Clover upbeat despite uncertainty

Roodepoort, South Africa: Clover, the newly listed dairy foods maker with one of the largest ambient and chilled distribution networks in Southern Africa,remains “positive” about the outlook for the second half of its maiden financial year despite persistent economic uncertainty.

Revenue increased by 10.8% to R3.35bn (US$482m) in the six months to December 31, with operating profit up 43% to R176m (US$25.3m) in the comparable period. The operating margin was up to 5.3% from 4.1%, while its normalised operating margin rose to 5.6% from 5% for the six months to December 2010.

Johann Vorster, Clover’s chief executive said the group expected single-digit price increases if cost pressures continued to mount. During the period under review, Clover cut its prices in response to aggressive discounting by competitors and the deflationary environment. Vorster said the impact of Clover’s various initiatives to save costs and improve efficiencies across the group, combined with lower input costs and market share gains, resulted in a “solid financial performance” during the period.

“Despite a modest local gross domestic product growth during the six months to December, relatively low interest rates had a positive effect on overall consumer spending and resulted in Clover sharing in the economic recovery across all of its chosen market segments, with the exception of cheese. Market share was gained by passing savings on to consumers,” he said.

Clover also faced high input costs from rising electricity and fuel prices. To keep costs lower and improve profitability, Vorster said the company’s R350m capital project, Cielo Blu, was scheduled to finish within the next three years.  Project Cielo Blu would see Clover relocate its long-life products plant from Midrand to Port Elizabeth and Pinetown, move its central Johannesburg beverages factory to the Midrand facility, and expand several of its other production and distribution sites. Vorster said the company had used a third of its planned R350m capital investment, which aimed to boost profit margins.

The company said improved operating performance was due to the growth in sales volumes, improvement in product mix following the strategic exit from bulk markets and reduction in overhead costs despite normal inflationary increases.

On the expansion, Vorster said the group’s capital investment project sought to refurbish its facilities, create capacity and move away from commodity or bulk products like cheese into branded-consumer products. Branded-consumer goods such as Tropika, Krush and Manhattan Ice Tea were resilient to the economic fluctuations, he said.

When Clover listed in December 2010, it raised R575m. Vorster said the company intended to utilise part of this R575m in merger and acquisition activities. “There are some products and brands we are interested in,” he said. The company would deploy R350m of the R575m in Project Cielo Blu and spend the rest to reduce debt, he said.

On the company’s outlook, Vorster said the company could raise prices by 5% to 6% if there were further pressures arising from input costs, such as electricity. He said he expected the company to “do well” even though it was still subject to an uncertain economy, high unemployment, rising fuel and energy prices and a fluctuating currency. “All of these factors create unpredictable trading conditions,” he said.

The second half of the financial year was traditionally weaker than the first part, but the gain in market share and continuing lower supply chain costs were expected to deliver positive results.

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