What we learnt from the CLV first half FY14 report + comments...

What we learnt from the CLV first half FY14 report + comments from CLV CFO and acting CEO Darren Callahan.


Ian Brown’s successor has not been finalized. He finished with CLV on the 31st of March 2014 and “In the interim, Mr Darren Callahan, the current CFO, will act as the Chief Executive Officer”.

In my opinion not ideal. Not having a full time CEO has it’s issues that I’m sure we can all imagine. Also, whenever the new CEO is named the transition cannot possibly be as effective and as thorough as it would have been if Ian was still in the seat.


The impact from the Fonterra contamination on sales. The company announced back on the 10th of October 2013; “Clover now expects that sales revenue in the first half of the financial year 2014 will be approximately 20% lower than the sales in the prior corresponding period”.

Company reported; “Revenue from ordinary activities down 26.3% over the pcp”.

That was a bit of a surprise on the downside to me. Approximately 31.5% below the forecast. However I did hear in the Open Briefing that the figure was within expectation. Not my expectation. I’m not sure where that expectation was recorded. Perhaps it was the internal company expectation.
I have to make an admission here. I had assumed the effect of the Fonterra contamination would not linger too far into the second half. That was clearly wrong.

From the report; “Potential for 20% - 40% decrease in sales revenue for the full year”. “Improvement anticipated in FY2015”. “Sales revenue in FY2015 is expected to increase from the performance being experienced in FY2014”.
First Half FY14 $14.887ml – mid range of guidance for second half FY14 $15.9ml. (See Darren Callahan’s comments below). However R&D spend in the second half is expected to be higher and therefore NPAT will be impacted. (Once again refer to Darren’s comments below).

I was surprised that R&D spend in the first half was only up $108k over pcp given earlier guidance. Answering a question along those lines in the Open Briefing Darren said; “funding for the project (pre-term trial) was lumpy and the company is carefully managing expenditure”. Not sure what managing expenditure carefully might look like.
Once again from the report; “Clover’s sales revenue has increased in the America’s (+95% prior comparative period) and Europe (+21% prior comparative period) as a result of developing market opportunities and new regulatory approvals”.
Very pleasing to read – however those numbers are coming off a pretty low base.

Oceania sales down 56% over pcp and Asia sales down 18% over pcp. The largest and second largest customers.
“the sale by Clover of refined tuna oil for specialty applications has increased by 35% pcp”. “To take further advantage of this opportunity, a long term contract with a fourth provider of crude tuna oil of appropriately high grade specifications has been completed during the reporting period”.

First half payout 0.5c per share was roughly in line with a company history of paying out approximately 50% of EPS.


I wrote to Darren Callahan with a few questions after going over the report.


In brief I asked about the R&D spend going forward and the response was;

“When the FY13 results were released, R&D spend was forecast to be approximately 3M AUD for 13/14. This number included a significant amount of expenditure on the Medical Foods area, particularly the Preterm project. R&D spend for the first half 13/14 is lower than initially forecast; R&D expenditure will be higher in the second half as various milestones associated with projects are met”.
“Expenditure associated with R&D projects can alter if conditions change, however this is not the case with the Preterm project. Remembering that R&D forecast expenditure is based on future estimates of milestone delivery, actual project expenditure can lag behind forecast predictions”.

My next question was in relation to the 20% - 40% spread of the forecast;

“The revenue guidance for the full year given at the recent release is relatively broad as we work with our customer base to understand recovery from the Fonterra issue”.


My last query was about providing more information about projects, research and development.

“I note your point regarding getting more information on the businesses product developments and research opportunities. To this end, I do intend to use Dr Craig Patch, General Manager Sales and Technical, to attend investor/analyst briefings to (as much as is possible) add more flavour around the businesses exciting future opportunities”

Again, thank you for your support of the business and clear interest.
Regards, Darren Callahan. Interim CEO.


I’m glad that CLV are looking to diversify the revenue stream. As if to impress the importance of that strategy on me; as I was adding the latest numbers and listening to the tv a story came on about an annual Chinese award show which highlights questionable business practices. It has given an award to Melbourne based business Oz Dairy, which exports baby formula around the world. The host of the program said nearly 20,000 cans of the formula had conflicting use-by dates which appear to have been extended by a year. The company have since argued that it was an innocent mistake. It was a printing mistake and the company have apologised to the Chinese government and the China community.
CLV are over exposed at this time to one product.


I for one hope that the CLV management are putting shareholder funds to tremendous use with the pre-term baby trials and that it leads to wonderful business opportunities that make us all wealthy. The point of this long post is that I believe shareholders deserve better communications from companies and more transparency of where and how their money is being spent.