Consumer stress hurts Clover
Clover says consumers are facing growing economic stress as inflationary cost pressures and internal restructuring has hurt the dairy group’s operating margin.
Clover says consumers are facing growing economic stress at a time when inflationary cost pressures and internal restructuring have hurt the dairy group’s operating margin.
The margin fell to 6.3 % in the six months to December 2016 from 6.8% in the same period in 2015 as selling-price inflation rose 10.6%. Revenue from product sales rose 3.3% to R4.8bn against an overall volume decrease of 7.3%. This was mainly driven by negative consumer sentiment, Clover said.
The declines were compounded by the wet summer in 2016, which followed a heat wave that helped drive sales in the 2015 interim period. Meanwhile, there was a global shortage of fruit concentrates, CEO Johann Vorster said.
“So local manufacturers are exporting [product] at higher prices,” he said. This had left Clover short of ingredients, shortly after its Dairybelle unit had gone into liquidation over “bad management”.
“We lost that business,” Vorster said. Little else has been divulged about this matter.
Dirk van Vlaanderen, associate portfolio manager at Kagiso Asset Management, said Clover had delivered a “solid first-half performance”, despite weak consumers, higher input prices and a high comparative base in beverages due to the particularly warm weather from drought.
“This performance was the result of a good effort on cost control, as well as successfully pushing through some significant price increases,” he said.
But he also said the price increases were not matched fully by competitors. This had resulted in market share losses across Clover’s portfolio. However, the company was seeking to deal with this, he said.
Van Vlaanderen also said it was encouraging to note new product launches in several sales categories.
The group is enhancing its valued-added product portfolio. Apart from adding new products, this would allow it to export more long-life goods into other parts of Africa, including Tanzania, where it is launching sales from March.
It had recently acquired soya-based products manufacturer Good Hope and Olive Pride, which made and imported olive oils, balsamic vinegars and related products.
Meanwhile, Vorster said the company’s new milk “volume-growth strategy” through a new special-purpose vehicle, Dairy Farmers SA, would benefit milk producers and cut out “the middleman” – Clover itself.
Clover recently said the price of raw milk would now be determined by the market. In the past, it had determined the price paid to producers for raw milk.