Clover hurt by labour and fuel costs

The dairy company has made significant investments in new product launches and technology as it focuses on reducing supply chain costs.

"Revenue increased by 10.8% from the previous comparative period to R3.98bn but higher than normal costs associated with marketing adversely affected margins. Sharp increases in fuel and other input costs as well as costs associated with industrial actions resulted in reduced earnings for the period‚" the company said.

Headline earnings per share were at 40.7c for the six months ended December from 61.2c. Operating profit fell 22.4% to R145.6m.

Jacques Theron‚ a portfolio manager at Absa Investments‚ said Clover was investing for the long-term.

"On the face of it the results don't look great but if you have a look at what they're doing in terms of investments - they needed to streamline and reorganise - then the picture doesn't look as bad.

"What also affected them were some price increases and losing the Famous Brands contract for mozzarella cheese‚" he said.

In total‚ R27m was spent on advertising and promotional activities as Clover launched products such as extended shelf-§life fresh milk and Prisma packaging for ultra-high temperature milk and Tropika.

The market for drinking milk changed "considerably" during the calendar year to December‚ with competitive pricing on the ultra-high temperature products resulting in a 7.5% growth in the market and a consequent 3.1% decline in the market for fresh milk‚ Clover said.

The company's project Cielo Blu remains on track for completion by the third quarter of this year with the final phase‚ involving the closure and relocation of the Mayfair beverages factory to the Clayville factory. The project is aimed at lowering transport costs and increasing capacity by fixing inefficiencies in Clover's distribution network.

"Although the move of our ultra-high temperature manufacturing capacity to coastal areas was only effective for part of the review period‚ we realised significant savings on raw milk transport costs amid hefty fuel price increases‚" Clover's chief executive Johann Vorster said.

Capitalising on its position as one of the country's largest chilled and ambient distributors‚ the group said its distribution of Red Bull energy drinks from March and the selling of Enterprise Foods products in June would result in a reduction in its supply chain costs.

"Clover has a strong, competent management team. Their investments into Africa look attractive and it seems Clover will focus on Nigeria and Angola predominantly‚" Theron said.

Looking ahead‚ Vorster said the South African consumer remained under pressure in an environment marked by high food inflation and increasing debt levels.