Clover delivers strong results, revenue up 6% to R9.8 billion

Higher margin, value-added product sales and cost efficiencies contribute to positive performance.

  • Revenue up 6,0% to R9,8 billion
  • Operating profit up 10,9% to R564,5 million
  • Headline earnings increased by 11,7% to R356,6 million
  • Headline earnings per share increased by 8,9% to 188.9 cents
  • Strong cash generation of R709.7 million, from operating activities before working capital requirements
  • No selling price increases on dairy products until late in the review period to protect market shares
  • Inflationary costs absorbed through cost cutting initiatives, efficiencies and higher sales volumes
  • Final gross cash dividend of 40,94 cps declared bringing the total dividend to 65,15 cps (FY2015: 56 cps)

AAClover Industries Limited (“Clover”, “the Group” or “the Company”), a leading branded consumer goods and beverages group operating in South Africa and other selected African countries, today announced excellent financial results for the year ended 30 June 2016.

Commenting on the performance, Johann Vorster, Clover Chief Executive, said: “We are pleased with the continued strong performance, especially as this is off of a very high base set last year. We also experienced extraordinarily challenging operating and economic conditions during the period but managed to counter this by driving sales volumes, improving efficiencies and managing costs where possible.

“We navigated two very different halves of the year, the first characterised by an oversupply of raw milk and consequently lower selling prices; the second by a severe drought that swept the country and resulted in lower raw milk production compounded by higher input costs. The period saw a weakening in the foreign exchange rate which resulted in higher than expected cost inflation.

“Our strategy to balance traditional dairy products with higher margin value-added products continued to gain traction. Although our roots will always remain firmly in dairy; non-dairy and value-added products now contribute 40% to margin on material. Our short-term aim is to increase this to an even split.”

Revenue increased by 6,0% from the previous corresponding period to R9,8 billion following a 9,7% improvement in overall sales volumes. Excluding the effect of the Danone contract which was systematically phased out from December 2014, real growth in revenue was 7,5%.

Despite an 8,4% uptick in cost of sales, an increased contribution from higher margin, value-added products and improved efficiencies led to a 10,9% improvement in operating profit to R564,5 million.

The Group’s operating margins increased to 5,7% from 5,5%, whilst normalised operating margin increased from 5,2% to 5,9%.

Headline earnings rose 11,7% to R356,6 million for the reporting period, whilst headline earnings per share (HEPS) increased by 8,9% to 188,9 cents.

Clover’s brands traded in line with expectations buoyed by solid festive season demand and the heatwave conditions experienced in December 2015. The Fermented Products category, which includes yoghurt and maas, in particular contributed positively to the performance as did the Beverages portfolio which delivered an exceptional performance bolstered by the full benefit of selling price increases implemented in July 2015.

Clover kept dairy selling prices constant for most of the review period and absorbed inflationary increases as far as possible. Sales price increases were however implemented across the product categories in April 2016 to recover high cost inflation pushed up by the weakening foreign exchange rate.

Management continued its focus on cost saving drives and specifically on containing variable costs. Head office incurred no inflationary increases and administrative expenses were reduced by 2.8%, mainly due to a moratorium on new appointments as well as the cancellation of conferences and special events. The successful renegotiation of contracts, reduced selling and distribution costs by 2,6%. Marketing spend was also reduced by 13% by leveraging synergies through a “mother brand” approach.

Cash generation was strong, ending the period at R709.7 million compared to R566,7 million reported in the prior year. Investment activities consumed R332.6 million in cash.

“We successfully mitigated a range of challenges and created stakeholder value through leveraging opportunities and ensuring adaptability to market changes.

“The rate at which we were able to improve efficiencies and reduce costs this year is commendable. Senior management has further committed to a voluntary salary freeze with no increases for the current financial year in order to contain costs further,” commented Vorster.

The prolonged drought primarily in the Highveld and Kwazulu-Natal areas, has seen raw milk production ease downwards on the back of higher feed costs. Clover accordingly increased prices paid to producers in order to protect the primary industry. Current indications are that there is still a challenge to supply the forecasted market with milk. Clover is therefore monitoring the situation closely and will take the necessary action to ensure availability of raw milk.

Since listing in 2010, Clover has invested heavily in acquisitions and rejuvenating its factories and distribution assets for continual and sustainable growth. With the exception of the Bloemfontein yoghurt capacity expansion which is ongoing until July 2018, capex spend will reduce significantly as it now has the platform from which to extract further operating efficiencies, reduce costs and deliver enhanced returns to shareholders.

Commenting on prospects for the year ahead and longer term strategic objectives, Vorster said: “We anticipate that the improved weather conditions predicted for late 2016 and 2017 will normalise milk production, result in a fall in food and beverage input costs and an overall reduction in food price inflation.

“Our immediate focus will remain on fully utilising capacities and the asset base that we have built over the past five years. We are committed to increase the margin contribution from non-dairy and new products in the short term, to a level where it is equal to traditional dairy products.”

“Local opportunities for consolidation where synergies can be leveraged will remain on our radar as will opportunities to increase exports to African markets where currency risk can be mitigated.

“Longer term, we look to centralise certain of our major production facilities into a strategically located and purpose built industrial park to reach optimal efficiencies. This facility would also produce longer life powders and could begin exporting local dairy products. This initiative will however require substantial investment and management is therefore considering the business case for the park in conjunction with various stakeholders and government.”

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