Close

Not a member yet? Register now and get started.

lock and key

Sign in to your account.

Account Login

Forgot your password?

CLOVER IS REAPING THE REWARDS OF A STRATEGY TO COMMERCIALISE

Privately owned Clover Industries is reaping the rewards of a strategy to commercialise what was once a dairy farmer co-operative, according to an analyst.

Alistair Lea, a portfolio manager at Coronation Asset Managers, said the dairy producer had gone from a loss of R28 million in 2005 to a profit of R84 million last year.

But Lea said that the commercialisation process was not even halfway and that there remained significant profitability to be unlocked in the firm.

At present. Clover is trading under a cautionary announcement relating to a subsidiary and has agreed to provide the competition commission with information relating to an investigation into price-fixing in the dairy industry.

In 2003. the company transformed from the NCD co-operative into the privately owned Clover. NCD had been exclusively owned by dairy tanners. who were more concerned about finding, a guaranteed market for their milk than in owning a profitable entity.

Farmers elected to rather receive a higher milk price for themselves than taking the cut that would have made the co-operative more profitable.

Lea said despite the turnaround in the milk and cheese division, which made up the bulk of sales, this division only made a profit of R27 million, off sales of R3 billion last year.

He said the smaller yoghurt and beverage divisions, in which French company Danone also has stakes, experienced much healthier profit margins, although sales were significantly lower.

The beverages division made a profit of R41 million, off sales of R667 million, and the yoghurt division a profit of R15 million, off sales of R457 million. Group profit for the year was R84 million, off sales of R4.22 billion.

Lea said that overall the company had a profit margin of about 3 percent, significantly lower than the approximate 10 percent achieved by rival Parmalat.

He said changes were being implemented that included paying lower milk prices to farmers that were located further away from factories and getting rid of the inefficiency of collecting milk directly from small farmers.

Hosken Consolidated Investments (HCI), which as the black empowerment partner owns 25 percent of Clover ordinary shares, said last year that despite improvements, Clover was still not performing to expectations but that it expected profitability gains to continue.

The rest of the ordinary shares are held by dairy farmers and, unlike the preference shares, they are not traded.

Asked if HCI would exercise its right to buy a further 10 percent of the ordinary shares, chief executive Johnny Copelyn said no decision had been made, “but we are not giving up the right”.

Clover chief executive Johann Vorster said that apart from the company cost base being much more efficient, the growing consumer market was resulting in people buying up to include more dairy in their shopping baskets.

Source: Business Report – Tom Robbins