CLOVER INDUSTRIES LIMITED - Unaudited interim condensed results and cash dividend declaration for the six months ended 31 December 2017

Release Date: 06/03/2018 07:05
Code(s): CLR
 
Wrap Text
Unaudited interim condensed results and cash dividend declaration for the six months ended 31 December 2017

Clover Industries Limited 
(Incorporated in the Republic of South Africa)
(Registration Number: 2003/030429/06)
ISIN: ZAE000152377
Share Code: JSE: CLR, NSX:CLN
Bond company code: JSE: CLRI

Clover Industries Limited
Unaudited interim condensed consolidated results and cash dividend declaration
for the six months ended 31 December 2017

KEY FINANCIAL INDICATORS

NORMALISED REVENUE* UP 7.7% R3,9 BILLION TO R4,2 BILLION
OPERATING PROFIT UP 14.8% R370,4 MILLION
HEADLINE EARNINGS UP 18.1% TO R224,4 MILLION
HEPS UP 17.8% 117,6 CENTS
EPS UP 19.1% 123,3 CENTS
REVENUE DOWN 17.8% R4,2 BILLION
INTERIM DIVIDEND PER SHARE 26,56 cents

DIRECTORATE AND
STATUTORY INFORMATION
Directors: Non-executive
WI Buchner (Chairman)
SF Booysen (Dr)(#) (Lead Independent)
NV Mokhesi(#)
B Ngonyama(#)
NA Smith 
JW Basson(#) (Appointed 1 January 2018)
JFM Morgan(#)^ (Appointed 1 January 2018)
(#)Independent
^British national

Directors: Executive 
JH Vorster (Chief Executive) 
FF Scheepers (Chief Financial Officer) (Appointed 1 January 2018)
ER Bosch (Chief Financial Officer) (Resigned 31 December 2017)

Company Secretary                                   Tax number
J van Heerden                                       9657/002/71/4
Ordinary share code                                 Transfer secretary
JSE: CLR, NSX:CLN                                   Computershare Investor Services Proprietary
ISIN: ZAE000152377                                  Limited
Bond Code                                           Rosebank Towers, 15 Biermann Avenue,
                                                    Rosebank, 2196
JSE: CLRI     
Registered office                                   Auditors
                                                    Ernst & Young Inc.
200 Constantia Drive, Constantia Kloof, 1709     
Postal address                                      Bankers
PO Box 6161, Weltevredenpark, 1715                  The Absa Group, First National Bank,
                                                    Investec Bank                                              
Telephone     
(011) 471 1400                                      Sponsor
                                                    Rand Merchant Bank (a division of FirstRand
Registration number                                 Bank Limited) (JSE)
2003/030429/06                                      IJG Securities (NSX)

COMMENTARY 
OVERVIEW
After a stagnation in GDP growth, the country experienced an upturn in the second
half of 2017. Expectations are that this trend will continue in the short term and will be a
welcome relief after the economic pressures consumers have faced in the past couple of years.

The quarter to December 2017 was marked by retail sales growth exceeding market
expectations specifically due to the increase experienced in November 2017. The higher
than expected retail sales growth was derived from consumers taking advantage of
Black Friday promotions. Against this, December 2017 sales were lower than expected
as consumers had taken advantage of the aforementioned Black Friday deals to stock up
and in addition to this, cooler and rainy weather in some parts of the country during the
first part of the month further negatively impacted volumes.

As communicated during September 2017, to re-align the business to the new 'normal' a
rigorous series of efficiency improvement initiatives were implemented in the latter part
of the prior financial year. These initiatives include, but are not limited to, the unbundling
of the volume- driven side of the business through the establishment of Dairy Farmers
South Africa ("DFSA"), the launch of Project Sencillo (asset optimisation program),
the ongoing roll-out of Project Masakhane, new product launches, and product re-
formulations which resulted in lower ingredients and sugar costs – the aforementioned
have started yielding encouraging results.

Clover's strategic decision to plough back savings achieved through the abovementioned
efficiency drives into the selling prices of selected products was rewarded through an
overall volume increase of 8% and market share growth across a number of products categories.

Product group sales volumes were as follows:
- Non-alcoholic beverages                                                     -2.5%
- Concentrated products                                                       +2.1%
- Value-added dairy fluids                                                   +17.3%
- Fermented products and desserts                                            +23.2%
- Ingredients                                                                 -3.6%
- Olive oil and soya                                                            New

The market share increases in certain product categories as well as the increase in
services rendered lifted the Group's gross margin to 36%, up from 30%. The prior year
gross margin, however, includes the non-value-added fresh and long-life milk products
now being sold by DFSA.

The Group's operating margin increased from 6.3% to 8.8% due to a combination of 8%
growth in volumes and the successful implementation of the efficiency improvement
initiatives.

Clover's strategic focus on value-added product categories led to the transfer of the
supply and demand side of the volume-driven business to DFSA to enable Clover to focus
on more profitable product offerings that will suit the ongoing business model better,
whilst remaining a substantial service provider to the dairy industry. DFSA is responsible
for the procurement of raw milk as well as the selling, marketing and distribution of the
non-value-added drinking milk. The milk producers 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.

FINANCIAL PERFORMANCE
Headline earnings increased by 18.1% to R224,4 million. Headline earnings per share
("HEPS") of 117,6 cents reflect an increase 17.8% when compared to HEPS of 99,8 cents
for the corresponding period.

With the unbundling of DFSA from the operations of Clover as mentioned earlier in this
report, the comparative financial information for Sale of Product, Services Rendered,
Revenue, Cost of Sales and Gross Profit are not comparable with the financial information
reported for the current reporting period.

In order to provide a meaningful period to period comparison, pro forma adjustments
have been done and tabulated below.

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 (as illustrated below) as at 31 December 2016 presented by Clover
had the unbundling of DFSA occurred on 1 July 2016. 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.

It should be noted that the unbundling of DFSA has no effect on any of the lines below
Gross Profit as reported in the consolidated statement of comprehensive income.

                                                                                     Exclusion of the
                                  For the six months       For the six months        revenue and cost                              For the six months
                                   ended 31 December        ended 31 December    of sales of the DFSA     Income from services      ended 31 December
                                             2017(1)                     2016             business(2)      rendered to DFSA(3)                2016(4)
                        Change             Unaudited          After Pro forma               Pro forma                Pro forma              Unaudited
                             %                 R'000                    R'000                   R'000                    R'000                  R'000
Sales of products         9.2%             3 285 114                3 008 611             (1 787 742)                       –               4 796 353
Rendering of services     3.6%               927 382                  895 219                       –                  572 420                322 799
Sale of raw milk                                 335                    7 761                       –                        –                  7 761
Rental income                                  1 418                    2 013                       –                        –                  2 013
Revenue                   7.7%             4 214 249                3 913 604             (1 787 742)                  572 420              5 128 926
Cost of sales             6.3%           (2 683 786)              (2 523 761)               1 072 645                        –            (3 596 406)
Gross profit             10.1%             1 530 463                1 389 843               (715 097)                  572 420              1 532 520

Notes
1. As per the consolidated Statement of Comprehensive Income for the six months ended 31 December 2017 with reference to the unaudited interim condensed results.
2. The sales of products relating to the non-value-added drinking milk, namely Fresh, UHT and UP milk that is excluded from Clover and is part of DFSA. 
   The Pro Forma adjustment was determined with reference to actual volumes sold and realised during the corresponding period.
3. Clover provides all the production, distribution, sales and merchandising, marketing and certain administrative services to DFSA for a contracted fee. 
   The Pro Forma adjustment was determined with reference to actual volumes sold and realised during the corresponding period.
4. As per the consolidated Statement of Comprehensive Income for the six months ended 31 December 2016 with reference to the unaudited interim condensed results.

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 of the JSE Limited.

Although revenue decreased by 17.8% to R4 214,2 million, the like-for-like revenue increase was 7.7% if the revenue associated to DFSA is eliminated from the December 2016 figure as
reported. In a like-for-like comparison the revenue from the sale of non-value-added fresh and long-life drinking milk of R1 787,7 million should be excluded and replaced by revenue
from services rendered of R572,4 million. The normalised effect on the sale of product line is further illustrated in the revenue section of this report.

Operating profit is 14.8% higher at R370,4 million and headline operating profit increased 13.6% to R357,6 million. Attributable Profit for the period ended 31 December 2017 was 19.4%
higher at R235,3 million. Earnings per share ("EPS") of 123,3 cents were 19.1% above EPS of 103,6 cents reported for the corresponding period.

The effective tax rate was 28.7% compared to 26.5% during the corresponding period. The main reason for the effective tax rate above the local statutory rate is due to the foreign
withholding taxes on a dividend distributed by a subsidiary company.

Revenue
Revenue from the sale of products decreased by R1 511,2 million or 31.5% to R3 285,1
million whilst revenue from rendering of services increased by R604,6 million. This shift
in revenue lines is the result of the formation of DFSA as discussed earlier and growth
therefore exists in services rendered income.

Tabulated below is a normalised like for like revenue from sale of product comparison:   

                                                               Dec 2016
                                                Dec 2017     normalised     Dec 2016
                                 Percentage           as base excluding           as
                                     change     reported           DFSA     reported
Revenue from sale of product           9.2%    3 285 114      3 008 611    4 796 353
– Non-alcoholic beverages             -1.1%    1 205 417      1 218 294    1 218 294
– Concentrated products               +6.5%      762 998        716 221      716 221
– Value-added dairy fluids           +15.3%      643 707        558 276    2 346 018
– Fermented products and 
   desserts                          +21.2%      481 952        397 708      397 708
– Ingredients                         -3.6%      113 851        118 112      118 112
– Olive oil and soya                    New       77 189              –            –

The increase of 9.2% in revenue from sale of product, compared on a like for like
basis, was achieved through increased volumes in certain categories, most notably in
fermented products and deserts as well as dairy fluids where no price increases were
rewarded with higher volumes. In the dairy concentrated products category, the shortage
of butterfat led to above inflationary price increases and low volume growth due to the
unavailability of raw materials.

Revenue from non-alcoholic beverages were down by 1.1%, mainly as a result of a
volume decline in Waters and Ice Tea products despite the decision not to implement
price increases on this category. The launch of new products including olive oil and soya
products to the portfolio also supplemented revenue growth.

Cost of sales
Although cost of sales show a decrease of 25%, the like-for-like cost increase was 6.3%
if the cost of sales associated with DFSA is eliminated from the December 2016 figure
as reported. In a like-for-like comparison the cost of sales of non-value-added fresh and
long-life drinking milk of R 1 072,6 million made up of cost of raw material, packaging as
well as milk collection cost should be excluded. The normalised cost of sales increase
of 6.3% against the normalised increase in revenue of 7.7% was achieved by a focus on
efficiencies, recipe reformulations and a robust re-tendering drive on ingredients and
packaging materials. An increase in primary distribution cost, driven by fuel inflation and
transport of product between distribution centres eroded some of the gains. Significant
cost savings were realised during the period through efficiency improvement initiatives
that were implemented in the previous period.

Other operating income
Other operating income increased by 286.6% to R50,7 million. The main contributors to
the increase were:
- Royalty income of R13 million from DFSA;
- Claim settlements with a supplier of R14 million;
- Profit on sale of the Stikland property of R8 million and
- A profit on the unbundling of DFSA of R4,5 million.

Operating costs
Despite inflationary increases, selling and distribution costs increased by 0.2% due to 
the focus on efficiencies in secondary distribution, saving R53 million on the comparative 
period. This saving was used to invest in additional advertising and marketing and to curb 
selling price increases to the consumer.

The Group's continued focus on efficiencies throughout the business was also shown in
the R1 million reduction in administration cost.

Clover's continued focus on new brands and new market development saw research and
development cost increase by 15% to R33,6 million and advertising increased by 21.4% to
R100,7 million.

No significant restructuring costs were incurred during the period. 

FINANCIAL POSITION AND CASH FLOW
There was a net increase of R1 million in Property, Plant and Equipment. This is as a result
of capital expenditure of R101 million balanced by depreciation of R96 million and assets
scrapped of R4 million. Major projects included in the capital expenditure were:

- Clayville/Queensburgh/Milkyway milk and juice consolidation     R14 million
- Port Elizabeth UHT optimisation                                 R9 million
- Milnerton production expansion – phase1                         R8 million
- Bloemfontein yoghurt capacity expansion                         R6 million
- Port Elizabeth L1 & L2 auto palletising                         R5 million
- Heilbron/Queensburgh Numel range extension                      R4 million
- Parow EC/WC milk consolidation                                  R4 million

Capital expenditure was funded primarily from operating cash flows and interest bearing borrowings. 

Clover maintained its intangible assets and investments in joint ventures in line with the
prior corresponding period.

The establishment of DFSA led to a reduction of R294 million in inventory as UHT and
seasonal stock build up is not carried by Clover as was the case in prior periods.

Non-current financial assets increased by R387 million which is due to the granting
of an interest bearing revolving credit facility ("RCF") to DFSA for its working capital
requirements.

Trade and other receivables increased by R337 million. This increase is as a result of
manufacturing, distribution, sales and mechanising services rendered to DFSA and
volume growth achieved in the current period. 

These increases were, however, largely offset by an increase of R550 million in trade and
other payables due to the unbundling of DFSA.

Cash and short-term deposits increased by 18.3% or R109 million to R703 million, while
interest bearing debt decreased by 12.2% or R209 million to R1 498 million. Trade and
other payables however increased by 38% or R550 million to R1 995 million.

Gearing at the end of the period improved to 48% compared to 57% at December 2016.

PROSPECTS
Clover is aware of the plight of the consumer especially with an increased VAT rate and
the introduction of a Health Promotion Levy ("Sugar Tax") from 1 April 2018. The Group
will continue to implement further efficiency improvement initiatives across its supply
chain to ensure it makes its products more affordable through limiting the impact on
rising selling prices and additional taxes.

The recent political leadership changes at the beginning of 2018 have led to
renewed optimism and economic growth is projected to pick up moderately in
2018 – 2019. Investment will support growth in 2019 on the assumption that business
confidence increases and policy uncertainty fades.

Despite muted consumer confidence with discretionary spend under pressure, relatively
tight credit conditions and persistently high unemployment, private consumption should
expand as wages increase moderately and food prices stabilise.

The improved outlook for inflation owed to the stronger rand, stable oil prices as well as
an expected lower interest rate environment should provide some relief to consumers.

While the after effects of the prolonged drought will be felt for some time and be
exacerbated by the severe Western Cape drought, 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.

Clover remains optimistic that the actions taken will ensure that its business is managed
successfully through potential downward cycles and that it will support the Group's
return to historic profitability levels over the short to medium term.

Any reference to future performance included herein has not been reviewed and
reported on by the company's auditors and does not constitute an earnings forecast.

DIVIDEND DECLARATION
Notice is hereby given that the directors have declared an interim gross cash dividend of
26,56 cents (21,248 cents net of dividend withholding tax) per ordinary share for the six months
ended 31 December 2017, payable in South African currency on Monday, 9 April 2018.

The dividend represents a 9.7% increase over the interim dividend of 24,21 cents paid in
April 2017 which equates to an average inflationary increase of 4.85% per annum when
compared to the interim dividend paid in April 2016.

The dividend has been declared from income reserves.

A dividend withholding tax of 20% will be applicable to all shareholders who are not exempt.

The issued ordinary share capital at the declaration date is 190 835 364 ordinary shares.

The company's income tax number is 9657/002/71/4.

The salient dates will be as follows:                                                2018
Last day to trade "cum" the ordinary share dividend                      Tuesday, 3 April
Shares commence trading "ex" the ordinary share dividend               Wednesday, 4 April
Record date on                                                            Friday, 6 April
Payment date on                                                           Monday, 9 April

Share certificates may not be dematerialised or rematerialised between Wednesday,
4 April 2018 and Friday, 6 April 2018, both days inclusive.

On behalf of the Board

WI Buchner                                                              JH Vorster
Chairman                                                                Chief Executive 

5 March 2018                                

INTERIM CONDENSED CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME                                         
                                                                                                   For the six           For the six      For the year
                                                                                                  months ended          months ended             ended
                                                                                              31 December 2017      31 December 2016      30 June 2017
                                                                                                     Unaudited             Unaudited           Audited
                                                                                  % change               R'000                 R'000             R'000
Sale of products                                                                    -31.5%           3 285 114             4 796 353         9 401 842
Rendering of services                                                               187.3%             927 382               322 799           641 499
Sale of raw milk                                                                    -95.7%                 335                 7 761            11 907
Rental income                                                                       -29.6%               1 418                 2 013             3 351
Revenue                                                                             -17.8%           4 214 249             5 128 926        10 058 599
Cost of sales                                                                        25.4%         (2 683 786)           (3 596 406)       (7 333 041)
Gross profit                                                                         -0.1%           1 530 463             1 532 520         2 725 558
Other operating income                                                              286.6%              50 787                13 136            60 040
Dividends received                                                                  100.0%               1 600                     –                 –
Selling and distribution costs                                                       -0.2%         (1 056 452)           (1 054 556)       (2 089 364)
Administrative expenses                                                               0.8%           (133 912)             (134 986)         (284 721)
Restructuring expenses                                                               99.5%               (118)              (23 618)          (48 098)
Other operating expenses                                                           -123.9%            (22 005)               (9 826)          (48 936)
Operating profit                                                                     14.8%             370 363               322 670           314 479
Finance income                                                                      213.1%              19 870                 6 346            12 647
Finance cost                                                                         -5.5%            (73 115)              (69 285)         (145 765)
Share of profit of a joint venture                                                   10.0%              10 365                 9 427            18 486
Profit before tax                                                                    21.7%             327 483               269 158           199 847
Taxes                                                                               -32.4%            (94 275)              (71 222)          (41 105)
Profit for the period                                                                17.8%             233 208               197 936           158 742


                                                                                                         For the six        For the six   For the year
                                                                                                        months ended       months ended          ended
                                                                                                    31 December 2017   31 December 2016   30 June 2017
                                                                                                               R'000              R'000          R'000
                                                                                            Notes          Unaudited          Unaudited        Audited
Profit for the period (carried forward from the previous page)                                               233 208            197 936        158 742
Other comprehensive income to be reclassified to profit or loss in subsequent periods:                                                                
Other comprehensive income to be reclassified to profit or loss in subsequent periods:                                                                
Exchange differences on translations of foreign operations, net of tax                         5             (3 437)           (14 218)       (14 510)
Exchange differences on translations of foreign operations                                                   (3 437)           (14 218)       (14 510)
Reclassified to profit or loss                                                                                     –                  –              –
Income tax effect                                                                                                  –                  –              –
Net gain/(loss) on cash flow hedges, net of tax                                                                    –              2 389        (2 412)
Cash flow hedge fair value adjustment                                                                              –            (1 335)        (9 294)
Reclassified to profit or loss                                                                                     –              4 653          5 944
Income tax effect                                                                                                  –              (929)            938
Net other comprehensive income to be reclassified to profit or loss in subsequent periods                    (3 437)           (11 829)       (16 922)
Total comprehensive income for the period, net of tax                                                        229 771            186 107        141 820
Profit for the period attributable to:                                                                                                                
Equity holders of the parent                                                                                 235 335            197 130        158 258
Non-controlling interests                                                                                    (2 127)                806            484
                                                                                                             233 208            197 936        158 742
Total comprehensive income attributable to:                                                                                                           
Equity holders of the parent                                                                                 231 898            185 301        141 336
Non-controlling interests                                                                                    (2 127)                806            484
                                                                                                             229 771            186 107        141 820

                                                                                                        For the six       For the six     For the year
                                                                                                       months ended      months ended            ended
                                                                                                   31 December 2017  31 December 2016     30 June 2017
                                                                                                              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                                  235 335           197 130          158 258
Gross remeasurements excluded from headline earnings                                                       (12 725)           (7 859)         (42 674)
Loss/(Profit) on sale and scrapping of property, plant and equipment                                        (8 042)             1 411         (33 404)
Profit on the disposal of investment in Lactolab                                                              (200)           (9 270)          (9 270)
Profit on the unbundling of Dairy Farmers South Africa (Pty) Ltd                                            (4 483)                 –                –
Taxation effects of remeasurements                                                                            1 802               756            6 033
Headline earnings attributable to shareholders of the parent company                     18.1               224 412           190 027          121 617
Issued ordinary shares                                                                                  190 835 364       190 352 747      190 835 364
Number of ordinary shares used in the calculation of:                                                                                                 
Earnings per share                                                                                                                                    
– weighted average                                                                                      190 835 364       190 336 801      190 433 237
Diluted earnings per share                                                                                                                            
– weighted average                                                                                      192 012 075       193 353 978      192 358 073
Earnings per share attributable to ordinary equity holders of the parent                                                                             
Earnings per share (cents)                                                               19.1                 123.3             103.6             83.1
Diluted earnings per share (cents)                                                       20.2                 122.6             102.0             82.3
Headline earnings per share (cents)                                                      17.8                 117.6              99.8             63.9
Diluted headline earnings per share (cents)                                              18.9                 116.9              98.3             63.2

INTERIM CONDENSED CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
As at
                                                                                                                31 December    31 December     30 June
                                                                                                                       2017           2016        2017
                                                                                                                  Unaudited      Unaudited     Audited
                                                                                                                      R'000          R'000       R'000
ASSETS                                                                                                                                                
Non-current assets                                                                                                                                    
Property, plant and equipment                                                                                     2 430 145      2 429 169   2 427 444
Investment properties                                                                                                     9             10           9
Intangible assets                                                                                                   639 223        602 189     650 663
Investment in joint venture                                                                                          49 311         41 078      38 946
Other non-current financial assets                                                                                  393 267          5 657       3 165
Deferred tax assets                                                                                                  35 365         36 404      45 496
                                                                                                                  3 547 320      3 114 507   3 165 723
Current assets                                                                                                                                        
Inventories                                                                                                         990 314      1 283 862     964 630
Trade and other receivables                                                                                       1 798 293      1 461 140   1 341 311
Prepayments                                                                                                          14 137         32 245      19 844
Income tax receivable                                                                                                     –              –       7 165
Other current financial assets                                                                                            –          7 955           –
Cash and short-term deposits                                                                                        703 477        594 503     544 863
                                                                                                                  3 506 221      3 379 705   2 877 813
Assets classified as held-for-sale                                                                                        –         16 060       4 607
                                                                                                                  3 506 221      3 395 765   2 882 420
Total assets                                                                                                      7 053 541      6 510 272   6 048 143

                                                                                                               31 December     31 December     30 June
                                                                                                                      2017            2016        2017
                                                                                                                 Unaudited       Unaudited     Audited
                                                                                                                     R'000           R'000       R'000
EQUITY AND LIABILITIES                                                                                                                                
Equity                                                                                                                                                
Issued capital                                                                                                       9 542           9 518       9 542
Share premium                                                                                                      892 692         883 503     892 692
Other reserves                                                                                                      84 105          80 411      78 642
Retained earnings                                                                                                2 139 736       1 991 598   1 904 349
Other components of equity                                                                                           6 200          14 730       9 637
Equity attributable to equity holders of the parent                                                              3 132 275       2 979 760   2 894 862
Non-controlling interests                                                                                         (17 306)         23 621     (15 179)
Total equity                                                                                                     3 114 969       3 003 381   2 879 683
Liabilities                                                                                                                                          
Non-current liabilities                                                                                                                               
Interest-bearing loans and borrowings                                                                              523 405         920 670     767 621
Non-controlling interest put liability                                                                              57 088               –      57 088
Employee-related obligations                                                                                        80 230          80 617      82 595
Deferred tax liability                                                                                             248 067         235 222     221 065
Trade and other payables                                                                                            16 494          19 284      25 492
Other non-current financial liabilities                                                                              8 234           2 199       9 683
                                                                                                                   933 518       1 257 992   1 163 544
Current liabilities                                                                                                                                   
Trade and other payables                                                                                         1 995 421       1 444 962   1 274 700
Interest-bearing loans and borrowings                                                                              974 556         786 339     714 304
Other current financial liabilities                                                                                 12 975           4 427       6 141
Income tax payable                                                                                                  13 679           2 146           –
Employee-related obligations                                                                                         8 423          11 025       9 771
                                                                                                                 3 005 054       2 248 899   2 004 916
Total liabilities                                                                                                3 938 572       3 506 891   3 168 460
Total equity and liabilities                                                                                     7 053 541       6 510 272   6 048 143

INTERIM CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
                                                                                    For the six months     For the six months
                                                                                                 ended                  ended      For the year ended
                                                                                      31 December 2017       31 December 2016            30 June 2017
                                                                                             Unaudited              Unaudited                 Audited
                                                                                                 R'000                  R'000                   R'000
Balance at 1 July                                                                            2 879 683              2 888 717               2 888 717
Profit for the period                                                                          233 208                197 936                 158 742
Other comprehensive income                                                                     (3 437)               (11 829)                (16 922)
Total comprehensive income                                                                     229 771                186 107                 141 820
Ordinary shares issued                                                                               –                    731                       –
Share-based payment reserve accrued                                                              5 463                  8 108                   5 865
Share appreciation rights exercised                                                                  –                (1 909)                   (281)
Non-controlling interest put option movement                                                         –                      –                (57 088)
Non-controlling interest arising from business combination                                           –                      –                  24 234
Acquisition of non-controlling interest                                                              –                      –                 (8 354)
Dividends to non-controlling interest                                                                –                  (490)                       –
Dividends                                                                                            –               (77 930)               (115 292)
Dividends forfeited                                                                                 52                     47                      62
Balance at end of the period                                                                 3 114 969              3 003 381               2 879 683
Consists of:                                                                                                                                        
Share capital and premium                                                                      902 234                893 021                 902 234
Other capital reserves                                                                          84 105                 80 411                  78 642
Retained earnings                                                                            2 139 736              1 991 598               1 904 349
Other components of equity                                                                       6 200                 14 730                   9 637
Shareholder equity                                                                           3 132 275              2 979 760               2 894 862
Non-controlling interest                                                                      (17 306)                 23 621                (15 179)
Total equity                                                                                 3 114 969              3 003 381               2 879 683

INTERIM CONDENSED CONSOLIDATED STATEMENT
OF CASH FLOWS
                                                                                    For the six months      For the six months
                                                                                                 ended                   ended     For the year ended
                                                                                      31 December 2017        31 December 2016           30 June 2017
                                                                                             Unaudited               Unaudited                Audited
                                                                                                 R'000                   R'000                  R'000
OPERATING ACTIVITIES                                                                                                                                  
Profit before tax                                                                              327 483                 269 158                199 847
Adjustment for non-cash items                                                                  155 424                 147 212                286 451
Working capital adjustments                                                                    231 585               (483 442)              (162 227)
Income tax paid                                                                               (37 628)                (35 673)               (47 115)
Net cash flows (used in)/from operating activities                                             676 864               (102 745)                276 956
INVESTING ACTIVITIES                                                                                                                                  
Proceeds from sale of property, plant and equipment                                             16 511                   1 227                 58 941
Interest received                                                                               19 870                   6 346                 12 647
Acquisition of controlling interest in Clover Pride Proprietary Limited                              –                       –               (29 639)
Cancellation of a finance lease                                                                      –                       –                  3 854
Disposal of shares held in Lactolab                                                                200                  11 714                 10 275
Capital expenditure: Tangible and intangible assets                                          (106 736)               (213 947)              (322 554)
Net other investing activities                                                                   1 364                   2 948               (11 232)
Net cash flows used in investing activities                                                   (68 791)               (191 712)              (277 708)
FINANCING ACTIVITIES                                                                                                                                  
Interest paid                                                                                 (73 115)                (69 285)              (145 765)
Dividends forfeited/(paid)                                                                          52                (78 420)              (115 230)
Non-controlling interest acquired in Clover Frankies Proprietary Limited                             –                       –                (4 440)
Revolving credit facility granted to Dairy Farmers South Africa Proprietary Limited          (391 702)                       –                      –
Cancellation of a finance lease                                                                      –                       –                (3 854)
Net increase in borrowings                                                                      16 037                 432 539                211 307
Net cash flows from financing activities                                                     (448 728)                 284 834               (57 982)
Net (decrease)/increase in cash and cash equivalents                                           159 345                 (9 623)               (58 734)
Net foreign exchange difference                                                                  (731)                      55                  (474)
Cash and cash equivalents at the beginning of the period                                       544 863                 604 071                604 071
Cash and cash equivalents at the end of the period                                             703 477                 594 503                544 863

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 value-added dairy fluids products is focused on providing the market with quality value- added dairy fluid products.
      - The 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 olive oil and soy products consist of olive oil, olive related products and soy based beverages.

                                                                                     For the six months     For the six months
                                                                                                  ended                  ended     For the year ended
                                                                                       31 December 2017       31 December 2016           30 June 2017
                                                                                              Unaudited              Unaudited                Audited
                                                                                                  R'000                  R'000                  R'000
External revenue from sale of products                                                                                                              
Non-alcoholic beverages                                                                       1 205 417              1 218 294              2 369 071
Concentrated products                                                                           762 998                716 221              1 312 575
Value-added dairy fluids                                                                        643 707              2 346 018              4 643 600
Fermented products and desserts                                                                 481 952                397 708                794 403
Ingredients                                                                                     113 851                118 112                216 424
Olive oil and soya                                                                               77 189                      –                 65 769
                                                                                              3 285 114              4 796 353              9 401 842
Margin on material(#)                                                                                                                                          
Non-alcoholic beverages                                                                         659 386                683 487              1 288 742
Concentrated products                                                                           291 392                233 095                393 180
Value-added dairy fluids                                                                        270 430                935 592              1 764 858
Fermented products and desserts                                                                 180 726                119 310                220 274
Ingredients                                                                                      37 223                 33 587                 71 265
Olive oil and soya                                                                               28 344                      –                 29 714
                                                                                              1 467 501              2 005 071              3 768 033

      (#)Margin on material consist of sale of products 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. As mentioned in note 7 below,
      the results of DFSA are no longer consolidated into the Group's result however, the Group retained the revenue from Dairy Fluids for value-added milk products as well as milk
      products sold in Botswana, Namibia, Swaziland and Lesotho. 
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 R101,3 million and also acquired intangible assets at a cost of R5,4 million.
5.    ASSETS CLASSIFIED AS HELD-FOR-SALE
      At 30 June 2017, the balance of R4,6 million represented a property situated in Stikland (including movable items forming part of the sale). The property was sold in October 2017.
6.    OTHER COMPONENTS OF EQUITY
      Other comprehensive income, net of tax:

      The disaggregation of changes of other comprehensive income by each type of reserve in equity is shown below: 
                                                                                                            Foreign currency
                                                                                                         translation reserve                     Total
                                                                                                                       R'000                     R'000
      Foreign exchange translation differences                                                                       (3 437)                   (3 437)
                                                                                                                     (3 437)                   (3 437)

7.    UNBUNDLING OF DFSA
      With effect from 1 July 2017 Clover only holds 26% of the shares in DFSA and as a consequence the results from DFSA are no longer consolidated into the Group's results.
      Previously, when DFSA was a subsidiary of the Clover Group, all intercompany balances would have been eliminated on a group consolidated basis. However, with the unbundling
      of DFSA, the balances owing to and from the Group now reflect as part of "trade and other receivables", "trade and other payables" and "other non-current financial assets"
      respectively as follows:

      Trade and other receivables                                                                                                                R'000
      Trade and other receivables (excluding DFSA)                                                                                           1 496 025
      DFSA trade account                                                                                                                       302 268
      Total                                                                                                                                  1 798 293

      Trade and other payables                                                                                                                   R'000
      Trade and other payables (excluding DFSA)                                                                                              1 540 709
      DFSA trade account                                                                                                                       454 712
      Total                                                                                                                                  1 995 421

      Other non-current financial assets                                                                                                         R'000
      Other non-current financial assets (excluding DFSA)                                                                                        1 565
      DFSA revolving credit facility                                                                                                           391 702
      Total                                                                                                                                    393 267

      The revolving credit facility ("RCF") is repayable by DFSA on the 20th anniversary from the effective date and bears interest at the average cost of debt to the Group. The facility is
      designated as a level 3 financial instrument. 
      The investment in associate line does not appear on the statement of financial position as the investment is less than R 1000 and the results are quoted in R'000.

8.    FAIR VALUE OF FINANCIAL INSTRUMENTS
      The Group measures derivative foreign exchange contracts, forward share purchase contracts, investment in cell captive and call and put options at fair value.

      The fair value of foreign exchange contracts, 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 Rnil million as at 31 December 2017. 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 forward purchase of Clover Industries Limited's shares is shown at a fair value liability of R21 million as at 31 December 2017. 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 R0,7 million as at 31 December 2017. 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 Good Hope (Pty) Ltd is shown at a fair value asset of R0,8 million as at 31 December 2017. This fair value is within level 3 of
      the fair value hierarchy and is determined using DCF with the key inputs being free cash flow forecast and market interest rates. There was no movement in the fair value 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.

9.    EVENTS AFTER THE REPORTING PERIOD
      No significant events occurred subsequent to the end of the period.

10.   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.

11.   PREPARATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED RESULTS
      The interim condensed consolidated financial statements set out above were prepared under the supervision of Frantz Frederik Scheepers, CA(SA), in his capacity as Chief Financial
      Officer of the Group.

      The interim condensed consolidated financial statements have not been audited or reviewed by the Group's independent auditors.

clover.co.za



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