Clover warns of rising input costs

In the results presentation for the year ended June, Clover chief executive Johann Vorster said selling prices were increased in the last quarter of the review period to recover inflationary cost increases in wages, energy, fuel and ingredients, but these increases were difficult to implement fully as certain areas in the country experienced an oversupply of milk during autumn that led to lagging competitor prices.

Operating margins as a result dropped to 5% in the period in focus from 5.2% a year ago.

Clover's portfolio includes a dairy fluid products segment, while the dairy concentrated products segment produces cheese, butter, condensed milk and retail milk powders. The group also has a non-alcoholic beverages segment, which focuses on the development and marketing of value-added branded beverage products.

During the year under review, Clover said it experienced strong sales and volume growth in its branded products category.

Branded product volumes increased by 8.3% as a result of the successful implementation of Project Reset, which used cost savings to reduce price premiums.

Overall volumes grew by 5.4% after a further strategic reduction in bulk commodity product volumes of 13.4%.

Vorster said: "Operationally, we continue to gain market share from our competitors in our branded products categories. Clover's strategy is to continue growing this area of the business and will systematically exit lower margin bulk commodities.

"The single biggest impact on our performance for the year ahead will be our ability to recover input costs. The phased implementation of Cielo Blu will play a leading role in optimising efficiencies in the supply chain and warehousing capabilities and remains our first priority."

Vorster explained that this project (Cielo Blu) would see the move of the long life products plant from Midrand to Port Elizabeth and Pinetown, closer to milk production sources. The central Johannesburg beverages factory will be integrated into the Midrand facility along with expansions at several other distribution sites. Project Cielo Blu will take between 24 and 36 months to complete and the expected gain in efficiencies through these moves will result in margins gains.

For the period under review, revenue increased by 6.1% to R6.5 billion while normalised operating profit was up 2.4% to R328.6 million. Headline earnings from continuing operations increased 822.1% to R175.2 million.

Headline earnings per share from continuing operations increased by 825% to 113.8 cents. Clover declared a final dividend of 15 cents per ordinary share, which will be paid on 17 October. This brings the total dividend declared for the year to 25 cents per ordinary share.