Clovers price hike during H1 has seen a jump in headline earnings

Clover's price hike during H1 has seen a jump in headline earnings

Clover Industries has booked higher half-year earnings as the South African dairy firm lapped one-off costs and saw price increases boost sales.

Headline earnings jumped 93.6% jump in headline earnings to ZAR141.1m (US$13.1m), or 77.3 cents per share, for the six months to the end of December. Net profit was up 95.4% at ZAR163.8m. The group recorded an increase of 70% in operating profit to ZAR235.1m.

Revenues were up 10.4% at ZARR4.3bn. Clover pointed to price hikes implemented during January and July last year to recover higher input costs.

Clover chief executive Johann Vorster admitted the company benefited from the absence of costs booked in last year's first half but said the business had put in a "good performance".

"Although from a relatively low base due to the once-off costs relating to price promotions and new product launches in the prior period, we are pleased to have delivered a good performance in the challenging operating environment that continued to be marked by rampant inflationary pressures which impacted on input costs and the consumer base."

Vorster said the company anticipated at least ZAR96m worth of savings from the "successful completion" of an efficiency strategy. He added price increases would continue through to the second half of the year in order to address the "substantial costs pressures on raw milk prices".

"The current environment will make it difficult to achieve sales volumes growth and therefore earnings growth in the second half. In spite of this, we are focused on building on the solid base provided by Project Cielo Blu by continuously investing in new products and technology in addition to delivering synergistic acquisitions and joint ventures that will sustain momentum and deliver on our longer term strategy locally and across Africa," Vorster said.

Share prices in Clover were up 0.26% to ZAR1,950.00 at GMT14.51 today (17 March).

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Clover today announced a good performance for the six months to 31 December 2013 in a challenging operating environment marked by rampant inflationary pressures impacting both input costs and the consumer base.

 

• Revenue up 10,4% to R4,32 billion
• Operating profit up 70,1% to R235,1 million
• Operating margin improved from 3,5% to 5,4%
• Headline earnings per share increased by 90,0% to 77,3 cents
• Interim gross cash dividend per share of 16 cents declared

17 March 2014 – Clover Industries Limited (“Clover”), a leading branded consumer goods and beverages group operating in South Africa and other selected African countries, today announced a good performance for the six months to 31 December 2013 in a challenging operating environment marked by rampant inflationary pressures impacting both input costs and the consumer base.

Revenue increased by 10,4% from the previous comparative period to R4,32 billion mainly as a result of selling price increases implemented during January 2013 and July 2013 to recover higher input costs driven by inflationary pressures.

The aggressive selling price increases of 2013 and inflationary pressures on the consumer impacted volume growth. Overall sales volumes grew by 1,2% for the period and 3,3% when taking into account Clover’s strategic exit from the majority of its bulk mozzarella business.

Commenting on the results, Johann Vorster, Clover Chief Executive, said: “Although from a relatively low base due to the once off costs relating to price promotions and new product launches in the prior period, we are pleased to have delivered a good performance in the challenging operating environment that continued to be marked by rampant inflationary pressures which impacted on input costs and the consumer base.”

Dairy Fluids volumes grew by 1,5%, supported by strong Maas sales volumes since reintroduction in the later part of the prior year. UHT volumes increased by 4,7% whilst fresh milk volumes declined by 6,6%, driven by aggressive UHT pricing from retailer house brands.

Higher volumes were achieved in the pre-packed natural cheese and feta cheese segments despite higher selling prices. The volumes were supported by production capacity expansion during the period.

As of August 2013, Clover Waters manufactures, distributes, markets and sells both Clover’s and Nestlé’s range of water and ice tea products including global brands such as Nestlé Pure Life® and Nestea®, which will only be launched later in the calendar year. Including the Nestle Pure Life® volumes, overall beverage volumes increased by 4,6% for the period.

Services Rendered revenue declined by 2,5% mainly due to the cessation of the majority of the primary distribution services to Danone Southern Africa. The lower income from primary distribution services was largely offset by new principal business from Red Bull and Enterprise as well as annual tariff increases.

The improvement in the gross margin from 26,4% to 28,0%, mainly due to the selling price increases and lower primary distribution expenditure following the discontinuation of the Danone Southern Africa services, contributed to the increase in operating profit margin from 3,5% to 5,4%. This improvement was mitigated to some extent by the sharp packaging and fuel cost increases due to the weakening rand and higher raw milk price.

“Following the successful completion of Project Cielo Blu, which we anticipate to result in some R96 million worth of savings in the current ahead, Clover has embarked on a number of additional capital projects that will deliver further efficiencies and costs savings whilst ensuring that our products are highly attractive and continue to enjoy strong brand equity,” continued Vorster.

Capital expenditure projects worth R320 million have been approved and are currently underway, including an in investment in a yoghurt production facility to take advantage of the new market opportunity leading up to the end of the Danone Southern Africa contract at the end of year.

In order to address the substantial costs pressures on raw milk prices, Clover increased its average price paid to producers by 5,3% from 1 February 2014 and a further 8,9% from 1 March 2014. These increases will be recovered through further selling price increases which will put additional strain on sales volumes. Average selling price inflation for this period was 8,8%.

“The current environment will make it difficult to achieve sales volumes growth and therefore earnings growth in the second half. In spite of this, we are focused on building on the solid base provided by Project Cielo Blu by continuously investing in new products and technology in addition to delivering synergistic acquisitions and joint ventures that will sustain momentum and deliver on our longer term strategy locally and across Africa,” Vorster concluded.

On 13 March 2014, Clover and Futurelife entered into a 50/50 joint venture to launch a new range of functional food products. Futurelife’s expertise in cereals and functional foods combined with Clover’s expertise in milk, dairy and nutrition make it a natural fit. Clover will be in charge of production, sales, distribution and merchandising.

 

Original source: Clover