INSIMBI INDUSTRIAL HOLDINGS LIMITED - Interim Unreviewed Consolidated Condensed Financial Resutls at 31 August 2018 and Interim Dividend Declaration

Release Date: 17/10/2018 08:00
Code(s): ISB
 
Wrap Text
Interim Unreviewed Consolidated Condensed Financial Resutls at 31 August 2018 and Interim Dividend Declaration

INSIMBI INDUSTRIAL HOLDINGS LTD
(Formerly 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 Industrial Holdings Limited (Previously "Insimbi Refractory and Alloy Supplies Limited")
 ("Insimbi" or "the Company" or "the Group")          

UNREVIEWED CONSOLIDATED CONDENSED FINANCIAL RESULTS 
FOR THE SIX MONTHS ENDED 31 AUGUST 2018 AND INTERIM DIVIDEND DECLARATION

Insimbi is a group of companies that provides resource-based supplies to a diversified range of 
industrial customers. Insimbi offers ferrous and non-ferrous alloys; refractory and foundry materials; 
plastic blowmoulding 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 consolidated financial results for the six months ended 31 August 2018.

Key Financial Highlights when compared to the 6 months ended 31 August 2017:
-  Revenue increased by 28% to R2.14 billion. 
-  Gross profit increased by 1% to R181.66 million
-  EPS decreased by 24% to 9.12 cents per share
-  HEPS decreased by 29% to 8.47 cents per share
-  NAV and tangible NAV increased by 18% and 24% to 103 cps and 74 cps respectively
-  Finance costs decreased by 12% to R14.47 million
-  Debt: equity ratio has improved from 59% to 56%
-  Trading and operational outlook for the remainder of the financial year is positive
-  The Group has declared a gross interim dividend of 2 cents per share for the period ended 
   31 August 2018.

CEO of Insimbi, Fred Botha, commented:
This first half of the financial year proved to be very much one of 2 distinct quarters, the 1st quarter 
to end May 2018 was rather disappointing with significant "hangover" from the strong ZAR and resultant 
pressure on margins. The 2nd quarter ended August 2018, by contrast has been phenomenal, especially 
with regards to revenues which peaked at R487 million in the month of August 2018. Margins have also 
shown signs of recovery on the back of a weaker currency and greater focus in all operational units.

Despite our best quarter ever and despite achieving revenue growth of 28% (R2.1 billion vs R1.7 billion) 
compared to previous interim period, the downward pressure on margins particularly in the 1st quarter 
coupled with an 18% increase in operating expenses for the same period, has resulted in a decline in 
earnings for the interim period ended 31 August 2018. These have increased due to professional fees 
relating to new acquisitions, the increase in fuel price and the increase in cost of utilities and 
are explained in more detail in the Financial Review below.

From an operational perspective, Insimbi Alloy Supplies ("IAS"), Insimbi Aluminium Alloys ("IAA"), 
Metlite Alloys ("ML") and Amalgamated Metals Group ("AMGH") are performing very well in a difficult 
economic climate and Insimbi Plastics ("IP") which has undergone some fairly drastic restructuring, 
I am confident it is now on the path to sustainability.

We welcome the economic stimulus initiatives recently announced by President Ramaphosa, especially 
the R400 billion to be spent on infrastructure upgrades which will give our target markets and 
customers a well needed and deserved boost which in turn will impact on our full spectrum of 
operations. As the saying goes "the devil is in the detail" and I hope that the implementation of 
these initiatives is efficient, effective and timeous.

OPERATIONAL OVERVIEW
The aluminium plants ("IAA" and "ML") are performing well operationally and volumes and margins 
improved in the 2nd quarter but remain under pressure. The weaker rand has improved export 
opportunities and we have been operating consistently at over 80% of production capacity which is 
pleasing. Furthermore, we will be commissioning new plant and equipment by end October 2018, this 
will enable us to maximise margins.

Our ferro-alloy and refractory operation ("IAS") is having a much improved year and is in fact, 
experiencing itsbest year since about 2009. This operation in particular, stands to benefit from 
Mr Ramaphosa's recently announced stimulus initiative as it is very dependent on infrastructure 
"spend".

The plastics operation ("IP") definitely showed some improvement in the 2nd quarter and revenues and 
margins improved as a result. The plastics industry is also negatively impacted by the autumn and 
winter period so revenues were lower than budgeted, compounded by the recessionary climate especially 
in the agriculture sector. A number of our competitors have closed or downsized and we are experiencing 
an increase in demand for our containers. 

Despite a difficult 1st quarter, the metals recycling business ("AMGH") rallied strongly in the 2nd 
quarter, buoyed by the weaker ZAR and increased volumes. Copper prices have been a bit erratic and 
this has kept margins under pressure but there has been a marked improvement. 

Fred Botha confirmed that the business is poised for a better second half of the year and all of the
underlying businesses that make up Insimbi are in a good position to take advantage of opportunities 
as they arise. 

FINANCIAL OVERVIEW
Group revenue for the period is R 2.14 billion, an increase of 28% or R472 million on the comparative 
period ended 31 August 2017. As a result of the lower margins in AMGH, IAA and ML, overall gross 
margins have decreased from 11% to 8.5% however gross profit has increased by 1% from R179.8 million 
to R181.7 million.

Group operating profit decreased by 20% to R62.1 million compared to R77.3 million in the comparative 
period ended 31 August 2017. This is due to an increase of 18% in Group operating expenses when 
compared to the prior period, largely attributable to the following:
-  Professional fees relating to acquisitions of approximately R3.0 million; 
-  Increased fuel prices resulted in additional cost of approximately R1.0 million;
-  Increased electricity and water tariffs resulted in additional costs of approximately R1.2 million;
-  Increased data and IT costs incurred to improve data security and systems integrity of approximately 
   R1.0 million including full 3rd Party systems review;
-  Provision for Doubtful Debts of R0.7 million versus a write-back in previous period of R0.7 million 
   resulting in a R1.4 million increase on said provision; and
-  Increased Repair and Maintenance costs of approximately R1.3 million related to the relocation and
   recommissioning of certain plant and equipment.

All companies within the Group are, however, committed to cutting operating costs where possible.

Group finance costs for the period have decreased from R16.4 million to R14.5 million. This is due to 
the fact that the Group is now maximising on a centralised treasury function, whereby funds are 
redistributed to minimise the interest paid externally.

Due to a very difficult 1st financial quarter, Insimbi achieved Group EPS of 9.12 and HEPS of 8.47 cents 
per share respectively compared to 11.97 and 11.95 cents per share in the previous comparative period. 
This equates to a decrease of 24% and 29% EPS and HEPS respectively.  It is worth noting that 80% of 
our year to date interim operating profit was achieved in the second financial quarter and only 20% in 
the first financial quarter.

Net cash flow from operating activities decreased from R88.6 million to R9.1 million, of which 
R41.5 million is attributable to an increase in the net working capital of the Group resulting from the 
increased activity. Unfortunately, the end of the financial period also fell on a weekend and so many 
of our debtors only paid on Monday, 3rd September which has artificially "skewed" our cashflow generated 
figure.

Borrowings were reduced by R25 million in the 6 months ended 31 August 2018 and this has resulted in a 
net cash decrease of R32 million to R10.0 million net overdraft from R22 million cash on hand at 
year-end. 

PROSPECTS 
As announced in August 2018 we have reached agreement with Group Wreck International Non-Ferrous (Pty) 
Ltd ("GW")whereby Insimbi will acquire control of the company which operates in KwaZulu-Natal. The 
transaction is subject to certain conditions precedent including Competitions Commission approval. 
This transaction will be value accretive and will provide geographic expansion of the recycling 
business as well as close proximity to export harbours. We anticipate significant synergies between 
AMGH and GW and an improved supply of aluminium to IAA. The initial transaction consideration is an 
amount of R120 million. An additional deferred amount ("agterskot") potentially payable in year 3 and 
4 post acquisition limited to a maximum of R30 million, based on the achievement of certain profit 
targets. The initial consideration of R120 million will be settled as follows:
-  Cash: R73 million; 
-  ISB shares: 18 461 538 shares to be issued at R1.30 per share, to the value of R24 million in total; 
   and
-  Vendor loans: to the value of R23 million, repayable after a period of 3 years, bearing interest at 
   a rate of prime plus 2%. Repayment of the capital amount may be extended to a maximum of 5 years, 
   at the option of the Group.

In May 2018 we acquired an operation in Witbank that will enable us to enter the aluminothermic powder 
and Ultra Low Ferrochrome (UlCFeCr) market. We are in the process of recommissioning the plant and 
anticipate starting production of aluminium powder products in October 2018 which will also increase 
volumes of aluminium processed in the existing plants of IAA and ML.

Although the economic and policy environment remains very challenging, we are hopeful that the 3rd 
quarter will be a repeat of the second quarter performance. The fourth quarter is usually quieter due 
to the festive season shutdowns.

Any forward looking statements included in this announcement have not been reviewed nor reported on by 
the Company's auditors. 


DIVIDEND DECLARATION
An interim gross dividend of 2 cents per share has been declared on 17 October 2018. There are 
410 000 000 ordinary shares in issue at announcement date, of which 1 369 672 are held in treasury 
and do not participate in dividends, 23 106 915 shares are held by the ESOP's and are participating 
according to the dividend policy. The total dividend amount payable is R 8 172 607 (2017: R 12 285 179).

The board has confirmed by resolution that the solvency and liquidity test as contemplated by the 
Companies Act, No. 71 of 2008, as amended, has been duly considered, applied and satisfied. This is a 
dividend as defined in the Income Tax Act, 1962, and is payable from income reserves. The South African
dividend tax rate is 20%. The dividend payable to shareholders who are subject to dividend tax and 
shareholders who are exempt from dividend tax is 1.6 cents and 2 cents per share, respectively. The 
income tax number of the Company is 9078488153.

The salient dates applicable to the interim dividend are as follows:
Last day to trade cum dividend                                          Tuesday, 13 November 2018
First day to trade ex dividend                                          Wednesday, 14 November 2018
Record date                                                             Friday, 16 November 2018
Payment date                                                            Monday, 19 November 2018

No share certificates will be dematerialised or rematerialised between Wednesday, 14 November 2018 
and Friday, 16 November 2018, both days inclusive.

Shares repurchased by a subsidiary since the year end and held in treasury amounted to 371 777 
(2017: 356 313), which brings the total number of treasury shares to 24 476 587 (2017: 23 462 048).


CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                 Unreviewed         Unreviewed              Audited
                                                      as at              as at                as at
                                                  31 August          31 August          28 February
R'000                                                  2018               2017                 2018
Assets                                                               
Non-current assets                                                               
Property, plant and equipment                       298 524            236 526              270 514 
Goodwill                                            107 591            107 591              107 591 
Intangible assets                                    11 211             11 756               11 525 
Investments in joint ventures                           844              1 190                  577 
Deferred taxation asset                               3 576              6 892                3 388 
                                                    421 746            363 955              393 595 
Current assets                                                               
Inventories                                         142 382            149 187              147 944 
Trade and other receivables                         305 706            292 594              293 643 
Derivative financial assets - at fair value           2 295              1 138                    -   
Current taxation receivable                               -                  -                5 312 
Cash and cash resources                              25 350             25 629               32 408 
                                                    475 733            468 548              479 307 
Total assets                                        897 479            832 503              872 902
Equity and liabilities                                                               
Equity                                                                
Share capital                                       196 704            196 704              196 704 
Treasury shares                                     (19 927)           (18 580)             (19 399) 
Reserves                                             44 819             21 503               44 819 
Share based payment reserve                           2 933              1 634                2 289 
Retained earnings                                   198 187            162 251              174 454 
Non-controlling interest                             (1 127)              (124)                (565) 
                                                    421 589            363 388              398 302
Liabilities                                                               
Non-current liabilities                                                               
Loans from shareholders                               1 682              1 630                2 275 
Other financial liabilities                         172 239            172 611              166 202 
Deferred taxation                                    29 377             26 082               28 966 
                                                    203 298            200 323              197 443 
Current liabilities                                                               
Other financial liabilities 
  - through profit or loss                           55 212             29 427               72 295 
Other financial liabilities 
  - at fair value                                         -                  -                2 697 
Current taxation payable                              2 781                  -                    -   
Trade and other payables                            179 022            205 714              192 055 
Bank overdraft                                       35 577             33 649               10 110 
                                                    272 592            268 791              277 157 
Total liabilities                                   475 890            469 114              474 600 
Total equity and liabilities                        897 479            832 503              872 902 



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                 Unreviewed         Unreviewed              Audited
                                                      as at              as at                as at
                                                  31 August          31 August          28 February
R'000                                                  2018               2017                 2018
Revenue                                           2 138 007          1 666 368            3 491 803
Cost of sales                                    (1 956 345)        (1 486 617)          (3 146 379)
Gross profit                                        181 662            179 751              345 424
Other income                                          5 078              3 370                1 195
Operating expenses                                 (124 631)          (105 860)            (218 788)
Operating profit                                     62 109             77 261              127 831
Investment revenue                                      583                162                  402
Income from equity accounted investments              1 333              1 282                2 532
Finance cost                                        (14 477)           (16 408)             (30 836)
Profit before taxation                               49 548             62 297               99 929
Taxation                                            (14 809)           (15 837)             (28 769)
Profit for the year                                  34 739             46 460               71 160
Other comprehensive income for the year 
  net of taxation                                         -                  -               23 316
Total comprehensive income for the year              34 739             46 460               94 476
                                                               
Total comprehensive income attributable to:                                                               
Owners of the parent                                 35 301             46 326               94 783
Non-controlling interest                               (562)               134                 (307)
                                                     34 739             46 460               94 476



                                                                          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 2017
(unreviewed)                   -  196 704   (18 580)   21 503   162 251   1 634      (124)  363 388 

Total comprehensive 
 income                        -        -         -    23 316    24 486     655      (441)   48 016 
Dividend paid                  -        -         -         -   (12 283)      -         -   (12 283) 
Net movement in treasury 
 shares                        -         -      (819)       -         -       -         -      (819) 
Balance at 
28 February 2018 
(audited)                      -   196 704   (19 399)  44 819   174 454   2 289      (565)  398 302

Total comprehensive income     -         -         -        -    35 300     644      (562)   35 482 
Dividends paid                 -         -         -        -   (11 567)      -         -   (11 567)
Net movement in treasury 
 shares                        -         -      (528)       -         -       -         -      (528)
Balance at 
31 August 2018 
(unreviewed)                   -   196 704   (19 927)  44 819   198 187   2 933    (1 127)  421 589
                 
                                                                                                                                  
 
CONSOLIDATED STATEMENT OF CASH FLOWS                                                               
                                                 Unreviewed         Unreviewed              Audited
                                                      as at              as at                as at
                                                  31 August          31 August          28 February
R'000                                                  2018               2017                 2018
Cash flow from operating activities                                                               
Cash generated from operations                       29 509            116 758              164 377
Investment income                                       583                162                  402
Finance costs                                       (14 477)           (16 408)             (30 836)
Taxation paid                                        (6 493)           (11 954)             (32 064)
Net cash flow from operating activities               9 122             88 558              101 879
Cash flow from investing activities                                                               
Purchase of  property, plant and equipment           (5 553)            (6 115)              (1 613)
Proceeds on disposal of property, 
 plant and equipment                                    496              1 446                  559
Cash received from joint venture                      1 067                762                2 636
Net cash from investing activities                   (3 990)            (3 907)               1 582
Cash flow from financing activities                                                               
Proceeds from loan funding                                -              5 334                4 500
Repayment of other financial liabilities            (24 970)           (94 305)             (69 772)
Repayment of shareholder's loan                        (593)              (861)                (216)
Dividends paid                                      (11 567)                 -              (12 283)
Sale/(repurchase) of treasury shares                   (527)              (365)              (1 184)
Net cash outflow from financing activities          (37 657)           (90 197)             (78 955)
Net movement in cash for the period/year            (32 525)            (5 547)              24 506
Effect of exchange rate movement on cash                  -                  6               (2 479)
Cash and cash equivalents at the beginning 
 of the period/year                                  22 298             (2 479)                 271
Cash and cash equivalents at the end of 
 the period/year                                    (10 227)            (8 020)              22 298



CONDENSED SEGMENT REPORT 
                                                 Unreviewed         Unreviewed              Audited
                                                      as at              as at                as at
                                                  31 August          31 August          28 February
R'000                                                  2018               2017                 2018
Revenue by segment                                                               
Non-Ferrous                                       1 750 082          1 405 227            2 878 640
Ferrous                                             302 195            171 450              431 902
Refractory                                           56 006             54 422              108 728
Plastics                                             29 724             35 268               72 533
                                                  2 138 007          1 666 368            3 491 803 
                                                               
Gross profit by segment                                                               
Non-Ferrous                                         134 716            140 839              266 526
Ferrous                                              28 194             17 980               41 776
Refractory                                            8 263              6 977               14 118
Plastics                                             10 489             13 955               23 004
                                                    181 662            179 751              345 424
                                                               
Operating profit by segment                                                   
Non-Ferrous                                          40 349             57 393               92 837
Ferrous                                              18 399             11 861               23 966
Refractory                                            6 574              6 067               11 675
Plastics                                             (3 213)             1 940                 (647)
                                                     62 109             77 261              127 831


SALIENT FEATURES
                                                 Unreviewed         Unreviewed              Audited
                                                      as at              as at                as at
                                                  31 August          31 August          28 February
R'000                                                  2018               2017                 2018
Basic earnings per share                                                               
From continuing operations (cents per share)           9.12              11.97                18.47
Number of weighted shares in issue at 
 the end of the period/year ('000)                  410 000            410 000              410 000
Less: treasury shares held in a subsidiary 
 at the end of the year ('000)                      (23 113)           (23 108)             (23 112)
                                                    386 887            386 892              386 888
                                                               
Reconciliation of headline earnings and 
 diluted headlines earnings                                                               
Profit attributable to owners of 
 the parent (R'000)                                  35 301             46 326              71 467
Adjusted for profit on sale of property,
 plant and equipment, net of tax (R'000)               (234)              (111)                (99)
Gain on bargain purchase (R'000)                     (2 316)                 -                   -
Headline earnings for the Group (R'000)              32 751             46 216              71 368
                                                               
Headline earnings per share (cents)                     8.47             11.95               18.45
                                                               
Reconciliation of number of shares for 
 diluted earnings per share                                                               
                                                               
Weighted average number of ordinary shares 
 in issue ('000)                                     386 887           386 892             386 888
Adjusted for: Share options ('000)                    14 246            17 511              16 173
Weighted average number of ordinary shares 
 for diluted earnings per share ('000)               401 133           404 404             403 061
                                                               
Basic earnings per share (cents)                        9.12             11.97               18.47
                                                               
Headline earnings per share (cents)                     8.47             11.95               18.45
                                                               
Diluted earnings per share (cents)                      8.80             11.46               17.73 
                                                               
Diluted headlines earnings per share (cents)            8.16             11.43               17.71
                                                               
Dividends per share                                     2.00              3.00                6.00
                                                               
Net asset value per share (cents)                     102.83             87.17               97.15
                                                               
Tangible net asset value per share (cents)             73.85             59.52               68.09
                                                               
EBITDA                                                74 274            91 276             151 237 
                                                               
Depreciation                                          10 832            12 733              20 874



BASIS OF PREPARATION AND ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements for the interim period ended 31 August 2018 
have been prepared in accordance with the framework concepts and the measurement and recognition 
requirements of International Financial Reporting Standards (IFRS), the SAICA Financial Reporting 
Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the
Financial Reporting Standards Council and as a minimum, contain the information required by IAS 34 
Interim Financial Reporting, JSE Listings Requirements and the Companies Act of South Africa. The 
unaudited condensed consolidated financial statements have been prepared under the supervision of 
the Chief Financial Officer, Andre de Wet 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
RI Dickerson                 F Botha
Chairman                     Chief Executive Officer 
17 October 2018


Directors:                   F Botha (Chief Executive Officer)                      
                             AJ de Wet (Chief Financial Officer)
                             C Coombs
                             RI Dickerson* (Chairperson)
                             IP Mogotlane*
                             N Mwale*
                             CS Ntshingila*
                             (*non-executive)
Company Secretary:           TN Kgari
Registered office:           Stand 359 Crocker Road, Wadeville, Germiston, 1422
Website:                     http://www.insimbi-iras.co.za
Sponsor:                     Bridge Capital Advisors Proprietary Limited
Transfer Secretaries:        Computershare Investor Services Proprietary Limited
Auditors:                    PricewaterhouseCoopers Inc.





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