Delisting of Chemrez looms after nearly all its shares are sold to DNL

D&L Industries Inc (DNL) completed the acquisition of shares of listed affiliate Chemrez Technologies Inc held by minority stockholders.

In a disclosure to the Philippine Stock Exchange, the food additive maker said it now owns 1.30 billion common shares or 99.7 percent of Chemrez.

Based on the report made by IGC Securities, the tender offer agent, a total of 846.41 million shares had been tendered, representing approximately 65 percent of the issued and outstanding shares of Chemrez.

Prior to the tender offer, DNL held 34.7 percent of the country's leading manufacturer of oleochemicals, resins, and specialty chemical products.

The tendering shareholders will be paid P6 in cash for every share they own for an aggregate cost of P5.08 billion. Short-term borrowings will finance bulk of the acquisition.

“Pre-acquisition, we were net cash. Further, short-term borrowing costs are currently very low - much lower than the overnight or SDA rates – and there are no indications of interest rates going up anytime soon. Hence, there does not seem to be any urgency to refinance and it is possible to just live with debt as short-term,” DNL executive vice president and chief finance officer Alvin D. Lao said.

DNL had a net cash position of P1.45 billion and negative gearing of 0.16x at end-June.

The tendered shares were crossed at the PSE on Tuesday. Settlement will be on Friday.

“In view of the minimum public ownership rule of the Philippine Stock Exchange, DNL would most likely cause the voluntary delisting of Chemrez with the latter’s public ownership falling below the minimum 10 percent,” DNL said.

DNL aims to broaden Chemrez's product portfolio, beef up its capabilities, including cash generation, and boost growth as the specialty chemicals business continues to improve.

DNL is engaged in product customization and specialization for the food, plastics, and aerosol industries. The company's profit rose 22 percent year-on-year to P799 million in the first half of this year, from P655 million in 2013 on stronger volumes across all its businesses.

- Interaksyon

Higher-margin additives prop up DNL's earnings

D&L Industries' earnings climbed by a fifth in the first three months of the year as the food additive company sold more of its higher-margin specialty products.

In a briefing, D&L chief financial officer Alvin Lao said the firm’s earnings increased to P377 million in the January to March period from P314 million last year.

D&L had set a target of growing profit in the mid- to high-teens for the entire 2014. Earnings for the three-month period account for 29 percent of last year’s income.

Consolidated revenues went up by 34 percent to P3.10 billion this year from P2.32 billion in 2013 due to the recovery in commodity prices and sustained double-digit volume gains.

D&L has enjoyed sequential topline growth of five percent in the past four consecutive quarters on the back of increasing volume, shifting product mix and rising commodity prices.

High-margin specialty products continued to drive revenues, accounting for 64 percent of overall sales, while the share of the low-margin commodity business was at 36 percent.

D&L saw margin compression during the period as increases in commodity prices outpaced growth in volumes. As a result, overall gross profit margin dropped to 18.4 percent from last year's 19.2 percent and overall net income margin eased to 12.2 percent from 13.6 percent.

"We do hope and expect [gross profit] margins for rest of the year will start to go up as we sell less of commodity products," Lao said, adding that D&L targets to end the year at 20 percent, consistent with its plan to improve margins by one percent every year until 2018.

D&L Industries is engaged in product customization and specialization for the food, plastics, and aerosol industries. The company’s principal business activities include manufacturing of customized food ingredients, specialty raw materials for plastics, and oleochemicals for personal and home care use.

- Interksyon