Wrap Text
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
ASSETS
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
2008
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
intergroup
items
and other - (100) (2 233) (188 077) (22 700)
Total 314 898 70 848 29 652 230 605 117 592
2007
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
intergroup
items
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.
COMMENTARY
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
2009.
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
export
performance.
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
margins.
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
Group.
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
positions.
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
status.
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
million.
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
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) *Non-executive
Designated adviser: PSG Capital (Pty) Limited
Registered auditors: BDO Spencer Steward (Jhb) Incorporated
www.rolfesza.com
Date: 10/09/2008 07:05:01 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
