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Using Incentive Programmes to Your Advantage- Willie Snyman

by / Thursday, 26 March 2015 / Published in News, Uncategorized

3How does a manufacturer make best use of the incentive programmes provided by the Department of Trade and Industry and other Developmental Institutions?

The vision of the DTI according to the Government’s National Development Plan (NDP) for 2030 is to create a “dynamic industrial, globally competitive South African economy, characterised by inclusive growth and development, decent employment and equity, built on the full potential of all citizens.”

This cannot however be achieved solely by the Government as it is the role of private enterprise to grow the economy by growing businesses and companies with the major beneficiary, being the general population of South Africa, who receives more job opportunities and a way to earn a living.

The question is how do you fund your company’s growth strategy to achieve your own objective, namely to have something left after growing a competitive business that provides “decent jobs”, which implies that businesses have to invest into more competitive technology and higher skilled labour.

We can demonstrate what is possible by referring to one of our long term client relationships, with – Beige Holdings Limited.

Beige Holdings Limited (“Beige”), a contract manufacturer of soaps and cosmetics, is listed on the Alternative Exchange of the JSE.

Our first assignment with Beige during 1999, was to rescue the company from provisional liquidation, with R32 million of debt owed to Nedbank at the time.  This came about as a result of fraud and bad corporate subsequent to their listing on the Development Capital Board during 1998.

Having been suspended and on the way to liquidation – a couple of entrepreneurs who ran successful manufacturing enterprises, and had sold their businesses into Beige for shares – were looking at losing their life’s work as well as leaving many factory workers without jobs. Arbor Capital identified these entrepreneurs and helped clean up the company, selling off assets and eliminating the bank debt, securing interim funding and, once restructured, unsuspended the company on the old Venture Capital Market of the JSE in late 2001.

The first years were not easy ones and Beige was a much smaller company, still with some large obligations. At the time the company had a turnover of approximately R36 million and just over R500 000 net asset value.

Our first transaction after unsuspension was to identify two businesses for acquisition and conduct a rights offer to eliminate the remaining liabilities.  In this process, succession planning was achieved and Beige started to grow its business.  This later led to Beige being the first company to list on the Alternative Exchange in January 2004.

During our 15 years of proud association with Beige, we have been their Designated Advisors, Corporate Advisors, Government Incentive Consultants and Company Secretaries.

Finding capital to grow the business has not been easy and its capital growth strategy had to include an acquisition, shareholder funding, bank funding and Incentive funding.

One of Beige’s major challenges during 2004 was to modernise the technology and product range of the successful business units that produced low cost laundry and toilet soap.

Although it was still profitable during 2004, a major product of one of its subsidiaries was so-called blue soap (a soft soap with a high moisture content, made from animal tallow).  The market was moving towards so-called Green soap (a harder extruded soap with less moisture content).  The subsidiary had to invest into new extrusion machinery from India, to protect its market and increase its product range.  We procured an Incentive grant on the Small Medium Enterprise Development Programme (SMEDP) of the DTI to assist them with the expansion programme from 2005 to 2008.

One of the problems associated with the use of tallow for the manufacturing of soap is the conversion cost of using traditional boiling methods as well as the quality of the soap noodle.  To improve this technology Beige developed and patented a Saponification and bleaching process, which process allows for the reacting of tallow oil/fat with a strong caustic soda solution, resulting in a high quality soap noodle comparable with palm oil soap noodles used in the manufacture of household soaps.  We applied for a matching grant under the Support Programme for Industrial Innovation (SPII) of approximately R2 million, to assist with the funding of the project. The project was successfully completed in 2011.

This technology is expected to put Beige in a strong position to successfully compete with imported palm oil soap noodles and the company commissioned additional manufacturing capacity amounting to approximately R30 million, based on this new technology.

We assisted Beige in procuring the R30 million of funding, which included working capital funding, infrastructure and plant & machinery funding from the IDC and also obtained approval from the DTI under the SMEDP for 15% of the capital investment into the project.

Using all available sources of funding has been part of the Beige growth strategy. From humble beginnings at a time of huge uncertainty and controversy during 1999, the company has grown into the largest black owned contract packer in South Africa, with a turnover in excess of R700 million, net asset value of R88 million and a permanent and temporary staff component of approximately 1000 employees.

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