Sugar tax proves to be a bitter pill for Clover to swallow
The company could be delisted in May if a takeover by an Israeli-led consortium goes ahead
In what could be its last set of results as a listed company, foods and beverages group Clover Industries said on Tuesday that SA’s new sugar tax shaved R42.3m off its half-year earnings.
The group’s net profits edged slightly lower in the six months to end-December as distribution costs climbed and as the sugar tax, which was introduced in April 2018, added R42.3m to its cost of sales.
Clover, which could be delisted in May if a takeover by an Israeli-led consortium goes ahead, said net profit fell 0.3% to R232.5m, even as revenues grew 4.1% to R4.4bn.
However, the company raised its interim dividend per share by 5% to 27.89c.
“The ongoing deterioration in disposable household income has had an adverse effect on consumer goods companies, and consensus amongst analysts is that tough times lie ahead for SA’s food producers,” Clover said in its results.
“Clover’s early implementation of its strategic focus contributed to a stable performance, despite pressure on consumer spending,” it said.
Volumes grew, and “moderate improvements” in the sales prices of certain products were achieved.
But operating margins fell from 8.8% a year before to 7.8% because of the sugar tax.
“In addition, the sharp increase in fuel prices during the latter part of the 2018 calendar year made it difficult to contain distribution costs, which could not be passed on to the consumer.”
Clover said in February that it had received a R4.8bn takeover offer from a consortium led by Israel-based Central Bottling Company.
The deal has been opposed by several groups in SA, including the Food and Allied Workers Union (Fawu) and Palestinian solidarity organisation BDS SA.
BDS’s outrage prompted the consortium’s local partner Brimstone to review its participation in the transaction, which will culminate in Clover’s delisting from the JSE.
Clover had a market capitalisation of R4.4bn on Tuesday morning, according to Bloomberg data.
The company’s share price has risen 13.3% to R22.65 since the buyout offer was announced a month ago.
“Clover remains optimistic that ongoing delivery against its strategic focus will ensure that its operations are sustainable, despite the current stagnation in the economy, and that it will be well positioned to take advantage of an economic upswing,” the company said.