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Clover’s bid to increase its volumes in non-value added products is paying off.
Clover’s bid to increase its volumes in non-value added products is paying off.

Clover’s drive towards more than just milk


By Aarti Bhana - Mar 7th, 11:42

Clover industries’ operating margins took a positive turn with the group taking a shot at adding more products into its market, which is proving to be welcomed by South African consumers. 

Clover launched ‘non-value-added’ products into its market within its Dairy Farmers South Africa (DFSA) portfolio. The DFSA portfolio is an initiative or project that split from Clover and aims to drive more bulk and the commodity business. DFSA includes non-value added fresh and long-life milk products, whereas Clover focuses on value-added products.

The group’s interim results for the year ended December 31, 2017, show the group’s gross margin is 6% higher compared to 2016, with the inclusion of the non-value added products sold by the DFSA.

The group’s operating margins increased to 8.8% as a result of the combination with the 8% growth in volumes “and the successful implementation of the efficiency initiatives”.

Clover CEO, Johann Vorster, said the DFSA split has gone well, but he doesn’t expect to make changes to the plan until June. Clover is constantly working on refining its approaches and aims to be more focused on getting more volumes into the system, he said.

Product group sales volumes saw a 1.1% drop in non-alcoholic beverages, due to decline in volumes of Waters and Ice Tea products; a 17.3% increase in value-added dairy fluids, a 23.2 % increase in fermented products and desserts (yogurt and custard) and the launch of new products, olive oil, and soya products to its portfolio, contributed to revenue growth.

Vorster said there is a pipeline of projects and plans are in place to constantly grow the group’s revenue and operations and they will continue to look at ways to improve.

While VAT increases are not so much of a threat to the group, Vorster said at this point he would be more concerned about the rise in sugar taxes and how it might hurt consumer’s pockets.

Associate portfolio manager at Kagiso Asset Management, Dirk van Vlaanderen said the steps to grow volumes and address the cost base should give Clover the upper hand to continue its positive momentum in the next six months of the financial year.

Van Vlaanderen added that the sugar tax and drought in the Western Cape could, however, hamper performance in the second half, “but management appears confident in their own planning to deal with both”.

Clover reported an increase in normalised revenue to R4.2 billion, an increase in operating profits to R370.4 million. The group’s headline earnings went up 18.1%. EPS and Heps also increased by 19.1% and 17.8% respectively, while an interim dividend per share of 26.56 cents was declared.

Van Vlaanderen said Clover’s financial performance was strong against the weak consumer backdrop, however, it seems that management has taken steps to ensure that last year’s “poor performance” was an anomaly.

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