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Unreviewed consolidated condensed financial results for the six months ended 31 August 2016 and interim dividend
Insimbi Refractory and Alloy Supplies Limited
(Incorporated in the Republic of South Africa)
(Registration No: 2002/029821/06)
Share code: ISB & ISIN code: ZAE000116828
("Insimbi" or "the Company" or "the Group")
UNREVIEWED CONSOLIDATED CONDENSED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2016 AND
INTERIM DIVIDEND DECLARATION
Insimbi (JSE:ISB), the supplier of high grade specialised raw materials to the steel, stainless steel,
cement, paper, refractory, castings, plastics and other industries, announces its unreviewed consolidated
condensed financial results for the six months ended 31 August 2016 and declares an interim gross dividend.
Key Financial Highlights: When compared to the 6 months ended 31 August 2015:
- Revenue decreased by 2.6% to R480 million.
- Gross profit increased by 14.7% to R68.6 million
- Margins increased to 14.3% from 12.1%
- Finance costs increased by 87.6% to R6.6 million
- EBITDA decreased by 2.6% to R24.5 million
- EPS decreased by 16.8% to 4.94 cents per share
- HEPS decreased by 19.2% to 4.78 cents per share
- Cash generated by operations decreased by R1.9 million from R25.2 million to R23.3 million
- NAV and tangible NAV increased by 10.85% and 10.83% to 65.69 cents per share and
61.21 cents per share respectively
- The group has declared a gross interim dividend of 1.5 cents per share for the period ending
31 August 2016.
- Trading and operational outlook for the remainder of the financial year is positive
CEO of Insimbi, Pieter Schutte, commented:
"The six months to August have proven to be extremely challenging given political and economic uncertainty
both locally and globally and Insimbi has done well to limit the decrease in revenue to only 2.6% during
this period. Despite this decreased revenue, however, we have seen significant improvement in our margins
and as a result our gross profit has increased by 14.7% to R68.6 million from R59.8 million in the
previous interim period ended August 2015. This has been as a result of the introduction of the plastics
segment and a concerted effort to improve the diversity of our historic basket of products with a focus
on introducing higher margin products to this "basket".
"Our focus remains on improving operational efficiencies, improving utilisation of under utilised assets,
especially the aluminium plants, reducing working capital, improving cash flows and maintaining strong
controls over operational costs. As always our relationships with our customers and suppliers are
absolutely key to our success and we constantly engage with them to ensure that these relationships
keep strengthening"
"We are in the final stages of acquiring 100% of Amalgamated Metals Group Holdings Proprietary Limited
("Amalgamated") and this acquisition will bring further diversity to our group and secures source of
the recycled metals required for our two secondary aluminium smelters and will better enable us to utilise
excess capacity in both of these plants, for export orders. There are significant operational synergies
which exist between the two groups and we are extremely excited about the impact on our group results
going forward"
Operational Overview
Despite a 9% reduction in segmental revenue from R367 million to R334 million, the Foundry segment has
performed well in a very difficult market. The anticipated rail infrastructure upgrade has yet to impact
materially on the local foundry industry and as a result, many of these foundries are on short time.
We remain hopeful that these upgrades will start coming to fruition soon as the foundry industry is in
desperate need of it. Despite the lower revenues, it is pleasing to note that margins increased during
the period under review and gross profit increased by 8% from R43.9 million to R47.3 million largely due
to efforts to expand our product range and the inclusion of some higher margin product lines.
The two secondary aluminium smelters which form part of this segment continue to face low order books as
a result of the continued challenges faced by the local steel industry and we have increased our focus
on filling capacity with an export order book. Our material has been trialled in China and Germany and
I remain hopeful that we will conclude some export business soon. As mentioned above, the acquisition of
Amalgamated will improve our chances of securing this business despite the continued volatility of our
currency.
The Steel segment showed some improvement as expected but it continues to face significant challenges.
Revenues in this segment increased by 17% from R58.9 million to R68.9 million and gross profit increased
by 13% from R6.9 million to R7.8 million. This is very pleasing and we are confident that this industrial
sector locally will show continued and sustainable improvement going forward.
The Refractory segment has always proven difficult to compare with previous reporting periods as it is
dependent on kiln shuts and repairs and maintenance programmes so whilst revenues and gross profit show
a significant reduction on the comparative August 2015 results, down 14% and 18% to R55.4 million and
R6.4 million respectively (August 2015 – R64.6 million and R7.8 million respectively), I am optimistic
that the second half of the financial year will see this segment gain momentum sufficient to offset the
reduced revenues in the first half.
The acquisition and integration of Polydrum Proprietary Limited ("Polydrum"), representing our Plastics segment, has
been completed and whilst it was not without its challenges, including the continued drought and certain
management issues which have been successfully resolved, it is now performing well and showing impressive
monthly revenue and gross profit growth. The comparative period last year reflected only one month of
operation versus six months in the current financial year. Margins and revenues have improved significantly
over the last six operating months and are now in line with margins reported in the comparative interims.
We are in the process of commissioning new plant and equipment in Natal and our roto moulding operation
in Johannesburg is now operational and we are producing some innovative products including a range of
high quality water harvesting products. This segment contributed revenue of R22.3 million and gross
profit of R6.9 million for the period under review.
Financial Overview
Group revenue for the period is R480.3 million, a decrease of 2.62% or R12.9 million on the comparative
period ended 31 August 2015. The reduction in revenue is mainly attributable to the unpredictable nature
and timing of revenues in the Refractory segment and continued challenges in the Foundry segment.
Notwithstanding this reduced group revenue, gross profit showed a pleasing increase of nearly 15% from
R59.8 million to R68.6 million due to our focus on marketing higher margin products.
Gross profit from continuing operations is R68.6 million, an increase of 14.7% from R59.8 million in the
comparative period ended 31 August 2015. Overall margins have improved from 12.1% last year to 14.3% for
the period ended 31 August 2016. This is a result of a number of factors but primarily an ever evolving
product offering with a specific focus on the inclusion of higher margins products. We continue to
diversify and we are striving to become a significant and diversified industrial group, the acquisition
of Amalgamated will take us a step closer to this goal.
Group operating profit has decreased by 8.49% compared to the previous comparative period ending
31 August 2015.
Group operating costs have increased R11.3 million from R38.3 million to R49.6 million when compared to
the period ending August 2015. This increase is explained below:
- Polydrum operating costs for six months of R8.6 million compared to one month of R1.4 million in the
previous reporting period, an increase of R7.2 million;
- Non recurring professional fees associated with the implementation of the staff and junior management
ownership schemes ("ESOPs") in June 2016 and the current acquisition of Amalgamated (approximately R2.0 million);
- An increase in the depreciation charge on assets as acquired (excluding Polydrum) in the last eighteen months
(approximately R1.0 million); and
- An increase in repairs and maintenance and electricity and water (approximately R1.2 million) related to new
plant and equipment as evidenced in our increased capital expenditure of R10.5 million.
If the additional operating costs attributable to Polydrum (R7.2 million) and the non-recurring
professional fees pertaining to the ESOPs and Amalgamated acquisition (R2.0 million) are excluded,
the operating costs have increased by only R2.1 million or 5.5% when compared to the same period in the
previous year which is within our target and CPIX.
Group finance costs for the period have increased from R3.5 million to R6.6 million, an increase of
R3.1 million or 89% due to:
- Mortgage bond finance on R14.5 million property acquisition in April 2015;
- Term funding of R18.5 million for the acquisition of Polydrum effective August 2015; and
- Asset based finance totalling approximately R10.5 million for new plant and equipment.
Insimbi achieved group EPS of 4.94 and HEPS of 4.78 cents per share respectively compared to 5.94 and
5.91 cents per share in the previous comparative period. This equates to a decrease of 16.83% and
19.2% EPS and HEPS respectively.
Net cash flow from operating activities increased marginally from R15.0 million to R15.3 million although
this does not accurately reflect the control over stocks and debtors which improved by R20 million. This
R20 million improvement in current assets was offset by a reduction in trade creditors of R20.2 million,
resulting in no impact on operating cash flows.
Net cash improved from a debit of R8.63 million at 31 August 2015 to a credit of R11.3 million at
31 August 2016, an improvement in net cash position of R19.9 million. The group has utilised only
R7.1 million of a consolidated R71.5 million overdraft facility at 31 August 2016.
Prospects
The current year under review has again, proven to be a challenging one operationally. However, it has
also been a very exciting one and we have achieved a number of successes worth mentioning:
1. The creation of a tangible and meaningful employee ownership scheme with an effective 8.8% of the
group owned by our employees across the board;
2. The introduction of our strategic and empowerment partner, New Seasons Investments Holdings
Proprietary Limited who owns an effective 20% of the group and have two directors on our main board;
3. The successful integration of Polydrum into the group despite initial
challenges;
4. The acquisition of Amalgamated which will significantly improve our group revenues, profits and
net asset value; and
5. The successful commissioning of the roto moulding plant and the expansion of the plastic segment
into the KwaZulu-Natal market.
The board and management of Insimbi are optimistic that 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 are optimistic that we are entering a period of political stability and that economic stability will
follow. We are pleased by the recent signs that the long awaited Transnet/Spoornet upgrades are starting
to gain traction and we hope that this will provide much needed stimulus to the foundry industry in
particular.
The Foundry segment remains very much part of our core business and we will continue to service this
segment with the recognition it deserves.
We are optimistic about the cement industry and are of the opinion that the import tariffs implemented
on cheap cement imports almost two years ago, are now starting to have a positive impact on local cement
production as a result of the import "pipeline" having gradually come to an end.
We believe that with the acquisition of Amalgamated, it will be possible to maximise the existing spare
capacity ("sweat the assets") at both of our secondary aluminium smelters with a focus on export.
Polydrum has been showing incremental growth in recent months and with the commissioning at our existing
warehouse in Durban of two additional lines and the recent commissioning of the roto moulder in Wadeville,
we believe that this segment will continue to grow and reverse the negative results experienced shortly
after acquisition and we remain hopeful that the terrible drought that South Africa has been experiencing
for nearly two years, will be broken soon and this will boost agriculture which in turn will add to the
success of this operation, which relies quite heavily on the agri-chemical business in the traditional
rainy season.
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.
Dividend Declaration
An interim gross dividend of 1.5 cents per share has been declared on 10 November 2016. There are
260 000 000 ordinary shares in issue at announcement date, of which 92 500 are held in treasury and does
not participate in dividends, 22 968 015 shares are held by the ESOPs and are participating in the
dividend policy. The total dividend amount payable is R3,898,612 (2015: R4,725,814).
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 1.275 cents per share, while it is 1.5 cents per share to those shareholders who are exempt
from DT. The income tax reference number of the company is 9078/488/15/3.
The salient dates applicable to the gross interim dividend are as follows:
Last day to trade cum dividend Tuesday, 29 November 2016
First day to trade ex dividend Wednesday, 30 November 2016
Record date Friday, 2 December 2016
Payment date Monday, 5 December 2016
No share certificates will be dematerialised or rematerialised between Wednesday, 30 November 2016 and
Friday, 2 December 2016, both days inclusive.
Shares repurchased by a subsidiary since the year end and held in treasury amounted to 92 500
(2015: 360 000), which brings the total number of treasury shares to 22 970 515 (2015: 23 949 748).
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unreviewed Unreviewed Audited
as at as at as at
R'000 31 August 2016 31 August 2015 29 February 2016
Assets
Non-current assets
Property, plant and equipment 118 087 111 286 116 658
Goodwill 44 560 44 560 44 560
Intangible assets 10 613 9 523 10 613
Deferred taxation asset 9 287 12 228 8 749
182 548 177 597 180 580
Current assets
Inventories 97 671 83 439 87 927
Trade and other receivables 118 380 112 913 148 071
Derivative financial assets 1 765 2 347 484
Cash and cash resources 18 412 11 176 10 270
236 229 209 875 246 752
Total assets 418 777 387 472 427 332
Equity and liabilities
Equity
Share capital 47 230 44 442 44 442
Treasury shares (16 947) (15 035) (14 159)
Reserves 21 503 21 503 21 503
Share based payment reserve 597 - -
Retained earnings 106 042 89 509 100 251
Non-controlling interest (2 728) (1 584) (2 248)
155 697 138 835 149 789
Liabilities
Non-current liabilities
Loans from shareholders 3 364 4 606 3 364
Other financial liabilities 45 934 37 870 47 887
Deferred taxation 13 607 18 638 13 607
62 905 61 114 64 858
Current liabilities
Other financial liabilities - current 59 333 27 559 59 822
Current taxation payable 1 288 1 939 83
Trade and other payables 132 455 138 217 152 730
Bank overdraft 7 099 19 808 50
200 175 187 523 212 685
Total liabilities 263 080 248 637 277 543
Total equity and liabilities 418 777 387 472 427 332
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unreviewed Unreviewed Audited
as at as at as at
R'000 31 August 2016 31 August 2015 29 February 2016
Revenue 480 312 493 214 955 106
Cost of sales (411 746) (433 447) (830 137)
Gross profit 68 566 59 767 124 969
Other income 940 243 2 638
Operating expenses (49 644) (38 306) (83 219)
Operating profit 19 861 21 704 44 388
Investment revenue 17 29 78
Finance cost (6 566) (3 499) (8 372)
Profit before taxation 13 312 18 234 36 094
Taxation (2 075) (4 207) (7 264)
Profit for the year 11 237 14 027 28 830
Other comprehensive income
for the year
Items that will be reclassified to
profit and loss:
Exchange differences on translating
foreign entities - - -
Items that will not be reclassified to
profit and loss:
Gain on property revaluation - - -
Unreviewed Unreviewed Audited
as at as at as at
R'000 31 August 2016 31 August 2015 29 February 2016
Taxation related to components
of other comprehensive income
that will not be reclassified - - -
Other comprehensive income for
the year net of taxation - - -
Total comprehensive income for the year 11 237 14 027 28 830
Total comprehensive income attributable to:
Owners of the parent 11 717 13 924 29 391
Non-controlling interest (480) 103 (561)
11 237 14 027 28 830
Share
Re- based Non-
Share Trea- valua- Distri- pay- control-
Share pre- sury tion butable ment ling Total
R'000 Capital mium shares reserve reserve reserve interest Equity
Balance at
31 August 2015
(unreviewed) - 44 442 (15 035) 21 503 89 509 - (1 584) 138 835
Total comprehensive
income 15 467 (485) 14 982
Non-controlling interest
arising on business
combination (179) (179)
Dividend paid (4 725) (4 725)
Net movement in
treasury shares 876 876
Balance at
29 February 2016
(audited) - 44 442 (14 159) 21 503 100 251 - (2 248) 149 789
Total comprehensive
income 11 717 (480) 11 237
Shares issued 2 788 (2 788) -
Dividend paid (5 926) (5 926)
Share based payment
expense 597 597
Net movement in
treasury shares
Balance at
31 August 2016
(unreviewed) - 47 230 (16 947) 21 503 106 042 597 (2 728) 155 697
CONSOLIDATED STATEMENT OF CASH FLOWS
Unreviewed Unreviewed Audited
as at as at as at
R'000 31 August 2016 31 August 2015 29 February 2016
Cash flow from operating activities
Cash generated from operations 23 282 25 261 25 545
Investment income 17 28 78
Finance costs (6 566) (3 640) (8 863)
Taxation paid (1 408) (6 641) (11 027)
Net cash flow from operating activities 15 325 15 008 5 733
Cash flow from investing activities
Purchase of property, plant
and equipment (6 063) (21 855) (31 443)
Proceeds on disposal of property,
plant and equipment 537 552 214
Purchase of other intangible assets - (1 068) (1 708)
Business combinations - (8 289) (8 289)
Net cash from investing activities (5 526) (30 660) (41 226)
Cash flow from financing activities
Proceeds from loan funding 2 059 39 394 108 436
Repayment of loans (4 501) (57 945) (85 337)
Proceeds from shareholder's loan - 3 977 3 364
Dividends paid (5 926) (5 907) (10 632)
Sale/(repurchase) of treasury shares - (269) 607
Net cash outflow from financing activities (8 368) (20 750) 16 438
Net movement in cash for the period/year 1 431 (36 402) (19 055)
Effect of exchange rate movement on cash (338) 24 1 529
Cash and cash equivalents at
the beginning of the period/year 10 220 27 746 27 746
Cash and cash equivalents at
the end of the period/year 11 313 (8 632) 10 220
CONDENSED SEGMENT REPORT
Unreviewed Unreviewed Audited
as at as at as at
R'000 31 August 2016 31 August 2015 29 February 2016
Revenue by segment
Foundry 333 576 366 796 692 394
Steel 68 922 58 988 127 167
Refractory 55 494 64 585 115 975
Plastics 22 320 2 845 19 570
480 312 493 214 955 106
Gross profit by segment
Foundry 47 388 43 887 92 377
Steel 7 821 6 966 12 917
Refractory 6 376 7 791 12 632
Plastics 6 981 1 123 7 043
68 565 59 767 124 969
Operating profit by segment
Foundry 11 034 10 091 31 232
Steel 6 062 5 240 7 063
Refractory 4 397 5 608 6 107
Plastics (1 632) 522 (14)
Unreviewed Unreviewed Audited
as at as at as at
R'000 31 August 2016 31 August 2015 29 February 2016
Basic earnings (loss) per share
From continuing operations
(cents per share) 4.94 5.94 12.43
Number of weighted shares in issue
at the end of the period/year ('000) 260 000 260 000 260 000
Less: treasury shares held in a
subsidiary at the end of the year ('000) (22 715) (23 755) (23 611)
237 285 236 245 236 389
Reconciliation of headline earnings
(loss) and diluted headlines
earnings (loss)e
Profit attributable to owners of
the parent (R'000) 11 717 14 027 29 391
Adjusted for (profit)/loss on sale of
property, plant and equipment,
nett of tax (R'000) (378) (55) (30)
Headline earnings for the group (R'000) 11 340 13 972 29 361
Headline earnings per share (cents) 4.78 5.91 12.42
Reconciliation of number of shares
for diluted earnings (loss) per share
Weighted average number of
ordinary shares in issue ('000) 237 285 236 245 236 389
Adjusted for: Share options ('000) 16 406 - -
Weighted average number of
ordinary shares for diluted earnings
per share ('000) 253 691 236 245 236 389
Basic earnings per share (cents) 4.94 5.94 12.43
Headline earnings per share (cents) 4.78 5.91 12.42
Diluted earnings per share (cents) 4.62 - -
Diluted headlines earnings per share (cents) 4.47 - -
Dividends per share 1.50 2.50 4.50
Net asset value per share (cents) 65.69 59.26 63.13
Tangible net asset value per share (cents) 61.21 55.23 58.65
EBITDA 24 482 25 126 53 050
Depreciation 4 621 4 122 8 662
Capital expenditure 6 063 21 855 31 443
Basis of preparation and accounting policies
The unaudited condensed consolidated financial statements for the interim period ended 31 August 2016
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 Financial Director, Frederik Botha CA (SA). The accounting
policies are consistent with those applied in the annual financial statements for the previous year.
The above information has not been audited or reported on by Insimbi's auditors.
Contingencies
The Company does not have any material contingencies.
Post balance sheet event
A large customer, Steloy Castings Proprietary Limited was placed into voluntary Business Rescue by its
directors on 4 July 2016. They owe Insimbi Alloy Supplies Proprietary Limited an amount of
R11,283,127.00 inclusive of 14% VAT (R9,897,479.82 exclusive of VAT). We were notified on Monday,
31 October 2016 that the Business Rescue Practitioner, Mr Thomas George Nell had decided to apply
for the liquidation of Steloy Castings Proprietary Limited and the Notice of Motion is scheduled for
Tuesday, 8 November 2016. This application is being made despite significant support from several of
the creditors to convert debt to equity, including the IDC and we expect said application to be opposed.
We have not provided against this debt and we have calculated our potential exposure to be in the region
of R7.9 million on the assumption that liquidation would result on a liquidation dividend of 20 cents in
the Rand.
Approval:
L Y Okeyo PJ Schutte
Chairman Chief Executive Officer
10 November 2016
Registered office: Stand 359 Crocker Road, Wadeville, Germiston, 1422
Company Secretary: Kristell Holtzhausen
Directors: CF Botha, F Botha (Financial and Commercial Director), EP Liechti, P Mogotlane,
N Mwale, B Craig*, 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: 10/11/2016 09:06:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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