Clover buys DairyBelle yoghurt, UHT milk business

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Yoghurt market in 2015

The acquisitions speed up Clover's entry into the yoghurt market and deliver further operational efficiencies; in line with its stated strategy to expand its portfolio of value added and branded consumer products. DairyBelle enjoys a meaningful presence and strong brand equity in this market.

Commenting on the acquisitions, Johann Vorster, Clover chief executive, said, "The acquisition of the DairyBelle assets provides the company with an entry into the attractive and profitable yoghurt market, which is one of the major opportunities arising from the expiration of the Danone Southern Africa contracts later this year.

"Combining these assets with our sales and distribution capabilities will also enable us to develop the current DairyBelle brands and provide capacity to launch our own Clover branded products in this market."

DairyBelle's UHT production facilities are based in the Western Cape and this will allow Clover to improve efficiencies through the more effective utilisation of its raw milk supply in the region.

Pedro Viudez, DairyBelle's CEO, stated, "This transaction is a step forward for DairyBelle, allowing the company to focus on its core business, which is cheese and niche butter products. It was a sentimental decision to dispose of the yoghurt business, but this transaction will refocus our energies and resources in our core competence of cheese making."

Post the acquisitions, Clover will have approximate market shares of c.10% in yoghurt and c.19% in UHT milk. The transactions are subject to the fulfilment of various suspensive conditions, including the approval by competition authorities, which are expected to be completed by the end of July 2014.

Share results warning

Although Clover is not yet in a position to forecast its financial performance for the year to 30 June 2014 accurately, a number of factors that were highlighted at the time of the interim results have continued to negatively affect sales volumes growth and therefore earnings growth in the current period.

The decreases are attributable to:

• a very constrained trading environment in which the full recovery of raw milk price increases and strong overall inflationary cost pressures, specifically relating to packaging and ingredient costs, will not be achieved;
  
• the adverse effect of the further selling price increases on sales volumes;
  
• a decline in principal volumes resulting in lower services rendered fees earned by Clover;
  
• Rising inflation, that is progressively eroding sales volumes, especially in the non-alcoholic beverages segment.

The company is reliant on a sustainable milk supply and will continue to address actively any risks to its milk supply, which may be detrimental to the long-term execution of its strategy; hence, the raw milk prices were increased over the past few months. It is important to note that because of the lead and lag effect, the increases in raw milk prices will in all probability only be recoverable in the market at a later stage.

It has decided to apply a gradual approach to selling price increases that will be more acceptable to consumers and protect its hard-fought market shares. In the current challenging environment, it will continue to focus on its longer term strategy of launching new products and platforms, whilst remaining mindful of the expectations of shareholders.

"In spite of the increasingly difficult operating environment presenting short term growth constraints, we remain focused on delivering synergistic acquisitions and joint ventures that will sustain long term momentum whilst we continue to actively invest in new products and technologies," Vorster concluded.