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Unaudited Interim Results for the six months ended 31 August 2015
Insimbi Refractory and Alloy Supplies Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2002/029821/06)
Share code: ISB ISIN: ZAE000116828
(“Insimbi” or “the company” or “the group”)
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED
31 AUGUST 2015 AND INTERIM DIVIDEND DECLARATION
Insimbi (JSE:ISB), the supplier of high grade specialised raw materials to the
steel, stainless steel, cement, paper, refractory, castings and other industries,
announces its unaudited consolidated restated condensed financial results for the
six months ended 31 August 2015 and declares its interim dividend. These interim
results have not been audited or reviewed.
Highlights:
When compared to the 6 months ended 31 August 2014:
• Revenue increased by 7.5% to R493 million.
• Gross profit increased by 20.1% to R59.8 million
• Finance costs decreased by 26.2 % to R3.5 million
• Earnings per share (“EPS”) is up by 73.7% to 5.94 cents per share
• Headline Earnings per share (“HEPS”) is up by 73.3% to 5.91 cents per share
• Cash generated by operations improved by R35.9 million from R10.6 million
utilised to R25.3 million generated
• Net asset value (“NAV”) and tangible NAV increased by 20.5% and 20.1% to
59.3 cents per share (“cps”) and 55.2 cps respectively
• Insimbi acquired a 75% shareholding in Polydrum (Pty) Ltd
• Insimbi acquired the property 360 Crocker Road, Wadeville
• The group has declared a gross interim dividend of 2.00 cents per share for
the period ending 31 August 2015
• Trading and operational outlook for the remainder of the financial year is positive
CEO of Insimbi, Pieter Schutte, commented:
“In challenging global markets, Insimbi has been pragmatic in positioning itself, notably in
the Foundry and refractory segments, to achieve increasing profit and return for shareholders,
seen in our increase in revenue of 7.5% for the period. Our reliance on the beleaguered steel
sector has reduced considerably and we have effectively reached a level of sustainability.
“Furthermore, we have continued to optimise efficiency in all of our divisions, especially at
our secondary aluminium smelters as we seek to define new markets for our aluminium products.
Before year end, we will have commissioned an upgraded smelting facility at our Johannesburg
operation.
“The Company also looks to expand on not only our core segments but also in our Nano Milling
paint based products, with the appointment of an experienced quality technician, as well as
the plastics segment with the acquisition of Polydrum (Pty) Ltd which has provided additional
cash flow to our increasing revenues.
“As our focus moving forward remains on the businesses fundamental resilience by reducing
working capital and operational costs as well as strengthening our relationship with current
suppliers, management will also be looking at ways to expand on current incremental profit
and I look forward to updating the market on further opportunities in the future.”
Operational Overview
The Foundry segment has performed well generally and despite continued competition both
locally and from abroad, it achieved revenue of R366.8 million, a 4.5% or R15.7 million
increase on the previous period under review. This segment is traditionally a “barometer”
of how well the economy is doing and it appears to have reached a comfortable level of
sustainability. A change in product mix coupled with a weaker currency, has helped lift margins.
The two secondary aluminium smelters which forms part of this segment have been operating much
more efficiently although they have been faced with a lower order book as a result of the
challenges facing the steel industry. We are actively looking for other markets for our range
of aluminium products and with a weaker currency, there are opportunities in the export market
but raw material, energy and logistic costs remain a challenge when competing with overseas
producers. We are in the process of commissioning a more modern and efficient smelting facility
at our Johannesburg operation and we are confident that this will improve our operational
efficiencies and recoveries to the degree necessary to enable us to export competitively.
This upgraded facility should be operational by no later than the end of November 2015.
The Steel segment continues to be faced with many challenges including cheap imports and
erratic power supply. During the period under review, Evraz Highveld Steel and Vanadium Ltd
(“Evraz”) went into business rescue, they along with Arcelor Mittal South Africa Limited
and SCAW Metals have been very public about the need for intervention in curbing the cheap
imports from overseas, especially China. In September, ITAC announced a 10% import duty on
certain grades of locally produced steel and we are confident that this will assist the ailing
steel industry to recover in time. There has been application for this duty to extend to a broader
range of locally produced steel products and we wait in anticipation for further relief to
be legislated. Evraz is in the final stages of the business rescue process and a potential buyer
has been identified. Evraz is a strategic employer and producer in Mpumulanga and we hope that
this transaction is finalised as soon as possible, despite the write downs which many concurrent
creditors, including ourselves, have to provide for. Revenues in this segment continued to decline
in the period under review and it achieved sales of only R58.9 million compared to R66.3 million
in the previous comparable period, a reduction of 11.1% or R7.4 million. Insimbi’s reliance on
the steel sector has reduced significantly over the years and while this is strategically prudent,
we look forward to the resurgence of this sector in the hopefully, not too distant future.
The refractory segment has seen significant growth in the current financial interim period and
achieved revenues of R64.6 million compared to R41.5 million in the previous year, an increase
of 55.7% or R23.1 million. This has always been an extremely cyclical business sector and history
has taught us that it generally is opposite to that of the steel sector i.e. when steel is in
decline, cement is showing growth and this helps to “flatten the curve” in difficult economic times.
We have been able to achieve this growth due to the high quality of refractory products we supply
combined with an extensive and highly regarded service offering. The weaker currency against the
Euro has also enabled us to increase our revenue.
Insimbi Nano Milling paint based products continue to be expanded but it has been a challenge
to produce a consistent quality product. To remedy this, we have appointed an experienced laboratory
and quality technician who now oversees the quality control procedures and we remain confident
that they will support our marketing team and that our reputation in this new target market and
product range, will continue to grow. There are significant growth opportunities for Insimbi in this
field and we hope to capitalise on our technology and investment in this operation.
Our entry into the plastics segment with the acquisition of Polydrum (Pty) Ltd effective
1 August 2015 is an exciting opportunity for the group and while we have no comparatives at
this early stage, it is very promising to note revenues of R2.9 million and gross profit of
R1.1 million in the first month of ownership and we look forward to growing this business
significantly in the remainder of the financial year and the future. It is a high margin
business and it will hopefully have a positive impact on the group’s consolidated margin.
Financial Overview
Group revenue for the period is R493.2 million, an increase of 7.5% or R34.3 million on the
comparative period ended 31 August 2014. The improved sales performance is a result of
generally improved trading conditions locally in all sectors(with the exception of the steel
industry), growth in exports, less industrial action disruption than in the previous year
and the stimulus of a weaker currency against in particular, the US Dollar and the Euro.
The export market continues to see decent growth and we are especially satisfied with
our penetration into the regional markets including West Africa. Gross profit from continuing
operations is R59.8 million, an increase of 20.1% or R10.0 million on the R49.8 million
achieved for the period ended 31 August 2014. Overall margins have improved due to the weaker
exchange rate and continued decline in the steel sector which is traditionally a high volume,
low margin segment. The group’s diversity has yet again proven to be a successful strategy in
difficult markets and despite the importance of the steel sector to our business, now and in
the future, the interim results is clear evidence that Insimbi is not disproportionately
reliant on any one of its target segments alone. This has enabled us to not only defend our
market share against local and foreign competition but in fact enable us to show revenue
and profit growth.
Group operating profit has increased by 32.3% compared to the previous comparative period
ending 31 August 2014.
Group operating costs have increased by 14.2% on the previous period BUT approximately
R3.0 million of the R38.3 million, are non recurring costs relating to:
- The restructuring and transfer of the Groups’ banking facilities from Nedbank to First
National Bank effective 1 March 2015
- The acquisition and legal costs associated with the acquisition of Polydrum (Pty) Ltd
effective 1 August 2015
- The increase in doubtful debt provision to accommodate the Evraz Ltd business
rescue proceedings
If these costs are excluded, the operating costs have increased by only 5.2% when compared
to the same period in the previous year which is within our target and CPIX.
Group finance costs are 26% lower due to an improved foreign exchange loss of only R17,000
when compared to R1.3 million in the corresponding period last year. Actual interest
incurred is R3.4 million for the period under review which is the same as incurred in the
comparable period in the previous year.
Consolidated profit before taxation is R18.2 million compared to R11.9 million, an increase
of 53.3% on the corresponding period ended 31 August 2014.
Other financial assets, which represents foreign exchange contracts, has increased from
R0.6 million in August 2014 to R2.3 million in August 2015. This is due to the weakening
of the Rand against major currencies.
Insimbi achieved group EPS of 5.94 and HEPS of 5.91 cents per share respectively compared
to 3.42 and 3.41 cents per share in the previous comparative period. This equates to an
increase of 73.5% and 73.2% in EPS and HEPS respectively.
Working capital management and cash flow have been a key focus area for Insimbi and we
have responded to changing market conditions effectively. Stocks and debtors have been
particularly well managed, given the increased revenues, and decreased by R4.6 million
and R12.2 million respectively compared to 31 August 2014. Trade payables declined by
R16.9 million. Cash on hand reduced to R11.2 million from R18.5 million during the same
period in 2013 and as a result of the migration from Nedbank to First National Bank,
the group has utilised only R19.8 million of a consolidated R71.5 million overdraft
facility at 31 August 2015.
Prospects
It seems that every year we make mention of the challenging economic conditions facing
businesses in South Africa and yet Insimbi continues to not only survive but flourish
and we continue to seek and find opportunities that help us grow. This year is proving
to be no different and while businesses are still faced with significant challenges,
the board and management of Insimbi are optimistic that as in previous years, opportunities
will continue to present themselves and that we will be able to take advantage of them
for the benefit of all our stakeholders.
We remain confident that our government will react positively and promptly to ensure
that our strategic South African assets, particularly in the steel and resource sectors,
are given the opportunity to stabilise in the short term and return to operational
and economic viability in the medium term. This confidence is supported by the recent
implementation on import duties on certain grades of steel being imported into South Africa.
A similar request for import tariffs on certain aluminium products has recently been
made by Hulamin Limited. We hope that these initiatives bring the stimulus these industries
require as it will benefit not only those industries directly, but all their suppliers
and other stakeholders. Insimbi is one of them.
The foundry segment has shown tremendous resilience over the past few years and while
many foundries have closed, those that have not have grown stronger, more efficient
and are becoming even more resilient. The foundry segment is very much part of our core
business and we will continue to service this segment with the recognition it deserves.
The refractory segment is another core segment and, like the foundry segment, has proven
it’s resilience over the past decade. Recently, the cement players in this segment have
been successful in getting ITAC to implement import tariffs on cheap cement which has,
for a long time, been imported into South Africa at the cost of our local industry. The
impact has not filtered through yet but we are optimistic that when it does, Insimbi will
be ready to meet the increased demands made on us by the cement industry.
As mentioned earlier, the secondary aluminium smelters are running optimally and our
investment in new furnace technology will hopefully improve our recoveries. The commissioning
of this upgraded plant is imminent. Scrap supplies have become much more consistent with
respect to both quality and price, this can in part, be attributed to the ITAC regulation
implemented in 2013/4 which monitors and regulates the issuing of export permits to the
waste metals industry.
We have said many times before, that Insimbi services mature industry segments in South Africa
and these industries have not become “mature” without being resilient and successful over
time and through the various cycles that any economy faces. This is our core business and
it has proven its mettle over many decades and we continue to look for organic growth by
adding new products and services to our existing basket.
We remain optimistic about the future of Insimbi and we will continue to look for sensible
and profitable acquisitions to supplement our diverse and growing group.
Changes to the Board of Directors
Mr. Daniel O’Connor retired as chairman and non-executive director of Insimbi at the
Annual General Meeting (“AGM”) which was held on 25 June 2015. Mrs Lerato Okeyo was
appointed as independent chairman of the Board effective the same day. Mrs Cleopatra Shiceka
was appointed as non-executive director to the board on 7 July 2015 as well as chairman
of the Audit and Risk Committee.
Dividend Declaration
An interim gross dividend of 2.0 cent per share has been declared on 29 September 2015.
There are 260 000 000 ordinary shares in issue at announcement date, of which 23 929 748
are held in treasury and the total dividend amount payable is R 4 721 405 (2014: R3 622 482).
This is a dividend as defined in the Income Tax Act, 1962, and is payable from income reserves.
The South African dividend tax (DT) rate is 15%. The net amount payable to shareholders who
are not exempt from DT is 1.7 cents per share, while it is 2 cents per share to those
shareholders who are exempt from DT. The income tax reference number of the company is 9078488153.
The salient dates applicable to the interim dividend are as follows:
Last day to trade cum dividend 16 October 2015
First day to trade ex dividend 19 October 2015
Record date 23 October 2015
Payment date 26 October 2015
No share certificates will be dematerialised or rematerialised between Monday, 19 October 2015
and Friday, 23 October 2015, both days inclusive.
Shares repurchased by a subsidiary since the year end and held in treasury amounted to
340 000 (2014: 1 437 000), which brings the total number of treasury shares to
23 929 748 (2014: 22 919 943).
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
as at as at as at
R'000 31 Aug 2015 31 Aug 2014 28 Feb 2015
Assets
Non-current assets
Property, plant
and equipment 111 286 77 147 78 146
Goodwill 44 560 35 638 35 638
Intangible assets 9 523 7 585 8 414
Deferred taxation 12 228 12 047 12 228
177 597 132 417 134 426
Current assets
Inventories 83 439 88 055 86 454
Trade and other receivables 112 913 125 122 132 356
Other financial assets 2 347 599 1 137
Taxation receivable - - 303
Cash and cash equivalents 11 176 18 468 27 899
209 875 232 244 248 149
Total assets 387 472 364 661 382 575
Equity and liabilities
Equity
Share capital 44 442 44 442 44 442
Reserves 21 503 21 657 21 503
Retained income 89 509 66 133 81 492
Non-controlling interest (1 584) (1 195) (1 508)
Treasury shares (15 035) (14 295) (14 766)
138 835 116 742 131 163
Liabilities
Non-current liabilities
Other financial liabilities 37 870 19 041 14 022
Shareholders loans 4 606 - -
Deferred taxation 18 638 16 554 13 592
61 114 35 595 27 614
Current liabilities
Other financial liabilities 27 559 52 977 58 095
Bank overdraft 19 808 - 153
Current tax payable 1 939 288 4 677
Redeemable preference shares - 3 999 -
Trade payables and accruals 138 217 155 060 160 873
187 523 212 324 223 798
Total liabilities 248 637 247 919 251 412
Total equity and liabilities 387 472 364 661 382 575
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
as at as at as at
31 Aug 2015 31 Aug 2014 28 Feb 2015
R'000
Revenue 493 214 458 981 958 016
Cost of sales (433 447) (409 214) (846 114)
Gross profit 59 767 49 767 111 902
Other income 243 198 1 246
Operating expenses (38 306) (33 553) (72 926)
Operating profit 21 704 16 412 40 222
Investment income 29 219 251
Finance costs (3 499) (4 739) (7 026)
Profit before taxation 18 234 11 892 33 447
Taxation (4 207) (3 766) (7 666)
Profit for the year 14 027 8 126 25 781
Profit attributable to:
Owners of the parent 13 924 8 120 26 094
Non-controlling interest 103 6 (313)
14 027 8 126 25 781
Other comprehensive income
for the year
Items that will be
reclassified to profit
and loss:
Exchange differences on
translating foreign entities - - (154)
Items that will not be
reclassified to profit
and loss:
Gain on property revaluation - - -
Taxation related to
components of other
comprehensive income that
will not be reclassified - -
Other comprehensive income
for the year net of taxation - - (154)
Total comprehensive income
for the year 14 027 8 126 25 627
Total comprehensive income
attributable to:
Owners of the parent 13 924 8 120 25 940
Non-controlling interest 103 6 (313)
14 027 8 126 25 627
Basic and fully diluted
earnings per share
From continuing operations 5.94 3.42 10.88
From discontinuing operations - - -
From profit for the year 5.94 3.42 10.88
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Foreign
Currency
Share Share Treasury Translation
R'000 Capital premium Shares Reserves
Balance at
31 August 2014
(Unaudited) - 44 442 (14 295) 154
Total
comprehensive
income (154)
Share-based
payments
Dividend paid
Net movement in
treasury shares (471)
Balance at
28 February 2015
(audited) - 44 442 (14 766) -
Business
combination
Total
comprehensive
income
Dividend paid
Net movement
in treasury
shares (269)
Balance at
31 August 2015
(Unaudited) - 44 442 (15 035) -
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (cont)
Distri- Non
Revaluation butable controlling Total
R'000 reserve Reserve interest Equity
Balance at
31 August 2014
(Unaudited) 21 503 66 133 (1 195) 116 742
Total
comprehensive
income 18 981 (313) 18 514
Share-based
payments -
Dividend paid (3 622) (3 622)
Net movement in
treasury shares (471)
Balance at
28 February 2015
(audited) 21 503 81 492 (1 508) 131 163
Business
combination (179) (179)
Total
comprehensive
income 13 924 103 14 027
Dividend paid (5 907) (5 907)
Net movement
in treasury
shares (269)
Balance at
31 August 2015
(Unaudited) 21 503 89 509 (1 584) 138 835
* Share capital is equal to 246 700 013 shares
at 0.000025 cents each = R62
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
as at as at as at
31 Aug 2015 31 Aug 2014 28 Feb 2015
R'000
Cash flow from operating
activities
Cash generated from
operations 25 261 (10 634) 17 288
Investment income 28 219 251
Finance costs (3 640) (3 544) (7 167)
Tax paid (6 641) (2 166) (4 381)
Net cash flow from
operating activities 15 008 (16 125) 5 991
Cash flow from investing
activities
Purchase of property,
plant and equipment (21 855) (2 208) (4 682)
Proceeds on disposal of
property, plant and equipment 552 - 217
Purchase of other intangible
assets (1 068) (1 069) (1 757)
Acquisition of subsidiary,
net of cash acquired (8 289) - -
Net cash utilised from
investing activities (30 660) (3 277) (6 222)
Cash flow from financing
activities
Other financial liabilities
advanced 39 394
Other financial liabilities
repaid (57 945) (1 471) (4 042)
Settlement of preference
share liability - - (3 999)
Loans from directors - 629 -
Loans from shareholders 3 977 - -
Dividends paid (5 907) (7 053) (9 663)
Repurchase of treasury
shares (269) (856) (1 327)
Net cash outflow from
financing activities (20 750) (8 751) (19 031)
Net movement in cash for
the period/year (36 402) (28 153) (19 262)
Exchange gains/(losses)
on cash 24 - 346
Cash and cash equivalents
at the beginning of
the period/year 27 746 46 641 46 662
Cash and cash equivalents
at the end of the
period/year (8 632) 18 488 27 746
CONDENSED SEGMENT REPORT
Unaudited Unaudited Audited
as at as at as at
31 Aug 2015 31 Aug 2014 28 Feb 2015
R'000
Revenue by segment
Foundry 366 796 351 131 729 205
Steel 58 988 66 346 134 952
Refractory 64 585 41 504 93 859
Plastics 2 845 - -
493 214 458 981 958 016
Gross profit by segment
Foundry 43 887 35 907 85 072
Steel 6 966 9 424 19 275
Refractory 7 791 4 436 7 554
Plastics 1 123 - -
59 767 49 767 111 902
Operating profit by segment
Foundry 10 091 6 939 26 059
Steel 5 240 7 124 10 670
Refractory 5 608 2 349 3 495
Plastics 522 - -
21 461 16 412 40 224
OTHER GROUP SALIENT FEATURES
Basic attributable earnings per share is determined by dividing profit attributable
to ordinary equity shareholders of the parent by the weighted average number of
ordinary shares outstanding during the year.
Where there is a discontinued operation earnings per share is determined for
both continuing and discontinued operations
Unaudited Unaudited Audited
as at as at as at
31 Aug 2015 31 Aug 2014 28 Feb 2015
R'000
Basic earnings (loss)
per share
From continuing operations
(cents per share) 5.94 3.42 10.88
5.94 3.42 10.88
Number of shares in issue
at the end of the
period/year (‘000) 260 000 260 000 260 000
Less: weighted number of
treasury shares held in
a subsidiary at the end
of the year(‘000) (23 755) (22 614) (22 982)
236 245 237 386 237 018
Profit attributable to
owners of the parent (R’000) 14 027 8 120 25 781
Adjusted for (profit)/loss
on sale
of property, plant and
equipment (R’000) (55) (16) 941
Headline earnings for the
group (R’000) 13 972 8 104 26 722
Basic and fully diluted
headline earnings per
share (cents) 5.91 3.41 11.27
Dividends per share 2.50 2.94 1.53
Net asset value per share
(cents) 59.26 49.18 55.34
Tangible net asset value
per share (cents) 55.23 45.98 51.79
Depreciation 4 122 3 069 6 312
Capital expenditure 21 855 2 212 4 682
Accounting policies
The condensed consolidated financial statements for the interim period ended
31 August 2015 have been prepared in accordance with International Financial
Reporting Standards (IFRS), IAS 34, the AC 500 series of accounting standards,
JSE listing Requirements and the Companies Act of South Africa, and prepared
under the supervision of the Commercial and Financial Director,
Frederick Botha CA (SA). The accounting policies are consistent with those
applied in the annual financial statements for the previous reporting period,
being 28 February 2015. .
Contingencies
The company does not have any material contingencies.
Post balance sheet event
No material fact or circumstance existed post balance sheet date that affects
the results being reported.
Approval:
L. Y. Okeyo P. Schutte
Chairman Chief Executive Officer
29 September 2015
Registered office: Stand 359 Crocker Road, Wadeville, Germiston, 1422
Company Secretary: Kristell Holtzhausen
Directors: CF Botha, F Botha (Commercial and Financial Director),
EP Liechti, GS Mahlati*, LY Okeyo*, C Shiceka*,
PJ Schutte (Chief Executive Officer)
*non-executive
Sponsor: Bridge Capital Advisors (Proprietary) Limited
Transfer Secretaries: Computershare Investor Services (Proprietary) Limited
Date: 29/09/2015 10:02:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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