Clover Industries Limited

Transcription

1 Speakers: Johann Vorster (CE) Frantz Scheepers (CFO) Clover Industries Limited Unaudited interim condensed consolidated results and cash dividend declaration for the six months ended 31 December 2017

2 AGENDA KEY FINANCIAL INDICATORS OPERATING ENVIRONMENT SEGMENTAL AND PRODUCT PERFORMANCE GROUP FINANCIAL RESULTS CAPITAL PROJECTS PROJECT SENCILLO SUGAR TAX IMPACT IMPACT OF THE CAPE TOWN WATER CRISIS PROSPECTS QUESTIONS? 2

3 KEY FINANCIAL INDICATORS NORMALISED REVENUE 7,7% to R4,2 Billion REVENUE 17,8% TO R4,2 billion OPERATING PROFIT 14,8% TO R370,4 million HEPS 17,8% 117,6 cents EPS 19,1% TO 123,3 cents HEADLINE EARNINGS 18,1% TO R224,4 million INTERIM DIVIDEND PER SHARE 26,56 cents 3

4 MAJOR FACTORS THAT INFLUENCED RESULTS MACRO Harmonised growth across advanced economies and most emerging markets points to a favourable global economic outlook for The overarching risk to the outlook is a resurgence in US inflation, which could lead to monetary-policy tightening and slow the pace of global growth The rand should sustain a mild strengthening bias in The outlook for 2019 is less assured SA Growth gathered momentum in the second half of 2017 and is likely to extend to the next two years, but local growth is expected to lag behind global growth Mounting consumer and business confidence attendant to easing political tensions which should support domestic demand Pressure on disposable income remains especially lower-income earners Food safety remains a concern Western Cape drought CLOVER Re-align business to the new normal through efficiency improvement initiatives Plough back savings into selling prices to grow / protect market shares and volumes Labour costs increasing at a rate higher than inflation Pressure on selling prices with sugar tax and the increase in VAT from 1 April

5 MAJOR ACTIONS TAKEN BY CLOVER TO MANAGE THROUGH THE CYCLE AND REACH 2015/16 PROFITABILITY LEVELS INCREASE IN VOLUMES, REVENUE AND MARKET SHARES NO / LOW PRICE INCREASES TO GROW / PROTECT VOLUMES 8,0 % overall increase in like-for-like volumes as a result of zero/limited price increase strategy, uplift in consumer sentiment and strong volumes in November 2017, supported by Black Friday spend Like-for-like revenue increased by 7,7% Increased spend in marketing and research and development led to increased market shares in certain products Increased volumes in: Fermented products & desserts (+23,2%) and Value added dairy fluids (+17,3%) Protected volumes in: Concentrated products (+2,1%), Non-alcoholic beverages (-2,5%) and Ingredients (-3,6%) EFFICIENCY DRIVES TO LOWER COSTS Project Sencillo asset optimisation Project Meglio product reformulations Rigorous retendering process of all suppliers NEW STRUCTURE Unbundling of the volume driven side of the business through the establishment of Dairy Farmers of South Africa (DFSA) 5

6 Operating environment Presented by: Johann Vorster

7 MAJOR FACTORS THAT INFLUENCED THE INDUSTRY CYCLICAL NATIONAL SURPLUS AND SELLING PRICES 2017 MILK INFLATION VS. TOTAL FOOD INFLATION MONTH VS. SAME PERIOD 2016 (%) Total food inflation (5) Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Total food inflation Milk inflation Source: Total food inflation SA; Milk inflation Nielsen RMS December

8 OPERATING ENVIRONMENT TOTAL RETAIL SALES DATA FOR SOUTH AFRICA YEAR-ON-YEAR VOLUME MOVEMENT (%) 7.9% Year-on-year retail sales volumes for December increased by 5,3% 5.4% 5.7% 3.5% 5.3% The spike in retail sales volumes during November 2017 as a result of Black Friday sales was also evidenced in Clover s November sales volumes 1.6% 1.2% 0.0% 1.6% (0.2%) 3.1% 0.9% The calculated average increase in retail sales volumes over the 6 month period was 4,9% Clover s average sales volumes up by 8,0% over the 6 month period Jul Aug Sep Oct Nov Dec Dec 16 Dec 17 Source: Statistics SA (Statistical Release of Retail Sales Data for December 2016 and 2017) 8

9 OPERATING ENVIRONMENT TOTAL RETAIL SALES DATA FOR SOUTH AFRICA YEAR-ON-YEAR TOTAL SALES VALUE MOVEMENT (%) 8.0% 8.8% 9.0% 8.5% 6.8% 10.5% 10.1% 8.3% 7.3% Year-on-year retail sales value for December 2017 was below the prior year levels The calculated average increase in retail sales value over the 6 month period was 7,9% Clover s average sales value increased by 7,7% over the 6 month period 6.7% 6.3% 5.6% Jul Aug Sep Oct Nov Dec Dec 16 Dec 17 Source: Statistics SA (Statistical Release of Retail Sales Data for December 2016 and 2017) 9

10 US$ per ton OPERATING ENVIRONMENT INTERNATIONAL DAIRY COMMODITY PRICES Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 The International Farm Comparison Network ( IFCN ) World Milk Price Indicator is estimated at a level of 32,8 USD/100kg ECM at the end of 2017 This is the lowest price in 14 months and the milk price started its downward trend in September 2017, when the milk price was at a level of 38,7 USD/100kg ECM Prices decreased by almost 15% within the last three months of 2017 Skimmed milk powder (SMP) Whole milk powder Source: Calculated by DFSA using various international sources comments were taken from the most recent IFCN report (ECM stands for Energy Corrected Milk) 10

11 US$ per ton Rand per ton OPERATING ENVIRONMENT INTERNATIONAL SMP PRICES IN US$ AND ZAR The South African rand has weakened against foreign currencies since January Although the US$ prices are still low, imports are not that attractive, due to prices strengthening While the rand has strengthened recently, prices remain high Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 US$/ton ZAR/ton Source: Calculated by Clover using various international sources 11

12 Cent per litre OPERATING ENVIRONMENT INTERNATIONAL FARM GATE MILK PRICE TRENDS DFSA s farm gate milk price is quite stable over time, when measured against the quite volatile farm gate milk prices of other countries Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Dec DFSA s farm gate milk price is strongly linked to domestic market prices, whilst the international prices are linked strongly to highly volatile international commodity prices Intervention programs in Europe and the USA still play a meaningful role and are often used to stabilise the dairy industry in those regions EU NZ USA South America DFSA 12

13 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov 16 Jan 17 Mar 17 May 17 Jul 17 Sep 17 Nov 17 Dec 17 Ratio OPERATING ENVIRONMENT DFSA NATIONAL FARM GATE MILK PRICE TO FEED COST RATIO Break even ratio Actual ratio 10% Threshold Source: Milk Producers Organisation & DFSA Ratio deteriorated dramatically since June 2015 due to increased feed costs and lower milk prices The severe and prolonged drought in South Africa has resulted in a continuous increase in feed prices during 2015/16, due to maize shortages and very low availability of good quality roughage South Africa has had a bumper maize crop in 2017 and feed prices became much more favorable DFSA has increased its milk price to producers on 1 September 2017, to stimulate more milk for the envisaged growth in market volumes Market prices and market volumes however came under immense pressure due to the current economic climate and consumer behavior and DFSA had to lower producer prices on 1 December 2017 in reaction to market pressures and announced a further decrease effective 1 April

14 Kilogrammes (millions) OPERATING ENVIRONMENT RSA NATIONAL MILK PRODUCTION TREND OF MONTHLY PURCHASES OF UNPROCESSED (RAW) MILK, AS REPORTED TO MILK SA: 2013-DEC 2017 (MILLION KG) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Preliminary* The cumulative national raw milk production for the period January to December 2017 is estimated to be 2,75% higher than the corresponding period in 2016 and it is estimated to be 2,29% higher than the corresponding period in 2015 It is estimated that December 2017 s national milk intake will be 7,89% higher than the milk intake for December 2016, which indicates very strong growth in milk production, mainly as a result of better feeding conditions fueled by lower feed prices * Based on a sample of return forms submitted to Milk SA Source: Milk SA 14

15 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 Dec 17 Index OPERATING ENVIRONMENT DFSA S FARM GATE MILK PRICE VS. CPI DFSA s farm gate milk prices were quite stable during the latter part of 2016 and for most of DFSA had to increase its farm gate milk prices on 1 September 2017 to protect its raw milk source and to secure more raw milk for the Clover and DFSA market demands Farm gate milk price CPI inflated milk price 95% lower control limit 95% upper control limit Market prices of especially fresh and UHT milk, however came under immense pressure as the economy deteriorated and consumers came under even more pressure. These market pressures forced DFSA to lower its farm gate milk prices on 1 December 2017 and it announced a further decrease effective 1 April 2018 Source: Calculated by DFSA 15

16 OPERATING ENVIRONMENT TOTAL MARKET VOLUME GROWTH FOR THE SIX MONTHS TO DECEMBER 2017 Soy milk (1.1) Yoghurt 3.4 Liquid Custard 10.9 Processed Cheese Slices 15.5 Maas 7.8 RTD Iced Tea (7.9) Dairy Fruit Mix 2.1 Flavoured Milk 0.4 Water Brands 14.2 Pure Fresh Juice (2.3) Natural Pre-packed cheese 14.1 Feta Cheese (1.5) Fresh Cream (0.6) UHT Milk 8.0 Fresh and UP Milk (3.3) (20) (15) (10) (5) RTD = Ready to Drink DFM = Dairy Fruit Mix SLFJ = Short Life Fruit Juice UP = Ultra Pasteurised Source: Nielsen RMS (total SA incl. all store types) 16

17 Segmental and product performance Presented by: Johann Vorster

18 Pure Fresh Juice Water Brands Flavoured Milk Dairy Fruit Mix RTD Iced Tea Feta Cheese Natural Pre-packed cheese Processed Cheese Slices Fresh and UP Milk UHT Milk Fresh Cream Maas Liquid Custard Yoghurt Soy Milk (23) (13) (2) (8) (1) (2) (3) (2) (1) (4) (1) (1) SEGMENTAL PERFORMANCE PRODUCT VOLUME GROWTH VS MARKET GROWTH (50) Source: Nielsen RMS (total SA incl. all store types) 6 months market growth % 6 months Clover growth % 18

19 SEGMENTAL PERFORMANCE CONTRIBUTION TO CLOVER S OVERALL REVENUE AND MARGIN ON MATERIAL (MOM) CONTRIBUTION TO REVENUE 36,7% 23,2% 19,6% 14,7% 3,5% 2,3% Non-alcoholic beverages R1,205bn Dairy concentrated products R763m Value added dairy fluids R644m Fermented products and desserts R482m Ingredients R114m Olive oil and soya R77m CONTRIBUTION TO MOM 44,9% 19,9% 18,4% 12,3% 2,5% 2,0% Non-alcoholic beverages Dairy concentrated products Value added dairy fluids Fermented products and desserts Ingredients Olive oil and soya R659m R292m R270m R181m R37m R28m 19

20 SEGMENTAL PERFORMANCE MARGIN ON MATERIALS (MOM) % Non-alcoholic beverages Dairy concentrated products Value added Dairy fluids Fermented products and desserts Ingredients Olive oil and soya 54.7% 56.1% 38.2% 32.6% 42.0% 39.9% 37.5% 30.0% 32.7% 28.4% 36.7% 0.0% Dec 17 Dec 16 20

21 SEGMENTAL PERFORMANCE NON-ALCOHOLIC BEVERAGES Volumes were down 2,5% and MOM was down by 3,5%, while the MOM percentage decreased from 56,1% to 54,7% Selling prices increased marginally by 1,5% negated by the decrease in volumes of 2,5% The following volume movements were experienced: Dairy fruit mix volumes were up 3,1% Fruit juice and nectar volumes were up 4,5% Water volumes were down 25,7% Ice Tea volumes were down 21,1% Flavoured milk volumes were down 1,2% Ingredient costs in this category were contained by reformulations and re-tendering but impacted by inflationary increases and limited availability of fruit pulp concentrate 21

22 SEGMENTAL PERFORMANCE CONCENTRATED PRODUCTS Volumes were up 2,1% and MOM was up 25,0%, while the MOM percentage improved from 32,6% to 38,2% Higher industry selling prices due to a shortage of butterfat; volume growth in this category was impacted by a global butterfat shortage Cheese volumes were up while butter volumes were down Given the selling price increases, MOM increased by 25% despite low volume growth The following volume movements were experienced: Butter volumes were down 15,9% Cheese volumes were up 14,8% Condensed milk volumes were up 9,3% 22

23 SEGMENTAL PERFORMANCE VALUE ADDED DAIRY FLUIDS Dairy fluid volumes (like for like comparison, excluding DFSA fresh & long life) were up 17,3% and MOM was up by 21,5 %, while the MOM percentage increased to 42,0% from 39,9% Better volume (+130%) and price (+18%) realisation in Numel Cream volumes decreased by 6,6%, but price increased by 11,2% Industry selling prices in other products remained low throughout the peak milk season 23

24 SEGMENTAL PERFORMANCE FERMENTED PRODUCTS AND DESSERTS Fermented volumes were up 22,8% and MOM was up by 51,5%, while the MOM percentage improved from 30,0% to 37,5% Clover entered the highly competitive yoghurt and custard markets in January 2015 and achieved higher than anticipated market share targets from the start Significant higher volumes in the current period were driven by competitive pricing with an average price reduction of around 2,0% Clover s maas volumes increased by 32,4% and market share increased from 7,8% to 10,2% on average for the to December 2017 Yoghurt volumes increased by 24,4% and market share improved from 8,8% to 12,4% on average for the to December 2017 Custard volumes increased by 26,5% and market share improved from 8,6% to 11,0% on average for the to December 2017 A focus on efficiencies and improved recipes contributed to a significant increase in the MOM percentage 24

25 SEGMENTAL PERFORMANCE INGREDIENTS Volumes were down 3,6% and MOM was up by 10,8%, while the MOM percentage improved from 28,4% to 32,7% Although Clover does not at present participate actively in the international dairy ingredients market, we balance seasonal milk and cheese production by utilizing excess skimmed milk and whey powder into reconstituted type products and selling excess powder into the local ingredients market. 25

26 SEGMENTAL PERFORMANCE MARKET SHARES FLAVOURED MILK (%) PURE JUICES (%) NECTAR (%) DAIRY FRUIT MIXES (%) to Dec 15 to Dec 16 to Dec 17 to Dec 15 to Dec 16 to Dec 17 to Dec 15 to Dec 16 to Dec 17 to Dec 15 to Dec 16 to Dec 17 ICE TEA (%) WATER BRANDS (%) NATURAL PRE-PACKED CHEESE (%) FETA CHEESE (incl. house brand) (%) to Dec 15 to Dec 16 to Dec 17 to Dec 15 to Dec 16 to Dec 17 to Dec 15 to Dec 16 to Dec 17 to Dec 15 to Dec 16 to Dec 17 26

27 SEGMENTAL PERFORMANCE MARKET SHARES PROCESSED CHEESE SLICES (%) FRESH MILK (incl UP) (%) UHT MILK (incl. Soy) (%) FRESH CREAM (%) to Dec 15 to Dec 16 to Dec 17 to Dec 15 to Dec 16 to Dec 17 to Dec 15 to Dec 16 to Dec 17 to Dec 15 to Dec 16 to Dec 17 MAAS (%) YOGHURT (%) CUSTARD (%) SOY MILK (%) to Dec 15 to Dec 16 to Dec 17 to Dec 15 to Dec 16 to Dec 17 to Dec 15 to Dec 16 to Dec 17 to Dec 15 to Dec 16 to Dec 17 27

28 Group financial results Presented by: Frantz Scheepers

29 GROUP FINANCIAL RESULTS UNBUNDLING OF DFSA Six months ended 31 Dec 2017 R m Six months ended 31 Dec 2016 normalised R m Pro-forma exclusion of the revenue and cost of sales of DFSA¹ R m Pro-forma income from services rendered to DFSA² R m Six months ended 31 Dec 2016 Sales of products (1 788) Rendering of services Sale of raw milk and rental income R m Revenue (1 788) Cost of sales (2 683) (2 524) (3 596) Gross profit (715) The sales of products relating to the non-value-added drinking milk, namely Fresh, UHT and UP milk that is excluded from Clover and is part of DFSA. The Pro Forma adjustment was determined with reference to actual volumes sold and realised during the corresponding period 2. Clover provides all the production, distribution, sales and merchandising, marketing and certain administrative services to DFSA for a contracted fee. The Pro Forma adjustment was determined with reference to actual volumes sold and realised during the corresponding period 29

30 , ,215.3 R m GROUP FINANCIAL RESULTS REVENUE DFSA portion 17,8% 7,7% Although revenue decreased by 17,8% to R4 214,2 million, the like-for-like revenue increase was 7,7% if the revenue associated to DFSA is removed from the December 2016 figure as reported In a like-for-like comparison the revenue from the sale of non-value-added fresh and long-life drinking milk of R1 787,7 million should be excluded and replaced by revenue from services rendered of R572,4 million 1H14 1H15 1H16 1H17 1H18 30

31 , ,787.4 R m GROUP FINANCIAL RESULTS REVENUE (SALE OF PRODUCTS) DFSA portion 31,5% Revenue from the sale of products decreased by R511,2 million or 31,5% to R3 285,1 million 9,2% In a like-for-like comparison the revenue from the sale of non-value-added fresh and long-life drinking milk of R1 787,7 million should be excluded from sale of products The like-for-like increase in sale of products was 9,2% 1H14 1H15 1H16 1H17 1H18 31

32 R m GROUP FINANCIAL RESULTS REVENUE (SERVICES RENDERED) DFSA portion 3,6% Revenue from the rendering of services increased 187,3% to R927,4 million 187% R218.2m difference In a like-for-like comparison the revenue from services rendered in the prior period should include R572,4 million The like-for-like increase in Services rendered was 3,6% 1H14 1H15 1H16 1H17 1H18 32

33 28.0% 41.1% 31.0% 42.0% 29.1% 40.5% 29.9% 41.8% 36.3% 44.7% GROUP FINANCIAL RESULTS GROSS PROFIT % AND MOM % Market share increases in certain product categories as well as the increase in services rendered lifted the group s gross profit margin to 36,3%, up from 29,9% The margin on material (MOM) has improved to 44,7%, up from 41,8% The prior year gross profit and MOM margins, however, includes the non-value-added fresh and long-life milk products now being sold by DFSA 1H14 1H15 1H16 1H17 1H18 Gross profit MOM 33

34 R m GROUP FINANCIAL RESULTS EBIT & EBITDA EBIT 5,0% EBITDA 2,76% EBIT 14,6% EBITDA 13,7% Selling and distribution costs decreased 0,2% due to the focus on efficiencies in secondary distribution, saving R53 million on the comparative period. This saving was used to invest in additional research and development and marketing The group s continued focus on efficiencies throughout the business is also shown in the R1 million reduction in administration cost despite normal inflationary cost pressures 1H14 1H15 1H16 1H17 1H18 EBIT EBITDA 34

35 5.4% 6.90% 6.9% 8.60% 6.8% 8.60% 6.3% 8.20% 8.8% 11.40% GROUP FINANCIAL RESULTS EBIT AND EBITDA MARGIN The group s EBIT and EBITDA margins increased due to: The successful implementation of efficiency improvement initiatives Non-value added fresh and long life milk products now being sold by DFSA 1H14 1H15 1H16 1H17 1H18 EBIT % EBITDA % 35

36 R m GROUP FINANCIAL RESULTS PROFIT FOR THE PERIOD 3,8% 17,8% 28,6% (9,6%) 97,6% 1H14 1H15 1H16 1H17 1H18 Profit for the year ended 17,8% higher at R233,2 million Clover s strategic decision to plough back savings achieved through efficiency drives into the selling prices of selected products was rewarded through an overall volume increase of 8% and market share growth across a number of products categories The effective tax rate was 28,7% compared to 26,5% during the corresponding period. The main reason for the effective tax rate above the local statutory rate is foreign withholding taxes on a dividend distributed by a subsidiary company 36

37 GROUP FINANCIAL RESULTS HEADLINE EARNINGS HEADLINE EARNINGS (R M) 41,2% 10,2% (13,5%) 18,1% Headline earnings increased by 18,1% to R224,4 million The compounded annual growth rate over the last 6 years is 12,7% 93,6% 1H14 1H15 1H16 1H17 1H18 1H14 1H15 1H16 1H17 1H18 Headline earnings 37

38 GROUP FINANCIAL RESULTS EARNINGS AND HEADLINE EARNINGS HEADLINE EARNINGS PER SHARE AND EARNINGS PER SHARE (CENTS) 7,1% 17,8% 41,3% 89,9% 14,7% 87,5% 35,4% (1,4%) 10,8% 19,1% The compounded annual growth rate on Headline earnings per share over the last 6 years is 11,5% The compounded annual growth rate on Earnings per share over the last 6 years is 12,3% Headline earnings per share Earnings per share 1H14 1H15 1H16 1H17 1H18 1H14 1H15 1H16 1H17 1H18 HEPS EPS 38

39 GROUP FINANCIAL RESULTS HEADLINE EARNINGS CALCULATION Six months to 31 December 2017 R 000 Six months to 31 December 2016 R 000 Profit for the year attributable to shareholders of the parent company Gross re-measurements excluded from headline earnings (12 725) (7 859) (Profit) / Loss on sale and scrapping of property plant and equipment (8 042) Profit on disposal of investment in Lactolab (200) (9 270) Profit on the unbundling of Dairy Farmers South Africa (Pty) Ltd (4 483) Taxation effects of re-measurements Headline earnings attributable to shareholders of the parent company

40 (103) (47) (2) R m GROUP FINANCIAL RESULTS CASH FLOW FROM OPERATIONS The improvement in cash flow from operations is largely as a result of the following: An increase in EBIT adjusted for non-cash items And an improvement in working capital management 1H14 1H15 1H16 1H17 1H18 40

41 (483) (392) (214) (36) (38) (63) (53) (107) (78) R m 703 GROUP FINANCIAL RESULTS CASH FLOW 1H17 (R103m) 1H18 R677m 31 Dec 2017 R m 31 Dec 2016 R m Movement R m Change Trade and other receivables ,1% Trade and other receivables DFSA trade accounts Inventory (294) (22,9%) Trade and other payables ,1% Trade and other payables (normal) DFSA trade account Net (507) (39,0%) Opening cash balance (July 2016/2017) EBIT adjusted for non-cash items Working capital movements Tax paid Net finance costs Capital proceeds 1H17 Capex Acquisitions Revolving credit facility - DFSA 1H18 Dividends paid Other Borrowings raised Closing cash balance (December 2016/2017) 41

42 39.9% 17.1% 38.4% 20.7% 41.3% 23.2% 52.2% 33.4% 56.8% 37.0% 48.1% 25.5% GROUP FINANCIAL RESULTS GEARING 1H13 1H14 1H15 1H16 1H17 1H18 Gearing Gearing net of cash 42

43 GROUP FINANCIAL RESULTS DIVIDENDS The board has approved and declared an interim dividend for the 6 months ended 31 December 2017 of 26,56 cents per share (21,248 net of dividend withholding tax) per ordinary share, payable in South African currency on 9 April 2018 The dividend represents a 9,7% increase over the interim dividend of 24,21 cents paid in April 2017 which equates to an average inflationary increase of 4,85% per annum when compared to the interim dividend paid in April

44 Capital projects Presented by: Johann Vorster

45 CAPITAL PROJECTS MAJOR CAPITAL PROJECTS Capital expenditure during the 6 month period was R101 million Below is a summary of the major capital projects undertaken during the period Approved capital (Rm) Spend to date (Rm) Actual spent 1 Jul - 31 Dec 2017 (Rm) Remaining (Rm) Clayville/Queensburgh/Milkyway milk and Juice consolidation 33 14,3 14,3 18,7 Port Elizabeth UHT optimisation 45,5 43,5 8,5 2 Milnerton Production expansion Phase 1 14,1 8,1 8,1 6 Bloemfontein Yoghurt capacity expansion 127,3 111,4 5,6 15,9 Port Elizabeth L1 and L2 auto palletising 6,8 4,6 4,6 2,2 Heilbron/Queensburgh Numel Range Extension 14,8 4,3 4,3 10,5 45

46 Project Sencillo Presented by: Johann Vorster

47 PROJECT SENCILLO Clover Sencillo Way Better Operations OPTIMISE MANUFACTURING PLATFORMS CONSOLIDATE DISTRIBUTION FACILITIES MILK FLOW OPTIMISATION OPTIMISE YIELD OF MILK OPTIMISE DISTRIBUTION OPERATIONS The aim of SENCILO is to simplify the business through further rationalization of Production platforms, consolidate Distribution operations, address the migration of the milk source to the coastal region and to further optimise the operations of Clover 47

48 STATUS UPDATE Initiative OPTIMISE MANUFACTURING PLATFORMS Reduce Tetratop and Galdi Platforms Remove Tetratop lines in PE and Clayville Optimise utilisation of the remaining 3 lines Remove Galdi line in Queensburgh Consolidate Fresh milk and UHT production in Eastern and Western Cape Close Epping facility and move Combi UHT filler to PE Close PE fresh factory and consolidate fresh milk production for Eastern and Western Cape in Cape Town Consolidate Fresh juice and Fresh milk production for KZN and Inland Consolidate all fresh juice production for KZN and Inland in Clayville Consolidate all fresh milk production for KZN and Inland in Queensburgh Consolidate WW milk manufacturing at MilkyWay Consolidate concentrated products factories Close Bethlehem facility Upgrade Heilbron tower to enable SMP production Status Implemented Implemented Partially implemented Implemented 48

49 STATUS UPDATE CONTINUED Initiative CONSOLIDATE DISTRIBUTION FACILITIES Clayville/City Deep integration Western Cape new facility at airport Belville (R35m) and Stikland (R28m) sold Change Northern Cape infrastructure Upington and Kimberley closed, potentially sell New satellite in Kuruman Review service levels Reduced operation days in Bethlehem satellite Review distribution frequency (delivery days) based on volume per drop Cut weekend operations Review van assistants MILK FLOW AND YIELD OF MILK OPTIMISATION Project Meglio OPTIMISE DISTRIBUTION OPERATIONS Ensure load optimality on pallets and in crates (reduce transportation costs) Actively mange SKU portfolio through fix, grow, exit strategy Status Implemented (excl Clayville expansion) Implemented Implemented Potential Partially implemented Partially implemented 49

50 Sugar tax impact Presented by: Frantz Scheepers

51 SUGAR TAX IMPACT OF THE SUGAR TAX ANNOUNCED IN THE BUDGET SPEECH A sugar tax is to be levied at 2,1 cents per gram of sugar, excluding VAT, on sugar-sweetened beverages to which caloric sweeteners have been added The effective implementation date is 1 April 2018 The proposed tax would be administered by the Customs and Excise Act. In the budget speech document it was stated that the design of the tax has been revised with a broader World Health Organisation definition to be applied to cover both intrinsic and added sugars in sugary beverages Various Clover beverages will be affected, with an estimated impact of around R100 million Clover has embarked on a process (in a 2 phased approach) to review product formulations whereby sucrose content is reduced using one, or a combination, of the following measures: Introduction of zero sugar product offerings / range extensions eg Tropika Slenda Sucrose reduction (less sweet profile) Reformulation of products recipes with partial- or full replacement of sucrose with non-caloric sweeteners Further brand extensions are currently being considered to address the sugar regulations As communicated previously, the impact after Clover s actions was expected to be around R40 million, however since the tax has been confirmed this has been re-evaluated, with the potential impact now expected to be around R100 million 51

52 Impact of the Cape Town water crisis Presented by: Frantz Scheepers

53 CAPE TOWN WATER CRISIS IMPACT OF THE DROUGHT ON CLOVER S PRODUCTION FACILITIES The Western Cape is experiencing its worst drought of the past century. This very low rainfall, coupled with a rapidly growing population, has led to very low water storage levels. Water supply is expected to run out during mid-july if current consumption trends are maintained Clovers Cape Town production facilities are located in Milnerton and Parow respectively, Milnerton contributes 4,2% and Parow contributes 8,2% to Clover s total business Products produced at the two factories: Milnerton Soy milk (13%) Long life juice (20%) Long life Tropika (15%) Parow Fresh juice (45%) Fresh Tropika (30%) Fresh milk (25%) Contract packing for other parties (52%) 53

54 CAPE TOWN WATER CRISIS CLOVER ACTION PLANS Clover is in the process of negotiating/investing in the following to ensure the continued water supply at the facilities: Borehole drilling Cart in water to the factories from one of our fresh milk suppliers, who has sufficient water to supply to Clover Investment in recycled effluent treatment for re-use as grey water Alternatives for some of the Milnerton factory s products are as follows: 1L Tropika to be packed in Port Elizabeth 200ml juices to be packed in Clayville (would require Prisma format packaging material) Long life Tropika and Krush can be packed elsewhere in the group, the majority of other products cannot be packed elsewhere and therefore we would have to use the limited water available Clover has alternative manufacturing facilities for most of the Parow factory s affected products: Fruit juice and Tropika to be supplied from Clayville Fresh milk to be supplied from Queensburgh Quali to stay in Parow using limited water available (it can t be packed anywhere else in the group unless the packaging is changed) 54

55 Prospects Presented by: Johann Vorster

56 Clover is very aware of the plight of the consumer and the Group will continue to seek cost efficiencies and more affordable products across its value chain to limit the impact on rising selling prices but also to defend and maintain existing market shares The recent political leadership changes at the beginning of 2018 has led to renewed optimism and economic growth is projected to pick up moderately in Investment will support growth in 2019 on the assumption that business confidence increases and policy uncertainty fades Despite muted consumer confidence with discretionary spend under pressure, relatively tight credit conditions and persistently high unemployment, private consumption should expand as wages increase moderately and food prices stabilise

57 The improved outlook for inflation owed to the stronger rand, stable oil prices as well as a lower interest rates environment should provide some relief to consumers While the after-effects of the prolonged drought will be felt for some time and be exacerbated by the severe Western Cape drought, a gradual recovery in milk and fruit production volumes together with the strengthening of the rand to the dollar should result in a reduction in input cost inflation Clover remains optimistic that the actions taken will support the Company s return to historic profitability levels over the short to medium term

58 Questions?