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CSP - Chemical Specialities Limited - Interim results for the six months ended
30 September 2011
CHEMICAL SPECIALITIES LIMITED
Country of incorporation and domicile: South Africa
Registration number: 2005/039947/06
Share code: CSP
ISIN: ZAE000109427
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011
PERFORMANCE HIGHLIGHTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011
23% REVENUE
7,5% EMPLOYEE TURNOVER
(18%)OPERATING EXPENSES
0% LEAD CONTENT IN DECORATIVE COATINGS
74% HEADLINE LOSS PER SHARE IMPROVEMENT
8% GLOBAL GROWTH
COMMENTARY
Introduction
ChemSpec is now moving forward as a new company with a new promise. We have in
place a world class facility, great products, good people and a strong
strategy to take us to the next level. The mood in the business has changed
for the positive and we are also being well received by suppliers and
customers alike.
Since the last reported results, ChemSpec has laid a platform for future
growth. We have continued to rebuild the group and we have made improvements
in the business processes.
ChemSpec now has in place a new directorate to guide the company forward with
improved corporate governance. We have taken on a new strategic partner, the
IDC, who will add huge value going forward. We are in the process of
rightsizing the business and implementing new sales strategies, and completing
a recapitalisation of the group to complete the foundations of a new company.
ChemSpec`s turnaround so far has seen success as sales have improved through
the recapture of market share and reputation, the opening of new doors in
sales, and the continued reduction of overheads.
ChemSpec believes that we will be completing the turnaround phase shortly and
moving into a growth phase. This has been driven by the determination,
expertise and continued hard work of our personnel throughout the group.
Financial performance
Revenue continues to grow year on year as we begin to see the rewards of our
marketing efforts. Revenue has increased by 23% compared to the same period in
the previous year and is expected to continue to grow going forward.
We are also focused on rightsizing the business to a leaner and more efficient
model to take this group forward and to this end have seen a reduction in
overheads from an average of R20,8 million per month in the previous year, to
R17,3 million for the month of September 2011, with the bulk of cost savings
to come through in the second half of the year. Coupled with this, post the
specific issue and rights offer, there will be a R2 million a month reduction
in the interest bill as a result of the recapitalisation of the group.
The loss for the period of R15 million and the loss per share of 3,62 cents is
a 68% and 74% improvement from the losses for the same period in the previous
year respectively, and is a substantial reduction on the previous year`s full
year loss of R110 million and loss per share of 29,12 cents.
Financial structure and capital expenditure
The balance sheet post the specific issue and rights offer will have
significantly reduced gearing (net of cash) of around 15%, it will have
available cash of approximately R75 million and a current ratio of around 4:1
depending on the take up of the rights offer.
The majority of our debt has been restructured to long term and our capital
expenditure programme is all but complete.
Insurance claim
ChemSpec has been in a prolonged process to settle the insurance claim from
the fire at one of our previous facilities, Jaco Place. We are pleased to
report that a settlement is imminent and has been agreed in principle. A
provision for this settlement has been made in these interim results.
Directors
ChemSpec has introduced a new directorate. We have appointed three new non-
executives since the last report and it gives me great pleasure to welcome Tim
Dykins, Tim McClure and John Jones to our board. We are confident that they
will add experience and great commercial value to our company going forward.
IDC
We welcome the Industrial Development Corporation of South Africa Limited
(IDC) to our group as a strategic shareholder and partner.
The IDC have taken up 75 000 000 shares in the business, by way of a specific
issue of shares; it and will be taking up a further 75 000 000 shares through
the rights offer and will ultimately hold an approximate 15% stake in ChemSpec
after the rights offer.
The capital introduced by the IDC will assist in providing financial stability
in the turnaround and growth of ChemSpec, as well as the synergistic benefits
of this partnership.
We thank the IDC team for their quick decision to support us.
New strategic partners
ChemSpec is focusing on new strategic partners, both locally and
internationally, that will provide opportunities to accelerate our growth.
This is being done through careful analysis of our strategic objectives and
looking for like-minded partners to do business with.
As part of our strategic objectives, we are focusing on our core competency of
manufacturing paint. We have concluded a deal with Mica Holdings Limited
(Mica) on our House of Paint stores which will remove us from retail, and will
see Mica managing and expanding the House of Paint distribution outlets in
conjunction with a reciprocal supply agreement. We have also introduced NAPA
Limited, a division of the Midas Group, as an automotive distributor and are
engaging other parties with which to partner.
Specific issue and rights offer
ChemSpec is nearing completion of the recapitalisation of the company through
the specific issue and rights offer. They will capitalise the Corvest and
Clark Investments` loans, introduce the IDC as an equity partner and give the
remaining shareholders an opportunity to participate in the recapitalisation
of the company on a pari passu basis.
After the recapitalisation, ChemSpec will have a strengthened balance sheet to
provide a stable financial platform from which to pursue strategic
opportunities.
Future
All in all ChemSpec has covered massive ground in its turnaround process.
Although not all the actions have filtered through to the financials, the
actions that have been implemented will reflect in the coming months.
ChemSpec`s new sales strategy is beginning to reap rewards. Considerable
marketing is being done and we are seeing the fruits of our efforts turning
into orders. We expect these orders to continue to grow.
It is envisaged that at current trade levels and after the completion of the
rights offer we will achieve a monthly breakeven position which will preserve
the restructured balance sheet and allow us to take advantage of the many
opportunities available for growth in the new year.
With a turned around income statement, a solid balance sheet, and the backing
of its main shareholders - being RMB Corvest, Clark investments and the IDC,
ChemSpec is well positioned for greater things to come.
Appreciation
We would like to thank all involved for their continued effort and support as
we complete the turnaround phase and move into the next phase of growth and
profitability.
IAJ Clark BR Mackinnon
Non-executive chairman Chief executive officer
31 October 2011
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
Figures in R`000 Notes 2011 2010 2011
Assets
Non-current assets
Plant and equipment 212 693 222 074 219 853
Intangible assets 21 461 19 172 19 467
Goodwill 22 600 23 979 23 610
Deferred tax 51 028 18 194 42 937
307 782 283 419 305 867
Current assets
Inventories 123 326 97 437 107 776
Other financial assets - - 8
Trade and other
receivables 88 536 89 141 61 161
Cash and cash equivalents 8 328 4 189 10 282
Assets classified as held
for sale 4 - - 1 050
220 190 190 767 180 277
Total assets 527 972 474 186 486 144
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
Figures in R`000 Notes 2011 2010 2011
Equity and liabilities
Equity
Share capital 5 2 2 2
Share premium 5 207 632 207 632 207 632
Translation reserve 327 (6 282) (6 180)
Revaluation reserve 31 858 31 858 31 858
Accumulated loss (116 003) (37 470) (100 865)
123 816 195 740 132 447
Shareholders` loans 161 173 - 83 536
Non-current liabilities
Other financial
liabilities 108 005 49 224 109 391
Deferred tax 3 236 - 2 143
111 241 49 224 111 534
Current liabilities
Other financial liabilities 30 379 43 464 25 232
Trade and other payables 67 552 90 230 94 331
Bank overdraft 33 811 95 528 39 064
131 742 229 222 158 627
Total liabilities 404 156 278 446 353 697
Total equity and liabilities 527 972 474 186 486 144
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL PERFORMANCE
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
Figures in R`000 Notes 2011 2010 2011
Revenue 186 559 151 409 318 522
Cost of sales (113 413) (106 829) (219 481)
Gross profit 73 146 44 580 99 041
Other income 2 16 929 22 564 26 300
Operating expenses (98 687) (119 920) (249 397)
Operating loss (8 612) (52 776) (124 056)
Finance income 304 400 1 650
Finance costs (13 369) (11 562) (26 896)
Loss before taxation (21 677) (63 938) (149 302)
Taxation 6 540 17 158 39 126
Loss for the period (15 137) (46 780) (110 176)
Basic and diluted loss
per share (cents) 3 (3,62) (14,04) (29,12)
Notes to the statements
of financial performance
Basic and diluted headline
loss per share (cents) 3 (3,59) (14,04) (27,99)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
Figures in R`000 2011 2010 2011
Loss for the period (15 137) (46 780) (110 176)
Other comprehensive income 6 507 (1 491) (1 388)
Exchange differences on translating
foreign operations 6 507 (1 491) (1 388)
Total comprehensive loss for the year (8 630) (48 271) (111 564)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Accumulated loss)/
Share Share retained
Figures in R`000 capital premium income
GROUP
Balance at 31 March 2010 2 115 021 9 310
Issue of shares - 97 671 -
Share issue expenses - (5 060) -
Loss for the period - - (46 780)
Translation reserve - - -
Balance at 30 September 2010 2 207 632 (37 470)
Loss for the period - - (63 396)
Translation reserve - - -
Balance at 31 March 2011 2 207 632 (100 866)
Loss for the period - - (15 137)
Translation reserve - - -
Balance at 30 September 2011 2 207 632 (116 003)
Revaluation Translation
Figures in R`000 reserve reserve Total
GROUP
Balance at 31 March 2010 31 858 (4 791) 151 400
Issue of shares - - 97 671
Share issue expenses - - (5 060)
Loss for the period - - (46 780)
Translation reserve - (1 491) (1 491)
Balance at 30 September 2010 31 858 (6 282) 195 740
Loss for the period - - (63 396)
Translation reserve - 102 102
Balance at 31 March 2011 31 858 (6 180) 132 446
Loss for the period - - (15 137)
Translation reserve - 6 507 6 507
Balance at 30 September 2011 31 858 327 123 816
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
Figures in R`000 2011 2010 2011
Cash flows from operating activities
Cash utilised in operations (57 352) (73 680) (101 776)
Finance income 304 400 1 650
Finance costs (13 369) (11 562) (26 896)
Taxation paid (1 038) (505) (931)
Net cash from operating activities (71 455) (85 347) (127 953)
Cash flows from investing activities
Acquisition of plant and equipment (6 935) (19 649) (38 137)
Proceeds on sale of plant and
equipment 1 516 - 116
Acquisition of intangible assets (2 283) (1 653) (3 255)
Acquisition of businesses/subsidiaries - - (335)
Proceeds on settlement of financial assets 8 - -
Proceeds on sale of assets classified
as held for sale 1 050 - -
Net cash from investing activities (6 644) (21 302) (41 611)
Cash flows from financing activities
Proceeds on share issue - 92 611 92 611
Proceeds/(repayment) of other
financial liabilities 81 398 (11 407) 114 065
Net cash from financing activities 81 398 81 204 206 676
Total cash movement for the period 3 299 (25 445) 37 112
Cash and cash equivalents at the
beginning of the period (28 782) (65 894) (65 894)
Cash and cash equivalents at the
end of the period (25 483) (91 339) (28 782)
Reconciled as follows:
Cash and cash equivalents 8 328 4 189 10 282
Bank overdraft (33 811) (95 528) (39 064)
Cash and cash equivalents at the end
of the period (25 483) (91 339) (28 782)
CONDENSED CONSOLIDATED SEGMENT REPORT
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
Figures in R`000 2011 2010 2011
Segment revenues
Buy-ins 14 061 17 558 14 888
Automotive 116 109 103 774 210 209
Decorative 25 159 24 924 49 616
Industrial/Woodfinish 61 417 50 194 114 299
Solvents 12 744 6 475 19 349
Other 5 644 108 1749
Total of all segments 235 134 203 033 410 110
Eliminations of intercompany
revenue (48 575) (51 624) (91 588)
Consolidated revenue 186 559 151 409 318 522
External customers
South Africa 111 538 81 836 122 434
International 75 021 69 573 196 088
186 559 151 409 318 522
Segment result
Buy-ins (1 296) (4 273) (5 793)
Automotive (10 704) (37 168) (76 324)
Decorative (2 319) (5 983) (18 021)
Industrial/Woodfinish (5 662) (15 001) (41 506)
Solvents (1 175) (1 513) (7 017)
Other (521) - (642)
Loss before taxation (21 677) (63 938) (149 303)
Taxation 6 540 17 158 39 127
Loss for the year (15 137) (46 780) (110 176)
Segment asset
Buy-ins 31 379 42 677 18 862
Automotive 262 351 241 835 248 517
Decorative 56 147 56 902 58 678
Industrial/Woodfinish 137 061 118 546 135 148
Solvents 28 441 14 226 22 849
Other 12 593 - 2 090
Total of all segments 527 972 474 186 486 144
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
These condensed consolidated interim financial statements have been prepared
in accordance with IAS 34 - Interim Financial Reporting, International
Financial Reporting Standards (IFRS), the Companies Act of South Africa and
the JSE Limited Listings Requirements.
The accounting policies and methods of measurement, recognition and
computation applied in the preparation of these condensed consolidated interim
financial statements are consistent with those applied in the group`s most
recent audited annual financial statements for the year ended 31 March 2011.
The results for the period are not necessarily indicative of the results for
the entire year, and these condensed consolidated interim financial statements
should be read in conjunction with the audited annual financial statements for
the year ended 31 March 2011.
The preparation of these condensed consolidated interim 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 income
and expenses during the reporting period. 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.
The condensed consolidated interim financial statements and any statement
regarding the future prospects of the company have not been reviewed or
reported on by the company`s auditors.
The board acknowledges its responsibility for the preparation of these
condensed consolidated interim financial statements in accordance with IFRS,
the Companies Act of South Africa and the JSE Limited Listings Requirements.
Mr JG Maehler, the group financial director, is responsible for this set of
financial results and has supervised the preparation thereof.
2. Other income
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
Figures in R`000 2011 2010 2011
Other income comprises:
Insurance claim 12 000 17 544 17 544
Franchise fees 3 868 932
Foreign exchange gain - 356 443
Rental income 3 506 3,246 6 679
Other sundry income 1 420 550 702
16 929 22 564 26 300
3. Basic and diluted loss and headline loss per share
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
Figures in R`000 2011 2010 2011
Basic and diluted loss per
share (cents) (3,62) (14,04) (29,12)
Basic and diluted headline loss
per share (cents) (3,59) (14,04) (27,99)
Total loss attributable to
equity holders (15 137) (46 780) (110 176)
Non-headline earnings
Impairments - - 3 352
Add/(less) loss/(profit) on sale
of plant and equipment 128 - 2 022
Total tax effect of adjustments (36) - (1 115)
Headline loss (15 045) (46 780) (105 917)
Weighted average number of
ordinary shares in issue 418 523 544 333 127 968 378 384 699
4. Assets classified as held for sale
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
Figures in R`000 2011 2010 2011
Aircraft - Beechcraft Duke - - 1 050
During December 2010, a decision was taken by the board to dispose of the
aircraft. The aircraft was sold in April 2011.
5. Changes in share capital and share premium
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
Figures in R`000 2011 2010 2011
Share capital 2 2 2
August 2010:
- - -
Rights issue 108 523 544 shares
2 2 2
Share premium 207 632 115 021 115 021
August 2010:
Rights issue 108 523 544 shares - 97 671 97 671
- (5 060) (5 060)
Less share issue expenses
207 632 207 632 207 632
Reconciliation of issued shares - - -
Total shares in issue at the
beginning of the year 418 523 544 310 000 000 310 000 000
Rights issue - 108 523 544 108 523 544
Total shares in issue at the end
of the year 418 523 544 418 523 544 418 523 544
6. Related party transactions
There have been no significant changes in related party relationships since
the previous year or significant transactions during the year, other than in
the normal course of business.
7. Post balance sheet events
ChemSpec embarked on a process of improving its financing structure, as
reported in the announcements to shareholders on 23 June 2011 and 15 August
2011.
At the general meeting of shareholders held on 17 October 2011, approval was
obtained for the following actions:
- to convert the authorised and issued share capital from par value to no par
value shares and increase the authorised share capital from 1 000 000 000
ordinary shares to 1 500 000 000 ordinary shares of no par value;
- to approve the specific issue of shares for cash; and
- to adopt the employee share option scheme.
Specific issue of shares for cash
The specific issue of shares for cash was as follows:
- a specific issue of 75 000 000 ordinary shares for cash to the IDC at 40
cents per share raising the amount of R30 000 000; and
- a specific issue of 42 107 280 ordinary shares for cash to Clark Investments
at 40 cents per share in order to capitalise a portion of their loan account
in the amount of R16 842 912.
Rights offer
ChemSpec seeks to raise approximately R214,3 million by way of a rights offer.
In terms of the rights offer, 535 630 824 new ChemSpec no par value ordinary
shares in the authorised but unissued share capital of the company were
offered for subscription to ChemSpec shareholders recorded in the register at
the close of trade on Friday, 28 October 2011. These shareholders will receive
rights to subscribe for the rights offer shares on the basis of one rights
offer share for every one ChemSpec ordinary share held, at 40 cents per rights
offer share.
The directors are not aware of any material matter or circumstance arising
since the financial period end that has not been disclosed in this report.
CORPORATE INFORMATION
CHEMICAL SPECIALITIES LIMITED
Country of incorporation and domicile South Africa
Registration number 2005/039947/06
Share code CSP
ISIN ZAE000109427
Nature of business and
principal activities Manufacture, distribution and
supply of paint
and ancillary products
Directors IAJ Clark Non-executive chairman
BR Mackinnon Chief executive officer
JG Maehler Financial director
RD Simpson Executive director
S Van Niekerk Executive director
DJ Coyle-Dowling Executive director
NA Page Non-executive director
TP Dykins Non-executive director
J Jones Non-executive director
T McClure Non-executive director
Registered office and business address 2029 Old Mill Road
Canelands
Verulam
4339
Postal address PO Box 2359
Canelands
Verulam
4340
Auditors KPMG Incorporated
Transfer secretaries Computer Share Investor Services
(Pty) Limited
Company Secretary Statucor (Pty) Limited
Designated Advisor Grindrod Bank Limited
Website www.chemspecpaint.com
Telephone +27 32 541 8600
Fax +27 32 541 8653
Date: 31/10/2011 08:00:01 Supplied by www.sharenet.co.za
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