Clover to innovate in search of profit

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BR Clover 892[1] Independent Newspapers Clover has increased the price it pays for milk, the product it is most associated with. Photo: Supplied

Johannesburg - Clover Industries was eyeing future products and new facilities that could bolster the dairy and beverage firm’s growth as consumer spending continued to dwindle, chief executive Johann Vorster said yesterday.

“The theme for now is new products and new technologies. These would be the drivers of the company’s growth,” he said.

There would be new Nestea and maas products, and a new yoghurt production facility.

“The current environment will make it difficult to achieve sales volumes growth and, therefore, earnings growth in the second half.

“In spite of this, we are focused on building on the solid base provided by project Cielo Blu by continuously investing in new products and technology in addition to delivering synergistic acquisitions.”

Cielo Blu is Clover’s expansion and cost-cutting project.

Vorster added that joint ventures would help sustain momentum and deliver on its long-term strategy locally and across the rest of Africa.

Last week Clover entered into a joint venture with Futurelife to launch a new range of functional food products.

Clover managed to increase revenue by 10.4 percent to R4.32 billion for the six months to December last year, with operating profit shooting up 70.1 percent to R235.1 million.

The operating margin improved from 3.5 percent to 5.4 percent, and profit leapt by 95.4 percent to R163.8m.

Investment analysts had previously said Clover’s jump in earnings was off a low base and the pace could not be sustained.

Vorster agreed with some of these sentiments yesterday, adding that the spectacular increase in earnings were a result of non-recurring marketing spend on new product launches made during the first half of last year. Clover also benefited from retail price increases in January last year and early in the second half.

“I guess you are only as good as your last deal,” he said.

Clover, whose brands include Tropika, Aquartz mineral water and Quali Juice, increased volumes 1.2 percent.

“Although from a relatively low base due to the one-off costs relating to price promotions and new product launches in the prior period, we are pleased to have delivered a good performance in the challenging operating environment that continued to be marked by rampant inflationary pressures, which impacted on input costs and the consumer base,” Vorster said.

In order to address the substantial pressure on raw milk prices, Clover increased its average price paid to producers by 5.3 percent from last month and 8.9 percent from March 1.

Clover said these increases would be recovered through further selling price increases, which would put strain on sales volumes. It added that the average selling price inflation for this period was 8.8 percent.

Vorster said the main contributor to input cost hikes was packaging, followed by fuel and import costs. “We have already absorbed a lot of these costs and we, just like all other producers, had to increase our selling prices,” he added.

Anthony Clark, an analyst at Vunani Securities, said Clover’s results were good and credible given the current depressed consumer environment.

“We have already said that the jump in earnings was just a one-off and it is not sustainable and could not be repeated and was coming off an artificial base,” he said.

However, Clark believed that Clover had performed much better than other food companies.

“If you look across all food categories, the dairy sector actually did quite well compared to the underlying volume growth in a number of key food categories.”

He disagreed that Clover was losing market share, saying: “Clover did okay in a tough environment.”

Clark said it was understandable that Clover was worried about the second half of this financial year, as raw material prices and food inflation were set to spiral.

Clover shares gained 0.21 percent to close at R19.49 on the JSE yesterday. - Business Report



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