Clover (ASX:CLV) Q4 2026 Earnings Call

0:00 Thank you for standing by and welcome to the Clover Corporation Limited FY26 results briefing. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Peter Davey, Managing Director and CEO. Please go ahead.

0:27 Good morning and welcome to the FY26 results presentation for Clover Corporation. I'm Peter Davey, the CEO and MD, and with me today is Andrew Alibom, who is the CFO and company secretary. So go to the results page. a really strong year for the company. In fact, a record year for the company, which I'm really proud of everybody that works here. It's been a wonderful year, a very difficult year to meet the performance. It just really shows that we've been on a path for a long-term growth and it's delivering and that's what we've been trying to achieve and will continue to do. The year was highlighted by $97.4 million in revenue.

1:15 at a 35.5% average gross margin across the business, a 4% improvement in margin. The revenue growth was slightly ahead of our guidance, which was 92 to 96 million. It was 13% improvement up on what was very good FY26 at 86 million. And the gross margin is really a testament to the innovation that we have in this business where we've further increased the product mix and getting the benefits of our vertical integration strategy which we'll talk to in more detail EBITDA at 17 million is up 4.7 on the prior year really driven by that sales growth and the gross margin improvement but also our operating costs have been really held well in line with as a percentage of our sales networking capital has increased to $49.8 million.

2:08 It's up $7.5 million on the prior year and it's really driven by increasing our inventory position by $19.8 million. So to meet the increased sales that we're getting through, especially across our ARA and fish oil products, we've had to buy in more inventory to meet that forecasted demand. The balance sheet remains very strong. We've got $7.2 million in cash and pleasingly we have no more interest bearing liabilities. NPAT at $10.5 million up 50% from the prior year of $7 million with the increased drivers of lower expenses and an effective tax rate helping that number and from that the board has declared a final fully franked dividend per share of $0.25 per share.

3:11 This operational highlights page, really the middle of it stands out to say exactly what we do. The adherence to our growth strategy With investment in customer diversification and our new product development is what's delivering. It's delivered improved revenue. It's delivered improved profit margins. And what it's really done is position us for long-term growth. We've got customers with unique products that have developed their solutions and they're utilizing our products in those, which is a real partnership in the marketplace that drives future long-term growth. Across the year, we've seen significantly improved demand for our high-quality ARA products from the infant formula market. Melody Dairies has delivered a profit in line with our expectations, but most of all, it's delivered a reduced cost for our business, which is benefiting our margin position.

4:04 And we've expanded our distribution network globally with 30 distributors now, and we have repaid all of our debt Colleen Excel has moved along. We've gone into registration of the product. We're now looking at commercial packaging options. We've established a dedicated resource to help us enter the US nutraceuticals market and Ecuador continues to deliver for the business and we're looking at further increases in its capacity. All of which I'll go into a bit more detail. The product mix side slide which we've shown several times now really continues to show the The success of our innovation strategy, which is diversifying our sales and our customer base. Now, when you look at that graph, the second half of FY26, near two-thirds of our sales are from 18 products.

5:02 And our traditional base products, which are three, one of which being oil, is now a small one-third of our business. And that's really helped drive the margins. What it's really doing is helping our customers with solutions that are driving their businesses, which improves our demand overall. Really, the story of the year has been two things. Western manufacturers, especially infant formula market, have done very well into the infant formula market of Asia and China and Greater China. And then we've seen significantly increased demand for our ARA powder products. The ARA powder is a required inclusion in infant formula. and many of their customers do the best quality product in the world.

5:49 With that, we'll move on to the financials, and I'll let Andrew take those over for us. Thanks, Andrew.

5:59 Thank you, Peter. Peter's certainly highlighted the top line and the results in terms of margins over the course of the year, so I won't labour over restating those numbers. In terms of our revenue position, as it was highlighted, those 13% increase, predominantly increases in the ANZ Western manufacturers with around a $10 million movement year on year and through our European Middle East base of the $6 million increase, which offset some small declines through the Asian-Americans. So in reference to Peter's commentary there on Western manufacturers, that's where we've seen good growth Peter said, back into parts of the China, the Asia market.

6:47 Again, Peter's highlighted there the margins, so I won't spend too much time on those, and there may be questions at the end of the presentation. Our operating cost growth, an 8% increase. It really reflects our continued investment in people across the business and across all areas, be it finance, sales, and research and development. That's why costs are up there. Our new market development costs increased year on year, predominantly with the USA market expansion that we're undertaking. And again, we'll talk more to that later in the presentation. So really pleased with the impact growth and our EBITDA percentage continuing to increase. For those that have the opportunity to look through the Appendix IV-E in more detail, you'd certainly see that as part of our result, we endured or had to account for FX translational losses of $1.1 million.

7:50 And I'll talk to that a bit later as well. So great result in terms of EBIT. Just moving to the next slide, which is cash flow. On the back of, I guess, great performance, we'd like to see more net cash inflows from operating activities. What we've highlighted in this slide is the significant increase in inventory. With inventory, 50% of it is raw materials, 50% of it is finished goods for FY26. And the requirement for higher levels of raw materials and finished goods really translates to the supply chain, the time and length of our supply chain.

8:35 We've got the demand to meet the customer's requirements, but we do need to order oil. We need to test the oil. We need to manufacture it into powder. We need to test the powder. So we end up holding larger values of inventory, and that's fundamentally where the operating cash flows have gone over the course of the year. Purchase of plant and equipment, not significant, largely matching depreciation over the course of the year. and with the performance of Melody Dairies, which is the loan to associates, there was a repayment of a short-term loan that had been created some 18 months ago. So, pleasingly, they've been able to repay back some of that assistance. And as Peter said, our interest-bearing liabilities for Clover have now been fully repaid, so we're well positioned to move forward on our capital planning program, which again we'll talk to a little bit later in the presentation.

9:35 I think in the half year's result, we were certainly the AGM last year, we sought shareholder approval for the company to support an acquisition of shares to satisfy future vesting rights around our long-term incentive scheme. We purchased $700,000 of shares and that detailed more fully in the annual accounts and we'll continue to look at that position as we go forward over the course of the year. I will now move to the next slide which is the balance sheet. I've had references that it's considered a lazy balance sheet with zero debt but pleasingly the cash position we've been able to maintain Trade receivables, good collections over the course of the year and through to the end of the year.

10:29 The inventories, as I indicated, certainly up to support our customers. Trade payables, a little bit of extension, more timing related as we've purchased that inventory, haven't settled debts with our trade payables suppliers. So in terms of a net asset growth, up $5.8 million year on year, a great outcome. I will now hand it back to Peter.

10:59 I'll take you through the operational highlights of the year and we'll turn to Ecuador first. Part of our vertical integration strategy has been the purchase and the construction of the Ecuador facility where we sustainably extract tuna fish oil. so their investment is now representing a contribution to our overall margin position because we source the oil at a cheaper cost. It now is 30% of our total raw material inputs in FY26, so it's a big part of our business. We continue to negotiate for additional supply of tuna heads, so effectively the factory takes from the canning operations and the loining operations the head, which obviously doesn't go in the can, So we take the head, which would either be dried as a meal, we extract the oil from it, and we bring it here to Australia then to cleanse and then supply through our products.

12:02 We have invested in additional people during the year as we've grown the business, and we are committed at that site to source from suppliers who demonstrate sustainable fishing practices. It's quite a strict ruling. and any of our suppliers have to meet the EU standards which are quite ruling. The second part of our vertical integration strategy on the next slide is our New Zealand investment. So we have a partnership in a facility there. We are a 44% owner of Melody Dairies where we turn our oils into powders. It's been a A great year for that facility. It's well managed, it's well run, it's producing excellent quality product and it's become much more efficient in its operation.

12:51 We have customers continuing to qualify the facility. It is now operating at near full capacity 24-7 and Clover has got other facilities. 50% of our power is Weekly, we're utilizing the facility along with our other partners and shareholders, and we will continue to pursue that business for improved productivity and reduced costs across it overall. Both of those are now part of our vertical integration and contributing and helping that mark and position for the business and will for the future. I'll move on to some of our product story. First one being calling, so an update of where we are.

13:36 So Choline is a unique product where we've taken a Choline product, we call it Choline XL. We have encapsulated that so it's now a free-flowing white powder. Traditionally, Choline is a very difficult product to manufacture with and we've been able to turn it into something that is very easy to manufacture with. It's very new still. We've provided samples to select customers under very strict conditions. until we got our PCT stage of intellectual property. So we've applied for that. Now we've been granted the first step of that, which allows us to be a bit more open in terms of providing samples to customers for more trial work. The full patent protection follows that, but it won't be for four to eight years.

14:22 So the PCT stage gives us a degree of protection in the marketplace. We've gone through all their manufacturing trials, which has gone really well with our manufacturing partner. We're now looking at how we package that and the formats and the equipment required so we can increase our production rates. We have had customer trials since the first quarter of FY26 in non-infinite applications. Generally, customer trials will go from 12 to 36 months. It depends on the shelf life of their product. So some will be relatively soon and some will be a lot longer. Overall, our current partner, and I expect that partner to be around for a long time, is relatively small to provide with enough product to do some small food and nutraceutical business. We are generally looking for a larger scale manufacturing so we can enter into the infant formula market.

15:21 We've got all sorts of different sorts of things we're pursuing, toll manufacturing, joint ventures and acquisitions. So everything's on the table at the moment because coal is going to be a wonderful product for this business going forward and we need to be able to produce it at scale so we can meet demand as it comes on. Move to the next slide. So our two core ingredients that we microencapsulate and turn into powers are DHA, which is an omega-3, and ARA, which is an omega-6. and so I'll take those two products and I'll give you a bit more detail about them. We have continued and will continue to invest in our R&D to create different alternatives and different representations of these products.

16:06 It's a major part of where our portfolio growth has been delivering in terms of revenue and differentiation of our product offering in the marketplace. We have a whole range of products for the DHA of non-allergenic high fortification and plant-based products that we really provide to a customer as a solution that they can't get from anywhere else. These are unique products. It allows us to have a great relationship with our customers, providing them with a solution to a problem they have, and so they can create unique products themselves. We're expecting that a change in our distribution structure where we've aligned with will further grow that marketplace, as that gives us entrée into other customers that we normally couldn't access.

16:57 In the ARA growth market, we've seen really improved demand. We are known across the infant formula marketplace for having an extremely high quality product, and that has won us significant business over the last year, financial year. And going into FY27, we're seeing some really good projections and growth and discussions with customers that'll continue that growth in the market. Really overall, we've seen good business last year and we expect that to continue into FY27. And then our diversification in that area is growing. We've added new packaging equipment that allows us to present the ARA product in different formats that allow us to enter into markets that we haven't normally been able to access. Move on to something quite new, is the US Nutraceutical market.

17:50 The US market for nutraceuticals is enormous and it has changed significantly over the years. The market is now looking for alternatives to the soft shells and capsules that it's traditionally been using. So powders, gels, liquids, gummies is becoming the new part of that marketplace. Why? Customers are sick of taking pills and they don't know how many pills they can take of the day. There's a much higher emphasis on taste and convenience of how products are being delivered. The sports nutrition market is growing and seniors and children especially have difficulty swallowing pills and tablets so they're looking at different formats for delivery of their omega-3s generally and the marketplace itself is accepting and also requiring encapsulation technologies like ourselves to deliver on those products.

18:47 so our technology is really well delivered well positioned to deliver into nutraceutical formats you can't put straight oil into a powder or a gel or a liquid you need to encapsulate it so it doesn't have the smell and taste and our technology can deliver very high doses in very small particles we have employed a nutraceuticals expert that's going to focus on the strategy for that marketplace and he's looking at supply chain considerations or enter that marketplace with. We are using this as an entree to establish market presence in the USA for other products as well, like our gel form product. And so we expect this to see additional cost to the business driven by this.

19:40 Over the next two to three years, we will gradually increase our expense as we look to enter this marketplace and start to enact that strategy to grow the market into something new. So it's another leg to the business where we can find new growth for the company going forward. We'll move on to the next slide. So the strategy and outlook. Everybody always looks at the outlook page. The strategic focus across the next year, coaling will be a major market focus. We will release coaling, although in limited volume, until we get more capacity. We will get more customer acceptance. We expect initial customer orders and we will scale up manufacturing.

20:27 A large part of the new product introduction to the marketplace is its of the dryers itself. So we find a customer, they have to do their own trial work, and then they have to come in, certify our manufacturing process. So there is time involved in this process. As I discussed, the US nutraceutical market is a new entry for us, and we're looking for that for growth for the future. And we have established a distribution network across the world. We will look to develop that through a pipeline of new sales and new customer applications. we will continue to invest in our facilities here and in people and potentially in other markets and we'll continue to focus on the development of our products and diversification it's a clear strategy which has delivered growth and good margin position for the business and we'll look to continue to optimizing our supply chain and the cost structures associated with it so by vertically integrating with we've delivered margin improvement with improved negotiation capabilities around buying products, but also the access directly of now supplying ourselves with a large percentage of our own manufacturing and our own supply chain for raw materials.

21:41 So the story of the future will be managing our capital for future growth. We will invest in the future to continue growing this business as this year has been a good testament to show what we've been able to do. So as we look to the following year and the next slide, so the FY27 outlook, Clover enters FY27 with a positive momentum supported by the demand for its products and our vertical integration into our supply chain and the expansion of our distribution network. All of those are contributing to the growth for the future. We do anticipate significant investment in the development and ongoing commercialization of our new products. and Colleen will take money to deliver to the marketplace if needs manufacturing capability.

22:27 Based on the current market and global conditions, the board expects revenue for the first half of FY27 to be ahead of the prior corresponding period. Thank you very much. And we will now open it up to questions. Happy to take your questions and hopefully we can answer them for you. Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Caleb Wang with PAC Partners. Please go ahead.

23:09 Hey, Peter Andrew. Just on ARA, you called it out as quite a big contributor for growth this year. Is that mostly in A and Z and also how should we think about the quantity and how much contributed growth this year versus how much we can expect in FY27 from ARA?

23:27 Thanks for the question, Caleb. It was a big contributor across the year. I think we grew sales by about 5 million across the entire year. It was about 4 million of the second half. So about 50% of the growth on the second half was driven by the ARA. It was global. So a lot of the sales went into the AMZ market, generally Asia, some China and quite a bit into Europe. So it's not with one customer, it's with many. And look, the way we've entered that is we expect that to continue. So we would expect to see that second half continue into the first half of this year.

24:12 Yeah, thanks. And so that inventory build up, I think you guys went from about 35 to 44 mil. Is that mostly just ARA building up? And can we see that as a sign of your confidence in FY27's orders?

24:25 Yes, you're right. It's a combination of both the DHA oils and the ARA. But significantly, ARA is a significantly higher cost product to buy in the oil. And the supply chain for it is significantly longer. So and we've had to buy in more inventory. And because we've had more sales into the European market, we've had to position finished inventory into the European market to support that growth. So, yep, we're confident. As reflected in the outlook comment, we expect to have a great first half.

25:01 Yeah, and are you still going through sort of the qualifying processes with some customers to sort of establish an ARA supply? Or are you sort of already qualified for all the major customers?

25:12 Pretty much qualifications done. Most of what it's now, it's about more negotiation. So there are customers that are continuing to come to us for supply, but qualifications done. We're pretty much qualified across the world with our ARA product now.

25:33 Yeah, thanks. And just one final one from me. on Europe and Middle East that sort of fell a bit backwards in the second half. Is that to do with, I think you highlighted before there was a Middle East customer you had that was quite significant. Is it just them getting impacted by the war?

25:47 No, not really.

25:51 So it's probably just more general timing. We, yeah, there's goods in transit issues that we deal with. So some of that could have played out in timing of the sales, Caleb.

26:05 Yep. All right, thank you guys. I'll jump back to the back of the queue. Thank you. Thanks, Carlos. Thank you. Your next question comes from Mark Southwell-Keeley with Select Equities. Please go ahead.

26:19 Hey, guys, can you hear me?

26:21 Yes, Mark, we got you.

26:24 Awesome. Just a question, firstly, around your second biggest customer. Can you maybe just talk through the... the drop in revenue with that customer and what you might be expecting to see

26:41 in F27? So a little bit of a shift in the customer mix over the course of the year. I think we would see an increase in number two customer over the course of next year.

27:02 And in terms of the second biggest customer in particular, might you expect them to sort of return or surpass to their, say, F25 level?

27:14 Yes, we would, yeah.

27:17 Okay, terrific. Just my second question, I guess by exclusion, it's not necessarily financially or even commercially relevant, but just... There's no mention of Premnio. Can you maybe just give us an update on perhaps why that is the case?

27:41 I just didn't call it out. So Premnio is maybe a little bit of an update for people that would be interested in it. I suppose because it's not... going to be delivering revenue soon. We decided we wouldn't call it out this year. It did achieve expert panel sign-off in the EU market and it's now going for regulatory approval in the EU, Singapore, Canada and Australia and New Zealand. So we are in the process of preparing dossiers for those registrations. We are We are in the starting process of doing a clinical trial for the Indian market where it has to be registered as a pharmaceutical.

28:30 We are negotiating the manufacturing contract for the product with an Indian manufacturer where we expect the product to be made and we have employed a third party business to help us with the commercialisation of the product but that's probably two years off as we get the registration. So Because it's a bit of a long story, we decided we wouldn't report on it independently this year. But yes, there is progress on it. In fact, when we got the regulation, I was pretty chuffed because it's taken us some eight years to achieve that. So it's a good step in the right direction.

29:11 Thanks very much, guys.

29:12 Thank you, Mark. Thank you. Once again, if you wish to ask a question, please press star one. Your next question comes from Sam Pittman with Taylor Collision. Please go ahead.

29:26 Hey, guys. Quick one. Just on the IRA, how many months in the second half of the year did you benefit? Obviously, there is the announcement from one of your competitors causing a few issues in the IRA market at the end of January, but How long did it take for you to sort of receive those first orders? And then basically what I'm asking is how many months did you sort of receive that benefit from?

29:51 Five months of good growth. So as I said earlier, we saw a $5 million increase in the IRA sales year on year. We got a little bit in the first half, most of it in the second half. So, yeah. We responded to it well. We benefited from a quality issue in the marketplace, which has given us some good growth, and we expect that to continue going forward.

30:24 Sure. And I think in the chairman's letter, Ruth, it might have mentioned that he saw Colleen being a real driver of growth in FY28. Is there... I mean, realistically, what steps would you like to see... in the next 12 months to make sure that we're on track with where Coaline should be?

30:46 The limiting step with Coaline is capacity. We have a current partner which we manufacture the product with which allows us to do a limited release in FY27 so in this financial year but it's small so it's getting enough manufacturing capacity to be able to take it to a broader market. We've we haven't been able to give it and show it to infant formula customers because we know that they will be desperate for a product and then we won't be able to meet their volume requirements so it's really getting the manufacturing capacity in place you may be aware from previous discussions we were negotiating the purchase of a dryer which we were very close to when it fell through and it literally has happened three times so we need capacity and then we would expect that to give us some we should see good sales out of it.

31:44 Sure, that makes sense. Yeah, obviously, great result and congratulations. That's all from me. Thanks very much. Thank you. Your next question is from Stella Wang, who is a private investor. Please go ahead.

31:58 Hi, good morning, Stella.

31:59 Can you hear me all right?

32:00 Yes, we can hear you, Stella.

32:02 Great, just continuing the last question. So in terms of what we expect to see for Crowlink, should we see firstly you get a capacity solution through either JV or buying a new dryer first, and then start trialing with your infant formula potential customers, followed by potentially some sales into infant formula in FY28?

32:33 So, yes, so we've got to get the capacity before we can really offer it to the infant formula market. Once we've got that, they start doing trials with it and you don't want them to start doing trials before you've got the capacity because you're just going to create demand you can't fulfill. So most infant formula customers will be a minimum of 12 months. So it'd be late 28, I imagine, before unless we can get capacity quickly and we haven't been able to achieve that so far.

33:06 I see, that's fair enough. So FY27 is a small sales contribution from the non-infant formula usage, it sounds like.

33:15 Correct, yeah. We've already got customers identified that will take the product but we've got very limited production capacity to be able to meet any further demands.

33:29 Okay, so you've got a capacity for what you're thinking you might supply in 2027?

33:39 We're not going to release the numbers of our volume or value. So we've got ideas, but we wouldn't want to discuss those.

33:51 Okay, fair enough. My second question is about the significant increase in investment for new markets. I assume you're talking mostly about the U.S. market?

34:03 Yes, that's right.

34:05 Yeah, it's just that the history of the company in U.S. hasn't been that smooth. And indeed, the sales seem to be declining. And I understand there might be some FX impact. But overall, the last 10 years, if you look through the history, it hasn't seeing much uptick. So I hear your comments on the nutraceutical trend, but commercially, is there any other trigger that gives you the confidence to put down real dollars behind this new push and investment into the market? And did I hear that you might even buy a sales or local partner there for the nutraceutical market?

34:56 So the confidence is that there's a demand for alternative solutions to what currently is being offered in an extremely large market and we have solutions that can fill that. We haven't made any decisions about how we're going to enter that marketplace so we've put a resource on that we'll look at that. We would expect that will drive expenditure because we'll then have to work out how we do it. And that will probably be both through product strategy and through distribution strategy. So I think that the answer is that we're looking for partners that we will enter the marketplace with to help us get access.

35:44 Yes, we've had difficulty entering the US market. Traditionally, we get into marketplaces through the infant formula market. The US market is quite protected. We have one customer in there that does significant business, but overall we haven't been able to crack the rest of the market. So this is another segment where our products are very suitable for that we're going to spend some money and time on to add to the business. Of course, if we can see really good growth, we can get into the nutraceuticals market through the US channel. We can then go and do it throughout Asian markets and through European markets as well. So it's a It's a new segment that we're looking at to try and get growth and we've resourced it appropriately.

36:27 Great. Just last question from me, please, because ARA is a big driver of the growth and sounds like it's going to sustain into this current financial year. Just wondering, because that troubled other suppliers in the market, they are trying very hard to get back into the supply chain of the older companies. existing previous customers. So base case scenario, should we expect at least some of the big customers would keep a diversified supplier chain, since at least you guys can maintain your status as a supplier, even if the currently troubled supplier gets some of their share back?

37:18 So We are part of a diversified supply chain now, so customers generally won't buy off only one supplier. They'll normally have two to three suppliers. In most cases, we would have 60% to 10% of people's business because we will be one of multiple suppliers into a marketplace. Some of the larger business we've done on the back of the demand that's come through, we've actually contracted, so... It gives us a fairly fair degree of certainty about the business going forward, and that's for longer term, not short term. Will the supplier with quality issues get back in the marketplace?

38:04 It's an opinion, but it's going to be very tough. They've made a major error, and I don't think many customers and even Chinese suppliers will buy off them. Very difficult to see them ever getting back to the share that they had, which was quite significant.

38:23 Thanks for that. Thanks again for today's report.

38:25 Thanks for your interest, Stella. And always online. Wonderful. Thank you. Thank you. There are no further questions at this time. And that does conclude our conference for today. Thank you for participating. You may now disconnect.