| Tue 11 Mar 2008, 15:13 | | ISB - Insimbi - Private Placing And Listing Of Ins |
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JSE
ISB
ISB - Insimbi - Private Placing And Listing Of Insimbi On The Alternative
Exchange Of The JSE Limited
Insimbi Refractory and Alloy Supplies Limited
Formerly Insimbi Alloy Supplies (Proprietary) Limited
(Registration number 2002/029821/06)
JSE share code: ISB
ISIN Number: ZAE000116828
("Insimbi" or "the company")
PRIVATE PLACING AND LISTING OF INSIMBI ON THE ALTERNATIVE EXCHANGE OF THE JSE
LIMITED
This abridged pre-listing statement is not an invitation to the public to
subscribe for shares in Insimbi. 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 Insimbi.
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 260
000 000 ordinary shares, with a par value of 0.000025 cent each, in the share
capital of Insimbi on the Alternative Exchange ("Altx") of the JSE from the
commencement of trade on Friday, 14 March 2008. The shares will trade under the
abbreviated name "Insimbi", with share code "ISB" and ISIN ZAE000116828.
An amount of up to R67 275 000 before expenses will be raised by Insimbi in
terms of the sale of 58 500 000 Insimbi shares at an issue price of between 80
cents and 115 cents per Insimbi share ("private placement"). Further details
relating to the private placement are set out in paragraph 8 below.
Metallurg South Africa (Proprietary) Limited ("Metallurg South Africa") was
founded in 1970 by the previous shareholder, Metallurg Europe Limited, a 100%
subsidiary of Metallurg Incorporated situated in New York.
During the second half of 2003, the management of Metallurg South Africa entered
into the first phase of a management buy out ("first phase MBO") with Metallurg
South Africa. The management at that stage comprised of the five current
directors who are also indirect shareholders of Insimbi ("director
shareholders") and Langham Carter, who was appointed the Chairman of the company
following the first phase MBO. The first phase MBO received financial backing
from Corvest Finance (Proprietary) Limited ("Corfin"), Corvest 5 (Proprietary)
Limited ("Corvest") and Tandem (Proprietary) Limited ("Tandem"). Following the
first phase MBO, Corfin, Corvest and Tandem effectively owned 67% of the
company, which was rebranded Insimbi Alloy Supplies (Proprietary) Limited, and
the director shareholders and Langham Carter owned an effective 33%.
In April 2007, the director shareholders, entered into agreements with Corfin,
Corvest, Tandem and Langham Carter whereby the shareholding and funding of the
company was further restructured resulting in the entire shareholding of the
company being held by the director shareholders ("second phase MBO"). In order
to achieve the restructuring, the operations of Insimbi (formerly Insimbi Alloy
Supplies (Proprietary) Limited) were sold to Insimbi Alloy Supplies
(Proprietary) Limited (formerly Copper Moon Trading 419 (Proprietary) Limited)
("Insimbi Alloy Supplies"), a 100% subsidiary of Insimbi, on 5 April 2007. The
second phase MBO was effective from 1 March 2007.
On 27 January 2008, Insimbi Alloy Supplies entered into an agreement with Future
Alloys (Proprietary) Limited ("Future Alloys") to acquire the plant and
equipment, furniture and fittings and computers used by Future Alloys to conduct
its aluminium alloys business for a purchase consideration of R17.0 million.
Insimbi Alloy Supplies simultaneously entered into an agreement to transfer the
assets acquired from Future Alloys to Sugar Creek Trading 199 (Proprietary)
Limited ("Sugar Creek Trading"), in terms of section 42 of the Income Tax Act
No. 58 of 1962 (as amended). Sugar Creek Trading issued Insimbi Alloy Supplies
with 80% of its issued share capital in settlement of the purchase
consideration. The remaining 20% of Sugar Creek Trading`s issued share capital
is held equally by two of the previous shareholders of Future Alloys.
Insimbi converted from a private company to a public company on 12 February
2008.
2. OVERVIEW OF INSIMBI
Insimbi is primarily an integrated supply warehousing and technical support
concern. Insimbi`s substantial warehousing facilities enable it to carry
significant amounts of stock of the commodities and products it sources and
supplies in order that it can provide a "just in time" service to its clients.
Insimbi is also able to meet the supply demands of a large spectrum of clients,
both large and small, as a result of its large stock-holdings. This has enabled
Insimbi to position itself as a leader in many of the markets it supplies.
Insimbi sells ferrous and non-ferrous products into the steel manufacturing,
foundry and cement industries in terms of exclusive evergreen agency agreements.
They integrate the supply and demand side by developing products with suppliers
(using the skills of their 30 inhouse metallurgists) and then assist the
purchaser with the manufacturing process (refractory design, maintenance, etc).
Insimbi has been in existence for 37 years. The company has an uninterrupted
profit history since 1992 and has had an annual compound growth rate exceeding
20% per annum in the preceding 5 years as a result of diversification into
different sectors.
The company sells a basket of goods to the steel and cement industries. The
basket has been build-up over the preceding 37 years.
Foundry Division:
- Supplies a basket of raw materials which are melted into either steel or
cast iron liquid steel.
- Supplies a full range (basket) of refractory products which line the
electric arc furnace that protect the steel shell.
- Supplies a basket of additives that give the liquid steel or cast iron
their specific characteristics.
- Supplies the sand and resins to produce the specific mould of the item that
needs to be cast.
- Supplies the mould wash which is a releasing agent to prevent the cast
piece sticking to the mould.
- Supplies the refractory holloware "tube" that transports the liquid steel
from the ladle to the mould.
Cement Industry - In today`s current cement economy where each cement plant
needs to run their kiln as long as possible, it is critical to ensure that the
plant has the necessary refractory material on site prior to a scheduled or
unscheduled kiln shut. As it is very difficult for these plants to predict the
actual total length of refractories to be replace.
Insimbi provides the following services:
- Negotiates the estimated length to be replaced
- Places the estimated length of refractories on consignment stock at the
plant.
- Once the kiln is down, inspects the lining with the plant to
identify any abnormal wear patterns, reasons and remedies.
- Supervision of the installation of refractory lining either by the plant
themselves or third party to ensure quality installation.
- Once installation is completed and kiln is back up and running, Insimbi
does a physical stock count of refractory consumption and then invoicesthe
customer accordingly on a 30 day month end payment.
- Insimbi only pays their supplier once the company has received payment from
the customer. No negative out flow of cash from Insimbi.
Insimbi`s strength is their strong technical division and the quality of the
products they provide. The cement industry can not afford downtime.
3. STRATEGY
Insimbi intends to:
3.1 Expand existing business into new geographies
Insimbi is looking to penetrate new geographic markets where it believes it can
achieve a leading position. Insimbi intends using the recently opened Insimbi
Refractory and Alloy Supplies Limited (Zambia) as a springboard to penetrate
into the southern part of the Democratic Republic of Congo and create a more
effective and visible footprint in Zambia with particular emphasis on the Copper
Belt and the new steel mill in Kafue.
Other attractive areas of geographic expansion include the Ukraine and other
Eastern Bloc countries, Turkey and Israel. Insimbi has expanded its export base
into Argentina significantly over the last three years. Insimbi is currently
exporting a whole range of consumables and chrome sand to these regions and is
seeking to expand this area of its business. Insimbi is currently in
negotiations to form a joint venture with a third party in order to tap a new
source of supply of chrome sand (approximately 18 000 tonnes per annum). These
negotiations are still at an early stage but Insimbi is hopeful that they will
be successfully concluded.
3.2 Extend product and service offerings into complementary fields
Insimbi seeks growth opportunities by extending its product and service
offerings into activities that complement its current businesses. One such
opportunity exists in the animal feed industry which is currently being
investigated by the company.
3.3 Extend influence over source of materials
Insimbi intends to embark on a concerted drive to acquire stakes in productive
resources of its traded commodities which will give the company significant
influence over the distribution of these commodities.
4. MAJOR AND CONTROLLING SHAREHOLDERS AND SHAREHOLDER SPREAD
Insimbi is wholly owned by Insimbi Holdings (Proprietary) Limited, which is 100%
owned by the director shareholders. The indirect holdings of the director
shareholders in Insimbi are as follows:
Direct Indirect Percentage
Beneficial Beneficial
F Botha - 46 250 000 23.125
E.P Liechti - 46 250 000 23.125
C.F.Botha - 46 250 000 23.125
P.J Schutte - 46 250 000 23.125
D.J O`Connor - 15 000 000 7.500
TOTAL 200 000 000 100.000
Following the listing, Insimbi 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.
There is currently no controlling shareholder of Insimbi and this will not
change following the private placement.
5. DIRECTORS
The full names, ages, business address and occupations of the directors of
Insimbi are set out below:
Full name Age Occupation Business address
Colin Francis 38 Sales 359 Crocker Road
Botha Director - Germiston, 1422
Non-ferrous
and Foundry
Divisions
Frederik Botha 43 Chief 359 Crocker Road
Financial Germiston, 1422
Officer
Euard Philip 45 Sales 359 Crocker Road
Liechti Director - Germiston, 1422
Speciality
Division
Roy Derek Makkink 55 Company 359 Crocker Road
Secretary Germiston, 1422
Daniel John 60 Non-executive 20 van der Stel
O`Connor Chairman Street,
Alberton
Pieter Jacobus 48 Chief 359 Crocker Road
Schutte Executive Germiston, 1422
Officer
Leslie Gustav 63 Divisional 359 Crocker Road
Tessendorf Director - Germiston, 1422
KwaZulu-Natal
Division
Lerato Mashologu 35 Non-executive 88, 18th Street,
Director Parkhurst
All of the directors are South African citizens.
The directors of Insimbi:
- 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
Insimbi`s authorised and issued share capital and share premium, taking into
account the private placement and the listing costs, which are to be offset
against the share premium, are set out below:
Share capital R
Authorised:
Ordinary share capital
12 000 000 000 ordinary shares of 0.000025 cent 3 000
each
Total authorised share capital 3 000
Issued:
260 000 000 ordinary shares of 0.000025 cent 75
each
Share premium 68 999 975
69 000 050
Less share issue expenses (3 745 000)
Total issued share capital and premium 65 255 050
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 R46 800 000 being
raised and the shareholder spread requirements of the JSE Listings Requirements
being achieved, the entire share capital of Insimbi will be listed on the JSE on
Friday, 14 March 2008. The shares will be issued in dematerialised form.
Dividends
Insimbi intends to adopt a competitive dividend policy, which should reflect the
growth, long-term earnings and cash flow of Insimbi, while maintaining an
appropriate dividend cover. The board of directors intends to adopt a target
dividend cover of a multiple of 2, which translates into a dividend yield of
9.1% based on a share price of 80 cents per share. Any dividend proposed by the
board of directors in respect of any financial period will be dependent upon the
operating results, financial position, investment strategy, capital requirements
and other factors.
100% of profits are converted into positive cash flow. A large percentage of
Insimbi`s goods are on a consignment basis at the customer and Insimbi only pay
the supplier once the customer has used the product and Insimbi has been paid.
The working capital cycle is as follows:
Inventory 25 to 28 days;
Accounts receivable 35 to 38 days; and
Accounts payable 40 to 50 days.
The net cycle is only 15 to 20 days as a result of the accounts payable days.
7. EXTRACTS OF FINANCIAL INFORMATION
The audited historical income statement of Insimbi for the year ended 28
February 2007, pro forma consolidated historical income statement of Insimbi for
the six months ended 31 August 2007 and the consolidated profit forecasts of
Insimbi for the years ending 29 February 2008 and 28 February 2009, the
preparation of which is the responsibility of the directors, are set out below.
Year ended Six months Year ending Year ending
28 February ended 31 29 February 28 February
2007 August 2007 2008 2009
R`000 R`000 R`000 R`000
Audited Pro forma Forecast Forecast
Revenue 734 363 534 493 905 760 1 084 799
Cost of sales (670 554) (493 137) (825 107) (981 109)
Gross profit 63 809 41 356 80 653 103 690
Other operating (35 687) (19 294) (35 771) (41 050)
expenses
Operating profit 28 122 22 062 44 882 62 640
Other operating 1 549 11 498 10 579 248
income
Finance costs (5 674) (3 613) (15 154) (7 610)
Profit before share
of associated 23 997 29 947 40 307 55 278
company
Share of associated
company profit 993 - (3 081) 281
Profit before 24 990 29 947 37 226 55 559
taxation
Taxation (7 904) (13 750) (8 788) (15 444)
Profit attributable
to equity holders of 17 086 15 940 28 438 37 811
the parent
Net profit
attributable to - 257 - 2 304
minority holders
Illustrative shares 260 000 260 000 260 000 260 000
in issue on listing
(`000)
Earnings and diluted 6.57 6.13 10.94 14.54
earnings per share
(cents)
Headline and diluted 6.57 2.45 7.26 14.54
headline earnings
per share (cents)
Headline earnings
based on a
normalised finance 6.57 10.16 14.54
cost of R7.610m in
2008 and 2009
Dividends per share - - - 7.27
(cents)
Reconciliation
between earnings and
headline earnings per
share:
Profit for the year 17 086 15 940 28 438 37 811
Less:
profit on disposal of
property, plant and (9) (47) (47) -
equipment
profit on disposal of
Textile Division - (975) (975) -
profit on disposal of
investment in Allied
Metallurg South
Afirca (Proprietary)
Limited ("AMETSA") - (8 550) (8 550) -
Headline earnings 17 077 6 367 18 866 37 811
Notes to the pro forma and forecast financial information
The pro forma and the forecast financial information set out above has been
prepared on the assumption that Insimbi will issue 58 500 000 ordinary shares at
80 cents per share in terms of the private placement and 1 500 000 ordinary
shares at 80 cents per share to the Designated Advisor in respect of services
rendered. If the offer shares are issued at 115 cents per share, the effect on
the net profit for the years ending 29 February 2008 and 28 February 2009 would
be less than 3%.
The forecast for the year ending 29 February 2008 includes revenue and gross
profit gains of approximately R40.0 million and R800 000, respectively, in
respect of sales of nickel which traded at record highs of over US$52 000 per
metric ton during the period 1 March 2007 to 31 May 2007. Prices of nickel have
subsequently fallen back to more realistic levels of approximately US$30 000 per
metric ton.
The forecast for the year ending 28 February 2009 excludes revenue and gross
profit of approximately R9.0 million and R3.0 million, respectively, relating to
the Textile Division which has been sold to Insimbi Thermal Insulation
(Proprietary) Limited ("Insimbi Thermal Insulation"), a company which is 49%
held by Insimbi Alloy Supplies (Proprietary) Limited, with effect from 1 March
2008.
Main assumptions and comments on the forecast financial information
Assumptions considered to be significant are disclosed below, however, the
assumptions disclosed are not intended to be an exhaustive list.
Assumptions that are under the control of the directors`:
1. The forecast for the year ending 29 February 2008 includes actual trading
figures for the period 1 March 2007 to 31 December 2007.
2. Forecast revenue for the year ending 29 February 2008 is based on the
directors` best estimates for the remaining two months of the current financial
year and takes into account market trends during the current financial year as
well as historic trends experienced during the same period over the last five
years. Over 90% of the forecast turnover for the year ending 29 February 2008
has already been achieved.
3. Forecast revenue for the year ending 28 February 2009 is based on an
estimate of revenue from contracts that are currently in the sales pipeline as
well as the directors` best estimates of the revenue market share available to
them in their respective industry sectors. The directors have also made their
best efforts to accurately forecasts prices and volumes of commodities pertinent
to their respective industry sectors.
4. Revenue has grown at an annual rate in excess of 20% per annum
historically; however, the directors have been conservative and forecast an
increase in revenue of 7.2% for the year ending 28 February 2009.
5. Gross profit percentages are commodity and division specific and have been
forecast per commodity based on the directors` best estimate assumptions based
on historical experience and future expectations of commodity prices.
6. Gross profit margins are not expected to vary materially from those
experienced in the current financial year.
7. Operating costs have been forecast taking into account factors such as
historical trends, inflation, assumed growth of the business and improvements in
infrastructure to accommodate such growth such as new staff.
8. Taxation has been provided for at 29%.
9. No allowance for revenue growth arising from any strategic company
acquisitions has been allowed for in the forecast.
10. Sales, gross profit and operating costs have been adjusted to exclude the
Textile Division which has been sold to Insimbi Thermal Insulation. This is
assumed to be effective on 29 February 2008.
11. Allowance has also been made for the effect of Insimbi`s 49% shareholding
in Insimbi Thermal Insulation including rental and management fee revenue. This
is assumed to be effective 1 March 2008.
12. Allowance has been made for the disposal of Insimbi`s 49% investment in
AMETSA. This has been assumed to be effective 31 December 2007.
13. It has been assumed that Insimbi will repay in full Nedbank - loan # 3
(R13.8 million) which bears interest at JIBAR plus 5%, out of the proceeds of
the listing.
14. It has been assumed that Insimbi will repay in full all shareholder loans,
totalling R5.9 million, out of the proceeds of the listing.
15. The company enters into forward exchange contract or hedging arrangements
on all imports but we have assumed a foreign exchange loss due to unavoidable
extensions of R400 000 for the year ending 28 February 2009.
16. Sales, gross profit and operating costs for the year ending 28 February
2009 have been adjusted to include the Future Alloys acquisition. This is
assumed to be effective on 1 March 2009.
Assumptions that are outside the control of the directors:
17. Interest rates and exchange rates will not vary materially in the forecast
periods
18. Trading conditions are not expected to vary materially in the forecast
periods.
19. There will be no material change to the business of Insimbi or in the
manner in which it conducts it`s business
20. There will be continuity in its management and trading policies, these have
been successful in the past and are expected to remain so in the future.
8. THE PRIVATE PLACEMENT
An amount of between R46 800 000 and R67 275 000, based on an offer price of
between 80 cents and 115 cents per Insimbi ordinary share, before share issue
and listing expenses, will be raised by the company by the issue of 58 500 000
ordinary shares for cash to selected private individuals, corporations and
institutions.
The purpose of the placement and the listing are to:
- capitalise Insimbi so that strategically and operationally it is placed in
a position where it is most effectively able to leverage off the growth of its
industry and the South African economy as a whole;
- enable Insimbi to embark upon a planned and structured acquisition trail
which will enable the company to grow and diversify, this includes the vision of
being able to influence and/or control productive capacity of its existing
commodities and to grow its current productive capacity;
- enhance the corporate profile and general public awareness of the Insimbi
group and its business;
- afford members of the investing public, clients, staff and associates of
Insimbi the opportunity to participate directly in the future growth and
earnings potential of Insimbi;
- provide an incentive for the retention and reward of key staff members
through equity participation;
- enhance the already favourable relationship with the company`s corporate
bankers and enable Insimbi to negotiate a more effective and efficient cost
structure; and
- raise capital to restructure some of its more costly existing borrowings as
well as shareholders` loans.
9. SALIENT DATES AND TIMES
Insimbi shares listed on the Altx
at 09:00 on Friday, 14 March 2007
The dates and times set out above are subject to change and any changes will be
published in the press.
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 Insimbi on the Alt x. It contains the salient features of the
pre-listing statement dated Monday, 3 March 2008, 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: 359 Crocker Road, Germiston;
- the office of the Designated Advisor and Joint Corporate Advisor to
Insimbi, BDO QuestCo: 13 Wellington Road, Parktown; and
- the office of the Joint Corporate Advisor to Insimbi,
PricewaterhouseCoopers Corporate Finance (Proprietary) Limited: 2 Eglin Road,
Sunninghill.
Alternatively an electronic copy of the pre-listing statement can be obtained
by sending an e-mail to shares@insimbi-alloys.co.za.
Johannesburg
11 March 2008
Designated Advisor and Attorneys Joint Corporate Advisor
Joint Corporate Advisor
(BDO QuestCo logo) (Routledge Modise Inc (PricewaterhouseCoopers
logo) Corporate Finance (Pty)
Ltd logo)
Lead Reporting Reporting Accountants and
Accountants Auditors
(PricewaterhouseCoopers (BDO Spencer Steward
Inc logo) logo)
Date: 11/03/2008 15:13:00 Produced by the JSE SENS Department.
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