| Tue 3 Jun 2008, 7:12 | | CSP - Chemical Specialities - Audited results for the year ended 31 March 2008 |
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CSP
CSP
CSP - Chemical Specialities - Audited results for the year ended 31 March 2008
Chemical Specialities Limited
Country of incorporation and domicile: South Africa
Registration number: 2005/039947/06
Share code: CSP
ISIN: ZAE000109427
- Up 249% comparable global growth
- Up 19% earnings compared to profit forecast earnings
- Up 23% comparable revenue growth
- Up 82% comparable operating cash flows before working capital movements
- Up 112% comparable operating profit growth
AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2008
COMMENTARY
Overview
ChemSpec has posted pleasing maiden results, taking full advantage of its
established and effective distribution structures and the growth in its
international business. The group has benefited from good trading, and
continued to focus on cash generation and working capital management. At the
same time the group continues to invest in people, capacity and technology to
drive the business forward and to achieve its long-term objectives.
Financial performance
Group revenue of R580.2 million is marginally below revenue for the 15-month
period ended March 2007, but shows positive growth of 23% when compared with
the 12-month comparative period. The impact of the fire in our Phoenix plant
(see details below) reduced revenue by R25 million which would have further
increased our growth to a cumulative 28% when compared with the 12-month
comparative period. This exceeds the average annual compound growth rate of 23%
which the group has achieved over the last 15 years.
Continued focus on key product costs helped maintain profit margins at 40%.
Strict fiscal discipline and a good understanding of cost drivers helped to
control operating expenses and contributed significantly to the 112% growth in
operating profit to R52.6 million when compared with the 12-month comparative
period. This is further emphasised by the increase in our operating profit
margins which improved from 5.2% in the prior period to 9% in the current
period.
The proceeds from the listing in November 2007 were used to settle long-term,
high interest-bearing debt. This has favourably impacted the financing costs,
which reduced by 9% to R29.3 million when compared with the 12-month
comparative period.
The group`s headline earnings increased to R22.2 million from a loss of
R7.2 million in the prior 15-month period and exceeded the forecasted
headline earnings of R20.3 million set out in its prelisting statement by 10%.
The group`s headline earnings per share increased to 9.25 cents per share from
a loss of 3.6 cents.
Had the listing taken place at the beginning of the year, the group`s headline
earning s would have increased to R30.5 million. The group`s headline earnings
per share would have increased to 10.18 cents per share.
The group`s basic earnings increased to R24.04 million from a loss of
R4.3 million in the prior 15-month period and exceeded the forecasted basic
earnings per share of R20.3 million set out in its prelisting statement by
19%. The group`s basic earnings per share increased to 10.01 cents per share
from a loss of 2.16 cents.
Had the listing taken place at the beginning of the year, the group`s basic
earnings would have increased to R32.4 million. The group`s headline earnings
per share would have increased to 10.78 cents per share.
Trading performance
Revenue was bolstered by excellent growth in our automotive segment, which
achieved growth of 50% when compared with the comparative 12-month period.
Decorative performance was adversely impacted by the fire in our Phoenix
factory and the resulting reorganisation that took place within operations to
accommodate production had a knock-on effect on the industrial and wood finish
business. Our decorative segment did not grow when compared with the
comparative 12-month period. However, if one takes into account the
compensation for loss of profits due from the insurers of R10 million, revenues
would have been 36% better when compared with the comparative 12-month period.
Reasonable growth was achieved in the buy-ins and solvents business.
Trading results show the impact of the group`s strategy to expand its product
offering into the global market and to grow its international presence, with
revenue from external international customers growing an impressive 249% when
compared with the 12-month comparative period. Our rapid international
expansion plans and the establishment of a solid international footprint during
the year have pushed out lead times from manufacture through to supply into the
export countries and the subsequent collection of the receivable.
This has impacted working capital but management expects this to normalise in
the current financial year. Working capital continues to receive attention and
a robust review has been implemented on inventories, receivables and payables.
Phoenix plant fire
On 30 August 2007 there was a fire at one of ChemSpec`s four manufacturing
facilities situated at Phoenix Industrial Park. This facility manufactured
primarily decorative coatings and certain industrial coatings. The fire
destroyed the raw material stock holding and plant and machinery at Phoenix
Industrial Park. The group was adequately insured for all damaged stock and
plant and machinery, as well as for associated clean-up costs. Furthermore,
the group has submitted a claim for loss of profits. The insurers have formally
accepted liability and have submitted a tender of settlement in the sum of R10
million of which R2 million has already been paid. The directors have raised a
debtor in the amount of R8 million being the balance of the settlement as they
are virtually certain that this will be paid but they intend to proceed to
recover a higher amount in terms of the claim referred to above. The full
R10 million compensation for the loss of this revenue is reflected in profit or
loss as other income.
Prospects
The group has clearly defined organisational plans to deliver on its strategy
and to achieve its short-and medium-term objectives.
Whilst the local trading environment is expected to see the impact of higher
interest rates and reduced consumer spending, the international market is being
targeted for significant growth, driven on the back of established distribution
structures and a highly successful range of automotive refinish products.
Dividend
In view of the fact that the group only listed in November and the board`s
strategy to retain capital for investment in global business growth, no
dividend has been declared for this year. The board is, however, committed to
adopt its dividend policy and target dividend cover of approximately three
times subject to meeting its capital management objectives.
Appreciation
The directors would like to thank the management and staff of the group for
their hard work and dedication during the year, as well as shareholders,
customers and suppliers for their continued invaluable support.
Annual general meeting
The annual general meeting of the company will be held at 2029 Old Mill Road,
Canelands, Verulam, KwaZulu-Natal, on Thursday, 31 July 2008 at 11:00.
For and on behalf of the board
SM Wood JG Maehler
Chief Executive Officer Chief Financial Officer
2 June 2008
CONDENSED CONSOLIDATED INCOME STATEMENTS
Restated
15 months
ended
31 March 31 March
Figures in Rand Notes 2008 2007
Revenue 580 239 447 591 713 273
Cost of sales (346 836 126) (351 627 480)
Gross profit 233 403 321 240 085 793
Other income 17 139 386 4 788 341
Operating expenses (197 972 427) (213 854 030)
Operating profit 52 570 280 31 020 104
Investment revenue 4 414 318 4 630 865
Finance costs (29 302 019) (40 067 081)
Profit/(loss) before taxation 27 682 579 (4 416 112)
Taxation (3 890 144) 100 996
Pro fit/(loss) for the year 23 792 435 (4 315 116)
Attributable to:
Equity holders of the parent 24 041 841 (4 315 116)
Minority interest (249 406) -
23 792 435 (4 315 116)
Basic and diluted earnings/(loss)
per share (cents) 2 10.01 (2.16)
Notes to the income statement
Basic and diluted headline
earnings/(loss)
per share (cents) 2 9.25 (3.60)
Unaudited pro forma earnings and headline earnings for the periods ended
31 March 2008 and 2007
The unaudited pro forma financial information set out below is provided for
illustrative purposes only to provide information about how the issue by the
group of 100 000 000 ordinary shares at R1.10 per share in terms of a private
placement (`private placement`) may have impacted on the group had the private
placement taken place on 1 January 2006 for income statement purposes. Due to
the nature of the unaudited pro forma financial information, it may not give a
fair representation of the group`s income statement after the private
placement. The unaudited pro forma financial information should be read in
conjunction with the independent reporting accountants` report thereon which is
available for inspection at the group`s registered office. The directors of the
group are responsible for the preparation of the unaudited pro forma financial
information.
Unaudited
Unaudited 15 months
year ended ended
31 March 31 March
Figures in Rand 2008 2007
Profit/(loss) attributable to equity holders of
the parent as above 24 041 841 (4 315 116)
Pro forma adjustment iro finance costs 11 704 058 18 648 489
Pro forma taxation effect of the adjustment to
finance costs (at 29%) (3 394 177) (5 408 062)
Pro forma profit attributable to equity
holders of the parent 32 351 722 8 925 311
Illustrative shares in issue on listing 300 000 000 300 000 000
Pro Forma Basic and diluted
earnings per share (cents) 10.78 2.98
Pro Forma Basic and diluted headline
earnings per share (cents) 10.18 2.01
Notes to the pro forma earnings and headline earnings for the periods ended
31 March 2008 and 2007
1. Finance costs incurred in respect of the shareholders` liabilities, other
financial liabilities and bank overdraft have been reversed as a portion of
these liabilities were settled out of the proceeds of the private placement.
Interest that would not be expected to be incurred after listing is carved out
as a pro forma effect.
2. Taxation has been adjusted for the tax effect of the reversal of the
interest paid at a rate of 29%.
3. There is no effect on the minority interest.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Restated
Figures in Rand Notes 2008 2007
Assets
Non-current assets
Property, plant and equipment 62 143 711 27 886 259
Intangible assets 7 861 326 966 896
Goodwill 3 22 457 038 18 476 606
Other financial assets 1 431 055 2 248 468
Deferred tax 841 196 4 677 934
94 734 326 54 256 163
Current assets
Inventories 138 330 361 105 648 003
Other financial assets 6 190 743 5 159 830
Trade and other receivables 136 869 774 89 999 171
Cash and cash equivalents 8 795 349 4 198 936
290 186 227 205 005 940
Non-current assets held for sale - 19 850 000
Total assets 384 920 553 279 112 103
Equity and liabilities
Equity
Share capital 4 1 500 1 000
Share premium 4 103 553 089 -
Reserves 2 430 857 405 721
Retained income (accumulated loss) 19 582 398 (4 315 116)
Attributable to equity holders of the
parent 125 567 844 (3 908 395)
Minority interest 3 812 544 -
129 380 388 (3 908 395)
Liabilities
Non-current liabilities
Shareholders` liabilities - 81 709 491
Other financial liabilities 44 888 554 41 390 665
44 888 554 123 100 156
Current liabilities
Other financial liabilities 7 148 598 51 606 837
Trade and other payables 81 457 321 88 137 776
Bank overdraft 122 045 692 20 175 729
210 651 611 159 920 342
Total liabilities 255 540 165 283 020 498
Total equity and liabilities 384 920 553 279 112 103
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
15 months
ended
31 March 31 March
Figures in Rand 2008 2007
Profit/(loss) for the year 23 792 435 (4 315 116)
Other comprehensive income 2 232 087 405 721
Exchange differences on translating foreign
operations 2 232 087 405 721
Income tax relating to comprehensive income - -
Total comprehensive income for the year 26 024 522 (3 909 395)
Total comprehensive income attributable to:
Equity holders of the parent 26 066 977 (3 909 395)
Minority interest (42 455) -
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share capital/ (Accumulated loss)
Figures in Rand Notes Share premium Retained income
Balance at 1 January 2006 - -
Issue of shares 4 1 000 -
Total comprehensive income - (3 818 434)
Balance at 31 March 2007 1 000 (3 818 434)
Correction of error 5 - (496 682)
Restated balance at 31
March 2007 1 000 (4 315 116)
Acquisition of subsidiaries 3 - (144 327)
Subtotal 1 000 (4 459 443)
Issue of shares 4 103 553 589 -
Total comprehensive income - 24 041 841
Balance at 31 March 2008 103 554 589 19 582 398
Foreign currency
translation
Figures in Rand reserve (FCTR) Total
Balance at 1 January 2006 - -
Issue of shares - 1 000
Total comprehensive income (256 525) (4 074 959)
Balance at 31 March 2007 (256 525) (4 073 959)
Correction of error 662 246 165 564
Restated balance at 31 March 2007 405 721 (3 908 395)
Acquisition of subsidiaries - (144 327)
Subtotal 405 721 (4 052 722)
Issue of shares - 103 553 589
Total comprehensive income 2 025 136 26 066 977
Balance at 31 March 2008 2 430 857 125 567 844
Figures in Rand Minority interest Total equity
Balance at 1 January 2006 - -
Issue of shares - 1 000
Total comprehensive income - (4 074 959)
Balance at 31 March 2007 - (4 073 959)
Correction of error - 165 564
Restated balance at 31 March 2007 - (3 908 395)
Acquisition of subsidiaries 3 854 999 3 710 672
Subtotal 3 854 999 (197 723)
Issue of shares - 103 553 589
Total comprehensive income (42 455) 26 024 522
Balance at 31 March 2008 3 812 544 129 380 388
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
Restated
15 months
ended
31 March 31 March
Figures in Rand Note 2008 2007
Cash flows from operating
activities
Operating cash flows before
movements in
working capital 61 989 916 42 513 613
Increase in working capital (77 341 611) (19 378 350)
Cash (used by)/generated from
operations (15 351 695) 23 135 263
Investment revenue 1 147 964 463 273
Finance costs (25 779 597) (36 004 855)
Taxation paid (1 410 672) -
Net cash from operating activities (41 394 000) (12 406 319)
Cash flows from investing activities
Purchase of property, plant and
equipment (36 850 658) (20 047 234)
Proceeds on sale/claims for
property, plant and
equipment 26 060 440 62 262 481
Acquisition of intangible assets (7 087 388) -
Acquisition of businesses 3 (10 027 199) (194 974 332)
Purchase of financial assets (213 500) (6 247 797)
Net cash from investing activities (28 118 305) (159 006 882)
Cash flows from financing
activities
Proceeds on share issue 103 553 589 1 000
(Repayment)/proceeds from other
financial liabilities (49 605 343) 81 855 395
(Repayment)/proceeds from
shareholders` liabilities (81 709 491) 81 709 491
Finance lease payments - (8 129 478)
Net cash from financing activities (27 761 245) 155 436 408
Total cash movement for the year (97 273 550) (15 976 793)
Overdraft at the beginning of the year (15 976 793) -
Total overdraft at the end of the year (113 250 343) (15 976 793)
CONDENSED CONSOLIDATED SEGMENT REPORT
Restated
15 months
ended
31 March 31 March
Figures in Rand 2008 2007
Segment revenues
Buy-ins 76 985 641 73 530 029
Automotive 238 535 190 198 864 353
Decorative 68 665 980 85 547 223
Industrial/Wood 174 640 279 190 114 823
Solvents 55 390 125 58 609 200
Adhesives and Oleo 8 111 257 12 060 946
Total of all segments 622 328 472 618 726 574
Eliminations of intercompany revenue (42 089 025) (27 013 301)
Consolidated revenue 580 239 447 591 713 273
External customers
South Africa 440 774 389 541 770 118
International 139 465 058 49 943 155
580 239 447 591 713 273
Segment result
Buy-ins 3 604 506 (552 678)
Automotive 12 407 259 (1 761 310)
Decorative 3 122 531 (618 730)
Industrial/Wood 6 888 355 (1 184 705)
Solvents 1 432 156 (246 396)
Adhesives and Oleo 227 772 (52 293)
Profit/(loss) before taxation 27 682 579 (4 416 112 )
Taxation (3 890 144) 100 996
Profit/(loss) for the year 23 79 2 435 (4 315 116)
Segment assets
Buy-ins 47 616 905 33 169 936
Automotive 147 537 998 89 709 170
Decorative 42 471 055 38 590 980
Industrial/Wood 108 017 929 85 762 193
Solvents 34 259 717 26 439 041
Adhesives and Oleo 5 016 949 5 440 783
Total of all segments 384 920 553 279 112 103
NOTES to the condensed consolidated annual financial statements
1 Basis of preparation
The consolidated annual financial statements from which these condensed
consolidated annual financial statements were derived, have been prepared in
accordance with International Financial Reporting Standards (IFRS), the
Companies Act of South Africa, as amended, and the JSE Limited Listings
Requirements. These condensed consolidated annual financial statements contain
the information required in terms of IAS 34 - Interim Financial Reporting.
The consolidated annual financial statements incorporate accounting policies
which have been consistently applied except for the following standards and
amendments to standards, which have been adopted/early adopted in accordance
with the transitional provisions of the standards:
? IFRS 7 - Financial Instruments: Disclosure;
? IFRS 8 - Operating Segments;
? IAS 1 - Presentation of Financial Statements (revised 2007); and
? IAS 23 - Borrowing Costs (revised 2007) (refer to note 6).
Comparatives have been restated to correct errors (refer to note 5).
The company commenced trading in the comparative period and therefore only one
comparative year is reflected.
The condensed consolidated annual financial statements have been audited by BDO
Spencer Steward (KZN) Inc., Registered Auditors. Their unqualified opinion is
available for inspection at the group`s registered office.
The board acknowledges its responsibility for the preparation of the condensed
consolidated annual financial statements in accordance with IFRS, the Companies
Act of South Africa, as amended, and the JSE Limited Listings Requirements.
2 Basic and diluted earnings and headline earnings per share
The earnings and weighted average number of ordinary shares used in the
calculation of basic and diluted earnings and headline earnings per share are
as follows:
Reconciliation of total earnings to headline earnings attributable to equity
holders of the parent
Restated
15 months
ended
31 March 2008 31 March 2007
Total earnings/(loss) attributable to
equity holders 24 041 841 (4 315 116)
Non-headline earnings
Less profit on sale of property (2 121 120) (1 911 407)
Add/(less) loss/(profit) on sale of plant
and equipment 26 783 (1 765 158)
Total tax effect of adjustments 320 847 788 443
Total minority interest in adjustments (48 807) -
Headline earnings/(loss) 22 219 544 (7 203 238)
Weighted average number of ordinary shares
in issue 240 163 934 200 000 000
3 Acquisition of businesses
Restated
2008 2007
Fair value Fair value
Assets
Property, plant and equipment 6 723 706 101 047 647
Intangible assets - 1 211 509
Other financial assets - 1 160 501
Deferred tax 160 065 3 047 238
Inventories 10 964 116 93 292 925
Trade and other receivables 8 108 708 76 534 614
Cash/(Bank overdraft) 826 486 (52 625 476)
Liabilities
Other financial liabilities (8 644 994) (19 271 585)
Trade and other payables (8 415 028) (80 525 123)
9 723 059 123 872 250
Less minority interest (3 854 999) -
Goodwill on acquisition 4 841 298 18 476 606
ChemSpec USA, Inc. (2007: ChemSpec Group) 10 709 358 142 348 856
Chem Spec (Coatings) (Pty) Limited 144 327 -
10 853 685 -
2008
On 6 June 2007, 60.35% of the USA company, Montana Paints Inc. (now ChemSpec
USA, Inc.), was acquired. The acquisition was paid for in cash.
On 13 November 2007 the group acquired a further 14.999% share in its
Australian subsidiary, ChemSpec (Coatings) (Pty) Limited, through a rights
issue. No change in control took place and the increase in equity was set off
against the increase in the cost of the investment on consolidation. An amount
of R144 327 relating to the costs of this transaction was written off against
equity. No further goodwill was recorded as there was no change in control.
2007
On 1 January 2006, the group started trading after a management buyout in which
the assets and liabilities of Chemical Specialities (Pty) Limited
(1961/000395/07) and its subsidiaries: ChemSpec Botswana (Pty) Limited,
ChemSpec (Coatings) (Pty) Limited and Chemical Specialities Namibia (Pty)
Limited (collectively the "ChemSpec Group") were acquired.
4 Changes in share capital and share premium
Notes 2008 2007
Share capital 1 500 1 000
300 000 000 ordinary shares of R0.000005
each (2007: 100 000 ordinary shares of
R0.01 each)
Share premium: 100 000 000 ordinary
shares of R1.0995 109 950 000 -
Less share issue expenses (6 396 911) -
103 553 089 -
Reconciliation between opening balance of
issued shares and closing balance
Issued shares at incorporation 1 100
Subdivision of shares 2 9 900
10 000
Issue of shares 3 90 000
100 000 100 000
Further subdivision of shares on
converting to a public comp any 4 199 900 000
200 000 000
Private placing on listing 5 100 000 000
300 000 000
Notes
1 The company (previously RZT Zelpy 4547 (Pty) Limited) was incorporated on
10 November 2005 and issued 100 shares of R1.00 each. The company changed its
name to Chemical Specialities (Pty) Limited on 18 May 2006.
In terms of the management buyout and shareholders` agreements, the following
alterations were made to the share capital of the company:
2 The issued share capital of 100 ordinary par value shares of R1.00 each was
subdivided into 10 000 ordinary par value shares of R0.01 each;
3 90 000 ordinary par value shares of R0.01 each were issued at par value
bringing the total issued share capital to 100 000 ordinary shares of R0.01
each.
On 14 September 2007, after converting to a public company, the share capital
of the company was altered as follows:
4 The issued share capital of R1 000, comprising 100 000 ordinary par value
shares of R0.01 each, was sub-divided into 200 000 000 ordinary par value
shares of R0.000005 each.
5 On 6 November 2007, the company listed on the ALTX after a private placing of
100 000 000 ordinary par value shares.
5 Correction of errors
Inventory
Certain inventory was not correctly fair valued at acquisition (1 January
2006). A retrospective adjustment has been made to goodwill. This has had no
impact on the profit or loss for the current or prior period.
Foreign exchange
Incorrect exchange rates were used in the prior period to calculate
intercompany loans which have been corrected.
Fair value adjustment to revenue, cost of sales, investment revenue and finance
costs
Revenue, cost of sales, investment revenue and finance costs were not adjusted
to fair value in the prior year. This has had no impact on the profit or loss
for the prior period.
2007 as
previously Foreign
Extract from the notes reported exchange Inventory
Revenue 595 601 022 - -
Cost of sales (355 515 229) - -
Investment revenue 743 116 - -
Finance cost (36 179 332) - -
Inventory 110 215 886 - (4 567 883)
Goodwill 14 636 894 - 3 839 712
Accumulated loss 3 818 434 496 682 -
FCTR 256 525 (662 246) -
Deferred tax 3 784 199 165 564 728 171
2007
Extract from the notes Fair value restated
Revenue (3 887 749) 591 713 273
Cost of sales 3 887 749 (351 627 480)
Investment revenue 3 887 749 4 630 865
Finance cost (3 887 749) (40 067 081)
Inventory - 105 648 003
Goodwill - 18 476 606
Accumulated loss - 4 315 116
FCTR - (405 721)
Deferred tax - 4 677 934
6 Change in accounting policies
During 2008, the group changed its accounting policy for the treatment of
borrowing costs. IAS 23 (revised) requires that these costs be capitalised
rather than expensed and that this be applied prospectively. Therefore, there
is no impact on previously reported results.
7 Change in estimate
During 2008, the group changed its estimate with regard to the residual value
and useful life of its property, plant and equipment. This has resulted in a
decrease in depreciation of R4 891 549.
8 Related party transactions
Other than as disclosed above, there has been no significant change in related
party relationships since the previous year or significant transactions during
the year other than in the normal course of business.
9 Commitments and post-balance sheet events
Authorised capital expenditure
The group purchased land and buildings from Dow AgroSciences Southern Africa
(Pty) Limited in Canelands, Durban for R70 000 000 which was transferred
subsequent to year-end. The group has also committed to spend R30 586 373 on
developing the above site.
This committed expenditure relates to land and building s and will be financed
by mortgage facilities.
There are no other post-balance sheet events.
Chemical Specialities Limited
Country of incorporation and domicile: South Africa
Registration number: 2005/039947/06
Share code: CSP
ISIN: ZAE000109427
Registered office
2029 Old Mill Road, Canelands, Verulam, 4339
Postal address
PO Box 41177, Rossburgh, 4072
Directors
SM Wood Chief Executive Officer, BR Mackinnon Deputy Managing Director,
JG Maehler Chief Financial Officer, DJ Randles Executive Director, MC Oldham
Non-executive Director, A Moodley Non-executive Director
Contact details
Tel: +27 32 541 8600
Fax: +27 32 541 8653
Web: www.chemspecpaint.com
Transfer secretaries
Computershare Investor Services (Pty) Limited
Auditors
BDO Spencer Steward (KZN) Incorporated
Sponsor
QuestCo Sponsors (Pty) Limited
Date: 03/06/2008 07:12:00 Produced by the JSE SENS Department.
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