| Tue 18 Dec 2007, 7:05 | | DEL - Delta Electrical Industries - Trading update |
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DEL
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DEL - Delta Electrical Industries - Trading update
Delta Electrical Industries Limited
Incorporated in the Republic of South Africa
(Registration number 1919/006020/06)
Share code: DEL ISIN: ZAE000002036
("Delta" or "the group")
Trading update
Delta Shareholders are referred to the Prospects Statement contained in the
Delta 2006 Year end Audited Results Announcement published on 19 February 2007
and the Interim Results Announcement released on 6 August 2007. On both
occasions the Delta directors drew shareholders attention to the group`s
difficult trading conditions.
Shareholders are advised that the trading loss of the business before interest
and exceptional items for the twelve months ending 27 December 2007 is forecast
to be worse than those incurred during the twelve months ended 27 December 2006.
Delta EMD (EMD) sales volumes and pricing have improved modestly. However
reduced overhead costs have been more than offset by the under recovery of
production overheads at the group`s Australian operation since the decision to
reduce production. A modest reduction of EMD stocks has facilitated the sale of
slow moving stocks allowing a write back of a substantial portion of the group`s
stock provision. In addition the stronger average Australian dollar to the US
dollar, a weaker average Rand to the Australian dollar and one off costs
associated with defending the anti dumping cases (R11 million) have also
contributed to the trading losses.
The results for the twelve months ended 27 December 2006 were positively
affected by interest earned (which contributed R8,5 million or 17.4 cents per
share) on the Industrial Supplies Division disposal proceeds before the payment
of the final special dividend paid in March 2006. The loss and headline loss
per share for 2006 were also negatively affected by the Secondary Taxation on
Companies ("STC") charge of R86 million (175 cents per share) paid on the final
special dividend in March 2006 and the impairment charge of R27.1 million
relating to the South African plant (55.2 cents per share). The loss per share
for the twelve months ending 27 December 2007 will be favourably affected by the
gain on sale realised from property sold in Australia of R24.5 million (50 cents
per share) and the over provision in respect of capital gains taxation on the
Industrial Supplies Division disposal of R21.4 million (43.7 cents per share).
Shareholders are advised that a loss before taxation of between R30 million and
R36 million (2006: R62 million) and headline loss before taxation of between R49
million and R58 million (2006: R34.9 million) is forecast for the twelve months
ending 27 December 2007 before the exceptional costs to be charged in respect of
the ceasing of production at the Australian plant ("the exceptional costs") as
referred to below.
Shareholders are also advised that a loss per share of between 19 cents and 22
cents (2006: 309.9 cents) and headline loss per share of between 97 cents and
116 cents (2006: 259.5 cents) is forecast for the twelve months ending 27
December 2007 before the exceptional costs. As the exceptional costs for the
year ending 27 December 2007 are not yet known with reasonable certainty, a
further trading update will be made once there is certainty regarding this.
Excluding the STC charge on the final special dividend, the impairment charge
and the interest earned on the sale proceeds before the payment of the final
special dividend, the loss and headline loss per share for 2006 were 97.1 cents
and 101.9 cents respectively. Excluding the gain on sale of property sold in
Australia and the over provision of capital gains taxation, the loss per share
for the twelve months ending 27 December 2007 is forecast to be between 103
cents and 127 cents.
With a reduction of Australia`s EMD stocks and the sale of property in
Australia, we expect a cash inflow for the year and forecast year-end cash
balances in excess of R164 million (2006: R138.2 million).
Delta EMD continues to co-operate fully with the anti-dumping investigations
underway in Europe, Japan and the United States. A 14.9% provisional anti-
dumping duty has been imposed by the European Commission and we anticipate the
imposition of anti-dumping duties in Japan and United States. Market
competitive prices, increasing production costs, reduced production in Australia
and adverse exchange rate movements have resulted in these investigations and
the likelihood of anti-dumping duties. Australia will be affected by the duties
imposed in Japan and the United States, and South Africa will be affected by
duties imposed in Europe and Japan. The duties likely to be imposed on South
Africa are expected to be lower than those on Australia.
The substantial strengthening of the Australian dollar and South African Rand
have reduced the cost competitiveness of the group`s plants, and the imposition
of anti-dumping duties will limit the markets available to our plants. Further
we do not anticipate substantial growth in the EMD markets outside of China,
where market prices are the lowest. The group`s Australian plant has incurred
losses during the past three years and has required additional capital during
that period to continue operation. Consequently the board has decided to cease
production in Australia. The sale of Australia`s remaining stocks will generate
substantial cash flows. A substantial impairment charge and provision for
closure costs will be incurred during 2007. The cessation of production at the
group`s Australian plant should improve market conditions for the group`s South
African plant, and we expect that the South African plant and group will become
profitable and cash generative.
Given the group`s substantial cash balances, our expectation that cash will be
realized through the sale of Australia`s remaining EMD stocks, the board will
determine a return of cash to shareholders in February 2008 once the year end
2007 results are published.
This trading update has not been reviewed by Delta`s auditors and Delta`s
results for the twelve months ending 27 December 2007 are expected to be
released on or about 21 February 2008.
Johannesburg
18 December 2007
Sponsor
Nedbank Capital
Date: 18/12/2007 07:05:02 Produced by the JSE SENS Department.
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