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FWD
FWD
FWD - Freeworld Coatings - Unaudited Interim Results And Cash Dividend
Declaration For The Six Months Ended 31 March 2009
Freeworld Coatings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2007/021624/06)
ISIN: ZAE000109450
Share code: FWD
("Freeworld Coatings", "the company" or "the Group")
UNAUDITED INTERIM RESULTS AND CASH DIVIDEND DECLARATION FOR THE SIX MONTHS
ENDED 31 MARCH 2009
www.freeworldcoatings.com
The results for the half year demonstrate that the company has performed well
in the tough market circumstances that prevailed.
> Revenue increased by 3% to R1 367 million
> EBITDA of R258 million is 2% up on the comparative period`s
record performance
> Operating profit of R221 million is marginally higher
> Cash generated from operations up 49% to R119 million
> Interim dividend of 5 cents per share
Commentary
Freeworld Coatings CEO, Andre Lamprecht said:
"In light of the deteriorating economic conditions, these are very pleasing
results with increased turnover and stable operating performance. This
demonstrates the resilience of our business with strong brands and good cash
flow. We remain focused on controlling costs as well as investing in the
brands, and will pursue growth opportunities that are still available".
Freeworld Coatings is a leader in the marketing and manufacture of Decorative
and Performance coatings in all Southern African territories, with some
presence and export sales in other regions.
Financial Review
Revenue from operations increased by 3% to R1 367 million, notwithstanding
the deteriorating economic conditions which have impacted on overall demand
for coatings. Earnings before interest, tax, depreciation and amortisation
(EBITDA) of R258 million is 2% up on the comparative period.
Operating profit at R221 million is marginally higher, with the operating
margin despite tough trading conditions declining only slightly from 16,7% to
16,2% due to a strong focus on the expense base as input raw material prices
have remained relatively firm.
Net finance costs for the period amount to R66 million and are 23% higher
than the comparative period which effectively only had an interest charge for
5 months as the interest free loan from Barloworld Capital (Pty) Ltd of R869
million, arising from unbundling, was only due for repayment on 5 November
2007.
The taxation charge, excluding Secondary Tax on Companies (STC), of R43,4
million translates into an effective tax rate, excluding STC, of 28%. This
compares adversely against the 24,8% for the comparative period, which
benefited from last year`s reduction in the corporate tax rate.
Income from associates is down 24% as a consequence of a lower trading result
from International Paints and significantly lower sales of Automotive OEM
products to the motor plants due to severe cut backs in unit builds, which in
turn have impacted the results of the DuPont Freeworld business.
Earnings per share is 16,9% lower at 55,1 cents with headline earnings per
share cents (HEPS) at 53,4 cents being 19,7% lower due to:
* Finance costs being incurred for the full 6 months, as against
the 5 months for the comparative period;
* A higher tax charge due to an STC charge of R2,8 million on our
final dividend, coupled with the comparative period benefiting
from a rate change adjustment of R8,2 million; and
* A higher (5 million) weighted number of shares in issue,
following the unbundling and listing in December 2007.
Adjusting for the above items, on a normalised basis HEPS is only 6,5% lower
with this then due to an increased depreciation charge arising from the
capital expenditure program over the last 12 months.
Cash generated from operations increased by 49% to R119 million. Net cash
used in investing activities totals R55 million, the bulk of which was
expended on the capital expenditure upgrade programme.
Total interest-bearing borrowings at R970 million represent a borrowing to
equity ratio of 34%, which is unchanged from September 2008.
Trading Update
Decorative Coatings segment
The Decorative Coatings segment recorded a revenue increase of 6%, with the
downturn in retail being counter balanced by solid trade business. EBITDA
increased by 7% to R188 million. A continued focus on expense control
contributed to a solid result in the circumstances. All channels to market
within the Decorative Coatings segment are now feeling the effects of the
slowdown in the South African economy. Export sales into Africa continue to
be buoyant although there are signs that the activity levels in some of the
African regions are also being negatively affected by the global slowdown.
Raw material prices have stabilised and show some signs of coming down. This
has given us some relief although further price reductions will need to be
won to benefit from the full reduction in global commodity prices.
Performance Coatings segment
The Performance Coatings segment`s revenues increased by 3%, with relatively
strong automotive refinish sales compensating for lower sales of colourants
in Australia, Greece and Portugal. All businesses within the Performance
Coatings segment of the South African paint market have been feeling the
effect of the economic slowdown in South Africa and the rest of the world.
EBITDA at R72 million, whilst 8% lower than the comparative period is
considered satisfactory, as the comparative period included sales of solvent
borne automotive OEM products, the production of which, with the conversion
to water borne products has been transferred to our associate DuPont
Freeworld during the latter part of last year, as previously reported.
Branding
A substantial amount of work continues to be done on the alignment of the
strong Plascon brand and its sub-brands with the innovative Freeworld
Coatings corporate brand. These will be rolled out in the months ahead. The
commencement of the new Freeworld Coatings marketing campaign is currently
under way and a number of exciting new product launches will take place in
the period ahead.
Outlook
The results for the period October 2008 to March 2009 demonstrate that the
company has performed well in the tough market circumstances that prevailed.
It is impossible to know whether the economic slow down will intensify, and
for how long these depressed market conditions will continue. The board is
confident that Freeworld Coatings` management will continue to achieve
competitive performance.
In the light of market uncertainty, and the company`s important growth plans,
the board has decided to declare a prudent dividend of 5 cents per share.
Given these circumstances, the board will review the dividend position for
the full financial year to September 2009 in the light of the conditions
prevailing at the time.
RM Godsell AJ Lamprecht
Chairman Chief Executive Officer
Cash Dividend Declaration for the six months ended 31 March 2009
Dividend number 3
Notice is hereby given that the following cash dividend has been declared in
respect of the six months ended 31 March 2009: Number 3 (interim dividend) of
5 cents per ordinary share.
In compliance with the requirements of the JSE Limited, the following dates
are applicable.
Last day to trade cum dividend Thursday, 11 June 2009
First trading day ex dividend Friday, 12 June 2009
Record date Friday, 19 June 2009
Payment date Monday, 22 June 2009
Share certificates may not be dematerialised or rematerialised between
Friday, 12 June 2009 and Friday, 19 June 2009, both days inclusive.
On behalf of the board
ELA Chamberlain
Secretary
Directors: RM Godsell (Chairman), AJ Lamprecht (Chief Executive Officer), E
Links, MM Ngoasheng, B Ngonyama, DB Ntsebeza, NDB Orleyn, PM Surgey, DA
Thomas* (Australian)
Company Secretary: ELA Chamberlain
Transfer secretaries: Link Market Services South Africa (Proprietary)
Limited.
Condensed consolidated income statement
for the six months ended 31 March
Unaudited Reviewed
March March
2009 2008
Notes R`000 R`000
Continuing operations
Revenue 1 367 374 1 322 178
Earnings before interest, tax, 9 258 158 252 217
depreciation and amortisation
Depreciation and amortisation (37 195) (31 971)
Operating profit 220 963 220 246
Finance costs 10 (78 164) (57 971)
Income from investments 12 100 4 251
Profit before taxation 154 899 166 526
Income tax expense 11 (46 223) (41 585)
Profit after taxation 108 676 124 941
Income from associates 12 6 425 8 436
Profit for the year 115 101 133 377
Attributable to:
Minority shareholders 2 794 1 765
Freeworld Coatings Limited 112 307 131 612
shareholders
115 101 133 377
Earnings per share (cents) 13 55,1 66,3
Diluted earnings per share (cents) 13 55,1 66,3
Condensed consolidated balance sheet
Unaudited Audited
March September
2009 2008
Notes R`000 R`000
Assets
Non-current assets 3 550 270 3 527 594
Property, plant and equipment 626 963 605 184
Goodwill 1 905 610 1 898 141
Intangible assets 4 789 726 795 194
Investment in associates 198 993 193 009
Finance lease receivables 772 315
Long term loans and receivables 10 384 9 906
Deferred taxation assets 17 822 25 845
Current assets 944 248 985 064
Inventories 467 793 460 129
Trade and other receivables 451 484 451 723
Taxation 2 724 2 030
Cash and cash equivalents 22 247 71 182
Total assets 4 494 518 4 512 658
Equity and liabilities
Capital and reserves
Share capital and premium 2 583 409 2 583 409
Other reserves (27 075) (20 579)
Retained income 282 045 190 119
Interest of shareholders of 2 838 379 2 752 949
Freeworld Coatings Limited
Minority interest 22 943 23 313
Interest of all shareholders 2 861 322 2 776 262
Non-current liabilities 884 633 911 573
Interest-bearing liabilities 5 596 093 624 691
Deferred taxation liabilities 256 522 265 314
Provisions 23 424 21 568
Other non-interest-bearing- 8 594 -
liabilities
Current liabilities 748 563 824 823
Trade and other payables 358 442 477 416
Provisions 844 7 800
Current tax payable 15 010 20 243
Short term loans and bank 5 374 267 319 364
overdrafts
Total equity and liabilities 4 494 518 4 512 658
Condensed consolidated cash flow statement
for the six months ended 31 March
Unaudited Reviewed
March March
2009 2008
R`000 R`000
Cash flows from operating activities
Operating cash flows before movements in 254 180 239 452
working capital
Increase in working capital (135 483) (159 768)
Cash generated from operations 118 697 79 684
Finance costs (80 005) (27 130)
Realised fair value adjustments on 7 829 6 268
financial instruments
Dividends received from associates 442 66
Interest received 12 100 4 251
Income tax paid (51 061) (37 083)
Cash flow from operations 8 002 26 056
Dividends paid (including minority (23 550) (1 529)
shareholders)
Cash (outflow)/inflow from operating (15 548) 24 527
activities
Cash flows from investing activities
Acquisitions of intangible assets (5 437) (168)
Increase of long-term financial assets (1 698) (4 149)
Acquisition of other property, plant and (49 794) (62 808)
equipment
??Replacement capital expenditure (45 916) (37 645)
??Expansion capital expenditure (3 878) (25 163)
Proceeds on disposal of property, plant 1 749 3 344
and equipment
Net cash used in investing activities (55 180) (63 781)
Net cash outflow before financing (70 728) (39 254)
activities
Cash flows from financing activities
Share issue costs - (7 852)
Decrease in long term payables and (4 517) -
provisions
Repayment of amount due Barloworld Capital - (869 785)
(Proprietary) Limited
(Decrease)/Increase in long term interest- (4 417) 610 443
bearing borrowings
Increase in short term interest-bearing 30 727 309 171
liabilities
Net cash inflow from financing activities 21 793 41 977
Net (decrease)/increase in cash and cash (48 935) 2 723
equivalents
Cash and cash equivalents at beginning of 71 182 46 672
period (1 October)
Cash and cash equivalents at end of period 22 247 49 395
(31 March)
Salient features
for the six months ended 31 March
Unaudited Reviewed
March March
R`000 2009 2008
Number of ordinary shares in issue 203 872 203 872
Net asset value per share including 1 403 1 326
investments at fair value (cents)
Total borrowings to total shareholders` 34 36
funds (%)*
Interest cover (times) 2,8 3,8
Return on net operating assets (%)** 11,6 12,2
Return on ordinary shareholders` funds (%) 7,9 9,9
* Total borrowings represents interest bearing loans
** Net operating assets excludes cash and interest bearing liabilities
Condensed consolidated statement of changes in equity
for the six months ended 31 March
Share Total Minority Interest of
capital and retained interest all
premium income and and shareholders
other shareholder
reserves loans
R`000 R`000 R`000 R`000
Balance at 1 2 418 796 - 42 331 2 461 127
October 2007
Movement in - 11 934 - 11 934
foreign
currency
translation
reserve
Profit for the - 131 612 1 765 133 377
period
Total - 143 546 1 765 145 311
recognised
income and
expense for
the period
Unbundling 173 841 - - 173 841
restructuring
issue of
shares
Movement in - - (22 187) (22 187)
shareholder
loans
Listing costs (7 852) - - (7 852)
written off
Current share - (44 999) - (44 999)
incentive
scheme
Other reserve - (25) - (25)
movements
Share options - 414 - 414
in current
period
Dividends on - - (1 529) (1 529)
ordinary
shares
Balance at 31 2 584 785 98 936 20 380 2 704 101
March 2008
Balance at 1 2 583 409 169 540 23 313 2 776 262
October 2008
Movement in - 1 375 - 1 375
foreign
currency
translation
reserve
Net actuarial - 130 - 130
gains and
losses
Profit for the - 112 307 2 794 115 101
period
Total - 113 812 2 794 116 606
recognised
income and
expense for
the period
Increase in - (10 796) - (10 796)
fair value of
hedging
instruments
Freeworld - 1,684 - 1 684
Coatings
Limited SARs
expense
recognised in
equity
Barloworld
Limited Share
Options/Rights
expense - 1 111 - 1 111
recognised in
equity
Other reserve - 6 (1) 5
movements
Dividends on - (20 387) (3 163) (23 550)
ordinary
shares
Balance at 31 2 583 409 254 970 22 943 2 861 322
March 2009
Segmental summary
Business segments
For management purposes, the Group is organised into two major operating
divisions, namely Decorative and Performance Coatings. These divisions are
the basis on which the Group reports its primary segmental information. This
is consistent with prior periods.
Half year ended 31 March 2009
Decorative Performance
R`000 Coatings Coatings Eliminations Total Group
Segment
revenue
Consolidated 1 001 459 498 235 (132 320) 1 367 374
segment
revenue
Segment
result
Earnings 187 699 71 804 (1 345) 258 158
before
interest,
tax,
depreciation
and
amortisation
(EBITDA)
Depreciation (26 823) (10 372) - (37 195)
and
amortisation
Segmental 160 876 61 432 (1 345) 220 963
operating
profit
Share of 6 425
after tax
income from
associates
Total 160 876 61 432 (1 345) 227 388
Half year ended 31 March 2009
Segment
balance sheet
Total assets 3 436 002 837 276 4 273 278
excluding
cash and
investment in
associates
Segment non- (387 783) (275 053) (662 836)
interest
bearing
liabilities
Segmental net 3 048 219 562 223 3 610 442
operating
assets
Segmental (946 713) (23 647) (970 360)
interest-
bearing
liabilities
Segmental 2 878 19 369 22 247
cash and cash
equivalents
Segmental net 2 104 384 557 945 2 662 329
assets
Investment in 198 993
associates
Net assets 2 861 322
Half-year ended 31 March 2008
Decorative Performance
R`000 Coatings Coatings Eliminations Total Group
Segment
revenue
Consolidated 948 402 483 642 (109 866) 1 322 178
segment
revenue
Segment
result
Earnings 176 238 78 285 (2 306) 252 217
before
interest,
tax,
depreciation
and
amortisation
(EBITDA)
Depreciation (22 318) (9 653) - (31 971)
and
amortisation
Segmental 153 920 68 632 (2 306) 220 246
operating
profit
Share of 8 436
after tax
income from
associates
Total 153 920 68 632 (2 306) 228 682
Year ended 30 September 2008
Segment
balance sheet
Total assets 3 403 254 845 212 4 248 466
excluding
cash and
investment in
associates
Segment non- (540 804) (251 536) (792 340)
interest
bearing
liabilities
Segmental net 2 862 450 593 676 3 456 126
operating
assets
Segmental (919 340) (24 715) (944 055)
interest-
bearing
liabilities
Segmental 54 081 17 101 71 182
cash and cash
equivalents
Segmental net 1 997 191 586 062 2 583 253
assets
Investment in 193 009
associates
Net assets 2 776 262
Notes to the condensed consolidated financial statements
for the six months ended 31 March
1 Statement of compliance
The abridged report has been prepared in accordance with IAS
34, Interim Financial Reporting, Schedule 4 of the Companies
Act 61 of 1973, as amended, and the JSE Limited`s Listing
disclosure requirements.
2 Basis of preparation
The condensed financial statements have been prepared on the
historical cost basis except for certain financial instruments
that are stated at fair value and adjustments.
3 Accounting policies
The abridged report has been prepared using accounting policies
that comply with International Financial Reporting Standards.
The accounting policies are consistent with those applied in
the annual financial statements for the year ended September
2008.
There are no standards that are currently in issue but not yet
effective which would result in a change in accounting policy.
4 Intangible assets
R`000 Capital- Brands Trade- Distri- Total
ised marks bution intan-
software channels gible
assets
Cost at 1 17 961 686 100 57 222 73 068 834 351
October 2008
Reclassifica- - 41 654 - (41 654) -
tion
Additions 5 412 - 24 - 5 436
At 31 March 23 373 727 754 57 246 31 414 839 787
2009
Accumulated
amortisation
and impairment
At 1 October 14 829 13 722 392 10 214 39 157
2008
Reclassifica- - (4 453) - 4 453 -
tion
Amortisation 978 7 689 1 177 1 060 10 904
charge for the
year
At 31 March 15 807 16 958 1 569 15 727 50 061
2009
Carrying
amount
At 31 March 7 566 710 796 55 677 15 687 789 726
2009
At 30 3 132 672 378 56 830 62 854 795 194
September 2008
At 31 March 3 704 679 239 38 033 36 713 757 689
2008
Capitalised software has a finite life of two years and is
amortised on a straight-line basis.
Brands consist of the various trade names Freeworld Coatings
Limited supplies to consumers and commercial enterprises and
include the following: Plascon, Plascon Professional, Crown,
Polycell, Midas and Midas Earthcote. Brands are amortised over
20 - 50 years.
At 31 March 2009 significant trademarks include the Napier and
Weathermaster trademarks. Both these trademarks have an
amortisation period of 20 years.
Distribution channels have been in place for a number of years
and are maintained to attract and keep a loyal customer base.
Distribution channels are amortised over periods between 10 -
15 years.
There has been a reclassification between distribution channels
and brands as a result of the Midas Earthcote and Hamilton
Brush brands being incorrectly included under distribution
channels in September 2008. This is purely a disclosure issue
and has no financial impact.
Unaudited Audited
March September
2009 2008
R`000 R`000
5 Interest bearing liabilities, short term
loans and bank overdrafts
Long term interest bearing liabilities 596 093 624 691
Long term loan with Nedbank Limited,
interest rate at JIBAR + 1,8 %, unsecured
and repayable over seven years with years
one and two having a capital holiday.
570 667 597 075
Various other small long term loans with
First National Bank Limited, Nedbank
Limited and Wesbank Corporate, a division
of First National Bank Limited, with
interest rates varying between 13% to
21,5%. Repayment terms range from two to
five years.
25 426 27 616
Short term loans and bank overdrafts 374 267 319 364
Short term loan with Nedbank Limited with 299 569 268 300
a current interest rate at 1 month JIBAR +
1,2%, unsecured and repayable on demand.
Bank overdrafts and acceptances 7 575 8 119
Short-term portion of long term interest 67 123 42 945
bearing liabilities
6 Contingent liabilities
In terms of the Unbundling Agreement,
Freeworld Coatings Limited has guaranteed
the first A$5 million of any environmental
claim made on Barloworld Limited by the
purchaser of the Australian business for a
maximum period of 8 years. An
environmental insurance policy is in place
in this regard.
7 Commitments
Capital expenditure commitments to be
incurred:
Contracted 37 698 51 913
Approved but not yet contracted 8 147 24 504
45 845 76 417
The majority of the site upgrade programme
capital expenditure included in the prior
year commitment figure has been completed
in the first half of 2009.
Operating lease commitments 35 741 34 388
Finance lease commitments 176 805
The operating lease commitments for
September 2008 have been restated.
Operating lease commitments as stated in 22 346
the September 2008 financial report
Correction 12 042
Restated amount 34 388
8 Other disclosable items
Inventory written down to net realisable 2 868 7 352
value
Acquisitions of items of property, plant 49 794 125 997
and equipment (Cost)
Disposals of items of property, plant and (4 595) (21 084)
equipment (Cost)
9 Earnings before interest, tax,
depreciation and amortisation
9.1 Termination of Agreements
During this half year settlement has been
reached in respect of compensation for
the loss of income and stranded costs
arising from the early termination of a
Licence Agreement and a Toll
Manufacturing Agreement.
Settlement Amount 29 211 -
10 Finance costs
The increase in finance costs is as a
result of:
1. An additional months interest cost in
2009 as the interest free loan to
Barloworld Limited was only repaid on 5
November 2007.
2. Increases in the 6 month JIBAR rate
11 Income tax expense
South African normal taxation 43 975 51 188
- Current year 43 916 50 937
- Prior year 59 251
Deferred taxation (591) (9 899)
- Current year (591) (1 469)
- Prior year - (175)
- Attributable to a change in the rate of - (8 255)
income tax
Secondary taxation on companies
- Current year 2 839 296
Total Group 46 223 41 585
12 Income from associates
Includes our share of profit on sale of 4 000 -
a portion of an associate`s assets
13 Earnings per share
13.1 Fully converted weighted average number
of shares
Weighted average number of ordinary 203 872 198 399
shares
13.2 Earnings
Profit for the period from continued 112 307 131 612
operations attributable to equity
holders of Freeworld Coatings Limited
Earnings per share (cents)
Basic
Weighted average number of ordinary 203 872 198 399
shares
Earnings per share (cents) 55,1 66,3
Diluted
Weighted average number of ordinary 203 872 198 399
shares
Earnings per share (cents) 55,1 66,3
13.3 Headline earnings per share
Profit for the period from continued 112 307 131 612
operations attributable to equity
holders of Freeworld Coatings Limited
Adjusted for the following
- Impairment of investments - 83
- (Profit)/loss on disposal of plant and (31) 540
equipment
- Tax effect of the above 9 (151)
- Share of profit on sale of a portion (4 000) -
of an associate`s assets
- Tax effect of the above 560 -
Headline earnings 108 845 132 084
Weighted average number of shares in 203 872 198 399
issue for the period
Headline earnings per share - basic 53,4 66,5
(cents)
Headline earnings per share - diluted 53,4 66,5
(cents)
14 Dividends
Dividend paid during the period
Paid to Freeworld Coatings Limited 20 387 -
shareholders
Paid to minorities of Freeworld Coatings 3 163 1 529
Limited
23 550 1 529
Dividend paid per share (cents) 10 -
Dividend declared per share (cents) 5 10
Dividends are declared after period end in the announcement
of the results for the period. Interim dividends are declared
in May and paid in June. Final dividends are declared in
November and paid in January. Dividends declared are not
recorded as a liability at the end of the period to which
they relate. Subsequent to half-year end, on 26 May 2009,
Freeworld Coatings Limited declared an interim dividend of
5 cents per share (R10,2 million), which will be paid on
22 June 2009.
15 Related party transactions
There was no significant change in related party
relationships since the year-end.
Freeworld Coatings Limited did not enter into transactions
with associates and other related parties outside the normal
course of business during the period, other than the
transaction explained in notes 9 and 12.
16 Post balance sheet events
Post half year-end, Freeworld Coatings Global (Pty) Ltd has
exercised its option to acquire the Napier Environmental
Technologies Nafta Intellectual Property for an expected cost
of between R10,8 million and R13,5 million.
17 Interim financial statements
The interim financial statements for the six months ended
31 March 2009 are unaudited.
Freeworld Coatings Limited
The registered office of Freeworld Coatings:
Balvenie, Kildrummy Office Park, Umhlanga Drive, Paulshof 2056 (PostNet Suite
263, Private Bag X87 Bryanston 2021)
26 May 2009
Paulshof
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 26/05/2009 07:05:05 Produced by the JSE SENS Department.
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