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Freeworld Coatings - Unaudited Interim Results And Cash Dividend

Published on 2009-11-03. Author : SpecialChem

Freeworld Coatings CEO, Andre Lamprecht said: "In light of the deteriorating economic conditions, these are very pleasing results with increased turnover and stable operating performance. This demonstrates the resilience of our business with strong brands and good cash flow. We remain focused on controlling costs as well as investing in the brands, and will pursue growth opportunities that are still available". Freeworld Coatings is a leader in the marketing and manufacture of Decorative and Performance coatings in all Southern African territories, with some presence and export sales in other regions.

Financial Review

Revenue from operations increased by 3% to R1 367 million, notwithstanding the deteriorating economic conditions which have impacted on overall demand for coatings. Earnings before interest, tax, depreciation and amortisation (EBITDA) of R258 million is 2% up on the comparative period. Operating profit at R221 million is marginally higher, with the operating margin despite tough trading conditions declining only slightly from 16,7% to 16,2% due to a strong focus on the expense base as input raw material prices have remained relatively firm.

Net finance costs for the period amount to R66 million and are 23% higher than the comparative period which effectively only had an interest charge for 5 months as the interest free loan from Barloworld Capital (Pty) Ltd of R869 million, arising from unbundling, was only due for repayment on 5 November 2007.

The taxation charge, excluding Secondary Tax on Companies (STC), of R43,4 million translates into an effective tax rate, excluding STC, of 28%. This compares adversely against the 24,8% for the comparative period, which benefited from last year's reduction in the corporate tax rate. Income from associates is down 24% as a consequence of a lower trading result from International Paints and significantly lower sales of Automotive OEM products to the motor plants due to severe cut backs in unit builds, which in turn have impacted the results of the DuPont Freeworld business. Earnings per share is 16,9% lower at 55,1 cents with headline earnings per share cents (HEPS) at 53,4 cents being 19,7% lower due to:

  • Finance costs being incurred for the full 6 months, as against the 5 months for the comparative period;
  • A higher tax charge due to an STC charge of R2,8 million on our final dividend, coupled with the comparative period benefiting from a rate change adjustment of R8,2 million; and
  • A higher (5 million) weighted number of shares in issue, following the unbundling and listing in December 2007.

Adjusting for the above items, on a normalised basis HEPS is only 6,5% lower with this then due to an increased depreciation charge arising from the capital expenditure program over the last 12 months.

Cash generated from operations increased by 49% to R119 million. Net cash used in investing activities totals R55 million, the bulk of which was expended on the capital expenditure upgrade programme.

Total interest-bearing borrowings at R970 million represent a borrowing to equity ratio of 34%, which is unchanged from September 2008.

Trading Update

Decorative Coatings segment

The Decorative Coatings segment recorded a revenue increase of 6%, with the downturn in retail being counter balanced by solid trade business. EBITDA increased by 7% to R188 million. A continued focus on expense control contributed to a solid result in the circumstances. All channels to market within the Decorative Coatings segment are now feeling the effects of the slowdown in the South African economy. Export sales into Africa continue to be buoyant although there are signs that the activity levels in some of the African regions are also being negatively affected by the global slowdown. Raw material prices have stabilised and show some signs of coming down. This has given us some relief although further price reductions will need to be won to benefit from the full reduction in global commodity prices.

Performance Coatings segment

The Performance Coatings segment's revenues increased by 3%, with relatively strong automotive refinish sales compensating for lower sales of colourants in Australia, Greece and Portugal. All businesses within the Performance Coatings segment of the South African paint market have been feeling the effect of the economic slowdown in South Africa and the rest of the world. EBITDA at R72 million, whilst 8% lower than the comparative period is considered satisfactory, as the comparative period included sales of solvent borne automotive OEM products, the production of which, with the conversion to water borne products has been transferred to our associate DuPont Freeworld during the latter part of last year, as previously reported.

Branding

A substantial amount of work continues to be done on the alignment of the strong Plascon brand and its sub-brands with the innovative Freeworld Coatings corporate brand. These will be rolled out in the months ahead. The commencement of the new Freeworld Coatings marketing campaign is currently under way and a number of exciting new product launches will take place in the period ahead.

Outlook

The results for the period October 2008 to March 2009 demonstrate that the company has performed well in the tough market circumstances that prevailed. It is impossible to know whether the economic slow down will intensify, and for how long these depressed market conditions will continue. The board is confident that Freeworld Coatings' management will continue to achieve competitive performance. In the light of market uncertainty, and the company's important growth plans, the board has decided to declare a prudent dividend of 5 cents per share. Given these circumstances, the board will review the dividend position for the full financial year to September 2009 in the light of the conditions prevailing at the time.

Source: Freeworld Coatings


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