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INSIMBI REFRACTORY & ALLOY SUP LIMITED - Unreviewed Condensed Consolidated Financial Results

Release Date: 26/09/2017 08:49
Code(s): ISB     PDF:  
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Unreviewed Condensed Consolidated Financial Results

INSIMBI REFRACTORY AND ALLOY SUPPLIES LTD
(Incorporated in the Republic of South Africa)      
(Registration No: 2002/029821/06)            
Share code: ISB 
ISIN code: ZAE000116828   

Insimbi Refractory and Alloy Supplies Limited
("Insimbi" or "the Company" or "the Group")

UNREVIEWED CONDENSED CONSOLIDATED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2017 
AND INTERIM DIVIDEND DECLARATION

Insimbi (JSE:ISB) is a group of companies that together provide resource-based supplies to a 
diversified range of industrial customers. Insimbi offers ferrous and non-ferrous alloys; refractory 
and foundry materials; plastic blow and rotomoulding production; and alloy recycling processes to 
national, regional and international markets. The core business expertise is the ability to source 
and provide local, regional and global industrial consumers with the required commodity over the four 
distinct segments. The Company herewith announces its unreviewed condensed consolidated financial 
results for the six months ended 31 August 2017, and declares an interim dividend of 3.00 cents per 
share.

Key Financial Highlights: When compared to the 6 months ended 31 August 2016:
-    Revenue increased by 247% to R1,7 billion 
-    Gross profit increased by 162% to R179,8 million
-    EBITDA increased by 273% to R91,3 million
-    EPS increased by 142% to 11,97 cents per share
-    HEPS increased by 150% to 11,95 cents per share
-    Cash generated by operations increased by R93,5 million (401%) to R116,8 million compared to 
     R23,3 million in comparable interim period ended August 2016 
-    NAV and tangible NAV increased by 33% and 38% to 87,17 cents per share and 84.30 cents per 
     share respectively
-    Finance costs increased by 150% to R16,4 million
-    The Group has declared a gross interim dividend of 3 cents per share for the period ended 
     31 August 2017
-    Trading and operational outlook for the remainder of the financial year is positive

CEO of Insimbi, Fred Botha, commented:

"Start by doing what is necessary; then do what's possible; and suddenly you are doing the impossible"
 - Saint Francis of Assissi.

In what will be my first report as CEO of Insimbi Refractory and Alloy Supplies Limited ("Insimbi") 
I would like to turn things around a little, by starting with the gratitude element of the report. 
I would like to express my gratitude first of all to the team at Insimbi who have assisted in making 
my transition to Chief Executive Officer ("CEO") effortless. The team is expanding given the 
acquisitions made and the integration thereof has been seamless. We are all striving to achieve the 
impossible and it is only possible if we work as a team. To our suppliers and customers who play such 
a critical role in our success – we look forward to nurturing long and mutually beneficial 
relationships. The board have played their role in creating a strategic environment in order for the 
executive to achieve the goals set and stretch the boundaries of what is possible. The board and 
executive team are positioning Insimbi to achieve even higher goals than those already reached and 
this provides us with the mechanism to deliver on the expectations of our loyal stakeholder base. 

What started many years ago as a journey of growing a business in the refractory and alloys industry 
has resulted in an Insimbi that today is a diversified business in terms of industry, client base, 
presence and revenue. This augurs well for the future and we are well positioned to take advantage of 
opportunities as and when they arise. It is our intention to achieve at least a level 4 rating, on the 
B-BBEE Amended Codes of Good Practice at all our operations, by the end of 2018 and we are well 
positioned to achieve this. 

The first half of FY18 has been satisfactory and in particular, the second quarter, was outstanding. 
The conclusion of the Amalgamated Metal Group Holdings ("AMGH") transaction at the end of last year is 
now contributing positively to all aspects of the business. In the final results for 2017, we were 
only able to include two months of the AMGH trading in Insimbi's consolidated results. We are happy 
to confirm that this business has met and exceeded our expectations as at the time of making the 
acquisition. The integration has been seamless and the synergies are being exploited beyond 
anticipation. From a commercial perspective, the AMGH transaction was concluded when Copper was at 
$4400pmt while it is approximately $6600pmt at the time of writing. Aluminium, chrome and iron ore 
prices have shown a significant upward trend since the last Insimbi report and seem to be recovering 
on the back of strong global demand. 

OPERATIONAL OVERVIEW
AMGH volumes are up over 10% on the previous year and this, complemented by the increased metal prices,
has resulted in an exceptional 6 months.  

Despite a rather lacklustre first quarter, Insimbi Alloy Supplies ("IAS") has exceeded the comparative
period last year after a very strong second quarter. Stock levels are consistently better and a 
renewed enthusiasm within this operation is clearly evident. The steel industry is showing signs of 
improvement whilst the ferrous and non-ferrous segments are showing significant growth. 

The refractory operations are performing well although revenues are down as a result of the loss of 
volume but margins are trending higher. The synergies between the secondary aluminium smelters at 
Insimbi Aluminium Alloys ("IAA") and Metlite Alloys ("ML") and AMGH are becoming evident and the 
management teams are working effectively to benefit the Group. 

The plastics business has shown an improved performance year on year and we have increased the 
footprint of this segment by expanding the manufacturing facility to include Kwa-Zulu Natal at 
present and will soon be established in the Western Cape. The plastics product range has expanded as 
well and we are slowly penetrating the rain-water harvesting market.

FINANCIAL OVERVIEW
Group revenue for the period is R1.67 billion, an increase of 247% or R1.19 billion on the comparative
period ended 31 August 2016. The increase in revenue is mainly attributable to the successful 
acquisition of AMGH, as well as an increase of around 11% in the revenue of the traditional pre-
acquisition group of companies. As a result of the lower margins in AMGH,overall gross margins have 
decreased from 14% to 11% but gross profit has increased by 162% from R68.6 million to R179.8 million, 
an increase of R111.2 million for the 6 months ended August 2017.

Group operating profit has increased by 289% to R77.3 million compared to R19.9 million in the 
comparative period last year.

Group operating costs have increased by R56.2 million from R49.6 million to R105.9 million when 
compared with the period ended August 2016, R51 million as a result of operational costs associated 
with the acquisition of AMGH for the period under review. Operating costs in the pre AMGH acquisition 
group have increased by R5.3 million and are mainly attributable to an increase in salaries and wages.
All companies within the Group are committed to cutting operating costs where possible.

Group finance costs for the period have increased from R6.6 million to R16.4 million, an increase of 
R9.8 million, due to:
-    Interest on pre-acquisition funding of R6 million
-    Interest on the funding of the AMGH acquisition of R10.4 million

Insimbi achieved Group EPS of 11.97 and HEPS of 11.95 cents per share respectively compared to 4.94 
and 4.78 cents per share in the previous comparative period. This equates to an increase of 142% and 
150% in respect of EPS and HEPS respectively.

Net cash flow from operating activities increased from R15.3 million to R88.6 million, of which 
R30 million is attributable to an improvement in the net working capital of the Group. Borrowings were 
reduced significantly by R95.1 million in the 6 months ended 30 August 2017 and this has resulted in 
a net cash decrease of R19 million to R8.0 million net overdraft from R11 million cash on hand in the 
comparative period. Utilisation of the Group's R111.5 million overdraft facilities was only 
R8.0 million as at 31 August 2017.

PROSPECTS
Insimbi is well positioned for the future. Diversified products, revenue, client base and geographic 
location allow us to pursue our goals with the required vigour and energy. The expansion of the 
Atlantis, Cape Town, site to include the plastics blow-moulding and rotomoulding facilities has been 
completed and we will commence production in the third quarter. This follows a successful 
implementation of the strategy earlier in the year at our site in Durban. This will allow us to 
penetrate these markets cost effectively with a superior product from world class facilities. 

Expansion of the AMGH metal recycling footprint into KZN and Western Cape is a key focus and inroads 
are already being made to achieve this.

Major inroads have been made regarding our ambition to produce ultra-low carbon alumino-thermic 
ferrochrome which will increase production volumes of aluminium in existing plants and provide us 
with a high value beneficiated chrome product for the local and export market. We are under cautionary 
with another transformative transaction being explored, which we hope to conclude in this financial 
year. We believe this transaction will be value accretive and bring further diversification and value 
added opportunities to Insimbi.

We are continuously looking at how we are able to achieve the impossible and as such we are focusing 
on exploiting under-performing assets, maximising synergies and ensuring appropriate cost management 
across all the business segments. 

We believe that the Group is well positioned to continue to deliver on the promise reflected in the 
above results. 

DIVIDEND DECLARATION
An interim gross dividend of 3 cents per share has been declared on 21 September 2017. There are 
410 000 000 ordinary shares in issue at announcement date, of which 494 033 are held in treasury and 
do not participate in dividends, 22 968 015 shares are held by the ESOP's and are participating in 
terms of the dividend policy. The total dividend amount payable is R12 285 179 (2016: R3 898 612).

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 20%. The net amount payable to shareholders who are not exempt 
from DT is 2.4 cents per share, while it is 3 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             Tuesday, 31 October 2017
First day to trade ex dividend             Wednesday, 1 November 2017
Record date                                Friday, 3 November 2017
Payment date                               Monday, 6 November 2017

No share certificates will be dematerialised or rematerialised between Wednesday 1 November 2017 and
Friday, 3 November 2017, both days inclusive.

Shares repurchased by a subsidiary since the year end and held in treasury amounted to 356 313 
(2016: 92 500), which brings the total number of treasury shares to 23,462,048 (2016: 22 970 515).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                 Unreviewed         Unreviewed              Audited
                                                      as at              as at                as at
R'000                                        31 August 2017     31 August 2016     28 February 2017
Assets            
Non-current assets            
Property, plant and equipment                       236 526            118 087              239 095
Goodwill                                            101 591             44 560              101 591
Intangible assets                                    11 756             10 613               11 836
Investments in joint ventures                         1 190                  –                  670
Deferred taxation asset                               6 892              9 288                7 609
                                                    357 955            182 548              360 801
Current assets            
Inventories                                         149 187             97 671              152 546
Trade and other receivables                         292 594            118 380              275 792
Derivative financial assets – at fair value           1 138              1 766                    –
Current taxation receivable                               –                  –                3 166
Cash and cash resources                              25 629             18 412               29 848
                                                    468 548            236 229              461 352
Total assets                                        826 503            418 777              822 153
Equity and liabilities            
Equity             
Share capital                                       190 704             47 230              190 704
Treasury shares                                     (18 580)           (16 947)             (18 215)
Reserves                                             21 503             21 503               21 503
Share based payment reserve                           1 634                597                  980 
Retained earnings                                   162 251            106 042              116 579
Non-controlling interest                               (124)            (2 728)                (258)
                                                    357 388            155 697              311 293
            
Liabilities            
Non-current liabilities            
Loans from shareholders                               1 630              3 364                2 491
Other financial liabilities                         172 611             45 934              210 811
Deferred taxation                                    26 082             13 607               26 083
                                                    200 323             62 905              239 385
Current liabilities            
Other financial liabilities 
   – through profit or loss                          29 427             59 333               74 214
Other financial liabilities – at fair value               –                  –                2 823    
Current taxation payable                                  –              1 288                    –
Trade and other payables                            205 714            132 455              162 111
Bank overdraft                                       33 649              7 099               32 327
                                                    268 791            200 175              271 475
Total liabilities                                   469 114            263 080              510 860
Total equity and liabilities                        826 503            418 777              822 153



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                 Unreviewed         Unreviewed              Audited
                                                      as at              as at                as at
R'000                                        31 August 2017     31 August 2016     28 February 2017
Revenue                                           1 666 368            480 312            1 342 526 
Cost of sales                                    (1 486 617)          (411 746)          (1 156 693)
Gross profit                                        179 751             68 566              185 833
Other income                                          3 370                940                1 349
Operating expenses                                 (105 860)           (49 645)            (132 749)
Operating profit                                     77 261             19 861               54 433
Investment revenue                                      162                 17                  266
Income from equity accounted investments              1 282                  –                  543
Finance cost                                        (16 408)            (6 566)             (16 355)
Profit before taxation                               62 297             13 312               38 887
Taxation                                            (15 837)            (2 075)              (9 440)
Profit for the year                                  46 460             11 237               29 447
Other comprehensive income for the 
year net of taxation                                      –                  –                    –  
Total comprehensive income for the year              46 460             11 237               29 447
            
Total comprehensive income attributable to:            
Owners of the parent                                 46 326             11 717               29 571
Non-controlling interest                                134               (480)                (124)
                                                     46 460             11 237               29 447

 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                                          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 2016
(unreviewed)                   -    47 230  (16 947)   21 503   106 042     597     (2 728) 155 697
Total comprehensive income     -         -        -         -    16 874     383        356   17 613
Transactions with 
non-controlling interest       -         -        -          -   (2 114)      -      2 114        -
Shares issued                  -   143 474        -          -        -       -          -  143 474
Dividend paid                  -         -        -          -   (4 223)      -          -   (4 223)
Net movement in 
treasury shares                -         -   (1 268)         -        -       -          -   (1 268)
Balance at 
28 February 2017 (audited)     -   190 704  (18 215)    21 503  116 579     980       (258) 311 293
Total comprehensive income     -         -        -          -   45 672     654        134   46,460 
Net movement in treasury 
shares                         -         -     (365)         -        -       -          -     (365)
Balance at 
31 August 2017 (unreviewed)    -   190 704  (18 580)    21 503  162 251   1 634       (124) 357 388
 
CONSOLIDATED STATEMENT OF CASH FLOWS            
                                                 Unreviewed         Unreviewed              Audited
                                                      as at              as at                as at
R'000                                        31 August 2017     31 August 2016     28 February 2017
Cash flow from operating activities            
Cash generated from operations                      116 758             23 282               88 928
Investment income                                       162                 17                  266
Finance costs                                       (16 408)            (6 566)             (16 355)
Taxation paid                                       (11 954)            (1 408)             (11 244)
Net cash flow from operating activities              88 558             15 325               61 595
Cash flow from investing activities            
Purchase of property, plant and equipment            (6 115)            (6 063)             (10 373)
Proceeds on disposal of property, 
plant and equipment                                   1 446                537                1 430
Purchase of other intangible assets                       -                  -                 (922)
Business combinations                                     -                  -             (230 546)
Cash received from joint venture                        762                  -                    -
Net cash from investing activities                   (3 907)            (5 526)            (240 411)
Cash flow from financing activities            
Proceeds from loan funding                            5,334              2 059               95 613
Repayment of other financial liabilities            (94 305)            (4 501)              (6 672)
Proceeds from share issue                                 -                  -               96 262
Proceeds from shareholder's loan                          -                  -                  296 
Repayment of shareholder's loan                        (861)                 -               (1,169) 
Dividends paid                                            -             (5 926)             (10 149)
Sale/(repurchase) of treasury shares                   (365)                 -               (4 056)
Net cash outflow from financing activities          (90 197)            (8 368)             170 125
Net movement in cash for the period/year             (5 547)             1 431               (8 691)
Effect of exchange rate movement on cash                  6               (338)              10 220
Cash and cash equivalents at the beginning 
of the period/year                                   (2 479)            10 220               (4 008)
Cash and cash equivalents at the end 
of the period/year                                   (8 020)            11 313               (2 479)
 
CONDENSED SEGMENT REPORT 
                                                 Unreviewed         Unreviewed              Audited
                                                      as at              as at                as at
R'000                                        31 August 2017     31 August 2016     28 February 2017
Revenue by segment            
Non-Ferrous (Previously "Foundry")                1 405 227            333 576            1 002 438
Ferrous (Previously "Steel")                        171 450             68 922              174 818
Refractory                                           54 422             55 494              114 462
Plastics                                             35 268             22 320               50 808
                                                  1 666 368            480 312            1 342 526
            
Gross profit by segment            
Non-Ferrous (Previously "Foundry")                  140 839             47 388              134 852
Ferrous (Previously "Steel")                         17 980              7 821               20 915
Refractory                                            6 977              6 376               14 008
Plastics                                             13 955              6 981               16 372
                                                    179 751             68 565              185 833
Operating profit by segment            
Non-Ferrous (Previously "Foundry")                   57 393             11 034               28 231
Ferrous (Previously "Steel")                         11 861              6 062               15 422
Refractory                                            6 067              4 397               10 802
Plastics                                              1 940             (1 632)                 (23)
                                                     77 261             19 862               54 433


SALIENT FEAUTURES
                                                 Unreviewed         Unreviewed              Audited
                                                      as at              as at                as at
R'000                                        31 August 2017     31 August 2016     28 February 2017
Basic earnings (loss) per share            
From continuing operations  
(cents per share)                                     11.97               4.94                11.01
            
Number of weighted shares in issue at 
the end of the period/year ('000)                   410 000             260 000             291 644
Less: treasury shares held in a 
subsidiary at the end of the year ('000)            (23 108)            (22 715)            (22 962)
                                                    386 892             237 285             268 682           
Reconciliation of headline earnings (loss) 
and diluted headlines earnings (loss)            
Profit attributable to owners of the 
parent (R'000)                                       46 326              11 717              29 571
Adjusted for (profit)/loss on sale of 
property, plant and equipment, net of 
tax (R'000)                                            (111)               (378)               (366)
Headline earnings for the group (R'000)              46 216              11 340              29 206
           
Headline earnings per share (cents)                   11.95                4.78               10.87            
Reconciliation of number of shares for 
diluted earnings (loss) per share            
            
Weighted average number of ordinary shares 
in issue ('000)                                      386 892             237 285            268 682
Adjusted for: Share options ('000)                    17 511              16 406             16 406
Weighted average number of ordinary shares for 
diluted earnings per share ('000)                    404 404             253 691            285 087
            
Basic earnings per share (cents)                       11.97                4.94              11.01
            
Headline earnings per share (cents)                    11.95                4.78              10.87
            
Diluted earnings per share (cents)                     11.46                4.62              10.37 
            
Diluted headlines earnings per share (cents)           11.43                4.47              10.24
            
Dividends per share                                     3.00                1.50               1.50
            
Net asset value per share (cents)                      87.17               65.69              75.93
            
Tangible net asset value per share (cents)             84.30               61.21              73.04
            
EBITDA                                                91 276              24 482             66 013 
            
Depreciation                                          12 733               4 621             11 580

CHANGES TO THE BOARD
The following changes to the board have taken place
-    PJ Schutte stood down as CEO of Insimbi with effect from 31 May 2017;
-    F Botha was appointed as CEO from 1 June 2017;
-    CF Botha, EP Liechti and PJ Schutte resigned as directors of Insimbi with effect from 31 May 2017; 
     and
-    A de Wet has been appointed as Chief Financial Officer with effect from 9 October 2017.

BASIS OF PREPARATION AND ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements for the interim period ended 31 August 2017 
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 acting 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.

Approval:

B Craig                        F Botha
Chairman                       Chief Executive Officer 
26 September 2017

Registered office:             Stand 359 Crocker Road, Wadeville, Germiston, 1422 
Company Secretary:             SK Saunders 
Directors:                     B Craig* (Chairman), F Botha (Chief Executive Officer), C Coombs, 
                               RI Dickerson*, P Mogotlane*, N Mwale*, C Ntshingila (previously Shiceka)*                     
                               *non-executive
Sponsor:                       Bridge Capital Advisors Proprietary Limited 
Transfer Secretaries:          Computershare Investor Services Proprietary Limited 



Date: 26/09/2017 08:49:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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