Photo by: Duane Daws
The prolonged drought and rand volatility, which resulted in above inflation input costs that could not be recovered through revenue increases, owing to subdued consumer sentiment and aggressive competitive pricing in the first half of the financial year, will be largely disruptive to branded foods company Clover’s full-year results, the company said on Monday.
Price increases implemented by Clover and a comparatively wetter and cooler summer also negatively impacted on sales volumes.
“As expected, several of these challenges continued to impact the business during the second half of the financial year, it said, adding that while many factors were beyond its control, certain tough strategic decisions needed to be made at the expense of this year's results, but in aid of longer-term sustainability.
The drought resulted in high farm gate milk prices to ensure sustainability of supply, and fruit pulp prices also remained inflated as a result thereof. “We increased selling prices to recover these higher input costs; however, pressure on volumes and market shares was experienced as consumer sentiment remained subdued.
“Strategically, it was the correct action to take, as the Clover brand is heavily reliant on the continued supply of quality milk and fruit pulp, it added.
Meanwhile, the producer noted that to protect its market shares, Clover started dealing in promotions during March and April, and the regaining of market shares and increased volumes is already evident.
“We deliberately maintained our rejuvenated high-volume infrastructure, as it was unclear if volumes would return; however, it was concluded that the muted environment will be extended for some time and structural changes in Clover's infrastructure have, therefore, been introduced to balance our supply and demand expectations in future, which will lead to significant cost savings on our current cost base,” it added.
Following Easter, which is traditionally a high-trading period, Clover now believes that, for the year ending June 30, its headline earnings a share will be between 50% and 65% lower than that reported last year, at between 66.12c and 94.42c a piece.
Earnings a share are also expected to be between 40% and 55% lower than the prior year’s 185.9c apiece.
“While these results are not desirable, we remain optimistic about the company’s future,” it stated, noting that the end of the drought in certain parts of the country, an anticipated recovery of milk production volumes and normalised fruit production volumes, and the stabilisation of the rand, which hopefully curbed rising input cost inflation, would bolster its future results.
Clover expects to release its annual financial results on September 12.