JOHANNESBURG - Branded foods and beverages group Clover is bracing itself for the introduction of the sugar tax and the 1percentage point increase in value-added tax (VAT) next month, Clover chief executive Johann Vorster said yesterday.
Speaking after the release of the company’s results for the six months to the end of December, Vorster said the sugar tax would affect Clover’s volumes. “We have given retailers notice that prices will increase because of the sugar tax,” he said.
The health promotion levy, which taxes sugary beverages, will be implemented from the beginning of next month. According to the SA Revenue Service, the rate was fixed at 2.1cents per gram of the sugar content that exceeds 4grams per 100ml.
“We are aware of the plight of the consumer, especially with an increased VAT rate and the introduction of the sugar tax. We will continue to implement further efficiency-improvement initiatives across our supply chain to ensure our products are affordable, to mitigate the impact of additional taxes,” said Vorster.
In the six months to the end of December, Clover bounced back from its subdued performance in the year to the end of June last year.
Vorster said the company had battled factors beyond its control in the previous financial year: a prolonged drought, a wetter and cooler summer, and rand volatility.
“Following a challenging 2017, we are seeing tangible signs of improvements in retail sales. While the cooler and rainy weather in some parts of the country in early December impacted overall volumes, we achieved good growth in the last quarter, supported by exceptional Black Friday sales,” he said.
He said the company had embarked on a series of efficiency-improvement initiatives to realign its business to the new “normal”, which was the realisation that consumers were not in a position to absorb price increases. “We could no longer pass on increases to customers. We had to look internally to get savings in other areas,” said Vorster.
As a result, the company had achieved an overall volume increase of 8 percent and market-share growth across several products categories, he said.
“Our strategic focus on value-added product categories led to the transfer of the volume-driven business to Dairy Farmers of South Africa, to enable us to focus on more profitable product offerings that will suit the ongoing business model better, while remaining a substantial service provider to the dairy industry,” he said.
In the six months, Clover’s operating profit increased by 14.8percent to R370.4million and headline operating profit increased by 13.6 percent to R357.6m. Headline earnings increased by 18.1percent to R224.4m, resulting in headline earnings per share of 117.6cents, an increase of 17.8percent.
Operating margin increased from 6.3percent to 8.8percent due to a combination of 8percent growth in volumes and the successful implementation of the efficiency-improvement initiatives.
Vorster was optimistic about the company’s prospects. “Despite muted consumer confidence, with discretionary spend under pressure, relatively tight credit conditions and persistently high unemployment, private consumption should expand as wages increase moderately and food prices stabilise,” he said.
Clover’s shares on the JSE yesterday closed 3.68percent higher at R16.90.