Israel (Strauss Group). Danone is regularly considered a potential take-over target for larger multinational food companies such as Nestle, Kraft, and Pepsico; the French government has classified it as a strategic business in order to hinder potential take-overs.

  Exhibit 9b. Danone Corporate Financial Trends ($ million)

2011 2012 2013

Total Revenue  

$19,318  

$20,869  

$21,298  

Cost Of Goods Sold (COGS)  

$9,541 $10,409 $10,977

Selling General & Admin Exp.  

$6,656  

$7,220  

$7,132  

R & D Exp.  

$233 $257 $275

Net Income  

$1,671  

$1,672  

$1,422  

Gross profit (1 - COGS/Revenue) 51% 50% 48%

Return on sales 9% 8% 7%

Total Assets

$36,929 $38,944 $42,592

Total Liabilities

$21,082

 

$22,787  

$27,817  

Total Equity

$15,847  

$16,157  

$14,775  

Employees

$101,885 $102,401 $104,642

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Exhibit 9c. Danone Segment Financials

Product Segments: Revenue 2011 2012 2013 2013%

Fresh Dairy Product $14,596 $15,393 $16,236 55%

Waters $4,195 $4,811 $5,375 18%

Early Life Nutrition $4,772 $5,613 $5,871 20%

Medical Nutrition $1,534 $1,698 $1,848 6%

Total Revenues $25,097 $27,515 $29,330

Geography: Revenue 2011 2012 2013 2013%

CIS & North America $6,490 22%

Asia-Pacific / Latin America / Middle East / Africa $11,551 39%

Europe (excluding CIS) $11,288 38%

Europe $14,042 $14,303

Asia $3,718 $4,725

Rest of the World $7,336 $8,487

Total Revenues $25,097 $27,515 $29,330

Geography: Earning Before Taxes (EBT) 2011 2012 2013 2013: EBT %

CIS & North America

$620 10%

Asia-Pacific / Latin America / Middle East / Africa $1,621 14%

Europe (excluding CIS) $1,628 14%

Europe $1,960 $1,740

Asia $754 $1,042

Rest of the World $980 $1,118

Total EBT $3,693 $3,900 $3,868

Exhibit 9d. Danone in Africa, 2014 See (http://www.danone.com/en/danone13focus/africa/) for discussion of major country operations

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Exhibit 10. Background on the Abraaj Group (acquired Fan Milk [51%] in 2013, along with Danone [49%])  

Based in Dubai, the Abraaj Group is a private equity growth markets investor operating in Asia, Latin America, Turkey, MENA, and Sub-Saharan Africa. Founded in 2002 by Arif Naqvi, the Group has over 25 offices spread across six regional hubs in Dubai, Istanbul, Mexico City, Mumbai, Singapore, and Nairobi.

Abraaj manages more than US$7 billion in assets across 20+ sector and country-specific private equity and real estate investment funds in about 50 countries.

In 2013, Abraaj was named the Best Private Equity House in Europe, Middle East, and Africa by EMEA Finance's Achievement Awards.

Among Abraaj’s more than 140 private equity investments, examples include Orca Global (education service provider in Singapore), Acurio (restaurant group in Peru), Network International (payment solutions provider in the Middle East and Africa), Air Arabia (MENA), African Industrial Services (West Africa), Allied Catering Equipment (Sub-Saharan Africa), Aniniwah Medical Centre (Ghana), AOS Orwell (oil services in Nigeria), Art Marine (yachts; MENA), and Fan Milk (West Africa). Sources: http://en.wikipedia.org/wiki/The_Abraaj_Group; http://www.abraaj.com/portfolio

 

Abraaj states that its “private equity investment strategy is to acquire controlling or significant interests with board representation in stable, mature, well-managed businesses. We create value in these businesses through operational improvements, management incentives, optimization of capital structure and the use of leverage. Where appropriate, we focus on a ‘buy and build’ strategy and believe in investing in businesses that will maximize shareholder value through strong operational growth and substantial capital appreciation. Our ultimate objective is to realize value through structured exits to strategic and trade buyers or onto public markets in the region and beyond, within a three to five-year investment horizon.” http://www.abraaj.com/our-approach/private-equity/ee more at: http://www.abraaj.com/our-approach/private-equity/#sthash.tSEMMUgc.dpuf

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Xx Open question: Did Emborg first offer refrigeration services, then expand into refrigerated products after a government (Ghana or Nigeria) nationalized cold storage facilities?