Clover gets stuck between hard pressed consumers and severe drought

Dairy products group Clover has been able to defend its profitability during tough times in the past years. However, the devastating drought, coupled with waning consumer spending and cyclical raw milk prices have put the brakes on its resilience and earnings growth. Even though their revenue for the year to June 30 advanced to 2,4% to R10 billion, its operating profit fell by 44.3% to R 314.5 million. Over the same period, their earnings per share fell by 66.2% to 63.9% cents. The company last saw this level of decline in profitability in 2009.

“There’s a saying in America that a year in politics is a long time. I think it goes the same with dairy. In the 119th year, of Clover’s existence, we are not so fortunate,” said Clover CEO Johann Voster as he told analysts at the company’s results presentation on Tuesday.

The total dividends fell by 63% to 24.21 cents per share. Shareholders don’t have to look far for reasons behind the downbeat performance, which include weather conditions across South Africa and product price increases. The drought which has hit large parts of the country, meant that clover didn’t have enough raw milk supply from farmers and that resulted in a product shortage. To defend profitability they have increased the average selling price of products by 6.8%.

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