Clover Pakistan Limited

Clover Pakistan Limited (PSX: CLOV) was established as a public limited company in 1986 under the repealed Companies Ordinance, 1984 (now Companies Act, 2017). The company sells foods products, consumer durables, chemicals and lubricants. It also trades gantry equipment’s air/oil filter and other car care products.

Shareholding pattern

As at June 30, 2021, over 58 percent shares are held under the associated companies, undertakings and related parties. This category solely includes Fossil Energy (Private) Limited. Close to 36 percent shares are owned by the local general public, followed by 3.5 percent held under “others” category. The directors, CEO, their spouses and minor children do not hold any shares while the remaining 2.41 percent shares are held in modarabas and mutual funds.

Historical operational performance

The company has seen a fluctuating topline over the years, whereas profit margins have followed a declining trend. Major fluctuation was seen in FY17 as revenue witnessed a sharp drop.

After nearly disappearing in FY17, revenue in FY18 stood at Rs 157 million. During the year, Fossil Energy (Private) Limited began acquiring shares. Moreover, the new Board also gave the approval to begin due diligence for acquiring/merging Hascombe Business Solutions (Private) Limited. Thus, with sales growing from Rs 0.6 million to Rs 157 million, gross margin also grew to 20 percent. However, with the increase in finance expense and taxation, net margin reduced to 15 percent year on year. But it must be noted that net margin was unusually high in FY17 due to a lower than usual topline.

In FY19, revenue saw a remarkable growth as it crossed Rs 1.24 billion. This was attributed to strong growth in trading and services division. The company provided goods and services to the energy sector. The company also had a soft launch for some of its food products at third party marts from which it received a positive response. The growth in revenue allowed gross margin to rise to 36.5 percent. However, the effect on net margin that was recorded at 20.3 percent was less pronounced due to a rise in administrative expenses and finance expense. While the latter can be attributed to a rise in interest rates, the former was due to a growth in the organization. As a result, most of the increase within this category was associated with salaries, wages and allowances, and travelling.

Revenue in FY20 again witnessed a sharp decline as it fell to Rs 394 million. This was in part attributed to a completion of a project whereas the outbreak of the Covid-19 pandemic also had its impact. The resultant lockdowns led to halt in business activities that in turn caused a decrease in sale of industrial chemical and equipment. Thus, gross margin fell to 21.5 percent. This further worsened to a net margin of a negative over 39 percent. The unusual rise in other income did support the bottomline to an extent, but the impairment of goodwill of almost Rs 163 million led the company to incur a loss of Rs 155 million.

Revenue declined again in FY21, but by a relatively lower rate of 5 percent. Due to intermittent lockdowns in various parts of the country, the industrial sector was impacted. For the company, the major loss in revenue came from chemical and FMCG segments. Additionally, two of the company’s marts were also impacted by the heavy rains that led to flooding. But with costs intact, the company was unable to cover its costs, therefore it incurred a gross loss of Rs 24 million. Combined with an increase in administrative expense, impairment of goodwill and a loss in other income that was unusually high in the previous high, net loss exacerbated to an all-time high of Rs 605 million for the year.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was less than half year on year as it fell to Rs 33 million compared to Rs 128 million in the same period last year. The loss in revenue was attributed to the outbreak of Covid-19 pandemic that led to a high degree of uncertainty and volatility, particularly in the chemicals market as the prices changed frequently in the domestic and international market. Currency fluctuation also added to the volatility. With a certain portion of cost of sales intact, the company incurred a loss for the quarter of almost Rs 22 million.

The second quarter also saw a lower revenue year on year at Rs 26 million versus Rs 89 million in 2QFY21. This was again attributed to the effect of Covid-19 that created a volatile situation. However, the company claims to have begun cost cutting measures that allowed the company to post a gross profit of Rs 4 million. However, with further expenses, the company posted a net loss of Rs 26.5 million. But it was significantly lower than the net loss of almost Rs 78 million in 2QFY21. While the loss in revenue stream has impacted the profitability of the company, the measures to curtail costs may allow for lower losses, if not a positive bottomline.