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, 2023, CLOV has a total of 31.143 million shares outstanding which are held by 2692 shareholders. Fossil Energy (Private) Limited, the holding company of CLOV has the highest stake of 51.06 percent in the company followed by local general public holding 45.97 percent shares of CLOV. 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 (2019-23)

After a staggering rise in 2019, CLOV’s topline has been shrinking. The bottomline also didn’t post any positive figure after 2019. In fact, after 2020, the company couldn’t even make any operating profit. In 2021, CLOV registered the highest magnitude of net loss which tumbled thereafter. The margins reached their optimum level in 2019 and then entered negative zone except for positive gross and operating margins in 2020 and a positive gross margin in 2022 (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.

In 2019, CLOV’s topline boasted a whopping year-on-year growth of 691.12 percent. During the year, CLOV merged with Hascombe Business Solutions which provided a new line of business to 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 OP margin of 25.63 percent in 2019 versus 21.9 percent in 2018. The company has a very low gearing ratio and its finance cost mainly comprises of bank charges which grew by 83.95 percent year-on-year to clock in at Rs.2.05 million in 2019. CLOV’s net profit rose by 967.41 percent year-on-year in 2019 to clock in at Rs.252.496 million with 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 68.29 percent year-on-year in 2020 due to completion of one-off projects last year. Moreover, the outbreak of COVID-19 during the year also took its toll on the business operations of CLOV. Cost of sales shrank by 60.8 percent year-on-year in 2020 translating into GP margin of 21.55 percent. Administrative expense declined by 46.41 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, lesser travelling expense, repair and maintenance charges as well as office and utility expense on account of lockdown imposed during the year also kept administrative expense in check in 2020. Conversely, distribution expense posted 135.73 percent year-on-year growth in 2020 on account of higher payroll expense as well as rent, rates and taxes. Other income multiplied by 2018.60 percent year-on-year in 2020 on account of mark-up income on overdue receivables as well as profit on bank deposits. Robust other income couldn’t save operating profit from posting a steep fall of 94.38 percent year-on-year in 2020 with OP margin sliding to down to 4.54 percent. Finance cost grew by 48.51 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 on the basis of 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 net loss of Rs.155.218 million with loss per share of Rs. 4.98 in 2020.

In 2021, CLOV’s revenue further contracted 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 28.78 percent year-on-year resulting in gross loss of Rs.24.07 million in 2021. Distribution expense grew by only 2 percent year-on-year in 2021 despite inflationary pressure. Administrative expense rose by 57.54 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 94.16 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 operating loss of Rs.175.10 million in 2021. The company also booked impairment on 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. Gestetner, photocopier and office equipment business also extremely suffered due to closure of government offices and embassies on account of COVID-19. CLOV’s net loss grew by 289.77 percent year-on-year in 2021 to clock in at Rs.604.999 million with 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 sales of industrial chemicals, equipments and lubricants as the local 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, 79 percent year-on-year in the cost of sales resulted in gross profit of Rs.8.72 million in 2022 as against gross loss of Rs.24.07 in the previous year. GP margin clocked in at 9.34 percent in 2022. Distribution and administrative expense slumped by 45.58 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 high-base effect for administrative expense in 2022. Operating loss plummeted by 43.52 percent year-on-year in 2022 to clock in at Rs.98.89 million. There was 23.88 percent rise in impairment on trade receivables during 2022. Yet the absence of impairment of goodwill trimmed down the net loss by 81.87 percent year-on-year in 2022 to clock in at Rs.109.71 million with loss per share of Rs.3.52.

In 2023, CLOV’s topline slid by 36.3 percent year-on-year as slowdown of economy adversely affected the industrial and chemical sectors. Furthermore, the company’s chemical business was also severely affected due to fluctuation in the global prices. High inflation didn’t let cost of sales to drop comparably resulting in gross loss of Rs.8.19 million in 2023 versus gross profit of Rs.8.72 recorded in 2022. Distribution expense plunged by 25.52 percent in 2023 due to sizeable decline in payroll expense, advertising budget and travelling expense. Distribution expense would have been much lower had the company not incurred significantly higher operating lease rentals for rented properties. 43.48 percent lower administrative expense incurred by CLOV in 2023 was due to widespread layoffs over the year leaving only 4 employees in 2023 versus 42 employees in 2022. The company recorded 201.11 percent higher other income in 2023 on the back of higher gain of fixed assets, reversal of accumulated depreciation as well as higher profit on bank deposits. CLOV’s operating loss tumbled by 29.25 percent in 2023 to clock in at Rs.69.96 million. Finance cost (or bank charges) nosedived by 97.93 percent in 2023 to clock in at Rs.0.016 million. CLOV’s net loss slumped by 35 percent year-on-year in 2023 to clock in at Rs.71.249 million with loss per share of Rs.2.29.

Recent Performance (9MFY24)

After four successive years of net losses, 2024 proved to be a year of fortune for CLOV. While it was unable to record positive bottomline until 2QFY24, the third quarter of FY24 proved to be lucky streak for CLOV. The company registered 2170.82 percent higher net revenue to the tune of Rs.1466.88 million in 9MFY24. While the detailed financial statements are not available to comment on the staggering rise in CLOV’s topline in 2023, it may be related to its strategic partnership with Fossil Energy (Private) Limited (FEPL) to serve as a strategic dealer for managing, operating and maintaining FEPL’s service stations including agri sites. This deal might have provided diversity to CLOV’s product portfolio and customer base. Gross profit improved by 2471.25 percent year-on-year in 9MFY24 to clock in at Rs.124.83 million. GP margin stood at 8.51 percent in 9MFY24 versus 7.52 percent in 9MFY23. Administrative & selling expense tumbled by 50.15 percent in 9MFY24. The company also recorded 37.95 percent lower other income in 9MFY24. CLOV registered operating profit of Rs.111.68 million in 9MFY24 versus operating loss of Rs.21.98 million during the same period last year. OP margin stood at 7.61 percent in 9MFY24. After accounting for taxation, net profit clocked in at Rs.78.117 million in 9MFY24 versus net loss of Rs.22.79 million in 9MFY23. EPS stood at Rs.2.51 in 9MFY24 versus loss per share of Rs.0.73 in 9MFY23. NP margin clocked in at 5.33 percent in 9MFY24.

Future Outlook

The strategic partnership with FEPL will prove to be more fruitful for CLOV as the former plans to construct 50 sites over the next three years with CLOV appointed as a sole dealer for its site operations. This will offer tremendous opportunity to CLOV to revive its financial performance and market presence.