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DEL - Delta Electrical Industries Limited - Audited group results for the year
ended 27 December 2008 condensed financial statements
Delta Electrical Industries Limited
(Incorporated in the Republic of South Africa)
Registration number: 1919/006020/06
Share code: DEL ISIN: ZAE000002036
("Group" or "The company")
AUDITED GROUP RESULTS FOR THE YEAR ENDED 27 DECEMBER 2008 CONDENSED FINANCIAL
STATEMENTS
GROUP INCOME STATEMENT
Audited Audited
year to year to
December December
2008 2007
Note R`000 R`000
Revenue 648,450 486,083
Profit/(loss) before closure costs, 145,897 (3,133)
impairment, interest, taxation and
depreciation
Depreciation (12,776) (36,847)
Closure costs (28,934) (83,352)
Impairment (3,980) (108,136)
Net foreign exchange gains/(losses) 3,777 (3,529)
Operating profit/(loss) 103,984 (234,997)
Net interest received 22,198 12,858
Profit/(loss) before taxation 126,182 (222,139)
Taxation (36,750) 16,867
Normal taxation (34,608) (4,550)
Secondary taxation on companies (5,165) -
Capital gains taxation overprovided on 3,023 21,417
disposal of the industrial services
division
Profit/(loss) after taxation for the 89,432 (205,272)
period
Attributable to:
Equity holders of parent company 89,432 (205,272)
Headline earnings/(loss) attributable 1 90,389 (145,945)
to ordinary shareholders
Number of shares in issue (`000) 49,166 49,166
Weighted number of shares in issue 48,990 48,985
(`000)
Dilutive number of shares in issue 49,002 48,990
(`000)
Attributable earnings/(loss) per share
(cents)
- basic 182.6 (419.0)
- diluted 182.5 (419.0)
Capital reduction per share (cents) 229.0 -
Dividend per share (cents) 100.0 -
GROUP CASH FLOW STATEMENT
Audited year to Audited year to
December December
2008 2007
R`000 R`000
Cash generated/(utilised) by 120,902 (35,721)
trading
Decrease in working capital 29,514 45,001
Cash generated by operations 150,416 9,280
Net interest received 22,198 12,858
Taxation paid - normal (7,352) (2,216)
Taxation refund - Capital gains 3,023 23,617
taxation
Cash inflow from operating 168,285 43,539
activities
Replacement capital expenditure (5,422) (12,518)
Proceeds on disposal of land, 8,430 46,824
property, plant and equipment
Net cash inflow before financing 171,293 77,845
activities
Capital reduction (112,589) -
Dividend paid - special (48,990) -
Proceeds on disposal of treasury 787 73
shares
Net increase in cash and cash 10,501 77,918
equivalents
Cash and cash equivalents at 218,342 138,196
beginning of period
Currency translation of cash in 1,234 2,228
foreign subsidiary
Cash and cash equivalents at end 230,077 218,342
of period
GROUP BALANCE SHEET
Audited year at Audited year at
December December
2008 2007
R`000 R`000
ASSETS
Property, plant and equipment 293,664 318,589
Non-current assets held for sale 10,368 -
Non-current asset 1,051 1,051
Bank balances and cash 230,077 218,342
Current assets 337,963 361,084
Total assets 873,123 899,066
EQUITY AND LIABILITIES
Total shareholders funds 595,400 650,501
Deferred taxation liabilities 59,865 27,677
Non-current liabilities 49,307 104,315
Current liabilities
- Trade and other 69,031 85,515
- Short term provisions 99,520 31,058
Total equity and liabilities 873,123 899,066
Net asset value per share (cents) 1,211 1,323
GROUP STATEMENT OF CHANGES IN EQUITY
Share Foreign
capital currency Accumu-
and translation Treasury lated
premium reserve shares profit Total
R`000 R`000 R`000 R`000 R`000
Balance at 117,445 85,361 (1,995) 633,872 834,683
27 December
2006
Increase in - 21,017 - - 21,017
foreign
currency
translation
reserve
Proceeds on - - 73 - 73
disposal of
treasury
shares
Net income 117,445 106,378 (1,922) 633,872 855,773
recognised
directly in
equity
Net loss for - - - (205,272) (205,272)
the year
Balance at 117,445 106,378 (1,922) 428,600 650,501
27 December
2007
Increase in - 16,259 - - 16,259
foreign
currency
translation
reserve
Realisation - (66,383) - 66,383 -
of foreign
currency
ranslation
reserve
Proceeds on - - 787 - 787
disposal of
treasury
shares
Net income 117,445 56,254 (1,135) 494,983 667,547
recognised
directly in
equity
Net profit - - - 89,432 89,432
for the year
Total 117,445 56,254 (1,135) 584,415 756,979
recognised
income and
expense
Capital - - - (112,589)
reduction (112,589)
Dividend - - - (48,990) (48,990)
paid -
special
Balance at 4,856 56,254 (1,135) 535,425 595,400
27 December
2008
Notes
1. Reconciliation between attributable earnings/(loss) and headline
earnings/(loss)
Audited year Audited year
to December to December
2008 2007
R`000 R`000
Attributable earnings/(loss) after 89,432 (205,272)
taxation
Impairment 3,980 108,136
Over provision prior year CGT (3,023) (21,417)
Consumable stores - (2,674)
Profit on disposal of fixed assets - (24,718)
Headline earnings/(loss) 90,389 (145,945)
attributable to ordinary
shareholders
Attributable headline
earnings/(loss) per share
- basic 184.5 (297.9)
- diluted 184.5 (297.9)
2. Basis of presentation
The audited results have been prepared in accordance with the Group`s accounting
policies which are consistent with those of the prior year and comply with IFRS,
the Listing Requirements of the JSE Limited and the Companies Act of South
Africa. These condensed financial statements have been extracted from the
Group`s annual financial statements and have been prepared in accordance with
IAS 34 - interim reporting.
2.1. NEW ACCOUNTING POLICIES ADOPTED
On 28 December 2007, the Group adopted the disclosure requirements for financial
instruments under IFRS 7. This standard has no impact on recognition,
measurement and presentation of financial instruments and consequently has no
impact on profit or loss or equity for the period. The primary objective of IFRS
7 is to provide risk management and financial instrument disclosures that enable
users to evaluate the nature and significance of financial instruments on an
entity`s financial performance and position. These new disclosure requirements
will mainly impact the annual financial statements rather then these year end
condensed financial statements.
The Group adopted the amendment to IAS 1. IAS 1 was amended in conjunction with
the issue of IFRS 7. The amendments require additional disclosure of the
entity`s capital management objectives, policies and processes, some
quantitative data around the composition of capital and compliance with any
capital requirements. Due to the nature of the capital disclosures, this will
effect the disclosure in the annual financial statements.
2008 2007
R`000 R`000
3. Commitments
Capital commitments - Authorised but not 11,058 853
contracted
Capital commitments - contracted 1,456 4,853
12,514 5,706
Operating lease commitment 1,262 1,623
Other 980 909
4. POST BALANCE SHEET EVENT
On 3 February 2009 a USA debtor of the Group filed for Chapter 11 bankruptcy
protection in the United States Bankruptcy Court. The Group has been included as
a significant critical vendor under the filing. The debtor has provided the
Group with an undertaking to repay pre petition filing balances outstanding by
the end of the first half of 2009. The Group has not made provision for the year
end balances outstanding in respect of this debtor as it is currently
anticipated that all amounts owing will be repaid in full.
COMMENT ON RESULTS
OVERVIEW
The global EMD market settled during the year with the closure of the Group`s
Australian EMD production site and the resolution of anti-dumping investigations
in Europe, Japan and the United States. Market selling prices reflected a more
balanced market and afforded recovery of higher input costs, particularly
manganese ore costs, as well as better margins. Delta EMD`s performance improved
substantially with higher selling prices and with sales volumes that allowed the
sale of all remaining Australian stocks as well as all of the Group`s South
African production. Cash flows benefited from improved trading and reductions in
working capital and allowed a repayment of capital and the payment of a special
dividend.
2008 Results
The Group is pleased to report substantially improved earnings. Earnings per
share improved to 182.6 cents per share (2007: loss per share 419.0 cents), and
headline earnings per share improved to 184.5 cents (2007: headline loss per
share 297.9 cents).
Sales revenue increased from R486.1 million to R648.5 million (33%) with
improved selling prices and favourable exchange rate movements but lower sales
volumes. Total sales volumes declined during the year with the closure of the
Group`s Australian production site at the end of March 2008. Nonetheless, all of
the Group`s Australian stock that was on hand at the beginning of the year or
produced prior to closure of the Australian production site was sold by year
end, and sales volume of the Group`s South African product increased by 6% from
the prior year and exceeded production. Selling prices for EMD produced at the
Group`s South African plant were increased at the beginning of the year by
approximately 20% and by approximately 60% during April 2008 when a substantial
manganese ore cost increase was announced. The Group`s remaining Australian
stock was produced prior to the manganese ore cost increase and selling prices
for that stock were not increased.
An operating profit of R104.0 million was recorded for the year, after R28.9
million of additional closure costs related to the increase in rehabilitation
provisions required for the Group`s Australian residue disposal and production
sites, R3.6 million of additional impairment charges related to the Group`s
Australian assets, and R13.9 million of costs incurred managing the Australian
production site since production ceased in March 2008, net of gains realised on
the sale of certain supplies and raw materials. Excluding such cost and charges,
operating profit totalled R150.4 million, which compares favourably to the prior
year`s operating loss of R68.2 million, which also excluded closure and
impairment costs and the profit realised on sale of surplus land. Operating
profit in the year was also reduced by one off costs associated with defending
anti dumping investigations of R6.4 million (2007: R11.5 million).
Net interest earned for the year was R22.2 million, which compares favourably
with R12.9 million in 2007. Improved cash flows and a higher interest rate
environment provided the additional interest income.
The Group recorded a pre tax profit of R126.2 million for the year, compared
with a pre tax loss of R222.1 million in 2007. Pre tax profit for the year
before closure costs, impairment charges and costs incurred managing the
Australian production site since production ceased in March 2008, net of gains
realised on the sale of certain raw materials, was R172.6 million (2007: Pre tax
loss R55.3 million).
The taxation charge for the year was reduced by R3.0 million with the recovery
of taxes overpaid in respect of the disposed Industrial Services businesses in
2005.
A profit after taxation of R89.4 million was recorded for the year (2007: loss
R205.3 million).
The majority of the provisions relating to the Australian production site and
the rehabilitation provisions established for the Australian residue disposal
site have been reclassified as current liabilities.
The Group`s cash inflow for the year totalled R172.1 million, before a repayment
of capital of R112.6 million and the payment of a special dividend of R49.0
million. This cash inflow compares favourably with the prior year`s cash inflow
of R77.9 million, a R94.2 million improvement, the majority of which relates to
the liquidation of the Australian working capital during the year.
The Group ended the year with cash balances of R230.1 million (2007: R218.3
million). These cash balances will be retained until the cost of rehabilitating
the Australian residue disposal site is determined and a tax query relating to
the Group`s sale of its Industrial Services businesses during 2005 is resolved.
Closure of the Group`s Australian Production Plant
As planned, production at the Group`s Australian production site ceased during
March 2008. The plant was decommissioned during the year and surplus supplies
and raw materials were sold. The Group has provided a prospective purchaser an
exclusivity period to consider the purchase of the production site, a 9 hectare
site located near Newcastle, together with some plant and equipment. That
exclusivity period runs through the end of February 2009.
The Group also continues discussions with parties interested in purchasing the
Group`s Australian residue disposal site, a 25 hectare site located on Kooragang
Island.
The net asset value of the Australian assets reflected on the Group`s balance
sheet at year end totalled R16.6 million, and included debtors and creditors of
R51.7 million and R9.2 million, respectively, Australian cash balances totalling
R106 million and provisions for the closure and rehabilitation of the Group`s
Australian sites totalling R131 million.
Prospects
EMD produced and sold by the Group is used mostly in the production of alkaline
disposable batteries. The Group`s South African plant has the capacity to
produce approximately 30,000 metric tonnes of EMD, and competes with producers
in the United States, Japan, Greece and China. The Group believes the market for
alkaline grade EMD outside of China totals approximately 160,000 metric tonnes,
and that production capacity located outside of China totals somewhat less than
that requirement. We do not believe the market outside of China for alkaline
grade EMD has grown substantially during the past several years and expect some
contraction with more difficult economic conditions.
The anti dumping investigations recently finalised will shape the global EMD
market for some time. The Group`s South African product is subject to anti
dumping duties of 17.1% and 14.5% in Europe and Japan, respectively, and is not
subject to an anti dumping duty in the United States. Chinese EMD producers are
subject to anti dumping duties of between 34.3% and 42.7% in Japan and 149.9% in
the United States, and are not subject to an anti dumping duty in Europe.
Producers in the United States, Europe and Japan are not subject to anti dumping
duties and benefit from having home country markets.
Competitive position in the EMD market is shaped by access to manganese ore,
conversion costs - particularly energy and labour, operational efficiencies,
foreign exchange rates and market share. Delta EMD enjoys favourable
arrangements for the supply of manganese ore as well as favourable conversion
costs, and during the past year exchange rate movements have been favourable.
The benefits afforded competitors with home country markets as well as
applicable anti dumping duties disadvantage Delta EMD`s market position and
share, and are likely to result in production below optimal levels, resulting in
the under recovery of production overheads.
The Group expects the majority of its sales volumes to be sold in the United
States, with additional volumes sold in Japan, Europe, South Africa and Asia.
Nonetheless, we do not expect to sell sufficient volumes during 2009 to fully
utilise our South African plant, and do not intend to invest in stocks. The
selling price increases necessary to recover higher conversion costs and to
recover the overhead costs arising from plant underutilisation, were announced
at the beginning of the year and have been implemented.
The Group`s South African plant remains well positioned with favourable ore
supply arrangements and relatively low conversion costs, and further efforts are
underway in South Africa to improve operational efficiencies as well as product
quality and performance. These competitive advantages, favourable exchange rates
and the importance of reliable supply to battery producers, should in time
afford Delta EMD the opportunity to gain market share and more fully utilise the
Group`s South African plant.
Dividends and Return of Capital
The board anticipates payment of further special dividends or the return of
capital when the cost of rehabilitating the Group`s Australian residue disposal
site is determined, when the 2005 tax query is favourably resolved and when
value is realised through the sale of the Group`s Australian EMD production site
and residue disposal site.
The board also anticipates payment of regular dividends in 2009 given the return
of the EMD business to profitability.
DIRECTORATE AND SECRETARY
As announced on 14 March 2008, Michael Renehan left the Group and resigned from
the board on 31 March 2008.
As announced on 21 October 2008, Praveen Baijnath joined the Group on 26 January
2009 as Chief Executive. He joined the board at its 19 February 2009 meeting.
As announced on 21 November 2008, Michael Ogden resigned as company secretary.
Statucor (Proprietary) Limited were appointed the company secretary in place of
Michael Ogden.
REPORT OF THE INDEPENDENT AUDITORS
The auditors Deloitte & Touche have issued their unmodified audit opinion on the
Group`s condensed consolidated financial statements for the year ended 27
December 2008. A copy of their audit report is available for inspection at the
company`s registered office.
T G Atkinson (Chairman) 25 February 2009
Registered Office Transfer Secretaries
11th Floor, Office Tower Computershare Investor
Sandton City Services (Proprietary) Limited
Rivonia Road 70 Marshall Street, Johannesburg 2001
Sandown 2146 Marshalltown 2107
Directors: Non-executive:
LB Bird, PL Campbell, AC Hicks
Non-executive (non-independent):
TG Atkinson* (Chairman), BR Wright
Executive: P Baijnath (Chief Executive Officer), CJ Jacobs *USA
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 25/02/2009 07:05:01 Produced by the JSE SENS Department.
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