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CLOVER INDUSTRIES LIMITED - Summarised audited consolidated financial statements for the year ended 30 June 2016 and cash dividend declaration

Release Date: 13/09/2016 07:05
Code(s): CLR     PDF:  
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Summarised audited consolidated financial statements for the year ended 30 June 2016 and cash dividend declaration

Clover Industries Limited  
(Incorporated in the Republic of South Africa)
Registration number: 2003/030429/06
Tax�number: 9657/002/71/4
JSE Ordinary Share code: CLR
NSX Ordinary Share code: CLN
ISIN No: ZAE000152377
("Clover" or "the Company" or "the Group")

SUMMARISED AUDITED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 30 June 2016
and cash dividend declaration

KEY FINANCIAL INDICATORS 

6.0% 
REVENUE
Increased to R9.8 BILLION

8.9%
HEPS
Increased to 188.9 CENTS

10.9%
OPERATING PROFIT
Increased to R564.5 MILLION

11.7%
HEADLINE EARNINGS
Increased to R356.6 MILLION

1.8%
PROFIT FOR THE YEAR
Increased to R351.9 MILLION

5.7%
OPERATING MARGIN
Increased from 5.5%

16.3%
TOTAL DIVIDEND PER 
SHARE FOR THE YEAR
Increased to 65.15 CENTS

DIRECTORATE AND STATUTORY INFORMATION

DIRECTORS: NON-EXECUTIVE
WI B�chner (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)(Resigned 2 January 2016)
ER Bosch (Chief Financial Officer)(Appointed 2 January 2016)
CP Lerm (Dr) (Retired 30 June 2016)

COMPANY SECRETARY
J van Heerden

JSE Ordinary share code: CLR

ISIN: ZAE000152377

NSX Ordinary share code: CLN

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 Sponsors: Rand Merchant Bank (a division of
FirstRand Bank Limited) (JSE), IJG Securities (NSX)

Released on 13 September 2016

COMMENTARY

OPERATIONAL REVIEW
In the 2014/15 financial year, Clover reported record earnings in its 118-year history. 
Although we are very proud of that performance, it set an exceptional benchmark against 
which we had to achieve this year. We are therefore all the more pleased to report continued 
strong growth across most performance measures.

Headline earnings per share increased by 8,9% or 15,3 cents to 188,9 cents per share whilst 
earnings per share was down 2,4% to 185,9 cents (2015: 190,4 cents).

Revenue improved by 6% or R552,5 million to R9 818,7 million. The cessation of raw milk
supply to Danone southern Africa (at cost with no contribution to profit) at 31 December�2014,
however, masks the real revenue growth of 7,5%. Raw milk sales declined by 85,1% to
R22,8�million as the supply of raw milk to Danone was systematically phased out.

Sale of products increased by 10,0% to R9 102,5 million within overall volume expansion of 9,7%.
Clover's volume and mix changes were primarily due to the strong growth in national raw milk
supply of 8,1% during the 2014/15 financial year.

Cost of sales increased 8,4% or R543,4 million, in contrast to the 6% or R552,5 million growth
in revenue. As a result, gross profit percentage decreased from 30% to 28,4% and gross
profit increased by 0,3% or R9,1�million. When excluding the effect of raw milk sales, revenue
increased by 7,5% compared to a 10,6% increase in cost of sales, resulting in a decrease in the
gross margin from 30,5% to 28,5%.

Clover faced numerous economic headwinds for the year ended 30 June 2016. Clover stated
in its December results that the strong 8.1% growth in national raw milk supply during our
2014/15 financial year lowered dairy product market prices throughout the peak milk season in
2015/16.

Higher national milk flow increased our inventory levels substantially in the first six months of
the year, and Clover did not increase dairy selling prices until April 2016 to protect market
shares in the dairy categories. Clover's brands traded in line with expectations, buoyed by solid
festive season demand for our beverages. As we had increased beverage portfolio selling prices
in July 2015, the increased volumes of the 2015/16 summer delivered an exceptional
performance for our beverage brands.

The weakening foreign exchange rate throughout the period pushed up cost inflation, which
forced Clover to raise selling prices on all product categories in April 2016.

On average, the rand weakened against the euro and dollar when compared to the prior year
which increased plastic packaging material. The Group also experienced sharp increases in 
ingredients costs. 

Management embarked on a radical cost efficiency drive to mitigate the impact of higher than
expected inflationary cost increases across Clover's value chain. Farm gate milk prices were
reduced in August 2015 as the national milk intake was still 7,2% higher than the previous year which
yielded unprecedented growth.

A prolonged drought primarily in the Highveld and Kwazulu-Natal increased feed prices due
to maize shortages and the scarcity of good quality roughage. Due to the resulting lower milk
prices and higher feed costs, raw milk production eased and Clover was compelled
to pass price increases on to producers to protect the primary industry. At the time of writing
this report the availability and cost of feed still impacts the producers and there is a current
challenge to supply the forecasted market with milk, however the milk flow during this spring
and summer will determine market conditions for next winter.

INVESTMENT AND FUNDING
Clover stated in its interim results that the strong 8,1% growth in national raw milk supply during
our 2014/15 financial year led to a 20% increase in inventory in December 2015. The effects of a
prolonged drought primarily in the Highveld and Kwazulu-Natal then caused a sharp decrease in
milk supply from early 2016. Lower selling prices, increased volumes, and a diminished milk flow
resulted in inventory levels decreasing by 2,5% or R23,2 million in comparison to the previous
reporting period.

Trade receivable days outstanding and bad debts remained at minimal levels when compared to
the combined sales of Clover and those principals for which we provide credit management.

Cash generated from operations, before working capital changes, totalled R709,7 million
compared to R566,7�million reported in the prior year. In this year, working capital absorbed
just R36,2 million of cash compared to the R406,5 million of the prior year. Due to lower farm gate milk
prices and higher feed costs, milk production slowed from the exceptionally high levels of
the preceding 18 months, which considerably eased the need for investment in inventory.
The increases recorded in trade and other receivables was in line with Clover's growth in
invoiced�revenue.

Since listing in 2010, Clover has invested heavily in acquisitions and rejuvenating our factories
and distribution assets for continual and sustainable growth. This level of investment was needed
to maintain Clover's outstanding reputation for quality products. Our brand reputation is underpinned 
by Clover's chilled distribution network, which is universally regarded as South Africa's finest. 
This invaluable asset also required a significant investment to maintain its hard earned reputation.

Investment activities consumed R332,6 million in cash compared to R556,8 million in the
previous year, following the acquisitions of the Dairybelle yoghurt and UHT businesses and the
Nkunzi MilkyWay business. Clover also spent R101,4 million less capital on tangible assets.

Group gearing decreased from 48,6% to 44,1% at 30 June 2016. The decreased gearing was
primarily as a result of retained earnings and enhanced sales. Clover's gearing is well within
our ability to service interest and repayments, while we have the reserve capacity to extend its
gearing if necessary to fund additional growth opportunities.

PROSPECTS
Much of the world � including South Africa � has entered into such a precarious era and
attempting to make any kind of prediction can be foolhardy. Consumers remain under pressure and discretionary 
spend will further be affected by rising inflation and resultant interest rate increases. The recent currency volatility 
and foreign exchange liquidity may also mute potential growth prospects.

A key determining factor for the industry�s success would be the rainfall (La Ni�a) and resultant milk flow 
in the upcoming spring, hopefully bringing down food and beverage input costs and food price inflation.

The industry has been subject to evolving and increasing legislation, and the impact of the recently proposed 
sugar tax may have far reaching consequences.

Clover will continue to explore local consolidation opportunities to leverage its existing value chain, and continues 
to invest in new products to grow a portfolio that is not exposed to dairy price fluctuations, either acquisitively or 
organically. The Company remains focussed on fully utilising its capacities and the asset base that was heavily invested in during 
the last five years.

Clover's redesigned strategy since listing and management�s ability to rapidly adapt to market changes will enable the 
Company to employ numerous levers to mitigate the major effects of cyclicality in the business.

DIVIDEND DECLARATION
Notice is hereby given that the directors have declared a final gross cash dividend of
R77,9 million or 40,94000 cents (34,79900 cents net of dividend withholding tax) per ordinary
share for the year ended 30�June 2016 bringing the total dividend per ordinary share for the year to 
65,15 cents (2015: 56,0 cents).

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 Company income tax number is 9657/002/71/4.

The issued share capital at the declaration date is 190 314 350 ordinary shares. The salient dates
will be as follows:
Last day to trade to receive a dividend                                Tuesday, 11 October 2016
Shares commence trading "ex" dividend                                Wednesday, 12 October 2016
Record date                                                             Friday, 14 October 2016
Payment date                                                            Monday, 17 October 2016

Share certificates may not be dematerialised or rematerialised between Wednesday, 12 October
2016 and Friday, 14 October 2016, both days inclusive.

On behalf of the Board

WI B�chner            JH Vorster
Chairman              Chief Executive

12 September 2016

SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended
                                                                                                     30 June       30 June   
                                                                                                        2016          2015   
                                                                                                       R'000         R'000   
Sales of products                                                                                  9 102 469     8 272 084   
Rendering of services                                                                                684 496       838 112   
Sale of raw milk                                                                                      22 769       152 822   
Rental income                                                                                          8 983         3 233   
Revenue                                                                                            9 818 717     9 266 251   
Cost of sales                                                                                    (7 025 497)   (6 482 147)   
Gross profit                                                                                       2 793 220     2 784 104   
Other operating income                                                                                73 688        58 039   
Selling and distribution costs                                                                   (1 944 333)   (1 996 467)   
Administrative expenses                                                                            (300 461)     (309 041)   
Restructuring expenses                                                                               (8 493)       (8 472)   
Other operating expenses                                                                            (49 171)      (19 091)   
Operating profit                                                                                     564 450       509 072   
Finance income                                                                                        10 139         9 041   
Finance cost                                                                                       (122 964)      (83 105)   
Share of profit in joint ventures after tax                                                           14 268        10 939   
Profit before tax                                                                                    465 893       445 947   
Taxes                                                                                              (113 992)     (100 286)   
Profit for the year                                                                                  351 901       345 661   
Other comprehensive income to be reclassified to profit or loss in subsequent periods                      �             �   
Exchange differences on translations of foreign operations, net of tax                                26 461         3 268   
Exchange differences on translations of foreign operations                                           (1 905)         3 268   
Reclassified to profit or loss                                                                        28 366             �   
Income tax effect                                                                                          �             �   
Net gain on cashflow hedges, net of tax                                                                2 412             �   
Cash flow hedge fair value adjustment                                                               (22 500)             �   
Reclassified to profit or loss                                                                        25 850             �   
Income tax effect                                                                                      (938)             �   
Net other comprehensive income to be reclassified to profit or loss in subsequent periods             28 873         3 268   
Total comprehensive income for the year, net of tax                                                  380 774       348 929   
Profit attributable to:                                                                                    �             �   
Equity holders of the parent                                                                         350 906       350 345   
Non-controlling interests                                                                                995       (4 684)   
�                                                                                                    351 901       345 661   
Total comprehensive income attributed to:                                                                  �             �   
Equity holders of the parent                                                                         379 779       353 613   
Non-controlling interests                                                                                995       (4 684)   
�                                                                                                    380 774       348 929   
Earnings per share (cents)                                                                                 �             �   
Basic profit for the year attributable to ordinary equity holders of the parent                        185.9         190,4   
Diluted profit for the year attributable to ordinary equity holders of the parent                      181.8         182,0   

HEADLINE EARNINGS AND HEADLINE EARNINGS PER SHARE
For the year ended
                                                                                                     30 June       30 June   
                                                                                                        2016          2015   
                                                                                                       R'000         R'000   
Headline earnings calculation                                                                                                
Profit for the period attributable to equity holders of the parent company                           350 906       350 345   
Gross remeasurements excluded from headline earnings                                                   5 776      (38 950)   
Profit on sale and scrapping of property, plant and equipment and gains on other assets             (20 869)      (38 950)   
Bargain purchase at acquisition (Clover Good Hope)                                                   (1 721)             �   
Release of foreign currency translation reserve in abandonment of foreign operation                   28 366             �   
Taxation effects of remeasurements                                                                      (87)         7 948   
Headline earnings attributable to shareholders of the parent company                                 356 595       319 343   
Issued ordinary shares                                                                           190 314 350   187 731 138   
Number of ordinary shares used in the calculation of:                                                                        
Earnings per share                                                                                                           
�  weighted average                                                                              188 733 409   183 989 596   
Diluted earnings per share                                                                                                   
�  weighted average                                                                              193 021 978   192 466 775   
Earnings per share attributable to ordinary equity holders of the parent                                                     
Earnings per share (cents)                                                                             185,9         190,4   
Diluted earnings per share (cents)                                                                     181,8         182,0   
Headline earnings per share (cents)                                                                    188,9         173,6   
Diluted headline earnings per share (cents)                                                            184,7         165,9   

SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at
                                                                                                       30 June     30 June   
                                                                                                          2016        2015   
                                                                                                         R'000       R'000   
Assets                                                                                                                       
Non-current assets                                                                                                           
Property, plant and equipment                                                                        2 323 216   2 153 451   
Investment properties                                                                                       15          23   
Intangible assets                                                                                      612 191     567 557   
Investment in joint ventures                                                                            31 651      31 625   
Other non-current financial assets                                                                       5 657           �   
Deferred tax assets                                                                                     37 019      32 696   
                                                                                                     3 009 749   2 785 352   
Current assets                                                                                                               
Inventories                                                                                            916 909     940 181   
Trade and other receivables                                                                          1 308 223   1 215 579   
Prepayments                                                                                             16 184      17 530   
Income tax receivable                                                                                        �      40 330   
Cash and short-term deposits                                                                           604 071     475 436   
                                                                                                     2 845 387   2 689 056   
Assets classified as held-for-sale                                                                      10 907         429   
Total assets                                                                                         5 866 043   5 474 837   

                                                                                                       30 June     30 June   
                                                                                                          2016        2015   
                                                                                                         R'000       R'000   
EQUITY AND LIABILITIES                                                                                                       
Equity                                                                                                                       
Issued share capital                                                                                     9 516       9 387   
Share premium Other                                                                                    882 774     838 363   
Other capital reserves                                                                                  74 873      72 880   
Foreign currency translation reserve                                                                    24 147     (2 314)   
Cash flow hedge reserve                                                                                  2 412           �   
Retained earnings                                                                                    1 871 690   1 653 022   
Equity attributable to equity holders of the parent                                                  2 865 412   2 571 338   
Non-controlling interests                                                                               23 305      13 510   
Total equity                                                                                         2 888 717   2 584 848   
Liabilities                                                                                                                  
Non-current liabilities                                                                                                      
Interest-bearing loans and borrowings                                                                  931 455     681 601   
Employee-related obligations                                                                            73 474      74 901   
Deferred tax liability                                                                                 192 358     188 253   
Trade and other payables                                                                                19 311      21 459   
Other non-current financial liabilities                                                                  2 199       2 716   
                                                                                                     1 218 797     968 930   
Current liabilities                                                                                                          
Trade and other payables                                                                             1 363 332   1 330 385   
Interest-bearing loans and borrowings                                                                  343 015     573 576   
Other current financial liabilities                                                                     25 612       2 670   
Income tax payable                                                                                       9 893           �   
Employee-related obligations                                                                            16 677      14 428   
                                                                                                     1 758 529   1 921 059   
Total liabilities                                                                                    2 977 326   2 889 989   
Total equity and liabilities                                                                         5 866 043   5 474 837   

SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended

                                                                                                       30 June     30 June   
                                                                                                          2016        2015   
                                                                                                         R'000       R'000   
Balance at 1 July                                                                                    2 584 848   2 272 741   
Profit for the year                                                                                    351 901     345 661   
Other comprehensive income                                                                              28 873       3 268   
Total comprehensive income                                                                             380 774     348 929   
Share-based payment expense recognised                                                                  12 697      18 080   
Share appreciation rights exercised, net of tax                                                       (35 347)    (82 600)   
Ordinary shares issued                                                                                  44 540     104 212   
Initial recognition of call options                                                                      1 005           �   
Non-controlling interest arising from business combination                                               8 800           �   
Acquisition of non-controlling interest in Lactolab (Pty) Ltd.                                               �     (5 500)   
Dividends                                                                                            (108 755)    (71 624)   
Dividends forfeited                                                                                        155         610   
Balance at end of the year                                                                           2 888 717   2 584 848   
Consists of:                                                                                                                 
Share capital and premium                                                                              892 290     847 750   
Other capital reserves                                                                                  74 873      72 880   
Foreign currency translation reserve                                                                    24 147     (2 314)   
Cash flow hedge reserve                                                                                  2 412           �   
Retained earnings                                                                                    1 871 690   1 653 022   
Shareholder equity                                                                                   2 865 412   2 571 338   
Non-controlling interest                                                                                23 305      13 510   
Total equity                                                                                         2 888 717   2 584 848   

SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended

                                                                                                       30 June     30 June   
                                                                                                          2016        2015   
                                                                                                         R'000       R'000   
OPERATING ACTIVITIES                                                                                                         
Profit before tax                                                                                      465 893     445 947   
Adjustment for non-cash and seperately disclosed items                                                 300 723     227 031   
Working capital adjustments                                                                           (36 230)   (406 539)   
Income tax paid                                                                                       (56 938)   (106 254)   
Net cash flow from operating activities                                                                673 448     160 185   
INVESTING ACTIVITIES                                                                                                         
Proceeds from sale of property, plant and equipment and other assets                                    45 533      61 684   
Interest received                                                                                       10 139       9 041   
Acquisition of controlling interest in Clover Good Hope Proprietary Limited                            (2 550)           �   
Acquisition of controlling interest in Clover Frankies Proprietary Limited                             (6 610)           �   
Acquisition of Dairybelle UHT Milk business                                                                  �    (30 000)   
Acquisition of Dairybelle Yoghurt business                                                                   �   (107 131)   
Acquisition of Clover Milkyway business                                                                      �    (48 684)   
Government grant received recognised against property, plant and equipment and expenses                 16 097      38 055   
Capital expenditure: Tangible and intangible assets                                                  (423 071)   (489 753)   
Realised foreign exchange gain                                                                          27 833       9 966  
Net cash flows used in investing activities                                                          (332 629)   (556 822)   
FINANCING ACTIVITIES                                                                                                         
Interest paid                                                                                        (122 964)    (83 105)   
Dividends paid                                                                                       (108 755)    (71 624)   
Non-controlling interest acquired in Lactolab (Pty) Ltd                                                      �     (5 500)   
Repayment of borrowings                                                                              (254 646)     (9 646)
Proceeds from borrowings                                                                               273 939     387 972
Net cash flows from/(used in) financing activities                                                   (212 426)     218 097   
Net increase/(decrease) in cash and cash equivalents                                                   128 393   (178 540)   
Net foreign exchange differences                                                                           242          87   
Cash and cash equivalents at the beginning of the year                                                 475 436     653 889   
Cash and cash equivalents at the end of the year                                                       604 071     475 436   

ACCOUNTING POLICIES AND NOTES

1.  CORPORATE INFORMATION AND BASIS OF PREPARATION

    These summarised 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, 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 annual financial statements. No new and amended IFRS and IFRIC
    interpretations were adopted by the Group during the year.

2.  SEGMENT REPORTING

    The following information regarding the Group's product groups, for which no discrete financial information is available, are presented on voluntary basis.

    The Group comprises the following main product groups:

    -  dairy fluids product group is focused on providing the market with quality dairy fluid products and other dairy fluid replacement 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 product group focuses on the development and marketing of non-alcoholic, value-added branded beverages;
    -  the fermented products and desserts consist of yoghurt, maas and desserts. 
    -  other consists of Clover's holding company and Lactolab Proprietary Limited that renders laboratory services.

    For the year ended                                                                                  30 June     30 June
                                                                                                           2016        2015
                                                                                                          R'000       R'000
    External revenue from sale of products*
    Dairy fluids                                                                                      4 427 051   4 396 169
    Dairy concentrated products                                                                       1 355 240   1 259 208
    Ingredients                                                                                         266 909     274 860
    Non-alcoholic beverages                                                                           2 367 158   2 065 101
    Fermented products and desserts                                                                     679 481     269 782
    Other                                                                                                 6 630       6 964
                                                                                                      9 102 469   8 272 084
    Margin on material
    Dairy fluids                                                                                      1 795 746   1 738 282
    Dairy concentrated products                                                                         400 652     403 070
    Ingredients                                                                                          40 146      88 480
    Non-alcoholic beverages                                                                           1 314 252   1 099 622
    Fermented products and desserts                                                                     195 877      68 296
    Other                                                                                                 4 754       5 332
                                                                                                      3 751 427   3 403 082
    * External revenue excludes revenue from the sale of raw milk.
    
    Assets, liabilities and overheads are managed on a Group basis and are therefore not allocated to the product groups.
    
    The Group operates mainly in the geographical area of South Africa. The revenue and assets of the operations outside South Africa are insignificant.

3.  EARNINGS PER SHARE

    The difference between earnings per share and diluted earnings per share is due to the impact of unexercised share appreciation rights.

4.  PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

    During the year under review the Group acquired property, plant and equipment to the value of R366,7 million and also acquired intangible assets at a cost of R56,4 million.

5.  SHARE CAPITAL AND SHARE PREMIUM

    The share premium account increased by R44,4 million from the prior financial year after the settlement of vested executive management share appreciation rights by the issue of new
    ordinary�shares.

6.  BUSINESS COMBINATIONS AND ACQUISITION OF NON-CONTROLLING INTEREST

    6.1 Acquisition of interest in Clover Good Hope Proprietary Limited

        Clover entered into an agreement with Good Hope International Beverages (SA) Proprietary Limited ("Seller") to form a new entity, Clover Good Hope Proprietary Limited ("Clover Good
        Hope") that acquired the Good Hope soy and non-alcoholic beverages business, effective 1 May 2016. According to the "Sale of Business Agreement" Clover Good Hope has bought all of the
        intellectual property of the Seller in relation to the Good Hope business on the effective date. Clover effectively holds 51% of the shares in Clover Good Hope and Good Hope International
        Beverages (SA) Proprietary Limited holds the remaining 49%.

        The Group has elected to measure the non-controlling interest in Clover Good Hope Proprietary Limited at residual value on initial recognition.

        The discounted cash flow valuation of the intangible assets were based on the following inputs; estimated annual free cash flow of R4,3 million; free cash flow growth per annum of between
        16% to 19% and a discount rate of 18%.

        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 and liabilities goodwill and non-controlling interest of the Good Hope business as at the date of acquisition were:
                                                                                                                     
                                                                                                                      R'000
        Assets
        Intangible assets                                                                                             7 391
                                                                                                                      7 391
        Liabilities
        Deferred tax liability                                                                                        (669)
        Total identifiable net assets at fair value                                                                   6 722
        Bargain purchase arising on acquisition                                                                     (1 722)
        Total value of Good Hope business                                                                             5 000
        Non-controlling interest measured at residual value                                                           2 450
        Purchase consideration settled in cash                                                                        2 550

        The business contributed R16,2 million of revenue and R5,8 million of margin on material to the Group results since acquisition. These amounts would have been R97,2 million and R34,8 million
        respectively if annualised for the full period. The bargain purchase originated since there was an incentive for the seller to sell a portion of its shareholding at a competitive 
        price (holding a non-controlling interest in the newly formed entity of 49%) to enable the business to benefit from the Clover distribution network for future growth and improved profitability.�

    6.2 Acquisition of interest in Clover Frankies Proprietary Limited

        Clover entered into an agreement with Frankies Olde Soft Drinks cc ("Seller") to form a new entity, Clover Frankies Proprietary Limited ("Clover Frankies") that acquired the Frankies business,
        effective 1 November 2015. According to the "Sale of Business Agreement" Clover Frankies has bought all of the consumables, raw materials, finished goods, equipment and material contracts of
        the Seller in relation to the Frankies business on the effective date. Clover effectively holds 51% of the shares in Clover Frankies and Frankies Olde Soft Drinks cc holds the remaining 49%.

        The Group has elected to measure the non-controlling interest in Clover Frankies Proprietary Limited at residual value on initial recognition.

        The discounted cash flow valuation of the intangible assets were based on the following inputs; estimated annual free cash flow of R1,2 million; free cash flow growth per annum of between
        11% to 16% and a discount rate of 18,2%.

        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 values of the identifiable assets, liabilities, goodwill and non-controlling interest of the Frankies business as at the date of acquisition were:
        
                                                                                                                      R'000   
        Assets                                                                                                                
        Equipment                                                                                                       463   
        Intangible assets                                                                                             6 636   
        Inventory                                                                                                       997   
                                                                                                                      8 096   
        Liabilities                                                                                                           
        Deferred tax liability                                                                                        (676)   
        Total identifiable net assets at fair value                                                                   7 420   
        Goodwill arising on acquisition                                                                               5 540   
        Total value of Frankies business                                                                             12 960   
        Non-controlling interest valued at residual value                                                             6 350   
        Purchase consideration settled in cash                                                                        6 610   
        
        Goodwill arising on acquisition represents the value paid for the Frankies business in excess of the fair value of its net assets at acquisition date. Synergies are expected from the combination of
        operations and Clover's extended distribution network.
        
        The business contributed R20,6 million of revenue and R12,4 million of margin on material to the Group results since acquisition. These amounts would have been R30,9 million and
        R18,6�million respectively if annualised for the full period.


7.  FAIR VALUE OF FINANCIAL INSTRUMENTS

    For financial instruments traded in an active market (Level 1), fair value is determined using stock exchange quoted prices. For other financial instruments (Level 2), appropriate valuation techniques, 
    including recent market transaction and other valuation models, have been applied and significant inputs include market yield curves and exchange rates. For non-current assets (level 3) fair value has been 
    determined based on the sale agreements. There is no difference between the fair value and carrying value of financial assets and liabilities not presented below due to either the short-term nature of these 
    items, or the fact that they are priced at variable interest rates. Long-term fixed-rate and variable-rate borrowings are evaluated by the Group based on parameters such as interest rates and repayment periods 
    as at year-end, the carrying amounts of the borrowings are not materially different from the calculated fair value.
    
                                                                               30 June 2016     Level 1   Level 2   Level 3   
    Assets measured at fair value                                                   (R'000)     (R'000)   (R'000)   (R'000)   
    Derivatives not designated as hedging instruments:                                                                        
    Call option to acquire remaining shares in Clover Frankies (Pty) Ltd              3 297                           3 297   
    Call option to acquire remaining shares in Clover Good Hope (Pty) Ltd               560                             560   
    Investment in cell captive                                                        1 800                 1 800             
    Liabilities measured at fair value                                                                                        
    Derivatives not designated as hedging instruments:                                                                        
    Foreign exchange contracts                                                           86                    86             
    Clover Industries shares forward purchases                                        5 225                 5 225             
    Derivatives designated as hedging instruments:                                                                            
    Diesel hedge                                                                     22 500                22 500    
             
                                                                               30 June 2015     Level 1   Level 2   Level 3   
    Liabilities measured at fair value                                              (R'000)     (R'000)   (R'000)   (R'000)   
    Derivatives not designated as hedging instruments:                                                                        
    Diesel forward purchase                                                           1 761                 1 761             
    Clover Industries shares forward purchases                                        3 625                 3 625    


    There were no transfers of financial instruments between Level 1, Level 2 and Level 3 fair value measurements during the year ended June 2016.

    Reconciliation of fair value measurement of level 3 financial assets

                                                                              30 June 2016           30 June 2015
    Call option to acquire remaining shares in Clover Frankies (Pty) Ltd           (R'000)                (R'000)
    Initial recognition through OCI                                                    445
    Remeasurement recognised through statement of profit or loss                     2 852
    Balance at the end of the year                                                   3 297                     -
 
    Call option to acquire remaining shares in Clover Good Hope (Pty) Ltd
    Initial recognition through OCI                                                    560
    Remeasurement recognised through statement of profit or loss                         -
    Balance at the end of the year                                                     560
         
    There were no transfers between Level 1 and Level 2 fair value measurements during the year ended 30 June 2016 and no transfers into or out of Level 3.
    
    Call option to acquire remaining shares in Clover Frankies
    Frankies granted Clover the irrevocable right to purchase Frankies' 49% of the issued share capital in Clover Frankies ("Call shares"). The call option may be exercised by Clover any time after
    30�June�2019. The purchase price of the call shares will be determined by why of an earnings before interest tax depreciation and amortisation (EBITDA) multiple formula.
    
    Call option to acquire remaining shares in Clover Good Hope
    Good Hope granted Clover the irrevocable right to purchase Good Hope's 49% of the issued share capital in Clover Good Hope ("Call shares"). The call option may be exercised by Clover
    within three months after each 12 month period from the fifth anniversary of the effective date. The purchase price of the call shares will be determined by why of an earnings before interest tax
    depreciation and amortisation (EBITDA) multiple formula.

    Foreign exchange contracts
    Foreign exchange contracts through profit or loss are those foreign exchange forward contracts that are not designated in hedge relationship as they are intended to reduce the level of foreign
    currency risk for expected sales and purchases.

    Clover Industries shares forward purchase
    The Group had entered into a forward contract to purchase 2 132 695 Clover Industries shares, this transaction was entered into to hedge a portion of the share appreciation rights issued
    to�management.

    The fair value of the shares forward purchases was determined by Investec Bank Limited. The fair value was determined by calculation the future settlement price after the following inputs were
    taken into consideration, a dividend of 3,11% (2015: 2,16%), a credit spread of 2,75% (2015: 2,75%), a spot rate of R 18,51 (2015: R17,60) and a swap interest rate reflecting the term of each tranche of
    the hedge.

    Diesel hedge
    The Group purchases diesel on an ongoing basis as its operating activities in the distribution division require a continuous supply of diesel for the transport of its own products and those of its
    principals. Due to the recent fluctuations in the commodities market specifically relating to the international price of oil and the effect it had on the price of diesel locally the Group entered into a
    diesel hedge with RMB in the form of a long-futures contract. as a result this is the first financial year the Group apply hedge accounting. The futures contracts do not result in the physical delivery of
    diesel, but are designated as cash flow hedges of offset the effect of the prices changes in diesel.

    During the financial year the Group hedged 1 650 000 litres of ICE Gasoil per month at a average price of R 6,20 per litre. As at 30 June 2016 the Group has hedged its diesel usage until the end of
    February 2017 at 1 650 000 litres per month. The contracted ICE Gasoil prices are R 6.13 per litre for the first three months and R 5,10 for the last five months. Hedging the price volatility of forecast
    diesel purchases is in accordance with the risk management strategy outlined by the Board of Directors.

    The fair values are based on the quoted price from RMB for an item with the same expiry date and a similar value, taking into account the ruling ICE Gasoil price at year end and the forecasted
    change in the ICE Gasoil prices until expiry of the instrument. The realised loss portion of the Ice Gasoil long-futures contract recognised in other operating expenses in the statement of profit or loss
    for the year was R 25,8 million (R 18,6 million net of tax), the unrealised profit portion of R 3,3 million (R 2,4 million net of tax) is reflected in other comprehensive income and will affect the profit or
    loss in the next financial year, depending on the move in the ICE Gasoil price.


8. RELATED PARTY DISCLOSURE 

   Transactions with related parties are made at market-related prices.

   Business done with Non-Executive Directors or legal entities that are related to them, the following transactions took place:
   
                                                                                                                  30 June 2016      30 June 2015
                                                                                                                       (R'000)           (R'000)
   Milk purchased from the following Non-executive Directors or companies in which they are connected by Clover SA:
   
   WI B�chner                                                                                                          104 643           118 495
   NA Smith                                                                                                             44 632            42 870
   PR Griffin                                                                                                           15 362            11 888
   Total milk purchased from Non-Executive Directors                                                                   164 637           173 253


9.  EVENTS AFTER THE REPORTING PERIOD

    No significant events occurred subsequent to the year-end that would require disclosure or amendment of these financial statements.

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 summarised consolidated financial statements.

10. PREPARATION OF SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS

    These summarised consolidated financial statements are extracted from audited information, but are not itself audited. The directors take full responsibility for the preparation of the summarised
    consolidated financial statements and ensured that the financial information has been accurately extracted from the underlying audited consolidated annual financial statements.

    The audited financial statements summarised in this section were prepared under the supervision of Elton Ronald Bosch, CA(SA), in his capacity as Chief Financial Officer of the Group.

11. INDEPENDENT AUDIT BY AUDITORS

    The annual financial statements from which the summarised consolidated financial statements were derived, have been audited by the Group's independent auditors, Ernst & Young Inc. A copy of
    their unmodified report is available for inspection at the company's registered office.

12. ANNUAL GENERAL MEETING

    The Annual General Meeting of the company will be held at 200 Constantia Drive, Constantia Kloof, Roodepoort, 1709 on Monday, 28 November 2016, at 10:00 to transact the business as stated in
    the Annual General Meeting notice which will be distributed to shareholders on 22 September 2016.

    Record date to determine which shareholders are entitled to receive the notice of Annual General Meeting                                                            Friday, 16 September 2016
    Last day to trade in order to be eligible to attend and vote at the Annual General Meeting                                                                          Tuesday, 15 November 2016
    Record date to determine which shareholders are entitled to attend and vote at the Annual General Meeting                                                            Friday, 18 November 2016
    Forms of proxy for the Annual General Meeting to be lodged by 10:00 on*                                                                                              Friday, 25 November 2016

    * Any proxies not lodged by this time must be handed to the Chairperson of the Annual General Meeting immediately prior to the Annual General Meeting.

http://www.clover.co.za



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