Wrap Text
Unaudited interim consolidated results
for the six months ended 31 December 2014
and cash dividend declaration
CLOVER INDUSTRIES LIMITED
Registration number: 2003/030429/06
Ordinary share code: CLR
ISIN: ZAE000152377
Unaudited interim condensed consolidated results
for the six months ended 31 December 2014
and cash dividend declaration
KEY FINANCIAL INDICATORS
- REVENUE
Increased by 7,9% to R4,7 billion
- HEPS
Increased by 41,3% to 109,2 cents
- OPERATING PROFIT
Increased by 36,8% to R321,7 million
- HEADLINE EARNINGS
Increased by 41,3% to R199,3 million
- EPS
Increased by 35,4% to 117,8 cents
- PROFIT FOR THE PERIOD
Increased by 28,5% to R210,5 million
- OPERATING MARGIN
Increased by 1,5% from 5,4% to 6,9%
- INTERIM DIVIDEND PER SHARE
Increased 41,3% to 22,6 cents
DIRECTORATE AND STATUTORY INFORMATION
Directors: Non-executive
WI Büchner (Chairman)
TA Wixley# (Lead Independent)
SF Booysen (Dr)#
JNS du Plessis#
NV Mokhesi#
B Ngonyama#
NA Smith
PR Griffin
# Independent
Directors: Executive
JH Vorster (Chief Executive)
LJ Botha (Chief Financial Officer)
CP Lerm (Dr)
COMPANY SECRETARY
J van Heerden
Ordinary share code:
CLR
ISIN:
ZAE000152377
Registered office:
200 Constantia Drive, Constantia Kloof, 1709
Postal address:
PO Box 6161, Weltevredenpark, 1715
Telephone:
(011) 471 1400
Registration number:
2003/030429/06
Tax number:
9657/002/71/4
Transfer secretary:
Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001
Auditors:
Ernst & Young Inc.
Bankers:
The Absa Group, First National Bank, Investec Bank
Sponsor:
Rand Merchant Bank
(a division of FirstRand Bank Limited)
COMMENTARY
OVERVIEW
In line with the six months ended
31 December 2013, Clover is pleased to report
significantly improved results for the six months
ended 31 December 2014.
The group successfully increased its selling prices
in June 2014 to recover significant cost increases
in raw milk and other costs during the prior
financial year. In addition, these increases
provided for expected inflationary cost increases
in the current financial year. As a result the
group's gross margins, which deteriorated
sharply during FY2014, were restored and for
the six months ended 31 December 2014 Clover
achieved a gross margin of 31,0% compared to
the 28,0% reported in the prior corresponding
period. The operating margin similarly increased
to 6,9% from 5,4%. Excluding the effect of raw
milk sold to Danone at cost, the operating
margin improved from 5,8% to 7,1%.
Industry selling prices remained firm throughout
the annual peak milk production period as
industry inventory levels were being restored
following the national shortage of raw milk
during the winter of 2014.
As expected, Clover's increased selling prices
and profitability resulted in volume and market
share losses in most product categories. In
addition the low inventory levels at the start
of the period, following the raw milk shortage
experienced during the winter of 2014, severely
constrained Clover's ability to supply the market
and mostly so in cheese and UHT milk. As a
result overall sales volumes declined by 3,2%
compared to the prior corresponding period.
Continued overall market contraction in the
Group's beverage categories is indicative of the
ongoing reduction in South African consumers'
discretionary spending. Product group sales
volume changes were as follows:
- Dairy fluids -3,6%
- Concentrated products -5,0%
- Ingredients +12,9%
- Non-alcoholic beverages -3,0%
During the period farm gate milk prices remained
high in relation to on-farm costs. This was mainly
as a result of the national shortage of raw milk
during the last quarter of the previous financial
year and volatility in the raw milk market in
anticipation of Clover's cessation of milk supply
to Danone on 31 December 2014.
The international oil price collapsed during the
last quarter of the review period which in turn
led to a delayed reduction in domestic fuel
prices albeit not to the same extent. Clover
benefitted from this cost reduction during the
latter part of the period under review although
not significantly. Volatile oil prices, currency
fluctuation and the industry's general challenges
in passing on constantly changing fuel prices
however argues against immediate price
reductions. Clover is however cognisant of the
plight of consumers and should the low oil price
persist it will positively impact on future selling
price adjustments.
FINANCIAL PERFORMANCE
Headline earnings improved by 41,3% to
R199,3 million for the six months ended
31 December 2014 on the back of much
improved gross and operating margins.
Headline earnings per share similarly
increased to 109,2 cents while diluted
headline earnings per share of 103,6 cents
were 41,5% higher than the previous period.
Revenue increased by 7,9% to R4 659,4 million
and operating profit was 36,8% higher at
R321,7 million. Headline operating profit increased
by 38,7% to R303,2 million.
Net finance costs were slightly higher
(R0,8 million) than the previous period.
The Group's income from its joint venture,
Clover Fonterra Ingredients, declined by
R5,9 million or 60,1% in the wake of plummeting
international dairy commodity prices and
strong competition.
The effective tax rate was 29,2% compared
to 24,6% during the comparative period.
As alluded to at the time, in terms of IFRS the
gain on the acquisition of the Nestlé water
business in the prior comparative period was
shown net after tax as part of other operating
income, which resulted in the projection of an
artificially low effective tax rate.
Profit for the period ended 28,5% higher at
R210,5 million.
Revenue
Revenue from the sale of products increased by
11,0% to R4 057,8 million on an overall volume
decline of 3,2%. Overall price inflation came to 14,2%.
Raw milk sales (at cost) declined by 42,7% to
R146,6 million as the supply of raw milk to
Danone was systematically phased out to end
on 31 December 2014.
Revenue from principals for services rendered
ended on R453,3 million or 12% higher than
the previous period. Annual tariff increases and
additional contract manufacturing income from
the Group's Bethlehem creamer factory mainly
accounted for this increase.
Cost of sales
Cost of sales increased by 3,5% (7,7% excluding
raw milk sold).
The aggressive selling price increases
necessitated increased cooperative advertising
and hence charges against sales increased by
R14 million or 21,9% to R77,8 million.
Raw material costs increased by 2,2%. If the raw
milk sales to Danone are excluded, raw material
costs increased by approximately 10,3% mainly as
a result of the 3,2% lower sales volumes and the
15% farm gate milk price increases early in 2014.
Although sales volumes were 3,2% lower during
the period, packaging costs increased by 10,3%
as a result of substantial cost increases during the
prior year.
Milk collection costs declined by 5% despite
annual inflationary cost increases, mostly as
a result of the phasing out of raw milk supply
to Danone.
The period started with very low inventory levels
following the raw milk shortage experienced
during the autumn and early winter of 2014.
As a result, factory throughput for the six
months to December 2014 was significantly
higher than usual in order to restore inventory
levels. Due to the predominantly fixed nature
of manufacturing costs and the excess capacity
available, unit manufacturing costs reduced
markedly. Together with the savings achieved
from the consolidation of the group's Parow
and Stikland factories, manufacturing costs
increased below inflation at 4,2% or R20,0 million
notwithstanding the additional costs to service
the additional creamer contract manufacturing
income included in services rendered revenue.
Primary distribution costs benefitted from the lower
fuel prices during the period and the overall volume
decline, resulting in a 0,5% or R1,2 million reduction
in primary distribution costs.
Other operating income
Other operating income declined by 12,2%
to R31,3 million due to lower foreign exchange
profits in Clover West Africa and Clover
Botswana. Included in other operating income
is a net capital gain of R18,5 million, mostly
resulting from a R24,4 million gain on the change
in ownership of the Group's leased head office
building, while the prior period included a capital
gain of R20,7 million on the acquisition of the
Nestlé water business.
Operating costs
The group invested R47,6 million or 43,9%
more in research, development, marketing
and advertising during the period that mostly
accounted for the higher than inflation increase
of 11,2% or R100,4 million in selling and
distribution expenses.
During the semester that ended on
31 December 2013, the Group did not
achieve the profit targets set by the Board and
accordingly no provision was raised for profit
based short-term incentives to staff. For the
current period the year-to-date profit targets
have been achieved and a provision for profit
based short-term incentives was raised which
is the primary reason for the 45,6% increase
in administrative costs. In addition, uninsured
damages at two factories of R8,5 million and
the reversal of R5,5 million of previously straight-
lined lease costs on the cancellation of a lease
during the prior period further contributed to the
above inflation increase in administration costs.
FINANCIAL POSITION AND CASH FLOW
Capital expenditure on tangible assets was
R234,5 million which net of the depreciation
charge accounted for a R156,5 million increase in
property, plant and equipment from June 2014.
Major projects included in the capital expenditure
were:
- Clayville chilled capacity expansion R66 million
- New Tetra Pak 125ml Prisma
filling line R19 million
Clover's dairy based inventory levels were
largely depleted at the end of June 2014 after
the milk shortage that it experienced during
the autumn and early winter of 2014. The peak
milk production season during the period under
review allowed Clover to restore its inventory
levels which combined with the normal
seasonal increase in stocks, increased inventory
by R416,0 million from June 2014.
Trade and other receivables were 19,7% higher
than at December 2013 following the average
selling price increases of 14,3% and a temporary
increase of the debtor days outstanding after
the implementation of a new ERP system during
the period under review.
Higher inventory levels, price inflation, much
increased deferred income and growth in the
sales of principals (which Clover collects on
behalf of some of its principals and hence
included under trade payables) all contributed
to the R308,1 million increase in trade and other
payables from December 2013.
The R386,3 million cash flows from operations
(42,2% higher than the prior period) funded the
increased investment in working capital during
the period of R380,1 million. Capital expenditure,
taxation and finance charges were funded partly
from cash resources and short-term interest-
bearing debt. Cash as a result reduced by
R208,4 million from June 2014 while short-term
interest-bearing debt increased by R138,4 million
for the same period.
Gearing at the end of the period was 41,3%
compared to 38,4% at December 2013 and 38,6%
at June 2014. The seasonal nature of the business
generally results in the December gearing level
being considerably higher than in June.
PROSPECTS
Relatively high farm gate milk prices have
resulted in a sharply increasing national milk
production during the six month review period,
peaking at 7% year-on-year growth for December
2014. Despite the strong growth in national milk
supply, current high farm gate milk prices are
expected to continue and will likely only reduce
after the winter of 2015, driven by competition
for raw milk.
The June 2014 selling price increases provided
for expected inflationary cost increases
throughout the current financial year. Some of
these cost increases are anticipated to occur in
the second semester of the financial year which
will lead to a reduction in margins. The growth
in raw milk production exceeds the domestic
market's growth for dairy products considerably.
Should the level of growth in national milk
production continue without alternative markets
being sourced, an increasing national oversupply
of raw milk is likely to progressively pressurise
market prices going forward – especially during
the spring and summer of 2015.
Although Clover's milk procurement system will
protect it from an oversupply of raw milk from its
own producers, the group will still be exposed to
potentially lower market prices.
The provision of distribution services to Danone
is currently being phased out and will cease
altogether towards the end of the 2014/15
financial year. The available capacity that this will
create in the Clover network allows significant
profit and synergy potential for Clover to exploit.
Services rendered revenue for the second
semester will therefore be lower than the first
semester, which will be partly offset by Clover's
new yoghurt and custard sales. The impact
in the next financial year will however largely
depend on Clover's ability to explore and act
on the opportunities created by the additional
space in its network.
South African consumers remain under pressure
although inflationary easing should provide
some relieve. The Danone exit and the worrying
national raw milk situation will in all likelihood see
a second semester with lower gross margins than
those achieved in the first six months but Clover
is confident of achieving solid full financial
year results.
The Company remains focused on fully
utilising its capacities and the asset base that
was heavily invested in during the last four years.
In addition it remains focused on delivering
on its longer term strategy of exploring new
possibilities in category expansions and in this
regard it expects to launch, in addition to its
yoghurt and custard products, a number of new
and exciting products in the short term. Clover
is also still fully intent on expanding its presence
in Africa and on consolidating the industry that it
operates in.
Any reference to future performance included
herein has not been reviewed and reported on by
the Company's auditors and does not constitute
an earnings forecast.
DIVIDEND DECLARATION
Notice is hereby given that the directors
have declared an interim gross cash dividend
of 22,60 cents (19,21 cents net of dividend
withholding tax) per ordinary share for the six
months ended 31 December 2014, payable in
South African Rand on Monday, 13 April 2015.
The dividend represents an 41,3% increase, in
line with the growth in headline earnings per
share, over the interim dividend of 16 cents
paid in April 2014. The board will apply its stated
dividend policy in determining a final dividend for
the 2014/2105 financial year.
The dividend has been declared from income
reserves.
A dividend withholding tax of 15% will be applicable
to all shareholders who are not exempt.
The issued ordinary share capital at the
declaration date is 182 478 589 ordinary shares.
The company's income tax number is
9657/002/71/4.
The salient dates will be as follows:
Last day to trade
"cum" the ordinary
share dividend Wednesday, 1 April 2015
Shares commence trading
"ex" the ordinary
share dividend Thursday, 2 April 2015
Record date on Friday, 10 April 2015
Payment date on Monday, 13 April 2015
Share certificates may not be dematerialised or
rematerialised between Thursday, 2 April 2015
and Friday, 10 April 2015, both days inclusive.
On behalf of the Board
WI Büchner JH Vorster
Chairman Chief Executive
16 March 2015
INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended For the six months ended For the year ended
31 December 2014 31 December 2013 30 June 2014
Unaudited Unaudited Audited
R'000 R'000 R'000
Sale of products 4 057 758 3 654 124 7 192 650
Rendering of services 453 275 404 837 822 040
Sale of raw milk 146 553 255 825 511 485
Rental income 1 790 2 429 4 062
Revenue 4 659 376 4 317 215 8 530 237
Cost of sales (3 217 051) (3 107 554) (6 291 191)
Gross profit 1 442 325 1 209 661 2 239 046
Other operating income 31 260 35 616 48 916
Selling and distribution costs (995 761) (895 322) (1 770 510)
Administrative expenses (138 723) (95 265) (195 567)
Restructuring expenses (589) (8 138) (16 036)
Other operating expenses (16 796) (11 435) (23 573)
Operating profit 321 716 235 117 282 276
Finance income 5 896 3 445 7 234
Finance cost (34 376) (31 148) (65 043)
Share of profit of a joint venture 3 893 9 768 14 306
Profit before tax 297 129 217 182 238 773
Taxes (86 621) (53 353) (49 791)
Profit for the period 210 508 163 829 188 982
Other comprehensive income
Exchange differences on translations of foreign operations 478 2 437 2 565
Total comprehensive income for the period, net of tax 210 986 166 266 191 547
Profit attributable to:
Equity holders of the parent 214 890 158 719 186 666
Non-controlling interests (4 382) 5 110 2 316
210 508 163 829 188 892
Total comprehensive income attributable to:
Equity holders of the parent 215 368 161 156 189 231
Non-controlling interests (4 382) 5 110 2 316
210 986 166 266 191 547
For the six months ended For the six months ended For the year ended
31 December 2014 31 December 2013 30 June 2014
Unaudited Unaudited Audited
R'000 R'000 R'000
Headline earnings calculation
Profit for the period attributable to equity holders of the parent company 214 890 158 719 186 666
Gross remeasurements excluded from headline earnings (18 542) (16 466) 2 516
(Profit)/Loss on sale and scrapping of property, plant and equipment 5 816 1 418 5 102
Gain on change of ownership of leased buildings (24 358) – –
Discount on acquisition of PPE by Clover Waters through issue of shares – (20 716) (20 716)
Non-controlling interest's portion in discount on acquisition off PPE by
Clover Waters through issue of shares – – 6 215
Impairment of plant and equipment – 2 832 11 915
Taxation effects of remeasurements 2 948 (1 190) (1 718)
Headline earnings attributable to shareholders of the parent company 199 296 141 063 187 464
Issued ordinary shares 182 478 589 182 478 589 182 478 589
Number of ordinary shares used in the calculation of:
Earnings per share
– weighted average 182 478 589 182 478 589 182 478 589
Diluted earnings per share
– weighted average 192 434 066 192 664 802 191 767 408
Earnings per share attributable to ordinary equity holders of the parent
Earnings per share (cents) 117,8 87,0 102,3
Diluted earnings per share (cents) 111,7 82,4 97,3
Headline earnings per share (cents) 109,2 77,3 102,7
Diluted headline earnings per share (cents) 103,6 73,2 97,8
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 31 December 30 June
2014 2013 2014
Unaudited Unaudited Audited
R'000 R'000 R'000
ASSETS
Non-current assets
Property, plant and equipment 1 974 652 1 790 726 1 818 113
Investment properties 28 2 031 1 380
Intangible assets 472 427 445 920 447 493
Share of investment in a joint venture 38 959 42 731 35 066
Deferred tax assets 8 631 4 021 8 919
2 494 697 2 285 429 2 310 971
Current assets
Inventories 983 938 808 003 567 892
Trade and other receivables 1 349 497 1 127 460 1 022 993
Prepayments 11 012 10 601 16 194
Income tax receivable 599 2 276 33 877
Other current financial assets 706 1 688 –
Cash and short-term deposits 445 984 399 576 653 889
2 791 736 2 349 604 2 294 845
Assets classified as held-for-sale 5 516 359 3 776
2 797 252 2 349 963 2 298 621
Total assets 5 291 949 4 635 392 4 609 592
As at 31 December 31 December 30 June
2014 2013 2014
Unaudited Unaudited Audited
R'000 R'000 R'000
EQUITY AND LIABILITIES
Equity
Issued capital 9 124 9 124 9 124
Share premium 734 414 734 414 734 414
Other reserves 286 475 268 157 277 643
Retained earnings 1 412 150 1 231 950 1 231 089
Equity attributable to equity holders of the parent 2 442 163 2 243 645 2 252 270
Non-controlling interests 13 811 23 264 20 471
Total equity 2 455 974 2 266 909 2 272 741
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 661 605 667 224 662 357
Provisions 64 947 73 399 67 615
Deferred tax liability 178 320 166 575 179 023
Trade and other payables 5 139 9 592 4 351
910 011 916 790 913 346
Current liabilities
Trade and other payables 1 544 269 1 236 189 1 186 674
Interest-bearing loans and borrowings 353 608 202 673 214 495
Other current financial liabilities 4 477 – 2 323
Provisions 23 610 12 831 20 013
1 925 964 1 451 693 1 423 505
Total liabilities 2 835 975 2 368 483 2 336 851
Total equity and liabilities 5 291 949 4 635 392 4 609 592
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended For the six months ended For the year ended
31 December 2014 31 December 2013 30 June 2014
Unaudited Unaudited Audited
R'000 R'000 R'000
Balance at 1 July 2 272 741 2 115 425 2 115 425
Profit for the period 210 508 163 829 188 982
Other comprehensive income 478 2 437 2 565
Total comprehensive income 210 986 166 266 191 547
Ordinary share issued – 21 214 21 214
Share-based payment reserve accrued 9 159 7 991 17 351
Share appreciation rights exercised (2 624) (20 314) (24 551)
Acquisition of non-controlling interest Note 2 (5 500) – –
Dividends of subsidiaries – non-controlling interest – (960) (961)
Non-controlling interest's share in Clover Waters – 16 806 16 807
Discount on acquisition of Clover Waters – – 4 218
Dividends (29 197) (40 145) (69 342)
Dividends forfeited 409 626 1 033
Balance at end of the period 2 455 974 2 266 909 2 272 741
Consists of:
Share capital and premium 743 538 743 538 743 538
Other capital reserves 286 475 268 157 277 643
Retained earnings 1 412 150 1 231 950 1 231 089
Shareholder equity 2 442 163 2 243 645 2 252 270
Non-controlling interest 13 811 23 264 20 471
Total equity 2 455 974 2 266 909 2 272 741
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended For the six months ended For the year ended
31 December 2014 31 December 2013 30 June 2014
Unaudited Unaudited Audited
R'000 R'000 R'000
Reclassified*
Operating activities
Profit before tax 297 129 217 182 238 773
Adjustment for non-cash items 89 130 54 487 179 885
Working capital adjustments (380 131) (222 297) 64 648
Income tax paid (53 518) (50 923) (80 239)
Net cash flows (used in)/from operating activities (47 390) (1 551) 403 067
Investing activities
Proceeds from sale of property, plant and equipment 6 485 46 1 166
Proceeds on change of ownership of leased buildings 24 358 – –
Interest received 5 897 3 445 7 234
Acquisition of Dairybelle UHT Milk Business (30 000) –
Government grant received recognised against property, plant and
equipment – – 32 106
Capital expenditure: Tangible and intangible assets (244 630) (270 084) (387 999)
Net other investing activities 7 591 6 313 (4 241)
Net cash flows used in investing activities (230 299) (260 280) (351 734)
Financing activities
Interest paid (34 374) (31 148) (65 043)
Dividends paid (29 197) (40 145) (69 342)
Acquisition of non-controlling interest in Lactolab Proprietary Limited (5 500) –
Dividends paid to non-controlling interest holders – (960) (961)
Net increase/(repayment) of borrowings 138 362 30 612 37 566
Net cash flows from/(used in) financing activities 69 291 (41 641) (97 780)
Net decrease in cash and cash equivalents (208 398) (303 472) (46 447)
Net foreign exchange difference 493 (1 511) (4 223)
Cash and cash equivalents at the beginning of the period 653 889 704 559 704 559
Cash and cash equivalents at the end of the period 445 984 399 576 653 889
* Share appreciation rights paid out of R10,4 million was previously classified under financing activities and is now classified under
operating activities. Net unrealised foreign exchange profits on cash balances of R1,5 million is now shown separately above the
opening balance of cash and cash equivalents at the beginning of the period. Previously foreign exchange losses of R1 million
and gains of R2,5 million were classified under operating and investing activities respectively. These reclassifications were already
taken into consideration in the preparation of 30 June 2014 audited annual results.
ACCOUNTING POLICIES AND NOTES
1. CORPORATE INFORMATION AND BASIS
OF PREPARATION
These interim condensed consolidated
financial statements have been prepared
in accordance with the framework
concepts and the measurement and
recognition requirements of International
Financial Reporting Standards (IFRS),
its interpretations issued by the IFRS
Interpretations Committee (IFRIC), the
SAICA Financial Reporting Guides as issued
by the Accounting Practices Committee
and Financial Pronouncements as issued
by the Financial Reporting Standards
Council, presentation and disclosure
as required by IAS 34 Interim Financial
Reporting, the JSE Listings Requirements
and the requirements of the Companies
Act of South Africa. The accounting policies
are consistent in all material respects with
those of the previous financial period,
except for:
– IFRS 10, IFRS 12 and IAS 27 Investment
Entities (Amendments)
– IAS 32 Offsetting Financial Assets
and Financial Liabilities — Amendments
to IAS 32
– IAS 36 Recoverable Amount Disclosures
for Non-Financial Assets — Amendments
to IAS 36
– IAS 39 Novation of Derivatives and
Continuation of Hedge Accounting —
Amendments to IAS 39
– IFRIC 21 Levies
These standards and amendments are effective
in the current period but are not expected to
impact the financial statements of the Group.
2. ACQUISITION OF NON-CONTROLLING
INTEREST'S SHARE OF LACTOLAB
PROPRIETARY LIMITED
During the period under review Clover
S.A acquired the remaining 48% of the
issued share capital of Lactolab for a cash
consideration of R5,5 million.
3. SEGMENT REPORTING
The Group's manufacturing, distribution, other assets and liabilities are totally integrated between the different product groups. The Chief Executive Officer
(the Chief Operating Decision Maker) is of the opinion that the operations for individual manufacturing, distribution and product groups are substantially
similar to one another and that the risks and returns are likewise similar. As a result thereof, the business of the Group is considered to be a single
segment, namely Clover Industries Limited ("CIL").
Group operations outside of South Africa are not material and therefore not disclosed separately.
The following information regarding the Group's product groups, for which no discrete financial information is available, are presented on a voluntary basis.
The Group comprises the following main product groups:
- The dairy fluids products is focused on providing the market with quality dairy fluid products.
- The dairy concentrated products consist of cheese, butter, condensed milk and retail milk powders.
- The ingredients products consist of bulk milk powders, bulk butter, bulk condensed milk, bulk creamers, calf feed substitutes, whey powder and buttermilk
powder.
- The non-alcoholic beverages products focus on the development and marketing of non-alcoholic, value-added branded beverages products.
- Other consists of Clover Industries Limited holding company and Lactolab Proprietary Limited that render laboratory services.
For the six months ended For the six months ended For the year ended
31 December 2014 31 December 2013 30 June 2014
Unaudited Unaudited Audited
R'000 R'000 R'000
External revenue from sale of products*
Dairy fluids 2 227 827 1 952 432 3 858 841
Dairy concentrated products 632 135 581 776 1 128 758
Ingredients 146 342 121 987 265 599
Non-alcoholic beverages 1 047 547 992 549 1 930 094
Other 3 907 5 380 9 358
4 057 758 3 654 124 7 192 650
Margin on material
Dairy fluids 897 660 769 383 1 439 256
Dairy concentrated products 205 961 172 730 319 659
Ingredients 45 663 31 219 68 878
Non-alcoholic beverages 553 577 525 085 973 475
Other 3 205 4 060 7 346
1 706 066 1 502 477 2 808 614
* External revenue excludes revenue from the sale of raw milk.
The Group operates mainly in the geographical area of South Africa. The revenue and assets of the operations outside South Africa are insignificant.
4. EARNINGS PER SHARE
The difference between earnings per share and diluted earnings per share is due to the impact of equity settled unexercised share appreciation rights.
5. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
During the six months under review the Group acquired property, plant and equipment to the value of R234,5 million and also acquired intangible assets
at a cost of R10,1 million.
Certain items of property, plant and equipment and investment property have been recognised as assets classified held-for-sale. It is those assets that are
expected to be disposed of within the next 12 months.
6. ACQUISITION OF THE DAIRYBELLE UHT MILK BUSINESS
As communicated in earlier SENS and cautionary announcements The Real Beverages Company Proprietary Limited ("Real Beverages") (a wholly-owned
subsidiary of the Company) has purchased from Dairybelle Proprietary Limited ("Seller") the Dairybelle UHT Milk Business effectively 1 December 2014.
According to the "UHT Sale of Business Agreement" Real Beverages has bought all of the consumables, raw materials, finished goods, equipment and material
contracts of the Seller in relation to the UHT Milk Business on the effective date. The location of the Dairybelle UHT milk production facilities in the
Western Cape will allow the Group to improve efficiencies through the more effective utilisation of its raw milk supply in the region.
The plant and machinery's fair values were determined by calculating the net replacement value of the plant and machinery. This was calculated by obtaining
gross replacement values for the plant and machinery and adjusting it to take into consideration the expected useful lives of the plant and machinery and its
current condition.
The discounted cash flow valuation of the intangible assets were based on the following inputs; estimated annual free cash flow of R937 000; free cash flow
growth per annum of between 11,3% – 13,5% and a discount rate of 17,5%.
The fair values allocated to the assets and liabilities are based on a provisional assessment of their fair values. According to IFRS 3.45, the Company is
allowed a measurement period, not exceeding one year, to retrospectively adjust the provisional amounts recognised at the acquisition date to reflect new
information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the
amounts recognised as of the effective date.
The fair value of the identifiable assets of the Dairybelle UHT business as at the date of acquisition was:
R'000
Assets
Property, plant and equipment 17 200
Intangible assets 3 949
Total identifiable net assets at fair value 21 149
Goodwill arising at acquisition 8 851
Total consideration, settled in cash 30 000
Goodwill arising on acquisition represents the value paid for the Dairybelle UHT business in excess of the fair value of its net assets at acquisition date.
Synergies are expected from the combination of operations, which include production, milk transport and distribution efficiencies.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial assets and liabilities approximate fair value due to either the short-term nature of these items, or the fact that they are
priced at variable interest rates.
8. EVENTS AFTER THE REPORTING PERIOD
As communicated in earlier SENS and cautionary announcements The Real Beverages Company Proprietary Limited ("Real Beverages") (a wholly-owned
subsidiary of the Company) has purchased from Dairybelle Proprietary Limited ("Seller") the Dairybelle Yoghurt Business effectively 1 January 2015.
According to the "Yoghurt Sale of Business Agreement" Real Beverages has bought all of the consumables, raw materials, finished goods, fixed assets
(property, plant and equipment), intellectual property (for example certain trademarks) and material contracts of the Seller in relation to the Yoghurt
Business on the effective date. The transaction is in line with the Group's stated strategy to expand its portfolio of value added and branded
consumer products. As announced in March 2014, the Group made the decision to enter the attractive high margin yoghurt and custard markets in 2015.
The acquisition of the assets comprising the Yoghurt Business will provide the Group with access to the yoghurt market, in which Dairybelle had a
meaningful presence.
The plant and machinery's fair values were determined by calculating the net replacement value of the plant and machinery. This was calculated by obtaining
gross replacement values for the plant and machinery and adjusting it to take into consideration the expected useful lives of the plant and machinery and its
current condition.
The discounted cash flow valuation of the intangible assets were based on the following inputs; estimated annual free cash flow of R7,1 million;
free cash flow growth per annum of 5% and a discount rate of 17%.
The fair values allocated to the assets and liabilities are based on a provisional assessment of their fair values. According to IFRS 3.45, the Company is
allowed a measurement period, not exceeding one year, to retrospectively adjust the provisional amounts recognised at the acquisition date to reflect new
information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the
amounts recognised as of the effective date.
The preliminary fair value of the identifiable assets and liabilities of Dairybelle Yoghurt Business as at the date of acquisition was:
R'000
Tangible and intangible assets acquired 43 100
Liabilities (7 476)
Total identifiable net assets at fair value 35 624
Intangible assets arising on acquisitions 71 507
Purchase consideration transferred 107 131
Total consideration, settled in cash 107 131
Apart from the above, no significant events occurred subsequent to the end of the period.
9. GOING CONCERN
The Directors are satisfied that the Group is a going concern and has therefore continued to adopt the going-concern basis in preparing the interim
condensed consolidated financial statements.
10. PREPARATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED RESULTS
The interim condensed financial statements set out above were prepared under the supervision of Louis Jacques Botha, CA(SA), in his capacity as
Chief Financial Officer of the Group.
11. INDEPENDENT AUDIT BY AUDITORS
The interim condensed financial statements have not been audited or reviewed by the Group's independent auditors.
Date: 17/03/2015 07:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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