Creaming it the PE way

Zeenat Moorad

A MOVE by Clover South Africa to relocate its processing plant from Gauteng to Port Elizabeth has paid off for the country’s biggest dairy distributor.

It said yesterday it expected its headline earnings per share for the half-year ended December to jump by at least 82% compared to the same period the year before.

The sizeable rise is also due to other once-off elements such as cost-saving initiatives and exchange-rate profits made by certain African subsidiaries due to the weakening of the rand.

The company said increases were attributed to:

  • Non-recurring marketing investments in new product launches made during the first half of last year;
  • The implementation of price increases last January and again early in the current reporting period; and
  • Reduced promotional activities following the price increases and “the positive contribution of project Cielo Blu”.

Project Cielo Blu started when Clover SA listed in 2010 and had the cash to tackle logistical and distribution inefficiencies by investing in the expansion and relocation of its infrastructure.

The primary capital project included the relocation of the company’s long-life milk processing plant from Midrand in Gauteng to Perseverance in Port Elizabeth.

Last year Clover announced a capital investment of R100- million to expand its Perserverance long-life milk production facilities to a 10000-pallet station warehouse, to be used to store milk before it is transported to customers across South Africa.

Vunani Securities analyst Anthony Clark said the update was “remarkable”.

“It is a very good result – it’s staggering‚ but unrepeatable because there are a number of once-off factors which pushed the trading statement to these sort of levels.

“Cielo Blu is coming to an end and the benefits have accrued to the business and there will be more going forward. In this trading update they are coming off a low base, too, because this time last year they had issues with new packaging and pricing and new products, which had increased marketing and promotional spend‚” Clark said.

Clover said earnings per share for the period under review were expected to be 80% to 90% higher than in the corresponding reporting period’s figure of 46.4c.

“Clover does not expect this level of earnings improvement to continue into the second half of the 2013-14 financial year due to strong overall inflationary cost pressure specifically relating to raw milk‚ packaging and fuel costs and the negative impact of the high inflationary environment on consumers‚” the dairy company said.

Clover will release its results on or around March 17.

“I remain very positive on the company purely because its expansion into new dairy categories and the breakage of the Danone agreements means it has significantly new growth areas,” Clark said.

“The next big expansion at Clover will be when it starts moving into new product areas of custard‚ yoghurt and processed sliced cheese. So there is further growth to come in the company.”

In September, Clover said it would end its supply and service agreement with Danone‚ allowing it to make high-margin products such as yoghurt.

 

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