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CSP - Chemspec - Condensed consolidated audited results for the 12 months
ended 31 March 2011
Chemical Specialities Limited
Incorporated in the Republic of South Africa)
Registration number (2005/039947/06)
Share code: CSP
ISIN: ZAE000109427
("Chemspec" or "the Company")
CONDENSED CONSOLIDATED AUDITED RESULTS FOR THE 12 MONTHS ENDED 31 MARCH 2011
COMMENTARY & OVERVIEW
INTRODUCTION
The group`s performance in the past year was extremely disappointing and it
was necessary for certain shareholders not only to provide financial support
but, together with a new management team, implement a rigorous turnaround
program.
This program is currently being implemented with some successes but
shareholders should be warned that the substantial nature of the turnaround
will take some time to bear fruit.
On the positive side, however, the group is better capitalised and has a first
class production facility and first class products. Added to this, Chemspec
has a strong management team and dedicated employees with good industry
knowledge.
We have no doubt that this 54 year old group will see better times ahead.
OVERVIEW
ChemSpec incurred a loss of R110 million for the year to 31 March 2011. In the
main this loss was caused by a material reduction in turnover which plagued
the group throughout the year.
The loss in turnover was largely attributable to the recovery process after
the fire that took place at the Jaco Place facility in February 2009. This
fire and the insurer`s reluctance to meet the insurance claim in respect
thereof - both in the form of either an interim or final payment was the
initial cause of cash flow restraints. The inability to obtain raw material to
produce goods for sale from the larger production platform at the new
Canelands facility in Durban, created the beginning of the negative effects on
turnover.
This effect was compounded and the losses incurred during the year resulted in
a need to call on shareholders through a rights issue to recapitalise the
group.
Management continues to negotiate with insurers to obtain settlement of the
insurance claim and certain major shareholders have provided equity support
during the latter part of the financial year.
GROUP STRATEGY
The group now has a state of the art manufacturing facility at Canelands and
has a globally accepted product range which it has developed over its many
years in business.
The group balance sheet has been restructured with our financiers providing
valuable support during these difficult times. We have restructured our
external loan finance into long term, specific asset and working capital
finance. The good support from our financiers is valuable in creating a
sustainable business for which the group is extremely appreciative.
Similarly we have had major shareholder support with the introduction of
shareholder`s loans. It is planned to capitalise these loans through a
proposed rights issue which will allow all shareholders to participate on the
same terms. Negotiations have been well progressed to introduce a strategic
partner which will also add stability and sustainability to the group.
A vigorous turnaround strategy is in progress.
The management team has been restructured and shareholders have also
reconstructed the board. Both the management and the board now consist of a
combination of industry specialists, entrepreneurs, sales and marketing,
financial and corporate governance personnel.
The assets and liabilities of the group have been carefully examined and
obsolete stock, doubtful debtors and other non-core assets have either been
written off or sold and the losses incurred have been included in the loss for
the year.
The group incurred substantial one-off costs during the financial year in
matters such as litigation, consulting fees and settlement of claims which
have all been expensed during the year and hopefully will not re-occur.
We are in negotiation with suppliers to provide us better pricing and credit
terms as we return to normal trading.
The group`s overhead structure has and continues to be vigorously examined to
reduce surplus costs wherever possible. This includes the closure of certain
stores and the simplification of operating procedures such as freight movement
and accounting processes.
We continue to look to improving our production facilities at both our
Canelands factory in South Africa and our Orville facility in the United
States of America.
We are currently in a process of re-establishing our route to market for our
products and it is fast becoming apparent that this route to market should be
through third parties including logistic suppliers, major retailers and
wholesalers, third parties such as agents and distributors as well as directly
through our branch networks and our people on the ground. At present we are
developing a new franchise model. We continue to grow and develop our
international sales in the USA, Australasia and Africa and are seeking new
international markets, all of which are valuable contributors to group sales.
Externally, we are seeing improvements in the South African economy. With the
government initiatives to promote job creation through manufacturing,
Chemspec, as a South African group, will play its role which will have
benefits for shareholders.
KEY CHALLENGES
The group lost the confidence of a substantial portion of its long standing
customer base and is having to work hard in assuring our customers that what
happened in the last two years will not reoccur and has been corrected. Simply
put, we assure our customers that going into the future; we are able and will
provide them with the products they require in time and at the right price and
quality.
Recovering our customer base is not an easy process and together with
introducing new customers and routes to market will take time.
The production facility at Canelands has huge unutilised capacity and we can
further exploit the facilities in Orville in the United States of America. The
ability to increase sales several fold is therefore a key objective.
We need to hold together our competent team of people and build their
confidence in the company and its promises going forward.
As turnover increases losses will be curtailed particularly with the efforts
made to streamline the business over the past months. This will result in an
improvement in cash flow.
In the interim, it is important to reach settlement on the insurance claim, to
complete the rights issue and to introduce a strategic partner. This will
provide financial stability and sustainability to the group.
SUSTAINABILITY
We recognise the need to ensure long-term sustainability for the group. In
simple terms this will be achieved through a return to profitability and the
availability of sufficient shareholder funds for the future.
Shareholder funds are to be boosted by the introduction of funds through a
proposed rights issue which will also see the introduction of a strategic
partner.
Expansion of our activities will be done cautiously until we have established
a platform of sustainable profitability and a strong financial base.
Shareholders should be cautioned that until we have reached this stage the
group is unlikely to pay dividends.
However, all of the above will provide a stable base from which the group can
prosper for the benefit of all stakeholders.
CORPORATE GOVERNANCE
The group continues to align itself with King III as well as other changes in
legislation, both locally and internationally, including the new Companies Act
No. 71 of 2008. There will be a strong emphasis placed on improving corporate
governance in the year ended March 2012.
DIRECTORATE
During the year under review, we have had the resignation of Graham Marwick
(Chairman), Strath Wood (CEO), Mike Oldham (Non-Executive) and Anand Moodley
(Non Executive).
Subsequent to the year-end Graham Ferns (Financial Director) has also
resigned. We thank these past directors for their contribution to the group.
Ivan Clark has stepped into the Chair, Bruce Mackinnon was promoted to CEO,
and Neil Page has moved from Chair to a non-executive role. Subsequent to the
year end, we have appointed to the board, Shane van Niekerk (sales executive),
Darryn Coyle-Dowling (non-executive), Jonathan Maehler (financial director)
and Tim Dykins (non-executive independent).
We welcome the new Board members and look forward to their contribution to the
success of the group.
DIVIDENDS
In view of the group`s current financial position, no dividend has been
declared for the year.
FUTURE
It is expected that the turnaround programme will set a foundation for the
group to return to profitability in the medium term.
The stronger financial structure of the group will aid in its sustainability.
We continue to make changes to improve our image and brand. The changes that
have been effected are designed to launch the group towards being a globally
recognised and respected group.
ANNUAL GENERAL MEETING
The annual general meeting of the company will be held at 2029 Old Mill Road,
Canelands, Verulam, Kwa-Zulu Natal, on Thursday 29 September 2011 at 11:00.
For and on behalf of the board
IAJ Clark BR MacKinnon
Chairman Chief Executive Officer
21 June 2011
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Group
Figures in Rand Note 2011 2010
Assets
Non-current assets
Plant and equipment 219,853,068 219,919,702
Intangible assets 19,467,277 19,044,056
Goodwill 23,609,925 23,135,704
Other financial assets - 671
Deferred tax 42,936,517 764,926
305,866,787 262,865,059
Current assets
Inventories 107,775,801 85,038,026
Other financial assets 7,791 -
Trade and other receivables 61,160,992 67,581,329
Cash and cash equivalents 10,282,345 3,557,696
179,226,929 156,177,051
Non-current assets held for sale 1,050,000 -
Total assets 486,143,716 419,042,110
Equity and liabilities
Equity
Share capital 4 2,093 1,550
Share premium 4 207,631,647 115,021,345
Translation reserve (6,179,618) (4,791,156)
Revaluation reserve 31,858,175 31,858,175
(Accumulated loss) / retained
income (100,865,353) 9,310,810
132,446,944 151,400,724
Shareholders loans 83,536,283 -
Non-current liabilities
Other financial liabilities 109,390,840 57,831,024
Deferred tax 2,142,713 -
111,533,553 57,831,024
Current liabilities
Shareholders loans - 32,462,521
Other financial liabilities 25,232,057 13,800,746
Trade and other payables 94,261,440 93,778,396
Receiver of revenue 69,549 317,840
Bank overdraft 39,063,890 69,450,859
158,626,936 209,810,362
Total liabilities 353,696,772 267,641,386
Total equity and liabilities 486,143,716 419,042,110
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE
Group
Figures in Rand Note 2011 2010
Revenue 318,521,637 394,286,024
Cost of sales (219,481,466) (223,509,466)
Gross profit 99,040,171 170,776,558
Other income 1 26,300,638 10,740,322
Operating expenses 2 (249,397,423) (216,132,222)
Operating loss (124,056,614) (34,615,342)
Finance income 1,649,615 2,203,462
Finance costs (26,896,051) (24,172,097)
Loss before taxation (149,303,050) (56,583,977)
Taxation 39,126,887 16,840,652
Loss for the period (110,176,163) (39,743,325)
Basic and diluted loss
per share (cents) 3 (29.12) (12.82)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the year ended 31 March 2011
Group
Figures in Rand 2011 2010
Loss for the period (110,176,163) (39,743,325)
Other comprehensive income (1,388,462) 26,124,230
Exchange differences on translating
foreign operations (1,388,462) (5,733,945)
Revaluation of plant and equipment - 44,247,465
Income tax effect - (12,389,290)
Total comprehensive loss
for the period (111,564,625) (13,619,095)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated
Share Share premium loss / retained
capital income
Figures in Rand
GROUP
Balance at 31 March 2009 1,550 115,021,345 49,054,135
Revaluation of plant & equipment - - -
Loss for the period - - (39,743,325)
Translation reserve - - -
Balance at 31 March 2010 1,550 115,021,345 9,310,810
Issue of shares 543 97,670,646 -
Share issue expenses - (5,060,344) -
Loss for the period - - (110,176,163)
Translation reserve - - -
Balance at 31 March 2011 2,093 207,631,647 (100,865,353)
Revaluation Translation
reserve reserve Total
Figures in Rand
GROUP
Balance at 31 March 2009 - 942,789 165,019,819
Revaluation of plant & equipment 31,858,175 - 31,858,175
Loss for the period - - (39,743,325)
Translation reserve - (5,733,945) (5,733,945)
Balance at 31 March 2010 31,858,175 (4,791,156) 151,400,724
Issue of shares - - 97,671,189
Share issue expenses - - (5,060,344)
Loss for the period - - (110,176,163)
Translation reserve - (1,388,462) (1,388,462)
Balance at 31 March 2011 31,858,175 (6,179,618) 132,446,944
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
Group
2011 2010
Figures in Rand
Cash flows from operating activities
Cash (used by) / generated from operations (101,775,926) 68,844,598
Finance income 1,649,615 2,203,462
Finance costs (26,896,051) (24,172,097)
Taxation paid (930,525) (395,042)
Net cash from operating activities (127,952,887) 46,480,921
Cash flows from investing activities
Purchase of plant and equipment (38,136,632) (73,712,941)
Proceeds on sale of plant and equipment 115,971 87,000
Acquisition of intangible assets (3,255,360) (7,280,375)
Acquisition of businesses/subsidiaries (335,208) -
Proceeds of other financial assets - 4,000,000
Proceeds on disposal of non-current
assets held for sale - 130,000,000
Net cash from investing activities (41,611,229) 53,093,684
Cash flows from financing activities
Proceeds on share issue 92,610,845 -
Proceeds/(repayment) of other financial
liabilities 114,064,889 (84,755,733)
Net cash from financing activities 206,675,734 (84,755,733)
Total cash movement for the period 37,111,618 14,818,872
Overdraft at the beginning of the period (65,893,163) (80,712,035)
Cash and cash equivalents at the end of
the period (28,781,545) (65,893,163)
Reconciled as follows:
Cash and cash equivalents 10,282,345 3,557,696
Bank overdraft (39,063,890) (69,450,859)
Cash and cash equivalents at the end of
the period (28,781,545) (65,893,163)
CONDENSED CONSOLIDATED SEGMENT REPORT
Group
Segment revenues 2011 2010
Buy-ins 14,887,773 25,729,726
Automotive 210,209,307 227,337,096
Decorative 49,615,970 40,428,115
Industrial/Woodfinish 114,299,038 122,836,178
Solvents 19,349,458 22,220,921
Other 1,748,901 795,076
Total of all segments 410,110,447 439,347,112
Eliminations of
intercompany (91,588,810) (45,061,088)
Consolidated revenue 318,521,637 394,286,024
Inter-segment sales are charged at amounts equal to competitive market prices
for external sales of similar goods.
Segment result
Buy-ins (5,792,958) (3,119,763)
Automotive (76,323,720) (18,086,822)
Decorative (18,020,878) (7,551,516)
Industrial/Woodfinish (41,506,248) (24,246,653)
Solvents (7,017,243) (3,543,065)
Other (642,003) (36,158)
Total of all segments (149,303,050) (56,583,977)
Income tax 39,126,887 16,840,652
Loss for the year (110,176,163) (39,743,325)
Segment assets
Buy-ins 18,862,376 24,540,593
Automotive 248,516,668 216,830,414
Decorative 58,677,547 38,559,676
Industrial/Woodfinish 135,147,953 117,159,144
Solvents 22,848,755 21,193,952
Other 2,090,417 758,331
Total of all segments 486,143,716 419,042,110
Geographical segments
The groups 5 divisions operate in 2 principal geographical areas as follows:
South Africa: The group manufactures and sells a broad range of its products
International: The group distributes predominately automotive products The
groups revenue from external customers and information about its segment
assets by geographical location are detailed below:
Revenue from External
Customers
2011 2010
South Africa 122,434,004 242,389,836
International 196,087,633 151,896,188
318,521,637 394,286,024
Segment assets
2011 2010
South Africa 404,386,770 346,358,432
International 81,756,946 72,683,678
486,143,716 419,042,110
No single external customer contributes more than 10% of the total revenue
from external customers.
NOTES TO THE CONDENSED CONSOLIDATED
AUDITED FINANCIAL STATEMENTS
1. Basis of preparation
The consolidated annual financial statements from which these condensed
consolidated financial statements(these financial statements)were derived have
been prepared in accordance with International Financial Reporting Standard
("IFRS"), the Companies Act of South Africa and the JSE Limited Listings
Requirements. These financial statements contain information required in terms
of IAS 34 - Interim Financial Reporting,
The consolidated annual financial statements incorporate accounting policies,
methods of measurement and recognition criteria which have been consistent
applied in comparison to the prior year.
The preparation of these financial statements requires the use of estimates
and assumptions that affect the values of assets and liabilities at the
reporting date, as well as the determination of revenue and expenses during
the reporting periods.
Although these estimates are based on management`s best knowledge of current
events and actions that the group may undertake in the future, actual results
may differ from these estimates.
These financial statements have been audited by KPMG Inc, Registered Auditors.
Their unqualified audit opinion is available for inspection at the group`s
registered office.
The board acknowledges its responsibility for the preparation of the financial
statements in accordance with IFRS, the Companies Act of South Africa and the
JSE Limited Listings Requirements.
1. Other income
Group
2011 2010
Figures in Rand
Foreign exchange gain 442,628 -
Franchise fees 932,307 3,002,551
Insurance claim 17,543,860 -
Profit on sale of plant and equipment - 480,043
Rental income 6,678,570 7,121,340
Other sundry income 703,273 136,388
26,300,638 10,740,322
2. Operating expenses
Group
Figures in
2011 2010
Rand
The analysis of expenses recognised in profit
or loss using the classification based on the
function within the entity comprises:
Operating expenses 249,397,423 216,132,222
Administration 138,809,263 76,059,802
Distribution 39,840,320 95,441,956
Selling 70,747,840 44,630,464
Profit for the year has been arrived at
after charging:
Operating lease charges:
Premises 40,213,291 20,654,269
Motor vehicles 4,579,415 8,128,001
Office equipment 1,048,292 1,300,294
45,840,998 30,082,564
Auditors Remuneration:
Fees - current year 1,259,675 1,486,551
Fees - prior year 2,363,436 -
Tax and secretarial services 879,835 782,308
4,502,946 2,268,859
Depreciation and amortisation:
Depreciation of plant and
equipment 8,371,555 8,263,571
Amortisation of
intangible assets 2,520,367 2,023,412
10,891,922 10,286,983
Loss on disposal of assets 2,021,763 -
Impairment losses:
1,330,319 -
Aircraft
Franchise debtor 2,021,513 -
3,351,832 -
Staff costs 102,305,999 102,748,100
Pension (Defined contribution plan) included
in Staff costs 7,401,682 5,898,357
3. Basic and diluted loss and headline
loss per share
Group
Figures in Rand 2011 2010
Basic and diluted loss per share (cents) (29.12) (12.82)
Basic and diluted headline loss per share (cents) (27.99) (12.95)
Basic loss per share
The earnings and weighted average number of
ordinary shares
used in the calculation of basic loss per
share are as follows:
Loss for the year attributable to equity
holders of the parent (110,176,163) (39,743,325)
Loss used in the calculation of
total basic loss (110,176,163) (39,743,325)
Reconciliation of total loss to headline
loss attributable to equity holders of the parent
Total loss attributable to equity holders of the
parent (110,176,163) (39,743,325)
Non-headline earnings
Impairments 3,351,832 -
Loss / (profit) on disposal of assets 2,021,763 (480,043)
Total tax effect of adjustments (1,114,794) 93,112
Headline loss (105,917,362) (40,130,256)
Weighted average number of ordinary shares for
the purposes of loss per share 378,384,699 310,000,000
Actual number of ordinary shares 418,523,544 310,000,000
Weighted Average Shares
Opening Shares 310,000,000 310,000,000
Rights issue on 13 August 2010 of 108 523 544
shares 68,384,699 -
378,384,699 310,000,000
4. Share capital
Authorised
1 000 000 000 Ordinary shares of R0,000005 5,000 5,000
5,000 5,000
Issued
Share capital: 418 523 544 (2010:
310 000 000) Ordinary Shares
of R0,000005 each 2,093 1,550
Share premium 219,120,096 121,449,450
Less share issue expenses (11,488,449) (6,428,105)
207,631,647 115,021,345
Reconciliation between opening balance of issued
shares and closing balance:
Opening balance of shares issued 310,000,000 310,000,000
Rights issue: 108 523 544 shares at R0.90 each 108,523,544 -
Total issued shares in issue 418,523,544 310,000,000
Results of the rights offer
The rights offer closed at 12:00 on Friday, 13 August 2010, and the results
thereof are set out below:
Number of Value at 90
rights offer cents per
shares share
Total number of rights offer shares available for
subscription 111,111,111 100,000,000
Rights offer shares subscribed for by ChemSpec
shareholders 63,892,879 57,503,591
Rights offer shares issued to the underwriter in
terms of the Underwriting Agreement 27,777,777 24,999,999
Excess rights offer shares applied for by and
allocated to ChemSpec shareholders 16,852,888 15,167,599
108,523,544 97,671,189
5. Related parties
2011 2010
Subsidiaries ChemSpec Coatings (Pty) Ltd ChemSpec Coatings (Pty) Ltd
Chemical Specialities Chemical Specialities Namibia
Namibia (Pty) Ltd (Pty) Ltd
ChemSpec Botswana (Pty) Ltd ChemSpec Botswana (Pty) Ltd
ChemSpec USA, Inc. ChemSpec USA, Inc.
ChemSpec House of Paint
(Pty) Ltd
ChemSpec Paint and Abrasive
(Pty) Ltd
Investments - P & A Warehouse (E.A.) Ltd
Related party
to the previos Peterson Holdings Ltd Peterson Holdings Ltd
minority
shareholder of
ChemSpec USA, Inc. M Peterson M Peterson
R Peterson R Peterson
T Anderson T Anderson
G Krueger G Krueger
C Williams C Williams
Loans from related
parties Outfinance (Pty) Ltd Outfinance (Pty) Ltd
Dream Weaver Trading 382
(Pty)
Clark Investments Ltd
Rental - Canelands
property Zevoli 243 (Pty) Ltd Zevoli 243 (Pty) Ltd
Mr SM Wood and Mr N Page are directors of Zevoli 243 (Pty) Limited. Mr SM Wood
and Mr BR Mackinnon indirectly own 67% and 16% respectively of Dream Weaver
Trading 382 (Pty) Limited which owns 25% of the issued share capital of Zevoli
243 (Pty) Ltd. The company leases the Canelands property from Zevoli 243 (Pty)
Limited.
Group
Figures in Rand 2011 2010
Related party balances
Zevoli 243 (Pty) Limited (2,702,860) (896,518)
Related party transactions
Zevoli 243 (Pty) Limited - Rental paid 16,321,500 1,880,357
Compensation to directors and other key management
Salary and benefits 23,149,090 27,097,338
Short term 23,149,090 27,097,338
Post employment - -
Other than the related parties disclosed above, the group has no other related
party transactions.
6. Post balance sheet events
The directors are not aware of any matter or circumstance arising since the
end of the financial year that is not disclosed in the consolidated annual
financial statements.
CORPORATE INFORMATION
CHEMICAL SPECIALITIES LIMITED
Country of incorporation and domicile: South Africa
Registration Number: 2005/039947/06
Share Code CSP
ISIN ZAE000109427
Website www.chemspecpaint.com
Telephone +27 32 541 8600
Fax +27 32 541 8653
Directors IAJ Clark (Non Executive Chairman)
BR Mackinnon (Chief Executive Officer)
JG Maehler (Financial Director)
S Van Niekerk (Executive Director)
RD Simpson (Executive Director)
NA Page (Non Executive Director)
DJ Doyle-Cowling (Non Executive Director)
TP Dykins (Ind Non Executive Director)
Company secretary Brian Desomond Drury (BA, LLB)
2029 Old Mill Road
Canelands
Verulam
Registered Office 2029 Old Mill Road
Canelands
Verulam
4339
Postal Address P.O. Box 2359
Canelands
Verulam
4340
Auditors KPMG Inc.
Transfer Secretary Computer Share Investor Services(Pty) Ltd
Designated Advisor Grindrod Bank Limited
Date: 23/06/2011 17:14:01 Supplied by www.sharenet.co.za
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