1 luxchem corporation berhad - Bursa Malaysia

LUXCHEM CORPORATION BERHAD (“LUXCHEM” OR THE “COMPANY”) PROPOSED ACQUISITION OF THE ENTIRE EQUITY INTEREST IN TRANSFORM MASTER SDN BHD (“TMSB”) FOR A TOTAL PURCHASE CONSIDERATION OF RM45.5 MILLION 1.

INTRODUCTION On 27 January 2016, Mercury Securities Sdn Bhd (“Mercury Securities” or the “Principal Adviser”) had, on behalf of the Board of Directors of Luxchem (“Board”), announced that the Company had on even date entered into a Heads of Agreement (“HOA”) with Lee Pei Pei, Lee Chee Sian, Pok Jiun Lim and Oh Wei Wah (collectively referred to as the “Vendors”) for the proposed acquisition of the entire equity interest in TMSB for a total purchase consideration of RM46.0 million (“Proposed Acquisition”). The purchase consideration for the Proposed Acquisition will be satisfied via cash payment of RM36.8 million and the issuance of 5,184,851 new ordinary shares of RM0.50 each in Luxchem (“Luxchem Share(s)” or “Share(s)”) at an issue price of RM1.7744 per Share. The Proposed Acquisition is subject to a legal, financial and commercial due diligence to be conducted and completed by Luxchem within 60 days from the date of the HOA in respect of the accounts, assets, personnel and business of TMSB (“Due Diligence Exercise”). On 25 March 2016, Mercury Securities had, on behalf of the Board, announced that Luxchem and the Vendors for the Proposed Acquisition have agreed to extend the exclusivity period of the HOA for one (1) month commencing from 27 March 2016 until 27 April 2016 to enable Luxchem and the Vendors to complete the Due Diligence Exercise and to execute the conditional share sale agreement for the Proposed Acquisition (“SSA”). On behalf of the Board, Mercury Securities wishes to announce that Luxchem had on 8 April 2016, entered into the SSA with the Vendors for the purposes of undertaking and implementing the Proposed Acquisition. The purchase consideration in relation to the Proposed Acquisition has now been revised to RM45.5 million under the SSA. Please refer to the ensuing sections for details of the Proposed Acquisition.

2.

PROPOSED ACQUISITION 2.1

Details of the Proposed Acquisition The Proposed Acquisition entails the acquisition by Luxchem of 3,000,000 ordinary shares of RM1.00 each in TMSB, representing the entire issued and paid-up share capital of TMSB (“Sale Shares”) from the Vendors for a purchase consideration of RM45,500,000 (“Purchase Consideration”). The Purchase Consideration shall be satisfied via cash payment of RM36.3 million and the issuance of 5,184,851 new Shares at an issue price of RM1.7744 per Share (“Consideration Shares”) to the Vendors or their nominees in the following proportions, pursuant to the terms and conditions of the SSA:-

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Vendors

Shareholding in TMSB

Cash consideration

No. of Consideration Shares

Value of Consideration Shares (RM)

(%)

(RM)

Lee Pei Pei

15

5,445,000

777,728

1,380,000

Lee Chee Sian

30

10,890,000

1,555,455

2,760,000

Pok Jiun Lim

5

1,815,000

259,243

460,000

Oh Wei Wah

50

18,150,000

2,592,425

4,600,000

Total

100

36,300,000

5,184,851

9,200,000

2.2

Salient terms of the SSA Please refer to Appendix I of this announcement for further details of the SSA.

2.3

Issuance of Consideration Shares In the event the approval of Bursa Malaysia Securities Berhad (“Bursa Securities”) for the listing and quotation of the Consideration Shares on the Main Market of Bursa Securities is obtained prior to Luxchem’s forthcoming 24th Annual General Meeting ("AGM”), the Consideration Shares will be issued in accordance with the general mandate pursuant to Section 132D of the Companies Act, 1965 (“Act”) (“General Mandate”), which was obtained from the shareholders of the Company at its 23rd AGM convened on 29 May 2015. In the event Bursa Securities’ approval for the listing and quotation of the Consideration Shares on the Main Market of Bursa Securities is obtained after the 24th AGM of Luxchem, the allotment and issuance of the Consideration Shares will then be subject to Luxchem’s shareholders’ approval on the renewal of the General Mandate for the issuance of securities at its 24th AGM. Pursuant thereto, the Consideration Shares will be issued in accordance with the General Mandate to be obtained from Luxchem’s shareholders at its 24th AGM.

2.4

Basis of determining the Purchase Consideration The Purchase Consideration of RM45.5 million was arrived at on a “willing buyer-willing seller” basis after taking into consideration, inter alia, the following:(i)

the range of indicative values of the entire equity interest in TMSB of between RM45.4 million and RM48.9 million, as detailed in an indicative valuation report dated 1 April 2016 prepared by BDO Capital Consultants Sdn. Bhd. as an independent valuer appointed by Luxchem in respect of the Proposed Acquisition;

(ii)

TMSB has been Luxchem’s customer since 2012 and its supplier since 2014. The future potential earnings and cost savings from the Proposed Acquisition is expected to create potential synergistic benefits through integrating TMSB’s operations, the ability to cross-sell Luxchem’s products to TMSB’s existing clients, amongst others. Please refer to Section 4 of this announcement for further details; and

(iii)

the prospects and future plans of TMSB as set out in Section 5.3 of this announcement.

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2.5

Basis and justification for the issue price of the Consideration Shares The issue price of the Consideration Shares of RM1.7744, has been arrived at based on the five (5)-day volume weighted average market price of the existing Luxchem Shares up to and including 26 January 2016, being the last full trading day for the Luxchem Shares prior to the execution of the HOA on 27 January 2016.

2.6

Ranking of the Consideration Shares The Consideration Shares shall, upon allotment and issue, rank pari passu in all respects with each other and with the then existing Luxchem Shares, except that the holders of the Consideration Shares shall not be entitled to participate in any dividends, rights, allotments and/or any other distributions which may be declared, made or paid to the shareholders of Luxchem, the entitlement date of which is prior to the date of allotment of the Consideration Shares.

2.7

Source of funding The cash portion of the Purchase Consideration amounting to RM36.3 million shall be financed by the Group’s internally-generated funds.

2.8

Liabilities to be assumed Save for the liabilities stated in the balance sheet of TMSB, which will be consolidated into the financial statements of Luxchem, following the completion of the Proposed Acquisition, the Company will not assume any other liabilities, including contingent liabilities or guarantees pursuant to the Proposed Acquisition.

3.

BACKGROUND INFORMATION ON TMSB 3.1

Incorporation and principal activities TMSB is a private limited company incorporated under the Act on 30 December 2009 and commenced operations in April 2011. TMSB operates out of its headquarters, which is also its manufacturing plant, located at Lot P2, Lumut Port Industrial Park, Mukim Lumut, Kampung Acheh, 32000 Sitiawan, Perak. The manufacturing plant is erected on a piece of land measuring approximately 67,600 square feet. TMSB is principally involved in the manufacturing of chemicals products including amongst others, rubber latex chemical dispersions, latex processing chemicals and related products. TMSB has been awarded with the ISO 9001:2008 quality management system certification for the design, development and manufacture of latex compounding and processing chemicals in 2013.

3.2

Share capital As at 29 March 2016, being the latest practicable date prior to the date of this announcement (“LPD”), the authorised share capital of TMSB is RM5,000,000, comprising 5,000,000 ordinary shares of RM1.00 each, out of which 3,000,000 ordinary shares of RM1.00 each in TMSB have been issued and fully paid-up. As at the LPD, TMSB does not have any subsidiary or associated companies.


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3.3

Directors of TMSB and their shareholdings in TMSB Based on the register of directors and the register of directors’ shareholdings of TMSB as at the LPD, the directors of TMSB and their respective shareholdings in TMSB are as follows:Direct

Directors

Indirect No. of shares

Designation

Nationality

Yeoh Suh Lee

Director

Malaysian

-

-

-

-

Pok Jiun Lim

Director

Malaysian

150,000

5.00

-

-

Oh Wei Wah

Director

Malaysian

1,500,000

50.00

-

-

3.4

No. of shares

%

%

Details of the Vendors (i)

Lee Pei Pei Lee Pei Pei, a Malaysian aged 43, is one of the substantial shareholders of TMSB. She obtained a Bachelor of Science in Biology and Chemistry from Campbell University, United States of America in 1996. After graduation, she worked as a Chemist in Nabbir Laboratory Sdn Bhd from 1996 to 1997. Subsequently, she joined Penang Mitsuoka Electronic as a Quality Control Assistant for a year up to 1998. She then worked at Sharp Roxy Corporation as a Quality Assurance Senior Engineer in Teac Electronic Sdn Bhd and performed quality checks and audits on its suppliers from 2000 to 2002. She is currently a Quality Assurance, Quality Control and Planning Manager at a local glove manufacturing company and has cumulative experience of more than a decade in the rubber latex industry.

(ii)

Lee Chee Sian Lee Chee Sian, a Malaysian aged 50, is one of the substantial shareholders of TMSB and has obtained an Advanced Diploma in Mechanical and Manufacturing Engineering from Tunku Abdul Rahman College in 1991. After graduation, he joined SP Metal Sdn Bhd and worked as a Technical Manager from 1992 to 2002. Following that, he worked as a Biomass Boiler Contractor for YTY Industry Sdn Bhd from 2002 up to 2009. He was subsequently promoted to Group Project and Maintenance Manager and held that position up to 2014. At present, he is the Project Manager at Central Medicare Sdn Bhd. Part of the responsibilities of his current role is to design new dipping lines for the manufacturing of latex dipped gloves and the fabrication of those lines. He also oversees construction and development of Central Medicare Sdn Bhd’s plant. Lee Chee Sian has cumulative experience of more than a decade in the rubber latex industry.


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(iii)

Pok Jiun Lim Pok Jiun Lim, a Malaysian aged 32, is a co-founder of TMSB with Oh Wei Wah and a director and substantial shareholder of TMSB. He obtained a Bachelor of Science in Applied Chemistry from University of Malaya in 2008. After graduation, he joined a Singapore chemical trading company as Sales Executive, mainly focusing on sales of chemicals for the coating, paint, ink and cosmetic industry in Malaysia. After two (2) years, he joined a local chemical trading company as head of the department that oversees the latex industry and was actively involved in the running of a manufacturing plant which produces chemicals applicable to the rubber latex industry. Subsequently in 2011, with his academic background and working experience in the industrial chemicals industry, he co-founded TMSB with Oh Wei Wah and currently oversees the financial, quality control, product development and marketing strategy of TMSB.

(iv)

Oh Wei Wah Oh Wei Wah, aged 45, is a co-founder of TMSB with Pok Jiun Lim and a director and substantial shareholder of TMSB. He graduated from Sekolah Menengah Kebangsaan Pekan Nenas, Johor in 1987 and subsequently joined Cha Cha Enterprise, a company operating in the textile industry, as a supervisor up to 1993. Subsequently, he operated a canteen business at a construction site in Johor up to 1996. In 1996, he joined YTY Industry Sdn Bhd and was involved in the rubber latex industry and oversaw the production process, washing and drying process as well as the compounding and packing processes. In 2011, with a cumulative experience in the rubber latex industry of more than 15 years, Oh Wei Wah co-founded TMSB, with Pok Jiun Lim. He is currently the Managing Director of TMSB and he oversees the overall strategic direction and the financials of TMSB.

3.5

Financial information The table below sets out the audited financial information of TMSB for the financial years ended (“FYE”) 31 December 2013, 2014 and 2015:FYE 31 December 2013 RM ‘000

Turnover Profit / (Loss) before tax Profit / (Loss) after tax No. of shares in issue (000) Gross earnings / (loss) per share (RM) Net earnings / (loss) per share (RM) Paid-up capital Shareholders’ funds / Net assets (“NA”) Current ratio (times) Borrowings Gearing (times) NA per share (RM)

19,543 792 607 2,000 0.40 0.30 2,000 3,398 0.99 1,328 0.39 1.70

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Audited FYE 31 December 2014 RM ‘000 27,162 2,540 1,902 3,000 0.85 0.63 3,000 6,300 1.43 1,100 0.17 2.10

FYE 31 December 2015 RM ‘000 30,864 3,166 2,341 3,000 1.06 0.78 3,000 7,641 1.56 3,032 0.40 2.55

4.

RATIONALE FOR THE PROPOSED ACQUISITION The Proposed Acquisition is in line with Luxchem and its subsidiaries’ (“Luxchem Group” or the “Group”) business expansion objectives and growth strategy. Luxchem is principally involved in the marketing and distribution of industrial chemicals and the manufacturing, marketing and distribution of unsaturated polyester resin. The Proposed Acquisition represents an investment by Luxchem to acquire the entire stake of its supplier of latex chemical dispersions, a form of industrial chemical, which includes activator dispersions, curative dispersions, accelerator dispersions, whitening agent dispersions, antioxidant dispersions and composite dispersions. These chemicals are used to manufacture latex dipped products, including the production of latex dipped gloves like medical, industrial, surgical and household gloves, condoms, balloons and swimming caps, amongst others. Luxchem has been in business with TMSB since 2012 and TMSB has been supplying latex chemical dispersions to Luxchem since 2014, which expanded the Group’s product offerings and allowed the Company to better cater for their latex dipped product customer’s needs. Through completing the Proposed Acquisition, the Company expects to be able to realise TMSB’s manufacturing profit margin in addition to Luxchem’s existing trading profit margin of those industrial chemicals. In addition, the Proposed Acquisition allows Luxchem to better control the quality, consistency and sufficiency of its latex chemical dispersions supply as well as ensuring prompt delivery. The customer base of Luxchem will also be expanded and diversified with the acquisition of TMSB. The Board anticipates that there will be promising demand for latex chemical dispersion products post acquisition of TMSB in view of the following:(i)

resilient demand for rubber latex products, including gloves, where TMSB’s and Luxchem’s products make up a critical component in their production; and

(ii)

the rising healthcare awareness globally, which will in turn increase the demand of gloves, catheters and other rubber latex products related to the medical and healthcare industry.

Further details of the overview and outlook of the rubber industry in Malaysia is as detailed in Section 5 below. The Board, in recognising the potential of the latex chemical dispersion market, intends to expand the production capacity of TMSB, after completing the Proposed Acquisition, further details of which are set out under Section 5.3 of this announcement. This is in anticipation of the demand for TMSB’s products, as well as to increase its market share in the latex chemical dispersion industry. The Board endeavours to assess the financial and commercial feasibility in expanding the company’s production capacity based on, amongst others, TMSB’s past sales performance and current market conditions. In summary, the Proposed Acquisition provides synergistic benefits as Luxchem is poised to gain from the potentially enlarged annual production capacity, a more extensive product range, a wider customer base and an additional source of income.


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5.

INDUSTRY OVERVIEW AND FUTURE PROSPECTS 5.1

Malaysian economy The Malaysian economy grew by 5.0% in 2015 (2014: 6.0%), supported by the continued expansion of domestic demand (2015: 5.1%, 2014: 5.9%). Domestic demand was primarily driven by the private sector. Modest improvements in external demand in the second half of the year also provided additional impetus to economic growth. On the supply side, all major economic sectors registered more moderate growth, with the exception of the mining sector. The moderation reflected the slower expansion of activity in industries catering to domestic demand. However, export-oriented manufacturing and trade-related services benefited from the modest improvement in external demand. The manufacturing sector expanded by 4.9% in 2015 (2014: 6.2%), attributable mainly to the continued strength of the export-oriented industries. The international economic and financial landscape is likely to remain challenging in 2016 and will be a key factor that will influence the prospects of the Malaysian economy. Depending on their nature, global developments can pose both upside and downside risks to the Malaysian economic growth. The Malaysian economy is expected to grow by 4.0 - 4.5% in 2016. Domestic demand will continue to be the principal driver of growth, sustained primarily by private sector spending. Private consumption growth is expected to trend below its long-term average, reflecting largely the continued household adjustments to an environment of higher prices and greater uncertainties. These moderating effects, however, will be partially offset by continued growth in income and employment, as well as some support from Government measures targeted at enhancing households’ disposable income. On the supply side, all economic sectors are projected to expand, albeit at a more moderate pace in 2016. The services and manufacturing sectors will remain the key drivers of overall growth. Despite the lower oil and gas prices, growth in the mining sector will be supported by new gas production capacity. Growth momentum in the construction sector is projected to moderate slightly in 2016 amid a modest expansion in both the residential and non-residential sub-sectors. (Source: BNM’s Annual Report 2015)

5.2

Overview and outlook of the rubber industry in Malaysia In 2014, total world production of rubber was estimated to be 26.3 million tonnes, growing at an annual average rate of 1.45% from 23.4 million tonnes in 2007. Natural rubber, with production estimated at 12.1 million tonnes, accounted for 46% of world rubber production, while synthetic rubber production accounted for 54%, with production estimated at 14.2 million tonnes. In the third quarter of 2014, the total production of natural rubber accounted for 45% of the total rubber production, while synthetic rubber production accounted for 55%. Similarly, in the third quarter of 2015, the total world production of natural rubber accounted for 45%, while synthetic rubber accounted for 55%.

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Malaysia is the world's ninth largest consumer of rubber and the seventh largest consumer of natural rubber. The other countries in the top ten ranking include China, the USA, Japan, India, Thailand, Brazil, Indonesia, Germany and Republic of Korea. In terms of consumption of natural rubber, Malaysia is behind China, India, the USA, Japan, Thailand and Indonesia. Other major consumers of natural rubber include Brazil, the Republic of Korea and Germany. With the availability of quality raw materials, political stability and good infrastructure and research and development (R&D) support from the Malaysian Rubber Board (MRB) and the Tun Abdul Razak Research Centre (TARRC), Malaysia remains a global player in rubber, supplying the world market with a wide range of rubber products. Exports of rubber products from Malaysia surpassed RM12.0 billion in 2010 and reached RM15.2 billion in 2014. In 2011, exports of rubber products recorded a positive growth of 10.3% year-on-year, contributed mainly by a strong increase in exports of rubber gloves which accounted for 70% of the total exports of rubber products in the year. In 2014, exports of rubber products from Malaysia increased by 3.4% year-onyear, fuelled by strong growth in exports of general rubber goods and tyres. The key products under the general rubber goods category include plates, sheets and strips, pre-cured treads, seals and gaskets as well as automotive parts and accessories. Nonetheless, the latex goods remained the largest contributor to Malaysian exports of rubber products, reaching RM12.2 billion in 2014. Rubber gloves under the latex goods category continued to contribute significantly to total exports of rubber products, reaching RM10.7 billion in export value or 71% of the total value of all rubber products exported. In 2015, exports of rubber products increased by 18.6% year-on-year from RM15.2 billion in 2014 to nearly RM18.0 billion. Exports of latex goods increased by nearly 20% from amount of RM12.2 billion in 2014 to RM14.6 billion in 2015. Malaysia remains the world’s leading supplier for medical gloves (examination and surgical gloves), satisfying more than 50% of global demand. Malaysia is also the world's leading supplier of Foley catheters and condoms and the second largest exporter of latex threads (in value terms). Latex thread is mainly used in the apparel industry as elastic bands and supports. Other latex products produced in Malaysia include teats and soothers as well as finger stalls. Malaysia also produces an extensive range of industrial rubber products such as hoses, beltings, seals, wires and cables for the global market. (Source: Industry Overview for Rubber Industry, Official Website of Malaysian Rubber Export Promotion Council)

5.3

Prospects of the enlarged Luxchem Group The Proposed Acquisition allows the Group to be in a better position to tap into the supply of latex chemical dispersions, an industry that is expected to enjoy resilient demand. This is due to the applicability of latex chemical dispersions to the rubber latex products industry. The Company intends to increase TMSB’s production capacity from approximately 9,000 tonnes up to approximately 13,000 tonnes via the installation of up to five (5) additional production lines in the next five (5) years. The Group will determine the number of production lines to install, after the completion of the Proposed Acquisition, based on TMSB’s sales performance as well as the market demand for TMSB’s products. The total cost for the additional production lines cannot be accurately determined at this juncture. In addition, through increasing TMSB’s production capacity, the Group expects to be able to increase its current market share in the latex chemical dispersions industry. The increased production capacity and market share is expected to enable the Group to attain better economies of scale as well as procuring raw materials at more competitive prices. In doing so, the Group is able to price its products more attractively, hence gaining a competitive edge over its peers.

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The Group intends to leverage on TMSB’s manufacturing know-how of latex chemical dispersions as well as its existing research and development facilities and personnel for further product innovation and improvement to increase the marketability of its products. (Source: Management of Luxchem)

The Board after having considered all the relevant aspects of the Proposed Acquisition, including the potential benefits of TMSB’s integration into Luxchem Group as well as the prospects of the industries relating to latex chemical dispersions as set out above, is of the opinion that the Proposed Acquisition is beneficial to the future earnings of the Group and is able to enhance shareholders’ value in the medium to long term.

6.

RISK FACTORS 6.1

Industry risk The Proposed Acquisition will not materially change the risk profile of Luxchem Group’s business as TMSB is exposed to business and operational risks inherent to the industrial chemicals sector, in which Luxchem Group currently operates in. These include, amongst others, risks pertaining to volatile raw material prices and foreign exchange rate movements, fluctuations in market demand, insufficient supply of labour and increase in labour costs, changes in political and economic conditions and changes in legal framework within which the industry operates. Nevertheless, the Group undertakes to manage these risks through market studies and implementing prudent business strategies and operating procedures aimed at maximum efficiency and effectiveness.

6.2

Non-completion risk The completion of the Proposed Acquisition is subject to the approval of Bursa Securities for the listing and quotation of the Consideration Shares on the Main Market of Bursa Securities as set out in Appendix I of this announcement, which may be beyond the control of Luxchem. Accordingly, there can be no assurance that the Proposed Acquisition can be completed. In the event such approval of Bursa Securities is not obtained/fulfilled and/or waived (as the case may be) in accordance with the terms of the SSA, the SSA will have to be terminated. Nevertheless, the Company anticipates that this risk can be mitigated by proactively engaging with Bursa Securities to obtain its approval that is required for the completion of the Proposed Acquisition within the timeframe as stipulated in the SSA.

6.3

Acquisition risk Although the management of Luxchem believes that the Proposed Acquisition will contribute positively towards the Group’s profitability, there can be no assurance that the anticipated synergies and other benefits of the Proposed Acquisition will be realised. There can be no assurance that the Group will be able to generate sufficient revenues from the Proposed Acquisition to offset acquisition costs. Nevertheless, upon the completion of the Proposed Acquisition, Luxchem expects to work closely with TMSB to ensure the streamlining of operations of the companies are carried out effectively to achieve the expected synergistic benefits.

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6.4

Dependence on operating license The operations of TMSB is reliant on its licenses and permits granted by the relevant authorities including, amongst others, Ministry of International Trade and Industry, Ministry of Domestic Trade, Co-operatives and Consumerism as well as Health Department of Perak. There is no assurance that the licenses and permits obtained by TMSB will not be revoked in the future should there be any non-compliance with the conditions stated therein. Nevertheless, Luxchem will work closely with TMSB to renew and/or to procure the issuance of the licenses and permits necessary for TMSB’s operations.

6.5

Dependence on key management The continued performance and future success of TMSB after the Proposed Acquisition, will depend to a certain extent, on the skills, abilities, experience of the respective key management of TMSB. There can be no assurance that any loss of such key management of TMSB without suitable and timely replacement would not affect the business operations and financial performance of TMSB, which in turn, would affect the performance of the enlarged Luxchem Group. Nevertheless, Luxchem intends to retain the key management of TMSB. The Company will also seek to mitigate this risk by continuously undertaking appropriate measures to attract talent and retain such key personnel including providing attractive remuneration packages as well as providing training and career advancement opportunities for them.

7.

EFFECTS OF THE PROPOSED ACQUISITION 7.1

Share capital The pro forma effect of the Proposed Acquisition on the issued and paid-up share capital of Luxchem as at the LPD is as follows:No. of Shares Issued and paid-up ordinary share capital as at the LPD Upon issuance of the Consideration Shares Enlarged issued and paid up share capital


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265,834,200 5,184,851 271,019,051

7.2

NA and gearing Based on the latest audited consolidated statement of financial position of Luxchem as at 31 December 2015 and on the assumption that the Proposed Acquisition had been effected on that date, the pro forma effects of the Proposed Acquisition on the NA and gearing of the Luxchem Group are as follows:Group level

(I) Audited as at 31 December 2015

After subsequent events(1)

RM’000

RM’000

(II) After (I) and the Proposed Acquisition(2) RM’000

Share capital Share premium Reserves Shareholders’ equity / NA Non-controlling interests Total equity

132,537 2,690 56,059 191,286 (295) 190,991

132,917 3,057 55,861 191,835 (295) 191,540

135,509 9,665 55,361 200,535 (295) 200,240

No. of Luxchem Shares (‘000) NA per Share (RM)

265,074

265,834

271,019

0.72

0.72

0.74

61,973 0.32

61,973 0.32

65,005 0.32

Borrowings Gearing (times)

Notes:(1) After adjusting for the exercise of 759,800 options of the employee share option scheme of the Company from 1 January 2016 up to the LPD. (2) Includes the following:(a) Issuance of 5,184,851 Consideration Shares to the Vendors at the issue price of RM1.7744 as part satisfaction of the Purchase Consideration. (b) Estimated expenses of RM500,000 for the Proposed Acquisition.


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7.3

Earnings and earnings per Share (“EPS”) Based on:(i)

the Company’s latest audited consolidated financial statements for FYE 31 December 2015; and

(ii)

the audited profit after tax of TMSB for the FYE 31 December 2015;

the pro forma effects on the earnings and EPS on the assumption that the Proposed Acquisition was completed on 1 January 2015, are as follows:Group level

Audited for the FYE 31 December 2015 RM’000

After the Proposed Acquisition(1) RM’000

Profit after tax attributable to the owners of the Company

39,735

41,576

Weighted average number of Luxchem Shares in issue (‘000)

262,806

267,991

15.12

15.51

Basic EPS (sen)

Note:(1)

Includes the following:(a) Issuance of 5,184,851 Consideration Shares to the Vendors at the issue price of RM1.7744 as part satisfaction of the Purchase Consideration. (b) Estimated expenses of RM500,000 for the Proposed Acquisition.

Arising from the Proposed Acquisition, Luxchem’s EPS will increase and is expected to contribute positively to the Group’s overall earnings moving forward, as and when the expected benefits and prospects materialise as set out in Section 4 and Section 5 of this announcement. Any potential EPS growth of the Group will depend on the future earnings performance of TMSB.


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7.4

Substantial shareholders’ shareholdings The pro forma effect of the Proposed Acquisition on the substantial shareholders’ shareholdings of Luxchem based on the Register of Substantial Shareholders of Luxchem as at the LPD is as follows:Existing as at LPD(1) Direct Indirect No of Shares % No of Shares Chemplex Resources Sdn Bhd Tang Ying See Chin Song Mooi Chow Cheng Moey

137,140,000 1,000,000 1,263,900 22,977,400

51.59 0.38 0.48 8.64

138,403,900 (4) 138,140,000 (5) 200,000 (3)

%

After the Proposed Acquisition(2) Direct Indirect No of Shares % No of Shares

52.06 51.96 0.08

137,140,000 1,000,000 1,263,900 22,977,400

50.60 0.37 0.47 8.48

138,403,900 (4) 138,140,000 (5) 200,000 (3)

% 51.07 50.97 0.07

Notes:(1) Based on the issued and fully paid up capital of 265,834,200 Shares as at the LPD. (2) Based on the enlarged issued and fully paid up capital of 271,019,051 Shares after the issuance of 5,184,851 Consideration Shares. (3) Deemed interested by virtue of his substantial shareholdings in Chemplex Resources Sdn. Bhd. and his spouse, Chin Song Mooi’s shareholdings in Luxchem pursuant to Section 6A of the Act. (4) Deemed interested by virtue of her substantial shareholdings in Chemplex Resources Sdn. Bhd. and her spouse, Tang Ying See’s shareholdings in Luxchem pursuant to Section 6A of the Act. (5) Deemed interested by virtue of shares held by her spouse, Lim Kuang Sia in Luxchem pursuant to Section 6A of the Act.


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8.

APPROVALS REQUIRED The Proposed Acquisition is subject to the approval of Bursa Securities for the listing and quotation of the Consideration Shares to be obtained. The Proposed Acquisition is not subject to the approval of the shareholders of Luxchem. The Proposed Acquisition is not conditional upon any other corporate exercise / scheme of Luxchem.

9.

INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS OF LUXCHEM AND/OR PERSONS CONNECTED WITH THEM None of the directors, substantial shareholders of the Company and/or persons connected with them have any interest, whether direct or indirect, in the Proposed Acquisition.

10.

DIRECTORS’ STATEMENT The Board, after having considered all aspects of the Proposed Acquisition, including the rationale and the risk factors as set out in Sections 4 and 6 of this announcement respectively, is of the opinion that the Proposed Acquisition is in the best interest of the Company.

11.

HIGHEST PERCENTAGE RATIO The highest percentage ratio applicable to the Proposed Acquisition pursuant to Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Securities is 23.79%, calculated based on the Purchase Consideration over the latest audited consolidated NA of the Group as at 31 December 2015.

12.

ESTIMATED TIME FRAME Subject to all the condition precedents as stipulated in the SSA being obtained / fulfilled and/or waived (as the case may be), the Board expects the Proposed Acquisition to be completed by the second quarter of 2016. The additional listing application in relation to the listing and quotation of the Consideration Shares on the Main Market of Bursa Securities will be submitted to Bursa Securities on even date.

13.

DOCUMENT FOR INSPECTION A copy each of the SSA and the indicative valuation report is available for inspection during normal office hours at the registered office of the Company at Unit 30-1, Level 30, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No. 8, Jalan Kerinchi, 59200 Kuala Lumpur during normal business hours from 8.30 a.m. to 5.30 p.m. from Mondays to Fridays (except for public holidays) for a period of three (3) months from the date of this announcement.

This announcement is dated 8 April 2016.

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APPENDIX I – SALIENT TERMS OF THE SSA

The salient terms of the SSA include, inter alia, the following:1.

Conditions precedent (a)

The Proposed Acquisition is conditional upon the approval of Bursa Securities for the listing of and quotation for the Consideration Shares on the Main Market of Bursa Securities being obtained/fulfilled within one month from the date of the SSA, or such later date as the parties to the SSA may mutually agree upon (“Cut-Off Date”).

(b)

If:(i)

on the expiry of the Cut-Off Date, any of the conditions precedent shall have been refused and appeal or appeals to the persons against such refusal have not been successful;

(ii)

on the expiry of the Cut-Off Date, any of the conditions precedent have not been obtained or fulfilled or waived; or

(iii)

at any time prior to the expiry of the Cut-Off Date, any of the conditions precedent shall have been granted subject to terms and conditions which are not acceptable to the Company being terms and conditions which affect the Company, and further representations to the persons to vary such terms and conditions have not been successful, and the Company is not willing to accept such terms and conditions then imposed by the relevant authorities or persons; or

then the Company shall be entitled to terminate the SSA by giving a notice of termination to that effect to the Vendors, whereupon the Vendors shall refund and repay to the Company, or procure the refund and repayment to the Company of all moneys paid by the Company including the Deposit, if any, free of interest and thereafter, the parties to the SSA shall not have any further rights under the SSA except in respect of:-

2.

(i)

any obligation under the SSA which is expressed to apply after the termination of the SSA; and

(ii)

any rights or obligations which have accrued in respect of any breach of any of the provisions of the SSA to either party to the SSA prior to such termination.

Manner of payment of the Purchase Consideration Subject to the adjustment provided for in paragraph 4 below, the Purchase Consideration shall be satisfied by the Company in the following manner: (a)

Upon the execution of the HOA, the Company has paid the sum of RM2,300,000.00 in cash, as deposit and part payment of the Purchase Consideration (“Deposit”) to the Company’s solicitors as stakeholders to hold and deal with in accordance with the terms of the SSA.

(b)

On the Completion Date, the Company shall – (i)

pay a fixed sum of RM34,000,000.00, in cash to the Vendors in the respective proportions and amounts set out in terms of the SSA (“Balance”); and

(ii)

effect the allotment of the Consideration Shares to the Vendors in the respective proportions and amounts set out in section 2.1 of this announcement towards settlement of the balance of the Purchase Consideration.

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APPENDIX I – SALIENT TERMS OF THE SSA (CONT’D) 3.

Settlement of related party advances (a)

4.

The parties to the SSA acknowledge and covenant that the Purchase Consideration has been arrived at on the basis that TMSB is or shall as at the completion date (being the business day falling 14 days after the conditions precedent set out in paragraph 1(a) above being obtained/fulfilled) (“Completion Date”) be free of any claims, debts or liabilities relating to – (i)

loans or advances extended to TMSB by directors and/or shareholders of TMSB and their related parties and persons connected with them (“Related Parties”); and/or

(ii)

loans or advances extended by TMSB to the Related Parties (“Related Party Advances”).

(b)

Accordingly, the respective Vendors undertake and covenant at their own cost and expense to fully settle and repay such Related Party Advances on or before the Completion Date and/or procure that TMSB shall fully settle and repay such Related Party Advances on or before the Completion Date.

(c)

In the event that TMSB fails to fully settle and repay the Related Party Advances to the Related Parties by the Completion Date, the Company shall, on the Completion Date, settle and repay the outstanding amount of such Related Party Advances for and on behalf of TMSB and thereafter an amount equivalent to such outstanding amount of Related Party Advances will become an amount due and owing by TMSB to the Company following the completion of the sale and purchase of the Sale Shares as contemplated under the terms of the SSA (“Completion”).

Completion adjustment of the Purchase Consideration (a)

The Vendors shall, within 7 days after the conditions precedent set out in paragraph 1(a) above being obtained/fulfilled or 7 days prior to the Completion Date, whichever is earlier, deliver or procure to be delivered to the Company TMSB’s proforma unaudited balance sheets and profit and loss accounts as at (and including) the last day of the calendar month preceding the Unconditional Date or such other date as may be mutually agreed on by the parties to the SSA (“Completion Management Accounts”), which shall be prepared by the Vendors and TMSB in the same manner that TMSB’s latest audited accounts for the financial year ended 31 December 2015 have been prepared, to determine if there are any variations in the Purchase Consideration as well as to verify, inter alia, that the Related Party Advances have been fully settled.

(b)

In the event that there shall be any Related Party Advances due and payable by the Related Parties to TMSB as stated in the Completion Management Accounts which are not fully settled by the Completion Date, there shall be a corresponding downwards adjustment of the Purchase Consideration for an amount equivalent to the aggregate amount of Related Party Advances remaining payable by the Related Parties, the Balance and/or the aggregate nominal value of the Consideration Shares to be allotted and issued by the Company to the Vendors pursuant to the terms of paragraph 2(b) above shall accordingly be deemed to be the sum as adjusted in accordance with this paragraph 4(b).

(c)

For the avoidance of doubt, nothing in this paragraph 4 shall prejudice the rights of the Company to make any claim against the Vendors for breach of the warranties in the event that it is discovered at any time before or after Completion that the Completion Management Accounts is untrue, incorrect or misstated in any respect.

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APPENDIX I – SALIENT TERMS OF THE SSA (CONT’D) (d)

5.

Notwithstanding the foregoing provisions of this paragraph 4 and any other provision of this agreement, if the adjustment pursuant to the provisions of paragraph 4(b) shall amount to more than 20% of the Purchase Consideration, either party shall be entitled to give notice to the other party immediately terminating the SSA.

Termination of the SSA (a)

Each party to the SSA shall be entitled to issue a notice of termination to the other party, if, at any time prior to Completion, the other party commits any continuing or material breach of any of its obligations under the SSA which is incapable of remedy or if capable of remedy, is not remedied within 14 days of it being given notice so to do, or inter alia, a winding up or insolvency events occurs, or the due completion of the sale, purchase or transfer of the Sale Shares under the SSA is prohibited by any applicable law or regulation or in consequence of any order or directive of any court or there is any court order or action which adversely affects the sale, purchase or transfer of the Sale Shares which arises for any reason other than due to the breach or default of a party and such state of affair subsist for a period of 30 days or more.

(b)

If the SSA is terminated by the Company and the Company elects not to pursue the remedy of specific performance, the Vendors shall, within 14 days after receipt of the notice of termination, return to the Company all documents, if any, delivered to any of them by or on behalf of the Company, procure TMSB to return to the Company all such documents (if any), return, refund and repay to the Company any and all moneys received by the Vendors towards account of the Purchase Consideration together with any interest accrued thereon (if any), and return and surrender for cancellation any Consideration Shares received by the Vendors towards account of the Purchase Consideration or held by or on behalf of the Vendors pursuant to the terms of the SSA and pay a sum equivalent to the Deposit as agreed liquidated damages to the Company, and the Company shall, in exchange for the performance by the Vendors of such obligations, return to the Vendors all documents, if any, delivered to them by or on behalf of TMSB or the Vendors.

(c)

If the SSA is terminated by the Vendors and the Vendors elect not to pursue the remedy of specific performance, the Deposit shall be absolutely forfeited in favour of the Vendors as agreed liquidated damages, the Company shall, within 14 days after its accept of the notice of termination, return to the Vendors all documents, if any, delivered to it by or on behalf of TMSB or the Vendors, and the Vendors shall, in exchange with the performance by the Company of its aforesaid obligations, return, refund and repay to the Company the Balance held by or on behalf of the Vendors pursuant to the terms of the SSA, free of interest (if any) and return and surrender for cancellation any Consideration Shares received by them towards account of the Purchase Consideration or held by or on behalf of the Vendors pursuant to the terms of the SSA, and return to the Company all documents, if any, delivered to them by or on behalf of the Company.

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