SOUTH AFRICA – Value-added products including yoghurts, custards and desserts could make up about 20% of Clover Industries’ business within a few years, says CEO Johann Vorster.

The dairy products and beverages firm is launching a swathe of new products this year following its takeover of DairyBelle’s yoghurt and long-life milk businesses and following the completion of Clover’s capital investment projects.

The company’s four-year “Cielo Blu” investment programme was started when it listed in 2010 and had the cash to tackle logistical and distribution inefficiencies in its business by expanding and relocating its infrastructure.

With greater manufacturing and distribution capacity installed, Mr Vorster says “the next phase is to fill those capacities and better utilise the infrastructure that we’ve been developing. So now it’s about bringing all those new ideas to the table which we’ve been working on — the first is a relaunch of our own yoghurt range, which coincides with our DairyBelle acquisition.”

Effective from January 1, the company bought DairyBelle’s yoghurt and UHT (ultra-high-temperature pasteurisation) milk manufacturing, marketing and distribution businesses for R125m and R30m respectively.

Clover has appealed against a condition imposed by the competition authorities that no merger-related retrenchments be made in the next few years. It says the condition is “too onerous” and expects to have a response late next month.

The DairyBelle deal is part of Clover’s efforts to move into higher-margin, value-added foods and reduce its exposure to commodity-type products.

The company’s share price has increased 79.5% since listing four years ago, versus the JSE all share index’s growth of 55.9% over the same period.

Clover launched its own yoghurt brands this month, under its “Clover Classic” range of products. Together with DairyBelle’s yoghurt brands, which include Fruits of the Forest, Bliss and InShape, Clover aims to have about a 20% share of the yoghurt market in SA.

The company, which uses about 25%-30% of SA’s raw milk, has also started making custard products again under the Clover Classic umbrella. Clover sold the UltraMel custard brand to Danone in 2007.

Mr Vorster says Clover plans to use the Bliss brand, a double cream yoghurt range that Clover bought as part of the DairyBelle transaction, to launch its own range of desserts. The Bliss dessert range will be imported from Italy “until we reach the scale to manufacture it in SA”.

Clover is also soon to launch its Smart Drink, which it calls an “on-the-go snack with added nutrients” and which is a joint venture with Futurelife.

“We will, from this year, continuously launch value-added products,” Mr Vorster says, adding that Clover is evaluating various niche product acquisitions as well as regional deals.

He says he is confident Clover will be able to fund any large new deals, as shareholders have pledged to financially support takeovers or product launches that make sense for the company.

Last month, Clover withdrew a cautionary announcement first issued to shareholders in June last year that it was busy with negotiations on a potential deal. It told shareholders the negotiations had been terminated.

Mr Vorster said last year Clover was assessing opportunities in SA and other regional countries such Mozambique, Angola and Kenya.

In Nigeria, where Clover sells only its Tropika beverage brand, the next step was for the company to manufacture its own product in-country.

Clover said last month it expected headline earnings per share for the six months through to December to be at least 30% higher than the corresponding reporting period.

Mr Vorster says lower oil and grain prices will benefit both milk producers and Clover, whose distribution and packaging costs will be reduced.

Milk Producers Organisation MD Bertus de Jongh said last year that while dairy farmers had benefited from a 20% increase in raw milk prices in a 12-month period, this had not been enough to stem the exodus of farmers from the sector.

The number of producers was still declining by about 10% annually, and had fallen from about 12,500 in 1991 to 1,820 at the most recent count.

Mr de Jongh said farmers had previously received below-inflation hikes in raw milk prices for numerous years, and that “the biggest relief for milk producers is coming from the lower maize price and not as much from the increase in producer prices”.

January 13, 2014;