Martin Lukey

ECO4109F Assignment 1

01/03/2016

Clover Industries LTD SENS Report

The following assignment aims to reflect a financial understanding of a SENS

report, in the form of a summary and an opinion-based extract, and to highlight
and define key financial terms that have been raised within the report. The SENS
report is based on the consolidated report of Clover Industries Ltd for the end of
the 2014/2015 financial year.
Firstly, a brief description of what SENS is and its use from an investor
perspective will be provided. This will be followed by a detailed summary of the
SENS report, highlighting operating, investment and future outlook aspects.
Thirdly, a short extract based on my opinion of the report will be provided. Lastly,
a list of definitions as to what I define as key terms taken from the report will
conclude the assignment.

What is SENS?
The Stock Exchange News Service (SENS) is a public information provider
established by the Issuer Services Division of the JSE which publishes company
releases and announcements related to price-sensitive information. It is a
requirement for all JSE listed companies to timeously disclose information on their
own behalf that may affect investor decisions on the basis of trading shares.
SENS is therefore particularly useful for investors when news is instantly released
in terms of seeking immediate profit opportunities or for the prevention of
incurring excessive losses.1

Report Summary:2
Clover Industries Limited has experienced a significant increase in headline
earnings from R131,9 million to R319,3 million for their 2014/2015 financial year.
In conjunction with the increase in headline earnings; operating profit increased
by 68.8%; net finance costs increased by 28.1%; total income tax increased by
79.3%; a share of profit from a joint venture decreased by 23.5%; and noncontrolling interests decreased by 302.2%.
The large increase in headline earnings can be primarily attributed to an increase
in revenue by 8.6% accompanied with a product sales increase of 15% and an
overall volume increase of 2.8%. Average price inflation accounted for 12.2% of
the revenue growth. Although expected volume and market share losses occurred
from increased prices in certain sectors, yoghurt sales have had an instant
1 Sharenet, Making Sense of SENS (2009).
2 SENS, Summarised Audited Consolidated Financial Statements (2015).

success after Clovers entry into the market and its acquisition of Dairybelle
yoghurt and UHT businesses.
Contrastingly, market share losses in cheese and hindered growth in UHT sales
were a result of low inventory levels at the start of the year. Furthermore, a
reduction in consumers discretionary spend have negatively impacted sales
volume in the beverages segment of the company.
From an investment perspective the financial year saw a major increase in its
inventory stock. After the cessation of raw milk supply to Danone, Clovers raw
milk inventories were able to significantly restore its levels. Furthermore, various
yoghurt, custard, milk and milk powder stocks contributed to a large increase in
inventory and a major portion of the R378,3 million rand increase in the
companys current liabilities.
The group increased leveraging from 38.6% to 48.6% following its increase in
inventory and working capital requirements. The group expects further increases
in leveraging to fund future growth with the belief that interest repayments will
be well within their capacity.
Due to the current oversupply of milk products locally, downward pressure on
market prices will have an effect on margin prospects.
The group intends to replace its revenue loss and available supply chain capacity
from the cessation of raw milk to Danone with revenue from its own products,
selective new principles and acquisitions. Furthermore, new operations with
Dairybelle will further reduce the impact of the loss of revenue from Danone.
Clovers approach on branding and partnership opportunities remains a focal
point, as the company aims to grow its brand base and seek merger, joint
venture and acquisition opportunities to further potential supply chain synergies.
The gross cash dividend was declared at R62,7 million or 33,4 cents per ordinary
share for the end of the financial year.

Opinion on Company Performance:3

It is clear to me that Clover has performed relatively well in terms of its
significant overall increase in its earnings over the financial year. With price and
cost inflation putting upward pressure on product prices, clover have had success
in their price adjustment process in light of their increase in product sales and
overall volume.
I believe that the cessation of raw milk supply to Danone has reflected well on
the companys performance and even enhanced the profitability of the company.
Due to the previous supplys lack of contribution toward headline earnings, time
3 Ibid.

and investment can be spend on exploring opportunities that may be more

profitable in the future with new available capacity in the companys supply
chain. Furthermore, the decision to expand yoghurt production in anticipation of
fulfilling the increased market demand for yoghurt will reflect well on a future
earnings basis within that sector.
The companys increased amount of leveraging and inventory suggests to me
that it expects continued profitability levels and is confident that a high sales
volume will be maintained and that future growth is likely. It was noted that
downward pressure on milk price levels were expected due to current oversupply
in the market. However, I believe that the companys expansion of business
operations through its acquisitions and expected sales volume will offset the
reduced price level in terms of future margin.
Headline Earnings: operational
based income or

A measurement used to reflect the profit earned from

activities, with the exclusion of certain Capitalexpenses4. 120

Operating Profit: from normal

The amount of revenue earned less expenses that stem

business operations. 114

Net Finance Costs: connection with the

interest and other costs that an entity incurs in

borrowing of funds.

http://www.readyratios.com/reference/accounting/finance_costs.html

Headline Income Tax:

28%.
Joint Venture:

- The total amount of tax charged on net profit at

A contractual agreement whereby two or more

parties undertake an economic activity that is subject
to joint control 258

Non-controlling Interests: The portion of equity ownership in a

subsidiary not attributable to
the parent company,
whereby the parent company has ownership
of greater than
50% and less than 100% of the subsidiary.
https://macabacus.com/accounting/noncontrolling-interest

Volume:
earned by a firm

A term used to refer to the total amount of sales

on a per unit basis within a given period .

http://www.investopedia.com/terms/u/unitsales.asp#ixzz41VDQqYUN

Price Inflation:
basket of goods or
time.

An increase in the price of a standardized

services over a specific period of

http://www.investopedia.com/terms/p/price_inflation.asp

Cost Inflation: cost of

Price inflation that is attributable to the increase in the

wages and raw materials.

http://www.investopedia.com/terms/c/costpushinflation.asp

Profitability:
earn profits.

The ability or capacity to which a business can

http://study.com/academy/lesson/what-is-profitability-

definition-analysis-quiz.html

Market Share: earned by an

period.

The portion of the total industry or market sales that is

individual company over a specific time

http://www.investopedia.com/terms/m/marketshare.asp

Market Demand:
service from all of its
participants at a point in time.

The total demand for a specific product or

customers or market

http://www.investorwords.com/16542/market_demand.html

Price Elasticity:
demanded in
in price.

The change in the quantity of goods or services

relation to their respective change

http://www.investopedia.com/terms/p/priceelasticity.asp

Price Points:
determined for a product
demand.

Recommended or suggested price levels

to be competitive or in adequate

http://www.businessdictionary.com/definition/price-point.html

Discretionary Spend:
income after tax that reflects
essentials or luxury items.

The portion of disposable income or

purchases of non-

http://www.businessdictionary.com/definition/discretionary-spending.html

Market Contraction: market for specific

A decline in output and consumption in the

goods and services.

http://www.investopedia.com/terms/c/contraction.asp

Rand Strengthened: A term used for the increase in value or

appreciation of the Rand
relative to other currencies,
which is determined by a decrease in
the exchange
rate for another currency in terms of the Rand.
http://financial-dictionary.thefreedictionary.com/Strong+Currency

Volatility:
price of certain product

Unpredictable and significant changes in the

and service industry markets.

http://www.investorwords.com/12446/volatile_market.html

interest-bearing Debt:
payment of interest.

Liabilities of a company that require the

http://www.clime.com.au/who-we-

are/glossary/interest-bearing-debt/

Inventory:
Assets: held for sale in the ordinary course of
business; or in the
process of production for sale; or in the
form of materials or
supplies to be consumed in
the production process or in the
rendering of services.
165

Non-current Liabilities:
period greater than a
created. 176

Present obligations that have a settlement

year from which the obligation was

Gearing:
Otherwise termed as leveraging, is a method in
which businesses
can increase their amount of profit
through borrowed money. 70
Supply Chain: production,
for their products or

A sequence of supplier processes, in the form of

handling and distribution that are required
services to reach customers.

http://www.investopedia.com/terms/s/supplychain.asp

Working Capital:
The capital used in during the daily ordinary
course of business,
usually in the form of major
current items such as Inventory,
Accounts
Payable and Accounts Receivable. 131
Gross Cash Dividend:
and retained earnings, paid
aggregated on a per share basis. 9

Money, reflecting the portion of current

to shareholders which is

Ordinary Share:
Shares that reflect the shareholders equity
ownership in a company whereby the shares; are not
preferred shares; and pay out varying dividend amounts; and
entitle shareholders with the right to vote in business
matters put before them to the proportion of their share
ownership. http://www.investopedia.com/terms/o/ordinaryshares.asp

References:

http://www.sharenet.co.za/marketviews/article/Making_sense_of_SENS_/808