Brew­ing a chem­i­cal cock­tail

A new chair­man and a new plan

Finweek English Edition - - COMPANIES&MARKETS - SHAUN HAR­RIS shaunhar­ris@ya­

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

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