SOUTH AFRICA – Dairy products group Clover, which is trading under a cautionary announcement, sees opportunities for consolidation in the sector as the weak consumer environment offers limited growth opportunities.
“I think this market is ripe now for consolidation,” CEO Johann Vorster said on Tuesday, adding that Clover was assessing opportunities in SA and other regional countries such as Angola and Mozambique.
Clover Industries said that the 21% fall in its profit to R189m for the year ended June reflected a “constrained operating environment in which the full recovery of higher input costs could not immediately be passed on to consumers”.
The company’s share price closed 5.07% lower at R17.80 on Tuesday.
Among the drivers of input costs was a roughly R50m increase in the costs of raw milk as shortages fuelled competition for it.
Clover had to “defend our position” and retain suppliers.
Milk prices paid to producers increased by about 15% between February and April, Mr Vorster said.
“I’m confident though that the recent downward pressure on international oil and grain prices as well as the stabilising of raw milk supply will enable us to claw back some of these costs while growing market share and sales volumes.”
Mr Vorster said he was “satisfied” with Clover’s recent achievements, including the conclusion of capital investment project Cielo Blu, raising prices paid to farmers to ensure sustainability of supply, and increasing its own product prices at the end of the financial year.
It had also bought DairyBelle’s yoghurt and ultra-high-temperature milk businesses, giving it access to these higher-margin products from January next year.
Mr Vorster said Clover could bolster any part of its supply chain in the industry’s consolidation, including milk production, procurement and merchandising for third parties, and acquiring new products.
The company was looking domestically, and in Mozambique, Angola and Kenya despite competition and challenges with procurement in the country. In Nigeria, where Clover sells only its Tropika beverage brand, the next step would be for the company to manufacture its own product in-country.
Vunani Securities analyst Anthony Clark speculated recently that Clover’s latest cautionary could relate to a possible buyout of Quality Beverages. Quality Beverages is owned by Bowler Metcalf, which is also trading under a cautionary.