STRATEGIC ACTIONS DELIVER VOLUME GROWTH WHICH UNDERPINS STEADY HALF YEAR PERFORMANCE

05 March 2019 – Clover Industries Limited (“Clover”, “the Group” or “the Company”), a leading branded consumer goods and beverages group operating in South Africa and other selected African countries, today announced its financial results for the six-month period ended 31 December 2018.

Commenting on the performance, Johann Vorster, Clover Chief Executive, said: “During the period under review which was characterised by low growth and constrained consumer spend, we took a consumer-centric approach by ploughing savings back into selected selling prices. This together with our investment in marketing and sales campaigns as well as expansion of our sales team, supported volume growth and market share increases across most product categories. We also built on our strategic projects that were implemented recently, and they continue to yield encouraging results.”

Revenue increased 4.1% to R4,4 billion with the improvement in performance, excluding the impact of IFRS 15, largely tracking the comparative interim period at 7.3%. This was mainly driven by a 5,6% increase in volumes, a 3,1% increase in selling prices (price increase and product mix changes). Revenue from the sale of products increased by 4,6% to R3,5 billion, whilst revenue from rendering of services increased by 2,3% to R948 million, attributable to increases in DFSA, Foodcorp, Eskort and Unilever principals. The withdrawal of Enterprise products from the market however muted growth in services rendered revenue.

Cost of sales increased by 2.1% to R2,7 billion and, excluding the impact of sugar taxes (R42 million), the increase corresponds with the rise in sales volumes. Selling costs which consist mainly of advertising, promotions, sales and marketing costs increased by 15,2% to R530,3 million, attributable to aggressive marketing and selling campaigns to increase sales volumes. In line with Clover’s commitment to deliver and maintain high quality service levels in retail stores, the sales team was expanded to the tune of R72,6 million or 25,0% which also supported volume increases.

The Group’s gross profit margin increased to 37,5% from 36,3% in the comparable period which was mainly attributable to IFRS 15 accounting changes. The Group’s operating margin decreased from 8,8% to 7,8% on the comparable period, mainly due to the introduction of Sugar Tax and sharp increase in fuel prices during the latter part of the 2018 calendar year which made it difficult to contain distribution costs and could not be passed on to the consumer. 

Distribution costs, which consist mainly of personnel expenses, collection and delivery costs, increased by 9,5% to R652,5 million. This increase was mainly attributable to an increase in personnel expenses due to wage increases, an increase in container expenses due to increase volumes, and an increase in collection and delivery charges mainly as a result of the increases in fuel prices.

Ongoing focus on new brands and new market development increased operating expenses by 9% or R12 million, owing to higher research and development costs (R&D) which were mainly related to research on sugary beverage reformulations and new product development.

Capital expenditure of R79 million for the period was below depreciation of R112 million and was primarily funded from operating cash flows and debt. There was an increased investment in working capital which is in line with the business’ operating cycle. Cash and cash equivalents at the end of the reporting period totaled R1 billion. Group gearing net of cash reduced from 25.5% to 19.3%, with overall gearing at 53.7%. 

“The coming year is expected to remain challenging. We are however steadfast on our strategic focus areas which remain the cornerstone for future performance. Specifically, our strategic projects will position Clover to support cash strapped consumers with nutritious products at optimal price points.   

“We are optimistic that ongoing delivery against our strategy will ensure that our operations are sustainable despite the current stagnation in the economy and that the business, with its healthy balance sheet and cash-flows, will be well positioned to take advantage of an economic upswing,” continued Vorster.

After the reporting period, Clover announced that it had received a firm intention by Milco SA Proprietary Limited

("Milco") to acquire all the issued shares of Clover. The circular containing details of the transaction was posted to shareholders last week and outlines the rationale for the transaction, conditions to it and the expected timeline to conclusion.

Commenting on the transaction, Vorster said: “It is exciting to see the interest in Clover as this is testament to what we have achieved to reposition the business and enhance its value. The Milco transaction will follow due process and is in shareholders hands now. For us it is business as usual to ensure that we continue to deliver against our strategy.”

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