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RLF - Rolfes Technology Holdings Limited - Audited condensed financial results

Release Date: 10/09/2008 07:05:02      Code(s): RLF
RLF - Rolfes Technology Holdings Limited - Audited condensed financial results  
for the year ended 30 June 2008                                                 
Rolfes Technology Holdings Limited                                              
Registration number 2000/002715/06                                              
Share code: RLF                                                                 
ISIN: ZAE000096202                                                              
("Rolfes" or "the Group")                                                       
AUDITED CONDENSED FINANCIAL RESULTS                                             
for the year ended 30 June 2008                                                 
Revenue increased by 40,1%                                                      
Operating profit increased by 47,6%                                             
Headline earnings increased by 58,1%                                            
HEPS increased by 39,7%                                                         
CONSOLIDATED INCOME STATEMENTS                                                  
for the year ended 30 June                                                      
2008        2007                 
 R`000       R`000                                                              
Revenue                                      314 898     224 727                
Cost of sales                               (244 050)   (172 011)               
Gross profit                                  70 848      52 716                
Other operating income                         8 106       2 035                
Operating expenses                           (33 847)    (24 185)               
Operating profit before interest              45 107      30 566                
Interest paid and finance charges             (3 879)     (4 477)               
Income from investments                          164          84                
Net profit before taxation                    41 392      26 173                
Tax expenses                                 (11 740)     (7 123)               
Profit for the year                           29 652      19 050                
Attributable to:                                                                
Equity holders of parent                      29 652      19 050                
Reconciliation of headline earnings                                             
Attributable profit                           29 652      19 050                
Adjusted for the after-tax effect of:                                           
Loss/(gain) from sale of fixed asset             442         (10)               
Headline earnings                             30 094      19 040                
Earnings per share (cents)                                                      
- Basic                                         28,8        20,9                
- Headline                                      29,2        20,9                
- Diluted                                       28,8        20,9                
- Diluted headline                              29,2        20,9                
Dividend per share (cents)                         -         2,2                
Weighted number of shares in issue (`000)    103 103      91 304                
CONSOLIDATED BALANCE SHEETS                                                     
as at 30 June                                                                   
                                               2008        2007                 
                                              R`000       R`000                 
Non-current assets                            71 134      54 184                
Plant and equipment                           40 110      28 404                
Investment property                           16 805      16 680                
Intangible assets                             14 219       9 100                
Current assets                               159 471      86 803                
Inventories                                   89 267      36 740                
Trade and other receivables                   69 879      49 674                
Financial asset                                    -          36                
Short-term loans                                 325         353                
Total assets                                 230 605     140 987                
EQUITY AND LIABILITIES                                                          
Capital and reserves                         113 013      79 979                
Share capital                                  1 036       1 025                
Share premium                                 28 603      24 864                
Treasury shares                                 (368)          -                
Retained income                               81 549      51 897                
Revaluation reserve                            2 193       2 193                
Non-current liabilities                       26 102      10 903                
Interest-bearing liabilities                  20 172       9 628                
Deferred tax liability                         5 617         970                
Provisions                                       313         305                
Current liabilities                           91 490      50 105                
Trade and other payables                      71 485      38 658                
Cash and cash equivalents                      4 380         659                
Current portion of interest-bearing                                             
 liabilities                                  9 082       7 467                 
Financial liability                              110           -                
Tax liability                                  5 846       2 900                
Provisions                                       587         421                
Total equity and liabilities                 230 605     140 987                
Number of shares in issue (`000)             103 609     102 500                
ABRIDGED CONSOLIDATED CASH FLOW STATEMENTS                                      
for the year ended 30 June                                                      
                                               2008        2007                 
                                              R`000       R`000                 
Cash flow generated from                                                        
operating activities                         2 582       9 760                 
Cash flow utilised in                                                           
 investing activities                       (18 094)    (13 025)                
Cash flow generated from                                                        
financing activities                        11 791      24 346                 
Cash (deficit)/surplus for the year           (3 721)     21 081                
Cash and cash equivalents                                                       
- beginning of the year                         (659)    (21 740)               
Cash and cash equivalents                                                       
- end of the year                             (4 380)       (659)               
GROUP STATEMENTS OF CHANGES IN EQUITY                                           
for the year ended 30 June                                                      
2008        2007                 
                                              R`000       R`000                 
Opening balance                               79 979      37 726                
Derecognising of minority interest                 -        (686)               
Issue of new shares                            3 750      27 308                
Capitalisation of listing expenditure              -      (1 419)               
Net profit for the year                       29 652      19 050                
Dividends declared                                 -      (2 000)               
Increase in treasury shares                     (368)          -                
Balance at the end of the year               113 013      79 979                
SEGMENTAL ANALYSIS                                                              
for the year ended 30 June                                                      
Gross       Net             Liabili-                 
                Revenue   profit    profit    Assets       ties                 
                  R`000    R`000     R`000     R`000      R`000                 
Chemicals        114 231   14 358     5 120    73 934     68 698                
Silica            39 651   13 901     5 489    38 605     25 005                
Pigments         158 852   39 276    15 709   104 084     60 765                
Other              2 164    3 413     5 567   202 059    (14 176)               
Elimination of                                                                  
 and other            -     (100)   (2 233) (188 077)   (22 700)                
Total            314 898   70 848    29 652   230 605    117 592                
Chemicals         71 760   11 663     3 830    34 360     33 911                
Silica            33 690   10 797     4 126    33 806     25 695                
Pigments         117 601   27 515    10 218    64 221     33 568                
Other              1 676    2 741     4 810   145 717    (12 373)               
Elimination of                                                                  
 and other            -        -    (3 934) (137 117)   (19 793)                
Total            224 727   52 716    19 050   140 987     61 008                
The basis of preparation of the segmental analysis has been changed as certain  
intercompany transactions have been eliminated in the current year`s reporting. 
The previous year was adjusted accordingly.                                     
Brief overview                                                                  
Rolfes demonstrated sustained growth during the 2008 financial year. Increased  
market share was attained through successful capitalisation of market           
challenges. The strategic Leather-Chem acquisition (renamed RCPI Cape Town),    
securing a second resin plant in Durban, enhanced product offerings, export     
growth, increased trade volumes, customer base increases and cost containment,  
all contributed to the Group`s satisfactory performance.                        
Key drivers for the Group`s performance include its continued positive approach 
to view challenges as opportunities and its persistent pursuit of new prospects 
in relevant industries. Strengthened supplier relationships and strategic       
partnerships played an important role in the Group`s success to date. Positive  
brand perception assisted with growth in international trading volumes while    
effective pricing strategies guaranteed competitiveness in all market sectors.  
Rolfes manufactures and distributes a wide range of market-leading, high-quality
products through various divisions to diverse industries including the coatings,
plastics, vinyl, leather, ink, metallurgical, filtration and construction       
industries. The Pigments division is responsible for the manufacture and        
distribution of organic and inorganic pigments, pigments pastes and dyes.       
Resins, solvents and other speciality chemicals are manufactured and distributed
through its Chemicals division, while the Silica division manufactures and      
distributes pure beneficiated silica.                                           
Financial performance                                                           
The Group revenue increased by 40,1% to R314,9 million (2007: R224,7 million).  
The revenue growth, gross margin containment and persistent focus on cost-saving
and optimisation initiatives contributed to the 47,6% improvement in operating  
profit to R45,1 million (2007: R30,6 million). Headline earnings increased by   
58,1% to R30,1 million (2007: R19,0 million). Fully diluted headline earnings   
per share reached 29,2 cents per share (2007: 20,9 cents per share), an increase
of 39,7% over 2007.                                                             
The Group exceeded its 2008 prospectus forecast on earnings, headline earnings, 
earnings per share and headline earnings per share.                             
Group liquidity and solvability improved from 2007 with total assets increasing 
by R89,6 million. Group interest-bearing debt increased by R15,9 million. The   
net asset value per share strengthened to 109,1 cents per share (2007: 78,0     
cents per share) while the net tangible asset value per share increased to 95,4 
cents per share (2007: 69,2 cents per share).                                   
Interest cover improved to 11,6 times (2007: 6,8 times) while the total debt:   
equity ratio (interest-bearing debt) increased from 0,2  in 2007 to 0,3 in 2008.
Realised foreign exchange gains for the year amounted to R4,2 million (2007:    
(R0,2 million)) attributable to exchange rate volatility and effective policy   
alignment to unpredictable market conditions.                                   
The Group incurred capital expenditure of R20,2 million (2007: R13,9 million).  
R11,2 million was spent to maintain, improve and increase current production    
capabilities. R0,8 million was invested in the replacement of the current IT    
infrastructure and to upgrade computer equipment. The new acquisition`s fixed   
assets acquired amounted to R3,7 million while the balance was spent on property
improvements, furniture and fittings. A further R4,2 million was utilised  to   
upgrade the transport  fleet.                                                   
Cash Flow                                                                       
The Group`s bankers increased overdraft facilities to R35,0 million (2007: R10,0
million) during June 2008 to fund working capital requirements due to augmented 
growth in both the Chemicals and the Pigments divisions. The increase in net    
working capital investment during 2008 of R39,9 million comprises mostly        
strategic investment in stock, both raw material and finished goods, increasing 
by R52,5 million (2007: R12,9 million) to counteract Asian market turmoil, and  
increased solvents trading. Investment in trade and other receivables increased 
by R20,2 million (2007: R21,9 million). The increase in stock and debtors was   
partially offset by an increase in trade and other payables of R32,8 million.   
The large increase in stock during May and June 2008 contributed primarily to   
the targeted R34,2 million (2007: R22,9 million) for cash generated from        
operations (70% of EBITDA) not being met. Management has a firm intention to    
manage the cash generated from operations back within the set target during     
Insurance refunds for the Alberton chemical plant explosion amounted to R5,9    
million during the year under review. The R1,2 million outstanding as at 30 June
2008 is pending claim finalisation.                                             
Operational review                                                              
Rolfes Colour Pigments                                                          
Turnover increased by 35,0% to R158,9 million (2007: R117,6 million) due to new 
product innovations and trading and export volumes increases. Acquisition growth
(RCPI Cape Town) in turnover amounted to R7,1 million included for seven months.
Significantly increased export and trading activities in African, European and  
Asian markets contributed to the division`s performance, comprising 17,5% (2007:
7,3%) of turnover. Exchange rate fluctuations had a positive impact on trading  
The division was able to increase gross profit margins to 24,7 % (2007: 23,4%). 
The increase is attributable to the inclusion, for seven months, of higher      
margin high-quality pigment pastes manufactured and distributed by the new      
acquisition, RCPI Cape Town. Increased international export trading activities  
within the Pigments division at lower margins placed some strain on the historic
gross profit margins achieved. The division effectively counteracted lower      
export trading margins and sustained gross profit margins through effective     
pricing mechanisms that allowed for timeous passing of raw material price       
increases to the market. Trust in the Rolfes brand assisted with customer       
loyalty and support. Improved manufacturing processes contributed to cost       
containment in a challenging economic environment.                              
Capitalisation on ongoing turmoil in the Chinese market, coupled with the export
moratorium during the Beijing Olympics as well as proactive strategic investment
in crucial raw material stock, ensured a competitive edge, resulting in service 
level improvement and a significant gain in market share.                       
The 16,2% increase in operating costs is primarily attributable to human capital
investment in key appointments in the African export market and aggressive      
performance bonus structures implemented during the 2008 financial year.        
Capital expenditure incurred amounted to R4,4 million (2007: R0,9 million)      
mainly due to the acquisition of RCPI Cape Town and other expenditure incurred  
to maintain production capacity and assist with continuous productivity         
improvement projects.                                                           
Unfavourable local economic factors, such as interest rate hikes, load shedding,
escalating energy costs and higher oil prices, were successfully counteracted   
through implementation of pro-active procurement and pricing strategies on raw  
material as well as the implementation of effective cost-saving measures.       
Management expects these actions to continue.                                   
Management is looking forward to the international Union Colours project,       
embarked on during July 2008, reaching its potential during the latter part of  
the 2009 financial year. In addition; the division is aggressively pursuing     
various international trading opportunities including facilitating trade between
local suppliers and international customers. The increased exports of locally   
manufactured pigment products to Europe, Africa and Asia will continue to be a  
key focus area of the division. Furthermore, the products manufactured by RCPI  
Cape Town will continue to be introduced to other local and overseas customers  
of the Pigments division.                                                       
Rolfes Chemicals                                                                
Organic turnover growth of 59,2% to R114,2 million (2007: R71,8 million) is in  
part due to increased trading volumes in specific solvent and lacquer thinners  
product lines towards the latter part of the 2008 financial year. The increase  
in manufactured products, alkyd, acrylic and wood finish resins, contributed to 
increased sales during the first six months of the 2008 financial year.         
The lower gross profit margin at 12,6% (2007: 16,3%) was, in part, due to an    
increase in solvent trade volumes at lower                                      
margins. Full recovery on raw material price increases was not possible due to  
competitive market prices and customer base expansion becoming a priority. The  
effect of the explosion at the Alberton plant during April 2007 resulted in     
increased costs of manufacturing and products were bought in at higher costs to 
facilitate customer retention until August 2007 when the plant was back in full 
production. Production capacity, to facilitate customer demands, was increased  
through minimal capital investment in the KwaZulu-Natal resin manufacturing     
plant. Full production at this point was achieved, as expected, by April 2008.  
The facilities are rented on a five-year basis with the option to renew for a   
further five years. Operating costs to bring the plant into full operation      
placed further strain on gross profit performance. The full benefit of the plant
will only be evident during the financial year ending June 2009.                
Capital expenditure of R2,5 million (2007: R0,6 million) consisted largely of   
expenses to improve manufacturing                                               
capability at the Alberton facilities, following the explosion, and the KwaZulu-
Natal factory.                                                                  
Operating expenses increased due to the establishment of the Durban Plant that  
only reached full production capability by February 2008, as well as additional 
costs relating to increased turnover.                                           
Electricity black-outs and interest rate hikes contributed to lower than        
expected growth in the South African decorative                                 
coatings market, resulting in reduced supply into that specific market sector by
Rolfes Chemicals.                                                               
2009 prospects include additions of new product lines resulting in an expanded  
customer base, as well as joint venture prospects in respect of exports and     
local manufacturing opportunities, and initiatives in chemicals transport       
opportunities through the newly established Rolfes Logistics. Rolfes Logistics  
will not only allow the division to have better control over its logistics      
function, resulting in improved customer satisfaction, but also yield           
significant cost-savings.                                                       
Rolfes Silica                                                                   
Turnover increased by 17,7% to R39,7 million (2007: R33,7 million). Initiatives 
to increase market awareness and promote market presence as well as improved    
production planning resulted in an expanded customer base and, in combination   
with enhanced product quality, led to increased volumes. However, sales and     
production were hampered by equipment breakdowns, the extensive rains           
experienced during the latter part of last year and a series of power cuts that 
have interrupted operations during the first few months of this year.           
Gross profit margins at 35,1% (2007: 32,1%) improved due to cost consolidation, 
optimisation of production processes (higher volumes with consequential decrease
in cost per unit) and increased transport efficiencies. Outsourcing of          
maintenance, and product, blast, load and haul also allowed for pricing to      
remain competitive. Aggregate product demand increased during the financial year
while only a slight increase for silica fines was noted.                        
Operating expenses reduced slightly from 2007 to 2008 due to cost containment in
the overhead structures.                                                        
To increase production capacity and to facilitate higher customer demands as    
well as required improvements in product quality, and to maintain safety and    
security and comply with the Department of Minerals and Energy regulations,     
capital expenditure incurred amounted to R8,5 million (2007: R10,9 million).    
Management expects to increase current production and sales volumes, as well as 
improving the sales mix (selling more                                           
silica fines at higher margins), in the 2009 financial year. Aggregate material 
will remain an important area as the                                            
division`s customer demand for aggregate material, used in the construction,    
building and maintenance of roads, has increased. However, management`s key     
focus will be to continue to grow the silica fines volumes by targeting untapped
market opportunities. Expanded, accelerated and improved production processes   
will assist with higher production volumes and additional unit cost reduction.  
Export initiatives and opportunities of silica fines to SADEC countries are     
currently being pursued.                                                        
Market conditions and prospects                                                 
Beyond the June 2008 year-end, Rolfes has seen continuous demand for its        
products. However, management is fully aware of the macro-economic factors      
weighing negatively on the South African and global economies. To increase sales
in 2009, Rolfes will be adding more products to the basket, exploring new       
territories and trying to increase market share where it can. Rising raw        
material prices will continue to put a squeeze on trading margins. However, thus
far the Group has been able to maintain margins due to additional internal      
buying and manufacturing efficiencies and through partially passing the increase
in raw material costs onto customers. Rolfes continually monitors all production
and administrative overhead cost structures to improve operating profits and    
In the short-term the Rolfes strategy is to continue to grow organically through
export market share growth and other projects as mentioned above, such as Union 
Colours and Rolfes Logistics, as well as to identify and conclude suitable      
acquisitions which meet the investment criteria. Suitable opportunities will be 
evaluated to, amongst others, have ownership of intellectual capital, high      
barriers to entry, manufacturing in the technology field, quality of management 
and strong cash flow and growth potential. The Group`s existing product and     
market diversification within its product range should ensure future growth.    
Dividends and share liquidity                                                   
The dividend policy has been reviewed and the Group has decided to continue its 
strategy to re-invest earnings in growth opportunities and development. Various 
initiatives are underway to improve share liquidity including regular investor  
and stockbroker visits, and the creation of communication platforms to keep the 
investment community informed of corporate activity and developments within the 
Corporate governance and sustainability                                         
The Group is committed to sound corporate governance and sustainability         
practices. Various initiatives will be investigated and embarked on during 2009 
to increase the Group`s investment in social responsibility.                    
Human resources                                                                 
Continued focus on employment security and staff retention has been successful  
with staff turnover remaining low for the year under review. The Group continues
to employ historically disadvantaged individuals to train into skilled          
Rolfes recognises employees as assets and important contributors to its success.
Bonus and remuneration structures are in place to reward management and staff   
for remarkable performance. Prevailing team spirit and organisational pride have
added exceptional value to the Group`s achievement.                             
Black Economic Empowerment                                                      
Rolfes is committed to black economic empowerment along with black-controlled   
Vuwa Investments, the Group`s black empowerment partner with a 24,8%            
shareholding. Constant efforts ensure that employment equity ratios are         
increased on all management levels. Various initiatives will be undertaken      
during the 2009 financial year to improve the Group`s black economic empowerment
Accounting policies                                                             
Basis of preparation                                                            
The Board acknowledges its responsibility for the preparation of the condensed  
consolidated annual financial statements in accordance with International       
Accounting Standard 34 (IAS 34) and the JSE Limited Listings Requirements.      
Accounting policies                                                             
These condensed consolidated annual financial statements are prepared in        
accordance with International Financial Reporting Standards (IFRS) and in       
compliance with the Listings Requirements of the JSE Limited and the South      
African Companies Act. The condensed consolidated annual financial statements do
not include all the information required by IFRS for full financial statements. 
The accounting policies are consistent with those used in the prior year other  
than as set out below:                                                          
The adoption of IFRS 7: Financial Instruments Disclosures, which is effective   
for annual reporting periods beginning on or after 1 January 2007 and the       
consequential amendments to IAS 1: Presentation of Financial Statements, was not
required as these statements expand the disclosure requirements regarding the   
Group`s financial instruments and management of capital.                        
Business combinations                                                           
The Group acquired a 100% shareholding in Leather-Chem (Pty) Limited with effect
from 5 December 2007 for R15,0 million resulting in provisional goodwill of R5,1
The acquired business contributed revenue of R7,1 million and net profit of R2,1
million for the year ended 30 June 2008, and its assets and liabilities at 30   
June 2008 were R14,3 million and R1,6 million, respectively.                    
If the acquisition had occurred on 1 July 2007, the acquired business would have
contributed revenue of R7,5 million, and net profit of R1,5 million.            
The acquisition consideration of R15 million was settled in cash in the amount  
of R11,25 million and shares to the value of R3,75 million.                     
Audit opinion                                                                   
These results have been audited by the Group`s auditors, BDO Spencer Steward    
(Jhb) Inc, Registered Auditors, and their unqualified report is available for   
inspection at the Company`s registered office.                                  
Notice of annual general meeting and mailing of annual report                   
Shareholders are advised that the annual report for the financial year ended 30 
June 2008 will be mailed in due course. This report will contain the notice and 
related details of the annual general meeting of shareholders. Additional       
announcements regarding the date, time and venue of the annual general meeting  
of shareholders will be announced on SENS.                                      
For and on behalf of the Board                                                  
BT Ngcuka                                E van der Merwe                        
Chairman                                 Chief Executive Officer                
10 September 2008                                                               
Registered office: The Summit, 269 16th Road, Randjespark, Midrand              
Transfer Secretaries: Computershare Investor Services (Pty) Limited, 70 Marshall
Street, Johannesburg 2001                                                       
Directors: BT Ngcuka* (Chairman), E van der Merwe (Chief Executive Officer), L  
Dyosi*, AJ Fourie*, L Lynch (Financial Director)      *Non-executive            
Designated adviser: PSG Capital (Pty) Limited                                   
Registered auditors: BDO Spencer Steward (Jhb) Incorporated                     
Date: 10/09/2008 07:05:01 Supplied by www.sharenet.co.za                     
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information disseminated through SENS.                                          

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