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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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