Clover’s earnings to rocket
By Siseko Njobeni - Aug 13th 2018, 09:41
Clover’s share price climbed 4.11% after it said it expected a threefold increase in full-year headline earnings per share.
Earnings per share for the year to June were expected to increase by as much as 155%.
Clover attributed the expected increase in earnings to, among other things, lower input costs, aggressive fixed control measures, the introduction of new products, and reduced interest charges due to lower capital spend.
The expected surge in earnings was achieved despite what it said was an unfavourable macro environment characterised by rising unemployment, a contraction in gross domestic product, rand volatility and continued price inflation.
Clover said the introduction of sugar taxes and the 1% VAT increase had put a significant strain on consumer spending.
"Consequently, overall trading conditions were difficult and exacerbated by structural changes in the retail environment which included aggressive pricing from competitors. Additionally, the listeria outbreak resulted in losses in principal fee income which could not be replaced during the reporting period," Clover said in a trading statement.
At the release of its results for the six months ended December, Clover said the sugar tax and the 1% VAT increase had put pressure on selling prices. It expected the unfavourable macroeconomic and trading conditions experienced since the beginning of the year to continue in the new financial year.
In a bid to claw back lost market share, Clover increased selling prices.
"Selling prices were therefore increased in April 2018 to cover inflationary cost pressures. However, cost management and driving efficiencies remained a clear focus to align with the consumer’s continued price sensitivity," it said.
The exit and transfer of the cyclical low margin drinking milk business from Clover to subsidiary Dairy Farmers of SA had also paid off, it said.
The decision to unbundle the volume-driven side of the business through the establishment of Dairy Farmers of SA was part of the parent company’s move away from commoditised bulk dairy products towards value-added products.
Dairy Farmers of SA is responsible for the procurement of raw milk as well as the selling, marketing and distribution of the non-value-added drinking milk.
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