Prolonged drought and volatile rand squeeze Clover
By Tammy Foyn - Sep 12th 2017, 17:18
Dairy and foods group Clover reported a dismal set of results, as expected after last week’s trading update, with sharp drops in profit at almost all levels.
"Some impacts, such as the prolonged drought, a wetter and cooler summer, and rand volatility, were beyond our control," Clover said in its results statement on Tuesday.
"The resultant above-inflation input costs, subdued volume growth and continued low consumer spending amidst aggressive competitor pricing meant that we had to take some very tough decisions during the year, to position and sustain the business optimally against a constrained ‘new reality’."
Operating profit fell 44% to R314.5m, headline earnings per share were down 66% to 63.9c and earnings per share fell 55% to 83.1c.
Revenue of R10bn was up just 2.4%. With cost of sales rising 4.4%, margins were affected, with the gross margin shrinking to 27.1% from 28.4%.
Gross profit fell a much slimmer 2.4% to R67.7m.
Fixed costs were stable compared with inflation, Clover said, but the company had "invested significantly in its future through higher marketing costs, research and development costs".
Retrenchment expenses were R46.8m, as it streamlined its distribution operations.
Nonetheless, selling and distribution costs rose to R2.1bn from R1.9bn. After cost of sales of more than R7bn, this is the group’s biggest expense.
Clover said the drought made it difficult and more expensive to procure fruit pulp and raw milk.
"At the time of writing this report, the culling of herds due to the drought still negatively impacts the producers and there is a current challenge to supply the forecasted market with milk, however, the milk flow during this spring and summer will determine market conditions for next winter."
Sales volumes fell, partly due to price increases, and also because of a cooler and wetter summer than expected.
Cash generated from operations, before working capital changes, almost halved, to R439.2m from R709.7m a year earlier, mostly because of lower profits. Working capital used was R162.2m, more than four times the R36.2m used in the previous year.
As a result, gearing increased from 44.1% to 51.4%. Finance charges were up 18% to R146m.
A major, recently completed corporate restructuring takes effect in the new year to end-June 2018.
Dairy Farmers of SA (DFSA) was set up as a special purpose vehicle in which the dairy producers that supply Clover own 74% of voting rights via B shares. Clover retains 26% of the voting rights via A shares.
The aim of this move was to enable Clover to focus on value-added products.
The company expects some relief from the problems it faced in the 2017 year, with lower inflation expected to take some pressure off consumers.
"While the aftereffects of the prolonged drought will be felt for some time, a gradual recovery in milk and fruit production volumes together with the strengthening of the rand to the dollar should result in a reduction in input cost inflation," Clover said.
By 9.30 on Tuesday, Clover was down 0.14% to R14.
© BusinessLIVE MMXVII
Nestle Nigeria invests $11.4m to open new beverage plant
21/02/2018 - 16:22
Nestlé Nigeria has opened a new beverage production plant in Ogun state, Nigeria, following an NGN 4.1 billion ($11.4 million) investment.
The drought will slow growth, warns Kaap Agri boss
20/02/2018 - 13:54
Agriservices specialist Kaap Agri — which has a strong retail offering — expects prolonged drought conditions in certain farming areas of the Western Cape to slow earnings growth in the first half of the financial year to end September 2018.
How Small Businesses are gearing up to survive the drought
15/02/2018 - 16:43
Nationally small businesses are now being advised to prepare for future water scarcity. With small to medium sized businesses contributing over 65% of South Africa’s employment and 50% of the country’s GDP, their survival is essential to the economy.
Plastics Industry helps South Africans save water and deal with drought impact
15/02/2018 - 11:50
It was once said that innovation is not born from a dream but from a struggle. As a nation facing the impact of drought and water shortages in many of our provinces, this sentiment has proven to be particularly true for the South African plastics industry.
Rain boosts kiwi harvest
12/02/2018 - 10:55
South Africa is dealing with a lot of drought-stricken regions but there is some good news. In the Natal Midlands of KwaZulu-Natal, there are farmers who say they’re having a fantastic rainy season, even if this January has been a bit on the dry side.