Some positives in tough year for Clover
By Mark Allix - Sep 13th 2017, 13:19
Clover Industries was savaged on all fronts in the year to June. Prolonged drought was followed by a wetter, cooler summer, which affected beverage sales. At the same time, rand volatility was compounded by SA’s ugly political environment.
Headline earnings plunged 65.9%, to R121.6m, as headline earnings per share plummeted 66.2%. Net financing costs rose 18%. The group has been increasing focus on value-added growth markets — including for custards, yoghurts and juices — while improving volumes in its low-margin distribution of raw, pasteurised and ultra high-temperature milk.
"Clover faced an exceptionally challenging year as South African food producers and retailers had to contend with several complex and ongoing issues in the economy," Clover CEO Johann Vorster said on Tuesday. "The resultant above-inflation input costs, subdued volume growth and continued low consumer spending amid aggressive competitor pricing meant that we had to take some very tough decisions during the year," he said.
Revenue for the year was up 2.4%, to R10bn, despite poor markets. Of this, revenue from the sale of products rose 3.3%, to R9.4bn on better selling prices, which rose on average 6.8%, but revenue garnered for services rendered fell 6.3%, to R641m.
Ron Klipin, a Cratos Capital portfolio manager, said on Tuesday that the outlook for Clover remained clouded but that some positive aspects had mitigated the ongoing challenges.
An increase by the group in milk prices above that of its peers had resulted in a big loss in market share in the period. But competitors had followed suit, Klipin said, so there "should be an increase in volumes sold and an increase in profitability".
"The rest of [Clover’s] portfolio has been under pressure due to the consumer being squeezed, high input costs and major competitive pressure," he said. Financial 2018 was likely to remain "extremely challenging", but lower food prices in the aftermath of drought in many areas in SA might boost consumer confidence, he said.
Vorster said that the new special purpose vehicle, Dairy Farmers SA (DFSA), which put pricing power in the hands of Clover’s raw milk suppliers, had been in operation since April. Clover owns 26% of DFSA, with 74% of the entity having been made available to its producers.
Where Clover’s turnover would now be reduced by about R1.75bn a year, the effect on profitability should be neutral given service fees payable by DFSA to Clover, which remained a milk distributor.
Klipin said that, while DFSA had been an albatross around Clover’s neck, the group could now focus on improving milk volumes and products rather than on the extreme seasonal volatility of raw milk prices.
Big retailers should no longer have negative perceptions about Clover being a driver of milk prices, he said.© BusinessLIVE MMXVII
Clover, Milco merger puts 657 jobs on the line
17/09/2019 - 10:05
A total of 657 existing jobs will be on the line at Clover Industries in the next two years if the R4.8 billion merger between the JSE-listed dairy company and Israel-based Milco is approved by the Competition Tribunal.
AVI earnings slip as consumer spending remains constrained
09/09/2019 - 09:33
Consumer goods group AVI, whose brands include footwear retailer Spitz and Five Roses tea, trimmed its final dividend 4% in the year to end-June as it continued to feel the pinch from a constrained consumer environment.
Shoprite earnings take knock on non-SA operations
20/08/2019 - 10:39
Shoprite’s shares fell to their worst level in more than three years after Africa’s largest food retailer reported a 20% drop in earnings and said it saw no immediate prospects of its troublesome non-SA operations returning to profitability.
Truworths profit at nine-year low as profit plunges over 70%
16/08/2019 - 11:52
Shares in Truworths slumped to a nine-year low on Friday morning after the fashion retailer reported a 74% slide in profits amid difficult trading environments in SA and the UK.
SA records its second consecutive trade surplus in June
01/08/2019 - 09:50
SA recorded a trade surplus of R4.42bn in June as growth in exports exceeded growth in imports.