Daybreak Farms Seeks $13 Million Loans for Strategic Revitalization

Key Takeaway

• Daybreak Farms Ltd. seeks 250 million rand ($13 million) in loans for technology upgrades and operational efficiency, under new PIC-appointed management.
• The revitalization plan includes renegotiating contracts and exploring acquisitions to reposition Daybreak for market leadership in South Africa's poultry industry.
• Amidst industry consolidation, Daybreak aims to increase chicken output to 1.9 million per week, adapting to market demands with a focus on fresh chicken portions.

Strategic Revitalization

Daybreak Farms Ltd., a significant player in South Africa's poultry industry, is embarking on a strategic plan to stabilize its operations and rectify its financial structure after a period marked by managerial challenges. The company, which holds approximately 7% of the national chicken market share, came under the control of the Public Investment Corp. (PIC), Africa's largest fund manager, nearly a decade ago. In a decisive move to address past financial irregularities, PIC has recently appointed new management, spearheaded by CEO Richard Manzini, a former PIC investment banker.

Manzini has outlined a plan to secure approximately 250 million rand ($13 million) in loans to bolster the company's balance sheet. This financial injection is earmarked for critical technology upgrades, including enhancements to abattoirs, the establishment of a water treatment plant, and improvements to processing systems. These upgrades aim to increase efficiency and productivity, with Daybreak's operations spanning from supplying day-old chicks to broiler farms to selling fresh and frozen chicken products.

Financial and Operational Restructuring

The pursuit of the 250 million rand loan is just the initial step in a broader restructuring effort intended to reposition Daybreak for market leadership. Manzini's strategy involves renegotiating inflated contracts inherited from previous management and exploring potential growth through acquisitions. The overarching goal is to restore Daybreak to a competitive stance in the market, leveraging its workforce of 3,400 employees and its comprehensive supply chain.

Manzini has also hinted at the possibility of the PIC considering exit options in the future, once Daybreak's financial health is fully restored. This statement underscores the fund manager's strategic approach to its investment in Daybreak, viewing stabilization and growth as precursors to potential divestment.

Industry Dynamics and Growth Prospects

South Africa's poultry sector, the largest in Africa, is currently experiencing a phase ripe for consolidation and deal-making. Daybreak's revitalization plan coincides with broader industry trends, including RCL Foods Ltd.'s recent announcement to spin off its chicken business, Rainbow. Manzini sees potential for Daybreak to engage in strategic acquisitions that align with its growth objectives.

The company is also adapting to market demands by focusing on fresh chicken portions, a shift driven by frequent electricity outages in South Africa. This adaptation involves re-equipping an abattoir to increase its processing capacity, aiming to raise output from 1.5 million to approximately 1.9 million chickens per week in the medium term.

Management Quotes

• Richard Manzini, CEO of Daybreak Farms Ltd.:
• "We need about 18 months to sort out the balance sheet, starting with raising the 250 million rand in loans... Once we have built out a strong balance sheet, the PIC could also consider certain exit options as it usually doesn’t hold 100% of an asset." "The mission is to get Daybreak, that employs 3,400 people, back to a strong market position, where it deserves to play." "If there is an opportunity for deals in the near future, we will try and see what works for us."