Clover upbeat despite uncertainty

Releasing interim results to December 2010, CEO Johann Vorster also said the group expected single-digit price increases if cost pressures continued to mount.

During the period under review, Clover cut its prices in response to aggressive discounting by competitors and the deflationary environment.

It also faced high input costs from rising electricity and fuel prices.

To keep costs lower and improve profitability, Vorster said the company's R350 million capital project, dubbed Cielo Blu, was scheduled to finish within the next three years.

Relocation

Project Cielo Blu would see Clover relocate its long-life products plant from Midrand to Port Elizabeth and Pinetown, move its central Johannesburg beverages factory to the Midrand facility, and expand several of its other production and distribution sites.

Vorster said the company had used a third of its planned R350 million capital investment, which aimed to boost profit margins.

For the six months to December 2010, the company's operating margin was up to 5.3% from 4.1%, while its normalised operating margin rose to 5.6% from 5%.

In its maiden results, diluted headline earnings per share from continuing operations surged to 73.2 cents from 0.3 cents.

Revenue increased 10.8% from R3.023 billion to R3.349 billion, while operating profit was up 43% to R176 million from R123.1 million.

Clover declared a maiden interim dividend of 10 cents.

Improved operations

The company said this "greatly improved" operating performance could be attributed mainly to the growth in sales volumes, improvement in product mix following the strategic exit from bulk markets and reduction in overhead costs despite normal inflationary increases.

On the expansion, Vorster said the group's capital investment project sought to refurbish its facilities, create capacity and move away from commodity or bulk products like cheese into branded-consumer products.

Branded-consumer goods such as Tropika, Krush and Manhattan Ice Tea were resilient to the economic fluctuations, he said.

When Clover listed in December 2010, it raised R575 million.

Mergers and aquisitions

Vorster said the company intended to utilise part of this R575 million in merger and acquisition activities. "There are some products and brands we are interested in," he said.

The company would deploy R350 million of the R575 million in Project Cielo Blu and spend the rest to reduce debt, he said.

On the company's outlook, Vorster said the company could raise prices by 5% to 6% if there were further pressures arising from input costs, such as electricity.

He said he expected the company to "do well" even though it was still subject to an uncertain economy, high unemployment, rising fuel and energy prices and a fluctuating currency.

"All of these factors create unpredictable trading conditions," he said.

The second half of the financial year was traditionally weaker than the first part, but the gain in market share and continuing lower supply chain costs were expected to deliver positive results.

Source: BusinessLIVE