JSE-listed dairy products company Clover, which has been voted the fifth-strongest brand in South Africa, is eyeing a $34-million investment in Africa in line with its expansion strategy.

Speaking to Engineering News at the company’s results presentation for the 12 months ended June 30, CEO Johann Vorster explained that the investment was intended to enable the company to buy existing businesses and set up production facilities, varying from region to region.

The company also intended to build an industrial park in Africa to produce value-added products, which was separate from the $34-million capital expenditure (capex).

Other major capex approved in principle by the board for 2015/16 included R78-million for the relocation of Aquartz water and ice tea to Clover’s Doornkloof factory, in Gauteng, the allocation of R60-million for yoghurt production expansion and R45-million for the company’s IBM customer collaboration project’s blue print phase. All three undertakings were estimated to be completed by the second half of 2015.

Vorster said Clover would probably spend a similar amount on the next phase of the IBM collaboration and expected to complete the project by March or April, which, he noted, was a first for South Africa, .

The project would provide access to daily till data to forecast orders to reduce stock and better service the levels of trade. On the sales side, a front-end display would be installed in store on iPads, allowing a products barcode to be scanned. As such, Clover would know the extent of its sales and what its margins were, and would be able to compare these with those of its competitors.

Vorster was pleased with the company’s 2015 financial year’s results, although he said Clover could have done better. “But, we want to deliver consistent results and keep on investing in our brands.”
Clover reported revenue of R9.3-billion, up 8.6% on the previous financial year; however, the end of the company’s raw milk contract with Danone, ended on December 31, 2014, masked the real revenue growth of 13.7%.

Further, the company declared operating profit of R509.1-million, up 80.3%, and profit of R345.7-million, up 82.9%. Headline earnings per share jumped to 173.6c, increasing by 69%, while headline earnings and earnings per share also grew significantly over the period by 70.3% to R319.3-million, and 86.1% to 190.4c, respectively.

Major factors that influenced the results for the year were high cost inflation, which caused the group to increase its selling prices considerably at the end of the previous financial year. As a result, sales volumes and market shares declined in some product categories, but new sales volumes from the yoghurt and custard categories assisted in achieving overall sales volume growth of 2.8%.

Clover experienced low inventory levels at the start of the year, which further impacted on the results. This followed the raw milk shortage in the winter of 2014, which severely restricted Clover’s ability to supply the market with cheese and ultrahigh-temperature (UHT) milk. The overall market contraction in the fruit juices category was reflected in the reduction in consumers’ discretionary spend, with Vorster noting the price war in the carbonated soft drink market had led to the decline in fruit juice volumes.

On average, the rand had also strengthened slightly against the euro, compared with the prior year, helping to limit the increase in carton packaging material. The rand had also weakened against the dollar, which was fortunately more than offset by much lower international oil prices that indirectly limited the increase in plastic packaging material. The group also benefited from the lower fuel prices.

In addition, farm gate milk prices remained high in relation to on-farm costs throughout the year and resulted in a sharp increase in national milk production during the year.

As such, South Africa currently has an oversupply of raw milk, from which Vorster said Clover was protected by its “unique milk procurement system”.

He added: “Historically, the surplus period only lasts three or four months. But it is early days. Up to now we haven’t seen an effect on our results, but October and November, [during which high levels of milk production are experienced], are lying ahead.”

Meanwhile, the sale of products grew by 15% to R8.2-billion. Accounting for 12.2% of this revenue growth were overall average price inflation and mix changes. This was mostly due to Clover’s new higher-value yoghurt and custard sales.

The company said volume losses for the year were offset to some extent after the expiry of the restraint of trade with Danone and the acquisition of Dairybelle’s yoghurt and UHT businesses.