Annual financial statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

Provision against income

Share-based payment (credit)/expense

SHARE-BASED PAYMENTS

31.1

Equity-settled share appreciation rights scheme

– Clover Share Appreciation Rights Plan (2010) (ordinary shares in CIL)

On 31 May 2010 the ordinary and preference shareholders approved the Clover Share Appreciation Rights (SAR) Plan as well as the placement of 16 million unissued ordinary shares under the control of the Directors to fulfil the Group’s potential future obligations in terms of the plan. The main rules of the plan are as follows:

The Group’s obligations in terms of this plan can at the election of the Group be settled in cash or by the issue of ordinary shares.

New SAR may be exercised at the election of the participants, at any time after they have vested, provided that the participant concerned is still in the employment of Clover. On exercise employees will be awarded shares to the value equal to the difference between the fair market value of ordinary shares on the date of issue of the new SAR in question and the fair market value of the ordinary shares on the date of exercise.

Further details on the scheme are available in the detailed circular issued to shareholders on 7 May 2010 and the report on remuneration here.

The SAR granted are expensed over their vesting period in terms of IFRS 2. The estimated fair value of these SAR was calculated using the Hull-White Trinomial Lattice valuation model.

The following inputs were used for the calculation of the fair value:

Initial allocation – expected volatility of 30,3%, risk free rate of 8,90% and a dividend yield of 2,34%.

Third allocation – expected volatility of 19,9%, risk free rate of 8,55% and a dividend yield of 3,33%.

Allocation to new executive Committee member – Expected volatility of 17,4%, risk free rate of 7,94% and a dividend yield of 2,00%.

Fourth allocation – expected volatility of 17,4%, risk free rate of 7,94% and a dividend yield of 2,00%

Fifth allocation – expected volatility of 24,3%, risk free rate of 6,67% and dividend yield of 1,74%.

Sixth allocation – expected volatility of 21,4%, risk free rate of 7,01% and dividend yield of 1,80%.

Allocation to new executive committee member – expected volatility of 22,7%, risk free rate of 7,45% and a dividend yield of 2,14%.

Seventh allocation – expected volatility of 26,9%, risk free rate of 7,37% and dividend yield of 1,92%.

Expected volatility is calculated based on the average share price per day and the intra-day share price movements since listing.

Eighth allocation – expected volatility of 33,0%, risk free rate of 8,19% and a dividend yield of 2,95%.

Ninth allocation - expected volatility of 26,7%, risk free rate of 7,98% and a dividend yield of 3,48%.

Allocation to new executive director - expected volatility of 28,9%, risk free rate of 7,90% and a dividend yield of 3,05%.

Allocation to existing executive committee member - expected volatility of 29,1%, risk free rate of 8,01% and a dividend yield of 3,35%.

		Share appreciation rights
Description	Grant date	Weighted average remaining contractual life (years)	Exercise price	SAR granted not yet exercised	Estimated weighted average fair value per right at grant date (Adjusted for 2 for 1 share split)	Vesting period
Clover’s Share Appreciation Rights Plan (2010) – Initial allocation	31 May 2010	Till employment terminates	R4,67	1 808 459(2017: 1 808 459)	R2,11	One-third on 31 May 2013, a further third on 31 May 2014 and a final third on 31 May 2015
Clover’s Share Appreciation Rights Plan (2010) – Third allocation	1 July 2011	All rights have been exercised	R11,00	-(2017: 57 778)	R3,11	Full allocation vested on 1 July 2014
Clover’s Share Appreciation Rights Plan (2010) – Allocation to executive committee member ER Bosch	1 June 2012	The employee has left the service of the Group	R13,50	-(2017: 953 620)	R4,03	One-third on 1 June 2015, one-third on 1 June 2016 and a final third on 1 June 2017
Clover’s Share Appreciation Rights Plan (2010) – Fourth allocation	1 July 2012	Two years	R13,73	1 474 962(2016: 1 474 962)	R3,70	Full allocation vested on 1 July 2015
Clover’s Share Appreciation Rights Plan (2010) – Allocation to executive committee member MM Palmeiro	1 October 2012	Two years	R14,15	925 500(2016: 925 500)	R3,95	One-third on 1 October 2015, a third on 1 October 2016 and a final third on 1 October 2017
Clover’s Share Appreciation Rights Plan (2010) – Fifth allocation	1 July 2013	Three years	R16,83	1 924 018(2017: 2 256 153)	R4,97	Full allocation vests on 1 July 2016
Clover’s Share Appreciation Rights Plan (2010) – Sixth allocation	20 June 2014	Four years	R17,31	594 872(2017: 697 562)	R4,83	Full allocation vests on 30 June 2017
Clover’s Share Appreciation Rights Plan (2010) – Allocation to executive committee member J van Heerden	26 September 2014	Two years	R17,55	501 425(2016: 501 425)	R5,25	One third on 26 September 2017, one third on 26 September 2018 and a final third on 26 September 2019
Clover’s Share Appreciation Rights Plan (2010) – Seventh allocation	30 June 2015	Four years	R17,34	722 334(2017: 2 779 769)	R5,38	Full allocation vests on 30 June 2018
Clover’s Share Appreciation Rights Plan (2010) – Eighth allocation	30 June 2016	Three years	R18,44	2 679 262(2017: 2 679 262)	R5,58	Full allocation vests on 30 June 2019
Clovers Share Appreciation Rights Plan (2010) – Ninth allocation	30 June 2017	Four years	R16,75	3 108 839(2017: 3 108 839)	R 4.40	Full allocation vest on 30 June 2020
Clovers Share Appreciation Rights Plan (2010) – Allocation to new executive director FF Scheepers	01 November 2017	Six years	R13,56	1 000 000(2017: 0)	R 4.53	One third on 1 November 2020, a third on 1 November 2021 and final third on 1 November 2022
Clover’s Share Appreciation Rights Plan (2010) – – Second allocation to executive committee member J van Heerden	14 February 2018	Seven years	R15,15	200 000(2017: 0)	R 4.87	One third on 14 February 2021, a third on 14 February 2022 and final third on 14 February 2023

There were no changes made to the share appreciation rights or the executives' interests therein after 30 June 2018 up to the approval of the annual financial statements.

32	DIRECTORS' REMUNERATION AND INTERESTS
	32.1	Directors’ remuneration

	2018
	Basic salary R'000	Fees for services as director R'000	Individual performance bonus R'000	Profit share bonus R'000	Retirement and medical contributions R'000	Re-imbursive expenses R' 000	Other benefits* R'000	Total R'000
Executive Directors
JH Vorster	5 823	–	1 727	–	820	27	249	8 646
FF Scheepers (appointed 1 January 2018)	2 313	–	587	–	339	10	97	3 346
ER Bosch (resigned 31 December 2017)	1 784	–	–	–	237	17	70	2 108
Total remuneration of executive directors	9 920	–	2 314	–	1 396	54	416	14 100
Non-executive directors
WI Büchner	–	1 341	–	–	–	–	–	1 341
JW Basson (Dr) (appointed 1 January 2018)	–	178	–	–	–	–	–	178
SF Booysen (Dr)	–	1 010	–	–	–	–	–	1 010
JFM Morgan (appointed 1 January 2018)	–	178	–	–	–	–	–	178
NA Smith	–	536	–	–	–	–	–	536
N Mokhesi	–	835	–	–	–	–	–	835
B Ngonyama	–	665	–	–	–	–	–	665
Total remuneration of non-executive directors	–	4 743	–	–	–	–	–	4 743
Total directors’ remuneration	9 920	4 743	2 314	–	1 396	54	416	18 843
Other executives (prescribed officers)
H Lubbe	3 449	–	876	–	523	65	180	5 093
JHF Botes (Dr)	3 464	–	884	–	545	63	179	5 135
MM Palmeiro	2 844	–	1 507	–	429	25	794	5 599
J van Heerden	2 899	–	737	–	430	86	254	4 406
Total remuneration of other executives	12 656	–	4 004	–	1 927	239	1 407	20 233

Other benefits include long-service award payouts, leave payouts on retirement, housing allowances for expatriates,
travel and accommodation expenses.

	2017
	Basic salary R'000	Fees for services as director R'000	Individual performance bonus R'000	Profit share bonus R'000	Retirement and medical contributions R'000	Re-imbursive expenses R' 000	Other benefits* R'000	Total R'000
	R'000	R'000	R'000	R'000	R'000	R' 000	R'000	R'000
Executive directors
JH Vorster	5 500	–	–	–	628	–	283	6 411
ER Bosch	3 397	–	–	–	452	–	132	3 981
Total remuneration of executive directors	8 897	–	–	–	1 080	–	415	10 392
Non-executive directors
WI Büchner	–	1 191	–	–	–	–	–	1 191
TA Wixley (resigned 28 November 2016)	–	374	–	–	–	–	–	374
SF Booysen (Dr)	–	840	–	–	–	–	–	840
JNS Du Plessis (resigned 11 January 2017)	–	249	–	–	–	8	–	257
NA Smith	–	414	–	–	–	–	–	414
N Mokhesi	–	637	–	–	–	–	–	637
B Ngonyama	–	539	–	–	–	–	–	539
PR Griffin (resigned 28 November 2016)	–	134	–	–	–	18	–	152
Total remuneration of non-executive directors	–	4 378	–	–	–	26	–	4 404
Total directors’ remuneration	8 897	4 378	–	–	1 080	26	415	14 796
Other executives (prescribed officers)
H Lubbe	3 285	–	–	–	409	–	170	3 864
JHF Botes (Dr)	3 300	–	–	–	430	–	169	3 899
MM Palmeiro	2 708	–	–	–	340	–	760	3 808
J van Heerden	2 635	–	–	–	324	–	241	3 200
Total remuneration of other executives	11 928	–	–	–	1 503	–	1 340	14 771

Other benefits include long-service award payouts, leave payouts on retirement, housing allowances for expatriates, travel and accommodation expenses.

	2018 R’000	2017 R’000
Share appreciation rights exercised and settled by the issue of shares
Executive directors
JH Vorster	–	–
CP Lerm (Dr)*	–	332 135
Executives (Prescribed officers)	–	–
	–	332 135

		All share appreciation rights exercised by executives as part of the MPCRE (refer here: – legacy scheme SAR issues) were settled in shares.
		* Retired 30 June 2016

The interest of executive and non-executive directors in the shares of the Company provided for in the form of share appreciation rights are set out in the table below:

	Allocation of rights	Number of rights at allocation date	Number of rights as at 30 June 2017	Share appreciation rights granted during the year	Number of rights exercised*/ cancelled^ during the year	Number of rights as at 30 June 2018	Number of rights that have vested as at 30 June 2018	Share price on date exercised	Grant price	Date from which exercisable
JH Vorster	Fourth	1 036 716	696 716			696 716	696 716		13.73	All on 1 July 2015.
	Fifth	879 589	879 589			879 589	879 589		16.83	All on 1 July 2016.
	Sixth	906 510	271 953			271 953	271 953		17.31	All on 30 June 2017.
	Seventh	975 927	975 927		683 149^	292 778	292 778		17.34	All on 30 June 2018.
	Eighth	919 753	919 753			919 753			18.44	All on 30 June 2019.
	Ninth	1 087 427	1 087 427			1 087 427			16.75	All on 30 June 2020.
FF Scheepers (appointed 1 January 2018)	Allocation of newly appointed	1 000 000	–	1 000 000		1 000 000			13.56	One third on 1 November 2020, a third on 1 November 2021 and final third on 1 November 2022
ER Bosch (resigned 31 December 2017)	Allocation of newly appointed	953 620	953 620		953 620*	–		15.26	13.50	One-third on 1 June 2015, a third on 1 June 2016 and final third on 1 June 2017.
	Fifth	332 135	332 135		332 135^	–			16.83	All on 1 July 2016.
	Sixth	342 301	102 690		102 690^	–			17.31	All on 30 June 2017.
	Seventh	371 988	371 988		371 988^	–			17.34	All on 30 June 2018.
	Eighth	362 256	362 256		362 256^	–			18.44	All on 30 June 2019.
	Ninth	426 302	426 302		426 302^	–			16.75	All on 30 June 2020.
Total executive directors		9 594 524	7 380 356	1 000 000	3 232 140	5 148 216	2 141 036

	Allocation of rights	Number of rights at allocation date	Number of rights as at 30 June 2017	Share appreciation rights granted during the year	Number of rights exercised*/ cancelled^ during the year	Number of rights as at 30 June 2018	Number of rights that have vested as at 30 June 2018	Share price on date exercised	Grant price	Date from which exercisable
Other executives (prescribed officers)
H Lubbe	First	2 027 236	1 351 491			1 351 491	1 351 491		4.67	One-third on 31 May 2013, a further third on 31 May 2014 and a final third on 31 May 2015.
	Third	57 778	57 778		57 778*	–	–	16.90	11.00	All on 1 July 2014.
	Fourth	389 123	389 123			389 123	389 123		13.73	All on 1 July 2015.
	Fifth	332 135	332 135			332 135	332 135		16.83	All on 1 July 2016.
	Sixth	342 301	102 690			102 690	102 690		17.31	All on 30 June 2017.
	Seventh	370 992	370 992		259 694^	111 298	111 298		17.34	All on 30 June 2018.
	Eighth	349 625	349 625			349 625			18.44	All on 30 June 2019.
	Ninth	413 886	413 886			413 886			16.75	All on 30 June 2020.
JHF Botes (Dr)	First	1 370 904	456 968			456 968	456 968		4.67	One-third on 31 May 2013, a further third on 31 May 2014 and a final third on 31 May 2015.
	Fourth	389 123	389 123			389 123	389 123		13.73	All on 1 July 2015.
	Fifth	332 135	332 135			332 135	332 135		16.83	All on 1 July 2016.
	Sixth	342 301	102 690			102 690	102 690		17.31	All on 30 June 2017.
	Seventh	372 023	372 023		260 416^	111 607	111 607		17.34	All on 30 June 2018.
	Eighth	350 598	350 598			350 598			18.44	All on 30 June 2019.
	Ninth	417 645	417 645			417 645			16.75	All on 30 June 2020.

	Allocation of rights	Number of rights at allocation date	Number of rights as at 30 June 2017	Share appreciation rights granted during the year	Number of rights exercised*/ cancelled^ during the year	Number of rights as at 30 June 2018	Number of rights that have vested as at 30 June 2018	Share price on date exercised	Grant price	Date from which exercisable
MM Palmeiro	Allocation of newly appointed	925 500	925 500			925 500	925 500		14.15	One-third on 1 October 2015, a third on 1 October 2016 and final third on1 October 2017.
	Fifth	380 159	380 159			380 159	380 159		16.83	All on 1 July 2016.
	Sixth	391 795	117 538			117 538	117 538		17.31	All on 30 June 2017.
	Seventh	417 246	417 246		292 072^	125 174	125 174		17.34	All on 30 June 2018.
	Eighth	415 808	415 808			415 808			18.44	All on 30 June 2019.
	Ninth	423 249	423 249			423 249			16.75	All on 30 June 2020.
J van Heerden	Allocation of newly appointed	501 425	501 425			501 425	167 142		17.55	One third on 26 September 2017, a third on 26 September 2018 and final third on 26 September 2019.
	Seventh	271 593	271 593		190 115^	81 478	81 478		17.34	All on 30 June 2018.
	Eighth	281 222	281 222			281 222			18.44	All on 30 June 2019.
	Ninth	340 330	340 330			340 330			16.75	All on 30 June 2020.
	Top-up allocation	200 000	–	200 000		200 000			15.15	One third on 14 February 2021, a third on 14 February 2022 and final third on 14 February 2023.
Total other executives		12 406 132	9 862 973	200 000	1 060 075	9 002 897	5 476 251
Total		22 000 656	17 243 329	1 200 000	4 292 215	14 151 113	7 617 287

		Under the SAR scheme, the aggregate number of ordinary shares which may be acquired by the executives may not exceed 16 million ordinary shares. At 30 June 2018, a total of 11 240 883 (30 June 2017: 11 202 483 ordinary shares) have been issued to executives, with the balance of 4 759 117 ordinary shares remaining available for issue.
		* Exercised
		^ Cancelled

Number of shares at 30 June 2018					Number of shares at 30 June 2017
Direct	Indirect	Associates			Direct	Indirect	Associates
			32.3	Interest of directors and other executives of the Company in ordinary share capital
				Executive directors
4 088 925	4 500 000	403 364		JH Vorster	4 583 334	4 500 000	403 364
4 088 925	4 500 000	403 364			4 583 334	4 500 000	403 364
				Non-executive directors
–	486 492	–		WI Büchner*	–	591 492	–
–	900 085	–		NA Smith	–	900 085	–
–	–	–		TA Wixley^	48 222	–	–
–	–	–		PR Griffin^	15 245	–	–
–	1 386 577	–			63 467	1 491 577	–
4 088 925	5 886 577	403 364		Total directors’ interests in ordinary share capital	4 646 801	5 991 577	403 364
				Other executives (prescribed officers)
242 222	–	–		H Lubbe	242 222	–	–
951 998	–	–		JHF Botes (Dr)	951 998	–	–
1 194 220	–	–		Total interest of other executives in ordinary share capital	1 194 220	–	–

There have been no changes in directors’ interests in the share capital of the Company between the end of the financial year and the date of the approval of the annual financial statements.
*	This director is a trustee of the Clover Milk Producer Trust that holds 23 714 200 (2017: 23 700 000) ordinary shares in the Company.
^	Resigned 28 November 2016

GROUP					COMPANY

2018 R’000	2017 R’000				2018 R’000	2017 R’000
		33	Long-service bonus
			33.1	Introduction
				The Group rewards employees with long service by remunerating them with a lump sum after a specific number of service years. Assumptions and valuation methods are as follows:
			33.2	Background
				The long-service bonuses which employees receive differ between employees whose employment date were before 1 January 2001 and employees whose employment date was after 1 January 2001.
				The benefit is as follows:
				Employees with an employment date before 1 January 2001
				Employees receive a bonus of three times their monthly basic salary after 15 years service and one time their monthly basic salary every five years thereafter. In addition, employees with more than 30 years service will receive a gift to the value of R7 600.
				Employees with an employment date after 1 January 2001
				Employees receive a bonus of 10% of their monthly basic salary after 10 years’ service, 15% after 15 years’ service, 20% after 20 years’ service, 25% after 25 years’ service, etc.
			33.3	Valuation method
				The projected unit credit method is used in the calculations. The values of the past service liabilities and the future service liabilities are given separately. The past service liability is the value of the accumulated liability as at the calculation date in respect of service already rendered. The future service liability is the value of the liability from service after the calculation date until the next date the employee is entitled to receive a bonus payment. The total liability is evenly distributed over the period since service inception until the date when the benefit is payable.
			33.4	Valuation results
				Past service liability
				The total past service liability in respect of long-service bonuses is set out as follows:
18 067	18 497			Employees with employment date before 01/01/2001
5 652	2 928			Employees with employment date after 01/01/2001
23 719	21 425			Total past service liability
				The valuation results as at 30 June 2018 are based on best estimate assumptions. The valuation is very sensitive to the real return rate assumed. For every 1% variance in the assumed rate of return, the liability varies by approximately R560 000. The results as at 30 June 2017 are based on the previous best estimates.

GROUP					COMPANY

2018 %	2017 %				2018 %	2017 %
		33.5	Past service liability build-up
			The build-up of the total past service liability for the past year, using the best estimate assumptions are as follows:
7.70	7.50		a)	The following discount rate per annum was used for the calculation of interest cost
6.40	6.30		b)	The following salary escalation rate per annum and merit increases were used
			c)	For current service cost an assumption is made that there are no withdrawals during the financial year
			d)	For benefits paid it is assumed that all benefits were paid as estimated by Clover

R'000	R'000			R'000	R'000
		The increase in the past service liability is summarised as follows:
		Past services liability build-up
21 426	21 847	Opening balance
1 545	1 870	Plus:	Interest cost
938	1 083		Current service cost
(6 046)	(5 032)	Less:	Benefits paid
5 856	1 658		Actuarial loss
23 719	21 426	Closing balance

EVENTS AFTER THE REPORTING PERIOD

Except for the events noted below, no significant events occurred subsequent to the year-end that would require disclosure or amendment to these financial statements.

Clover made a R90 million cash injection in September 2018 in DFSA that will be capitalised once shareholder approval is obtained as required by DFSA’s Memorandum of Incorporation. This will not increase Clover’s voting rights or shareholding and underpins Clover’s ongoing commitment to support its milk source, service fees and the sustainability of DFSA.

DFSA has in turn committed to also build up a reserve of R90 million through the reduction of milk prices paid to its producers. Clover’s capitalisation of DFSA and the build-up of the aforementioned reserve will add stability to DFSA to navigate through future cycles. Refer to the report on governance, risk and compliances here for further information regarding the DFSA.

Subsequent to year-end, the board has approved a final gross cash dividend of R92,9 million (2017: Rnil) or 48,68 cents (2017: nil cents) per ordinary share for the year ended 30 June 2018 which will be paid Monday, 8 October 2018.