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Sallies Limited - Reviewed results for the six months
ended 30 December 2004
Sallies Limited
(Incorporated in the Republic of South Africa)
Registration number 1903/001879/06
JSE Share Code: SAL
ISIN: ZAE000022588
Reviewed results for the six months ended 30 December 2004
OPERATIONAL ADVANCES REVERSED BY STRONG RAND AND ONEROUS
CONTRACT
CONSOLIDATED INCOME STATEMENT
6 months 6 months Year
ended ended ended
31 Dec 04 31 Dec 03 Percentage 30 Jun 04
R000 Reviewed Reviewed Change Audited
Revenue -
mining 49 955 44 599 12 84 406
Cost of sales (49 865) (52 304) (5) (92 755)
Profit/(Loss)
from mining
activities 90 (7 705) (101) (8 349)
Less:
Depreciation (1 657) (1 214) 36 (2 590)
Amortisation
of mineral
rights (1 401) (1 038) 35 (2 110)
Operating loss
from mining (2 968) (9 957) (70) (13 048)
Profit on
disposal of
assets 441 2 21 961 282
Administrative
expenses (4 482) (4 061) 10 (9 473)
Investment
income 67 20 235 157
Amortisation
of goodwill (606) (332) 83 (674)
Finance costs (850) (965) (12) (1 762)
Net foreign
exchange
gains 468 3 400 (86) 5 316
Provision for
onerous
contract (22 717) - 100 -
Net loss
before
taxation (30 647) (11 893) 158 (19 203)
Taxation
(deferred) 7 421 3 257 128 3 643
Net loss
for period (23 226) (8 636) 169 (15 560)
Issued
shares (000) 257 009 92 294 178 257 009
Weighted
average
shares
issued (000) 257 009 92 294 178 151 174
Weighted
average
shares
issued for
diluted
earnings
per
share (000) 264 034 92 294 186 155 118
Reconciliation
of earnings:
Net loss
attributable
to ordinary
shareholders
for basic
earnings
per share (23 226) (8 636) 169 (15 560)
Amortisation
of goodwill 606 332 83 674
Deferred tax
on business
combination (606) (332) 83 (674)
Profit on
disposal
of assets
(net of tax) (309) - 100 (197)
Net loss
attributable
to ordinary
shareholders
for headline
earnings
per share (23 535) (8 636) 173 (15 757)
Add:
Provision
for onerous
contract
(net of tax) 15 902 - 100 -
Amortisation
of mineral
rights 1 401 1 038 35 2 110
Depreciation
(net of tax) 1 160 850 36 2 125
Adjusted cash
loss
attributable
to ordinary
shareholders
for cash
earnings
per share (5 072) (6 748) (25) (11 522)
Loss per
share (cents)
Basic
undiluted
(cents) (9.0) (9.4) (4.3) (10.3)
diluted
(cents) (8.8) (9.4) (6.4) (10.0)
Headline
undiluted
(cents) (9.2) (9.4) (2.1) (10.4)
diluted
(cents) (8.9) (9.4) (5.3) (10.2)
Cash (loss)/earnings
undiluted
(cents) (2.0) (7.3) (73.0) (7.6)
diluted
(cents) (1.9) (7.3) (73.9) (7.4)
CONSOLIDATED CASH FLOW STATEMENT
6 months 6 months Year
ended ended ended
31 Dec 04 31 Dec 03 30 Jun 04
R000 Reviewed Reviewed Audited
Net cash inflows
from operating
activities 1 898 3 239 (14 922)
Cash surplus generated
by operations 2 681 4 006 (13 255)
Interest paid (850) (965) (1 762)
Taxation paid - 178 (62)
Investment income 67 20 157
Net cash outflows from
investing activities (6 538) (2 871) (5 466)
Net additions to mine
plant, equipment
and buildings (7 226) (2 871) (5 825)
Proceeds from disposals
of plant and equipment 688 - 359
Net cash outflows/
(inflows) from financing
activities 1 608 (1 172) 24 444
Long-term loans
raised 3 200 - -
repaid (1 592) (1 172) (10 678)
Rights issue
(Net of costs) - - 35 122
Net (decrease)/increase
in cash and cash
equivalents (3 032) (804) 4 056
Cash and cash
equivalents at beginning
of period (4 826) (8 882) (8 882)
Cash and cash
equivalents at end
of period (7 858) (9 686) (4 826)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Accum-
Share Share ulated
R000 capital premium loss Total
Balance at
30 June 2003 92 53 953 (6 352) 47 693
Net loss for period (8 636) (8 636)
Balance at
31 Dec 2003 92 53 953 (14 988) 39 057
Rights issue 165 34 957 - 35 122
Net loss for
period (6 924) (6 924)
Balance at
30 Jun 2004 257 88 910 (21 912) 67 255
Net loss for
period (23 226) (23 226)
Balance at
31 Dec 2004 257 88 910 (45 138) 44 029
CONSOLIDATED BALANCE SHEET
31 Dec 31 Dec 30 Jun
2004 2003 2004
R000 Reviewed Reviewed Audited
ASSETS
Non-current assets 74 952 67 086 69 791
Property, plant and
equipment 62 833 55 912 58 912
Goodwill 9 569 10 517 10 175
Accounts receivable 729 657 704
Deferred taxation 1 821 - -
Current assets 30 429 24 405 38 036
Inventories 11 992 6 528 8 054
Accounts receivable 14 197 15 178 23 688
Taxation pre-paid 2 858 2 618 2 858
Cash and cash
equivalents 1 382 83 3 436
Total assets 105 381 91 491 107 827
Net asset value per
share (cents) 17.1 42.3 44.5
EQUITY AND LIABILITIES
Capital and reserves 44 029 39 057 67 255
Share capital and
premium 89 167 54 045 89 167
Accumulated loss (45 138) (14 988) (21 912)
Non-current
liabilities 5 465 7 573 9 701
Long-term loan 3 611 - 2 489
Provision for
environmental
rehabilitation 1 854 1 324 1 612
Deferred taxation - 6 249 5 600
Current liabilities 55 887 44 861 30 871
Accounts payable 20 946 23 886 20 112
Bank overdraft 9 240 9 769 8 262
Provision for
onerous contract 22 717 - -
Current portion of
long-term liabilities 2 984 11 206 2 498
Total equity and
liabilities 105 381 91 491 107 827
COMMENTS
In the report on the results for the year to 30 June 2004,
it was noted that Sallies could be modestly profitable in
2005 at an exchange rate of R6.50 to the US dollar.
During the review period, the exchange rate averaged R6.07
to the US dollar (-6.6%) and this, in conjunction with the
Honeywell contract referred to below, has had a severe
impact on the company`s results.
The remedial strategy initiated in 2003 has achieved very
significant operational improvements. Against the
comparable half-year period in 2003, ore mined increased
from 617 000 tonnes to 832 000 tonnes (+34.8%) and tonnes
milled from 522 000 to 732 000 (+32.6%), while mining
costs per tonne were reduced from R19.14 to R15.45 (-
19.3%). At the same time, the company`s customer base has
been diversified to the point where Honeywell, which
previously consumed virtually its entire production, now
accounts for just under half of its business.
Unfortunately, these achievements coincided with the
steady strengthening of the rand against the weakening US
dollar, which has more than reversed the advances that
would otherwise have been made. The effect of the
exchange rate has been exacerbated by the provision for
the company`s contract with Honeywell. When this five-
year contract was negotiated in 2000, it was capped at
US$116 per tonne, at a time when the spot price of
fluorspar was US$107/tonne and the rand was at R10.53 to
the US dollar. The spot price is currently at the
US$170/tonne level and the exchange rate is +/-R6.00 to
the US dollar. Against this background, the company has
defined its agreement with Honeywell as an `onerous
contract` in terms of South African Statements of
Generally Accepted Accounting Practice. A provision of
R22.7 million has accordingly been made in the accounts
for the projected loss to completion on the Honeywell
contract.
The company has entered into discussions with Honeywell
with a view to either suspending the contract until such
time as the exchange rate allows it to be executed
profitably or renegotiating the terms of this contract.
Prospects
The international fluorspar market remains buoyant and
indications are that the price could strengthen to
US$200/tonne by December 2005. At these price levels, the
considerable production and cost improvements the company
has achieved would make it profitable even at sub-six
exchange rates, were it not for the Honeywell contract.
The prospects for the remainder of the year are therefore
dependent on the outcome of the negotiations now under way
with Honeywell.
Dividends
The board has not considered a distribution to
shareholders for the six months to December 2004.
Accounting policies
The company`s accounting policies conform to South African
Statements of Generally Accepted Accounting Practice.
These policies are consistent with those applied in the
previous review period.
Contingent liabilities
Eskom: In the event of Witkop Fluorspar Mine ceasing to
use Eskom power, the company is contractually bound to
reimburse Eskom with the costs incurred by them in
upgrading an electrical substation. The original cost of
R320 000 will be reduced proportionately from the year
2002 to the year 2010. At 31 December 2004, the potential
liability was R195 554 (30 June 2004: R213 332).
Suretyship: The company has provided an unlimited
suretyship to the bankers of Witkop Fluorspar Mine
(Proprietary) Limited.
South African Revenue Service (SARS) is challenging the
treatment of certain inter-group transactions. The
company is objecting to the view taken by SARS and
management is confident that the objection will be upheld.
No provision has therefore been raised for additional
taxation.
Review opinion
The interim report for the period 31 December 2004 has
been reviewed by the company`s auditors Ernst & Young and
their modified review report is available for inspection
at the registered office of the company. They draw
attention to the fact that the group continued to make
operational losses during this period, and that its
continued operation could be dependent on the successful
renegotiation of the terms of the Honeywell contract and
its ability to generate sufficient cash flows in the
ordinary course of business to meet its operating and
other commitments. These conditions indicate the
existence of a material uncertainty which may cast doubt
on the group`s ability to continue as a going concern.
Diluted loss per share
The diluted loss per share has been calculated assuming
that at the beginning of the period
18 872 500 (2003: nil) share options allocated to
directors, employees, lenders and consultants were
exercised.
On behalf of the board
PH Flack 23 March 2005
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 Investor Services
2004 (Pty) Ltd, 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: 23/03/2005 01:00:10 PM
Produced by the JSE SENS Department
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