Clover shares dive on profit warning

Cape Town - Clover Industries Limited [JSE:CLR] warned on Wednesday that owing to a lackluster operating environment it expects a drop in headline earnings per share (Heps) of up to 25%, sending the share price tumbling.

The share price dropped more than 11% to R16.16 from its previous close, but by market close the share recovered some of its losses to trade at R17.69 (-5.6%).

The food and beverages company expects to release its annual financial results for the year ended 30 December 2016 in the first week of March 2017.

Clover announced in October and December 2016 that trading conditions remained constrained with sales volumes tracking below anticipated levels.

At that time the company advised shareholders that strong trade during the festive season was critical to match the financial performance achieved for the six months ended 31 December 2015.

"Shareholders are hereby advised that December volumes tracked markedly lower than the comparative period," it said on Wednesday.

"All categories with the exception of UHT and fermented products reported lower volumes than in the comparative six-month period, mainly as a result of negative consumer sentiment that was further compounded with the wet and cooler summer compared to the heatwave that prevailed in the comparative period."

The company had to increase its selling prices in the market substantially to recover not only inflationary cost increases, but also a higher than anticipated raw milk price due to the continued drought, and sales volumes as a result came under further pressure, it said.

"While the group anticipates an increase in overall revenue, it does not expect the increase in revenue to fully absorb all inflationary cost increases in the first half of the year, and as a result, a fine balance was needed to balance price increases and protect our market shares."

Clover noted that a significant once-off restructuring cost related to the integration of the company's City Deep distribution facility into the Clayville distribution facility was incurred during the period.

However, it added that it continued to expand its value-added product range with new listings which generally attract higher initial costs to establish the product in the trade.

"The board remains confident that the long-term benefits of the City Deep integration and new launches will accrue in the second half of the financial year and beyond."

Clover expects headline earnings for the six months ended 31 December 2016 to be between 14.6% and 24.6% lower and earnings to be between 12.1% and 22.1% lower than the same period the previous year.

"Despite the lackluster operating environment, Clover remains committed to its medium to long term goals of investing in and growing its value added product portfolio and to balance cost recoveries from consumers with market position."

This referred to the SENS announcement of 5 December 2016 regarding the Clover's proposed restructure to give effect to its stated objective of developing higher margin, value added products in dairy and other related food categories and to eliminate its exposure to the cyclicality of its low margin business in future. The planned restructuring aims to accelerate this migration process away from low margin products.

Details of this proposed restructure is expected to be communicated in due course.

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