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CLOVER INDUSTRIES LIMITED - Proposed restructure, cautionary announcement and further voluntary operational update

Release Date: 05/12/2016 12:00
Code(s): CLR     PDF:  
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Proposed restructure, cautionary announcement and further voluntary operational update

Clover Industries Limited
(Incorporated in the Republic of South Africa)
Registration number 2003/030429/06
NSX Ordinary Share code: CLN
Ordinary Share Code: CLR ISIN No: ZAE000152371
(“Clover” or "the Company" or "the Group")

PROPOSED RESTRUCTURE, CAUTIONARY ANNOUNCEMENT AND FURTHER VOLUNTARY
OPERATIONAL UPDATE

Proposed restructure and cautionary announcement

Shareholders are advised that Clover is in the process of restructuring its
business ("Restructure") to give effect to its stated objective of
developing higher margin, value added products in dairy and other related
food categories and to eliminate its exposure to the cyclicality of its low
margin business in future.

The Restructure will effectively result in the Group rearranging its
business in a way that will see Clover continue its strategy whilst
simultaneously supporting the ambitions of its milk producers to pursue a
volume growth strategy through a newly formed special purpose vehicle,
Dairy Farmers of South Africa Proprietary Limited (“DFSA”). Further, Clover
will address the issue of raw milk price determination in this process so
that it will, in future, limit its price exposure to the various cycles in
supply and demand of raw milk.

In terms of the Restructure, DFSA will become the preferred supplier of all
raw milk requirements to Clover. In addition, it is anticipated that DFSA
will sell and administer all the low margin fresh milk, ultra-high
temperature (UHT) milk, and ultra-pasteurised (UP) milk ("Non-Value Added
Liquid Milk") directly to the trade and consumers under the Clover brand
and other selected brands in terms of a licence agreement concluded between
Clover and DFSA. Clover will not assume raw milk volume risk and will
purchase its raw milk directly from DFSA using a predetermine pricing
formula.

Clover will, however, continue to provide the majority of support services
to DFSA, including raw milk collection, warehousing, distribution and
merchandising for an extensive period of time. While DFSA will initially
operate on a break-even basis, it is anticipated that – as DFSA grows -
Clover will increasingly benefit from the revenue gains made as a result of
additional volumes in Non-Value Added Liquid Milk distributed through the
Group's supply chain network.

Initially, DFSA will be a wholly-owned subsidiary of the Group. However, a
further transaction will be effected on or before 30 June 2017 in terms of
which Clover will retain a strategic shareholding in DFSA.

This carve-out of DFSA from the Group will commence as from 1 January 2017,
and will be implemented on or before 30 June 2017, during which period, a
number of important decisions and implementation steps will be actioned,
including but not limited to the following:

  -   Extensive consultation with all Clover producers to secure a
      commitment to the new structure;
  -   To define growth opportunities for both the Group and DFSA as a
      result of the Restructure;
  -   The appointment of the DFSA Board of Directors;
  -   The appointment of a new management team of DFSA;
  -   Finalisation of all legal and statutory requirements and agreements;
  -   Transfer of existing staff (where appropriate);
  -   Implementation of the various operational agreements and licensing
      agreement; and
  -   Ensure practical execution of all said agreements.

The Company will continue to pursue strategic growth prospects through
organic and acquisitive growth opportunities.

The board wishes to reiterate that Clover’s stated objectives remain
sacrosanct and the Company will continue to pursue them:

  -   To promote and develop value added products in dairy and other
      related food categories;
  -   To expand its non-alcoholic beverages portfolio; and
  -   To further develop and enhance its key competencies in brand
      development, production, distribution and merchandising.

Having regard to the above, shareholders are advised to exercise caution
when dealing in the Company's securities until a full announcement is made.

Further voluntary operational update

Shareholders are referred to the voluntary operational update published on
the Security Exchange News Service on 27 October 2016. The Company wishes
to advise shareholders that trading conditions remain constrained, with
volumes tracking below anticipated levels. Strong trade during the Festive
Season remains critical to match the financial performance achieved in the
previous corresponding 6 months.

Any forecast financial information contained in this announcement has not
been reviewed or reported on by the Company’s external auditors.

Johannesburg
5 December 2016

Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)

NSX Sponsor
IJG SECURITIES

Attorneys
Werksmans

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