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INSIMBI REFRACTORY & ALLOY SUP LIMITED - ABRIDGED AUDITED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2017 AND NOTICE OF ANNUAL GENERAL MEETING

Release Date: 29/05/2017 14:15
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ABRIDGED AUDITED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2017 AND NOTICE OF ANNUAL GENERAL MEETING

INSIMBI REFRACTORY AND ALLOY SUPPLIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration No: 2002/029821/06)
(Income tax reference no: 9078/488/15/3)
Share code: ISB   ISIN code: ZAE000116828
("Insimbi" or "the group" or "the company")

ABRIDGED AUDITED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2017 AND NOTICE OF ANNUAL GENERAL MEETING

FINANCIAL INDICATORS      

                                                               2017          2016        % change
Revenue (Rm)                                                  1 343           955              41
Gross Profit (Rm)                                               186           125              49
Operating profit (Rm)                                            54            44              23
Profit before tax (Rm)                                           39            36               8
Attributable earnings (Rm)                                       29            29               -
Headline earnings (Rm)                                           30            29               3
Earnings before interest, tax, depreciation 
and amortisation (Rm)                                            66            53              24
Earnings per share (cents)                                    11,01         12,43             (11)
Headline earnings per share (cents)                           10,87         12,42             (12)
Dividends per share (cents)                                     1,5           4,5             (67)
NAV per share (cents)                                            76            63              21


ABRIDGED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                                          Audited         Audited
                                                                     12 months to    12 months to
                                                                      28 February     29 February
                                                                             2017            2016
Revenue                                                                 1 342 526         955 106
Cost of sales                                                          (1 156 693)       (830 137)
Gross profit                                                              185 833         124 969
Other income                                                                1 349           2 638
Operating expenses                                                       (132 749)        (83 219)
Operating profit                                                           54 433          44 388
Investment revenue
Income from equity accounted investments                                      266              78
                                                                              543               -
Finance costs                                                             (16 355)         (8 372)
Profit before taxation                                                     38 887          36 094
Taxation                                                                   (9 440)         (7 264)
Profit for the year                                                        29 447          28 830
Profit attributable to:            
The owners of the parent                                                   29 571          29 391
Non-controlling interest                                                     (124)           (561)
Total comprehensive income                                                 29 447          28 830
Total comprehensive income attributable to:            
Owners of the parent                                                       29 571          29 391 
Non-controlling interest                                                     (124)           (561)


EARNINGS AND HEADLINE EARNINGS PER SHARE
                                                                          Audited         Audited
                                                                     12 months to    12 months to
                                                                      28 February     29 February
                                                                             2017            2016
Basic attributable earnings per share are calculated 
by dividing the net profit attributable to the shareholders 
by the number of shares in issue during the year.            
Number of shares in issue at the end of 
the year                                                                  291 644         260 000
Less: Weighted average number of treasury shares held 
in a subsidiary at the end of the year                                    (22 962)        (23 611)
                                                                          268 682         236 389
Headline earnings for the group have been computed as follows:             
Profit attributable to equity holders                                      29 571          29 391
- Profit on sale of property, plant and equipment                            (366)            (30)
Headline earnings for the group                                            29 206          29 361
Earnings per share (cents)                                                  11,01           12,43
Headline earnings per share (cents)                                         10,87           12,42
Diluted earnings per share (cents)                                          10,37               -
Diluted headline earnings per (cents)                                       10,24               -

 
ABRIDGED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                                          Audited         Audited
                                                                     12 months to    12 months to
                                                                      28 February     29 February
                                                                             2017            2016
Assets             
Non-current assets             
Property, plant and equipment                                             239 095         116 658
Goodwill                                                                  101 591          44 560
Intangible assets                                                          11 836          10 613
Investments in joint ventures                                                 670               -
Deferred taxation                                                           7 609           8 749
                                                                          360 801         180 580
Current assets            
Inventories                                                               152 546          87 927
Trade and other receivables                                               275 792         148 071
Derivative financial assets                                                     -             484
Current taxation receivable                                                 3 166               -
Cash and cash equivalents                                                  29 848          10 270
                                                                          461 352         246 752
Total assets                                                              822 153         427 332
Equity and Liabilities             
Equity            
Share capital                                                             190 704          44 442
Treasury shares                                                           (18 215)        (14 159)
Reserves                                                                   22 483          21 503
Retained income                                                           116 579         100 251
Non-controlling interest                                                     (258)         (2 248)
                                                                          311 293         149 789
Liabilities            
Non-current liabilities             
Loans from shareholders                                                     2 491           3 364
Other financial liabilities - at amortised cost                           210 811          47 887
Deferred taxation                                                          26 083          13 607
                                                                          239 385          64 858
Current Liabilities             
Other financial liabilities - at fair value through profit and loss         2 823               -
Other financial liabilities - at amortised cost                            74 214          59 822
Current tax payable                                                             -              83
Trade and other payables                                                  162 111         152 730
Bank overdraft                                                             32 327              50
                                                                          271 475         212 685
Total liabilities                                                         510 860         277 543
Total equity and liabilities                                              822 153         427 332

 
ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                          Audited         Audited
                                                                     12 months to    12 months to
                                                                      28 February     29 February
                                                                             2017            2016
Cash flows from operating activities            
Cash generated from operations                                             88 928          25 545
Interest income                                                               266              78
Finance costs                                                             (16 355)         (8 863)
Tax paid                                                                  (11 244)        (11 027)
Net cash generated from operating activities                               61 595           5 733
Cash flows from investing activities            
Purchase of property, plant and equipment                                 (10 373)        (31 443)
Sale of property, plant and equipment                                       1 430             214
Intangible assets under development                                          (922)         (1 708)
Business combination                                                     (230 546)         (8 289)
Net cash from/(utilised in) investing activities                         (240 411)        (41 226)
Cash flows from financing activities            
Sale / (repurchase) of treasury shares                                     (4 056)            607
Proceeds from share issue                                                  96 262               -
Proceeds from other financial liabilities                                  95 613         108 436
Repayment of other financial liabilities                                   (6 672)        (85 337)
Repayment of shareholders loans                                            (1 169)          3 364
Proceeds from shareholders loans                                              296               -
Dividends paid                                                            (10 149)        (10 632)
Net cash from financing activities                                        170 125          16 438
Total cash movement for the year                                           (8 691)        (19 055)
Exchange gains / (losses) on cash                                          (4 008)          1 529
Cash at the beginning of the year                                          10 220          27 746
Total cash at end of the year                                              (2 479)         10 220


ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                             Share          Share        Treasury
                                                           capital        premium          shares
                                                             R'000          R'000           R'000
Balance at 1 March 2015                                          -         44 442         (14 766)
Changes in equity                                                -              -               -
Profit for the year                                              -              -               -
Total comprehensive income for the year                          -              -               -
Transactions with non-controlling interests                      -              -               -
Purchase of own/treasury shares                                  -              -             607
Dividends                                                        -              -               -
Total changes                                                    -              -             607
Balance at 29 February 2016                                      -         44 442         (14 159)
Changes in equity                                                -              -               -
Profit for the year                                              -              -               -
Total comprehensive income for the year                          -              -               -
Transactions with non-controlling interests                      -              -               -
Shares issued                                                    -        146 262               -
Purchase of own/treasury shares                                  -              -          (4 056)
Dividends                                                        -              -               -
Total changes                                                    -        146 262          (4 056)
Balance at 28 February 2017                                      -        190 704         (18 215)


ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (cont)

                                                       Share based 
                                                           payment    Revaluation        Retained
                                                           reserve        reserve          income
                                                             R'000          R'000           R'000
Balance at 1 March 2015                                          -         21 503          81 492
Changes in equity                                                -              -               -
Profit for the year                                              -              -               -
Total other comprehensive income for the year                    -              -          29 391
Transactions with non-controlling interests                      -              -               -
Purchase of own/treasury shares                                  -              -               -
Dividends                                                        -              -         (10 632)
Total changes                                                    -              -          18 759
Balance at 29 February 2016                                      -         21 503         100 251
Changes in equity                                                -              -               -
Profit for the year                                            980              -          28 591
Total comprehensive income for the year                          -              -               - 
Transactions with non-controlling interests                      -              -               -
Shares issued                                                    -              -               -
Purchase of own/treasury shares                                  -              -          (2 114)
Dividends                                                        -              -         (10 149)
Total changes                                                  980              -          16 328
Balance at 28 February 2017                                    980         21 503         116 579


ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (cont)
                                                                             Non-
                                                                      controlling           Total
                                                                         interest          equity
                                                                            R'000           R'000
Balance at 1 March 2015                                                    (1 508)        131 163
Changes in equity                                                               -               -
Profit for the year                                                             -               -
Total other comprehensive income for the year                                (561)         28 830
Transactions with non-controlling interests                                  (179)           (179)
Purchase of own/treasury shares                                                 -             607
Dividends                                                                       -         (10 632)
Total changes                                                                (740)         18 626
Balance at 29 February 2016                                                (2 248)        149 789
Changes in equity                                                               -               -
Profit for the year                                                          (124)         29 447
Total comprehensive income for the year                                         -               -
Transactions with non-controlling interests                                 2 144               -
Shares issued                                                                   -         146 262
Purchase of own/treasury shares                                                 -          (4 056)
Dividends                                                                       -         (10 149)
Total changes                                                               1 990         161 504
Balance at 28 February 2017                                                  (258)        311 293

 
SEGMENT REPORT
                                    Non-ferrous     Ferrous     
                                    (Previously (Previously       
                                     "Foundry")    "Steel")   Refractory     Plastics       Total
2017                                      R'000       R'000        R'000        R'000       R'000
Revenue                              
Sale of goods                         1 002 402     174 818      109 694       50 808   1 337 722
Commission                                   36           -        4 768            -       4 804
                                      1 002 438     174 818      114 462       50 808   1 342 526
Cost of sales                           867 900     153 903      100 454       34 436   1 156 693
Gross profit                            134 852      20 915       14 008       16 372     185 833
Other income                              3 055           -            -            -       3 055
Profit before operating 
and administration expenses             137 592      20 915       14 008       16 372     188 888
Operating and administration 
expenses                              
Communication                             1 244          94           50          147       1 534
Employment costs                         49 925       3 623        2 744        8 144      64 437
Motor vehicle expenses                    4 422         579          187          765       5 952
Other expenses                           41 666       1 054          206        2 816      45 742
Occupancy                                12 105         143           19        4 523      16 790
                                        109 362       5 493        3 206       16 395     134 455
Operating profit before 
finance income                           28 231      15 422       10 802          (23)     54 433
                           

                                    Non-ferrous     Ferrous     
                                    (Previously (Previously       
                                     "Foundry")    "Steel")   Refractory     Plastics       Total
2016                                      R'000       R'000        R'000        R'000       R'000
Revenue                              
Sale of goods                           692 358     127 167      111 899       19 570     950 993
Commission                                   36           -        4 076            -       4 112
                                        692 394     127 167      115 975       19 570     955 105
Cost of sales                           600 017     114 250      103 343       12 527     830 136
Gross profit                             92 377      12 917       12 632        7 043     124 969
Other income                              2 638           -            -            -       2 638
Profit before operating and 
administration expenses                  95 015      12 917       12 632        7 043     127 607
Operating and administration 
expenses                              
Communication                             1 191          71           84          112       1 458
Employment costs                         40 414       2 637        3 765        3 496      50 312
Motor vehicle expenses                    1 332         236          203          212       1 983
Other expenses                           16 277       1 405        1 149        1 809      20 640
Occupancy                                 4 569       1 505        1 342        1 428       8 826
                                         63 783       5 854        6 525        7 057      83 219
Operating profit before 
finance income                           31 232       7 063        6 107          (14)     44 388


There is no disclosure of segment assets and liabilities as it is not possible to specifically 
allocate tangible assets and liabilities to specific segments.

Management has determined the operating segments based on the reports reviewed and this is 
supported by management reporting disciplines, which include monthly variance reporting. Insimbi's 
performance is monitored continuously and issues arising are addressed at monthly management 
meetings that have board representation present.

Management considers the business from both a geographical and product management perspective. 
Management assesses the performance of the operating segments based on measures such as gross and 
operating profit.


COMMENTARY

The directors of Insimbi are pleased to announce the audited results for the year ended 
28 February 2017. 

1. Basis of Preparation and Accounting Policies

The results for the year ended 28 February 2017 have been prepared in accordance with 
International Financial Reporting Standards (IFRS), and comply with the requirements of the 
Companies Act 71 of 2008 and the Listings Requirements of the JSE Limited. The principle 
accounting policies applied by the group in the abridged consolidated financial results for the 
year ended 28 February 2017 are consistent with those applied in the consolidated financial 
statements for the year ended 29 February 2016. These financial statements do not include all 
the information for full annual financial statements and should be read in conjunction with the 
consolidated financial statements for the year ended 28 February 2017. The results have been 
audited by PricewaterhouseCoopers Inc. Their unqualified audit report and the audited financial 
statements are available for inspection at the company's registered office or on our website, 
www.insimbi-iras.co.za. These abridged financial statements have been prepared under the 
supervision of Fred Botha (CA)SA (Commercial and Financial Director).

2. Review of activities

Insimbi Refractory and Alloy Supplies Limited provides the steel, aluminium, cement and foundry 
industries with resource-based commodities such as ferrous and non-ferrous alloys, as well as 
refractory materials, and has recently started manufacturing plastic containers for the chemical, 
agricultural, home and food industries using blow- and roto-moulding activities.  

Late last year we acquired the Amalgamated Metal Recycling Group (AMR), licensed scrap metal 
dealers providing a competitive service locally whilst also exporting a significant quantity of 
materials. It collects, sorts, processes and trades in all forms of ferrous metals (iron and steel)
and non-ferrous metals (aluminum, copper, zinc, stainless steel, lead, nickel, brass, tin, bronze,
etc). The AMR business model is such that it is able to provide its customers with highly 
competitive pricing while adhering to the myriad of legislative requirements applicable to 
second-hand goods, including inspections conducted by South African Police Services, City Power, 
Eskom, Health and Emergency Department services. In excess of 65% of revenue is generated by 
exports, and products are typically priced against LSE spot prices.


3. Financial Review

The year under review may prove to be a watershed year for the Insimbi group of companies. Changes 
in market capitalisation, size and complexity means that the group looks very different at the 
end of the reporting period when compared to the beginning of the period. Investment by our B-BBEE 
partner, New Seasons Investment Holdings Proprietary Limited, has been completed, two Employee 
Share Option Schemes (EmployeeCo and ManCo) have been established and implemented and the 
acquisition of the Amalgamated Metals Recycling group of companies (AMR) has been concluded.
The improved results of the Insimbi group was not only the result of the AMR transaction, 
but also stemmed from growth in the relatively new plastics segment and some improvement in the 
aluminium business. This resulted in an overall increase of 41% in revenue to R1,3 billion 
(2016: R955 million), 49% in gross profit to R186 million (2016: R125 million) and 24% in EBITDA 
to R68 million (2016: R53 million). Net profit remained flat at R29 million (2016: R29 million) 
and operating profit up 23% to R54 million (2016: R44 million).

Overall, there has been a marginal decrease in profitability compared to the prior period as a 
result of extraordinary expenses associated with the AMR acquisition and foreign exchange 
volatility, and the write off of R10 million bad debt during the period. EPS was down 11% to 
11,01 cents per share (2016: 12,43 cents) and HEPS was down 12% to 10,87 cents per share 
(2016: 12,42 cents).

The acquisition by Insimbi of AMR group for R284 million, of which R234 million was paid in cash 
and the balance by the issue of new shares subject to profit warranties and an NAV underpin, brings
many benefits, including diversification of revenue and customers; maximisation of smelter 
capacity; a Rand hedge; and allows for succession planning. The acquisition is value accretive 
from a revenue, gross profit, EPS and HEPS perspective. It will also allow us to access markets 
that are parallel to its existing markets including the scrap metal recycling market. AMR's 
results have been consolidated into the Insimbi group results for the last two and half months of 
the financial year, but it is anticipated that the full impact of the transaction on the Insimbi
group will only become evident in the current financial year ending 28 February 2018.  

In the process of acquiring AMR, Insimbi embarked on its first capital raising exercise since 
listing in March 2008 and successfully raised R100 million from new and existing shareholders.
The offer was not only fully subscribed but saw support from institutional investors. Insimbi's
market capitalisation has more than doubled as a result of this acquisition.

Strong operating cash flow, which was up to R89 million (2016: 26illion), was pleasing and evidence 
of our ongoing ability to adapt and survive, notwithstanding difficult economic and market 
conditions. During the year, a major customer was liquidated and we have provided in full for the 
R10 million owing. 

4. Market and Prospects

Instability in South African politics, as well as volatile international markets are likely to
result in a challenging environment in the future. The anticipated downgrade of South Africa's
sovereign debt has been realized, with further downgrades anticipated. This has had a serious
knock-on effect with the inevitable downgrade of all banks and state owned entities. 

2017 is likely to continue to be a challenging year on all fronts, with little evidence of a
pick-up in the construction or steel markets, although there seems to be some positive sentiment
in the cement industry. Although the effect of a restructuring of the cement industry, which is
anticipated over the next few months, on our business is not clear, the business is prepared and
well diversified to manage the impact. 


5. Special resolutions

The company passed a number of special resolutions during the year under review. This included 
resolutions authorising specific repurchases of shares to enable the establishment of the 
EmployeeCo and ManCo share ownership arrangements, the repurchase of shares and issue of an 
additional 150 000 000 shares to enable the AMR transaction. Standard resolutions authorising 
the fees to be paid to non-executive directors and authorising the board to provide financial 
assistance to directors and related and inter-related companies were also passed  

6. Post balance sheet events

Subsequent to the year end, the announcement of my retirement on 30 November 2017 and the 
appointment of Fred Botha (currently Group Financial and Commercial Director) as CEO with effect 
from 1 June 2017 was announced. Fred and I have worked together for many years, particularly 
since the 2008 IPO, and the transition is expected to be seamless. Fred's appointment will 
enable me to focus on ensuring that there are suitable, skilled and technical staff to continue 
building on existing customer relationships. I have offered my services in a consulting capacity 
even after my retirement, and do not expect to be severing all ties with the group. 

A review of the board of directors, which changed substantially during the year following the 
New Seasons investment and AMR transaction, led to my colleagues (Eddie Liechti and Colin Botha) 
and I stepping down as executive directors from the holding company board to allow for a better 
balance between executive and non-executive directors at that level. This change will have no 
impact on our executive roles or directorships of subsidiary companies within the group (other 
than my retirement in November). Fred Botha will continue to oversee the financial function 
until a more long term decision has been made regarding the role of the financial director.

7. Directors

There have been a number of changes to the board of directors during the year under review:
- CF Botha                   (will resign on 31 May 2017)
- F Botha                    (will assume the role of CEO on 1 June 2017)
- B Craig                    (appointed independent non-executive director on 1 August 2016 and 
                              chairperson on 16 January 2017)
- C Coombs                   (appointed executive director on 16 January 2017)
- RI Dickerson               (appointed non-executive director on 16 January 2017)
- EP Liechti                 (will resign on 31 May 2017)
- GS Mahlati                 (resigned 31 March 2016)
- N Mwale                    (appointed non-executive director on 9 June 2016)
- IP Mogotlane               (appointed non-executive director on 9 June 2016)
- LY Okeyo                   (resigned as chairperson on 8 December 2016 and as a director on 
                              31 January 2017)
- PJ Schutte                 (will resign as CEO and director on 31 May 2017 and retire on 
                              30 November 2017)
- CS Ntshingila              (previously CS Shiceka)

8. Authorised and issued share capital

The number of shares in issue increased during the year under review with the issue of an 
additional 150 000 000 ordinary shares as part of the funding of the AMR transaction.
Number of shares authorised at 28 February 2017                                     12 000 000 000
Number of shares in issue at 29 February 2016                                          260 000 000
Number of shares in issue at 28 February 2017                                          410 000 000
The issued share capital includes 23 105 735 treasury shares at year end, which is disclosed as a
reduction of equity in the statement of changes in equity.

9. Dividends

An interim dividend number 14 of 1,5 cents per share was declared on 10 November 2016 in respect
of the period ending 31 August 2016. The total amount paid was R3 898 612 (2016: R4 725 814).

The board has elected to adopt a conservative approach at year-end and, in light of the
significant debt incurred to conclude the AMR transaction has not declared a dividend for the
full year, but decided to conserve cash and focus on reducing gearing in the business to a more
appropriate level.  

The total dividend payable in the year under review was therefore 1,5 cents per share or 
R3 898 216 (2016: 4,5 cents per share or R10 655 104). 

10. Litigation

Insimbi has provided in full for a potential R10 million loss following the liquidation of one of
our customers. Fortunately, we have a diverse range of customers and the impact of this loss will
be minimal. We will, in any event, consider what steps may be taken to recover a portion of the
amount due.  

11. Notice of Annual General Meeting

Notice is hereby given that the annual general meeting of Insimbi Refractory and Alloy Supplies
Limited will be held at 359 Crocker Road, Wadeville Ext 4, Germiston on Monday 26 June 2017 at
10:00, to transact the business as stated in the notice of annual general meeting included in
the Integrated Annual Report which has been posted to shareholders today.

In closing, I would like to thank my colleagues on the board, the members of my management team
and all the employees of Insimbi, for entrusting me with this position of leadership over the
past years. While Insimbi has been my family, my customers and suppliers have become my friends.
I know that you will all afford Fred Botha the same support as you have given me. As I start on
the next leg of my journey, I hope the legacy instilled prevails.

By order of the Board

Pieter Jacobus Schutte
Chief Executive Officer


Directors:                       CF Botha
                                 F Botha (Financial Director)
                                 B Craig* (Chairperson)
                                 C Coombs
                                 RI Dickerson*
                                 EP Liechti
                                 IP Mogotlane*
                                 N Mwale*
                                 CS Ntshingila (previously Shiceka)*
                                 PJ Schutte (Chief Executive Officer)
                                 (*non-executive)
Company Secretary:               SK Saunders
Registered office:               Stand 359 Crocker Road, Wadeville, Germiston, 1422
Website:                         www.insimbi-iras.co.za


Sponsor:                         Bridge Capital Advisors Proprietary Limited
Transfer Secretaries:            Computershare Investor Services Proprietary Limited
Auditors:                        PricewaterhouseCoopers Inc.
29 May 2017

Date: 29/05/2017 02:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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