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Unaudited interim results for the six months ended 31 December 2016 and declaration of scrip distribution
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")
Unaudited interim condensed
consolidated results and
declaration of scrip distribution
with a cash dividend alternative
for the six months
ended 31 December 2016
KEY FINANCIAL INDICATORS
REVENUE
UP 2,1%
to R5,1 billion
OPERATING
PROFIT
DOWN 5,2%
to R322,7 million
EPS
DOWN 10,8%
to 103,6 cents
HEADLINE
EARNINGS
DOWN 13,5%
to R190,0 million
HEPS
DOWN 14,7%
to 99,8 cents
INTERIM DIVIDEND
PER SHARE
of 24,2 cents
DIRECTORATE AND
STATUTORY INFORMATION
Directors: Non-executive
WI Buchner (Chairman)
TA Wixley# (Lead Independent)(retired 28 November 2016)
SF Booysen (Dr)# (Lead Independent)
JNS du Plessis# (Resigned 11 January 2017)
NV Mokhesi# (Appointed to audit and risk committee 1 January 2017)
B Ngonyama#
NA Smith
PR Griffin (Resigned 28 November 2016)
#Independent
Directors: Executive
JH Vorster (Chief Executive)
ER Bosch (Chief Financial Officer)
Company Secretary
J van Heerden
Ordinary share code
JSE: CLR, NSX:CLN
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
Rosebank Towers, 15 Bierman Avenue,
Rosebank, 2196
Auditors
Ernst & Young Inc.
Bankers
The Absa Group, First National Bank,
Investec Bank
Sponsor
Rand Merchant Bank (a division of FirstRand
Bank Limited) (JSE)
IJG Securities (NSX)
COMMENTARY
OVERVIEW
The growing economic pressures facing consumers are becoming more evident
and this is reflected by the pedestrian economic growth indicators and the recent
comments, including the treasury, that consumers will remain under pressure.
The South African retail sector has been characterised by rising input costs, weaker
consumer spending and general food price inflation. The cooler and wetter
summer put pressure on sales during the festive season when compared to the
overall consumer sentiment and heat wave conditions that prevailed in the last
festive season.
Clover also continued to contend with the severe impact of the drought on maize
and other crops at the beginning of the current period, as well as substantial increases
in input costs as a result of inflationary pressure and the rand volatility.
The Group faced the challenge of balancing selling price increases in the market to
recover the inflationary cost pressures whilst assuming the added responsibility of
protecting not only its own milk source, but the long-term sustainability of the primary
dairy industry given the severe drought during the previous season. This situation
necessitated further increases in raw milk prices and although sales prices returned
to more realistic levels, sales volumes came under pressure, resulting in a muted
performance for the first six months ended 31 December 2016 ("reporting period").
The commencement of the seasonal peak milk production in August saw industry
selling prices remain relatively low in comparison to the Company's selling price,
which is at a premium. In order to protect its market shares, Clover had to provide
selective discounts on certain product groups but given the volume decreases, overall
revenue from the sale of products increased only marginally.
The loss of principal income in previous periods was largely mitigated by increased
sales of new products, as well as income from a new principal contract entered into.
Overall principal revenue came under pressure due to the generally difficult trading
conditions, a muted consumer sentiment and the compounding effect of a new
principal encountering serious financial difficulties. Overall principal revenue ended
lower than the six months ended 31 December 2015 ("corresponding period").
The prolonged drought, primarily in the Highveld and Kwazulu-Natal, increased
feed prices due to maize shortages and the scarcity of good quality roughage. The
higher feed costs resulted in raw milk production easing downwards and Clover was
compelled to pass price increases on to producers to protect the primary industry.
SA milk production during December 2016 is estimated to have been 0,9% higher
than during December 2015. Total production during 2016 is estimated to have
been 1,4% less than during 2015. The drought had a considerable impact in limiting
further growth but favourable conditions for stored silage in the pasture areas
contributed to production recovery. Clover's Unique Milk Procurement System
(CUMPS) successfully maintained a balance between the Company's milk intake
and market demand (sales). However, downwards pressure on volumes resulted in
increased inventory levels which should have a positive impact ahead of the lower
milk flow season during the winter.
At the time of writing this report, the availability of milk to match the forecasted
demand was still a challenge although the improved milk flow during this spring and
summer will effectively determine market conditions for next winter.
The necessary selling price increases resulted in volumes decreasing 7.3% and higher
inventory levels compared to the previous year.
In spite of market shares declining in certain categories, the Group's gross margin was
slightly up to 30% from 29% in the corresponding period.
Inflationary cost pressures and internal restructuring impacted the Group's operating
margin which decreased to 6,3 % from 6,8% in the corresponding period.
Product group sales volume changes were as follows:
- Dairy fluids -3,4%
- Concentrated products -14,6
- Ingredients -2,6%
- Non-alcoholic beverages -12,1%
- Fermented products and desserts +3,2%
At the beginning of this six-month period (01 July 2016) the dollar and euro
strengthened significantly against the rand when compared to start of the prior
corresponding period, which increased plastic and carton packaging material costs.
While the rand subsequently strengthened against the euro and dollar, there has been
a lag in packaging costs reduction. A general market shortage of ingredients and
concentrate resulted in sharp costs increases.
To mitigate further volatility in selling prices, Clover took the decision to hedge diesel
prices for the full financial year.
With product prices having already increased substantially, Clover is very aware of
the plight of the consumer and the Group will continue to seek cost efficiencies and
more affordable products across its value chain in order to limit the impact on rising
selling prices but also to defend and maintain its existing market shares.
MARKET SHARES
See press for detail
FINANCIAL PERFORMANCE
Headline earnings decreased by 13.5% to R190,1 million. Headline earnings per
share ("HEPS") of 99.8 cents reflect a decrease of 14.7% when compared to
HEPS of 117 cents for the corresponding period. Revenue increased by 2.06 % to
R5 128,9 million with operating profit 5.2% lower at R322.7 million. Headline operating
profit decreased 8.1% to R314,0 million.
Profit for the year ended 9.6% lower at R197.9 million. Earnings per share ("EPS")
of 103.6 cents were 10,8% below EPS of the 116.07 cents reported for the
corresponding period. HEPS and EPS are less than headline earnings and earnings,
due to the increase in the weighted number of shares as a result of equity settled
share appreciation rights exercised during the previous financial year.
Higher inventory levels contributed to increased working capital requirements and
net finance costs were correspondingly higher (R8.8 million) than the previous
corresponding period.
The effective tax rate was 26.5% compared to 25.6% during the corresponding period.
Revenue
Revenue from the sale of products increased 3.3% to R4 796,3 million against an
overall volume decrease of 7.3%. As indicated above, the volume decrease was mainly
as a result of negative consumer sentiment further compounded with the wet and
cooler summer compared to the heatwave that prevailed in the comparative period.
Selling price inflation was 10.6%.
The loss of major principal income in previous periods was further compounded
by general muted consumer sentiment and a new principal encountering serious
financial difficulty. This resulted in overall principal revenue ending 11.3% lower than
the prior corresponding period. The full extent of the challenges was largely mitigated
by increased sales of new products, as well as stringent supply chain cost savings.
Cost of sales
Cost of sales increased by 1% only, driven primarily by the volume decreases. Overall
cost of sale inflation came to 8.3% and the corresponding increase in revenue wasn't
enough to absorb the inflationary increases.
New product launches required increased cooperative advertising with charges
against sales increasing by R15.6 million or 17.2% to R106.4 million.
Raw material costs increased by 10% predominantly as a result of the higher milk
price to protect the primary industry of the full effect of the drought. Given the impact
of volume decreases, the inflationary cost increase is 17% or R123 million.
While lower volumes prevailed, the inflationary cost and weaker rand at the start of
this period resulted in packaging costs increasing by 2.9%. Given the impact of volume
decreases, the inflationary cost increase is 10% or R16 million.
Ingredient costs increased 15.6% in spite of the volume decrease. Given the impact of
volume decreases, the inflationary cost increase is 23% or R54,6 million. The sharp increase
in ingredient costs of R54,6 million was mainly attributable to sugar and the shortage in
fruit pulp concentrates.
Milk collection costs declined by 9,5% despite annual inflationary cost increases,
mostly as a result of the lower volumes and more efficient route utilisation.
Recent acquisitions and the additional investments in new products increased
manufacturing costs by 7.1% or R42 million.
Primary distribution costs were 3% or R7 million lower as a result of the benefits of
greater route and cost efficiency.
Other operating income
Other operating income declined by 57.4% to R13.1 million as the corresponding
period included foreign exchange gains in Clover Botswana and Clover West Africa.
Operating costs
Selling and Distribution costs increased 7.1% due to personnel cost increases,
additional facility costs for new additions to the distribution platform and marketing
costs linked to the launch of new products. The R69.8 million in additional cost is
seen as an investment into future cost efficiencies and increased sales.
The Group saved 12.1 % in administrative costs primarily as a result of head office
cost savings. Executive and senior management did not receive salary increases
and further savings were incurred through grant funding for staff training and
development. Given the economic headwinds, the corresponding provision for profit
based short-term incentives was also not raised.
Clover's continued focus on new brands and new market development saw research
and development cost increase by 20% to R29.2 million.
Significant once-off restructuring costs of R23.6 million relating to the integration of
the Company's City Deep distribution facility into the Clayville distribution facility were
incurred during the period. The Group remains confident that the long-term benefits
of the City Deep integration and new launches will accrue in the second half of the
financial year and beyond.
FINANCIAL POSITION AND CASH FLOW
Property plant and equipment increased to R236,9 million net of disposal and
depreciation charges from December 2015. Major projects included in the capital
expenditure were:
- Doornkloof Ice Tea and Water integration R53 million
- Port Elizabeth UHT optimisation and expansion R42 million
- Good Hope Milnerton Factory and Trademarks R30 million
- Bloemfontein Yoghurt capacity expansion R24 million
- Lichtenburg Gouda and Feta expansion R18 million
- Pinetown cream expansion and palletising R10 million
The capital expenditure was funded primarily from interest bearing borrowings which
contributed to the increase in finance costs.
Clover maintained its intangible assets and investments in joint ventures in line with
the prior corresponding period. The Group is also investing in considerable new IT
collaboration infrastructure to enhance sales.
The reduction in sales volumes combined with the seasonal increase in inventory,
resulted in inventory increasing by 8.6 % or R 101.6 million compared to the prior
corresponding period.
Trade and other receivables was 2.6% lower than at December 2015, mainly as
a result of volume decreases in all categories with the exception of UHT and
fermented products.
Cash and short term deposits increased by 14.9% to R594.5 million, while interest
bearing debt increased by 18.8% or R270 million to R1 707 million. Trade and other
payables however decreased by 8.7% or R138 million to R1 444 million.
Clover generated R239 million less net cash from operations compared to
December 2015. The higher inventory levels as at December 2016 required 34% or
R125 million more working capital compared to December 2015.
Capital expenditure finance charges were funded partly from cash resources
and short-term interest bearing debt. As a result, cash decreased by R9.6 million
compared to June 2016, while interest bearing debt increased by R270 million
compared to December 2015.
Gearing at the end of the period was 57% compared to 52.2% at December 2015. The
seasonal nature of the business generally results in the December gearing level being
considerably higher than in June.
PROSPECTS
The weakened global economy and muted consumer sentiment will have a
significant impact on Clover. Above inflationary cost increases will continue to be a
challenge and structural changes are required as consumers remain under pressure.
Clover strongly believes that the secondary industry in South Africa is too fragmented
for a number of reasons. The Group will continue to explore synergistic opportunities
to leverage its infrastructure and it is envisaged that significant cost savings may
materialise which can be passed on to producers and consumers.
Clover will also continue to investigate adjacent revenue streams (new principal income)
and will invest further in research and development of new differentiating products either
through its in-house facility or in collaboration with industry counterparts.
The Group will seek to maximise its relationship with the trade further by leveraging
and growing its extensive investment into IT systems, including through engagements
with retailers.
The Group will continue to expand its operations within the Botswana, Namibia,
Lesotho and Swaziland ("BNLS") region, and will continue to pursue export
opportunities in Africa where the currency risks can be mitigated.
Despite the lackluster operating environment, Clover remains committed to its
medium to long term goals of investing in and growing its value added product
portfolio and its infrastructure.
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.
SCRIP DISTRIBUTION AND CASH DIVIDEND ALTERNATIVE
The board has approved and declared an interim dividend for the 6 months
ended 31 December 2016 from retained earnings of 24,21000 cents per share, by way
of the issue of fully paid Clover ordinary shares ("Scrip Distribution") or, at the election
of the shareholder, a cash dividend alternative, payable to ordinary shareholders
("Shareholders") recorded in the register of the Company at the close of business on
the Record Date, being Friday, 21 April 2017.
The dividend is kept the same as the interim dividend of 24,21000 cents paid in
March 2016, which is in line with the Company's stated policy of maintaining the
previous year's dividend should headline earnings be lower than the previous year.
Shareholders will be entitled, in respect of all or part of their shareholding, to elect
to receive a gross interim cash dividend of 24,21000 cents (19,36800 cents net of
Dividend Withholding Tax ("DWT") per ordinary share instead of the Scrip Distribution.
The cash dividend will be paid only to those Shareholders who elect to receive the
cash dividend, in respect of all or part of their shareholding, on or before 12:00 on
Friday, 21 April 2017 ("Cash Dividend"). The Cash Dividend has been declared from
income reserves which are revenue in nature. Clover's income tax reference number
is 9657/002/71/4.
Shareholders are required to notify their duly appointed participant or broker of their
election in terms of the Cash Dividend alternative. For the avoidance of doubt, if no
action is taken by a Shareholder, they will receive the Scrip Distribution.
The Scrip Distribution and the Cash Dividend alternative are likely to have tax
implications for both resident and non-resident Shareholders. Shareholders are
therefore encouraged to consult their professional tax advisers, should they be in any
doubt as to the appropriate action to take. In terms of the Income Tax Act 58 of 1962
("Income Tax Act"), the Cash Dividend will, unless exempt, be subject to DWT. South
African resident Shareholders that are liable for DWT will be subject to DWT at a
rate of 20% of the Cash Dividend and this amount will be withheld from the Cash
Dividend with the result that they will receive a net amount of 19,36800 cents per
share. Non-resident Shareholders may be subject to DWT at a rate of less than 20%,
depending on their country of residence and the applicability of any Double Tax
Agreement between South Africa and their country of residence.
The Scrip Distribution is not subject to DWT in terms of the Income Tax Act, but the
subsequent disposal of ordinary shares obtained as a result of the Scrip Distribution is
likely to have Income Tax or Capital Gains Tax ("CGT") implications. Where any future
disposals of ordinary shares obtained as a result of the Scrip Distribution falls within
the CGT regime, the base cost of such shares will be deemed to be zero in terms of
the Income Tax Act (or the value at which such ordinary shares will be included in the
determination of the weighted average base cost method will be zero).
The new ordinary shares will, pursuant to the Scrip Distribution, be settled by way of
capitalisation of the Company's distributable retained profits. The new ordinary shares
upon their issue will rank pari passu in all respects with the other ordinary shares then
in issue.
The Company's total number of issued ordinary shares is 190 352 747 as
at 1 March 2017.
The Scrip Distribution shares to which each of the Shareholders will become
entitled pursuant to the Scrip Distribution (to the extent that such Shareholders
have not elected to receive the Cash Dividend) will be determined based on the
ratio that 24,21000 cents bears to the volume weighted average price ("VWAP") of
an ordinary Clover share traded on the JSE during the 15-day trading period ending
on Thursday, 6 April 2017, confirmation of which will be announced on the Stock
Exchange News Service ("SENS") of the Johannesburg Stock Exchange in accordance
with the timetable below.
Where the application of this ratio gives rise to a fraction of an ordinary share, the
number of shares will be rounded down to the nearest whole number, resulting in
allocations of whole securities and a cash payment for the fraction. The amount of
the cash payment relating to the fraction of an ordinary share is derived from the
volume weighted average traded price on the first business day after the last day to
trade (Wednesday, 19 April 2017) less 10% with the details of such cash payment to be
announced on SENS the following day (Thursday, 20 April 2017). The tax treatment of
the cash payment for the fraction will be the same as explained for the Cash Dividend
above, and will therefore be subject to DWT at a rate of 20%.
A circular, providing shareholders with full information on the Scrip Distribution
and the Cash Dividend alternative, including a Form of Election to elect to receive
the Cash Dividend alternative, will be posted to Shareholders on or about Friday,
31 March 2017. The salient dates of events thereafter are as follows -
Event Date
Announce declaration data: announce Scrip
Distribution/Cash Dividend and salient dates on SENS,
together with interim results Tuesday, 1 March 2017
Record date for determining which shareholders may
receive the circular Friday, 24 March 2017
Posting of circular and form of election Friday, 31 March 2017
Announce finalisation data: confirmation of ratio
applicable to the Scrip Distribution on SENS, based on
the 15-day volume weighted average price ending on
Thursday, 6 April 2017, as well as confirmation of, or
amendment to, salient dates, by 11h00 on Friday, 7 April 2017
Announcement published in the press of the ratio
applicable to the Scrip Distribution, based on the 15-day
volume weighted average price ending on Thursday,
6 April 2017 Monday, 10 April 2017
Last day to trade in order to be eligible to receive the
Scrip Distribution or the Cash Dividend alternative Tuesday, 18 April 2017
Listing and trading of maximum possible number
of ordinary shares on the JSE in terms of the Scrip
Distribution from the commencement of business on Wednesday, 19 April 2017
Ordinary shares trade 'ex' the Scrip Distribution and
Cash Dividend alternative on Wednesday, 19 April 2017
Announcement released on SENS in respect of cash
payment applicable to fractional entitlements, based
on the volume weighted average price on Wednesday,
19 April 2017, discounted by 10%, by 11h00 on Thursday, 20, April 2017
Last day to elect Cash Dividend in lieu of Scrip
Distribution. Forms of election to reach the Transfer
Secretaries by 12h00 on Friday, 21 April 2017
Record date in respect of the Scrip Distribution and the
Cash Dividend alternative Friday, 21 April 2017
Scrip Distribution certificates posted and Cash
Dividend payments made, CSDP/broker accounts
credited/updated, as applicable on Monday, 24 April 2017
Announcement relating to the results of the Scrip
Distribution and the Cash Dividend alternative released
on SENS Monday, 24 April 2017
Announcement relating to the results of the Scrip
Distribution and the Cash Dividend alternative published
in the press Tuesday, 25 April 2017
JSE listing of ordinary shares in respect of the Scrip
Distribution adjusted to reflect the actual number of
ordinary shares issued in terms of the Scrip Distribution
at the commencement of business on Wednesday, 26 April 2017
All times provided are South African local times. The above dates and times are
subject to change. Any change will be announced on SENS.
Share certificates may not be dematerialised or rematerialised between Wednesday,
19 April 2017 and Friday, 21 April 2017, both days inclusive.
On behalf of the Board
WI B�chner JH Vorster
Chairman Chief Executive
28 February 2017
Interim condensed consolidated statement of comprehensive income
For the six For the six For the year
months ended months ended ended
31 December 2016 31 December 2015 30 June 2016
Unaudited Unaudited Audited
% change R'000 R'000 R'000
Sale of products 3.3% 4 796 353 4 643 261 9 102 469
Rendering of services -11.3% 322 799 363 831 684 496
Sale of raw milk -42.4% 7 761 13 477 22 769
Rental income -58.9% 2 013 4 896 8 983
Revenue 2.1% 5 128 926 5 025 465 9 818 717
Cost of sales -1.0% (3 596 406) (3 560 689) (7 025 497)
Gross profit 4.6% 1 532 520 1 464 776 2 793 220
Other operating income -57.4% 13 136 30 842 73 688
Selling and distribution costs -7.1% (1 054 556) (984 716) (1 944 333)
Administrative expenses 12.1% (134 986) (153 609) (300 461)
Restructuring expenses -904.2% (23 618) (2 352) (8 493)
Other operating expenses 33.0% (9 826) (14 667) (49 171)
Operating profit -5.2% 322 670 340 274 564 450
Finance income 32.7% 6 346 4 781 10 139
Finance cost -17.7% (69 285) (58 880) (122 964)
Share of profit of a joint venture 18.9% 9 427 7 926 14 268
Profit before tax -8.5% 269 158 294 101 465 893
Taxes 5.2% (71 222) (75 162) (113 992)
Profit for the period -9.6% 197 936 218 939 351 901
For the six For the six For the year
months ended months ended ended
31 December 2016 31 December 2015 30 June 2016
R'000 R'000 R'000
Notes Unaudited Unaudited Audited
Profit for the period 197 936 218 939 351 901
Other comprehensive income
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Exchange differences on translations of foreign operations, net of tax 5 (14 218) 7 426 26 461
Exchange differences on translations of foreign operations (14 218) 7 426 (1 905)
Reclassified to profit or loss - - 28 366
Income tax effect - - -
Net gain/(loss) on cash flow hedges, net of tax 5 2 389 (13 352) 2 412
Cash flow hedge fair value adjustment (1 335) (29 056) (22 500)
Reclassified to profit or loss 4 653 10 512 25 850
Income tax effect (929) 5 192 (938)
Net other comprehensive income to be reclassified to profit or loss in subsequent periods (11 829) (5 926) 28 873
Total comprehensive income for the period, net of tax 186 107 213 013 380 774
Profit for the period attributable to:
Equity holders of the parent 197 130 218 044 350 906
Non-controlling interests 806 895 995
197 936 218 939 351 901
Total comprehensive income attributable to:
Equity holders of the parent 185 301 212 118 379 779
Non-controlling interests 806 895 995
186 107 213 013 380 774
For the six For the six For the year
months ended months ended ended
31 December 2016 31 December 2015 30 June 2016
R'000 R'000 R'000
% change Unaudited Unaudited Audited
Headline earnings calculation
Profit for the period attributable to equity holders of the parent company 197 130 218 044 350 906
Gross remeasurements excluded from headline earnings (7 859) 2 191 5 776
Loss/(Profit) on sale and scrapping of property, plant and equipment 1 411 2 191 (20 869)
Bargain purchase at acquisition (Clover Good Hope) - (1 721)
Release of foreign currency translation reserve in abandonment of foreign operation 28 366
Profit on the disposal of investment in Lactolab (9 270)
Taxation effects of remeasurements 756 (519) (87)
Headline earnings attributable to shareholders of the parent company 190 027 219 716 356 595
Issued ordinary shares 190 352 747 188 448 464 190 314 350
Number of ordinary shares used in the calculation of:
Earnings per share
- weighted average 190 336 801 187 848 093 188 733 409
Diluted earnings per share
- weighted average 193 353 978 192 352 995 193 021 978
Earnings per share attributable to ordinary equity holders of the parent
Earnings per share (cents) (10.8) 103.6 116.1 185.9
Diluted earnings per share (cents) (10.1) 102.0 113.4 181.8
Headline earnings per share (cents) (14.7) 99.8 117.0 188.9
Diluted headline earnings per share (cents) (13.9) 98.3 114.2 184.7
Interim condensed consolidated statement of financial position
As at
31 December 31 December 30 June
2016 2015 2016
Unaudited Unaudited Audited
R'000 R'000 R'000
ASSETS
Non-current assets
Property, plant and equipment 2 429 169 2 192 226 2 323 216
Investment properties 10 18 15
Intangible assets 602 189 605 676 612 191
Investment in joint venture 41 078 40 409 31 651
Other non current financial assets 5 657 - 5 657
Deferred tax assets 36 404 36 837 37 019
3 114 507 2 875 166 3 009 749
Current assets
Inventories 1 283 862 1 182 280 916 909
Trade and other receivables 1 461 140 1 499 690 1 308 223
Prepayments 32 245 38 079 16 184
Other current financial assets 7 955 771 -
Cash and short-term deposits 594 503 517 371 604 071
3 379 705 3 238 191 2 845 387
Assets classified as held-for-sale 16 060 12 912 10 907
3 395 765 3 251 103 2 856 294
Total assets 6 510 272 6 126 269 5 866 043
31 December 31 December 30 June
2016 2015 2016
Unaudited Unaudited Audited
R'000 R'000 R'000
EQUITY AND LIABILITIES
Equity
Issued capital 9 518 9 422 9 516
Share premium 883 503 851 741 882 774
Other reserves 80 411 79 578 74 873
Retained earnings 1 991 598 1 799 438 1 871 690
Other components of equity 14 730 (8 240) 26 559
Equity attributable to equity holders of the parent 2 979 760 2 731 939 2 865 412
Non-controlling interests 23 621 20 755 23 305
Total equity 3 003 381 2 752 694 2 888 717
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 920 670 934 705 931 455
Employee-related obligations 80 617 78 303 73 474
Deferred tax liability 235 222 193 954 192 358
Trade and other payables 19 284 21 459 19 311
Other non-current financial liabilities 2 199 - 2 199
1 257 992 1 228 421 1 218 797
Current liabilities
Trade and other payables 1 444 962 1 582 929 1 363 332
Interest-bearing loans and borrowings 786 339 502 191 343 015
Other current financial liabilities 4 427 36 172 25 612
Income tax payable 2 146 12 791 9 893
Employee-related obligations 11 025 11 071 16 677
2 248 899 2 145 154 1 758 529
Total liabilities 3 506 891 3 373 575 2 977 326
Total equity and liabilities 6 510 272 6 126 269 5 866 043
Interim condensed consolidated statement of changes in equity
For the six For the six
months ended months ended For the year ended
31 December 2016 31 December 2015 30 June 2016
Unaudited Unaudited Audited
R'000 R'000 R'000
Balance at 1 July 2 888 717 2 584 848 2 584 848
Profit for the period 197 936 218 939 351 901
Other comprehensive income (11 829) (5 926) 28 873
Total comprehensive income 186 107 213 013 380 774
Ordinary shares issued 731 13 414 44 540
Share-based payment reserve accrued 8 108 9 976 12 697
Share appreciation rights exercised (1 909) (10 576) (35 347)
Initial recognition of call options - - 1 005
Non-controlling interest arising from business combination - 6 350 8 800
Profit on disposal of Lactolab recognised in stament of changes in equity - -
Dividends to non-controlling interest (490) - -
Dividends (77 930) (64 397) (108 755)
Dividends forfeited 47 66 155
Balance at end of the period 3 003 381 2 752 694 2 888 717
Consists of:
Share capital and premium 893 021 861 163 892 290
Other capital reserves 80 411 79 578 74 873
Retained earnings 1 991 598 1 799 438 1 871 690
Other components of equity 14 730 (8 240) 26 559
Shareholder equity 2 979 760 2 731 939 2 865 412
Non-controlling interest 23 621 20 755 23 305
Total equity 3 003 381 2 752 694 2 888 717
Interim condensed consolidated statement of cash flows
For the six For the six
months ended months ended For the year ended
31 December 2016 31 December 2015 30 June 2016
Unaudited Unaudited Audited
R'000 R'000 R'000
OPERATING ACTIVITIES
Profit before tax 269 158 294 101 465 893
Adjustment for non-cash items 147 212 153 483 300 723
Working capital adjustments (483 442) (296 987) (36 230)
Income tax paid (35 673) (14 648) (56 938)
Net cash flows (used in)/from operating activities (102 745) 135 949 673 448
INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment 1 227 337 45 533
Interest received 6 346 4 780 10 139
Acquisition of Frankies Olde Soft Drinks Business - (6 610) (6 610)
Acquisition of Clover Good Hope Business - - (2 550)
Disposal of shares held in Lactolab 11 714 - -
Government grant received recognised against property, plant and equipment - 16 097 16 097
Capital expenditure: Tangible and intangible assets (213 947) (174 712) (423 071)
Net other investing activities 2 948 7 427 27 833
Net cash flows used in investing activities (191 712) (152 681) (332 629)
FINANCING ACTIVITIES
Interest paid (69 285) (58 877) (122 964)
Dividends paid (78 420) (64 397) (108 755)
Net increase in borrowings 432 539 181 719 19 293
Net cash flows from financing activities 284 834 58 445 (212 426)
Net (decrease)/increase in cash and cash equivalents (9 623) 41 713 128 393
Net foreign exchange difference 55 222 242
Cash and cash equivalents at the beginning of the period 604 071 475 436 475 436
Cash and cash equivalents at the end of the period 594 503 517 371 604 071
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.
2. 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 insignificant 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.
- The fermented products and desserts consist of yoghurt, maas and desserts
- Other consists of Clover Industries Limited holding company and Lactolab Proprietary Limited that renders laboratory services.
For the six For the six
months ended months ended For the year ended
31 December 2016 31 December 2015 30 June 2016
Unaudited Unaudited Audited
R'000 R'000 R'000
External revenue from sale of products*
Dairy fluids 2 346 018 2 211 262 4 427 051
Dairy concentrated products 716 221 719 963 1 355 240
Ingredients 118 112 125 733 266 909
Non-alcoholic beverages 1 218 294 1 206 875 2 367 158
Fermented products and desserts 397 708 375 990 679 481
Other - 3 438 6 630
4 796 353 4 643 261 9 102 469
Margin on material #
Dairy fluids 935 592 882 573 1 795 746
Dairy concentrated products 233 095 200 977 400 652
Ingredients 33 587 16 902 40 146
Non-alcoholic beverages 683 487 669 817 1 314 252
Fermented products and desserts 119 310 108 161 195 877
Other - 2 617 4 754
2 005 071 1 881 047 3 751 427
* External revenue excludes revenue from the sale of raw milk.
# Margin on material consist of sale of products plus sale of raw milk less charges against sales, cost of material and packaging and milk collection cost.
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 equity settled unexercised share appreciation rights.
4. Property, plant and equipment and intangible assets
During the six months under review the Group acquired property, plant and equipment to the value of R213,0 million and also acquired intangible assets at a cost of
R1,0 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.
5. Other components of equity
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. The futures contracts do not result in the physical delivery of diesel, but
are designated as cash flow hedges to offset the effect of the price changes in diesel.
During the period under review the Group hedged 1 650 000 litres of ICE Gasoil per month at an average price of R5,62 per litre. As at 31 December 2016 the Group has
hedged its diesel usage until the end of June 2017 at 1 650 000 litres per month. The contracted ICE Gasoil prices are R5,10 per litre for the first three months and R5,60 for
the last three 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 and Investec 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 R4,6 million (R3,3 million net of tax), the unrealised profit portion of R3,3 million (R2,4 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.
Other comprehensive income, net of tax:
The disaggregation of changes of other comprehensive income by each type of reserve in equity is shown below:
Cash flow Foreign currency
hedge reserve translation reserve Total
As at 31 December 2016 R'000 R'000 R'000
Diesel forward contracts (961) (961)
Reclassified to statement of profit or loss 3 350 3 350
Foreign exchange translation differences (14 218) (14 218)
2 389 (14 218) (11 829)
6. Disposal of investment in subsidiary company - Lactolab
With effect from 1 July 2016 Clover disposed of its 100% shareholding in Lactolab Proprietary Limited to Swift Siliker Proprietary Limited, for a total cash consideration of
R11,7 million.
7. Fair value of financial instruments
The Group measures derivative foreign exchange contracts, fuel swaps, forward share purchase contracts, investment in cell captive and call and put options at fair value.
The fair value of foreign exchange contracts, fuel swaps, forward share purchase contracts and the investment in a cell captive is determined based on inputs as described
in level 2 of the fair value hierarchy being quotes from financial institutions. Similar contracts are traded in an active market and the quotes reflect the actual transactions on
similar instruments.
The foreign exchange contracts is shown at a fair value liability of R 0,5 million as at 31 December 2016. This fair value is within level 2 of the fair value hierarchy and is
determined using DCF with the key inputs being yield curves, market interest rates and market foreign exchange rates.
The Diesel hedges is shown at a fair value asset of R8,0 million as at 31 December 2016. This fair value is within level 2 of the fair value hierarchy and is determined using NAV
with the key inputs being market forward ICE gasol price, yield curves and market foreign exchange rate.
The Clover Industries shares forward purchase is shown at a fair value liability of R6,1 million as at 31 December 2016. This fair value is within level 2 of the fair value hierarchy
and is determined using NAV with the key inputs being share price and yield curves.
The investment in the Guardrisk cell captive is shown at a fair value asset of R1,8 million as at 31 December 2016. This fair value is within level 2 of the fair value hierarchy and is
determined using NAV with the key inputs being cash and cash equivalents, investment in unit trusts and insurance fund liabilities.
The call option to acquire remaining shares in Clover Frankies (Pty) Ltd is shown at a fair value asset of R3,3 million as at 31 December 2016 and the call option to acquire
remaining shares in Clover Good Hope (Pty) Ltd is shown at a fair value asset of R0,6 million as at 31 December 2016. These fair values are within level 3 of the fair value
hierarchy and are determined using DCF with the key inputs being free cash flow forecast and market interest rates. There were no movements in these fair values during the
current reporting period.
There were no transfers between levels 1, 2 or 3 of the fair value hierarchy during the period ended.
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.
The carrying values of all other financial assets or liabilities, which include trade receivables, trade payables, as well as cash and cash equivalents, approximate their fair values
based on the nature or maturity period of the financial instrument.
8. Events after the reporting period
As communicated on the JSE news service (SENS) Clover is in the process of restructuring its current operations. The Restructure will effectively result in the Group rearranging
its business in a way that will see Clover continue its strategy of focusing on branded products 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") that will acquire the dairy fluid business. We
are still in the process of formalising the restructuring by drafting the relevant agreements. The planned implementation date is 1 July 2017.
In addition to the above, Clover acquired Olive Pride, a leading manufacturer and importer of olive oils, extra virgin olive oils, balsamic vinegars and related products from
Southern Canned Products (Pty) Ltd ("SCP"). SCP is a wholly-owned subsidiary of explosives and specialty chemicals company AECI Limited ("AECI").
As part of this transaction, a new entity called Clover Pride (Pty) Ltd ("Clover Pride") will be formed in which we will have a 51% controlling interest with AECI retaining 49%.
Clover will provide all services including merchandising, marketing, sales and distribution to the new entity whilst Clover Pride will continue to distribute, market and sell
products under the Olive Pride brand.
The competition commission has given their unconditional approval for the deal which will become effective on 1 April 2017.
Except for 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 consolidated financial statements set out above 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 interim condensed consolidated financial statements have not been audited or reviewed by the Group's independent auditors.
http://www.clover.co.za
Date: 01/03/2017 07:23:00 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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