Clover surprises, but cautions about second half

Clover posted a positive set of financial results, which saw revenue up 10,4% to R4,32 billion and operating profit up 70% to R235,1million for the six months to 31 December 2013.

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Headline earnings per share for the half-year were 90% higher than for the same period last year.

However, this performance would be difficult to repeat in the second half of the year, given rampant inflationary pressures, which affected input costs and consumers, said Clover CEO Johann Vorster.

The jump in revenue in a challenging operating environment was mainly a result of selling price increases of on average 8,8%. Clover increased its average price paid to producers by 5,3% from 1 February 2014 and by a further 8,9% from 1 March. The selling price increases and inflationary pressures on the consumer affected volume growth, with overall sales volumes growing by 1,2%.

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Dairy fluids volumes grew by 1,5%, supported by strong maas sales volumes. UHT volumes increased by 4,7%, while fresh milk volumes declined by 6,6%, driven by aggressive UHT pricing from retailer house brands.

36ONE asset management analyst Jean-Pierre Verster said while Clover’s headline numbers looked very strong, it was coming off the weak base of the previous year.

“It’s a reasonable set of results, but the full year results won’t show the same growth percentage. Clover needs to look for new products and needs to look at price increases carefully. The input cost increases that both farmers and Clover are experiencing makes for a very difficult situation. It puts them under a lot of pressure,” said Verster.

In March, Clover formed a joint venture with Futurelife, to launch a new range of functional foods, including an instant meal product that would be mixed with milk. “They will probably look for more products to add to their distribution footprint,” said Verster.