| Wed 2 Mar 2005, 15:45 | | Results For The Year Ended |
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Delta - Audited Group Results For The Year Ended 27 December 2004
DELTA ELECTRICAL INDUSTRIES LIMITED
(REG. NO. 1919/006020/06)
Share code: DEL
ISIN: ZAE000002036
Directors:
TG Atkinson** (Chairman), EW van Zyl (Joint Managing), BR Wright (Joint
Managing), LB Bird, PL Campbell, BG Hitchcock, PG Joubert, MPW Robson*, RB
Spoon.
*British **USA
Audited group results for the year ended 27 December 2004
GROUP INCOME STATEMENT
2004 2003 Change
R`000 R`000 %
Revenue 1 370 840 1 406 061 (3)
Earnings before interest, taxation,
depreciation
and amortisation 219 878 259 192 (15)
Depreciation (60 178) (47 267)
Amortisation (2 852) (2 307)
Net foreign exchange (losses)/gains (16 330) 60 361
Operating profit 140 518 269 979 (48)
Net interest received 6 189 5 971
Profit before tax 146 707 275 950 (47)
Tax expense 39 229 95 846 (59)
Profit after tax 107 478 180 104 (40)
Minority interests 1 629 1 359
Attributable profits 105 849 178 745 (41)
Number of shares in issue (000) 49 166 49 166
Weighted number of shares in issue 48 753 48 523
(000)
Dilutive number of shares in issue 48 830 48 902
(000)
Earnings per share (cents)
- basic 217.1 368.4 (41)
- diluted 216.8 365.5 (41)
Headline earnings per share (cents)
- basic 220.8 369.5 (40)
- diluted 220.4 366.7 (40)
Dividends per share (cents) 88.5 195.0 (55)
RECONCILIATION OF HEADLINE EARNINGS
Attributable profits for the year 105 849 178 745
Goodwill amortised 2 262 1 717
Surplus on disposal of property,
plant & equipment
net of tax effect (477) (1 145)
Headline earnings 107 634 179 317 (40)
SEGMENTAL ANALYSIS
2004 2003 Change
R`000 R`000 %
Revenue
Electrolytic Manganese Dioxide 397 221 566 874 (30)
Repairs and Services 762 419 648 264 18
Replacement Parts 211 200 190 923 11
1 370 840 1 406 061 (3)
Operating profit/(loss)
Electrolytic Manganese Dioxide (11 505) 141 752 (108)
Repairs and Services 159 856 118 453 35
Replacement Parts 12 072 28 965 (58)
Corporate and other (19 905) (19 191) (4)
140 518 269 979 (48)
Segmental assets
Electrolytic Manganese Dioxide 758 655 830 887
Repairs and Services 324 345 256 659
Replacement Parts 105 937 125 721
Corporate and other 2 172 3 360
1 191 109 1 216 627
Cash and cash equivalents 232 555 244 598
Tax overpaid 14 144 7 621
Total assets 1 437 808 1 468 846
Segmental liabilities
Electrolytic Manganese Dioxide 96 562 108 168
Repairs and Services 123 766 111 692
Replacement Parts 33 875 48 898
Corporate and other 22 994 30 953
277 197 299 711
Bank overdrafts 209 975 187 356
Tax provision 33 726 43 056
Deferred tax liabilities 7 763 25 783
Total liabilities 528 661 555 906
GROUP BALANCE SHEET
2004 2003
R`000 R`000
Assets
Property, plant and equipment 528 731 528 834
Goodwill and intangible assets 6 897 8 105
Current assets 902 180 931 907
Total assets 1 437 808 1 468 846
Equity and liabilities
Share capital and reserves 906 935 912 167
Minority interest 2 212 773
Total shareholders` funds 909 147 912 940
Deferred tax liabilities 7 763 25 783
Provision for long-term compensation 18 611 32 263
benefits
Current liabilities 502 287 497 860
Total equity and liabilities 1 437 808 1 468 846
Net asset value per share (cents) 1 845 1 855
Net gearing (%) nil nil
STATEMENT OF CHANGES IN EQUITY
Share Foreign Treasury Accumulated
capital currency
and translation
premium reserve shares profit Total
R`000 R`000 R`000 R`000 R`000
Balance at 27 December 117 445 67 240 (14 413) 650 502 820 774
2002
Net profit for the - - - 178 745 178 745
year
Dividends paid - - - (94 507) (94 507)
Increase in foreign
currency
translation reserve - 2 878 - - 2 878
Proceeds on the - - 4 277 - 4 277
disposal of treasury
shares
Balance at 27 December 117 445 70 118 (10 136) 734 740 912 167
2003
Net profit for the - - - 105 849 105 849
year
Dividends paid - - - (77 715) (77 715)
Decrease in foreign
currency
translation reserve - (35 948) - - (35 948)
Proceeds on the - - 2 582 - 2 582
disposal of treasury
shares
Balance at 27 December 117 445 34 170 (7 554) 762 874 906 935
2004
GROUP CASH FLOW STATEMENT
2004 2003
R`000 R`000
Cash generated by trading 218 090 307 512
(Increase)/decrease in working capital (18 274) 18 606
Cash generated by operations 199 816 326 118
Interest received 6 189 5 971
Payments of long-term compensation (18 344) (8 444)
benefits
Tax paid (74 151) (97 307)
Cash available from operating activities 113 510 226 338
Dividends paid (77 905) (94 717)
Cash inflow from operating activities 35 605 131 621
Expansion capital expenditure (41 594) (49 764)
Replacement capital expenditure (34 612) (59 072)
Acquisition of businesses (1 644) (41 700)
Proceeds on disposal of property, plant 1 268 2 579
& equipment
Net cash outflow before financing (40 977) (16 336)
activities
Proceeds on disposal of treasury shares 2 582 4 277
Net decrease in cash and cash (38 395) (12 059)
equivalents
Cash and cash equivalents at beginning 57 242 71 463
of period
Translation of cash in foreign 3 733 (2 162)
subsidiary
Cash and cash equivalents at end of 22 580 57 242
period
NOTES
1. Audit opinion
The auditors, Deloitte & Touche, have issued their opinion on the group`s
financial statements for the year ended 27 December 2004. The audit was
conducted in accordance with South African Auditing Standards. They have issued
an unqualified audit opinion. A copy of their audit report is available for
inspection at the company`s registered office. These summarised financial
statements have been derived from the group financial statements and are
consistent in all material respects, with the group financial statements.
2. Accounting policies
The group financial results have been prepared on the historical cost basis
excluding financial instruments which are fair valued and conform to South
African Statements of Generally Accepted Accounting Practice. The accounting
policies are consistent with those applied in the annual financial statements
for the year ended 27 December 2003.
3. Commitments
2004 2003
R`000 R`000
Capital commitments - Authorised but not 26 638 74 529
contracted
Capital commitments - Contracted 40 466 34 620
67 104 109 149
Operating lease commitments 38 721 45 689
Other 5 739 12 973
COMMENT ON RESULTS
Financial Review:
Headline earnings per share for the year decreased by 40% to 220,8 cents (2003:
369,5 cents). Repairs and Services achieved excellent results increasing revenue
and operating profit by 18% and 35% respectively. EMD and Replacement Parts were
hard hit by the strong rand and Australian dollar which, on average, both
strengthened against the US dollar by a further 14% during 2004 on top of the
28% and 19% by which they strengthened during 2003.
Revenue decreased by 3% to R1,4 billion. Strong organic growth was achieved in
the Repairs and Services business as well as the inclusion of AMT Services for
the full year during 2004 compared to only four months in 2003. EMD`s revenue
fell by 30% due to the strong rand and Australian dollar and the loss of sales
tonnage in the US as a result of the anti-dumping action which was withdrawn
during the year.
Earnings before interest, taxation, depreciation, amortisation and foreign
exchange gains and losses was down by 15% year on year. Operating profit was
however down 48% due to a significant swing from a foreign exchange gain of
R60,4 million in 2003 to a foreign exchange loss of R16,3 million in 2004 as
well as a substantial increase in depreciation as a result of the commissioning
of the EMD plant expansion in South Africa towards the end of the previous year.
The substantial foreign exchange gain earned during 2003 was largely due to the
application of accounting standard AC133 for the first time during that year.
This resulted in a large gain on the mark to market of the forward exchange
contracts which were in place at the Australian EMD operation at the December
2003 year end. These factors, together with the strength of the rand and
Australian dollar caused the operating margin to fall by 8,9 percentage points
to 10,3% (2003: 19,2%).
During the year the company settled a dispute with The South African Revenue
Services (`SARS`) which resulted in a refund of tax paid inclusive of interest.
The interest is included under Net interest received and contributed to the
increase in interest earned for the year under review.
The tax expense decreased by 59% to R39,2 million (2003: R95,9 million) and the
effective tax rate decreased to 26,7% (2003: 34,7%). This was impacted by the
settlement of the dispute with SARS as mentioned above as well as by dividends
received from the Groups` foreign subsidiary resulting in a STC credit on which
a deferred tax asset was raised.
The Group incurred a net decrease in cash and cash equivalents for the year of
R38,4 million (2003: R12,1 million). This was affected by the trading results
discussed above as well as an increase in working capital as a result of
increased stocks in the EMD business. Capital expenditure on replacement capital
of R34,6 million was spent during the year as well as R41,6 million on expansion
capital. The expansion capital included the purchase of the LH Marthinusen
Denver transformer repair premises, the new purpose built LH Marthinusen Cape
Town repair facility and further expenditure on the EMD plant expansion in South
Africa. Despite this, the Group remained in an ungeared position at year end.
Operations
Electrolytic Manganese Dioxide (EMD)
Revenue for the year was 30% lower at R397,2 million (2003: R566,9 million).
This resulted in an operating loss of R11,5 million (2003: operating profit of
R141,8 million).
The US anti-dumping action taken by Kerr Mc Gee in 2003, which was subsequently
aborted, created major uncertainty in the EMD market. Delta EMD was
significantly impacted as some US battery producers, who had historically been
supplied by Delta, favoured US EMD producers when concluding contracts for 2004.
In addition Chinese EMD producers, who were excluded from the dumping petition,
started supplying significant volumes of EMD into the United States in 2004.
US production of EMD was fully sold and US inventories were depleted in 2004.
Chinese EMD producers sold approximately 10,000 mt of EMD into the US market and
as a result Delta lost a portion of its traditional business. The loss of this
traditional business was to some extent replaced by the increased sales to new
and growing customers in Europe, Japan and China. EMD sales in the US, however,
improved significantly in the last quarter of 2004, as a result of the severity
of the hurricane season and shortages in supply of EMD from China.
After a 28% decline in the US dollar during 2003, the US dollar declined by a
further 14% in 2004. This coupled with the loss of market share in the high
priced US market, and a general tightening of EMD prices in other markets,
eroded revenues. Revenue from sales of EMD was only 70% of that achieved in
2003.
In anticipation of the continuing weakeness of the US Dollar and the Australian
dollar, and uncertain trading conditions in the US, manufacturing operations in
South Africa and Australia were restructured to reduce overheads and planned
capital expenditure was postponed. Both plants were operated at full capacity in
order to optimise production efficiencies and reduce unit costs of production,
resulting in a significant increase in inventories.
The 8,000 metric tonne expansion at Delta EMD`s South African plant, which was
successfully commissioned in December 2003, operated at full capacity throughout
the year. This expansion increased the company`s total production capacity to
more than 60,000 mt per annum.
In 2005 EMD is expected to benefit from more stable global market prices and a
significantly improved order book reflecting a broader customer base, which
includes all of the world`s major battery manufacturers. As a result, sales
volumes in 2005 are expected to reflect an increase over the previous year.
However, margins will remain under pressure as long as the US dollar remains
weak.
Repairs and Services
The Repairs and Services Division, comprising Electrical Repair Engineering
(ERE), Transwire and Wire Electric, achieved a growth in revenue of 18% to
R762,4 million (2003: R648,3 million) and a 35% increase in operating profit of
R159,9 million (2002: R118,5 million), an excellent performance.
ERE performed very well given difficult market conditions. The continued
strength of the rand resulted in a large number of customers being exposed to
lower export revenues and having to confine expenditure on repairs and
maintenance to emergency work. As a result there was a noticeable reduction in
repairs of low voltage equipment and no growth in repairs of high voltage
equipment.
Excellent growth was however achieved in the rail transportation industry
following increased expenditure by parastatals, Spoornet and Metrorail, on
maintenance and refurbishment of the ageing rolling stock fleet. Loco Coil
Technologies also experienced significant growth in the manufacture and supply
of components for locomotives to Transwerk, Transnet`s in-house repair
operation. Excellent growth was achieved in heavy transformer repair and
manufacture with significant repair work being obtained from Zimbabwe as well as
manufacturing work relating to furnace transformers.
The purchase of the premises previously leased by the heavy transformer repair
division of L H Marthinusen in Denver, Johannesburg, was concluded during the
year. Work has commenced with the upgrade of the equipment and facilities to
provide additional capacity. This will be available in early 2006 and will
enable the division to benefit from the expected growth in the repair of large
transformers.
The new premises for L H Marthinusen in Cape Town was completed during the year.
As a result of this additional capacity the operation has experienced strong
growth in all sectors of its product range.
Continued growth in the rail transportation market as well as the planned start
of the restructuring of the electrical distribution industry should stimulate
ongoing growth for ERE.
Transwire was affected by the continued strength of the rand. This resulted in
key customers facing increasing competition from imported goods. The business
also experienced problems with the local supply of copper rod, which
necessitated the sourcing of this product on international markets.
Growth was, however, achieved in products relating to the refurbishment of
motors for the rail transportation industry and additional capacity was
commissioned to service this market. Growth was also achieved in products
relating to the repair of large generation transformers.
The Black Economic Empowerment joint venture company, Bukubuhle Wire, which
focuses on products relating to the transformer repair and manufacturing
industry, commenced trading successfully at the beginning of 2004.
Looking forward, earnings will continue to be affected by the strength of the
rand and the effect this has on Transwire`s customers exposed to imported
competition. Increased utilisation of the additional flat-mill capacity
installed in 2003, the significant backlog in the transformer repair industry,
growth in the power generation sector and the continued growth in the repair of
rail infrastructure should provide continued growth going forward.
Wire Electric achieved satisfactory growth in a market which exhibited
significant pressure on pricing as a result of the strengthening of the rand.
Excellent growth was achieved in products relating to the manufacture of
distribution transformers. This follows the establishment of a service to
prepare kits of all required parts for the customer. The introduction of new
products in the specialised tapes division led to increased sales into new niche
market sectors.
Continued growth is expected in products for rail transportation, transformer
materials and specialised industrial tapes.
Replacement Parts
Equipment Spare Parts (ESP) increased revenue by 11% to R211,2 million (2003:
R190,9 million). This included AMT Services, which was acquired on 1 September
2003, for the full year. Operating profit decreased by 58% to R12,1 million
(2003: R29,0 million).
The strengthening of the rand and reduced activity in the earthmoving market
resulted in a significant reduction in ESP`s earnings for the year. The strong
rand also resulted in an increased foreign exchange loss for the year. In
addition, selling prices were reduced during the year which negatively impacted
on the divisions margins.
The AMT Services group, which was acquired on 1 September 2003, was successfully
absorbed into the ESP business and the performance was satisfactory. The results
were also, however, negatively affected by the strong rand.
Market conditions are showing signs of improvement and the improved margins
shown towards the latter part of the year are expected to continue in 2005. The
strength of the rand will, however, continue to have a major impact on the
overall result for 2005.
Prospects
Delta EMD management successfully expanded its customer base during the past
year, including increased sales to Asia. Volumes are expected to improve during
2005, however, Delta EMD`s financial results remain dependent upon the relative
value of the US dollar, which currently remains weaker than last year`s average
rate against both the rand and Australian dollar. The foreign exchange contracts
that formerly provided Delta EMD forward cover against the US dollar have been
fully utilised and Delta EMD have not entered into any further foreign exchange
contracts since 2003.
The strong demand enjoyed during the year by the group`s Repairs and Services
businesses from the rail transportation and industrial power distribution
markets is expected to continue. The favourable market positions developed by
these businesses and continued improvement of the group`s Black Economic
Empowerment credentials offer a number of opportunities going forward.
The strength of the rand continues to impact the mining and construction markets
served by our Replacement Parts division. The margin improvement realised during
the final quarter of last year is expected to continue during 2005.
In terms of the JSE Securities Exchange South Africa Listings Requirements, a
listed company is required to publish a trading statement as soon as it becomes
aware that the financial results for the next period to be reported on will show
a 20% or more difference from those of the previous corresponding period.
Whilst the group does not expect headline earnings per share for the year ending
27 December 2005 to show a 20% or more difference from those reported for the
year ended 27 December 2004, it hereby advises that for the six months ending 30
June 2005 it is expected that headline earnings per share will be between 50%
and 70% above those reported for the previous comparative period ended 30 June
2004. This forecast information has not been reviewed or reported on by the
group`s auditors.
As published in the group`s cautionary announcements dated 2 November 2004, 14
December 2004 and 25 January 2005, the Group continues to consider the options
that are available to realise value in the Repairs and Services and Replacement
Parts divisions. Whilst these businesses continue to perform well in attractive
markets, opportunities to realise more immediate shareholder value are under
review. Accordingly, shareholders are advised to continue exercising caution
when dealing in the company`s securities until a further announcement is made.
DIVIDENDS
Dividend No. 66
Notice is hereby given that a final dividend of 71,0 cents per share has been
declared by the directors in respect of the twelve months ended 27 December
2004. The following are the salient dates for the payment of the final dividend:
Wednesday, 16 March 2005 Last day to trade to qualify for the dividend
Thursday, 17 March 2005 Shares commence trading ex-dividend on the JSE
Securities Exchange South Africa
Thursday, 24 March 2005 Record date
Tuesday, 29 March 2005 Payment date
The dividend is declared in the currency of the Republic of South Africa. Share
certificates may not be dematerialised or rematerialised between Thursday, 17
March 2005 and Thursday 24 March 2005 both days inclusive.
TG Atkinson EW van Zyl BR Wright
(Chairman) (Joint Managing) (Joint Managing)
2 March 2005
Registered Office Transfer Secretaries
11th Floor, Office Tower Computershare Investor
Sandton City Services 2004 (Proprietary) Limited
Rivonia Road 70 Marshall Street
Sandown 2146 Marshalltown 2001
website: www.dei.co.za
