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FrieslandCampina Enters Fast-growing Pakistani Dairy Market

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FrieslandCampina Enters Fast-growing Pakistani Dairy Market

FrieslandCampina Enters Fast-growing Pakistani Dairy Market
July 06
12:32 2016
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Royal FrieslandCampina has agreed to acquire 51% of Engro Foods for €420 million in partnership with the World Bank Group’s International Finance Corporation (IFC) and the Dutch development bank FMO. The acquisition of Engro Foods, which is the second largest dairy company in Pakistan, enables FrieslandCampina to obtain a key position in Central Asia. Pakistan is the third largest milk producing country in the world with an annual production of 38 billion litres of milk.

FrieslandCampina expects to benefit from the conversion of the market from loose to packaged dairy consumption that will drive the volume growth of packaged dairy products. At present less than 10 per cent of tradable milk consumed in Pakistan is processed and offered in packages. The conversion is expected to accelerate in the near future as a result of the growing middle income class, a desire for higher quality milk, as well as the increasing urbanization.

Roelof Joosten, chief executive of Royal FrieslandCampina, comments: “The cooperation with Engro Foods will accelerate FrieslandCampina’s route2020 strategy. Through this well organised and highly successful company we will obtain a significant presence in the Pakistani dairy market in which a growing middle class is switching to buying more processed and packaged milk. Engro Foods offers us a basis on which we can build further. This acquisition will contribute to the value creation for our member farmers. We will also contribute to Pakistan’s agricultural sector through knowledge transfer of dairy production and our established dairy development programme.”

Roelof Joosten.

Roelof Joosten.

“This is a defining moment for Pakistan,” says Hussain Dawood, chairman of Engro Corporation, the holding company of Engro Foods. “This partnership enables us to provide a wider array of affordable high quality dairy products for a healthier Pakistan, especially for its younger population. Improving the wellbeing of millions of our farmers is a cause that our Group has been focused on for the past five decades. Working with FrieslandCampina, a company owned by farmers, will help us to accelerate our work on improving productivity in the dairy sector. I am convinced that this partnership will create tremendous long term value.”

Headquartered in Karachi, Engro Foods was established in 2006 and has since built a leading position in the Pakistani overall UHT milk segment, including the Specialized Tea Creaming segment. Engro Corporation owns approximately 87 per cent of the total share capital in Engro Foods while the remaining 13 per cent is listed on the Pakistani Stock Exchange (PSX). Engro Foods employs about 1,600 people and has annual revenues of about 450 million euro (2015). It has a vast network of 1,635 milk collection centres, which collect milk from about 150,000 farmers on a daily basis. The milk, about 300 million litres, is processed in well-run plants located in Sahiwal and Sukkur. In addition, Engro Foods runs its own dairy farm in Nara that produces over 35,000 litres per day with a total herd size of 5,429 animals (2015).

Engro Foods’ brands Tarang, Olpers, Omung and Omoré are all leading brands in the Pakistani dairy market. The company has an extensive distribution network of direct distributors and sub-distributors to cover 25,000 villages and 472 cities across Pakistan giving the Company direct access to more than 130,000 stores across the country.

The structure of the transaction will entail the acquisition of a 51 per cent stake in Engro Foods, to be acquired by a Dutch legal entity controlled by FrieslandCampina. At closing of the transaction, FrieslandCampina will hold approximately 80 per cent of this Dutch legal entity, and IFC and FMO will hold the remaining shares. The estimated total cost for the 51 per cent stake in Engro Foods is  €420 million, depending on final settlement. Engro Corporation, the current majority shareholder in Engro Foods, will continue to remain a shareholder and significant partner in Engro Foods.

The acquisition is subject to regulatory approval from competition and other relevant authorities.

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