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DEL
DEL
DEL - Delta Electrical Industries Limited - Audited group results for the year
ended 27 december 2007
Delta Electrical Industries Limited
Incorporated in the Republic of South Africa
(Registration number 1919/006020/06)
Share code: DEL & ISIN: ZAE000002036
("Delta")
AUDITED GROUP RESULTS FOR THE YEAR ENDED 27 DECEMBER 2007
condensed financial statements
GROUP INCOME STATEMENT
2007 2006
Note R`000 R`000
Revenue 486,083 438,246
Loss before interest, taxation and (3,133) (17,275)
depreciation
Depreciation (36,847) (38,570)
Closure costs (83,352) -
Impairment (108,136) (27,025)
Net foreign exchange losses (3,529) (3,007)
Operating loss (234,997) (85,877)
Net interest received 12,858 23,907
Loss before taxation (222,139) (61,970)
Taxation 16,867 (90,194)
Normal taxation (4,550) (6,354)
Secondary taxation on companies - (86,040)
Capital gains taxation over 21,417 2,200
provided on disposal of the
industrial services division
Loss after taxation for the period (205,272) (152,164)
Attributable to:
Equity holders of parent company (205,272) (152,164)
Headline loss attributable to 1 (145,945) (127,430)
ordinary shareholders
Number of shares in issue (`000) 49,166 49,166
Weighted number of shares in issue 48,985 49,099
(`000)
Dilutive number of shares in issue 48,990 49,232
(`000)
Attributable loss per share (cents)
- basic (419.0) (309.9)
- diluted (419.0) (309.1)
Dividend per share (cents) - Normal - -
Dividend per share (cents) - - 1,400.0
Special
GROUP CASH FLOW STATEMENT
2007 2006
R`000 R`000
Cash utilised by trading (35,721) (20,284)
Decrease in working capital 45,001 5,563
Cash generated by / (utilised by) 9,280 (14,721)
operations
Interest received 12,858 23,907
Taxation paid - normal (2,216) (19,780)
Taxation refund / (paid) - Capital gains 23,617 (50,401)
taxation
Taxation paid - STC - (121,717)
Cash generated by / (utilised by) 43,539 (182,712)
operating activities
Dividend paid - -
Cash inflow / (outflow) before investing 43,539 (182,712)
activities
Replacement capital expenditure (12,518) (25,647)
Final special dividend paid - (685,174)
Proceeds on disposal of land, property, 46,824 153
plant and equipment
Net cash inflow / (outflow) before 77,845 (893,380)
financing activities
Proceeds on disposal of treasury shares 73 2,863
Net increase / (decrease) in cash and 77,918 (890,517)
cash equivalents
Cash and cash equivalents at beginning of 138,196 1,028,076
period
Currency translation of cash in foreign 2,228 637
subsidiary
Cash and cash equivalents at end of 218,342 138,196
period
GROUP BALANCE SHEET
2007 2006
R`000 R`000
ASSETS
Property, plant and equipment 318,589 438,535
Deferred taxation asset - 6,647
Non-current asset 1,051 1,051
Bank balances and cash 218,342 141,817
Current assets 361,084 417,319
Total assets 899,066 1,005,369
EQUITY AND LIABILITIES
Share capital and reserves 650,501 834,683
Deferred taxation liabilities 27,677 30,939
Non-current liabilities 104,315 43,727
Bank overdraft - 3,621
Current liabilities 116,573 92,399
Total equity and liabilities 899,066 1,005,369
Net asset value per share (cents) 1,323 1,698
GROUP STATEMENT OF CHANGES IN EQUITY
Share Foreign
Capital currency
and translation Treasury
premium reserve shares
R`000 R`000 R`000
Balance at 27 December 2005 117,445 33,737 (4,858)
Increase in Foreign Currency - 51,624 -
Translation Reserve
117,445 85,361 (4,858)
Net loss for the year - - -
117,445 85,361 (4,858)
Dividend paid - - -
Proceeds on disposal of treasury - - 2,863
shares
Balance at 27 December 2006 117,445 85,361 (1,995)
Increase in Foreign Currency - 21,017 -
Translation Reserve
117,445 106,378 (1,995)
Net loss for the year - - -
117,445 106,378 (1,995)
Proceeds on disposal of treasury - - 73
shares
Balance at 27 December 2007 117,445 106,378 (1,922)
Accumu-
lated
profit Total
R`000 R`000
Balance at 27 December 2005 1,471,210 1,617,534
Increase in Foreign Currency - 51,624
Translation Reserve
1,471,210 1,669,158
Net loss for the year (152,164) (152,164)
1,319,046 1,516,994
Dividend paid (685,174) (685,174)
Proceeds on disposal of treasury - 2,863
shares
Balance at 27 December 2006 633,872 834,683
Increase in Foreign Currency - 21,017
Translation Reserve
633,872 855,700
Net loss for the year (205,272) (205,272)
428,600 650,428
Proceeds on disposal of treasury - 73
shares
Balance at 27 December 2007 428,600 650,501
NOTES
1. Reconciliation between attributable loss and headline loss
2007 2006
R`000 R`000
Attributable loss after taxation (205,272) (152,164)
Impairment 108,136 27,025
Consumable stores (2,674) -
Over provision prior year CGT (21,417) (2,200)
Profit on disposal of fixed assets (24,718) (91)
Headline loss attributable to ordinary (145,945) (127,430)
shareholders
Attributable headline loss per share
- basic (297.9) (259.5)
- diluted (297.9) (258.8)
2. Basis of presentation
The audited group financial statements have been prepared in accordance with the
group`s accounting policies which are consistent with those of previous years
and comply with IFRS, the listing requirements of the JSE Limited and the
Companies Act of South Africa. These condensed consolidated financial statements
have been extracted from the group`s annual financial statements and have been
prepared in accordance with IAS 34 - Interim reporting.
3. Future Developments under IFRS
Future amendments to the consolidated financial statements may arise due to one
or more of the following reasons:
- The accounting statements are subject to ongoing review and may change;
- The consolidated financial statements have been prepared based on the
outcome expected at this point in time, of the technical issues and
exposure drafts currently being examined by the IASB and IFRIC, which may
be applicable to the 2007 IFRS consolidated financial statements;
- Interpretations may differ as practice develops, and
- Tax legislation and tax related interpretations might develop further.
2007 2006
R`000 R`000
4. COMMITMENTS AND CONTINGENCIES
Capital commitments - Authorised but not 4,853 2,473
contracted
Capital commitments - contracted 853 1,215
5,706 3,688
Operating lease commitment 1,623 2,497
Contingent liabilities/guarantees 909 738
COMMENT ON RESULTS
YEAR REVIEW
A loss of 419.0 cents (2006: 309.9 cents) per share and a headline loss of 297.9
cents (2006: 259.5 cents) per share were recorded for the year ended 27 December
2007.
The Group`s results for the year ended 27 December 2007 were negatively affected
by exceptional items of R191.5 million including closure costs provided for
(R187.6 million) associated with the board`s decision to cease production at the
Australian plant, which was announced to shareholders by way of a trading update
on 18 December 2007. Results were positively affected by exceptional items
including the gain on sale of land adjacent to the Australian plant (R24.6
million) and the refund of Capital Gains Tax (R21.4 million) paid on the
disposal of the Industrial Services division.
Revenue increased by 11% from R438 million in 2006 to R486 million associated
with higher volumes. While average selling prices improved only modestly, the
increased revenue from volumes was partly offset by a devaluation of the US
dollar revenues against the Australian dollar.
An operating loss of R68.2 million was recorded for the year before exceptional
items which included the Australian closure costs and the gain on sale of
surplus land adjacent to the Australia plant. This compares with an operating
loss of R58.9 million in 2006. The year on year deterioration in operating
losses was due to the under recovery of production overheads at the group`s
Australian operation resultant from the decision to reduce production in 2007 in
order to liquidate stock levels. In addition the devaluation of the US dollar
against the Australian dollar, the strengthening of the Australian dollar
against the Rand, operational inefficiencies and one off costs associated with
defending the anti dumping cases (R11.5 million) contributed to the
deterioration in operating losses.
A pre tax loss before exceptional items of R55.2 million (2006: R34.9 million)
was recorded for the year. The deterioration in pre tax losses resulted from
lower interest income following the payment of a special dividend during 2006.
The taxation charge in the income statement was reduced by the refund of capital
gains tax paid in prior years and increased by the write off of the deferred
taxation asset in Australia of R6.3 million following the decision to cease
production at that plant.
A loss after taxation of R205.3 million resulted for the year (2006: R152.2
million).
The loss per share for the year ended 27 December 2007 was favourably affected
by the gain on sale realised from land sold in Australia of R24.6 million (50.2
cents per share) and the refund of capital gains tax paid on the Industrial
Services Division disposal of R21.4 million (43.7 cents per share). The loss per
share was negatively affected by closure costs provided for of R187.6 million
(383.0 cents) associated with the decision to cease production in Australia,
which was announced to shareholders on 18 December 2007 by way of a trading
update.
Excluding the gain on sale of land sold in Australia, the refund of capital
gains tax, the closure costs associated with the Australian plant and other
items, the loss and headline loss per share for the twelve months ended 27
December 2007 was 109.2 cents.
Improved sales volumes and the reduction of production capacity in Australia,
both of which resulted in lower stock levels, the refund of Capital Gains
Taxation (R21.4 million) and the sale of land in Australia (R46.8 million)
resulted in a net cash inflow for the year of R77.9 million. As a result the
group ended the year with cash balances of R218.3 million (2006: R138.2
million).
ANTI DUMPING INVESTIGATIONS
South Africa is now subject to a 17.1% anti-dumping duty in Europe and remains
the subject of an anti-dumping investigation in Japan. Efforts continue in Japan
to agree price undertakings in lieu of ad valorem duties. We also anticipate
that Australia will be subject to anti-dumping duties in the USA and Japan.
Market competitive prices, adverse exchange rate movements, increased production
costs, and in the case of our Australian plant overhead under recoveries
associated with operating that plant at reduced capacity, resulted in the
group`s exposure to these anti dumping investigations.
CLOSURE OF AUSTRALIA
The production costs at our Australian plant have been higher than at our South
African plant, and the performance of that plant has been adversely affected for
some time by the strong Australia dollar. Future sales opportunities for the
Australian plant also would have been limited as a consequence of the expected
outcomes of the US and Japanese anti-dumping investigations. As a result the
board has decided to cease production at the Australian operation, which was
announced to shareholders in a trading update on 18 December 2007. Closure of
the plant will prevent future losses and will generate cash for return to
shareholders.
The provisions taken during 2007 in respect of the Australian plant totalled
R187.6 million which include the impairment of plant assets, redundancy payments
and estimated restoration and rehabilitation costs. The value of the land at the
plant and residue disposal site were not adjusted and remain at book value due
to the uncertainties associated with realisable value once rehabilitated. The
disposal of the land could result in a profit in future periods.
The operating and administration costs to be incurred during production,
decommissioning and liquidation of the Australian plant assets have not been
provided for and will be expensed during the 2008 year. The sale of the
Australian stock on hand during 2008 is expected to cover these expenses. The
net working capital of the Australian plant at the end of 2007 was R169 million.
Following the decommissioning of the Australian plant, the sale of the plant
assets and land is expected to be complete within two years. Opportunities for
accelerating the disposal of these assets, reducing the estimated restoration
and rehabilitation costs and realising gains on the sale of the assets and land
are being pursued. The liquidation proceeds are expected to fund the costs to be
incurred in decommissioning the plant, undertaking the required restoration and
rehabilitation of land and disposing the assets and land.
PROSPECTS
Demand for EMD in the US, Europe and Japan has declined with battery production
migrating to China and the use of larger cells reducing in favour of small cells
that require less EMD. The EMD market remains oversupplied with price
competition whilst the cost of manganese ore and other inputs continue to
increase substantially, resulting in poor margins. The profitability of EMD
producers also continues to vary as a consequence of movements in the value of
the US dollar against local currency production costs.
South Africa is not a party to the US anti-dumping investigation and future
sales of EMD to the US will be priced to generate attractive margins. South
Africa is subject to a 17.1% anti-dumping duty in Europe and remains the subject
of an anti-dumping investigation in Japan. Nonetheless future demand is expected
to provide our South African plant adequate volumes.
Manganese ore prices will increase substantially in line with the recently
announced increase in the Japanese benchmark price. The substantially increased
selling prices proposed by Delta EMD for 2008 will have to be increased further
to recover the higher cost of managanese ore.
Recent load shedding of electrical power in South Africa has disrupted
production at our South African plant and is likely to do so for some time,
resulting in reduced production and under recovery of overheads. Existing stocks
are expected to be adequate to fulfil supply arrangements during the year.
Improved sales volumes and selling prices are expected to allow our South
African plant to trade profitably. We expect our Australian operation to trade
profitably with the sale of that plant`s limited 2008 production and remaining
stocks. Head office costs will be closely managed and reduced as our Australian
operations are wound down.
Whilst the financial performance of both operations is expected to improve
during the year, the South African operation is expected to require cash for
additional working capital and capital expenditures, whilst the Australian
operation is expected to be cash generative. The Group`s year end cash balances
are expected to increase and would facilitate a further return of cash to
shareholders.
Pro Rata repurchase of Shares
The board of Delta intend making a pro rata offer to shareholders to repurchase
Delta ordinary shares for a maximum total consideration of R111 million ("pro
rata offer"). The pro rata offer will be a voluntary offer and shareholders will
not be obliged to accept the offer. Shareholders will be able to tender all or
some of their Delta ordinary shares. Should more shares be tendered than the
maximum number under the offer, the repurchase would be implemented on a pro
rata basis relative to the number of shares tendered by each shareholder. The
pro rata offer is subject to the required shareholder approval to be sought at
the next AGM to be held on 16 April 2008 and the JSE Listings Requirements.
Details of the pro rata offer will be included in the annual report and notice
of annual general meeting to be posted in early March 2008.
INDEPENDENT AUDITORS` REPORT
The auditors Deloitte & Touche have issued their unmodified audit opinion on the
group`s condensed consolidated financial statements for the year ended 27
December 2007. A copy of their audit report is available for inspection at the
company`s registered office.
T G Atkinson (Chairman)
Registered Office
11th Floor, Office Tower
Sandton City
Rivonia Road
Sandown 2146
Transfer Secretaries
Computershare Investor Services 2004 (Proprietary) Limited
70 Marshall Street, Johannesburg 2001
Marshalltown 2107
Directors:
Independent non executive:
LB Bird, PL Campbell, AC Hicks
Non executive:
TG Atkinson* (Chairman), BR Wright
Executive:
CJ Jacobs, MJ Renehan+ *USA +Australian
25 February 2008
SPONSOR
NEDBANK CAPITAL
AUDITORS
DELOITTE
Date: 25/02/2008 12:05:01 Produced by the JSE SENS Department.
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