| Wed 20 Sep 2006, 12:15 | | Sallies - Preliminary results for the financial ye |
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SAL
SAL
Sallies - Preliminary results for the financial year ended 30 June 2006
SALLIES LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1903/001879/06
JSE Share Code: SAL
ISIN: ZAE000022588
PRELIMINARY RESULTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006
New horizons after difficult year
CONSOLIDATED INCOME STATEMENT
Year Year
ended ended Per-
30 Jun 06 30 Jun 05 centage
R000 Reviewed Audited Change
Revenue - mining 86 882 101 157 (14)
Cost of sales (103 197) (103 128) -
Loss from mining
activities (16 315) (1 971) 728
Less:
Depreciation (5 222) (4 275) 22
Amortisation of mineral
rights (2 056) (2 310) (11)
Operating loss from mining (23 593) (8 556) 176
Profit on disposal of
assets 1 817 469 287
Administrative and other
operating expenses (17 498) (7 097) 147
Investment income 85 90 (6)
Finance costs (2 735) (2 912) (6)
Net foreign exchange losses (1 435) (1 853) (23)
Impairment of trade debtors (5 435) (2 380) 128
Provision for onerous
contract 9 366 (9 366) (200)
Loss before taxation (39 428) (31 605) 25
Taxation (deferred) 1 644 120 1 270
Loss for the year (37 784) (31 485) 20
Issued shares (000) 450 064 257 009 75
Weighted average shares
issued (000) 271 263 257 009 6
Weighted average shares
issued for diluted
earnings per share (000)* 271 263 257 009 6
Reconciliation of
earnings:
Net loss attributable
to ordinary shareholders
for basic earnings per
share (37 784) (31 485) 20
Profit on disposal of
assets (net of tax) (1 290) (333) 287
Net loss attributable
to ordinary shareholders
for headline earnings per
share (39 074) (31 818) 23
Loss per share (cents)
Basic
undiluted (cents) (13.9) (12.3) (14)
diluted (cents) (13.9) (12.3) (14)
Headline
undiluted (cents) (14.4) (12.4) (16)
diluted (cents) (14.4) (12.4) (16)
* The value of the future benefits to be received by the entity, added to
the option price, equals the average market price of the shares. There is
thus no diluted effect on earnings or headline earnings per share.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Accum-
Share Share option ulated
R000 capital premium reserve (loss) Total
Balance at
30 Jun 2004 257 88 910 1 512 (19 284) 71 395
Loss for period - - 463 (31 485) (31 022)
Balance at
30 Jun 2005 257 88 910 1 975 (50 769) 40 373
Rights issue 141 61 792 - - 61 933
Options
exercised 52 24 533 (9 063) - 15 522
Loss for period - - 7 812 (37 784) (29 972)
Balance at
30 Jun 2006 450 175 235 724 (88 553) 87 856
CONSOLIDATED BALANCE SHEET
30 Jun 30 Jun
2006 2005
R000 Reviewed Audited
ASSETS
Non-current assets 82 668 77 066
Property, plant and equipment 71 940 66 359
Goodwill 10 175 10 175
Investments 553 532
Current assets 87 155 27 149
Inventories 5 187 15 838
Accounts receivable 4 852 8 204
Taxation pre-paid 2 858 2 858
Cash and cash equivalents 74 258 249
Total assets 169 823 104 215
Net asset value per share (cents) 32.4 15.7
EQUITY AND LIABILITIES
Capital and reserves 87 856 40 373
Share capital and premium 175 685 89 167
Share option reserve 724 1 975
Accumulated loss (88 553) (50 769)
Non-current liabilities 14 890 13 478
Long-term loan 4 638 2 385
Provision for environmental
rehabilitation 4 652 3 838
Deferred taxation 5 600 7 255
Current liabilities 67 077 50 364
Accounts payable 42 204 23 771
Bank overdraft 14 198 8 253
Provisions 4 778 9 366
Taxation 142 -
Current portion of long-term
liabilities 5 755 8 974
Total equity and liabilities 169 823 104 215
CONSOLIDATED CASH FLOW STATEMENT
Year Year
ended ended
30 Jun 06 30 Jun 05
R000 Reviewed Audited
Net cash inflows from operating
activities 5 288 920
Cash surplus generated by operations 5 157 920
Taxation paid 131 -
Net cash outflows from investing
activities (10 978) (7 558)
Additions to maintain mine plant
and equipment (12 859) (8 492)
Movement in investments (21) -
Proceeds from disposals of plant
and equipment 1 817 844
Investment income 85 90
Net cash inflows from financing
activities 73 754 3 460
Interest paid (2 735) (2 912)
Long-term loans repaid (966) (172)
Short-term facility raised - 6 544
Proceeds from shares issued 80 545 -
Share issuing costs (3 090) -
Net increase/(decrease) in cash
and cash equivalents 68 064 (3 178)
Cash and cash equivalents at
beginning of the year (8 004) (4 826)
Cash and cash equivalents at
end of the year 60 060 (8 004)
COMMENTS
The year under review was one in which external factors again hampered the
company"s recovery.
The delay in the approval of its application for the mining rights to the
Buffelshoek deposit significantly reduced feed grades and consequently
recoveries during the first nine months, and while the company believed that
it was possible to reverse the trend in the last quarter, this was in fact
not the case, and the effects of sub-optimal mining blend are still being
felt.
The impact of the withholding of payments by Honeywell during the first six
months was also felt during the second half, when the company"s cash
reserves were totally depleted, and critical maintenance had to be
postponed.
The company has terminated its onerous supply agreement with Honeywell,
after due legal advice, on the grounds of non payment for goods supplied and
delivered. Honeywell has referred the matter to arbitration before the
International Chamber of Commerce in Zurich and the company is pursuing its
own claim for payment from Honeywell.
Since the review period, however, Sallies"s situation has improved slowly
but steadily following the successful completion of the fully underwritten
rights offer to raise R65 million, the exercising of options by FRM
Strategies (Proprietary) Limited, which raised R15 million, and the private
placement, post year end, of 42.86 million shares with Titan Financial
Services (Proprietary) Limited, which raised a further R30 million. This
much-needed cash injection eased the extreme financial pressure under which
the company has operated in recent years, and management could turn their
attention from survival to growth, starting with the acquisition of Buffalo
Fluorspar.
While the BEE transaction in terms of which African Renaissance Investments
will acquire a 30% interest in Sallies"s assets and liabilities has not yet
become irrevocable, the company is confident that this strategic partnership
will generate further growth opportunities.
Operational and market overview
Largely as a result of lower than budgeted feedgrades, for reasons mentioned
above, the company was unable to increase its output year on year, and while
operating costs stayed constant, revenue was lower as a result of the
relatively large portion of sales made to Honeywell at the beginning of the
period at dollar prices significantly below market prices. The recycling
project remained on hold in the continued absence of a response from the
Department of Water Affairs and Forestry to the company"s application for an
Integrated Water Use Licence which has been outstanding for well over a
year. The rand/dollar exchange rate was reasonably steady and the
international market for fluorspar was buoyant with price levels improving
further, and even though the company could not derive an immediate benefit
from rising prices, it is expected that these trends will continue, and that
benefits will be derived shortly, on completion of previous year
obligations.
Board and management
During the period under review, a number of board changes occurred. Dr
Vincent Msibi joined the board with Jurgen Kogl as his alternate, and Jurie
Geldenhuys resigned from the board. Jean Nel joined the board post year end
as an independent non-executive director.
Buffalo acquisition
The salient features of this transaction have already been announced in the
media, and it is pleasing to note that Buffalo has thus far performed ahead
of expectations.
Prospects
The company"s prospects have brightened considerably over the past three
months and the major transactions currently being completed will not only
stabilise its position but will provide it with a sound platform for future
growth. While results for the March and June quarter were still poor, the
new financial year saw management focusing on the achievement of budgeted
production and grade targets, which will lead to the company"s fortunes
finally being reversed.
South African Revenue Services (SARS)
SARS challenged the tax treatment of certain inter-group transactions at the
time of Sallies acquiring Witkop Fluorspar Mine (Proprietary) Limited
("Witkop") from Phelps Dodge. SARS claimed that the entering into of
marketing agreements between Sallies and Witkop was a breach of Section 103
of the Income Tax Act of 1998. Secondly, it claimed that interest on the US
Dollar loan raised through RMB Resources, Australia, at the time of
acquiring Witkop was not interest incurred in the production of income.
These matters came to trial in August 2006. On the Section 103 issue, SARS
withdrew its case. On the interest issue, judgment has gone in favour of
SARS. Management will take this judgment on appeal.
Modified reviewed opinion
Preliminary results for the year to 30 June 2006 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 incurred a net loss of R37.8 million
for the financial year ended 30 June 2006. These conditions, along with
other matters set forth in the above commentary, indicate the existence of a
material uncertainty which may cast significant doubt on the group"s ability
to continue as a going concern. They further draw attention to the fact
that Honeywell have lodged a claim against Sallies Limited after the onerous
contract with Honeywell was cancelled. The ultimate outcome of the matter
cannot presently be determined, and no provision for any liability that may
result has been made in the financial statements. They lastly draw
attention to the fact that due to severe cash flow problems Witkop Fluorspar
Mine (Pty) Ltd, a subsidiary company, was unable to make certain pension
fund payments during the year. This matter has been rectified.
Accounting policies
The reviewed results for the year have been prepared in accordance with
International Financial Reporting Standards ("IFRS") and the preliminary
report is in compliance with IAS 34: Interim Financial Reporting.
The financial information for the year ended 30 June 2006 has been prepared
adopting the same accounting policies used in the most recent annual
financial statements, except for the adoption of the new statements
IFRS 2: Share Based Payments and IAS 16: Property, plant and equipment.
Reviewed results for the six months ended 30 December 2005
As a result of the company"s transition from South African Statements of
Generally Accepted Accounting Practice to International Financial Reporting
Standards an arithmetical error had been made in calculating the impact on
property, plant and equipment at the company"s transition date, 1 July 2004.
Accordingly, the carrying values of property, plant and equipment, deferred
tax and capital and reserves were inadvertently overstated with a resultant
incorrect depreciation charge made in the income statement. This error
impacts certain aspects of the historic disclosure made by the company -
particularly in respect of the relevant line items included in the unaudited
interim results announcement (for the six months ended 31 December 2005) as
well as any subsequent disclosure of pro forma financial information which
was based on such information.
The audited financial statements of the company for the financial year ended
30 June 2006 which are due to be released in September 2006 are not affected
by this error.
The directors of Sallies are furthermore of the opinion that this error does
not negatively impact on the information provided in respect of, inter-alia,
the recent rights offer (published on 5 June 2006), the BEE transaction
and/or the revised Buffalo Fluorspar acquisition. More importantly as this
is entirely an accounting matter the current growth and earnings potential
of the company remain unaffected.
On behalf of the board
PH Flack IJ Marais
Chairman Chief executive
20 September 2006
Johannesburg
Directors: PH Flack (Chairman), IJ Marais* (Chief executive), AD Moffat,
J Nel, LB Robertson, Dr V Msibi ( Alternate JG Kogl) (*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 Helen McKane
on Telephone +27 (11) 728 4701, Telefax +27 (11) 728 2547, e-mail:
sallies@dpapr.com
Date: 20/09/2006 12:15:10 PM Produced by the JSE SENS Department
