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Summarised audited consolidated financial statements for the year ended 30 June 2017
Clover Industries Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 2003/030429/06)
ISIN: ZAE000152377
Share Code: JSE: CLR, NSX:CLN
SUMMARISED AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
Key Financial Indicators
REVENUE
UP 2.4%
R10 billion
OPERATING PROFIT
DOWN 44.3%
R314.5 million
HEADLINE EARNINGS
DOWN 65.9%
To R121.6 million
HEPS
DOWN 66.2%
63.9 cents
EPS
DOWN 55.3%
to 83.1 cent
TOTAL DIVIDEND PER SHARE
DOWN 62.8%
24.21 cents
Commentary
OPERATIONAL OVERVIEW
Clover faced an exceptionally challenging year as South African food producers and
retailers had to contend with several complex and ongoing issues in the economy.
Some impacts such as the prolonged drought, a wetter and cooler summer and rand
volatility were beyond our control. The resultant above-inflation input costs, subdued
volume growth and continued low consumer spending amidst aggressive competitor
pricing meant that we had to take some very tough decisions during the year, to
position and sustain the business optimally against a constrained "new reality".
This obviously came at a price as reflected in our subdued financial performance. The
fact that the 2015 and 2016 financial results set an exceptionally high benchmark we
were very conscious of guarding against short-term, knee-jerk solutions.
Headline earnings decreased by 65,9% or R235,0 million to R121,6 million. This
decrease in headline earnings is primarily because of headline operating profit, which
decreased by 52,4% or R298,0 million and net finance costs, which increased by
18,0% or R20,3 million.
Revenue improved by 2,4% or R 239,9 million to R10 058,6 million. Sale of products
revenue increased by 3,3% to R9 401,8 million, despite overall volume decreases of
3,5%. This was primarily due to lower selling price increases, necessitated by the
drought to recover farm gate raw milk and ingredients price increases, and muted
consumer sentiment. The full implementation of a major retailer's distribution
centralisation resulted in additional charges against sales in the form of an increased
DC allowance. Retailers have generally also been more aggressive with volume
rebates and co-operative advertising campaign requirements.
Services rendered to principals contributed R641,5 million to revenue, which was 6,3%
lower than the previous year. The decrease was primarily because of the subdued
market conditions of our principals, as well as the liquidation of a recently signed
principal.
Cost of sales increased 4,4% or R307,5 million, in contrast to the 2,4% or
R239,9 million growth in revenue. As a result, gross profit percentage decreased from
28,4% to 27,1% and gross profit decreased by 2,4% or R67,7 million. The gross profit
margin was assisted during the year with recipe changes to accommodate the sugar tax,
but the full impact will only be realised in future.
In addition, the drought had a major impact on the availability and increased cost of
raw milk and fruit pulp. At the time of writing this report, the culling of herds due to
the drought still negatively 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. Clover deliberately
maintained its rejuvenated high-volume infrastructure as it was unclear if volumes
would return, and fixed costs were therefore relatively stable compared to inflation,
and in some instances were even lower and well maintained. Clover however
invested significantly in its future through higher marketing costs, research and
development costs.
Approximately R46,8 million was spent on retrenchment costs, which are classified
as restructuring expenses. This was predominantly for consolidating the City Deep
distribution centres into Clayville as well as other manufacturing and distribution
efficiency drives that will bode well for the future.
INVESTMENT AND FUNDING
Clover stated in our interim results that selling prices were significantly higher to
combat the effects of a prolonged drought primarily in the Highveld, Kwazulu-Natal,
and the Western and Eastern Cape. The drought in the Highveld and Kwazulu-Natal
was subdued with great summer rainfall, while the sub-optimal conditions in the
Western and Eastern Cape prevailed. The countries milk flow was relatively stable
when compared to the prior year, but the cooler and wetter summer in December
2016, and the higher selling prices, resulted in volumes decreasing, particularly in the
beverage segment. This resulted in Inventory levels increasing by 5,2% or R47,7 million
in comparison to the previous corresponding reporting period.
Trade and other receivables were relatively stable and only marginally increased
because of the overall increase in revenue of 2,4%.
Clover's lower volumes, accounted for R88,6 million or 6,5% reduction in trade and
other payables. There was a reduction in other current financial liabilities of
R19,5 million which is mainly as a result of the diesel hedges coming to an end.
Cash generated from operations, before working capital changes, totalled
R439,2 million compared to R709,7 million reported in the prior year. Lower cash generation
was primarily due to the lower profit recorded. In this year, working capital absorbed
R162,2 million of cash compared to the R36,2 million of the prior year. Lower
volumes because of the higher selling prices given the cooler and wetter summer,
Clover spent R 67,8 million more on inventory in comparison to the previous
corresponding period. Trade and other receivables slightly increased compared to last
year given the marginal improvement in revenue.
Investment activities consumed R277,7 million in cash compared to R332,6 million
in the previous year, following the sale of the Bellville and Stikland properties. Clover
also spent R49,8 million less capital on tangible assets.
Group gearing increased from 44,1% to 51,4 % at 30 June 2017. The increased
gearing was primarily because of the lower profits and increased working capital
requirements. Clover's gearing is well within our ability to service interest and
repayments, but we have limited capacity to fund new growth opportunities.
OPERATIONAL RESTRUCTURE
Since listing in 2010, we have been working towards diversifying Clover's business
away from low-margin, commoditised bulk dairy products, focusing on higher
margin value-added branded food and beverages to improve operating margins
across the portfolio. In contrast, profit on traditional dairy products are typically
driven by volumes and this would apply to fresh milk, ultra-high temperature milk,
ultra-pasteurised milk, skim milk powder, whole milk and bulk cream.
A recent strategic review of our product portfolio highlighted new trends in the milk
business model where owner-producers supply the trade directly, as opposed to
traditional intermediary companies like Clover. This means that commodity products
like fresh, UHT and UP liquid milk ("non-value-added drinking milk") has drifted outside
of our core product portfolio.
Since our strategic focus is on value-added product categories, it made strategic
sense to transfer the supply and demand side of the volume driven business to a
new entity and invest our future funds in more profitable businesses that will suit our
business model better, whilst remaining a substantial service provider to the dairy
industry.
In one of the biggest milestones since Cielo Blu in 2010, we formed a wholly owned
subsidiary (called Dairy Farmers of South Africa (Pty) Ltd ("DFSA")) that will house
the non-value added dairy business of Clover with effect from 1 April 2017. DFSA is
responsible for the procurement of raw milk as well as the selling, marketing and
distribution of the non-value-added drinking milk above.
As communicated on the SENS, the board of directors of Clover announced that
the issue and allotment of the B shares in DFSA to the milk producers has been
implemented with effect from 1 July 2017 and accordingly, the milk producers now
hold all the B shares which constitute 74% of the voting rights of DFSA. Clover holds
all the A shares which constitute 26% of the voting rights of DFSA.
PROSPECTS
Consumer confidence remains lacklustre with discretionary spend under pressure.
The improved outlook for inflation and recent reduction in interest rates should
provide some relief although the prospect of future interest rate cuts is uncertain.
While the after effects of the prolonged drought will be felt for some time, a gradual
recovery in milk and fruit production volumes together with the strengthening of the
rand to the dollar should result in a reduction in input cost inflation.
We therefore remain optimistic and excited about Clover's future as we have
considered and employed measurable strategies that will return the Company's
profitability to historic levels over the medium and longer term.
DIVIDEND CONSIDERATION
During the consideration of the interim dividend for 1H17 the board decided to
maintain the interim dividend in line with the prior year's interim dividend and
declared a dividend of 24,21 cents per share, although the interim headline earnings
were 13.5% lower than the prior interim period's results.
Although the Board communicated in the past that it will follow a progressive
dividend policy whereby dividends are as minimum maintained or grown by at least
the growth in the headline earnings per share, the Board has resolved not to declare a
final dividend due to the current weak economic circumstance and the Group's growth
funding requirements. The total dividends for 2016/17 however represent a dividend
cover of 2,6 times compared to the 2015/16 dividend cover of 2,9 times.
On behalf of the Board
WI Buchner JH Vorster
Chairman Chief Executive
11 September 2017
Summarised Consolidated Statement of Comprehensive Income
For the year ended
30 June 30 June
2017 2016
R'000 R'000
Sale of products 9 401 842 9 102 469
Rendering of services 641 499 684 496
Sale of raw milk 11 907 22 769
Rental income 3 351 8 983
Revenue 10 058 599 9 818 717
Cost of sales (7 333 041) (7 025 497)
Gross profit 2 725 558 2 793 220
Other operating income 60 040 73 688
Selling and distribution costs (2 089 364) (1 944 333)
Administrative expenses (284 721) (300 461)
Restructuring expenses (48 098) (8 493)
Other operating expenses (48 936) (49 171)
Operating profit 314 479 564 450
Finance income 12 647 10 139
Finance cost (145 765) (122 964)
Share of profit of a joint venture 18 486 14 268
Profit before tax 199 847 465 893
Taxes (41 105) (113 992)
Profit for the year 158 742 351 901
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 (14 510) 26 461
Exchange differences on translations of foreign operations (14 510) (1 905)
Reclassified to profit or loss - 28 366
Income tax effect - -
Net gain/(loss) on cash flow hedges, net of tax (2 412) 2 412
Cash flow hedge fair value adjustment (9 294) (22 500)
Reclassified to profit or loss 5 944 25 850
Income tax effect 938 (938)
Net other comprehensive income to be reclassified to profit or loss in subsequent periods (16 922) 28 873
Total comprehensive income for the year, net of tax 141 820 380 774
Profit for the year attributable to:
Equity holders of the parent 158 258 350 906
Non-controlling interests 484 995
158 742 351 901
Total comprehensive income attributable to:
Equity holders of the parent 141 336 379 779
Non-controlling interests 484 995
141 820 380 774
Headline Earnings and Headline Earnings Per Share
For the year ended
30 June 30 June
2017 2016
R'000 R'000
Headline earnings calculation
Profit for the year attributable to equity holders of the parent company 158 258 350 906
Gross remeasurements excluded from headline earnings (42 674) 5 776
Profit on sale of property, plant and equipment and gains on other assets (33 404) (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 sale of an investment in subsidiary (9 270) -
Taxation effects of remeasurements 6 033 (87)
Headline earnings attributable to shareholders of the parent company 121 617 356 595
Issued ordinary shares 190 835 364 190 314 350
Number of ordinary shares used in the calculation of:
Earnings per share
- weighted average 190 433 237 188 733 409
Diluted earnings per share
- weighted average 192 358 073 193 021 978
Earnings per share attributable to ordinary equity holders of the parent
Earnings per share (cents) 83,1 185,9
Diluted earnings per share (cents) 82,3 181,8
Headline earnings per share (cents) 63,9 188,9
Diluted headline earnings per share (cents) 63,2 184,7
Summarised Consolidated Statement of Financial Position
As at
30 June 30 June
2017 2016
R'000 R'000
ASSETS
Non-current assets
Property, plant and equipment 2 427 444 2 323 216
Investment properties 9 15
Intangible assets 650 663 612 191
Investment in joint venture 38 946 31 651
Other non-current financial assets 3 165 5 657
Deferred tax assets 45 496 37 019
3 165 723 3 009 749
Current assets
Inventories 964 630 916 909
Trade and other receivables 1 341 311 1 308 223
Prepayments 19 844 16 184
Income tax receivable 7 165 -
Cash and short-term deposits 544 863 604 071
2 877 813 2 845 387
Assets classified as held-for-sale 4 607 10 907
Total assets 6 048 143 5 866 043
EQUITY AND LIABILITIES
Equity
Issued share capital 9 542 9 516
Share premium 892 692 882 774
Other capital reserves 78 642 74 873
Foreign currency translation reserve 9 637 24 147
Cash flow hedge reserve - 2 412
Retained earnings 1 904 349 1 871 690
Equity attributable to equity holders of the parent 2 894 862 2 865 412
Non-controlling interests (15 179) 23 305
Total equity 2 879 683 2 888 717
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 767 621 931 455
Non-controlling interest put liability 57 088 -
Employee-related obligations 82 595 73 474
Deferred tax liability 221 065 192 358
Trade and other payables 25 492 19 311
Other non-current financial liabilities 9 683 2 199
1 163 544 1 218 797
Current liabilities
Trade and other payables 1 274 700 1 363 332
Interest-bearing loans and borrowings 714 304 343 015
Other current financial liabilities 6 141 25 612
Income tax payable - 9 893
Employee-related obligations 9 771 16 677
2 004 916 1 758 529
Total liabilities 3 168 460 2 977 326
Total equity and liabilities 6 048 143 5 866 043
Summarised Consolidated Statement of Changes in Equity
For the year ended
30 June 30 June
2017 2016
R'000 R'000
Balance at 1 July 2 888 717 2 584 848
Profit for the year 158 742 351 901
Other comprehensive income (16 922) 28 873
Total comprehensive income 141 820 380 774
Ordinary shares issued 731 44 540
Share-based payment expense recognised 5 865 12 697
Share appreciation rights exercised, net of tax (1 012) (35 347)
Initial recognition of call options - 1 005
Non-controlling interest arising from business combination 24 234 8 800
Non-controlling interest put option movement (57 088) -
Acquisition of non-controlling interest (8 354) -
Dividends to non-controlling interest (490) -
Dividends (114 802) (108 755)
Dividends forfeited 62 155
Balance at end of the year 2 879 683 2 888 717
Consists of:
Share capital and premium 902 234 892 290
Other capital reserves 78 642 74 873
Foreign currency translation reserve 9 637 24 147
Cash flow hedge reserve - 2 412
Retained earnings 1 904 349 1 871 690
Shareholder equity 2 894 862 2 865 412
Non-controlling interest (15 179) 23 305
Total equity 2 879 683 2 888 717
Summarised Consolidated Statement of Cash Flows
For the year ended
30 June 30 June
2017 2016
R'000 R'000
OPERATING ACTIVITIES
Profit before tax 199 847 465 893
Adjustment for non-cash items 286 451 300 723
Working capital adjustments (162 227) (36 230)
Income tax paid (47 115) (56 938)
Net cash flows (used in)/from operating activities 276 956 673 448
INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment and other assets 58 941 45 533
Interest received 12 647 10 139
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 controlling interest in Clover Pride Proprietary Limited (29 639) -
Disposal of controlling interest in Lactolab Proprietary Limited 10 275 -
Government grant received recognised against property, plant, equipment and expenses - 16 097
Capital expenditure: Tangible and intangible assets (322 554) (423 071)
Cancellation of a finance lease 3 854 -
Realised foreign exchange (loss)/gain (11 232) 27 833
Net cash flows used in investing activities (277 708) (332 629)
FINANCING ACTIVITIES
Interest paid (145 765) (122 964)
Dividends paid (115 230) (108 755)
Non-controlling interest acquired in Clover Frankies Proprietary Limited (4 440) -
Cancellation of a finance lease (3 854) -
Repayment of borrowings (285 668) (254 646)
Proceeds from borrowings 496 975 273 939
Net cash flows from financing activities (57 982) (212 426)
Net (decrease)/increase in cash and cash equivalents (58 734) 128 393
Net foreign exchange difference (474) 242
Cash and cash equivalents at the beginning of the year 604 071 475 436
Cash and cash equivalents at the end of the year 544 863 604 071
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. New and amended IFRS and IFRIC interpretations were adopted by the Group during the year but these did not
have an impact on the Group.
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
- The soya and oil products consist of soya, olive oil and olives. In the comparative year "other" consist of laboratory services rendered
by Lactolab.
For the year ended 30 June 2017 30 June 2016
R'000 R'000
External revenue from sale of products *
Dairy fluids 4 643 600 4 427 051
Dairy concentrated products 1 312 575 1 355 240
Ingredients 216 424 266 909
Non-alcoholic beverages 2 369 071 2 367 158
Fermented products and desserts 794 403 679 481
Olive oil & Soya 65 769 6 630
9 401 842 9 102 469
Margin on material #
Dairy fluids 1 764 858 1 795 746
Dairy concentrated products 393 180 400 652
Ingredients 71 265 40 146
Non-alcoholic beverages 1 288 742 1 314 252
Fermented products and desserts 220 274 195 877
Olive oil & Soya 29 714 4 754
3 768 033 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.
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 equity settled 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 R316,8 million and also acquired intangible assets at a
cost of R5,7 million. This excludes the effect of the tangible and intangible assets acquired as part of the business combination in note 7.1.
Certain items of property, plant and equipment have been classified as assets classified held-for-sale. It is those assets that are expected to be
disposed of within the next 12 months.
5. FOREIGN CURRENCY TRANSLATION RESERVE AND CASH FLOW HEDGE RESERVE
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.
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 5,9 million
(R 4,2million net of tax) (2016: R 25,8 million (R 18,6 million net of tax)), the unrealised profit portion of R Nil (2016: 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.
During the financial year the Group hedged 1 500 000 litres of ICE Gasoil per month at an average price of R 5,61 per litre. As at 30 June 2017 all
the Group diesel hedged had expired.
Other comprehensive income:
The disaggregation of changes of other comprehensive income by each type of reserve in equity is shown below:
Cash flow hedge Foreign currency
reserve translation reserve Total
As at 30 June 2017 R'000 R'000 R'000
Diesel forward contracts:
Cash flow hedge fair value adjustment (9 294) (9 294)
Reclassified to statement of profit or loss 5 944 5 944
Income Tax Effect 938 938
Foreign exchange translation differences (14 510) (14 510)
(2 412) (14 510) (16 922)
6. SHARE CAPITAL AND SHARE PREMIUM
The share premium account increased by R9.9 million from the prior financial year after the settlement of vested executive management share
appreciation rights by the issue of new ordinary shares and as part of the Company's interim dividend declaration, the company gave
shareholders the option to select between a cash dividend or scrip distribution share. In terms of the scrip distribution, 482 617 new
ordinary shares were issued on 24 April 2017 to shareholders who did not elect to receive a cash dividend in respect of all their shares.
7. BUSINESS COMBINATION AND ACQUISITION OF NON-CONTROLLING INTEREST
7.1 Acquisition of interest in Clover Pride Proprietary Limited
Clover entered into an agreement with AECI Limited ("Seller") to form a new entity, Clover Pride Proprietary Limited ("Clover Pride")
that acquired the Olive Pride olive oil business, effective 1 April 2017. According to the "Sale of Business Agreement" Clover Pride
has acquired all of the consumables, raw materials, finished goods, equipment, material contracts, trademarks, intellectual property
and goodwill in relation to the Olive Pride business from the Seller on the effective date. Clover effectively holds 51% of the shares
in Clover Pride and the Seller holds the remaining 49%.
The Group has elected to measure the non-controlling interest in Clover Pride 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
R5.5 million; free cash flow growth per annum of between 7% to 19% and a discount rate of 18.54%.
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 Olive Pride business as at the
date of acquisition were:
R'000
Assets
Property, plant and equipment 502
Inventory 8 659
Intangible assets 38 217
47 378
Liabilities
Deferred tax liability (10 841)
Loan (4 243)
Total identifiable net assets at fair value 32 294
Goodwill arising on acquisition 21 579
Total value of the Clover Pride business 53 873
Non-controlling interest measured at residual value 24 234
Purchase consideration settled in cash 29 639
The business contributed R22.4 million of revenue and R7.7 million of margin on material to the Group results since acquisition.
These amounts would have been R89,6 million and R30.8 million respectively if annualised for the full period.
7.2 Acquisition of non-controlling interest in Clover Frankies Proprietary Limited
With effect from 31 March 2017 Clover SA bought the remaining 49% issued ordinary shares of Clover Frankies from
Frankies Olde Soft Drinks cc ("Seller") for a cash consideration of R4.44 million. From this date Clover effectively holds
100% of the shares in Clover Frankies.
Clover Frankies previously acquired the Frankies Carbonated Soft Drinks (CSD) and ice lollies business ("the business") from the seller.
The business involves the manufacturing, distribution, selling and marketing of CSDs and ice lollies utilising the trademarks it acquired
under the original business acquisition.
No goodwill may be recognised because of this transaction as Clover already had a controlling interest, holding 51% of the issued
ordinary shares in Clover Frankies prior to this transaction.
The call and put option related to the initial acquisition was subsequently cancelled.
The carrying amounts of the identifiable assets and liabilities of Clover Frankies as at the effective date were:
R'000
Assets
Plant and Equipment 245
Intangible assets 11,534
Inventory 1,749
Trade Receivables 2,567
Cash and cash equivalents 1,417
17,512
Liabilities
Deferred tax liability 75
Trade and other payables 5,958
6,033
Total identifiable net assets at non-controlling interest acquisition date 11,479
Non - controlling interest at carrying amount 5,624
Equity movement due to acquisition of non-controlling interest 2,730
Call option directly attributable to the acquisition of the non-controlling interest (3,914)
Purchase consideration settled in cash 4,440
8. NON-CONTROLLING INTEREST PUT OPTION LIABILITIES
The Group has entered into transactions with non-controlling interest equity holders whereby they are able to put their shareholding to the
Group for a limited time period. The options are accounted for using the present access method. These are written put options in respect of
which the Group does not have an unconditional right to avoid the delivery of cash and are recognised as financial liabilities.
In the current year R57 million was recognised as liability and the corresponding debit against non-controlling interest in the statement
of changes in equity.
Put option to acquire remaining shares in Clover Good Hope
Clover granted Good Hope the irrevocable right to sell Good Hope's 49% of the issued share capital in Clover Good Hope ("Put shares").
The put option may be exercised by Good Hope within three months after each 12-month period from the third anniversary of the effective date.
The purchase price of the put shares will be determined by way of an earnings before interest tax depreciation and amortisation (EBITDA) multiple
formula.
Put option to acquire remaining shares in Clover Pride
Clover granted AECI the irrevocable right to sell AECI's 49% of the issued share capital in Clover Pride ("Call shares"). The put option may be
exercised by AECI within three months after each 12 month period from the third anniversary of the effective date. The purchase price of the put
shares will be determined by way of an earnings before interest tax depreciation and amortisation (EBITDA) multiple formula.
9. DISPOSAL OF INVESTMENT IN SUBSIDIARY COMPANY - LACTOLAB
With effect from 1 July 2016 Clover disposed of its 100% shareholding in Lactolab Proprietary Limited ("Lactolab") to Swift Siliker
Proprietary Limited, for a total cash consideration of R11,7 million (which results in a net cash increase of R10.3 million for the group as
reflected in the summarised consolidated statement of cash flows).
10. 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 2017 Level 1 Level 2 Level 3
R'000 R'000 R'000 R'000
Assets measured at fair value
Derivatives not designated as hedging instruments:
Call option to acquire remaining shares in Clover Good Hope (Pty) Ltd 856 - - 856
Investment in cell captive 2 309 - 2 309 -
Liabilities measured at fair value
Derivatives not designated as hedging instruments:
Foreign exchange contracts 638 - 638 -
Clover Industries shares forward purchases 13 521 - 13 521 -
Derivatives designated as hedging instruments:
Diesel hedge 1 665 - 1 665 -
30 June 2016 Level 1 Level 2 Level 3
R'000 R'000 R'000 R'000
Assets measured at fair value
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 -
During the reporting period ended 30 June 2017, there were no transfers between Level 1 and Level 2 fair value measurements.
During the reporting period ended 30 June 2016, there were no transfers between Level 1 and Level 2 fair value measurements.
Reconciliation of fair value measurement of level 3 financial assets 2017 2016
R'000 R'000
Call option to acquire remaining shares in Clover Frankies (Pty) Ltd
Balance at the beginning of the year 3,297 -
Initial recognition through OCI - 445
Remeasurement recognised through statement of profit or loss 617 2,852
Derecognised against investment in Clover Frankies (note 3.2) (3,914) -
Balance at the end of the year - 3,297
Call option to acquire remaining shares in Clover Good Hope (Pty) Ltd
Balance at the beginning of the year 560 -
Initial recognition through OCI - 560
Remeasurement recognised through statement of profit or loss 296 -
Balance at the end of the year 856 560
Call option to acquire remaining shares in Clover Frankies
The option value has been derecognised against the investment in Clover Frankies - Refer to note 7.2.
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 way of an earnings before interest tax depreciation and amortisation (EBITDA)
multiple formula.
Call option to acquire remaining shares in Clover Pride
AECI granted Clover the irrevocable right to purchase AECI's 49% of the issued share capital in Clover Pride ("Call shares").
The call option may be exercised by Clover within three months after each 12 month period from the third anniversary of the effective date.
The purchase price of the call shares will be determined by way 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 3,92% (2016: 3,11%), a credit spread of 2,75%
(2016: 2,75%), a spot rate of R16,55 (2016: R18,51) and a swap interest rate reflecting the term of each tranche of the hedge.
Diesel hedge
The Group entered into a diesel hedge with RMB in the form of a long-futures contract. Refer to note 5 for more information in relation to
diesel hedge.
11. 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:
2017 2016
R'000 R'000
Milk purchased from the following Non-executive Directors or companies in which they are connected by Clover SA:
WI Buchner 146 949 104 643
NA Smith 49 358 44 632
PR Griffin (Resigned 30 November 2016) 7 284 15 362
Total milk purchased from Non-Executive Directors 203 591 164 637
12. EVENTS AFTER THE REPORTING PERIOD
As communicated on the SENS Clover transferred the non-value added dairy business to its wholly owned subsidiary, Dairy Farmers of
South Africa (Pty) Ltd. ("DFSA"), under a written transfer of business agreement with effect from 1 April 2017. In exchange for
the transfer of the non-value added dairy business as aforementioned, DFSA allotted and issued to Clover, shares in DFSA. The board
of directors of Clover announced that the issue and allotment of the B shares in DFSA to the milk producers has been implemented
with effect from 1 July 2017 and accordingly, the milk producers now hold all the B shares which constitute 74% of the voting rights
of DFSA. Clover holds all the A shares which constitute 26% of the voting rights of DFSA.
Except for the above no significant events occurred subsequent to the year-end that would require disclosure or amendment to these
financial statements.
13. 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.
14. PREPARATION OF SUMMARISED CONSOLIDATED FINANCIAL RESULTS
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.
15. 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.
16. ANNUAL GENERAL MEETING
The Annual General Meeting of the company will be held at 200 Constantia Drive, Constantia Kloof, Roodepoort, 1709 on
Tuesday, 28 November 2017, at 10:00 to transact the business as stated in the Annual General Meeting notice which will be distributed to
shareholders on 27 September 2017.
Record date to determine which shareholders are entitled to receive the notice of Annual General Meeting Friday, 15 September 2017
Last day to trade in order to be eligible to attend and vote at the Annual General Meeting Tuesday, 14 November 2017
Record date to determine which shareholders are entitled to attend and vote at the Annual General Meeting Friday, 17 November 2017
Forms of proxy for the Annual General Meeting to be lodged by 10:00 on* Friday, 24 November 2017
* 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.
17. PUBLISHING OF INTEGRATED REPORT
The full integrated report will be published on Clover’s website on 27 September 2017, the same day the Annual General meeting notice will
be distributed to Shareholders.
ANNEXURE TO THE RESULTS ANNOUNCEMENT FOR THE YEAR ENDED
30 JUNE 2017
PRO FORMA REGARDING THE EFFECT OF THE OPERATIONAL RESTRUCTURING OF DFSA ON THE CONSOLIDATED RESULTS OF CLOVER
INDUSTRIES LMITED ("Clover")
Introduction
On 1 July 2017 Clover concluded a corporate action that will have an impact on the 2018 financial year.
A recent strategic review of our product portfolio highlighted new trends in the milk business model where owner-producers supply the trade
directly, as opposed to traditional intermediary companies like Clover. This means that commodity products like Fresh, Ultra High Temperature
('UHT') and Ultra Pasteurised ('UP') milk ('non-value-added drinking milk') has drifted outside of our core product portfolio.
Since our strategic focus is on value-added product categories, it made strategic sense to transfer the supply and demand side of the volume
driven business to a new entity and invest our future funds in products and businesses that will suit our future business model better, whilst
remaining a substantial service provider to non-value added drinking milk industry.
As communicated on the Securities Exchange News Service on 6 July 2017 and earlier, Clover has formed a wholly owned subsidiary (called Dairy
Farmers of South Africa (Pty) Ltd ('DFSA')). Clover transferred the non-value added dairy business and sold the related finished goods, packaging
material and ingredients inventory, to DFSA with effect from 1 April 2017. In exchange for the transfer of the non-value added dairy business as
aforementioned, DFSA allotted and issued to Clover A shares (which constituted the entire issued share capital of DFSA at the time) for a nominal amount,
and a loan account for the inventory.
With effect from 1 July 2017, DFSA issued and allotted B shares to the milk producers for a nominal amount and accordingly, the milk
producers now hold all the B shares which constitute 74% of the voting rights of DFSA. Clover holds all the A shares which constitute 26% of
the voting rights of DFSA.
With effect from 1 July 2017 Clover relinquished its control of DFSA and will for accounting purposes treat it as an investment in an associate
going forward.
DFSA houses the non-value added drinking milk business and is responsible for the procurement of raw milk as well as the selling, marketing and
distribution of the non-value-added drinking milk referred to above.
DFSA will subsequently become Clover's largest principal, where all its related requirements such as distribution, production, administration
(invoicing, debt collection, marketing), IT services, payroll administration, central services, sales and merchandising are outsourced to
Clover for an initial period of 20 years. In exchange for these services, Clover will earn service income.
This Annexure to the results announcement includes the 30 June 2017 audited results which has been adjusted to reflect the loss of control of
DFSA ("Pro Forma Adjustments") as if the loss of control of DFSA had occurred (a) on 1 July 2016 for purposes of the Pro Forma Adjustments
made to the pro forma consolidated statement of comprehensive income and (b) as at 30 June 2017 for purposes of the Pro Forma Adjustments
made to the pro forma consolidated statement of financial position.
The pro forma financial information has been prepared for illustrative purposes only, to provide information about how the Pro Forma Adjustments
might have affected the financial information presented by Clover had the unbundling of DFSA occurred on 1 July 2016 for statement of comprehensive
income pruposes and as at 30 June 2017 for statement of financial position purposes. Because of its pro forma nature, the pro forma financial information
may not fairly present Clover's financial position, changes in equity, results of operation or cash flows. It does not purport to be indicative of what the
financial results would have been, had the loss of control of DFSA been implemented on a different date.
The Clover Directors are responsible for the preparation of the pro forma financial information. The pro forma financial information has been
prepared using accounting policies that are consistent with IFRS and with the basis on which the historical financial information has been
prepared in terms of the accounting policies of Clover. The pro forma financial information has been prepared in accordance with the
Listings Requirements and the revised Guide on Pro Forma Financial Information issued by the South African Institute of Chartered Accountants.
These pro forma financial effects have been prepared to assist Clover's shareholders in assessing the impact of the loss of control of DFSA on
the Clover consolidated statement of comprehensive income and statement of financial position.
This pro forma financial information has been reported on by the independent external auditors, Ernst & Young Inc., in terms of
International Standards on Assurance Engagements (ISAE) 3420, Assurance Engagements to Report on the Compilation of Pro forma
Financial Information Included in a Prospectus. Their unmodified limited assurance report is available for inspection at the Company's
registered office.
PRO FORMA CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Exclusion of the
revenue and cost Packaging material Interest charged
of sales of the DFSA Income from services procured and sold to on working capital After Pro Forma
30 June 2017 business (2) rendered to DFSA (3) DFSA (4) facility (5) Adjustments
Audited (1) Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment
R'000 R'000 R'000 R'000 R'000 R'000
Sales of products 9 401 842 (3 549 806) 517 499 6 369 535
Rendering of services 641 499 1 192 922 1 834 421
Sale of raw milk 11 907 11 907
Rental income 3 351 3 351
Revenue 10 058 599 (3 549 806) 1 192 922 517 499 8 219 214
Cost of sales (7 333 041) 2 321 032 (517 499) (5 529 508)
Gross profit 2 725 558 (1 228 774) 1 192 922 2 689 706
Other operating income 60 040 60 040
Selling and distribution costs (2 089 364) (2 089 364)
Administrative expenses (284 721) (284 721)
Restructuring expenses (48 098) (48 098)
Other operating expenses (48 936) (48 936)
Operating profit 314 479 (1 228 774) 1 192 922 278 627
Finance income 12 647 35 852 48 499
Finance costs (145 765) (145 765)
Share of profit in a joint venture 18 486 18 486
Profit before tax 199 847 (1 228 774) 1 192 922 35 852 199 847
Taxation (41 105) 344 057 (334 018) (10 039) (41 105)
Profit for the year 158 742 (884 717) 858 904 25 813 158 742
PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION
After Pro Forma
30 June 2017 Sale of inventory (6) Adjustments
Audited (1) Pro forma adjustment
R'000 R'000 R'000
Assets
Non-Current assets
Property, plant and equipment 2 427 444 2 427 444
Investment properties 9 9
Intangibles assets 650 663 650 663
Investment in joint ventures 38 946 38 946
Other non-current financial assets 3 165 3 165
Deferred tax assets 45 496 45 496
3 165 723 3 165 723
Current assets
Inventories 964 630 (244 076) 720 554
Trade and other receivables 1 341 311 244 076 1 585 387
Prepayments 19 844 19 844
Income tax receivable 7 165 7 165
Cash and short term deposits 544 863 544 863
2 877 813 2 877 813
Assets classified as held for sale 4 607 4 607
Total assets 6 048 143 6 048 143
After Pro Forma
30 June 2017 Sale of inventory (6) Adjustments
Audited (1) Pro forma adjustment
R'000 R'000 R'000
Equity and liabilities
Equity
Issued share capital 9 542 9 542
Share premium 892 692 892 692
Other capital reserves 78 642 78 642
Foreign currency translation reserve 9 637 9 637
Retained earnings 1 904 349 1 904 349
Equity attributable to holders of the parent 2 894 862 2 894 862
Non-controlling interests (15 179)
Total equity 2 879 683 2 879 683
Liabilities
Non-current liabilities
Interest bearing loans and borrowings 767 621 767 621
Non-controlling put liability 57 088 57 088
Employee-related obligations 82 595 82 595
Deferred tax liability 221 065 221 065
Trade and other payables 25 492 25 492
Other non-current financial liabilities 9 683 9 683
1 163 544 1 163 544
Current liabilities
Trade and other payables 1 274 700 1 274 700
Interest-bearing loans and borrowings 714 304 714 304
Other current financial liabilities 6 141 6 141
Employee-related obligations 9 771 9 771
2 004 916 2 004 916
Total liabilities 3 168 460 3 168 460
Total equity and liabilities 6 048 143 6 048 143
Notes:
1. As per the consolidated statement of comprehensive income and the consolidated statement of financial position for the year ended 30 June 2017 with reference to the
Audited Annual Financial Statements.
2. The sale of products relating to the non-value added drinking milk, namely Fresh, UHT and UP milk that will be excluded from Clover and be part of DFSA in future. The Pro
Forma Adjustment was determined with reference to actual volumes sold and realised. The tax effect was determined using the corporate tax rate of 28%.
3. Clover provided all the production, distribution, sales and merchandising, marketing and certain administrative service to DFSA at a contracted fee. The Pro Forma Adjustment
was determined with reference to actual volumes produced. The contracted fee was calculated based on the actual costs for the period 1 July 2016 to 31 December 2016. The
tax effect was determined using the corporate tax rate of 28%.
4. Clover procured the packaging material from third party suppliers and on-sold the packaging material to DFSA at no margin.
5. Clover provided the working capital funding to DFSA in the form of an interest bearing facility on which Clover earned interest at a rate equal to the average rate Clover pays to
its interest bearing debt funders. The tax effect was determined using the corporate tax rate of 28%.
6. All the finished goods, packaging material and ingredients inventory related to Fresh, UHT and UP milk were sold to DFSA on loan account on 1 April 2017. It was assumed
that the inventory was sold in the same manner on 30 June 2017 to give effect to the Pro Forma Adjustment.
7. The loss of control of DFSA was structured in such a way that the non-value-added drinking milk business broke even and therefore there was no equity accounted earnings or
Investment in Associate in terms of IAS28.
8. IFRS 10 Consolidated Financial Statements paragraph 25 requires the calculation of a gain / (loss) on the deemed sale of the investment in DFSA when control is lost. On
1 July 2016 this gain / (loss) on the deemed sale would however equal the nominal amount received as consideration for the B shares issued by DFSA. It was assumed that the
inventory, the only asset of DFSA on 1 July 2016, was sold in the same manner on this date as it was on 1 April 2017. Therefore, the fair value of any retained interest is zero.
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) (To resign as from 31 December 2017)
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 Biermann Avenue,
Rosebank, 2196
Auditors
Ernst & Young Inc.
Bankers
The Absa Group, Rand Merchant Bank,
Investec Bank
Sponsor
Rand Merchant Bank (a division of FirstRand
Bank Limited) (JSE)
IJG Securities (NSX)
http://www.clover.co.za
Date: 12/09/2017 08:36:00 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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