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JSE
CSP
CSP - Chemspec - Private placing and listing of Chemspec on the Alternative
Exchange of the JSE Limited on 6 November 2007
CHEMICAL SPECIALITIES LIMITED
(Incorporated in the Republic of South Africa)
Registration number 2005/039947/06
Share code: CSP
ISIN: ZAE000109427
("Chemspec" or "the company")
PRIVATE PLACING AND LISTING OF CHEMSPEC ON THE
ALTERNATIVE EXCHANGE OF THE JSE LIMITED ON 6 NOVEMBER 2007
This abridged pre-listing statement is not an invitation to the public to
subscribe for shares in ChemSpec. It is issued in compliance with the Listings
Requirements of the JSE Limited for the purpose of providing information to
the public and investors with regard to ChemSpec.
1. INTRODUCTION AND HISTORY
BDO QuestCo (Proprietary) Limited ("BDO QuestCo") has been authorised to
announce that, subject to the achievement of the required spread of public
shareholders, the JSE Limited ("JSE") has formally approved the listing of 300
000 000 ordinary shares, with a par value of 0.0005 cent each, in the share
capital of ChemSpec on the Alternative Exchange ("Alt x") of the JSE from the
commencement of trade on Tuesday, 6 November 2007. The shares will trade under
the abbreviated name "ChemSpec", with share code "CSP" and ISIN ZAE000109427.
An amount of up to R149 000 000 before expenses will be raised by ChemSpec in
terms of the subscription of 100 000 000 ChemSpec shares at an issue price of
between 110 and 149 cents per ChemSpec share ("the offer").
The original Chemical Specialities (Proprietary) Limited was incorporated on 1
January 1957 and started with a small factory in Durban. At that time, the
company had a vision to become a leading global paint company. During the past
15 years, Chemical Specialities (Proprietary) Limited has achieved an annual
compounded revenue growth rate of 23% and has come to employ in excess of 1
000 people. This growth was the result of the current management team`s
inspiration for innovation and constant striving to produce products that give
customers added value.
ChemSpec was incorporated under the name RZT Zelpy 4547 (Proprietary) Limited
on 10 November 2005 and changed its name to ChemSpec on 18 May 2006. On 1
January 2006 ChemSpec started trading following a management buyout in which
all of the assets and liabilities and the business operations of Chemical
Specialities (Proprietary) Limited, including its investments in its
subsidiaries, ChemSpec (Botswana) (Proprietary) Limited, ChemSpec (Coatings)
(Proprietary) Limited and Chemical Specialities Namibia (Proprietary) Limited,
were acquired as going concerns. The management buy out resulted in the
company becoming truly empowered through the introduction of BEE shareholding
in the business and was another successful step on the journey of changing
from a local family owned business to a management owned global paint company.
The company converted from a private company to a public company on Friday, 19
October 2007.
2. OVERVIEW OF CHEMSPEC
The ChemSpec group is one of Africa`s largest paint and coatings companies and
manufactures a wide range of high-technology automotive, industrial and
decorative paints and related products.
ChemSpec retails its products through its House of Paint stores. There are 30
House of Paint retail outlets, of which 6 are franchise stores, located in
South Africa, Botswana, and Namibia. The House of Paint stores cater for two
distinct markets: professional users and painting contractors who buy
ChemSpec`s automotive or industrial ranges and general consumers who benefit
from the company`s exceptional pricing of its decorative paint and
accessories.
The company is in the process of expanding its retail presence in Africa
through the development of a solid franchising model.
ChemSpec has received numerous business awards, including three Business
Report Sustainable Growth Awards. ChemSpec came first in the private category
in 2002 and 2003 and second in 2004 out of 200 private company applications.
In addition, the company was voted IMM Marketing Organisation of the Year in
2002.
The key to the company`s success is a passion for innovation, a culture of
accountability and a consistent channel of open communication. Competing with
some of the largest chemical companies in the world, ChemSpec prides itself in
the fact that its ranges feature more innovative use of the latest
technologies thereby positioning its products as a best choice.
3. PROSPECTS
Using the South African market as a stable base, the ChemSpec group has a
tried and tested export strategy making the company`s high-technology
automotive paint systems successful locally and internationally. In
particular, the Metalux 2TM range has been successful due to its colour tool,
the Professional Colour Selector, which features over 12 000 colour swatches,
which is more than any other system in the world. Metalux 2TM is backed by a
lifetime warranty. The easi mix software which is the heart of the system is
also available in Spanish and French, giving ChemSpec a distinctive selling
advantage in its target markets. Pricing is ChemSpec`s biggest advantage as
significant margins can be generated on the range even if it is retailed for a
fraction of the cost of other comparable ranges.
The international market has an estimated value of USD 150 billion per annum
and the ChemSpec group sees the opportunity of expanding into the
international market as the best way to add real value to the Group.
Lower research and development costs, coupled with fast turnaround times and
innovative use of the latest global technology, have enabled ChemSpec to
produce a range of products that is extremely competitive on the global stage.
Strategic expansion into key markets has been facilitated by the opening of
ChemSpec divisions in Australia and the USA. In addition, the ChemSpec group
is currently in negotiations with leading distributors in several countries
around the world to market ChemSpec`s automotive paint brands, which are
extremely competitively priced. The countries that ChemSpec will soon be
exporting to are China, Poland, Ireland, Russia, Malaysia, Indonesia and
Chile.
ChemSpec (USA) (Proprietary) Limited (previously Montana Products)
With effect from 1 April 2007, ChemSpec acquired a controlling interest in
ChemSpec (USA) Incorporated ("ChemSpec (USA)"), a company situated in Akron,
Ohio, United States of America ("USA"), which focuses on the automotive
refinish category. ChemSpec (USA) has been in operation for 30 years and will
provide ChemSpec with the perfect springboard for its strategic expansion into
the USA market. The acquisition will ensure continual product innovation
through the strong influence of the USA technical team and will also provide
ChemSpec with instant access to a wide distribution network across the
American continent, expediting product launches. Metalux 2TM will be
manufactured in the USA plant alongside a host of Montana brand products.
ChemSpec Australia
ChemSpec`s international operation in Sydney, Australia has played a pivotal
role in the company`s penetration of the markets in this region. The initial
thrust into this market was made with the Metalux 2TM range, which was met
with great success and continues to capture market share from imported
European ranges.
Metalux CVTM and ChemSpec`s industrial ranges were launched in Australia in
2007.
ChemSpec currently distributes its Metalux 2TM and Metalux CVTM ranges via a
channel of over 30 leading automotive distributors covering all of the major
centres in Australia. The Asia-Pacific market is particularly lucrative and
ChemSpec`s ranges are currently undergoing final testing by a large
manufacturer in China as well as key distributors in Malaysia and Indonesia.
New Zealand
LJ Smits Limited is the sole importer of ChemSpec`s automotive ranges in New
Zealand. The LJ Smits group has built up a large distribution network over the
past 28 years and represents many high quality international brands. The LJ
Smits group is successfully distributing ChemSpec`s ranges throughout New
Zealand as well as into new markets in Fiji and the Soloman Islands.
The LJ Smits group currently service 20 large distributors around New Zealand,
six of which are owned by LJ Smits Ltd.
4. MAJOR AND CONTROLLING SHAREHOLDERS AND SHAREHOLDER SPREAD
Excluding the directors interests, the current major shareholders of ChemSpec
are as follows:
Name Number of shares Percentage
beneficially held shareholding of
ChemSpec
Corvest 6 (Proprietary) Limited 89 800 000 44.90%
Tandem Capital (Proprietary) 50 200 000 25.10%
Limited
Corvest 6 (Proprietary) Limited and Tandem Capital (Proprietary) Limited will
continue to be directly or indirectly beneficially interested in 5% or more of
the issued share capital of ChemSpec following the private placement. The
company will have a public shareholding of at least 100 shareholders who will
hold a minimum of 10% of the issued ordinary shares on the day of listing.
5. DIRECTORS
The full names, ages, business address and occupations of the directors of
ChemSpec are set out below:
Full name Age Occupation Business address
Strath Mcbarron Wood 46 Chief Executive 320 South Coast Road
Rossburgh
Durban
4001
Bruce Robert 36 Financial Director 320 South Coast Road
Mackinnon Rossburgh
Durban
4001
Ralton Grant Bentley 43 Technical Director 320 South Coast Road
Rossburgh
Durban
4001
Mike Campbell Oldham 65 Non-executive Director 320 South Coast Road
Rossburgh
Durban
4001
All of the directors are South African citizens.
The directors of ChemSpec:
- have considered all statements of fact and opinion in the pre-listing
statement;
- accept, collectively and individually, full responsibility for the
accuracy of such statements;
- certify that, to the best of their knowledge and belief, there are no
omissions of facts or considerations which would make any statements of
fact or opinion contained in this abridged pre-listing statement false or
misleading and that all reasonable enquiries to ascertain such facts have
been made and that this abridged pre-listing statement contains all
information required in terms of the JSE Listings Requirements.
6. SHARE CAPITAL AND DIVIDENDS
Authorised and issued share capital
ChemSpec`s authorised and issued share capital and share premium, taking into
account the private placement assuming an issue price of 149 cents per share
and the listing costs, which are to be offset against the share premium, are
set out below:
Share capital R
Authorised:
Ordinary share capital
1 000 000 000 ordinary shares of 0.0005 cent each 5 000
Total authorised share capital 5 000
Issued:
300 000 000 ordinary shares of 0.0005 cent each 1 500
Share premium 148 999 500
149 001 000
Less share issue expenses 6 570 000
Total issued share capital and premium 142 429 500
All the authorised and issued shares are of the same class and rank pari passu
in every respect. Subject to the minimum capital amount of R110 000 000 being
raised and the shareholder spread requirements of the JSE Listings
Requirements being achieved, the entire share capital of ChemSpec will be
listed on the JSE on Wednesday, 7 November 2007. The shares will be issued in
dematerialised form.
Dividends
ChemSpec intends to adopt a competitive dividend policy, which should reflect
the growth, long-term earnings and cash flow of ChemSpec, while maintaining an
appropriate dividend cover. The Board of Directors ("the Board") intends to
adopt a target dividend cover of approximately 3 times. There is, however, no
assurance that a dividend will be paid out and any dividend proposed by the
Board in respect of any financial period will be dependent upon the operating
results, financial position, investment strategy, capital requirements and
other factors. It is currently anticipated that most of the cash available and
cash generated by the business will be invested in the continued growth of its
activities.
7. EXTRACTS OF FINANCIAL INFORMATION
An extract from the pro forma consolidated historical income statement of the
Group for the period 1 April 2006 to 31 March 2007 and the consolidated profit
forecasts of the Group for the years ending 31 March 2008 and 2009, the
preparation of which is the responsibility of the directors, is set out below.
Twelve months Year ending 31 Year ending 31
ended 31 March March 2008 March 2009
2007
R R R
Unaudited Pro Forecast Forecast
forma before the
private placement
Revenue growth year on 13.3% 24.9%
year
Revenue 553 641 415 627 561 324 784 451 655
Cost of sales (345 370 502) (385 462 074) (477 609 057)
Gross profit 208 270 913 242 099 250 306 842 598
Other income 5 801 292 - -
Operating expenses (174 088 095) (186 887 421) (204 437 302)
EBIT 39 984 110 55 211 829 102 405 296
Finance costs (41 793 802) (24 000 000) (9 062 500)
(Loss)/profit before (1 809 692) 31 211 829 93 342 796
taxation
Taxation (73 083) (9 051 430) (27 069 411)
(Loss)/profit after (1 882 775) 22 160 399 66 273 385
taxation
Minority interest - (1 888 194) (5 646 874)
(Loss)/profit
attributable to the (1 882 775) 20 272 205 60 626 511
equity holders of the
parent
Illustrative shares in issue 300 000 000 300 000 000 300 000 000
on listing
Basic and diluted earnings (0.63) 6.76 20.21
per share (cents)
Headline and diluted headline (2.55) 6.76 20.21
earnings per share (cents)
Pro forma earnings and
headline earnings for
the years ended 31 March
2007, 2008 and 2009
Twelve months Year ending Year ending 31
ended 31 31 March 2008 March 2009
March 2007
R R R
Unaudited Pro Forecast Forecast
forma before
the private
placement
(Loss)/profit (1 882 775) 20 272 205 60 626 511
attributable to equity
holders of the parent as
above
Pro forma adjustment to 31 824 083 24 000 000 -
finance costs
Pro forma taxation
effect of the adjustment (8 310 754) (6 960 000) -
to finance costs (at
29%)
Pro forma profit
attributable to equity 21 630 554 37 312 205 60 626 511
holders of the parent
Illustrative shares in 300 000 000 300 000 000 300 000 000
issue on listing
Basic and diluted 7.21 12.44 20.21
earnings per share
(cents)
Headline and diluted 5.28 12.44 20.21
earnings per share
(cents)
Finance costs incurred in respect of the shareholders loans, other financial
loans and bank overdraft have been reversed as a portion of these liabilities
will be settled out of the proceeds of the private placement. Ie. Interest
that is not expected to be incurred after listing is carved out as a pro forma
effect. For income statement purposes, it was assumed that the proceeds of the
private placement were received on 1 April 2007.
The forecast and pro forma financial information should be read in conjunction
with the detailed assumptions disclosed in the Chemspec pre-listing statement
dated 31 October 2007.
The profit forecasts set out above have been prepared on the assumption that
ChemSpec will issue 100 000 000 ordinary shares at 149 cents per share in
terms of the private placement. If the offer shares are issued at 110 cents
per share the profit after taxation attributable to equity holders of the
parent for the 2007/2008 year will decrease from R37 312 204 to R31 561 277
which equates to a decrease of 1.91 cents in the pro forma earnings per share.
The profit after taxation attributable to equity holders of the parent for the
2008/2009 financial year will decrease from R60 626 512 to R54 204 561 which
equates to a decrease of 2.14 cents in the pro forma earnings per share.
8. THE PRIVATE PLACEMENT
An amount of between R110 000 000 and R149 000 000, based on an offer price of
between 110 cents and 149 cents per ChemSpec ordinary share, before share
issue and listing expenses, will be raised by the company by the issue of 100
000 000 ordinary shares for cash to selected private individuals, corporations
and institutions.
The purpose of the placement and the listing are to:
- enhance investor and general public awareness of the ChemSpec group,
its activities and specialised skills;
- raise capital to repay its existing borrowings and grow its existing
business;
- have the flexibility of listed shares in order to allow the company
to take advantage of potential acquisition opportunities;
- broaden ChemSpec`s shareholder base and to obtain the spread of
shareholders required for the listing of ChemSpec`s ordinary shares
on the Altx; and
- afford members of the investing public, clients and business
associates of ChemSpec the opportunity to participate directly in
the income stream derived by ChemSpec, as well as in the future
capital growth of its assets.
9. DETAILS OF THE PLACING
Chemspec placed 100 000 000 shares at 110 cents per Chemspec share with
strategic institutional investors and more than 1000 private clients in a pre-
placement. No formal offer process was opened to the investment community due
to the fact that applications exceeding R600 million were received during the
initial phase aimed at estimating investor appetite.
10. COPIES OF THE PRE-LISTING STATEMENT
This abridged pre-listing statement is a summary of the full pre-listing
statement and has been prepared and issued in relation to the private placing
and the listing of ChemSpec on the Alt x. It contains the salient features of
the pre-listing statement dated Wednesday, 31 October 2007, which should be
read in its entirety for a full appreciation thereof.
Copies of the full pre-listing statement, in English, may be obtained during
office hours at the following addresses:
- the registered office of the company: 320 South Coast Road,
Rossburgh, Durban; and
- the office of the bookrunner, designated and corporate advisor to
ChemSpec, BDO QuestCo: 13 Wellington Road, Parktown.
Durban
5 November 2007
Designated Advisor
BDO QuestCo (Pty) Ltd
Date: 05/11/2007 15:32:01 Produced by the JSE SENS Department.
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