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Rlf - Rolfes - Audited Abridged Results For The Year Ended 30 June 2009 And

Release Date: 21/09/2009 07:05:03      Code(s): RLF
RLF - Rolfes - Audited Abridged Results For The Year Ended 30 June 2009 And     
              Notice Of Annual General Meeting                                  
ROLFES TECHNOLOGY HOLDINGS LIMITED                                              
(Registration Number:  2000/002715/06)                                          
Share Code:  RLF                                                                
ISIN:  ZAE000096202                                                             
("Rolfes" or "the Group" or "the Company")                                      
www.rolfesza.com                                                                
Highlights                                                                      
-    Revenue increased by 19, 2%                                                
-    Cash flow generated from operations is R34.5 million (2008: R11, 3         
million)                                                                        
-    Operating profit from continuining operations increased by 6, 6%           
-    Net Asset value increased to R121, 6 million from R111, 2 million          
AUDITED ABRIDGED RESULTS FOR THE YEAR ENDED 30 JUNE 2009 AND NOTICE OF ANNUAL   
GENERAL MEETING                                                                 
ABRIDGED CONSOLIDATED BALANCE SHEET                                             
as at 30 June                                                                   
                                               2009         2008                
R`000        R`000                
ASSETS                                                                          
Non-current assets                           106 302       71 134               
Plant and equipment                           40 787       40 110               
Property                                      27 253       16 805               
Investments                                      566            -               
Intangible assets                             37 696       14 219               
Current Assets                               132 458      159 471               
Inventories                                   71 000       89 267               
Trade and other receivables                   58 858       67 447               
Financial asset                                  483            -               
Short-term loans                                   -          325               
Cash and cash equivalents                        352            -               
Value Added Tax receivable                         -        2 432               
Tax asset                                      1 765            -               
Total assets                                 238 760      230 605               
EQUITY AND LIABILITIES                                                          
Capital and reserves                         121 647      111 154               
Share capital                                  1 036        1 036               
Treasury shares                                 (635)        (368)              
Share premium                                 28 603       28 603               
Retained income                               90 450       79 690               
Revaluation reserve                            2 193        2 193               
Equity holders of the parent                 121 647      111 154               
Non-current liabilities                       43 902       27 961               
Interest-bearing liabilities                  24 357       20 172               
Vendor loan                                   13 086            -               
Deferred tax liability                         3 323        4 899               
Provision                                      3 136        2 890               
Current liabilities                           73 211       91 490               
Trade and other payables                      47 875       71 485               
Cash and cash equivalents                          -        4 380               
Current portion of interest-bearing                                             
 liabilities                                 10 685        9 082                
Current portion of vendor loan                13 600            -               
Financial liability                                -          110               
Value Added Tax liability                        781            -               
Tax liability                                      -        5 846               
Provisions                                       270          587               
Total equity and liabilities                 238 760      230 605               
ABRIDGED CONSOLIDATED INCOME STATEMENT                                          
for the year ended 30 June                                                      
                                               2009         2008                
                                              R`000        R`000                
Revenue                                      375 512      314 898               
Cost of sales                               (308 078)    (244 050)              
Gross profit                                  67 434       70 848               
Other operating income                         3 849        8 106               
Operating expenses                           (46 829)     (33 847)              
Operating profit before interest              24 454       45 107               
Interest paid and finance charges            (10 663)      (4 068)              
Income from investments                        1 277          164               
Net profit before taxation                    15 068       41 203               
Tax expenses                                  (4 308)     (11 691)              
Net profit for the year                       10 760       29 512               
Attributable to:                                                                
Equity holders of the parent                  10 760       29 512               
Attributable to:                                                                
Continuing operations                         21 601       22 373               
Discontinued operations                      (10 841)       7 139               
Reconciliation of headline earnings                                             
Attributable profit                           10 760       29 512               
Adjusted for the after-tax effect of:                                           
(Gain)/loss from sale of fixed assets             (21)        442               
Headline earnings                             10 739       29 954               
Earnings per share (cents)                                                      
- Basic                                         10,4        28,6                
- Headline                                      10,4        29,1                
- Diluted                                       10,4        28,6                
- Diluted headline                              10,4        29,1                
ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOWS                                   
for the year ended 30 June                                                      
2009        2008                 
                                              R`000       R`000                 
Cash flow generated from                                                        
 operations                                  34 510      11 278                 
Interest received                              1 277         164                
Interest paid and finance charges            (10 663)     (4 068)               
Tax paid                                     (13 495)     (4 792)               
Cash flow generated from                                                        
operating activities                        11 629       2 582                 
Cash flow utilised in                                                           
 investing activities                       (39 104)    (18 094)                
Cash flow generated from                                                        
financing activities                        32 207      11 791                 
Cash surplus/ (deficit) for the year           4 732      (3 721)               
Cash and cash equivalents                                                       
- beginning of the year                       (4 380)       (659)               
Cash and cash equivalents                                                       
- end of the year                                352      (4 380)               
GROUP STATEMENTS OF CHANGES IN EQUITY                                           
for the year ended 30 June                                                      
2009        2008                 
                                              R`000       R`000                 
Opening balance                                           79 979                
Restatement due to prior year error                -      (1 719)               
Opening balance                              111 154      78 260                
Issue of new shares                                -       3 750                
Net profit for the year                       10 760      29 512                
Increase in treasury shares                     (267)       (368)               
Balance at the end of the year               121 647     111 154                
SEGMENTAL ANALYSIS                                                              
for the year ended 30 June                                                      
                            Opera-                                              
Gross   ting    Net               Liabili-                
             Revenue profit profit   profit    Assets      ties                 
               R`000  R`000  R`000   R`000      R`000     R`000                 
2009                                                                            
Chemicals                                                                       
 continuing   50 540  9 120  5 252      3 392    78 052    74 158               
Chemicals                                                                       
 discontinued 72 960    383 (12 697)  (10 841)        -         -               
Silica         37 038 13 878   9 926     6 483    49 623    28 679              
Pigments      212 947 42 026  20 163    12 507   116 846    64 203              
Other           2 027  2 027   1 810     (781)    72 879    25 849              
Elimination of                                                                  
intergroup                                                                     
 items             -      -       -       -    (78 640)  (70 776)               
Total         375 512 67 434   24 454    10 760  238 760   117 113              
2008                                                                            
Chemicals     114 231 14 358   10 294     7 140   73 934    70 059              
(discontinued)                                                                  
Silica         39 651 13 901   11 229     7 141   39 750    26 217              
Pigments      158 852 40 525   24 655    16 671  104 084    63 948              
Other           2 164  2 164    (971)   (1 369)  141 415  (27 207)              
Elimination of                                                                  
 intergroup                                                                     
 items                                                                          
and other         -   (100)   (100)     (71) (128 578)  (13 566)               
Total         314 898 70 848   45 107   29 512  230 605    119 451              
The basis of preparation of the segmental analysis has been changed as certain  
intercompany transactions have been eliminated in the respective segmental      
results in the current year`s reporting. The previous year was adjusted         
accordingly.                                                                    
COMMENTARY                                                                      
Nature of business                                                              
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, water filtration,       
automotive and construction industries. Rolfes Colour Pigments is responsible   
for the manufacturing and distribution of resins, dispersions, organic and      
inorganic pigments, pigments pastes and dyes. Drummed solvents, lacquer         
thinners, creosotes, waxes and other speciality chemicals are distributed       
through Rolfes Chemicals while Rolfes Silica manufactures and distributes pure  
beneficiated silica.                                                            
Overview                                                                        
The Group delivered improvements in revenues as well as a significant increase  
in operating cash flows. The results reflect difficult market conditions        
impacting the second half of the year and discontinuing loss-making             
operations. In the face of the global financial crisis and economic slowdown,   
we effectively reduced costs and restructured our operations to cope with       
current market conditions. Adequate diversity in the Group`s business model     
assisted with the Group`s sustained performance during the year under review.   
The Group remains focused on reducing operating expenses in all areas and on    
continuing to improve its cash generation.                                      
Strategies implemented over the past few years with firm operational focus,     
have provided a solid platform from which the Group will continue to grow and   
prosper. The Group`s strong balance sheet provides us with the means and the    
flexibility to participate in growth and expansion opportunities as they        
present themselves.  The Group maintained market share in all its businesses.   
The strategic Triangle Solvents acquisition contributed to market share gain,   
as well as providing a successful entry into the profitable solvents, waxes     
and creosotes markets. Strategic reviews of all Rolfes` operations highlighted  
a number of unexplored synergies that will be capitalised on in the 2010        
financial year.                                                                 
Significant restructuring of Rolfes Chemicals took place during the first       
quarter of 2009 with the closure of the Durban resin plant due to the           
cancellation of a manufacturing agreement, downscaling of the Alberton          
operations and ceasing of trading in unviable low margin bulk solvents. Losses  
suffered in this division have been contained and proactive measures have been  
implemented to avoid any recurrence. Senior management has resigned and left    
the business and administration and production staff retrenchments have taken   
place in Alberton and Durban. The alkyd resins manufacturing business has been  
restructured and incorporated as a new division under the Rolfes Colour         
Pigments banner. The ceased activities have been accounted for in discontinued  
operations.                                                                     
Group Financial Performance                                                     
Group revenue increased by 19, 2% to R375, 5 million (2008: R314, 9 million).   
Gross margins reduced to 18, 0% (2008: 22, 5%) primarily due to zero margins    
achieved by discontinued operations during the period under review. This also   
resulted in a 45, 8% decline in operating profit to R24, 5 million (2008: R45,  
1 million). Headline earnings decreased by 64, 1% to R10, 7 million (2008:      
R29, 9 million). Fully diluted headline earnings per share is 10, 4 cents per   
share (2008: 29, 1 cents per share), a decrease of 64, 3% over 2008.            
However, excluding the negative effects of discontinued operations, for         
continuing operations:                                                          
-    Group revenue increased by 50, 7 % to R302, 5 million (2008:  R200, 7      
    million), primarily as a result of an increase in turnover at Rolfes        
Colour Pigments and the acquisition of Triangle Solvents.                   
-    Gross margins reduced to 22, 2% (2008: 28, 1%), primarily due to lower     
    margins being achieved by the newly acquired Triangle Solvents business     
    and at Rolfes Colour Pigments.                                              
-    Operating profit increased by 6, 6% to R37, 1 million (2008:  R34, 8       
    million).                                                                   
-    Headline earnings decreased by 5, 3% to R21, 6 million (2008:  R22, 8      
    million).                                                                   
-    Discontinued operations are dealt with later in this announcement.         
Group liquidity and solvency improved from 2008 with the total net asset value  
increasing to R121, 6 million (2008: R111, 2 million) and interest-bearing      
debt (excluding vendor loan of R26, 7 million) increasing by only R1, 4         
million (2008: R15, 9 million). The net asset value per share improved to 117,  
4 cents per share (2008: 107, 3 cents per share), whilst the net tangible       
asset value per share decreased to 81, 0 cents per share (2008: 93, 6 cents     
per share) due to an increase in intangible assets relating to the Triangle     
Solvents acquisition.                                                           
Interest cover reduced to 2, 3 times (2008: 11, 1 times). The reduction is      
partly due to additional interest being incurred as a result of funding the     
Triangle Solvents acquisition with debt, deemed interest on the remaining       
interest-free vendor loan, and interest for a full year on the Leather-Chem     
acquisition debt incurred in 2008. The total debt (interest-bearing) equity     
ratio remained at 0, 3 for 2009 (as for 2008).                                  
The Group incurred capital expenditure of R16, 3 million (2008: R20, 2          
million). R6, 1 million was spent to improve and increase current production    
facilities and assist with compliance to various regulations. R10, 2 million    
related to a property acquired with the Triangle Solvents acquisition.          
Cash Flow                                                                       
Sound working capital and cash management across the Group resulted in a        
substantial improvement in operating cash flow and a positive cash balance at   
year-end. Cash generated from operations improved to R34, 5 million (2008:      
R11, 3 million). The negligible increase in net working capital investment      
during 2009 represents mainly a decrease in inventory of R18, 3 million,        
offset by a decrease in accounts payable of R23, 6 million.                     
Accounts receivable decreased due to lower trading activities towards year-end  
and more stringent debt collection policies. Debtors days improved to 50 days   
(2008: 69 days), while stock and creditor days improved to 84 days (2008: 133   
days) and 50 days (2008: 94 days) respectively.                                 
Operational Review                                                              
Rolfes Colour Pigments                                                          
Turnover increased by 33, 9% to R212, 9 million (2008: R158, 9 million) due to  
advantage taken during the global economic slowdown where local products        
became more attractive in a price sensitive market. Further benefit was         
derived from new product innovations and increased service levels. Export and   
trading activities in African, European and Asian markets increased during the  
year under review and contributed to the increase in turnover.                  
The division`s gross profit margin decreased to 19, 7% (2008: 25, 5%). The      
pressure on gross profit margins is attributable to an increase in              
international export trading activities at lower                                
margins, customer pricing pressure, along with production volume reductions,    
directly related to the economic downturn.                                      
The dispersions operation was successfully moved to and consolidated with the   
existing Cape Town factory to optimise available resources and expertise.       
Operational efficiencies in the new resins division have been achieved with     
margin improvements already evident. The resins customer profile has changed    
from large to adding smaller customers due to increased sales effort in         
gaining customers in closer proximity to the operations, therefore reducing     
its dependency on the larger customers.                                         
The Union Colours project experienced some delays due to reduced demand and     
the global economic climate. Orders have now been received subsequent to        
approval from multi-national companies in the European high quality inks        
market.                                                                         
Operational costs increased by 21, 5% in line with increased trading            
activities and business development initiatives. Capital expenditure incurred   
amounted to R0, 8 million (2008: R4, 4 million), in respect of maintaining      
production capacity and to assist with continuous productivity improvement      
projects.                                                                       
The global economic downturn period was utilised to develop and extend product  
ranges, complementing the existing product offering and by acquiring new        
agencies, adding additional products to the already attractive basket of        
products.                                                                       
Rolfes Chemicals                                                                
Rolfes Chemicals now solely comprises the business of Triangle Solvents. The    
acquisition was finalised effective 1 December 2008 with results consolidated   
into the Group for seven months. Rolfes Chemicals now focuses on the            
distribution of drummed solvents, lacquer thinners, waxes, creosotes and        
speciality chemicals.                                                           
Turnover for the division since acquisition on 1 December 2008 amounted to      
R50, 5 million. The division`s performance was negatively influenced by         
significant solvent price decreases of approximately 35% during the last six    
months of the financial year. The price decline`s effect on sales was,          
however, largely counteracted by an increase in volumes through adding new      
products to the range and attracting new customers. The gross profit margin of  
18% was maintained, as budgeted. New imported products were added to the        
product range and optimal production and distribution efficiencies and          
excellent cost control ensured performance, as expected.                        
Already a dominant player in the Gauteng market, the business has established   
a distribution facility in the Western Cape and is planning to increase its     
presence in the KwaZulu-Natal market.                                           
The Group regards the acquisition as very successful and in line with its       
original expectations and is looking forward to exploiting all opportunities    
created with the acquisition.                                                   
Rolfes Silica                                                                   
High rainfalls experienced in the first six months of the financial year along  
with the economic downturn in the latter part of the year caused a decline in   
turnover of 6,8 % to R37,0 million (2008: R39,7 million). Both aggregate and    
silica fine product demand suffered as a result. Efforts during this period     
were successfully focused on retaining customers, attracting new customers in   
current markets, gaining entry into new markets and                             
effectively reducing overhead structures and manufacturing costs.               
Gross profit margins at 37, 5 % (2008: 35, 1%) improved due to decreased        
manufacturing costs through increased production efficiencies and further       
improved transport efficiencies.                                                
New developments include distribution facilities in Gauteng and the Western     
Cape to facilitate cost effective entry into these markets. The mining license  
renewal application has been submitted and the new license is expected to be    
granted during the 2010 financial year.                                         
Capital expenditure incurred amounted to R4, 1 million (2008: R8, 5 million)    
to increase production capacity as well as maintaining required improvements    
in product quality, and to ensure compliance to safety, security and DME        
regulations. The expenditure included a scrubber system to assist with          
emission control and a new primary crusher.                                     
The renewal of the mining licence application identified an error in prior      
years relating to the provision of the rehabilitation costs. The error was      
corrected in accordance with IAS8 and the effect after tax in the current year  
was R 0.2 million, R 0.1 million in the prior year and R 1.7 million prior to   
that.                                                                           
Discontinued Operations                                                         
During the first quarter of 2009, Rolfes decided to discontinue all operations  
at its Durban resin plant, certain product lines manufactured at the Alberton   
plant and the distribution of bulk solvents. The main considerations for the    
restructuring was the cancellation of the resin manufacturing agreement in      
Durban, almost zero gross profit margins achieved and substantial stock losses  
due to suspected unlawful activities. Senior management has resigned and left   
the business, all administration and certain production staff has been          
retrenched. The remaining alkyd resins manufacturing business has been          
incorporated as a new division under the Rolfes Colour Pigment banner.          
Write-offs in the division include stock losses written off of R2, 3 million,   
foreign exchange losses of R1, 2 million and a debtor`s provision created of    
R5, 8 million. Staff retrenchment and dismantling costs of the plant and        
equipment in the Durban plant are included as part of the discontinued          
operation costs.                                                                
The Group has entered into litigation to recover large amounts due to it by     
previous customers and has laid criminal charges against a former employee      
relating to suspected unlawful activities.                                      
Market Conditions and Prospects                                                 
During the second half of the 2009 financial year, Rolfes has seen a decline    
for demand in its products, primarily due to the macro-economic factors         
weighing negatively on the South African and global economies. Since June 2009  
the Group has experienced a recovery in the order book in certain industries,   
although a full recovery is only expected towards 2010.                         
To increase sales in 2010, Rolfes will be adding more products to the basket,   
exploring new territories and trying to increase market share where it can.     
Rolfes continually monitors all production and administrative overhead cost     
structures to improve operating profits and margins.                            
In the short-term the Rolfes strategy is to continue to grow organically        
through identified projects, adding more products to both the pigments and      
chemicals divisions and to identify and conclude suitable acquisitions which    
meet the investment criteria (ie amongst others, ownership of intellectual      
capital, high barriers to entry, quality of management and strong cash flow     
and growth potential).                                                          
Dividends and share liquidity                                                   
No dividend will be declared for the year under review. Shareholders will in    
future be rewarded for their loyalty subject to profitability and cash flow.    
Share liquidity improvement will remain a focus for the coming year and will    
continue to include regular investor and stockbroker visits, and continued      
creation of communication platforms to keep the investment community informed   
on corporate activity and developments within the Group.                        
Corporate governance and sustainability                                         
The Group embraces and continues to be committed to the principles of sound     
corporate governance.                                                           
Human resources                                                                 
The Rolfes management team continues to focus efforts on ensuring employment    
security and staff retention in the business. Succession planning remains a     
focal point due to the specialised skills set required to guarantee             
sustainability. Middle and junior management`s abilities are constantly         
challenged and advanced to assist them to grow into our culture and value       
system thus ensuring sustainability for the Group.                              
The Group continues to employ historically disadvantaged individuals to train   
into skilled positions. Rolfes takes cognizance of employees as assets and      
important contributors to its performance. Rewards to management and staff      
include bonus and remuneration structures, recognising remarkable performance.  
The Rolfes team`s professionalism and team spirit have added exceptional value  
to the Group`s achievements.                                                    
Black Economic Empowerment                                                      
The Group follows the provisions of the Broad-Based Black Economic Empowerment  
Act and the principles embodied in the Codes of Good Practice on Broad-Based    
Black Economic Empowerment by supporting the upliftment of the historically     
disadvantaged in South Africa. Its BEE partner, the black-controlled Vuwa       
Investments, has a 24, 8% shareholding in the Group and assists us in making a  
meaningful contribution that creates more opportunities for black South         
Africans.                                                                       
Key areas to target in the future are BEE procurement and corporate social      
investment. Skills development and employment equity remain on target.          
Basis of preparation                                                            
The Board acknowledges its responsibility for the preparation of the abridged   
consolidated annual financial statements. The abridged consolidated annual      
financial statements for the year ended 30 June 2009 have been prepared in      
accordance with International Financial Reporting Standards (IFRS), the         
interpretations adopted by the International Accounting Standards Board         
(IASB), the Listings Requirements of the JSE Limited and the South African      
Companies Act and are presented and disclosed in compliance with International  
Accounting Standard 34 (IAS 34).                                                
Accounting policies                                                             
The audited abridged consolidated annual financial statements do not include    
all the information required by IFRS for full financial statements.             
The accounting policies adopted in the preparation of the audited abridged      
consolidated annual financial statements are consistent with those applied in   
the preparation of the annual financial statements for the year ended 30 June   
2008.                                                                           
Goodwill                                                                        
An annual impairment test on the balance of goodwill in the beginning of the    
reporting year has been performed at 30 June 2009. No impairment loss has       
occurred.                                                                       
Goodwill arising from business combinations during the year amounted to R23, 5  
million. These goodwill balances will have to be tested for impairment          
annually.                                                                       
Business combinations                                                           
New Heights 390 (Pty) Limited                                                   
New Heights 390 (Pty) Limited trading as Triangle Solvents was acquired with    
effect from 1 December 2008.                                                    
The business contributed revenue of R50, 5 million and an operating profit of   
R 5, 3 million for the period ended 30 June 2009, and its assets and            
liabilities at 30 June 2009 were R 78, 1 million and R 74, 2 million,           
respectively. This acquisition will be settled in cash and the purchase         
consideration is subject to the business meeting certain profit warranties.     
The financial impact of this business combination was determined                
provisionally. In accordance with IFRS 3 the valuation has to be finalised      
within twelve months of the acquisition date.                                   
Related party transactions                                                      
The Group companies entered into various related party transactions. These      
transactions are no less favourable than those entered into with third parties  
and occur on an arm`s length and commercial basis.                              
Audit opinion                                                                   
These abridged consolidated annual financial statements have been audited by    
the Group`s auditors, BDO Spencer Steward (Jhb) Inc, Registered Auditors, and   
their unmodified report is available for inspection at the Company`s            
registered office.                                                              
Subsequent events                                                               
No matters which are material to the financial affairs of the Group have        
occurred between the balance sheet date and the date of this report.            
Notice of annual general meeting and mailing of annual report                   
Shareholders are advised that the annual report for the financial year ended    
30 June 2009 will be mailed in due course. This report will contain the notice  
and related details of the annual general meeting of shareholders to be held    
at 12h00 on Friday, 30 October 2009 at the Company`s registered office.         
On behalf of the Board                                                          
BT Ngcuka      E van der Merwe                                                  
Chairman       Chief Executive Officer                                          
21 September 2009                                                               
Midrand                                                                         
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), KT Nondumo*#, TAM           
Tshivhase*#                                                                     
*Non-executive  #Independent                                                    
Company secretary:  L Lynch                                                     
Designated adviser:  PSG Capital (Pty) Limited                                  
Registered auditors:  BDO Spencer Steward (Jhb) Incorporated                    
Date: 21/09/2009 07:05:02 Supplied by www.sharenet.co.za                     
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