Its latest financial results show it took a calculated risk to try to protect market share - and it doesn't seem to have paid off, at least not in the short-term although it might in the longer term.
"We took a strategic decision to increase prices gradually to protect hard-won market share and sales volumes," says Clover's Chief Executive Johann Vorster
Sales went up, by 8,9% to R8,5bn, but sales volumes were lower. Vorster says this was because consumers were put off by higher prices.
Milk might be one of the more essential items on shopping lists but that doesn't mean consumers won't cut back when times are hard. And Clover doesn't expect trading to improve any time soon.
Looking at prospects for the year ahead, Vorster says: "We expect the current subdued operating environment to continue for the foreseeable future, given the current cycle of interest rate increases, a low-growth economy, rising unemployment and the aftermath of the protracted labour disputes that have to work their way through the economy."
Keeping price increases gradual to protect market share hit Clover hard financially. Operating profit fell by 24% to R282,3m, hit by what Clover calls strong inflationary cost pressures, especially on packaging and ingredients costs which are US dollar-based. That shrank the earnings by 14,2% to 102,7c.
Clover says it has spent the final capital on what it calls Project Cielo Blu, with a price tag of R350m.
"Project Cielo Blu was the primary capital project identified to redress historical inefficiencies in the supply chain network. This project entailed the relocation of Clover's production facilities closer to the milk source to improve efficiencies and reduce transport requirements and the expansion of a number of locations to accommodate the growing business," Chairman Werner Büchner told visitors to the expanded Clover factory in Queensburgh, Durban, earlier this year.
Clover is also moving into Africa with its long-life milk. "There's not much of a milk-drinking culture in Africa, except, interestingly, in the countries that were former British colonies, where they drink fresh milk every day. Countries like Kenya produce a lot of fresh milk, more than SA, but no fresh milk is produced in West Africa. So that offers us the potential to sell long-life milk into Africa," says Clover Chief Financial Officer Jacques Botha
What will affect the coming year negatively is the end of Clover's relationship with French-based Danone, from which it used to get yoghurt and custard products to sell under its own brand. Clover acknowledges there will be financial implications, but it will be making its own yoghurt and custard to replace Danone's in due course.
Source: Financial Mail via I-Net Bridge
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