After a lucky streak, Clover stumbles in 2020

How does a company go from having its best year in 2019, to its worst year in seven years in 2020?

That is what happened to Clover Pakistan. Its latest financials for the year ending June 30, 2020, were released to the Pakistan Stock Exchange on November 4, and they were not great. For the first time in seven years, Clover Pakistan recorded a loss after tax of Rs155 million. It is a far cry from the net profit of Rs252 million just the year prior. Clover’s luck, it seems, has run out. 

First, let us chart the history of this company. Clover Pakistan Limited was incorporated in 1986 as a public limited company. Its registered office is at M.T. Khan Road, in Karachi. The company sells automotive accessories, business solutions, and food products.

Those three segments are a very recent phenomenon. Clover Pakistan used to be a very different company for the current one. Initially, Clover Pakistan used to be owned by the Lakson Group of Companies, which has diversified interests in food processing, real estate, cigarette manufacturing, food chain, information technology. The Lakson Group tends to favour partnerships with global brands, and so naturally Clover Pakistan followed suit. 

In the 2000s, the company marketed popular brands such as Tang, Toblerone, and Philadelphia. It also used to distribute the flashy Indian watch brand Titan in Pakistan.

But in 2012, the company discontinued the food line of business. And in 2015, it discontinued selling the Titan watches. But the biggest change was yet to come, as in 2017, the company changed hands completely.  Fossil Energy, an oil marketing and storage company incorporated in 2013, started the process to acquire shares along with management of  Clover Pakistan in 2017. That year, it had a 55% share in the company, once the process was complete; today, it has an 83% share in Clover Pakistan, making it the holding company. 

Fossil Energy had a very different idea of where it wanted the company to go. Today, CLover Pakistan is less known for Tang, and more known for the much less fun and interesting line of auto care products: “Clover Car Care Products”. The line was introduced in August 2018 including auto car products, such as car wax, shampoo, air fresheners, oil and air filters, and windshield cleaners. These were sold at various retail stores and petrol stations. 

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The change helped boost the fortunes of Clover Pakistan somewhat. To recap: the profit after taxation in 2014 stood at Rs45 million, which decreased to Rs332,000 in 2017 (its lowest point), before climbing to Rs23 million in 2018. One can see a similar trend in sales: Rs49 million in 2014, falling to Rs736,000 in 2017, and then Rs183 million in 2018. The year 2017, as one can tell, was not a great year for Clover, but low taxation made sure that it just managed to scrape by a profit. The changes brought by the new management also helped the company turn around in 2018. 

It was in the year 2019 that the company made two interesting decisions. 

First, the board of directors decided to merge the company with Hascombe Business Solutions. The Sindh High Court approved the merger in February 2019. Through the merger, Clover now had a second line of business, business solutions like office automation, vending machines, and digital screens. 

The merger’s effective date, however, was April 2018. That meant that all of Hascombe’s business activity from April 2018 to June 2019, was included in the 2019 financials. That year was the best performing year in the company’s history, with sales of Rs1,244 million, and profit after tax of Rs252 million. That year’s dividend stood at Rs8.11 per share, much higher than any previous dividend (which hit Rs4 in 2014).

Second, the company decided to try its luck out in food – yet again. But this time, it decided to go a little more local. No Pakistani dish (or at least a complicated one) is complete without the requisite trinity of ginger, garlic and a decent masala packet. Typically, the masala packet in question is Shan or National Foods…or Clover Foods? That’s what Clover Pakistan was thinking in 2019. What if the company could introduce a brand new food segment: a whole range including masalas, jams, pickles, pastes, lentils and rice? It would represent a bit of a change for the company, to say the least. 

But the move actually somewhat worked. According to the latest annual report available from 2019, Clover decided to soft launch some selected food products and bottled water at third party marts. “The response was very encouraging and a full scale launch is planned after finalizing the supply chain and distribution arrangements.” the company said. Clover said that it had gotten licences form provincial governments, and even entered into manufacturing agreements with brands for its food line. 

And then 2020 happened. Sure, the company’s sales stood at Rs394 million, but then the company’s cost of sales and selling and distribution expenses were quite high, and in the case of the latter, even higher than in the year 2019. But by far the biggest chunk was taken up by the impairment of goodwill line: a whopping Rs162 million.

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