JSE-listed Clover remains focused on delivering on its longer-term strategy of exploring new possibilities in category expansions and is also still fully intent on expanding its presence in Africa and on consolidating the industry that it operates in.

On Tuesday, in its results for the six months ended December 31, 2014, the company reported to shareholders that it remained focused on making full use of its capacities and the asset base that was heavily invested in during the last four years.

Clover CEO Johann Vorster told Engineering News in a telephone interview on Tuesday that the group believed Africa was “where we should play”.

He emphasised the need for South Africa to develop a sophisticated export facility so that the country could compete effectively in Africa.

“[South Africa] does not have a proper export facility, [nor does any other] African country, and [the continent] does not seem to be on the radar of the big players, like [New Zealand multinational dairy company] Fonterra,” stressed Vorster, adding that Clover would like to grow its current 10% market share in Africa, excluding South Africa, to 30%.

“Our strategy is to grow exports from South Africa and enter into Africa through partnerships where we can add value to existing businesses. [This] would not necessarily benefit South Africa, but Clover would benefit from being active in these markets,” he stated.

The group was looking at exporting long-life products, such as milk powder, butter and whey powder, while the export of ultrahigh-temperature milk was not really economical, as the product contained a lot of water.

Food processing and packaging solutions company Tetra Pak South Africa communications director Penny Ntuli noted in March that Africans do not consume nearly as much milk products as Europeans, adding, however, that the situation was improving.

“Total African consumption is currently around 17-billion litres, which represents compound annual growth of 3.5% since 2012,” she stated.

AGROPROCESSING
Vorster highlighted that with regard to government’s agroprocessing drive, Clover was investigating cooperation between the private sector, producers/land owners and government.

“We have had a number of meetings already where Members of the Executive Council were involved [and are] also seeing the Ministry [of Rural Development and Land Reform] in coming months to see what exactly this tripartheid agreement could entail.

“The people that I’ve met have been very positive. During the last six months’ discussions, [I have noticed] definite urgency from the top to make sure that land is used productively and leads to wealth and job creation,” he explained.

Clover was of the opinion that its producers could add much value for emerging farmers and there was a lot of land available that the group was prepared to operate on.

To aid the country’s agroprocessing objectives, Clover was also prepared to expand its existing facilities and construct new facilities. “It is a bit of a mixed bag that we are investigating,” Vorster noted.

DANONE
In line with its category expansion aims, Clover said in March that it planned to re-enter the yoghurt market by the first quarter of 2015, following the conclusion of its contract with Danone Southern Africa.

The group had approved a R150-million investment in a yoghurt production facility, which was part of R320-million in approved capital expenditure as Clover shifted its focus to joint ventures, acquisitions and new projects from Cielo Blu, a three-year revamp project, which was now complete. “Acquisitions are at the top of mind,” noted Vorster.

The distribution services provided to multinational food products corporation Danone’s Southern Africa division were currently being phased out and would cease altogether towards the end of the 2014/15 financial year, creating available capacity in the Clover network that would allow the company to exploit significant profit and synergy potential.

Therefore, Clover pointed out that services-rendered revenue for the six months ended December 31, 2014, would be lower than that of the first semester, but would be partly offset by its new yoghurt and custard sales.

“The impact in the next financial year will, however, largely depend on Clover's ability to explore and act on the opportunities created by the additional space in its network,” the group noted, adding that South African consumers remained under pressure, although inflationary easing was expected to provide some relief.

Although Clover was confident it would achieve “solid full financial year results”, a second semester with lower gross margins than the 31% achieved in the first six months was likely not only owing to the Danone exit, but the worrying national raw milk situation.

The growth in national raw milk production currently significantly exceeded the domestic market's growth for dairy products, advised Clover. Should this level of growth continue without alternative markets being sourced, an increasing national oversupply of raw milk was likely to progressively pressurise future market prices, especially during spring and summer this year.

Vorster told Engineering News that in 2009, when the group was required to take all the milk produced by its suppliers, it ended up with R4-million too much milk, leading to that year’s bad results.  But, since then, the group had implemented a new procurement model so that it was no longer exposed to volume risk.

Vorster explained that in the previous year milk supply had grown between 6% and 7% in the last three months and, according to previous experience, the country would go into a surplus. As farmers would have nowhere to store the milk, the dumping of milk in the market could be expected, placing pressure on prices. “Clover will have to follow suit to some extent, although our brands are quite strong,” he added.

Subsequently, though, farmers’ output would decline, which, Vorster said, Clover was not in favour of. “Why would we want [farmers] to produce less ‘white gold’? Nevertheless, that is the consequence of too much milk,” he noted.

In its review of the six months ended December 31, 2014, the branded consumer goods and beverages group advised shareholders that despite the strong growth in national milk supply, current high farm-gate milk prices are expected to continue and will likely only reduce after the winter of 2015, driven by competition for raw milk.