Despite concerns about the recent controversial calls for land expropriation without compensation and the possible effect this could have on South Africa’s economy and food security, JSE-listed foods and beverages group Clover believes it is not all doom and gloom.
Speaking to Engineering News Online on Tuesday, Clover CEO Johann Vorster said he was not as skeptical about these proposals as the general market was.
“With all changes, there are opportunities. Many farmers will buy more farms at reasonable prices. There are good things that can come from it, if it is done orderly and responsibly.
“There is still a lot of water that needs to go under the bridge,” he added.
Further, Vorster pointed out that Clover farmers in the KwaZulu-Natal and Eastern Cape areas were running programmes to assist local farmers in improving their dairy farming skills.
However, he pointed out that a general consensus was that not everybody who received farmland wanted to be farmers. “They’re [city folk] and don’t understand farms. It’s like asking me to farm, I won’t know where to start,” he quipped.
This, Vorster said, also highlighted a need for skills transfer, particularly through tertiary colleges, “where people can go and school themselves” in agriculture.
Noting that there has been a “major shift in the business and where we play”, Vorster said the company was seeing tangible signs of improvements in retail sales.
The group’s operating profit for the six months ended December 31 increased by 14.8% to R370.4-million and headline operating profit increased by 13.6% to R357.6-million.
Headline earnings also increased by 18.1% to R224.4-million, resulting in headline earnings per share (HEPS) of 117.6c, an increase of 17.8% when compared with HEPS of 99.8c for the corresponding period in the prior year.
Attributable profit increased by 19.4% to R235.3-million resulting in earnings per share (EPS) of 123.3c, an increase of 19.1% on the EPS of 103.6c reported for the corresponding period in the prior year.
The group’s operating margin also increased from 6.3% to 8.8% owing to a combination of 8% growth in volumes and the successful implementation of efficiency improvement initiatives.
Meanwhile, the company said strong sales growth was achieved through increased volumes in certain categories, most notably in fermented products and desserts, as well as dairy fluids where no price increases were rewarded with higher volumes. “This was the star of the last six months,” said Vorster.
Revenue from nonalcoholic beverages was down by 1.1%, owing to a decline in the volumes of water and ice tea products despite the decision not to implement price increases in this category.
The launch of new products, including olive oil and soya products, to the portfolio also supplemented revenue growth.
Cost of sales decreased by 25%, while the like-for-like cost increased by 6.3%, excluding the cost of sales associated with Dairy Farmers South Africa, from the figure reported during the corresponding period.
On a like-for-like comparison, the cost of sales of nonvalue-added fresh and long-life drinking milk of R1.07-billion, made up of cost of raw material, packaging, as well as milk collection cost, was excluded.
The normalised cost of sales increase of 6.3% against the normalised increase in revenue of 7.7% was achieved through a focus on efficiencies, product reformulations and a robust re-tendering drive on ingredients and packaging materials.
However, an increase in primary distribution cost, driven by fuel inflation and higher costs to transport products between distribution centres eroded some of the gains.
Significant cost savings were realised during the period through efficiency improvement initiatives that were implemented in the previous period. As a result, selling and distribution costs decreased by 0.2%, saving R53-million on the comparative period. This saving was used to invest in additional research and development and advertising and to curb selling price increases to the consumer.
“We are aware of the plight of the consumer especially with an increased value-added tax rate and the introduction of the sugar tax. We will continue to implement further efficiency improvement initiatives across our supply chain to ensure our products are affordable to mitigate the impact of additional taxes,” added Vorster.