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SALLIES LIMITED - Reviewed results for the year ended 30 June 2003
SALLIES LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1903/001879/06
JSE Share Code: SAL
ISIN: ZAE000022588
Reviewed results for the year ended 30 June 2003
Increased output and reduced costs to restore profitability
CONSOLIDATED INCOME STATEMENT
Year Year
ended ended
30 June 30 June
2003 2002
R000 Reviewed Audited
Revenue - mining 83 288 114 115
Continuing operations 83 288 113 510
Discontinued operations - 605
Cost of sales 92 773 89 152
Continuing operations 92 773 87 070
Discontinued operations - 2 082
(Loss)/profit from
mining operations (9 485) 24 963
Continuing operations (9 485) 26 440
Discontinued operations - (1 477)
Administrative expenses (9 102) (11 516)
Amortisation of goodwill (1 220) (628)
Amortisation of mineral
rights (2 166) (1 966)
Finance cost (2 006) (1 526)
Investment income 372 466
Profit/(loss) on disposal of
property, plant and
equipment 46 (322)
Net foreign exchange gain 5 204 2 287
Property, plant and equipment
write-off (2 463) (5 101)
Net (loss)/profit before
taxation (20 820) 6 657
Taxation 6 271 (2 062)
Net (loss)/profit for
the year (14 549) 4 595
Issued shares (000) 92 294 92 294
Weighted average shares
issued (000) 92 294 92 294
Weighted average shares
issued for diluted
earnings per share (000) 92 294 99 133
Reconciliation of earnings:
Net (loss)/profit
attributable to ordinary
shareholders for basic
earnings per share (14 549) 4 595
Amortisation of goodwill 1 220 628
Property, plant and
equipment write-off
(net of tax) 1 724 3 571
Deferred tax on amortised
goodwill (690) (628)
(Gain)/loss on disposal
of assets (net of tax) (32) 225
Loss on discontinued
operations (net of tax) - 1 112
Non recurring expenditure
(net of tax) - 260
Net (loss)/profit
earnings attributable
to ordinary shareholders
for headline earnings
per share (12 327) 9 763
Depreciation (net of tax) 1 556 1 841
Amortisation of mineral
rights 2 166 1 966
Adjusted cash (deficit)/
surplus earnings
attributable to ordinary
shareholders for cash
earnings per share (8 605) 13 570
(Loss)/earnings per share
(cents)
Basic
Undiluted (15.8) 5.0
Diluted (15.8) 5.0
Headline
Undiluted (13.4) 10.6
Diluted (13.4) 10.2
Cash earnings
Undiluted (9.3) 14.7
Diluted (9.3) 14.0
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Accu-
mulated
Share Share profit/
R000 capital premium (loss) Total
Balance at
1 July 2001 92 53 953 3 602 57 647
Net profit for
the year - - 4 595 4 595
Balance at
30 June 2002 92 53 953 8 197 62 242
Net loss for
the year - - (14 549) (14 549)
Balance at
30 June 2003 92 53 953 (6 352) 47 693
CONSOLIDATED CASH FLOW STATEMENT
Year Year
ended ended
30 June 30 June
2003 2002
R000 Reviewed Audited
Net cash inflow/(outflow)
from operating activities 1 969 (1 397)
Cash receipts from
customers 102 283 82 771
Cash paid to suppliers
and employees (95 902) (80 450)
Cash generated by
operations 6 381 2 321
Finance cost (2 006) (1 526)
Investment income 372 466
Normal taxation paid (2 778) (2 658)
Net cash outflow from
investing activities (6 510) (3 494)
Additions to property,
plant and equipment (6 645) (6 095)
Proceeds from disposal of
property, plant and
equipment 135 2 601
Net cash inflow/(outflow)
from financing activities 2 807 (11 467)
Long-term loan raised 4 600 1 014
Long-term loan repaid (1 793) (12 481)
Net decrease in cash and
cash equivalents (1 734) (16 358)
Cash and cash equivalents
at beginning of year (7 148) 9 210
Cash and cash equivalents at
end of year (8 882) (7 148)
CONSOLIDATED BALANCE SHEET
Year Year
ended ended
30 June 30 June
2003 2002
R000 Reviewed Audited
ASSETS
Non-current assets 66 520 67 964
Goodwill 10 849 12 069
Property, plant and equipment 55 014 55 321
Accounts receivable 657 574
Current assets 36 232 51 990
Inventories 14 922 13 524
Accounts receivable 18 326 35 368
Taxation prepaid 2 796 2 789
Cash and cash equivalents 188 309
Total assets 102 752 119 954
EQUITY AND LIABILITIES
Capital and reserves 47 693 62 242
Share capital and premium 54 045 54 045
Accumulated (loss)/profit (6 352) 8 197
Non-current liabilities 12 817 16 776
Interest bearing debt 2 492 269
Provision for environmental
rehabilitation 1 082 993
Deferred taxation 9 243 15 514
Current liabilities 42 242 40 936
Bank overdraft 9 070 7 457
Taxation payable - 2 771
Accounts payable 23 302 18 252
Current portion of
long-term loans 9 870 12 456
Total equity and liabilities 102 752 119 954
COMMENTS
Shareholders were advised on 3 July 2003 that it was likely that the loss
reported for the first half of the year would increase in the second half. The
first-half performance deterioration was primarily due to a decline in the head
grade, plant breakdowns and inefficiencies, and a consequent decrease in
production volumes. As detailed below, remedial actions have been initiated
with some positive effects, following a full business review by FRM Strategies,
who were retained in February 2003 to formulate, introduce and oversee a
performance improvement plan. However, in the second half of the year results
were further impacted by the strengthening of the rand against the US dollar,
which had a significant effect on revenue as some 90% of the group"s production
is sold on the export market at dollar-denominated prices.
Interim remedial actions
* At the corporate level, Izak Marais has been recruited as managing director
of the Witkop operation and appointed to the Sallies board. The management
function has been moved to Witkop and the Johannesburg head office has been
closed.
* Operationally, bottlenecks and other constraints have been identified and
addressed. The mining strategy has been reviewed and the composition of the
plant feed has been stabilised. The reliability of the power supply has been
restored and a strong focus on maintenance has increased plant availability.
Witkop is now consistently achieving its target volumes and specified quality of
product.
* On the marketing front, major customers and agents were visited in order to
cement long-term relationships and confirm contracts.
The next stage
While they will arrest its decline, these interim measures will not return
Sallies to profitability. The board believes this can only be achieved by
reducing unit costs through a substantial increase in production. Such an
increase would be supported by the group"s existing mineral reserves and
absorbed by its long-term contracted customers.
As announced in July, the board therefore proposes to raise some R30 million by
means of a rights offer. The proceeds of this exercise will be used to reduce
debt and to fund the insourcing of the mining activities, thus reducing mining
costs, as well as the expansion of milling capacity to achieve a 50% increase in
production. The rights offer will also create the opportunity to bring in a
black economic empowerment partner.
Prospects
Arrangements for the proposed rights offer are well advanced and a further
announcement in this regard will be made in due course. The envisaged reduction
of mining costs should restore operational profitability and there is a ready,
secure market for the increase in output which should result from the plant
expansion and modernisation. In the meantime, management continues to focus on
efficiency improvements and cost control.
Dividend
In the light of these results, the board has not considered a distribution to
shareholders for the year to June 2003.
Accounting policies
The Group"s accounting policies conform to South African Statements of Generally
Accepted Accounting Practice. These policies are consistent with those applied
in the previous year.
Restatement of comparatives
Comparative amounts have been restated where appropriate to facilitate improved
disclosure.
Review opinion
The financial information set out in the reviewed results has been reviewed by
the Group"s auditors Ernst & Young who issued a modified review opinion on the
fact that the going concern of Sallies Limited is dependent on the ongoing
financial support from RMB Resources Limited, Australia (a loan creditor and a
major shareholder), the raising of capital by way of a rights issue in October
2003 and the successful implementation of a turnaround strategy as disclosed in
the directors comments. The modified review report is available for inspection
at the registered office of the company, or the offices of FRM Strategies, 9
Fricker Road, Illovo Boulevard, Illovo.
Diluted loss per share
Diluted losses per share have been calculated assuming that at the beginning of
the year 6 415 000 (2002 - 6 415 000) share options, allocated to directors,
employees and consultants, were not exercised.
Change of directors
During the review period Messrs MJ Tuite, PH de Villiers, OR Dix, JH Slade and
LJ Woolcock resigned as directors. Messrs PH Flack, JJ Geldenhuys, IJ Marais,
AD Moffat and LB Robertson were appointed to the board.
On behalf of the Board
PH Flack 18 September 2003
Chairman Johannesburg
Directors: PH Flack (Chairman), LB Robertson*, AD Moffat, JJ Geldenhuys, IJ
Marais*.
(* Executive)
Registered office:
Farm Wintershoek, Zeerust, 2865 (Private Bag X1315, Zeerust, 2865)
Transfer secretaries:
Computershare Limited, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051,
Marshalltown, 2107)
Investor and media relations:
For further information contact Kathy du Plessis on Telephone +27 (11) 728-4701,
Telefax +27 (11) 728 2547, e-mail: sallies@dpapr.com
Date: 18/09/2003 12:15:11 PM Produced by the JSE SENS Department
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