Ububele’s ice cream splurge

AltX-listed agribusiness Ububele Holdings will push ahead with bold plans to scoop a huge dollop of the local ice cream market, not withstanding a meltdown in investor sentiment after a disappointing trading update last week.

Ububele CEO Bertie Cloete told the Vunani Securities small to mid-cap conference that Ububele was determined to become a national ice cream supplier and would look to complement its Gauteng-based facilities by buying out additional production plants in Cape Town and Durban.
Cloete reckoned Ububele would become the third-biggest ice cream supplier in SA behind dairy giant Nestle and Ola. “We will double our ice cream capacity this year. Dairy will do R550m in revenue for Ububele in two years’ time.”

Ububele’s ice cream thrust comes at a time when the company’s food production offering appears to be detracting from its promising agri services segment (mainly supplying fertilisers, pesticides and herbicides to farmers) and its profitably niched airline catering business in Namibia.
In a recent trading update Ububele warned shareholders that its investment in its Just Fruit and Veg subsidiary, which process fruit and catering contracts, would be fully impaired after continued losses. Just Fruit and Veg looks likely to be sold or shut down after being classified a discontinued operation.

Ububele technically “inherited” the ice cream business after a 2009 reverse listing into the shell of Milkworx, an unconvincing and unprofitable ice cream maker. Ububele has since restructured the ice cream business, which is now a soft serve ice cream supplier to fast food chains including McDonald’s, Maxi’s and Kauai.

Cloete indicated there was an opportunity to supply national retailers, which would require the ice cream business to have a national presence. “We already have our own logistics operations in place.”
Concerns have been raised about Ububele’s determination to service large retail contracts, which often carry punitive settlement terms.
Cloete said effort to extend the ice cream business would not hinder Ububele’s operating margin.

“In fact, it might increase our profit margin by as much as 1%, even though retail is a tight market.”

Marc Hasenfuss
Financial Mail, 16 March 2012

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