Johannesburg - Cost saving initiatives and a reduction in selling prices were unable to halt a slowdown in growth at Clover for the year to June, the JSE-listed dairy producer reported yesterday.
Operating profit edged up 5.4 percent to R391.4 million for the year to June compared with growth of 16.4 percent a year earlier, the company said, as it was weighed down by difficult trading conditions and investments in projects.
Clover is due to complete a large cost saving project early next month in which about R400m has been invested in the relocation of its milk factories to coastal areas, which are the predominant areas of dairy farming, to lower transport costs.
Chief executive Johann Vorster said the company had already seen some benefits of Project Cielo Blu, which he expected to stream in soon.
“It was a massive engineering feat which we have completed within the set time line… now the last machines are being put into place. We expect to be completely done by the beginning of October.
“We will continue to invest in projects such as these that save on costs. We just have to strike the balance between investment and cash flow.”
Although Project Cielo Blu will result in cost saving in the future, the company incurred R26.2 million in restructuring costs related to the relocation of equipment that could not be capitalised, and retrenchment costs.
Milk-related losses stemmed from increased competition in the market, which forced a decrease in selling prices. Vorster said local fresh milk supply had declined for the first time in 30 years as there was now an oversupply of long-life milk. This caused the operating margin to contract to 4.9 percent from 5.1 percent.
Competition was more pronounced in the long-life milk sector and Clover said this was likely to continue for the foreseeable future.
Vorster said the company would look at expanding into Africa in the near future as it had identified new opportunities there. Although it would continue to place emphasis on current production in South Africa and neighbouring countries, it would explore opportunities in the rest of Africa. Mozambique, Ghana and Nigeria will be explored as the business model fitted well with the market conditions.
Revenue increased by 10.7 percent to R8 billion for the year to June, compared with a 10.4 percent increase in the previous year. Headline earnings a share increased by 3.4 percent to R1.199. The dividend was increased by 12.7 percent to 32c a share.
Clover dipped 0.65 percent to R16.89 yesterday, valuing the company at R3.1 billion. - Business Report