Amid increasing sugar taxes and fuel prices, JSE-listed consumer goods group Clover managed to increase its headline earnings by 5% to R236-million, or 123.5c a share, for the six months ended December 31, 2018, compared with the R224-million, or 117.6c a share, reported for the six months ended December 31, 2017.
The company declared an interim dividend of 27.8c apiece, which is a 5% increase on the prior comparable period.
Revenue climbed 4.1% to R4.4-billion, on the back of a 5.6% increase in volumes and a 3.1% increase in selling prices.
Revenue from the sale of products increased by 4.6% to R3.5-billion, while revenue from rendering services increased by 2.3% to R948-million, which was attributable to increases by the Dairy Farmers of South Africa, Foodcorp, Eskort and Unilever principals.
Clover said the withdrawal of Enterprise products from the market, owing to the listeriosis outbreak last year that saw processed meat products across the industry taken off shelves, had muted growth in services rendered revenue.
The company’s headline operating profit declined by 3.9%, to R343-million, compared with R370-million in the prior period, which CEO Johann Vorster told Engineering News Online was as a result of increased marketing spend.
“Whatever savings we have, we plough it back into the business. Our interest charges have dropped by about R27-million and we have used some of that money to re-invest into our brands, which then led to a decrease in operating profit.
“Our investment in marketing and sales campaigns, as well as the expansion of our sales team, supported volume growth and market share increases across most product categories. We also built on our strategic projects that were implemented recently and they continue to yield encouraging results,” he explained.
The introduced sugar taxes had a R42-million impact on the company, while marketing costs increased by 15.2% in the reporting period to R530-million, as a result of aggressive marketing and selling campaigns to increase sales volumes and grow market share, which Vorster said would be ongoing in the current financial period.
Clover’s operating margin decreased from 8.8% to 7.8%, compared with the corresponding period, owing to the introduction of the sugar tax and the sharp increases in fuel prices during the latter part of 2018, which made it difficult for the company to contain distribution cost, so that it is not passed on to the consumer.
Vorster expected 2019 to remain challenging, in light of the low-growth economy and upcoming elections, but said the company remained steadfast in its focus.
“We are optimistic that ongoing delivery against our strategy will ensure that our operations are sustainable, despite the current stagnation in the economy and that the business, with its healthy balance sheet and cashflows, will be well positioned to take advantage of an economic upswing.”
Vorster mentioned that Clover recently launched its margarine range, which will enjoy prioritisation in 2019, with the launch of new products within the range and continuing growth of market shares.
Meanwhile, Clover and Milco SA have a shareholder meeting scheduled for March 29, following Milco’s announcement early in February that it wants to acquire all issued shares of Clover at R25 apiece, valuing the company at R4.8-billion.
Vorster did not foresee any problems with the transaction going forward and said Milco would make good owners of the company, enabling growth and job creation.
Milco is a new company formed by a consortium of international investors, black-owned Brimstone Investment Corporation and the management of Clover.