Clover CEO confident of profit turnaround

Johannesburg - Clover Industries [JSE:CLR] CEO Johann Vorster said the group's results for the year ending June 2013 was not good, but is confident it will restore profitability.

"The results under review were not great at all," he told Fin24 in a video interview.

"We have got to unpack that a little bit and see what the reasons for that were," he said.

The dairy and beverage producer said a weak rand, rising CPI and high food inflation, further impacted by a prolonged strike, all contributed to the group's "constrained operating environment".

Headline earnings slumped by 12.8% from R214.9m at June 30 2013 to R187.5m for the year under review.

Revenue grew by 8.9% to R8.5bn from R7.8bn, but operating profit contracted 24.0% to R282.3m from R371.6m.

Operating margin dropped from 4.7% to 3.3% and overall sales volumes declined by 0.8%.

Headline earnings per share fell 14.3% to 102.7 cents. A dividend of 16 cents per share was declared.

Milk collection costs were up R38.4m due to fuel cost hikes and manufacturing costs climbed 10%.

Vorster said farmers didn't have decent price increases over the last few years and this had to be addressed.

"Clover didn't want to increase the prices to the consumer immediately because we didn’t want to lose some of the hard fought market shares that we built up over the last few years.

"So we delayed that implementation of the price increases. That led to our GP [gross profit] going down from 29 to 22%, but we maintain our market shares."
 
However, he said that June, July and August, the gross profit percentage was up again to 29%.

Clover is also rebalancing its milk purchasing agreements in preparation for its exit from supplying raw milk to Danone. However, Vorster claimed that it had to defend itself against Danone who was trying to poach their farmers.

"Danone, our partner is leaving us at the end of the year and they targeted some of our farmers", he said.

Looking ahead, Vorster was optimistic that Clover would make a turn-around.

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"We are quite confident going forward that we will be able to restore profitability."

He said the Cielo Blu came to fruition within the target and capital spend limits.

"We also concluded the DairyBelle transaction, which means that we will be able to enter the yogurt market much faster than what we anticipated."

Vorster said he is confident that the group will be able to grow its platform with mergers and acquisitions.

 - Fin24