Clover’s annual profit more than triples after a US$29m impairment in DFSA

SOUTH AFRICA – Clover Industries has reported that normalized annual profit more than tripled following the exit from the dairy business, Dairy Farmers of SA (DFSA) in which it recorded US$29 million impairment relating to a revolving credit loan given to the subsidiary.

Normalised headline earnings per share (HEPS) rose to 206.9 cents for the year ended 30 June 2018, compared with 63.9 cents for the same period last year.

Last year’s financial results were affected by severe drought but the period’s profits were boosted by recovery from drought and a focus on value added business that saw the unbundling of its dairy category.

However, Clover would swing into a full-year loss with a diluted headline loss of 22.9 cents per share for the period compared with 63.9 cents in the year-ago period if the impairment was included.

Group revenue increased by 7.9% to US$556.96 million supported largely by a 25.7% increase in the fermented products and desserts category and a 12.5% increase in the value-added dairy fluids category.

The dairy concentrated product category contributed 13.7% more to revenues due to above-inflationary increases in butter, which was in shortage, as well as higher volumes of cheese sales.

Early last year, the dairy producer restructured by transfer of its low margin business to DFSA to develop higher-margin, value-added products in dairy and other related food categories.

The agreement stated that Clover will purchase milk from DFSA at average national milk price and the latter will be responsible for the procurement of raw milk as well as the selling, marketing and distribution of non-value-added drinking milk.

The restructuring gave Clover 26% voting rights while the remainder went to milk producers, giving Clover a 26% stake in the dairy cooperative.

The move resulted in Clover moving away from volume-driven raw milk sales and reducing its price exposure to a demand-and-supply driven sector and is now focusing on value-added dairy products such as yoghurt and custards.

Its product portfolio include yoghurt, beverages, cheese and olive oil.

Listeria losses

The 2010 listed firm said it lost US$436,140.25 related to recalls of processed meat as a result of the countrywide listeria outbreak.

The outbreak termed to be the worst the world has ever seen, killed more than 200 people with several cases reported to be associated with polony meat at Tiger Brands’ Enterprise factory.

“The listeria outbreak resulted in losses in principal fee income which could not be replaced during the reporting period,” said the firm in a statement.

It however stated that recovered some of the losses through fees earned on services such as production, sales and merchandising and distribution for a competitor.

Looking forward, Johann Vorster, Clover Chief Executive said: “Whilst it is pleasing to see profitability levels returning to expected levels, the challenging macroeconomic and trading conditions experienced this year are expected to continue over the next year.

“We are optimistic that the actions taken will support the business through difficult trading conditions and contribute to an improvement in profitability levels over the short-to medium-term. We are also committed to supporting the sustainability of DFSA and in so doing secure our raw milk source and service fees.”

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