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Interim results for the six months ended 30 September 2013
Chemical Specialities Limited
Incorporated in the Republic of South Africa
Registration number 2005/039947/06
Share code: CSP
ISIN: ZAE000109427
("Chemspec" or "the Company")
Interim results for the six months ended 30 September 2013
Performance highlights
Revenue up 26% R298 million (2012: R237 million)
Local revenue growth up 33% (2012: up 36%)
International revenue growth up 14% (2012: up 21%)
Operating loss improvement 37%
Headline loss per share 2.73 cents (2012: 0,09 cents profit)
Basic loss per share 2,71 cents (2012: 0,09 cents profit)
Commentary
Introduction
ChemSpec’s condensed consolidated interim results for the six months
ended 30 September 2013 (“the period”) reflect the continued efforts of
the group to reach sustainable profits.
Unfortunately the group incurred a loss for the period of R29m after
discontinued operations of R21m and this resulted in a basic loss per
share of 0,79 cents from continuing operations and a total basic loss per
share of 2,71 cents. While this result is disappointing, management has
taken action to improve the performance of the group which is set out in
detail in the report below.
ChemSpec continues to achieve revenue growth in excess of 25% which has
been consistently achieved since the 2012 financial year. The group will
continue to focus primarily on revenue growth in order to restore the
business to its rightful place in the market. In conjunction with its
focus on growing the revenue line, the group has embarked on an austerity
plan to discontinue certain retail and manufacturing facilities which will
substantially reduce overheads. These austerity plans will be completed in
this financial year.
Financial performance
Revenue growth continues as the efforts of our sales team bears fruit.
Revenue has increased by 26% (2012: 27%) when compared to the same period
in the previous year and is expected to continue to grow going forward as
we gain traction in the markets in which we operate. Margin is in line
with previous periods and with our sales push and market competitiveness
is carefully managed to ensure that the group grows profitably.
Revenue in our international businesses grew by 14% (2012: 21%) when
compared to the same period in the previous year. This indicates the
continued resilience of our products in these markets considering current
economic conditions. Our local revenue grew by an impressive 33%
(2012:29%) as a result of our acquisition of the TPS business (see note 6)
but also as we continue to gain traction in the market.
All segments of the business grew with our decorative business out-
performing the rest with growth of 132%, and performance coatings at 12%
when compared to the same period in the previous year. The decorative
coatings segment is largely local and reflects the recovery that ChemSpec
has made in the South African market. The performance coatings segment
reflects a mix of international and local operations which is showing
resilience in some tough markets.
We have embarked on a comprehensive austerity programme to carve overhead
cost out of the business with minimal impact on our revenue growth rates.
As a result during the current period the board resolved to discontinue
certain additional retail, depot and manufacturing facilities over and
above the previous discontinued operations. These measures will be
completed in this financial year and are shown separately as discontinued
operations in our results.
In order to illustrate the financial effects of all of these actions as
well as the financial effects of the rights issue (see CCP note below) the
board has prepared a set of pro forma financial statements (see notes 10
and 11) which indicates that the business would have improved its
continuing operations by 56% on a like for like basis when compared to the
previous comparative period.
% change Pro forma Pro forma
results for results for
the six the six
months months ended
ended 30 30 September
September 2012
2013
Continuing operations
Revenue 26% 297 552 236 730
Cost of sales (187 870) (149 308)
Gross profit 25% 109 682 87 422
Operating expenses 19% (115 655) (96 929)
Operating loss 37% (5 973) (9 507)
Other income 4 711 3 938
Finance income 120 65
Finance costs (2 675) (3 074)
Loss before taxation 56% (3 817) (8 578)
Taxation 1 046 2 321
Loss from continuing operations 56% (2 771) (6 257)
In analysing these pro forma results the following is evident: Rm
Average monthly revenue for the six months ended 30 September 2013 49.6
Average monthly breakeven for the six months ended 30 September 2013 51.3
Growth in revenue required to breakeven 3%
Although this is a historic view for illustrative purposes it indicates
that the business is now close to break-even at an operating level and
with the continued focus on revenue growth combined with the finalisation
of the austerity plan will result in further improvement in the group’s
financial performance in the future.
Finance costs have increased by 253% as a result of increased borrowings.
However, success with our capital raising efforts in the latter half of
this financial year should result in a reduction in our finance charges in
the future. This is reflected in the pro forma results above.
Financial position
Non-current assets
Capital expenditure increased mainly as a result of the purchase of the
TPS business which supplies Jack’s Paint and the upgrade of the IT
platform. Other capital expenditure has been limited to necessary
replacement capital expenditure in the six months to 30 September 2013.
The group will continue to limit capital expenditure to a minimum in the
remaining six months of the year and, besides the completion of the
upgrade of the IT platform, has no committed expansionary capital
expenditure.
The group continues to invest in the development of new and improved
products and intangible assets increased by a net R4m during the period in
this regard.
Non-current liabilities
The group increased net borrowings by R29m during the six months by
utilising current available facilities and borrowed an additional R38m
from shareholders which will be repaid and converted to equity with the
rights offer.
The balance sheet post the rights offer will have significantly reduced
gearing (net of cash) of around 25% depending on the take up of the rights
offer.
Working capital
Inventories and trade receivables have increased by 25% and 13%
respectively when compared to the same period in the previous year. This
is as a result of the acquisition of the TPS business and improved sales
with no material increase in provisions required. Net working capital as a
percentage of revenue has improved to 34% from 37% in the previous
comparative period and from 35% at 31 March 2013. The management of
working capital remains a key focus area as sales growth continues.
Improvements in information systems and supply chain management should
further improve our working capital position in the next six months.
Cash flow
Cash flow was negatively affected by losses and growth in working capital.
Capital investment activities and operating activities were financed from
financing activities and available facilities.
Depending on the take up of the rights offer, the group will have
available cash of approximately R55 million and a current ratio of around
3.5:1.
Cumulative Compulsory Preference Share (“CCP”)
ChemSpec has reached the point in its growth path where it needs to be
financially independent while it generates sustainable profits.
The milestones achieved so far can be summarised as follows:
• A strong board
o Excellent non-executive directors; and
o Revised executive team comprising industry leaders
• Very good corporate governance;
• Industry specific workforce with good knowledge and experience;
• Great products with new routes to market;
• Good production and infrastructure with a focus on improved service
delivery;
• Good international and local partners; and
• Good sales growth in excess of 20% per annum for the last two years.
There is a clear strategic focus on ChemSpec’s sales growth. Clearly
defined and specific sales channels and products as well as margin and
cost management with a rationalisation plan and supply chain improvements
should result in double digit sales growth and improved financial
performance into the future.
The levels of growth opportunities that ChemSpec will achieve both locally
and internationally will require capital to “stay ahead of the curve” as
well as to further accelerate its organic growth strategies and to
strengthen and improve the structure and efficiency of its balance sheet.
The Company intends to use the proceeds to:
• Fund organic growth initiatives;
• Increase the balance sheet flexibility and proactively manage the
capital structure, better aligning the funding of the group’s long term
investments with long term capital, diversifying and improving funding
sources and additional borrowing capacity; and
• Further improving working capital management, leveraging increased
liquidity to obtain better terms from suppliers and strategically
building inventory in an inflationary environment.
The CCP rights issue circular was published on the group’s website,
www.chemspecpaint.com, on 29 October 2013.
Directors
Mr Shane Van Niekerk resigned at the end of August 2013. The board
extends its thanks to Mr Van Niekerk for his invaluable contribution to
the company over the last two years. There were no other changes to the
board of directors in the current period.
Prospects
ChemSpec is a good, sound business offering a host of opportunities.
The business has put together a strategic and methodical plan which will
allow sustainable growth through building brands and relationships earned
through consistency and credibility.
As a result, ChemSpec will continue to improve its position in the
decorative, automotive and industrial markets in its selected territories
through its international partnerships, its customer relationships and its
product mix improvement strategies. Opportunities in Africa are being
developed with all three brand portfolio platforms.
The US business is stable and self-sustaining, with significant growth
prospects in the short to medium term. The Australian business is poised
for growth, though this may take a little longer.
The focus on sales growth, the completion of the austerity measures and
tight control of capital expenditure and working capital growth will all
result in an improvement in the group’s results in the future and the
preservation of the equity and cash in the group balance sheet.
Appreciation
We thank our management team and employees for their good efforts and
loyalty as we continue to make ChemSpec a great business. Our appreciation
also extends to our customers, suppliers, advisors and stakeholders for
their continued support. We especially thank our shareholders for their
support and for being patient as we turn this company into a global best-
of-breed South African owned coatings company.
For and on behalf of the board.
IAJ Clark BC Schreuder
Non Executive Chairman Chief Executive Officer
31 October 2013
Condensed consolidated statements of financial performance
Figures in Notes % Unaudited Unaudited Audited
R’000 Change six months six months year
ended 30 ended 30 ended 31
September September March
2013 2012 2013
Restated Restated
Continuing
operations
Revenue 26% 297 552 236 730 470 945
Cost of sales (187 870) (149 308) (297 991)
Gross profit 25% 109 682 87 422 172 954
Operating 19% (115 655) (96 929) (228 387)
expenses
Operating loss 37% (5 973) (9 507) (55 433)
Other income 3 4 711 18 938 28 294
Finance income 120 65 270
Finance costs 253% (10 862) (3 074) (7 802)
(Loss)/profit (12 004) 6 422 (34 671)
before
taxation
Taxation 3 473 (1 879) 11 159
(Loss)/profit (8 531) 4 543 (23 512)
from
continuing
operations
Discontinued 5 (20 669) (3 600) (7 395)
operations
(Loss)/profit (29 200) 943 (30 907)
for the period
Basic
(loss)/profit
per share
Continuing (cents) 4 (0.79) 0.42 (2.19)
operations
Discontinued (cents) 4 (1.92) (0.33) (0.69)
operations
Total basic (cents) (2.71) 0.09 (2.88)
(loss)/profit
per share
Diluted
(loss)/profit
per share
Continuing (cents) 4 (0.79) 0.42 (2.18)
operations
Discontinued (cents) 4 (1.92) (0.33) (0.69)
operations
Total diluted (cents) (2.71) 0.09 (2.87)
(loss)/profit
per share
Condensed consolidated statements of comprehensive income
Figures in R’000 Unaudited Unaudited Audited
six months six months year ended
ended 30 ended 30 31 March
September September 2013
2013 2012 Restated
Restated
(Loss)/profit for the period (29 200) 943 (30 907)
Other comprehensive income 2 216 5 209 10 968
Exchange differences on translating 2 216 5 209 10 968
foreign operations
Total comprehensive (loss)/profit for (26 984) 6 152 (19 939)
the period
Condensed consolidated statements of financial position
Figures in R’000 Notes Unaudited Unaudited Audited
six months six months year ended
ended 30 ended 30 31 March
September September 2013
2013 2012 Restated
Assets
Non-current assets
Property, plant and equipment 275 465 246 214 271 670
Intangible assets 50 361 35 119 46 065
Goodwill 33 577 22 368 22 937
Deferred tax 77 108 51 965 65 507
436 511 355 666 406 179
Current assets
Inventories 186 144 148 467 150 373
Trade and other receivables 116 960 103 328 102 864
Cash and cash equivalents 9 492 8 974 9 772
312 596 260 769 263 009
Assets held for sale 5 2 774 7 995 7 778
Total assets 751 881 624 430 676 966
Equity and liabilities
Equity
Stated capital 468 055 466 656 468 055
Translation reserve 11 831 3 856 9 615
Revaluation reserve 31 858 31 858 31 858
Share option reserve 4 387 2 187 3 187
Accumulated loss (175 103) (114 054) (145 903)
341 028 390 503 366 812
Shareholders loans 38 479 - -
Non-current liabilities
Other financial liabilities 160 367 95 834 136 713
Deferred tax 3 078 3 912 2 828
163 445 99 746 139 541
Current liabilities
Other financial liabilities 34 129 20 413 28 106
Trade and other payables 102 252 78 636 90 998
Bank overdraft 71 594 33 880 50 331
207 975 132 929 169 435
Liabilities held for sale 5 954 1 252 1 178
Total liabilities 410 853 233 927 310 154
Total equity and liabilities 751 881 624 430 676 966
Condensed consolidated statements of changes in equity
Figures in R’000 Stated Accumulated Revaluation
capital loss reserve
Balance at 31 March 2012 466 656 (114 997) 31 858
Profit for the period - 943 -
Share options - - -
Translation reserve - - -
Balance at 30 September 2012 466 656 (114 054) 31 858
Issue of shares 1 404 - -
Share issue expenses (5) - -
Loss for the period - (31 849) -
Share options - - -
Translation reserve - - -
Balance at 31 March 2013 468 055 (145 903) 31 858
Loss for the period - (29 200) -
Share options - - -
Translation reserve - - -
Balance at 30 September 2013 468 055 (175 103) 31 858
Figures in R’000 Translation Share Total
reserve option
reserve
Balance at 31 March 2012 (1 353) 1 187 383 351
Profit for the period - - 943
Share options - 1 000 1 000
Translation reserve 5 209 - 5 209
Balance at 30 September 2012 3 856 2 187 390 503
Issue of shares - - 1 404
Share issue expenses - - (5)
Loss for the period - - (31 849)
Share options - 1 000 1 000
Translation reserve 5 759 - 5 759
Balance at 31 March 2013 9 615 3 187 366 812
Loss for the period - - (29 200)
Share options - 1 200 1 200
Translation reserve 2 216 - 2 216
Balance at 30 September 2013 11 831 4 387 341 028
Condensed consolidated statements of cash flows
Figures in R’000 Unaudited Unaudited Audited
six months six months year ended
ended 30 ended 30 31 March
September September 2013
2013 2012 Restated
Restated
Cash flows from operating activities
Cash utilised in operations (46 672) (16 298) (37 160)
Finance income 120 65 270
Finance costs (10 862) (3 074) (7 802)
Taxation (paid) / refunded (754) 344 (650)
Net cash from operating activities (58 168) (18 963) (45 342)
Cash flows from investing activities
Acquisition of plant and equipment (14 726) (31 193) (61 254)
Proceeds on sale of plant and - - 815
equipment
Acquisition of intangible assets (6 574) (7 870) (18 982)
Acquisition of businesses/goodwill (10 000) - (1 884)
Proceeds on sale of assets held for - - 3 071
sale
Net cash from investing activities (31 300) (39 063) (78 234)
Cash flows from financing activities
Proceeds from share issue - - 1 399
Proceeds from other financial 29 446 19 584 68 082
liabilities
Proceeds from shareholder loans 38 479 - -
Net cash from financing activities 67 925 19 584 69 481
Total cash movement for the period (21 543) (38 442) (54 095)
Cash and cash equivalents at the
beginning of the period (40 559) 13 536 13 536
Cash and cash equivalents at the end (62 102) (24 906) (40 559)
of the period
Reconciled as follows
Cash and cash equivalents 9 492 8 974 9 772
Bank overdraft (71 594) (33 880) (50 331)
Cash and cash equivalents at the end (62 102) (24 906) (40 559)
of the period
Condensed consolidated segment report
Figures in R’000 Unaudited Unaudited Audited
six months six months year ended
ended 30 ended 30 31 March
September September 2013
2013 2012 Restated
Restated
Segment revenues
Performance coatings 237 201 211 348 418 975
Decorative coatings 60 351 26 006 52 594
Total of all segments 297 552 237 354 471 569
Discontinued operations - (624) (624)
Consolidated revenue 297 552 236 730 470 945
Geographical segments
South Africa 196 384 147 634 285 011
International 101 168 89 096 185 934
297 552 236 730 470 945
Segment result
Performance coatings (9 123) 5 871 (31 577)
Decorative coatings (2 881) 551 (3 094)
(Loss)/profit before taxation (12 004) 6 422 (34 671)
Taxation 3 473 (1 879) 11 159
Discontinued operations (20 669) (3 600) (7 395)
(Loss)/profit for the year (29 200) 943 (30 907)
Segment asset
Performance coatings 569 321 548 894 594 554
Decorative coatings 179 786 67 541 74 634
Discontinued operations 2 774 7 995 7 778
Total of all segments 751 881 624 430 676 966
The group has changed its presentation of segments to its two main
operating segments, namely Performance coatings and Decorative coatings.
Performance coatings include product ranges previously reported under
Automotive, Solvent, Industrial/Woodfinish and Buy-ins.
Notes to the condensed consolidated audited results
1. Corporate information
Chemical Specialities Limited (ChemSpec), a public company incorporated
in South Africa, is one of Africa’s largest coatings companies,
manufacturing and distributing a comprehensive range of high technology
industrial, decorative and automotive paint systems. These condensed
consolidated interim financial statements as at and for the six months
ended 30 September 2013 comprise the results of the company and its
subsidiaries (together referred to as the group).
2. Basis of preparation
These condensed consolidated interim financial statements have been
prepared in accordance with IAS34 - Interim Financial Reporting, the
SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee, Financial Pronouncements as issued by the Financial Reporting
Standards Council, the Listings Requirements of the Johannesburg Stock
Exchange (JSE) and the requirements of the South African Companies Act
No 71 of 2008.
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 2013, which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
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 2013.
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.
These condensed consolidated interim financial statements contain
forward-looking statements relating to the financial performance and
position of the group. All forward-looking statements are solely based
on the views and considerations of the directors. They concern risk and
uncertainty as they relate to events and circumstances in the future.
Factors that could cause actual results to differ materially from those
in forward-looking statements include, but are not limited to, global
and national economic and market conditions, competitive conditions and
regulatory factors. These forward-looking statements have not been
reviewed or reported on by the external 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 CA(SA), the group financial director is responsible for
this set of financial results and has supervised the preparation
thereof.
3. Other income
Figures in R’000 Unaudited Unaudited Audited
six months six months year ended
ended 30 ended 30 31 March
September September 2013
2013 2012 Restated
Restated
Other income comprises:
Insurance claim - 15 000 15 000
Foreign exchange gain 452 656 1 438
Rental income 4 217 3 049 7 520
Other sundry income 42 233 4 336
4 711 18 938 28 294
4. Basic and diluted earnings and headline earnings per share
Figures in R’000 Unaudited six Unaudited six Audited year
months ended months ended ended 31 March
30 September 30 September 2013 Restated
2013 2012 Restated
Basic
(loss)/profit
per share
Continuing (cents) (0.79) 0.42 (2.19)
operations
Discontinued (cents) (1.92) (0.33) (0.69)
operations
Total basic (cents) (2.71) 0.09 (2.88)
(loss)/profit
per share
Basic headline
(loss)/profit
per share
Continuing (cents) (0.81) 0.42 (2.20)
operations
Discontinued (cents) (1.92) (0.33) (0.69)
operations
Total basic (cents) (2.73) 0.09 (2.89)
headline
(loss)/profit
per share
Diluted
(loss)/profit
per share
Continuing (cents) (0.79) 0.42 (2.18)
operations
Discontinued (cents) (1.92) (0.33) (0.69)
operations
Total diluted (cents) (2.71) 0.09 (2.87)
(loss)/profit
per share
Diluted headline
(loss)/profit
per share
Continuing (cents) (0.81) 0.42 (2.19)
operations
Discontinued (cents) (1.92) (0.33) (0.69)
operations
Total diluted (cents) (2.73) 0.09 (2.88)
headline
(loss)/profit
per share
Basic
(loss)/profit
for the period
(Loss)/profit (8 531) 4 543 (23 512)
for the period
(continuing
operations)
Loss for the (20 669) (3 600) (7 395)
period
(discontinued
operations)
Total (29 200) 943 (30 907)
(loss)/profit
attributable to
equity holders
of the parent
Non-headline
earnings
Loss on disposal (172) - (167)
of assets
Total tax effect 48 - 47
of adjustments
Headline (8 655) 4 543 (23 632)
(loss)/profit
(continuing
operations)
Headline (20 669) (3 600) (7 395)
(loss)/profit
(discontinued
operations)
Total headline (29 324) 943 (31 027)
(loss)/profit
for the period
Weighted average 1 073 861 648 1 071 261 648 1 072 561 648
number of
ordinary shares
in issue (basic)
Share options - 8 509 091 5 810 000
Weighted average
number of 1 073 861 648 1 079 770 739 1 078 371 648
ordinary shares
in issue
(diluted)
5. Discontinued operations
During the 2012 financial year the board decided to discontinue certain
of the group’s retail stores. Of the stores identified to be
discontinued, some of these were closed and others were sold. These
stores were not a discontinued operation or classified as an asset held
for sale as at 30 September 2011. In the current financial year the
board decided to further discontinue certain retail stores, depots and
manufacturing facilities. The comparative statement of comprehensive
income has been re-presented to show the discontinued operations from
the continuing operations.
Figures in R’000 Unaudited Unaudited Audited
six months six months year ended
ended 30 ended 30 31 March
September September 2013
2013 2012 Restated
Restated
Revenue - 624 624
Cost of sales (573) (363) (642)
Operating expenses (28 538) (5 504) (10 495)
Operating loss (29 111) (5 243) (10 513)
Taxation 8 442 1 643 3 118
Net loss from discontinued (20 669) (3 600) (7 395)
operation
Cash flow utilised by (29 111) (5 243) (10 513)
discontinued operation
Effect on the statement of
financial position
Plant and equipment 1 796 4 953 4 955
Inventory 978 3 042 2 823
Instalment sale liabilities (954) (1 252) (1 178)
Net assets and liabilities 1 820 6 743 6 600
6. Acquisition of business
On 1 April 2013 ChemSpec acquired the manufacturing contract for Jack’s
Paints’ exclusive decorative paint brands: Panache, Coverkote and
Artisan for a period in excess of 10 years. In addition to this supply
agreement, ChemSpec have acquired the business of TPS (Turnkey Paint
Solutions), a Gauteng based manufacturing facility from Kansai Plascon.
Details of the acquisition are as follows:
Figures in R’000 Unaudited Unaudited Audited
six months six months year ended
ended 30 ended 30 31 March
September September 2013
2013 2012 Restated
Plant and equipment 4 991 - -
Inventory 11 528 - -
Provisions and accruals (320) - -
Goodwill 10 000 - -
26 199 - -
7. Related party transactions
There have been no significant changes in related party relationships
since the previous year or significant transactions during the interim
period, other than in the normal course of business.
8. Post balance sheet events
The directors are not aware of any other material matter or circumstance
arising since the end of the interim period not presented in these
condensed consolidated interim financial statements.
9. Dividends
No dividends were declared or paid during the interim period.
10. Pro forma financial information for the six months ended 30 September
2013
The pro forma financial information has been prepared for illustrative
purposes only and because of its nature may not fairly present
ChemSpec’s financial position, changes in equity, and results of
operations nor the effect and impact of the rights offer. For the
purposes of the pro forma financial effects, it has been assumed that
the rights offer took place with effect from 1 April 2013 for the
statement of financial performance and 30 September 2013 for the
statement of financial position.
The pro forma statements of financial performance and financial position
have been prepared using accounting policies that comply with
International Financial Reporting Standards and that are consistent with
those applied in the interim financial information of ChemSpec for the
period ended 30 September 2013.
The directors of ChemSpec are responsible for the compilation, contents
and preparation of the pro forma financial information contained in
these interim results and for the financial information from which it
has been prepared. The directors are also responsible for such internal
control as the directors deem necessary to enable the preparation of the
pro forma financial information that is free from material misstatement
whether due to fraud or error. KPMG Inc., ChemSpec’s reporting
accountant, has provided a reasonable assurance report on the pro forma
financial information which is available for inspection at the company’s
registered office.
Pro forma statement of financial performance
Figures in R’000 Before the Pro forma Pro forma after
rights offer adjustments the rights
(1) (2)(3) offer (4)
Revenue 297 552 - 297 552
Cost of sales (187 870) - (187 870)
Gross profit 109 682 - 109 682
Operating (115 655) - (115 655)
expenses
Operating loss (5 973) - (5 973)
Other income 4 711 - 4 711
Finance income 120 - 120
Finance costs (10 862) 8 187 (2 675)
Loss before (12 004) 8 187 (3 817)
taxation
Taxation 3 473 (2 427) 1 046
Loss from (8 531) 5 760 (2 771)
continuing
operations
Loss from (20 669) - (20 669)
discontinued
operations
Attributable to:
Equity holders of (29 200) 5 760 (23 440)
the parent
Basic and diluted
loss per share
Continuing (cents) (0.794) 0.536 (0.258)
operations
Discontinued (cents) (1.925) - (1.925)
operations
Total basic and (cents) (2.719) 0.536 (2.183)
diluted loss per
shares
Basic and diluted
headline loss per
share
Continuing (cents) (0.806) 0.536 (0.270)
operations
Discontinued (cents) (1.925) - (1.925)
operations
Total basic and (2.731) 0.536 (2.194)
diluted headline (cents)
loss per shares
Reconciliation:
(Loss)/profit (8 531) 5 760 (2 771)
from continuing
operations
Add/(Less)
Loss/(profit) on (172) - (172)
disposal of
assets
Tax effect of 48 - 48
adjustments
Headline loss (8 655) 5 760 (2 895)
(continuing
operations)
Headline loss (20 669) - (20 669)
(discontinued
operations)
Total headline (29 324) 5 760 (23 564)
loss
Weighted average shares
The weighted average number of ordinary shares used in the calculation
of loss per share are as follows:
Figures in R’000 Before the Pro forma Pro forma after
rights offer adjustments the rights
(1) (2)(3) offer (4)
Weighted average 1 073 861 648 - 1 073 861 648
number of
ordinary shares
(basic)
Compulsory - 536 930 924 -
convertible
preference
shares
Weighted average 1 073 861 648 - 1 073 861 648
number of
ordinary shares
(diluted)
Actual number of 1 073 861 648 536 930 824 1 610 792 472
ordinary shares
Notes:
1 The “Before the transaction” financial information is based on
ChemSpec’s published interim financial information for the period ended
30 September 2013.
2 The rights issue is assumed to result in a net interest saving of
R8,187,000. This has been calculated using an average rate of prime
+0.5% for the bank overdraft facility amounting to R 71,594,000, the
shareholders loans of R 38,479,000 and the medium term loan amounting to
R 57,328,000 which is repaid. Against the saving, financial costs of
R480 500 have been raised for half of the unwinding of the discount
relating to the present value of the dividends, for the current year
only. The tax effects of R 2,427,000 have been applied at the rate of
28%.
3 Finance charges will be charged to the income statement on the financial
liability as it is unwound over the three year period as follows:
- Year 1: Finance charge raised R 960,665
- Year 2: Finance charge raised R 2,162,229
- Year 3: Finance charge raised R 3,274,789
4 The “After the rights issue” basic and diluted loss and headline loss
per share numbers have not been adjusted to include the issue of the
536,930,824 ordinary shares as these are calculated to have an anti-
dilutive effect and have thus been ignored in terms of IAS 33 (Earnings
per share).
5 All of the above adjustments are expected to have a continuing effect on
the results of Chemspec.
Pro forma statement of financial position
Figures in R’000 Before the Pro forma Pro forma
rights offer adjustments after the
(1) (2)(3)(4) rights offer
(5)
Assets
Non-current
assets
Property, plant 275 465 - 275 465
and equipment
Intangible assets 50 361 - 50 361
Goodwill 33 577 - 33 577
Deferred tax 77 108 - 77 108
436 511 - 436 511
Current assets
Inventories 186 144 - 186 144
Trade and other 116 960 - 116 960
receivables
Cash and cash 9 492 45 371 54 863
equivalents
312 596 45 371 357 967
Assets held for 2 774 - 2 774
sale
Total assets 751 881 45 371 797 252
Equity and
liabilities
Equity
Stated capital 468 055 167 625 635 680
Translation 11 831 - 11 831
reserve
Revaluation 31 858 - 31 858
reserve
Share option 4 387 - 4 387
reserve
Accumulated loss (175 103) - (175 103)
341 028 167 625 508 653
Shareholders 38 479 (38 479) -
loans
Non-current
liabilities
Other financial 160 367 (12 180) 148 187
liabilities
Deferred tax 3 078 - 3 078
163 445 (12 180) 151 265
Current
liabilities
Other financial 34 129 - 34 129
liabilities
Trade and other 102 252 - 102 252
payables
Bank overdraft 71 594 (71 594) -
207 975 (71 594) 136 381
Liabilities held 954 - 954
for sale
Total liabilities 410 853 (122 253) 288 600
Total equity and 751 881 45 371 797 252
liabilities
Net asset value (cents) 31.76 31.22 31.58
(NAV) per share
Tangible net (cents) 23.94 31.22 26.37
asset value (NAV)
per share
Actual number of 1 073 861 648 536 930 824 1 610 792 472
ordinary shares
Notes:
1 The “Before the specific issue” financial information is based on
ChemSpec’s published interim financial information for the period ended
30 September 2013.
2 The issue of 536,930,824 cumulative convertible preference shares
(“instrument”) issued at a value of R0,40 less the estimated
transaction costs of R2,000,000 which have been written off to stated
capital).
The cumulative preference shares are classified as a compound instrument
in accordance with IAS 32 (Financial Instruments: Presentation) with the
present value of the dividends being recorded as a financial liability
for an amount of R 45,147,676 (Refer below) and the balance of R
167,624,654 in equity due to conversion clause which stipulates that
instrument will automatically convert into one ordinary share on the
conversion date.
- The raising of a financial liability will be unwound as dividends are
paid on the instrument over the three year period as follows:
a Year 1: Cash paid to shareholders holding the instrument :
R17,181,786. Unwinding financial liability : R 16,221,122. Finance
charge raised R 960,665
b Year 2: Cash paid to shareholders holding the instrument :
R17,181,786. Unwinding financial liability : R 15,019,557. Finance
charge raised R 2,162,229
c Year 3: Cash paid to shareholders holding the instrument :
R17,181,786. Unwinding financial liability : R 13,906,997. Finance
charge raised R 3,274,789
The finance charge referred to in (a)-(c) above is an Income Statement
related entry where as the unwinding financial liability entry will only
have a balance sheet effect, by reducing the R45,147,676 (refer above)
as the liability unwinds.
3 The rights issue pro forma adjustments assume that the bank overdraft
of R71,594,000, the shareholders loans of R 38,479,000 and the medium
terms loan of R57,328,000 will be repaid and the balance of the
proceeds of the rights issue will be deposited into the bank account
as a debit balance to the amount of R 45,371,000
4 The net adjustment of R12,180,000 shown as a pro forma adjustment to
other financial liabilities relates to the raising of the financial
liability of R45,147,676 being the present value of dividends to be
paid on the instrument over the three year period and the adjustment
relating to the repayment of the medium term loan of R57,328,000.
5 The “After the rights issue” net asset value per share and tangible
net asset value per share has been adjusted to include the issue of
536,930,824 ordinary shares which will be converted from preference
shares to ordinary shares at the end of the terms of the preference
shares.
6 All of the above adjustments with the exception of transaction costs
are expected to have a continuing effect on the results of Chemspec.
11.Pro forma financial information for the six months ended 30 September
2012
The pro forma financial information has been prepared for illustrative
purposes only and because of its nature may not fairly present
ChemSpec’s financial position, changes in equity and results of
operations nor the effect and impact of the insurance proceeds carve
out. For the purposes of the pro forma financial effects, it has been
assumed that the insurance proceeds were not received during the period
ended
30 September 2012 in the statement of financial performance.
The pro forma statement of financial performance has been prepared using
accounting policies that comply with International Financial Reporting
Standards and that are consistent with those applied in the interim
financial information of ChemSpec for the period ended 30 September
2013. There is no adjustment to the statement of financial position.
The directors of ChemSpec are responsible for the compilation, contents
and preparation of the pro forma financial information contained in
these interim results and for the financial information from which it
has been prepared. The directors are also responsible for such internal
control as the directors deem necessary to enable the preparation of the
pro forma financial information that is free from material misstatements
whether due to fraud or error. KPMG Inc, ChemSpec’s reporting
accountant, has provided a reasonable assurance report on the pro forma
financial information which is available for inspection at the company’s
registered office.
Pro forma statement of financial performance
Figures in R’000 Before the Pro forma Pro forma
insurance adjustments after the
proceeds (2) insurance
carve out (1) proceeds carve
out (3)
Revenue 236 730 - 236 730
Cost of sales (149 308) - (149 308)
Gross profit 87 422 - 87 422
Operating (96 929) - (96 929)
expenses
Operating loss (9 507) - (9 507)
Other income 18 938 (15 000) 3 938
Finance income 65 - 65
Finance costs (3 074) - (3 074)
Profit/(loss) 6 422 (15 000) (8 578)
before taxation
Taxation (1 879) 4 200 2 321
Profit/(loss) 4 543 (10 800) (6 257)
from continuing
operations
Loss from (3 600) - (3 600)
discontinued
operations
Attributable to: 943 (10 800) (9 857)
Equity holders of
the parent
Basic and
headline loss per
share
Continuing (cents) 0.424 (1.008) (0.584)
operations
Discontinued (cents) (0.336) - (0.336)
operations
Total basic and (cents) 0.088 (1.008) (0.920)
headline loss per
share
Diluted basic and
headline loss per
share
Continuing (cents) 0.421 (1.000) (0.579)
operations
Discontinued (cents) (0.333) - (0.333)
operations
Total diluted (cents) 0.087 (1.000) (0.913)
basic and headline
loss per share
Reconciliation:
Profit/(loss) 4 543 (10 800) (6 257)
from continuing
operations
Add/(Less)
Loss/(profit) on - - -
disposal of
assets
Tax effect of - - -
adjustments
Headline 4 543 (10 800) (6 257)
profit/(loss)
(continuing
operations)
Headline loss (3 600) - (3 600)
(discontinued
operations)
Total headline 943 (10 800) (9 857)
profit/(loss)
Weighted average
shares
The weighted average number of ordinary shares used in the calculation
of loss per share are as follows:
Weighted average 1 071 261 648 - 1 071 261 648
number of
ordinary shares
(basic)
Share options 8 509 091 - 8 509 091
Weighted average 1 079 770 739 - 1 079 770 739
number of
ordinary shares
(diluted)
Actual number of 1 071 261 648 - 1 071 261 648
ordinary shares
Notes:
1 The “Before the transaction” financial information is based on
ChemSpec’s published interim financial information for the period ended
30 September 2012.
2 The insurance proceeds carve out relates to the elimination of the R
15,000,000 insurance claim proceeds reflected in other income and the
add back of the tax effects for R 4,200,000 calculated at the tax rate
of 28%.
3 As the insurance proceeds was a once off receipt, all of the above
adjustments are expected to have a continuing effect on the results of
Chemspec.
Corporate information
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)
BC Schreuder (Chief executive officer)
BR Mackinnon (Chief operations officer)
JG Maehler (Financial director)
GV Metzer (Marketing and sales director)
DJ Coyle-Dowling (Executive director)
JG Jones (Lead independent non-executive director)
NA Page (Non-executive director)
IBB Buchan (Non-executive director)
SE Sono (Independent non-executive director)
NTY Siwendu (Independent non-executive director)
ZM Buchan (Alternate non-executive director)
Registered office and business address
2029 Old Mill Road
Canelands
Verulam 4339
Postal address
P O Box 2359
Canelands
Verulam 4340
Auditors
KPMG Incorporated
Transfer secretaries
Computershare Investor Services (Pty) Ltd
Company secretary
Statucor (Pty) Ltd
Designated Advisor
Grindrod Bank Limited
Website
www.chemspecpaint.com
Telephone
+27 32 541 8600
Fax
+27 32 541 8653
Date: 31/10/2013 12:02:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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