Clover Pakistan Limited

Clover Pakistan Limited (PSX: CLOV) was incorporated in Pakistan as a public listed company in 1986. The company is engaged in the sale of consumer durables, food products, chemicals and lubricants as well as import of trade of gantry equipment’s air/oil filter and other car care products. The company’s activities also include marketing, distribution and post sales support of office automation products, vending machines, fuel dispensers and digital screens. The company was initially owned by Lakson group but it changed hands in 2017 and is now owned by Fossil Energy (Private) Limited.

Pattern of Shareholding

As of June 30, 2022, CLOV has a total of 31.143 million shares outstanding which are held by 2900 shareholders. Fossil Energy (Private) Limited, the holding company of CLOV has the highest share of 51.06 percent in the company. This is followed by local general public holding 46.01 percent shares of CLOV. Modarabas and Mutual Funds have a stake of 0.07 percent (21,000 shares) in the company while directors, CEO, their spouse and minor children account for 0.01 percent (or 2,521) shares of CLOV. The remaining shares are held by other categories of shareholders.

Historical Performance (2018-22)

After a staggering rise in 2019, CLOV’s topline had been sliding down. The bottomline also didn’t post any positive figure after 2019. In fact, in 2021 and 2022, the company couldn’t even make operating profit. 2021 posted the highest magnitude of net loss which tumbled in 2022. The margins reached their optimum level in 2019 and then entered negative zone. The detailed performance review of each of the years under consideration is given below.

In 2019, CLOV’s topline boasted a whopping year-on-year growth of 691 percent. During the year, CLOV merged with Hascombe Business Solutions which added new line of business for the company i.e. office automation, vending machines, digital screens etc. 2019 proved to be the best year in CLOV’s history as it touted an impressive revenue of Rs.1243.97 million which mainly came on the back of trading and services division of the company. High cost of sales as well as operating expenses speak volumes of the company’s growing operations and the associated increase in the workforce. With 1340 percent year-on-year increase in CLOV’s gross profit, GP margin jumped up to 36.5 percent in 2019 from 20.1 percent in 2018. Operating profit also boasted a year-on-year rise of 826 percent, culminating into an OP margin of 25.6 percent in 2019 versus 22 percent in 2018. The company has a very low gearing ratio and its finance cost mainly comprises of bank charges which grew by 84 percent year-on-year in 2019. The net profit rose by 967 percent year-on-year in 2019 to clock in at Rs.252.496 million with an NP margin of 20.3 percent versus 15 percent in 2018. The shares issued in lieu of amalgamation diluted the growth in EPS which posted a 223 percent year-on-year growth to clock in at Rs.8.11 in 2019.

It seems like CLOV’s luck ran out in 2020. After a tremendous growth witnessed in 2019, CLOV’s topline tumbled by 68 percent year-on-year in 2020 due to the completion of one-off projects. Moreover, the outbreak of COVID-19 during the year also took its toll on the business of CLOV. The cost of sales also shrank by 61 percent year-on-year in 2020 translating into a GP margin of 21.5 percent. Administrative expense declined by 46 percent year-on-year in 2020 due to low payroll expense as the number of employees reduced to 109 in 2020 from 132 in 2019. Furthermore, Low travelling, repair and maintenance, office and utility expenses on account of lockdown imposed during the year also kept administrative expense in check in 2020. Conversely, distribution expense posted a 136 percent year-on-year growth in 2020 on account of higher payroll expense as well as rent, rates and taxes. Other income multiplied by over 2000 percent year-on-year in 2020 on account of mark-up income on overdue receivables as well as profit on bank deposits. However, robust other income couldn’t save operating profit from posting a steep fall of 94 percent year-on-year in 2020 with OP margin sliding to 4.5 percent. Finance cost grew by 49 percent year-on-year in 2020 to clock in at Rs.3.05 million. What literally turned the tables for CLOV and pushed its bottomline into net loss was the impairment of goodwill worth Rs.162.88 million in 2020. After the outspread of COVID-19, the company realized that the recoverable amount of the business had considerably changed based on its future prospects. COVID-19 had significantly affected the industrial and commercial sectors of the economy and hence the sale of industrial chemicals and equipments massively declined which made the book a substantial impairment loss in 2020. The company registered a net loss of Rs.155.218 million with a loss per share of Rs. 4.98.

In 2021, CLOV’s revenue further shriveled by 5 percent year-on-year as the company streamlined its business and trading activities during the year. CLOV bid farewell to its FMCG business in 2021. Its two marts namely Nisht Mart and Sahar Mart were flooded with rain water, resulting in the closure of both the marts. The sale of lubricants and supply of goods and maintenance services to the energy sector also suffered due to COVID-19. Cost of sales went up by 29 percent year-on-year resulting in a gross loss of Rs.24.07 million in 2021. Distribution expense largely remained in check as it grew by 2 percent year-on-year in 2021 despite inflationary pressure. Administrative expense rose by 58 percent year-on-year in 2021 on account of stocks written off as the two marts of the company were full of fresh inventory and packaging materials which were completely destroyed due to rain water. Other income fell by 94 percent year-on-year due to decline in profit on saving deposits and also because there was no mark-up on overdue receivables in 2021. CLOV incurred an operating loss of Rs.175.10 million in 2021. The company also booked impairment of trade debts worth Rs.4.02 million in 2021. Moreover, the company entirely wrote off Goodwill as there was a massive slump in CLOV’s petrotech business with OMCs as well as Gestetner, photocopier and office equipment business due to closure of government offices and embassies on account of COVID-19. The net loss grew by 290 percent year-on-year in 2021 to clock in at Rs.604.999 million with a loss per share of Rs.19.43.

2022 saw the greatest year-on-year decline of 75 percent in CLOV’s topline due to decline in the sales of industrial chemicals, equipments and lubricants as the economy witnessed significant slowdown due to high inflation, high cost of doing business, decline in the value of local currency as well as political uncertainty. However, a 79 percent year-on-year in the cost of sales resulted in a gross profit of Rs.8.72 million in 2022 as against the gross loss of Rs.24.07 in the previous year. GP margin clocked in at 9.3 percent in 2022. Distribution and administrative expense slumped by 46 percent and 19 percent year-on-year in 2022 respectively due to decline in headcount which reduced the payroll expense. Besides, there was a plunge in the advertisement expense, rent, rates and taxes and legal and professional charges. The stock written off in the previous year also created a high-base effect for administrative expense in 2022. Operating loss plummeted by 44 percent year-on-year in 2022 to clock in at Rs.98.89 million. There was a 24 percent rise in impairment on trade receivables during 2022. Yet the absence of impairment of goodwill trimmed down the net loss by 82 percent year-on-year in 2022 to clock in at Rs.109.71 million with a loss per share of Rs.3.52.

Recent Performance (9MFY23)

The topline plunge saw no respite in 2023. During 9MFY23, CLOV’s topline further shrank by 21 percent year-on-year due to slowdown of economy which retarded the growth of various business segments of the company. High inflation didn’t let cost of sales to drop comparably. Cost of sales dropped by 9 percent year-on-year which not only drove the gross profit down by 69 percent year-on-year in 9MFY23 but also culminated into a GP margin of 7.5 percent versus 19 percent during the same period last year. Operating expenses contracted by 64 percent year-on-year as lesser operations resulted in rightsizing of human as well as other business resources. Other income considerably grew by over 11 times in 9MFY23 maybe on account of high discount rate which magnified the profit on deposit accounts. Despite cost optimization, CLOV registered an operating loss of Rs.21.97 million in 9MFY23; however, it was 69 percent less than the operating loss incurred by the company during the same period last year. The net loss and loss per share in 9MFY23 was also 68 percent less than what was recorded by the company in 9MFY22. In 9MFY23, net loss clocked in at Rs.22.790 million with a loss per share of Rs.0.73.

Future Outlook

The shrinkage of economy, unprecedented level of inflation and discount rate, Pak Rupee depreciation and political uncertainty will continue to pose challenges in the coming times and take its toll on the CLOV’s business activities. The company needs to undertake cost optimization to minimize its losses amidst lackluster demand.