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Clover weathers the storms – and now looks to yoghurt

  • During the year, the company made substantial investments in new products and platforms and continued the roll-out of its Cielo Blu capital project, which is nearing completion. The project was started when the company listed in 2010 and had the cash to tackle logistical and distribution inefficiencies in its business by investing in the expansion and relocation of its infrastructure.
  • Clover CE Johann Vorster (above) said although the financial performance achieved during the first half of the financial year was weaker than expected, the recovery achieved in the last six months was very pleasing, ascribed to “aggressive cost controls, selling price increases to the trade and lower spending on new product launches during the last six months”. But high cost inflation continued, with upward pressure on fuel and packaging costs made worse by the weaker rand.
  • The UHT market grew by 8% year on year, following establishment of a number of new plants in the country which diverted drinking milk from fresh to UHT milk. The market for fresh milk correspondingly declined by 6.3%.

    Initial efficiency problems with the group’s new UHT Prisma pack platforms and delays in the importation of product to supplement own production during the relocation of equipment resulted in Clover’s 3.1% growth in the UHT market not correlating with overall market growth. Similarly to the market, Clover’s fresh and ultra-pasteurised milk volumes also declined, albeit at only 1.2% compared with the market decline of 6.3%.

  • Meanwhile, beverage volumes showed strong growth of 15.4%, or 7.7% excluding the effect of The Real Juice Co Holdings acquisition, and largely underpinned by Tropika. Volumes declined in its Super M and Manhattan Ice Tea brands due to competition from Parmalat’s Steri Stumpie and Coca-Cola Fuze.
  • Clover’s strategy to focus on value-added branded products, and exit from commodity bulk products, had some impact on volumes, including a 3% decline in concentrated segment volumes. If the volume loss resulting from the bulk mozzarella exit is excluded, segment volumes increased by 14,5%.
  • Prepacked natural cheese volumes increased by 26.2%, feta cheese by 10.4% and condensed milk by 4.2%. Butter volumes decreased by 0.8%.
  • Clover will embark on an African expansion plan that will see it develop facilities in Nigeria, Mozambique and Angola.

Looking to yoghurt

SA supermarket shelves can no doubt expect to see a flurry of new Clover yoghurts, following its announcement, at its annual results presentation, that it would exit its supply and service agreements with Danone Southern Africa.

This will allow Clover to develop high-margin yoghurt products which it was prohibited from doing due to these legacy restrictions. Clover provides a range of services for Danone Southern Africa relating to yoghurt and other fermented products, including raw milk and other raw material procurement, manufacturing and packaging of custard, sales and merchandising services as well as distribution and certain IT services.

The majority of the Clover’s contracts with Danone Southern Africa end in December.

Clover CE Johann Vorster said: “The relatively long lead-time to the end of our contractual agreement with Danone Southern Africa will enable a smooth transition for both parties and allow Clover to make several strategic investment decisions.”

According to Euromonitor International, last year Danone Southern Africa led the yoghurt category in South Africa with a value share of 44%. It was followed by Dairybelle, with a 15% share, and Parmalat South Africa, with 7%.

36One Asset Management equity analyst Daniel Isaacs said: “It’s exciting for Clover because in the dairy space one of the main areas you want to be in is yoghurt — it’s a higher margin business.

“For Danone, I don’t think it’s going to be a huge speed bump. I’d be surprised if all the contract manufacturers were at full capacity to the extent that Danone wouldn’t be able to find someone who could take over.”

Danone distributes and merchandises 5-million tons of fresh yoghurt globally each year, including the 200,000 tons it produces in Southern Africa.

Mario Reis, MD of Danone Southern Africa, said that for many years the company had enjoyed a win-win partnership with Clover.

“We are excited about this development, which will allow both parties to make strategic investments providing opportunities for faster growth and development in South Africa,” he said.

Source: BDLive, Reuters