Brewing a chemical cocktail
A new chairman and a new plan
INVESTORS NOW KNOW upcoming financial results from Chemical Specialities (ChemSpec) are going to be horrible. A trading statement late last week warned that the company expected losses in earnings per share and headline earnings per share to be “at least 95% greater” than in its previous financial year. The speciality paints company said the main reason was lower revenue during the completion of its new production facility at Canelands, KwaZulu-Natal. The original factory was just about destroyed in a fire in 2009. The insurance claim has been partly settled (for R20m) but negotiations continue for the rest of the claim.
But now that there’s a new senior management structure in place, a financing structure likely to involve a rights issue and a new plan to turn the company.
Ivan Clark is the new non-executive chairman of ChemSpec. He’s the former CEO of Grindrod and currently its nonexecutive chairman, as well as of Grindrod Bank. New appointments joining Clark on the board are Darryn Coyle-Dowling as non-executive director specialising in corporate governance, and Shane van Niekerk as sales executive director, formerly group MD and executive director at Mr Price.
Clark has built his shareholding in ChemSpec up to around 10%. The largest institutional shareholder is RMB’s Corvest.
Says Clark: “I’ve taken a view I can turn ChemSpec. Ever since listing (on the AltX in 2007) it’s been a company that’s found it difficult. There was the fire and the relocation to the new state of the art factory. That’s taken money, and during the relocation production was difficult. So it’s been a bumpy ride.”
Clark adds it was necessary in December 2010 for his own company – Clark Investments – and Corvest to put around R100m into ChemSpec. According to its trading statement, a rights offer is now being finalised, which will include the capitalisation of the R100m in shareholders’ loans. Earlier, Clark envisaged a rights offer at 45c/ share to raise around R188m. But with its share price currently at 40c/share the rights offer price might have to be reconsidered.
Former ChemSpec CEO Strath Wood resigned amid much controversy in November last year. “Since December there’s been a lot of water under the bridge,” Clark says. “The factory is complete and back to full production. The financial structure has been arranged, which has afforded a longer term approach to be taken. So now we have a production facility running at five times its capacity and we have the raw materials to make the stock because there’s cash in the business.”
Clark says the key issue is to stop losses. It’s known that didn’t happen over its past financial year, but he says it’s to be hoped a small financial profit can be achieved in the first half of its current financial year. With around 40% of turnover coming from offshore, Clark believes ChemSpec must have potential. It has a factory in the United States and distribution facilities in Australia and New Zealand. Added to that there are opportunities in Africa, he says.
It’s rumoured Clark will, after the rights issue, have put around R80m into ChemSpec. Depending on subscription to the rights offer, his equity stake could rise to around 16%.
“There’s a moratorium on major capital spending projects, but debt after the rights issue will be around 30% to 40% of equity. The banks have come to the table but we’ll be negotiating with them. They need to give us good terms so we can build up stock levels.”
For potential new investors it’s a speculative ride, but Clark says he has the energy, the plan and the brains. His only concern is staying alive long enough to get ChemSpec working.
IVAN CLARK New ChemSpec chairman