Lacteos Toni II

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Founded in 1978, Toni Corp. is one of the largest agribusiness companies in Ecuador. Through its subsidiary, Toni, the leading dairy company in Ecuador, Toni Corp processes milk purchased from more than 3,500 farmers into a wide range of dairy products (UHT milk, flavored milk, cream, butter, cheese and yogurt.) Toni Corp also owns Topsi, an ice-cream manufacturing operation; PESA, a packaging plant that supplies the dairy business and sells to 3rd parties; and Dipor SA (“Dipor”), the company in charge of the distribution all of Toni’s products, and Cosedone, the fleet vehicle transportation company.With a production capacity of more than 300,000 liters of milk/day, Toni currently operates a plant located in an industrial area of Guayaquil. This plant, originally designed in the early 1970s to produce 7,000 metric tons of yogurt, is currently producing more than 30,000 metric tons. Although the Group has managed to grow its capacity over time to keep up with increasing demand, the plant has reached a saturation point. Topsi, which is located in Guayaquil and has a current production capacity of 530,000kg/month, is also in need of a capacity increase.Toni has 20 distribution centers, 4 milk collections centers (“centros de acopio”), a national distributions system that reaches out to 110,000 sale points around the country and its own vehicle fleet for distribution of products.In September 2011, IFC approved a US$30m senior loan investment in Tonicorp for the expansion of its production facilities in Guayaquil, Ecuador. IFC’s investment allowed Tonicorp increase its production capacity, generating efficiencies through better layout, newer equipment and improving E&S management. As part of this project, IFC and Tonicorp agreed on an Environmental and Social Action Plan (ESAP) that included the development and implementation of an employee grievance mechanism; improving the occupational health and safety (OHS) conditions at Toni’s operations (i.e., fall prevention measures at milk unload area, install emergency showers close to acid and soda storage areas, enhance secondary contention, etc.); and conducting an EHS due diligence at its milk collecting centers to identify OHS risks, identify effluents treatment, and hazardous material storage measures, among others. To address the need for further increase in production capacity, along with generating efficiencies through better layouts and newer and more resource-efficient equipment, Toni Corp decided to build an integrated plant, the Aurora Plant, incorporating the milk (Toni) and ice cream (Topsi) manufacturing operations which currently operate in separate locations. Besides addressing the lack of storage capacity, infrastructure deficiencies, logistics challenges, and lack of internal adequate spaces, the proposed project will also bring equipment upgrades which will improve product quality, optimize resources consumption, (i.e., energy, water, vapor, etc.), and improve workplace conditions. As part of this project, the company will also enhance the environmental, health, and safety (EHS) conditions of the distribution centers and of the milk collections centers.Currently, Toni buys a total of 180,000 lt/d of milk; with the new proposed project, it anticipates buying 400,000 lt/d of milk. The dairy production capacity will increase approximately 10% from 1,017 MM to 1,124 MM and the ice-cram production will increase approximately 58% from 159 MM to 252.7 MM. It is anticipated that the ice-cream operation will begin in December 2015 and the entire plant will begin operating by May 2016.The Aurora plant will be located in an approximately 179,000 m2 area, 14 km to the North of Guayaquil, at approximately 10 km from the existing dairy production facility, in the Parroquia Urbana Pascuales, in front of the Daule River. On the east side of the land and adjacent to the project site, there is a 200 house community and on the west side, separated by a channel and at approximately 250m distant, there is a new housing development. Once the new plant is completed, both Toni, the current dairy, and Topsi, the current ice-cream manufacturing plants will be dismantled and the land returned to its owners. The company will develop a dismantlement plan identifying possible EHS impacts and determining mitigations needed for own and contractors. A copy of this plan will be submitted to IFC as indicated in the ESAP. PESA, located in the km 8.5 of the road to Daule, Parroquia Tarqui, Guayaquil, as well as Dipor, located in km 10.5 of the road to Daule, Parroquia Tarqui, Guayaquil, will continue operating in their current locations. PESA, a packaging materials company, produces close to 900 diverse packaging types. Forty percent of its entire production is acquired by Toni to satisfy all its packaging needs.Total proposed project cost is estimated at US$ 101.7 million, including working capital, of which the Company is planning to finance US$ 90 million through long-term debt and the balance through internal cash generation.