Why the Clover (ASX:CLV) share price is climbing 5% this morning

The Clover (ASX: CLV) share price is up 6% in early trading following the release of the company’s first-half results. Here’s the rundown.

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The Clover Corporation Limited (ASX: CLV) share price is surging this morning following the release of its results for the first half of FY21.

At the time of writing, the specialist ingredients company’s shares have climbed 5.62%, trading at $1.41.

Let’s take a closer look and see how the company performed over the period.

What were the financial highlights?

The Clover share price is climbing this morning despite the group reporting a set of negative numbers.

For the six months ending 31 January 2021, Clover delivered total net sales revenue of $29.4 million, reflecting a 21.7% decrease on the prior corresponding period (pcp). The soft result was primarily driven by difficult trading conditions caused by COVID-19 across the infant formula industry.

The Chinese market experienced supply channels fluctuations as demand from Daigou’s tumbled with international travel halted, affecting ‘grey market’ importation.

Adding to the company’s woes, local Chinese manufacturers have increasingly become more competitive with international brands. This includes pricing war and aggressive channel strategies, which has led the Australian and New Zealand market to record a fall in revenue.

Elsewhere, however, Clover grew revenue slightly in Europe, Asia and its United States segments, based on new customers and products.

Operating expenses came to $4.6 million for the first half, a drop of 15% on this time last year. The reduction was attributed to management’s focus on limiting discretionary spending through several initiatives. It’s worth noting that the company has also put many new product programs on hold as customer’s staff continue to work from home.

On the company’s bottom line, net profit after tax (NPAT) sank to $2.5 million, which is a heavy fall of 45.8% over H1 FY20. While expenses were curtailed, one-off impacts such as start-up costs in Melody Dairies and ongoing legal fees were to blame. The latter is associated with enforcing the company’s intellectual property rights against Pharmamark Nutrition Pty Ltd.

Clover closed the period with a cash balance of $9.8 million, a slight increase of $0.6 million on the prior comparable term. Total current liabilities stood at $6.5 million, down from $10.9 million achieved in H1 FY20.

Despite the poor result, the board declared a fully franked dividend of 0.5 cents per share to be paid on 29 April 2021.

Outlook for the Clover share price

Looking ahead, Clover revealed that global uncertainty is leading to a slow recovery in the infant formula market. With this in mind, it expects revenue for the entire FY21 period to be between $60 million and $70 million.

In addition, the company stated that it would seek to pursue opportunities that will enhance growth across its customer base. It said that establishing new sources of raw materials and rolling out new product applications will advance the business’ prospects.

The Clover share price has lost close to 30% of its value over the past 12 months. Year-to-date, the story is no different, with its shares down almost 20%.

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Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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