Clover’s interim earnings set to nearly double off lower base

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Johannesburg - Clover’s jump in earnings in the six months to December last year was off a low base and the pace could not be sustained, analysts said on Friday.

The dairy maker said it expected headline earnings a share to be between 82 percent and 92 percent higher than a year earlier. Earnings a share were expected to be between 80 percent and 90 percent higher than the previous year.

Analysts said this surge in earnings came from a depressed base and would not be sustainable.

Clover boasts brands such as Tropika dairy juice, Aquartz mineral water and Quali Juice among others.

In the six months to December 2012, the group had suffered a 33.5 percent decline in headline earnings a share to 40.7c as operating profit fell 22 percent to R145.6 million.

On Friday, Clover cautioned that it did not expect this level of earnings improvement to continue into the second half of the 2013/14 financial year.

This was due to strong and overall inflationary cost pressure specifically relating to raw milk, packaging and fuel costs.

Clover said earnings would also be affected by the negative impact of a highly inflationary environment on consumers.

The company attributed the increases in earnings to the non-recurring marketing investments in new product launches made during the first half of last year. It also said it had benefited from the implementation of selling price increases to the market in January last year and again early in the second of last year.

“The increases are attributable to the positive contribution of project Cielo Blu and various cost-saving initiatives and exchange rate profits made by certain African subsidiaries due to the weakening of the rand,” Clover said.

Vunani Securities analyst Anthony Clark said this sort of increment was unsustainable as earnings had improved from a low base.

“This time last year the company had issues with the launch of new products, increased marketing and promotional spending,” he added.

He believed that the growth was aggressive and that it should be noted that Clover had benefited from a new product launch and new packaging initiative that the dairy maker had undertaken last year.

“This growth is aggressive but one should take into account that the group is coming off a low base, and that it is benefiting from new products and new packaging launched last year,” he said.

Clark added that although this kind of growth was unsustainable, it had a number of benefits coming up.

He said Clover’s constraining deal to supply raw milk to Danone was coming to an end and this would also allow the business some growth.

The dairy producer’s agreement to sell raw milk to Danone at cost comes to an end this year. Clark added that this meant that Clover would now be able sell this milk to any party at a profit, or it could beneficiate the milk by making its own products.

An analyst at 36One Asset Management, Daniel Isaacs, said although the percentage change in the update was big, the growth was coming off a depressed base due to things like promotional activity being undertaken in the comparable period a year earlier.

“The numbers are in line considering the depressed base. The earnings implied by the percentage increase are actually very similar with the numbers Clover had in the first half of their 2011 year,” he said.

Isaacs said the Cielo Blu project was bearing fruit but the magnitude of the percentage increase in earnings was more due to the depressed base.

The company’s share price rose 1.43 percent to R17.70 on the JSE on Friday. - Business Report


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