Clover’s FY17 earnings fall after record performance of 2016

12th September 2017 By: Natasha Odendaal - Creamer Media Deputy Editor Online

Clover’s FY17 earnings fall after record performance of 2016

Clover CEO Johann Vorster
Photo by: Duane Daws

The shine of delivering historic record high earnings in 2016 has faded as consumer goods and beverages group Clover’s latest full-year earnings have been hurt by the prolonged drought, a wetter and cooler summer and rand volatility.

The year ended June 30, had been characterised by the negative effect of the drought, reduced volumes, a constrained trading environment, one-off impacts and consumer resistance against high price increases.

“Clover faced an exceptionally challenging year as South African food producers and retailers had to contend with several complex and ongoing issues in the economy,” said Clover CEO Johann Vorster on Tuesday.

The JSE-listed group’s operating profit plunged 44.3% to R314.5-million for the year ended June 30, with the operating margin decreasing to 3.1% from 5.7% in 2016.

Headline earnings decreased by 65.9% to R121.6-million, while headline earnings a share fell 66.2% to 63.9c in 2017.

During the year under review, revenue ticked up 2.4% to R10-billion, with revenue from sale of products increasing 3.3% to R9.4-billion owing to 6.8% higher selling prices and revenue from services rendered to principals down 6.3% to R641-million.

“The decline is mainly attributable to the loss of major principal income in previous periods compounded by negative consumer sentiment and the liquidation of a recently signed principal. The overall decline was largely mitigated by recent new product launches albeit off a low base,” he told investors at Clover’s yearly financial results presentation in Johannesburg.

Vorster highlighted Clover’s move to increase selling prices to recover above-inflation input costs; however, continued subdued consumer sentiment and competitive pricing resulted in a 3.5% decline in overall volumes and loss of market shares in certain categories.

“The resultant above-inflation input costs, subdued volume growth and continued low consumer spending amid aggressive competitor pricing meant that we had to take some very tough decisions during the year, to position and sustain the business optimally against a constrained new reality,” he said.

However, Clover implemented or accelerated a number of initiatives during the second half of the year, including operational restructuring of Dairy Farmers of South Africa, the launch of Project Sencillo, the ongoing roll-out of Masakhane, new product launches and material changes to product recipes resulting in lower costs and sugar content.

“These have starting yielding encouraging results, which should be reflected in the upcoming interim results and beyond,” he noted, adding that significant investments had been made in infrastructure, research and development, and marketing, which were planned well in advance and could not be halted or paused.

During the 2017 financial year, Clover invested R69.2-million on its yoghurt capacity expansion project, R40.7-million on various projects at Clayville, such as the production and distribution cold room expansion, R24.9-million on the merging of lines at Queensburgh and R23.7-million on its Aspen IMF contract at Estcourt.

Clover incurred one-off restructuring costs of R46.8-million for the consolidation of the City Deep distribution centres into Clayville, as well as other sales, manufacturing and distribution efficiency drives.

“We are confident that the measures implemented during this reporting period will not only ensure sustainability and growth during the current down cycle, but will position Clover optimally to take advantage of any economic tailwinds, once the economic tide has turned,” he assured shareholders.

The successor to, and building on, the prior Cielo Blu project, the newly launched Project Sencillo had been working to optimise factories and simplify operations across the supply chain, including increasing efficiencies by moving equipment around to factories within the group to optimise each factory according to demand and length of production runs, better matching the raw materials and by-products.

Other strategic projects under way included growing Clover’s distribution reach into previously underserviced areas, with the roll-out of Masakhane enabling the increase of delivery points at the bottom end of the market to 30 000, and the launch of several new products and line extensions during the next few months.