Sugar tax didn't sweeten the deal for Clover

The sugar tax may be aimed at reducing consumption, but it ate its way into Clover's profits, the group said on Tuesday.

The health promotion levy contributed approximately R42.3m (1.6%) to the increase in cost of sales, the food and beverages group said, announcing its unaudited results for the six months ended December 31, 2018.

At 10:16am on Tuesday, Clover [JSE:CLR] shares were changing hands at R22.46 on the JSE, down 0.84%.

Operating profits decreased 7.3% to R343.5m.

However, revenue increased 4.1% to R4.39bn.

Headline earnings were up 5.1% to R235.9m, with the group declaring an interim dividend per share of 27.89 cents – up 5%.

Clover saw its share price increase dramatically last month after consortium of companies made an offer to buy it out for R4.8bn. The deal drew criticism from some pro-Palestinian quarters due to its Israeli affiliation, but the company defended the buyout, saying it was in line with President Cyril Ramaphosa's goal to drive investment to the country.

Clover chair Werner Buchner said on Tuesday that ongoing deterioration in disposable household income had been tough on consumer goods companies, and that tough times lay ahead for SA's food producers.

Higher taxes and record fuel prices also took their toll on buying power, he added.

"New product launches and product reformulations that resulted in lower ingredient and sugar costs, continue to yield encouraging results," he said.

Consumer spending is expected to remain under pressure, with continued strict credit conditions and persistently high unemployment, Buchner believes.

The financial health of SOEs and the uncertainty of upcoming elections may have an influence on consumer confidence, he added, though an improved outlook on inflation – if supported by a stronger rand – may provide some relief to consumers, with private consumption expanding as wages increase moderately and food prices stabilise.

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