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CLOVER INDUSTRIES LIMITED - Unaudited condensed consolidated results and cash dividend declaration for the six months ended 31 December 2018

Release Date: 05/03/2019 07:15
Code(s): CLR     PDF:  
 
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Unaudited condensed consolidated results and cash dividend declaration for the six months ended 31 December 2018

Clover Industries Limited 
(Incorporated in the Republic of South Africa)
(Registration Number: 2003/030429/06)
ISIN: ZAE000152377
Share Code: JSE: CLR, NSX:CLN
                 
UNAUDITED INTERIM CONDENSED CONSOLIDATED RESULTS AND CASH DIVIDEND DECLARATION
for the six months ended 31 December 2018   

KEY FINANCIAL INDICATORS

REVENUE UP 4,1%  
R4,21 BILLION TO R4,39 BILLION

REVENUE FROM SALES OF PRODUCTS UP 4,6% 
R3,29 BILLION TO R3,44 BILLION

HEPS UP 5,0% 
117,6 CENTS TO 123,5 CENTS

HEADLINE EARNINGS UP 5,1% 
R224,4 MILLION TO R235,9 MILLION

INTERIM DIVIDEND PER SHARE UP 5,0% 
26,56 CENTS TO 27,89 CENTS

OPERATING PROFIT DOWN 7,3% 
R370,4 MILLION TO R343,5 MILLION

EPS UP 0,2% 
123,3 CENTS TO 123,5 CENTS

EARNINGS UP 0,2% 
R235,3 MILLION TO R235,9 MILLION

DIRECTORATE AND STATUTORY INFORMATION

Directors: Non-executive                       Postal address
WI Buchner (Chairman)                          PO Box 6161, Weltevredenpark, 1715 
SF Booysen (Dr)(#) (Lead Independent)
NV Mokhesi(#)                                  Telephone
B Ngonyama(#)                                  (011) 471 1400
NA Smith 
JW Basson(#)                                   Registration number
JFM Morgan#^                                   2003/030429/06

(#) Independent                                Tax number
^ British national                             9657/002/71/4   

Directors: Executive                           Transfer secretary 
JH Vorster (Chief Executive)                   Computershare Investor Services Proprietary Limited
FF Scheepers (Chief Financial Officer)         Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196

Company Secretary                              Auditors
J van Heerden                                  Ernst & Young Inc.

Ordinary share code                            Bankers
JSE: CLR, NSX:CLN                              The Absa Group, Rand Merchant Bank, Investec Bank
ISIN: ZAE000152377
                                               Sponsor
Registered office                              Rand Merchant Bank (a division of FirstRand Bank Limited) (JSE)
200 Constantia Drive, Constantia Kloof, 1709   Merchantec Capital Namibia Proprietary Limited (NSX) 

COMMENTARY 

Overview

Consumer confidence remained constrained throughout the trading period as a
combination of higher taxes and record high fuel prices negatively impacted on
buying power. 

The ongoing deterioration in disposable household income has had an adverse
effect on consumer goods companies and consensus amongst analysts are that
tough times lie ahead for South Africa's food producers.

Clover's early implementation of its strategic focus contributed to a stable
performance despite pressure on consumer spending. The Group reported
increases in volumes and moderate improvements in prices of selective products,
whilst remaining focused on:

- growth through product and brand development;
- volume growth and market share recovery;
- distribution effectiveness and reach;
- cost management and production efficiencies; and
- win-win stakeholder relationships.

Selected product group sales volumes were as follows:    
         
-   Non-alcoholic beverages                                            +7,4%   
-   Concentrated products                                             -18,9%   
-   Value-added dairy fluids                                           +1,6%   
-   Fermented products and desserts                                   +73,1%    

Volume increases have however not flowed to the bottom line to the same extent,
primarily due to additional promotions and rebates that were required to support
volume growth.

Clover continued with its strategy of investing savings back into pricing and have
built on initiatives previously implemented. Project Sencillo (asset optimisation and
efficiencies), Project Meglio (recipe reformulations to reduce product unit costs),
the ongoing roll-out of Project Masakhane (township distribution), as well as new
product launches and product reformulations that resulted in lower ingredient
and sugar costs, continue to yield encouraging results. 

The Board's strategic decision to offset selling price increases against savings from
the abovementioned efficiency drives, is another contributing factor to the overall
volume increase of 5,6% and market share growth across a number of product
categories.

The Group's gross profit margin has increased to 37,5% as at 31 December 2018
from 36,3% as at 31 December 2017. The main reason for the 1,2% increase is the
implementation of IFRS 15 (Revenue from contracts with customers) in the current
reporting period. The full impact of IFRS 15 is discussed in more detail in note 9 of
the accounting policies and notes. 

The Group's operating margin decreased from 8,8% as at 31 December 2017 to
7,8% as at 31 December 2018. The decrease can be attributed to the introduction of
the health promotion levy ("Sugar Tax") which amounted to circa R42,3 million for
the period ended 31 December 2018. In addition, the sharp increase in fuel prices
during the latter part of the 2018 calendar made it difficult to contain distribution
costs which could not be passed on to the consumer. During the reporting period,
Clover invested significantly in human capital to ensure a sales force that will
drive ongoing high-quality service delivery to the trade. The Group expects these
investments to provide a platform for better volume growth in the future. 

Financial performance

Headline earnings increased by 5,1% to R235,9 million as at 31 December 2018.
Headline earnings per share ("HEPS") of 123,5 cents reflect an increase of 5,0%
when compared to HEPS of 117,6 cents for the period ended 31 December 2017.

At 31 December 2018, operating profit is 7,3% lower at R343,5 million and headline
operating profit decreased by 3,9% to R343,4 million. For the same period,
attributable profit was 0,2% higher at R235,9 million. Earnings per share ("EPS")
of 123,5 cents at 31 December 2018 was 0,2% above EPS of 123,3 cents at 31
December 2017.

The effective tax rate was 26,5% at 31 December 2018 compared to 28,7% at 31
December 2017. The difference is mainly because of Botswana's lower tax rate of
22% and the share of profits from joint ventures that is a net of tax number included
in profit before tax.

Revenue

Revenue from the sales of products increased by R150,5 million or 4,6% to R3 435,6
million at 31 December 2018, whilst revenue from rendering of services increased
by R21,0 million for the same period. The increase is attributable to an increase in
volumes of 5,6% and prices of 3,1%. The combined increase of 8,7% was however
offset by charges against sales amounting to R135 million due to adoption of IFRS 15. 

Charges against sales are deducted from sales of products in the current reporting
period ending 31 December 2018 whereas in the reporting period 31 December
2017 charges against sales amounting to R96,0 million was included as part of Cost
of Sales. If the charges against sales are excluded in the current year, revenue from
sales of products would have increased by R285,5 million (8,7%) as opposed to the 4,6%. 

Cost of sales

Cost of sales increased by R56,6 million (2,1%) as at 31 December 2018 when
compared to 31 December 2017. The most significant factor affecting cost of
sales was the introduction of Sugar Tax in April 2018. Sugar Tax contributed
approximately R42,3 million (1,6%) to the increase in Cost of Sales. Cost of sales did
not increase in-line with the increase in revenue primarily due to adoption of IFRS
15 discussed earlier. If charges against sales are included as part of cost of sales,
it would have increased by R191,6 million (7,1%). The period to period increase
(excluding Sugar Tax) is 5,5%, which corresponds with the increase in volumes of 5,6%.

Other operating income

The decrease of R9,6 million (18,3%) at 31 December 2018 in other operating
income when compared to 31 December 2017 is mainly as a result of a R8,0 million
profit on disposal of assets recognised in that period. Other operating income
consist mainly of:

-  Royalty income of R31,0 million from DFSA;
-  Canteen income of R3,2 million;
-  Discounts received of R2,0 million and
-  Fair value adjustment on the share appreciation rights hedge of R1,2 million.

Operating costs

Selling costs consist mainly of advertising, promotions, sales and marketing costs.
At 31 December 2018, selling costs amounted to R530,3 million (31 December
2017: R460,4 million). The increase of R69,9 million (15,2%) is attributable to
aggressive marketing and selling campaigns to increase volume sales which is
evident from the 5,6% increase in volumes as indicated above. In line with Clover's
commitment to deliver and maintain high quality service levels in retail stores,
sales force spend increased by R72,6 million or 25,0%. This also supported volume
increases.

Distribution costs consist mainly of personnel expenses, collection and delivery
costs. At 31 December 2018, distribution costs amounted to R652,5 million (31
December 2017: R596,1 million). The increase of R56,4 million (9,5%) is mainly
attributable to the following:

-  an increase in personnel expenses due to wage increases of 7,5%;
-  an increase in container expenses due to increased volumes; and
-  an increase in collection and delivery charges mainly as a result of the increases
   in fuel prices.

Clover's continued focus on new brands and new market development saw
these expenses increase by R12,0 million (9,0%) when compared to 31 December
2017. The increase is as a result of higher research and development costs (R&D)
which was offset against savings realised through cost initiatives implemented.
The increase in R&D costs is mainly attributable to research on sugary beverage
reformulations to reduce the sugar content as well as new product developments.

The decrease of R7,2 million (32,7%) in other operating expenses is mainly
as a result of the difference in the fair value adjustment on the SAR hedge of
R8,6 million which was an expense as at 31 December 2017 and a gain as at 31
December 2018.

Net finance cost reduced from R53,2 million at 31 December 2017 to R40,4
million at 31 December 2018. This decrease is mainly as a result of an increase in
the average cash on hand. The average interest-bearing borrowings were also
marginally lower than in the prior comparative period.   

Financial position and cash flow

Property, Plant and Equipment decreased by R35,2 million compared to the period
1 January 2018 to 31 December 2018. This was mainly as a result of disposals
amounting to R26,2 million, capital expenditure of R203,4 million balanced by
depreciation of R196,0 million. Major capital projects undertaken for the period
ended 31 December 2018 include:

-    Bloemfontein yoghurt capacity expansion                         R33 million
-    Lichtenburg processed cheese                                     R9 million
-    Milnerton capacity expansion                                     R9 million
-    Cape Town central distribution centre upgrade                    R8 million
-    Numel capacity expansion                                         R7 million
-    Queensburgh milk flow optimisation                               R6 million
-    Lichtenburg AFE filler                                           R6 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 period ended 31 December 2017. "Investment in associate and credit facility"
relates to Dairy Farmers of South Africa (Pty) Ltd ("DFSA"), which was impaired
during the previous financial year. This impairment is currently in excess of the
carrying amount and further discussed in Note 7 of the accounting policies and
notes.

The increase of R16,9 million (1,7%) in inventory when compared to 31 December
2017 is due to the increase in the cost of goods and services purchased to
manufacture products which was offset by a decrease in inventory volumes.

Other non-current financial assets are comprised of the call options to acquire the
remaining shares in Clover Pride (Pty) Ltd and Clover Goodhope (Pty) Ltd.

Trade and other receivables increased by R6,3 million due to an increase of R83,2
million (5,6%) in normal trade receivables when compared to the prior comparative
period which correlates with the increase in revenue. The increase in trade
receivables was however offset by a decrease of R76,8 million in the trade account
receivable from DFSA for the same period.

The increase in cash and short-term deposits from 1 July 2018 to 31 December
2018 is largely attributable to cash generated from operations of R193,0 million,
cash outflow from capital expenditure of R79,0 million, cash outflow from
investment in DFSA of R90,0 million, cash outflow due to dividend payments of
R92,0 million and a net increase in loans and borrowings of R244,0 million.

Trade and other payables decreased by R40,6 million when compared to the prior
comparative period. There was a 7,7% increase in normal trade payables of R19,7
million. The increase in normal trade payables was however offset by a decrease of
R60,3 million in the trade payable to DFSA when compared to 31 December 2017.

Total interest-bearing loans and borrowings as at 31 December 2018 amounted
to R1 594,6 million compared to R1 498,0 million as at 31 December 2017. The
increase is due to timing differences in when drawdowns on facilities were made,
and when repayments were made on the call accounts. The impact is evident from
the increase in cash and cash equivalents discussed above.

Gearing at 31 December 2018 was 53,7%. Gearing net of cash improved to 19,3%
from 25,5% compared to 31 December 2017.

Prospects

Consumer spending is expected to remain under pressure with continued strict
credit conditions and persistently high unemployment.The financial health of
state owned entities ("SOEs") and specifically the financing of Eskom may have
an adverse impact on the country's credit rating. Furthermore, the uncertainty
in anticipation of the upcoming general elections may also have an influence on
consumer confidence.

An improved outlook on inflation (if supported by a stronger rand) should provide
some relief to consumers with private consumption expanding as wages increase
moderately and food prices stabilise.

As long as pressure on consumer spending prevails, Clover's strategic focus on:

-  growth through product and brand development;
-  volume growth and market share recovery;
-  distribution effectiveness and reach;
-  cost management and production efficiencies; and
-  win-win stakeholder relationships, 

remains the cornerstone for future performance.

An extension of Project Sencillo (asset optimisation and efficiencies) and Project
Meglio (recipe reformulations to reduce product unit costs) as well as the ongoing
roll-out of Project Masakhane (township distribution), new product launches and
product reformulations will position Clover to support cash strapped consumers
with nutritious products at the optimal price points. 

Clover remains optimistic that ongoing delivery against its strategic focus will
ensure that its operations are sustainable despite the current stagnation in the
economy and that it will be well positioned to take advantage of an economic
upswing. 

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 27,89 cents (22,312 cents net of dividend withholding tax) per 
ordinary share for the six months ended 31 December 2018, payable in South
African currency on Monday, 01 April 2019.

The dividend represents a 5,0% increase over the interim dividend of 26,56 cents
paid in April 2018.

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 191 911 737 ordinary shares.

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

The salient dates will be as follows:                                           2019

Last day to trade "cum" the ordinary share dividend                Tuesday, 26 March
Shares commence trading "ex" the ordinary share
dividend                                                         Wednesday, 27 March
Record date on                                                      Friday, 29 March
Payment date on                                                     Monday, 01 April

Share certificates may not be dematerialised or rematerialised between Wednesday
Day, 27 March 2019 and Friday, 29 March 2019, both days inclusive.

On behalf of the Board

WI Buchner                                            JH Vorster
Chairman                                              Chief Executive  
5 March 2019                                           

INTERIM CONDENSED CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME

                                                                                              For the six        For the six   For the year   
                                                                                             months ended       months ended          ended   
                                                                                         31 December 2018   31 December 2017   30 June 2018   
                                                                                                Unaudited          Unaudited        Audited   
                                                                              % change              R'000              R'000          R'000   
Sales of products                                                                 4,6%          3 435 568          3 285 114      6 435 663   
Rendering of services                                                             2,3%            948 384            927 382      1 873 581   
Sale of raw milk                                                                 11,0%                372                335            335   
Rental income                                                                    36,1%              1 930              1 418          2 898   
Revenue                                                                           4,1%          4 386 254          4 214 249      8 312 477   
Cost of sales                                                                     2,1%        (2 740 421)        (2 683 786)    (5 357 424)   
Gross profit                                                                      7,5%          1 645 833          1 530 463      2 955 053   
Other operating income                                                          -18,3%             42 826             52 387         82 913   
Selling and distribution costs                                                   12,0%        (1 182 765)        (1 056 452)    (2 117 936)   
Administrative expenses                                                           8,9%          (145 897)          (133 912)      (273 310)   
Restructuring expenses                                                                            (1 722)              (118)        (4 123)   
Other operating expenses                                                        -32,7%           (14 815)           (22 005)       (31 548)   
Operating profit                                                                 -7,3%            343 460            370 363        611 049   
Impairment related to DFSA                                                        0,0%                  -                  -      (439 042)   
Finance income                                                                   55,4%             30 870             19 870         47 618   
Finance cost                                                                     -2,6%           (71 248)           (73 115)      (141 880)   
Share of profit of a joint venture                                               26,3%             13 094             10 365         21 104   
Profit before tax                                                                -3,5%            316 176            327 483         98 849   
Taxes                                                                           -11,2%           (83 720)           (94 275)      (139 509)   
Profit for the period                                                            -0,3%            232 456            233 208       (40 660)   

                                                                                              For the six        For the six   For the year   
                                                                                             months ended       months ended          ended   
                                                                                         31 December 2018   31 December 2017   30 June 2018   
                                                                                                    R'000              R'000          R'000   
                                                                                 Notes          Unaudited          Unaudited        Audited   
Profit for the period (carried forward from the previous page)                                    232 456            233 208       (40 660)   
Other comprehensive income to be reclassified to profit or loss in                                                                            
subsequent periods:                                                                                                                           
Exchange differences on translations of foreign operations, net of tax                              2 123            (3 437)          7 523   
Exchange differences on translations of foreign operations                                          2 123            (3 437)          7 523   
Reclassified to profit or loss                                                                          -                  -              -   
Income tax effect                                                                                       -                  -              -   
Net other comprehensive income to be reclassified to profit or loss in                                                                        
subsequent periods                                                                                  2 123            (3 437)          7 523   
Total comprehensive income for the period, net of tax                                             234 579            229 771       (33 137)   
Profit for the period attributable to:                                                                                                        
Equity holders of the parent                                                                      235 895            235 335       (38 021)   
Non-controlling interests                                                                         (3 439)            (2 127)        (2 639)   
                                                                                                  232 456            233 208       (40 660)   
Total comprehensive income attributable to:                                                                                                   
Equity holders of the parent                                                                      238 018            231 898       (30 498)   
Non-controlling interests                                                                         (3 439)            (2 127)        (2 639)   
                                                                                                  234 579            229 771       (33 137)   

                                                                                              For the six        For the six   For the year   
                                                                                             months ended       months ended          ended   
                                                                                         31 December 2018   31 December 2017   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                                                                                           235 895            235 335       (38 021)   
Gross remeasurements excluded from headline earnings                                                 (48)           (12 725)        (6 709)   
Loss/(Profit) on sale and scrapping of property, plant and equipment                                 (48)            (8 042)        (1 273)   
Non-controlling interest portion in loss on sale of property, plant                                                                           
and equipment                                                                                           -                  -          (753)   
Profit on the disposal of investment in Lactolab                                                        -              (200)          (200)   
Profit on the unbundling of Dairy Farmers South Africa (Pty) Ltd                                        -            (4 483)        (4 483)   
Taxation effects of remeasurements                                                                     10              1 802            542   
Headline earnings attributable to shareholders of the parent                                                                                  
company                                                                           5,1%            235 857            224 412       (44 188)   
Issued ordinary shares                                                                        191 911 737        190 835 364    190 835 364   
Number of ordinary shares used in the calculation of:                                                                                         
Earnings per share                                                                                                                            
- weighted average                                                                            191 014 961        190 835 364    190 835 364   
Diluted earnings per share                                                                                                                    
- weighted average                                                                            193 921 575        192 012 075    192 680 105   
Earnings per share attributable to ordinary equity holders of the                                                                             
parent                                                                                                                                        
Earnings per share (cents)                                                        0,2%              123.5              123.3         (19.9)   
Diluted earnings per share (cents)                                               -0,8%              121.6              122.6         (19.7)   
Headline earnings per share (cents)                                               5,0%              123.5              117.6         (23.1)   
Diluted headline earnings per share (cents)                                       4,0%              121.6              116.9         (22.9)   

INTERIM CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL POSITION

As at
                                                                                                      31 December   31 December     30 June   
                                                                                                             2018          2017        2018   
                                                                                                        Unaudited     Unaudited     Audited   
                                                                                                            R'000         R'000       R'000   
ASSETS                                                                                                                                        
Non-current assets                                                                                                                            
Property, plant and equipment                                                                           2 394 943     2 430 145   2 417 791   
Investment properties                                                                                           9             9           9   
Intangible assets                                                                                         614 238       639 223     626 671   
Investment in joint venture                                                                                59 129        49 311      46 035   
Investment in associate and credit facility                                                                     -       391 702           -   
Other non-current financial assets                                                                          4 452         1 565       5 781   
Deferred tax assets                                                                                        21 432        35 365      30 203   
                                                                                                        3 094 203     3 547 320   3 126 490   
Current assets                                                                                                                                
Inventories                                                                                             1 007 172       990 314     869 091   
Trade and other receivables                                                                             1 804 646     1 798 293   1 479 090   
Prepayments                                                                                                48 989        14 137      16 829   
Income tax receivable                                                                                           -             -       3 702   
Cash and short-term deposits                                                                            1 020 052       703 477     760 693   
                                                                                                        3 880 859     3 506 221   3 129 405   
Assets classified as held-for-sale                                                                              -             -       2 719   
                                                                                                        3 880 859     3 506 221   3 132 124   
Total assets                                                                                            6 975 062     7 053 541   6 258 614   

                                                                                                      31 December   31 December     30 June   
                                                                                                             2018          2017        2018   
                                                                                                        Unaudited     Unaudited     Audited   
                                                                                                            R'000         R'000       R'000   
EQUITY AND LIABILITIES                                                                                                                        
Equity                                                                                                                                        
Issued capital                                                                                              9 596         9 542       9 542   
Share premium                                                                                             911 952       892 692     892 692   
Other reserves                                                                                            101 508        84 105     105 689   
Retained earnings                                                                                       1 950 842     2 139 736   1 817 322   
Foreign currency translation reserve                                                                       19 283         6 200      17 160   
Equity attributable to equity holders of the parent                                                     2 993 181     3 132 275   2 842 405   
Non-controlling interests                                                                                (21 257)      (17 306)    (17 818)   
Total equity                                                                                            2 971 924     3 114 969   2 824 587   
Liabilities                                                                                                                                   
Non-current liabilities                                                                                                                       
Interest-bearing loans and borrowings                                                                     917 917       523 405     665 059   
Investment in associate and credit facility                                                                28 521             -           -   
Non-controlling interest put liability                                                                     23 226        57 088      23 226   
Employee-related obligations                                                                               71 932        80 230      75 424   
Deferred tax liability                                                                                    268 894       248 067     260 309   
Trade and other payables                                                                                   11 451        16 494      11 448   
Other non-current financial liabilities                                                                         -         8 234       2 776   
                                                                                                        1 321 941       933 518   1 038 242   
Current liabilities                                                                                                                           
Trade and other payables                                                                                1 954 803     1 995 421   1 676 176   
Interest-bearing loans and borrowings                                                                     676 691       974 556     685 691   
Other current financial liabilities                                                                         8 807        12 975      13 639   
Income tax payable                                                                                         21 557        13 679           -   
Employee-related obligations                                                                               19 339         8 423      20 279   
                                                                                                        2 681 197     3 005 054   2 395 785   
Total liabilities                                                                                       4 003 138     3 938 572   3 434 027   
Total equity and liabilities                                                                            6 975 062     7 053 541   6 258 614   

INTERIM CONDENSED CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY

                                                                   For the six months ended   For the six months ended   For the year ended   
                                                                           31 December 2018           31 December 2017         30 June 2018   
                                                                                  Unaudited                  Unaudited              Audited   
                                                                                      R'000                      R'000                R'000   
Balance at 1 July                                                                 2 824 587                  2 879 683            2 879 683   
Profit for the period                                                               232 456                    233 208             (40 660)   
Other comprehensive income                                                            2 123                    (3 437)                7 523   
Total comprehensive income                                                          234 579                    229 771             (33 137)   
Ordinary shares issued                                                               19 314                          -                    -   
Share-based payment reserve accrued/(reversal)                                        1 875                      5 463              (2 593)   
Share appreciation rights exercised                                                (15 601)                          -              (2 636)   
Non-controlling interest put option movement                                              -                          -               33 863   
Dividends declared and paid                                                        (92 899)                          -             (50 686)   
Dividends forfeited                                                                      69                         52                   93   
Balance at end of the period                                                      2 971 924                  3 114 969            2 824 587   
Consists of:                                                                                                                                  
Share capital and premium                                                           921 548                    902 234              902 234   
Other capital reserves                                                              101 508                     84 105              105 689   
Retained earnings                                                                 1 950 842                  2 139 736            1 817 322   
Other components of equity                                                           19 283                      6 200               17 160   
Shareholder equity                                                                2 993 181                  3 132 275            2 842 405   
Non-controlling interest                                                           (21 257)                   (17 306)             (17 818)   
Total equity                                                                      2 971 924                  3 114 969            2 824 587   

INTERIM CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS

                                                                   For the six months ended   For the six months ended   For the year ended   
                                                                           31 December 2018           31 December 2017         30 June 2018   
                                                                                  Unaudited                  Unaudited              Audited   
                                                                                      R'000                      R'000                R'000   
OPERATING ACTIVITIES                                                                                                                          
Profit before tax                                                                   316 176                    327 483               98 849   
Adjustment for non-cash items                                                       131 751                    155 424              755 100   
Working capital adjustments                                                       (217 171)                    231 585              348 207   
Income tax paid                                                                    (37 681)                   (37 628)             (84 424)   
Net cash flows from operating activities                                            193 075                    676 864            1 117 732   
INVESTING ACTIVITIES                                                                                                                          
Proceeds from sale of property, plant and equipment                                   6 241                     16 511               32 965   
Interest received                                                                    30 870                     19 870               47 618   
Unbundling of DFSA                                                                        -                          -              (2 020)   
Revolving credit facility repaid by/(granted to) DFSA                               118 521                  (391 702)            (439 042)   
Investment in associate - DFSA                                                     (90 000)                          -                    -   
Disposal of shares held in Lactolab                                                       -                        200                    -   
Capital expenditure: Tangible and intangible assets                                (79 226)                  (106 736)            (218 168)   
Net other investing activities                                                            -                      1 364                    -   
Net cash flows used in investing activities                                        (13 594)                  (460 493)            (578 647)   
FINANCING ACTIVITIES                                                                                                                          
Interest paid                                                                      (71 248)                   (73 115)            (112 362)   
Dividends (paid)/forfeited                                                         (92 830)                         52             (50 593)   
Net movement in borrowings                                                          243 857                     16 037            (163 333)   
Net cash flows from/(used in) financing activities                                   79 779                   (57 026)            (326 288)   
Net increase in cash and cash equivalents                                           259 260                    159 345              212 797   
Net foreign exchange difference                                                          99                      (731)                3 033   
Cash and cash equivalents at the beginning of the period                            760 693                    544 863              544 863   
Cash and cash equivalents at the end of the period                                1 020 052                    703 477              760 693   

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, except for new standards adopted as noted below.

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 ended   For the six months ended   For the year ended   
                                                                           31 December 2018           31 December 2017         30 June 2018   
                                                                                  Unaudited                  Unaudited              Audited   
                                                                                      R'000                      R'000                R'000   
    External revenue from sales of products and services rendered                                                                              
    Non-alcoholic beverages                                                       1 321 243                  1 205 417            2 409 724   
    Concentrated products                                                           705 364                    762 998            1 492 849   
    Value-added dairy fluids                                                        656 780                    643 707            1 230 831   
    Fermented products and desserts                                                 632 689                    481 952              998 847   
    Ingredients                                                                      55 530                    113 851              176 484   
    Olive oil and soya                                                               63 962                     77 189              126 928   
    Revenue from rendering of services                                              948 384                    927 382            1 873 581   
                                                                                  4 383 952                  4 212 496            8 309 244   
    Margin on material(#)                                                                                                                     
    Non-alcoholic beverages                                                         757 030                    659 386            1 364 817   
    Concentrated products                                                           283 339                    291 392              545 152   
    Value-added dairy fluids                                                        331 273                    270 430              488 000   
    Fermented products and desserts                                                 238 663                    180 726              356 935   
    Ingredients                                                                      15 684                     37 223               64 916   
    Olive oil and soya                                                               20 676                     28 344               38 608   
    Revenue from rendering of services                                              948 384                   927 382             1 873 581   
                                                                                  2 595 049                  2 394 883            4 732 009   

    (#) Margin on material consist of sales of products less: charges against sales, cost of material and packaging and milk collection cost and services rendered.  

    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 other export countries. 

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 R77,9 million and also acquired intangible assets at a cost of
    R1,3 million.

5.  Assets classified as held-for-sale

    At 30 June 2018, the balance of R2,7 million represented a property situated in Bethlehem (including movable items forming part of the sale). The property was sold in
    July 2018.

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: 
    
                                                                                         31 December 2018   31 December 2017   30 June 2018   
                                                                                                Unaudited          Unaudited        Audited   
    Foreign currency translation reserve                                                            R'000              R'000          R'000   
    Foreign exchange translation differences                                                        2 123            (3 437)       (14 510)   
                                                                                                    2 123            (3 437)       (14 510)   
    
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 "investment in
    associate and credit facility" respectively as follows: 

                                                                                        31 December 2018    31 December 2017   30 June 2018    
                                                                                               Unaudited          Unaudited         Audited   
    Trade and other receivables                                                                    R'000              R'000           R'000   
    Trade and other receivables (excluding DFSA)                                               1 579 212          1 496 025       1 299 150   
    DFSA trade account                                                                           225 434            302 268         179 940   
    Total                                                                                      1 804 646          1 798 293       1 479 090   

    Trade and other payables                                                                       R'000              R'000           R'000   
    Trade and other payables (excluding DFSA)                                                  1 560 397          1 540 709       1 260 738   
    DFSA trade account                                                                           394 406            454 712         426 886   
    Total                                                                                      1 954 803          1 995 421       1 687 624   

    Investment in associate and credit facility                                                    R'000              R'000           R'000   
    Investment in associate                                                                       90 000                  -               -   
    Credit facility                                                                              320 521            391 702         439 042   
    Impairment                                                                                 (439 042)                  -       (439 042)   
    Total                                                                                       (28 521)            391 702               -   

    As at 31 December 2017 the carrying value of the revolving credit facility ("RCF") approximated the fair value due to the rolling nature of the facility and interest being
    charged. The RCF was however subsequently impaired to Rnil at 30 June 2018 for reasons set out in the 2018 annual report. 
    
    Effective 1 July 2017, Clover Industries indirectly holds a 26% voting rights (0% economic interest) in Dairy Farmers of South Africa (DFSA) through Clover SA. The
    Group has made an assessment in terms of IFRS 10 and has concluded that it does not exercise control over DFSA and accordingly has classified the interest in DFSA
    as an investment in associate due to the Group having significant influence over the associate. The Group's investments in associate is accounted for using the equity
    method.  

    Under the equity method, the investment in the associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the
    Group's share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is
    neither amortised nor individually tested for impairment. Clover will not share in any distributions of DFSA in relation to its shares originally acquired and accordingly
    no portion of the profits or equity will be attributed to the Group. However, should DFSA resolve to reduce its restricted reserve by way of a distribution, Clover will
    share in the same proportion. Accordingly, the investment will be held at cost less accumulated impairment.

    After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in the associate. At each
    reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group
    calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, then recognises the loss as "Share of
    profit of an associate" in the statement of profit or loss. 

    As disclosed above, the investment in associate is R90,0 million and the RCF advanced is R320,5 million as at 31 December 2018. Due to the nature of the facility (i.e.
    working capital financing facility), the balance can go up and down and may be drawn up to a maximum of R571,0 million in terms of an agreement between Clover
    and DFSA.

    In terms of IFRS 9, an entity must consider all facts and circumstances including the value of any undrawn loan commitments. The provider of the commitment needs
    to estimate the expected portion of the loan commitment that will be drawn down over the expected life of the loan commitment. As mentioned above, the RCF can
    be drawn to a maximum of R571,0 million for the remaining part of the financial year. The maximum amount available to DFSA will increase with CPI at each financial
    year-end and is available to DFSA until 31 March 2037. The Group does not have the right to recall the facility at its discretion.

    Given the short space of time since the Group released its results during September 2018 and the recent appointment of the DFSA CEO, the Group has resolved that
    the impairment of R439 million will not be adjusted. As at 31 December 2018, the impairment has not been specifically allocated between the investment in associate
    and the credit facility and due to its material nature has been assessed on a combined basis. The Group will reassess the impairment at 30 June 2019 when more
    information is available. 

8.  Fair value of financial instruments

    The Group measures derivative forward share purchase contracts, investment in cell captive and call and put options at fair value.

    The fair value of 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 forward purchase of Clover Industries Limited's shares is shown at a fair value liability of R8,8 million as at 31 December 2018. 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 Group had an investment in ordinary shares in the Guardrisk Cell Captive with the purpose of the policy to cover milk producers should inhibitors be detected in
    the milk. As Clover no longer deals with the milk producers, the cell captive was liquidated in September 2018.

    The call option to acquire remaining shares in Clover Good Hope (Pty) Ltd is shown at a fair value asset of R2,7 million as at 31 December 2018. 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 material
    movement in the fair value during the current reporting period.

    The call option to acquire remaining shares in Clover Pride (Pty) Ltd is shown at a fair value asset of R1,8 million as at 31 December 2018. 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 material 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.  New standards and amendments to standards adopted in the current period

    IFRS 9 Financial instruments

    IFRS 9 combines the classification and measurement of financial assets and liabilities, the expected credit loss impairment model ('ECL model') for financial assets
    measured at amortised cost and fair value through other comprehensive income and hedge accounting that is to replace the current accounting under IAS 39.
 
    The ECL model applies to debt instruments accounted for at amortised cost. Entities are generally required to recognise 12-month ECL on initial recognition (or when
    the commitment or guarantee was entered into) and thereafter as long as there is no significant deterioration in credit risk. However, if there has been a significant
    increase in credit risk on an individual or collective basis, then entities are required to recognise lifetime ECL. For trade receivables, a simplified approach may be
    applied whereby the lifetime ECL are always recognised.
 
    The Group is of the view that except for the revolving credit facility (RCF) advanced to DFSA, due to the limited types and short life spans of financial instruments
    entered into by the Group, the disclosure is expected to impact only items such as the allowance for impairment in relation to bad debts for which it already provides
    detailed disclosures on the credit risk associated with the underlying trade receivables in the annual financial statements. The incurred loss model under IAS 39 over
    time has shown that the level of risk taken by the Group is minimal and generally losses actually written off would be less than 0,5% of the total trade receivables
    balance whereas the provision will typically also be less than 0,5%. To put this into perspective, 0,5% of the Group's trade receivables represents between R6,7
    million and R7,4 million. The low level of risk is further substantiated by the fact that independent credit valuation agencies rate the underlying customers to be of a
    high quality (zaAA credit ratings). Due the relatively small value of the impairment allowance and immaterial movement between reporting periods, it has not been
    separately disclosed in the statement of comprehensive income.
    
    As at 31 December 2018, the Group has assessed and concluded that no change is required in the debtors' allowance for impairment and as a result had no impact
    on the interim results. In addition, the Group does not expect the standard to have a significant impact on performance of the DFSA RCF as the RCF has already been
    adequately impaired under IFRS 9 as discussed in note 7.
    
    As previously indicated, the Group has elected to apply the modified retrospective (cumulative catch-up) transition method in its adoption of the standard with
    the effect disclosed in the 31 December 2018 interim condensed consolidated results while the comparative figures for the 31 December 2017 interim condensed
    consolidated results and 30 June 2018 annual financial statements will not be adjusted. The new standard is effective for annual periods beginning on or after 1
    January 2018, and therefore came into effect on 1 July 2018 for the Group.
    
    IFRS 15 Revenue from contracts with customers 
    
    IFRS 15 is effective for Clover from 1 July 2018 and replaces the previous revenue standard in place. The standard outlines the principles an entity must apply to
    measure and recognise revenue. The core principle is that an entity will recognise revenue at an amount that reflects the consideration to which the entity expects to
    be entitled in exchange for transferring goods or services to a customer. The standard also specifies how to account for the incremental costs of obtaining a contract
    and the costs directly related to fulfilling the contract.
    
    Application guidance is provided in the standard to assist entities in applying its requirements to determining the consideration paid to a customer, variable
    consideration, common arrangements, including licenses, warranties, rights of return, principal-versus-agent considerations, options for additional goods or services,
    and breakage.
    
    The Group has assessed the criteria and requirements of the new revenue standard and concluded that the following areas will be impacted by the new revenue
    standard:
    
    Charges against sales - This relates to co-op advertising spend with customers which in the past have been included as part of cost of sales in the financial results.
    The Group's assessment of the requirements of IFRS 15 indicated that this type of spend will have to be disclosed as a reduction of revenue and not be disclosed as a
    component of cost of sales. This change will impact the gross profit margin when compared to previous reporting periods since sales of products and consequently
    revenue will be reduced by this spend. As a result, the gross profit margin is expected to increase when compared year on year. In the current reporting period, this
    change resulted in a 1,1% improvement in gross profit margin.
    
    Rebates which is just another term for a discount or reduction of the original selling price must be disclosed as a deduction from revenue. The Group has in the past
    deducted rebates from revenue and therefore no change is required in the disclosure of rebates. Therefore, the new standard has no impact in relation to rebates.

    Principal income (services rendered) - In terms of IFRS 15 the Group is required to assess whether it is acting as an agent or a principal in relation to income earned
    from service contracts. If the Group is acting in its capacity as an agent, the service income must be recorded net (which has been the approach under the previous
    revenue standard). If the Group is acting as a principal, the Group would need to determine and record the gross sales and related cost of sales of the products sold
    on behalf of third parties. The net effect of the latter approach will result in the same amount of income under the former, however revenue and cost of sales will be
    entirely different. The Group reviewed and concluded that in all contracts with third parties, the Group is acting as an agent and therefore the current accounting
    treatment of services income is in line with IFRS 15 and remain unchanged from the previous revenue standard.

    Right of return assets - In terms of IFRS 15 the Group is required to assess the value of product returns and whether the products returned are reasonably expected
    to be resalable. For those items a right of return asset needs to be recognized together with a return liability i.e. an accrual for credit notes. The Group has assessed
    that due to the nature of the Group's products, most products that are returned from customers are not feasible for resale. A very small percentage of product returns
    can be sold again and as such the Group concluded that no right of return asset will be recognised. The current accounting treatment for accrual of credit notes will
    remain unchanged.

    As previously indicated, the Group has elected to apply the modified retrospective (cumulative catch-up) transition method in its adoption of the standard with
    the effect disclosed in the 31 December 2018 interim condensed consolidated results while the comparative figures for the 31 December 2017 interim condensed
    consolidated results and 30 June 2018 annual financial statements will not be adjusted. The new standard is effective for annual periods beginning on or after 1
    January 2018, and therefore came into effect on 1 July 2018 for the Group. 

10. Events after the reporting period

    As communicated in a recent announcement on the Stock Exchange News Service ("SENS") of the JSE, there is a firm intention by Milco SA Proprietary Limited
    ("Milco") to acquire all the issued shares of Clover. For more information, refer to the detailed SENS announcement dated 4 February 2019 on Clover's website. Other
    than this, no significant events occurred subsequent to the end of the period. 

11. 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. 

12. Preparation of unaudited interim condensed consolidated results

    The interim condensed consolidated financial statements set out above were prepared under the supervision of Frantz 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.

www.clover.co.za



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