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RLF - Rolfes - Unaudited Interim Results For The Six Months Ended 31 December
2008
ROLFES TECHNOLOGY HOLDINGS LIMITED
(Registration number 2000/002715/06)
Share Code: RLF
ISIN:ZAE000096202
("Rolfes" or "the Group")
www.rolfesza.com
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2008
FINANCIAL SUMMARY
- Turnover increased by 45,7% to R211,3 million
- Operating profit increased by 6,6% to R22,7 million
- Headline earnings decreased by 7,7% to R13,2 million
- The net current assets increased by R35,7 million
- Net asset value increased by 28,4% to 121,6 cents per share
CONSOLIDATED GROUP INCOME STATEMENTS
for the period ended 31 December 2008
UNAUDITED UNAUDITED AUDITED
SIX MONTHS SIX MONTHS YEAR
31 DEC 31 DEC 30 JUNE
2008 2007 2008
R`000 R`000 R`000
Revenue 211 305 145 010 314 898
Cost of sales (172 843) (113 761) (244 050)
Gross profit 38 462 31 249 70 848
Other operating income 2 932 5 076 8 106
Operating expenses (18 675) (15 017) (33 847)
Operating profit before
interest 22 719 21 308 45 107
Operating profit percentage 10,8% 14,7% 14,3%
Interest paid and finance
charges (4 352) (1 533) (3 879)
Income from investments 112 8 164
Net profit before taxation 18 479 19 783 41 392
Tax expenses (5 237) (5 434) (11 740)
Profit for the year 13 242 14 349 29 652
Attributable to:
Equity holders of parent 13 242 14 349 29 652
Reconciliation of headline
earnings
Attributable profit 13 242 14 349 29 652
Adjustment for the after-tax
effect of:
Loss from sale of fixed asset 10 - 442
Headline earnings 13 252 14 349 30 094
Weighted average number of shares
in issue (`000) 103 348 102 609 103 103
Earnings per share (cents)
- Basic 12,8 14,0 28,8
- Headline 12,8 14,0 29,2
- Diluted 12,8 14,0 28,8
- Diluted headline 12,8 14,0 29,2
CONSOLIDATED GROUP BALANCE SHEETS
as at 31 December 2008
UNAUDITED UNAUDITED AUDITED
31 DEC 31 DEC 30 JUNE
2008 2007 2008
R`000 R`000 R`000
ASSETS
Non-current assets 110 574 67 446 71 134
Plant and equipment 40 482 36 674 40 110
Property 27 946 16 680 16 805
Intangible assets 42 146 14 092 14 219
Current assets 163 067 111 321 159 471
Inventories 89 392 52 245 89 267
Trade and other receivables 73 325 58 676 69 879
Short-term loans 350 400 325
Total assets 273 641 178 767 230 605
EQUITY AND LIABILITIES
Capital and reserves 126 009 98 078 113 013
Share capital 1 036 1 036 1 036
Share premium 28 603 28 603 28 603
Treasury shares (614) - (368)
Retained income 96 984 68 439 83 742
Non-current liabilities 71 215 20 330 26 102
Interest-bearing
liabilities 21 334 15 305 20 172
Acquisition vendor 43 925 - -
Deferred tax liability 5 711 4 245 5 617
Provisions 245 780 313
Current liabilities 76 417 60 359 91 490
Trade and other payables 51 381 38 060 71 485
Cash and cash equivalents 17 673 15 179 4 380
Current portion of
interest-bearing liabilities 4 541 4 908 9 082
Financial liability 193 30 110
Value Added Tax liability 285 742 -
Tax liability 2 344 1 440 5 846
Provisions - - 587
Total equity and
liabilities 273 641 178 767 230 605
Number of shares in
issue (`000) 103 609 103 609 103 609
Net Asset Value per
share 121.6 94.7 109.1
CONSOLIDATED GROUP STATEMENTS OF CHANGES IN EQUITY
for the period ended 31 December
Ordinary Share Retained Treasury Total
shares premium income shares equity
R`000 R`000 R`000 R`000 R`000
Balance at
30 June 2007 1 025 24 864 54 090 - 79 979
Net profit for the
period - - 14 349 - 14 349
Issue of new shares 11 3 739 - - 3 750
Balance at
31 December 2007 1 036 28 603 68 439 - 98 078
Net profit for the
period - - 15 303 - 15 303
Increase in treasury
shares - - - (368) (368)
Balance at
30 June 2008 1 036 28 603 83 742 (368)113 013
Net profit for the
period - - 13 242 - 13 242
Increase in treasury
shares - - - (246) (246)
Balance at
31 December 2008 1 036 28 603 96 984 (614)126 009
ABRIDGED CONSOLIDATED GROUP CASH FLOW STATEMENTS
for the period ended 31 December 2008
UNAUDITED UNAUDITED AUDITED
SIX MONTHS SIX MONTHS YEAR
31 DEC 31 DEC 30 JUNE
2008 2007 2008
R`000 R`000 R`000
Cash and cash equivalents
at the beginning of the
period (4 380) (8 116) (659)
Cash flow (utilised in)/
generated from operating
activities 25 580 21 516 45 857
Cash utilised in working
Capital (28 276) (19 494) (38 484)
Taxation paid (8 646) (4 074) (4 791)
Cash flow utilised in
investing activities (41 571) (19 336) (17 726)
Treasury shares acquired (246) - (368)
Cash flow generated from
financing activities 39 866 14 325 11 791
Cash and cash equivalents
- end of the period (17 673) (15 179) (4 380)
SEGMENTAL ANALYSIS for the six months ended 31 December
Operating
Revenue Profit Net Profit Assets Liabilities
R`000 R`000 R`000 R`000 R`000
2008
Chemicals 72 315 (2 877) (4 554) 127 497 115 497
Silica 20 892 6 779 3 882 45 846 28 364
Pigments 116 978 14 267 9 035 102 993 42 682
Other 1 258 4 550 4 882 166 966 10 554
Elimination
of intergroup
items (138) - - (169 661) (49 465)
Total 211 305 22 719 13 242 273 641 147 632
Operating
Revenue Profit Net Profit Assets Liabilities
R`000 R`000 R`000 R`000 R`000
2007
Chemicals 49 501 4 907 2 432 41 567 36 163
Silica 20 566 4 866 2 125 36 010 25 773
Pigments 73 990 8 877 6 671 90 717 45 830
Other 1 549 2 709 3 169 145 312 (9 610)
Elimination
of intergroup
items (596) (51) - (134 839 (17 467)
Total 145 010 21 308 14 349 178 767 80 689
for the twelve months ended 30 June
Operating
Revenue Profit Net Profit Assets Liabilities
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
The basis of preparation of the segmental analysis has been changed as certain
intercompany transactions have been eliminated in the current period and June
2008 reporting. The financial period to December 2007 was adjusted accordingly.
COMMENTARY
Brief overview
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,
chemicals and construction industries. The Pigments division is responsible for
the manufacture and distribution of resins, lacquer thinners, organic and
inorganic pigments, pigments pastes and dyes. Drummed solvents, creosotes, waxes
and other speciality chemicals are distributed through its Chemicals division,
while the Silica division manufactures and distributes pure beneficiated silica.
Rolfes continued on its sustainable turnover growth path as demonstrated by its
results for the six months ended December 2008. Effective pricing strategies,
some increases in trade volumes and product line enhancements were the main
contributors with slight market share gains achieved in a difficult economic
environment. Exceptional losses suffered in the Chemicals division, as discussed
below, have been contained and proactive measures have been implemented to avoid
reoccurrences. Excluding the Chemicals division`s disappointing results, the
other three divisions all showed significant profit growth.
Financial performance
The Group revenue for the six months increased by 45,7% to R211,3 million
(December 2007: R145,0 million). Operating profit improved by 6,6 % to R22,7
million (December 2007: R21,3 million). Headline earnings decreased by 7,7 % to
R13,2 million (December 2007: R14,3 million). Fully diluted headline earnings
per share was 12,8 cents per share (December 2007: 14,0 cents per share),
decreasing by 8,6% over the comparative period.
Group solvency improved from December 2007 with total assets increasing by R94,9
million while Group debt rose by R52,1 million, due to the inclusion of Triangle
Solvents for R43,9 million. No interest is payable to the vendor as per the sale
agreement. The net asset value per share strengthened to 121,6 cents per share
(December 2007: 94,7 cents per share) while the net tangible asset value per
share slightly decreased to 80,9 cents (December 2007: 81,1 cents).
Interest cover reduced to 5,2 times (December 2007: 13,9 times) while the total
debt: equity ratio (interest-bearing debt, excluding the acquisition vendor)
decreased from 0,36 for the comparative period to 0,35 in December 2008.
The Group incurred capital expenditure of R2,7 million (December 2007: R6,8
million) mainly to maintain, improve and increase current production
capabilities. The new acquisition`s fixed assets acquired amounted to R11,0
million.
Group cash flow
(Excluding the impact of the Triangle Solvents acquisition in December 2008)
The increase in the net working capital investment for the period to 31 December
2008 of R16,1 million, comprises a reduction in stock of R3,7 million (December
2007: R9,9 million increase), trade and other receivables reduced by R8,3
million (December 2007: R4,4 million increase), while trade and other payables
decreased by R28,1 million (December 2007: R0,1 million increase). The stock
days as at December 2008 increased by 6,5 days from December 2007 to 90 days,
while debt collection days improved from December 2007 to December 2008 by 18,1
days to 47 days, creditor payment days for the same period reduced by 13,5 days
to 40 days. The working capital balances achieved to date was an improvement on
budgeted balances as at 31 December 2008, except on stock which was R12,7
million over budget, primarily as a result of the problems experienced in the
Chemicals division.
The net result is that cash generated by operations totalled R8,2 million (34%
of EBITDA) (2007: R8,8 million).
Operational review
Rolfes Colour Pigments
Turnover increased by 58,1% to R117,0 million (December 2007: R74,0 million).
The weakened rand and all time high raw material prices necessitated timeous
sales price increases that successfully reduced and counteracted the impact of
these adverse market conditions. Trading volumes increased in comparison to the
six months to December 2007 with trading activities in African, European and
Asian markets contributing to the division`s performance, comprising 16,8%
(December 2007: 17,7%) of turnover.
Continued trust in the Rolfes brand assisted with customer loyalty and support
through difficult economic conditions. Proactive investment during 2008 in
crucial raw material stock assisted with buffering against the adverse economic
and market conditions experienced during this period. Operating profit increased
by 60,7% largely due to the increase in turnover.
Capital expenditure incurred to maintain production capacity amounted to R0,3
million (December 2007: R0,5 million).
Growth expectations for 2009 include the Union Colours project embarked on
during the year to come to fruition during 2009, and an increase in the
dispersion unit`s business. The division also continues to pursue various
international trading opportunities, including facilitating trade between local
suppliers and international customers. The business is focussing aggressively on
margin management, proactive procurement strategies and implementation of
various cost reduction initiatives.
Rolfes Chemicals
Turnover increased by 46,1% to R72,3 million (December 2007: R49,5 million) for
the six months to December 2008. Despite the increase in turnover, the business
suffered an operating loss of R2,9 million (December 2007: R4,9 million profit).
The write-offs include the following:
- Stock losses written off of R1,5 million.
- Foreign exchange losses incurred of R1,1 million.
- Gross profit budgets were not achieved by R4,1 million due to low sales
volumes and margins.
- A pending DTI claim was declined and the write-off amounted to R0,9 million.
Senior Rolfes Chemicals management has since resigned and left the business,
some retrenchments have taken place and the resins and lacquer thinners business
has been restructured (refer to corporate actions below) and incorporated as a
division under the successful Rolfes Colour Pigments management.
Capital expenditure amounted to R0,1 million (December 2007: R1,5 million).
The new acquisition, Triangle Solvents, has been incorporated into Rolfes
Chemicals with effect from 12 December 2008, presenting and offering some
excellent future prospects for the division.
Rolfes Silica
Contributing factors to the marginal turnover growth of 1,6% to R20,9 million
(December 2007: R20,6 million) were the challenging economic environment and
high rainfalls experienced during the six months under review, which negatively
influenced production and sales volumes.
Gross profit margins increased to 41,6% (December 2007: 37,6%) due to a change
in sales mix, improved production processes and efficient transport cost
management.
Operating profit increased by 39% to R6,8 million largely due to positive growth
in gross profit and a 30% reduction in overheads.
Capital expenditure incurred to increase production capacity and maintain safety
standards, amounted to R2,3 million (December 2007: R4,6 million).
Management expects the existing demand for both aggregate and silica fines to
remain as is until year-end. Aggregate material demand may however increase due
to some large construction projects being planned in the area. A continuous
drive to reduce unit costs, with possible volume increases in both silica fines
and aggregates, will assist in meeting budgets to June 2009.
Market conditions and prospects
Since December 2008, Rolfes has seen a decline in demand for certain of its
products, especially demand from the construction industries and Europe.
Management is also experiencing more aggressive tactics from its competitors on
most fronts, and is fully aware of the macro-economic factors weighing
negatively on the South African and global economies. To maintain sales to June
2009, Rolfes will be adding more products to the basket, exploring new local
territories and trying to at least maintain, if not increase, market share where
it can. Lowering raw material prices will continue to put a squeeze on gross
profits. However, the Group will endeavour to maintain gross profit margins
through additional internal buying and manufacturing efficiencies. Rolfes
continually monitors all production and administrative overhead cost structures
to improve operating profits and margins, and has already implemented a number
of costs reduction and saving plans, including:
- the merging of the dispersion plants in Cape Town and Jet Park, with all
dispersions and leather finishing products now being manufactured in Cape Town;
- closure of the resin plant in Durban and related retrenchments;
- retrenchment of the administration staff in Alberton with the functions being
centralised in Jet Park; and
- reduction in certain overhead and production expenditure throughout the
Group.
Business combinations and other corporate actions
As per our SENS announcement dated 14 January 2009, the Group acquired a 100%
shareholding in New Heights 390 (Pty) Limited trading as Triangle Solvents with
effect from 12 December 2008 for R43,8 million (provisional present value)
resulting in provisional goodwill of R27,9 million.
The acquired business contributed revenue of R5,1 million and net profit of R0,4
million for the period to 31 December 2008, and its assets and liabilities at 31
December 2008 were R31,6 million and R15,3 million, respectively.
If the acquisition had occurred on 1 July 2008, the acquired business would have
contributed revenue of R49,1 million, and net profit of R4,3 million. The
acquisition consideration will be settled in cash, of which R14 million has
already been paid.
As part of an internal Group restructuring, with effect from 1 February 2009,
the resins and lacquer solvents business of Rolfes Chemicals (Pty) Limited was
disposed of to Rolfes Colour Pigments International (Pty) Limited as a going
concern at book value, and the entire Triangle Solvents business of New Heights
(Pty) Limited (excluding the Germiston property) was disposed of to Rolfes
Chemicals (Pty) Limited as a going concern at book value. Rolfes Chemicals now
only comprises the Triangle Solvents business.
As part of the restructuring of the chemicals business, Rolfes and Paintchem
(Pty) Limited have entered into a Consensual Cancellation of Comprehensive Lease
and Manufacturing Agreement with effect from 1 February 2009, effectively
cancelling the original long-term lease and manufacturing agreement dated 26
September 2007 in respect of the resin plant in Durban.
Corporate governance and sustainability
The Group is committed to the principles and practices of sound corporate
governance, including sustainable development and social responsibility.
Human resources
Rolfes recognises employees as important contributors to its sustained growth.
Historically disadvantaged individuals are employed to train into skilled
positions. Structured remuneration and performance bonus schemes reward
management and staff for exceptional achievements.
Accounting policies - Basis of preparation
The Board acknowledges its responsibility for the preparation of the condensed
unaudited consolidated interim financial statements in accordance with
International Accounting Standard 34 (IAS 34 - Interim Financial Reporting) and
the JSE Limited Listings Requirements. These condensed consolidated interim
financial statements are unaudited and 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
unaudited condensed consolidated interim 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.
Board of Directors
Two new independent non-executive directors have been appointed to the Board of
Directors on 25 February 2009. They are Karabo Nondumo, CEO of AWCA Investment
Holdings, and Takalani Tshivhase, executive director of Pinnacle Technology
Holdings. These two directors will constitute the Audit and Risk Committee.
Subsequent events
Other than as reported above, no events material to the understanding of the
report have occurred in the period between the period-end date and the date of
the report.
For and on behalf of the Board
BT Ngcuka E van der Merwe
Chairman Chief Executive Officer
2 March 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**, T Tshivhase**
*Non-executive
** Independent non-executive
Designated adviser: PSG Capital (Pty) Limited
Registered auditors: BDO Spencer Steward (Jhb) Incorporated
www.rolfesza.com
Date: 02/03/2009 07:05:02 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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