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SA’s largest dairy producer, Clover, on Wednesday reported its first loss in more than a decade after writing off a loan to its recently unbundled subsidiary, Dairy Farmers of SA (DFSA).

Clover, which reported results for the year ended June, said it had taken a “conservative” stance and impaired the entire loan facility because of the financial uncertainty surrounding DFSA.

The uncertainty is about the future direction of DFSA, which will appoint a new CEO and board chair as it grapples with how to price raw milk amid tough trading conditions.

DFSA is responsible for the procurement of raw milk as well as the selling, marketing and distribution of non-value-added drinking milk.

It was unbundled from Clover in 2017, with milk producers holding 74% of voting rights and Clover 26%. Clover received the 26% stake in exchange for the transfer of its dairy business to DFSA. 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.

Clover, which is now focusing on value-added dairy products such as yoghurt and custards, had set up two revolving credit facilities to assist DFSA and account for various asset transfers.

Resignation

Clover has taken a R439m hit, which equates to almost 17% of its R2.69bn market capitalisation. The write-off of the revolving credit facility was prompted by the resignation of DFSA CEO Jacques Botha, who was a Clover appointment when the subsidiary was unbundled.

However, the group says it hopes the market will look past this swing into a loss of R40.6m, saying its shift of focus to a more diversified product range had positioned it for future growth.

The loss masked an “exceptional” improvement in the performance of the dairy group, Clover CEO Johann Vorster said on Wednesday. The group reported that normalised headline earnings per share more than doubled to 206.9c.

The result showed a strong performance despite a constrained consumer environment, said Dirk van Vlaanderen, associate portfolio manager at Kagiso Asset Management.

“A good focus on cost containment and reinvesting these savings back into price resulted in above-market volume growth across its categories,” Van Vlaanderen said.

Headline loss 

Electing to fully impair the loan facility was conservative but highlighted the tough year the local dairy industry had faced.

Van Vlaanderen said Clover was no longer exposed to volatile revenue streams from DFSA.

As a result of this, Clover’s headline loss per share was 23c in the year to June, from headline earnings per share of 64c a year ago.

 

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