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SLO
SLO
SELCo - Abbreviated consolidated provisional results for the year
ended 30 June 2006
Southern Electricity Company Limited
(Registration Number 1997/006894/06)JSE Share Code: SLO
ISIN: ZAE000041919("SELCo" or "the Group")
ABBREVIATED CONSOLIDATED PROVISIONAL RESULTS FOR THE YEAR ENDED 30 JUNE 2006
ABBREVIATED CONSOLIDATED INCOME STATEMENT
% change Audited Restated
on year 30 June 30 June
2006 2005
Revenue 7 25,244,948 23,567,608
Cost of sales 22 (14,719,223) (12,023,489)
Gross profit (9) 10,525,725 11,544,119
Other income 79 81,394 45,381
Operating expenses (21) (7,383,132) (9,400,991)
Marketing and selling expenses (56) (319,755) (718,958)
Operating profit 98 2,904,232 1,469,551
Investment revenue 339 1,913,280 435,378
Fair value adjustment 13 1,300,000 1,150,000
Finance costs (28) (494,819) (682,545)
Profit before taxation 137 5,622,693 2,372,384
Taxation 45 (1,802,018) (1,240,497)
Profit for the year 238 3,820,675 1,131,887
Attributable to ordinary 238 3,820,675 1,131,887
shareholders
Adjusted for:
Revaluation gain on investment (1,300,000) (1,150,000)
property
Loss on disposal of fixed 16,206 -
assets
Headline earnings 2,536,881 (18,113)
Number of ordinary shares in 0 54,945,373 54,945,373
issue
Weighted average number of 0 54,945,373 54,945,373
ordinary shares in issue for
basic and headline earnings per
share
(no dilutive effect)
Basic earnings per share 237 6,95 2,06
(cents)
Headline earnings per share 4,62 (0,03)
(cents)
ABBREVIATED CONSOLIDATED BALANCE SHEET
Audited Restated
30 June 30 June
2006 2005
ASSETS
Non-current assets 22,883,331 21,482,042
Investment property 11,750,000 10,450,000
Property, plant and equipment 6,868,409 6,960,558
Investment 4,264,922 4,071,484
Current assets 12,310,337 14,262,008
Inventories 847,964 540,799
Other loans receivable 8,283,234 12,013,195
Trade and other receivables 1,945,293 1,257,719
Cash and cash equivalents 1,233,846 450,295
Total assets 35,193,668 35,744,050
EQUITY AND LIABILITIES
Total Equity 23,448,821 19,462,756
Share capital 10,162,796 10,162,796
Non-distributable reserve 16,115 16,115
Available-for-sale investment reserve 1,029,354 863,964
Retained income 12,240,521 8,419,846
Minority interest 35 35
Non-current liabilities 7,332,541 7,059,519
Borrowings 3,271,781 3,407,037
Deferred tax 4,060,760 3,652,482
Current liabilities 4,412,306 9,221,775
Other loans payable - 5,018,968
Borrowings 121,336 131,533
Taxation payable 2,427,109 1,303,918
Trade and other payables 1,766,961 2,714,122
Provisions 96,900 -
Bank overdraft - 53,234
Total equity and liabilities 35,193,668 35,744,050
ABBREVIATED CONSOLIDATED CASH FLOW STATEMENT
Audited Restated
30 June 30 June
2006 2005
Cash receipts from customers 23,562,478 21,321,385
Cash paid to suppliers and employees (21,635,538) (15,899,390)
Cash generated by operating activities 1,926,940 5,421,995
Net finance cost, investment income and 1,119,863 (247,167)
taxation paid
Net cash inflow from operating activities 3,046,803 5,174,828
Net cash outflow from investment (675,558) (561,492)
activities
Net cash outflow from finance activities (1,534,460) (4,354,711)
Net movement in cash and cash equivalents 836,785 258,625
Cash and cash equivalents at the 397,061 138,436
beginning of the year
Cash and cash equivalents at the end of 1,233,846 397,061
the year
ABBREVIATED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Audited Restated
30 June 30 June
2006 2005
Restated balance at the beginning of year 19,462,756 18,116,560
(*)
Net income directly into equity - 165,390 214,274
revaluation on available-for-sale
investment
Origination of minority interest - 35
Profit for the year 3,820,675 1,131,887
Total equity at the end of year 23,448,821 19,462,756
(*) Refer to Transitional Report and
Prior Period Errors for calculation of
restated balance at beginning of the
year.
AUDIT REPORT
The results for the year ended 30 June 2006 have been audited by BDO Spencer
Steward (Johannesburg) Inc and a copy of this report is available for
inspection at the company"s registered office.
We wish to draw your attention to a modification in the audit report regarding
a reportable irregularity, as reported to the Independent Regularity Board of
Auditors. The circumstances and remedies relating to the reportable
irregularity are as follows:
Southern Electricity Company Limited ("SELCo") and its subsidiary Southern
Electricity Company (Pty) Ltd ("SELCo Namibia"), a Namibian registered
company, were party to an agreement with one of the Group"s holding companies
- Rural Maintenance (Pty) Ltd ("Rural"). This agreement provided that Rural,
being the only company in the Group with an overdraft facility, would be the
centralised financier of the Group and thus all Group companies would either
borrow or lend excess funds to Rural. The effect of this was that SELCo and
SELCo Namibia reflected debit loan accounts to Rural over the period from 2002
to the current financial year.
No interest was charged on the abovementioned debit loan accounts.
In terms of Section 226 of the Companies Act (and Section 234 of the Namibian
Companies Act), funds advanced to a holding company or a company controlled by
the directors require either the approval of the loan by way of a Special
Resolution passed by members or the consent of all members. The loan accounts
that arose in the above circumstances had not been approved by way of Special
Resolutions or with the consent of all members. The sections of the
respective Companies Acts have therefore been contravened.
The advancing of funds to the holding company on other than normal commercial
terms falls within the definition of related party transactions in terms of
the JSE Listings Requirements. According to section 10.4(e) of the JSE
Listings Requirements, related parties are not allowed to vote on a related
party transaction. As the abovementioned loans have not been approved by a
meeting of members excluding the related parties, section 10.4(e) of the JSE
Listings Requirements has also been contravened.
The abovementioned are in process of being remedied by:
- A special resolution proposed at the annual general meeting to be held at 29
November 2006 to ratify the advancing of funds to holding companies.
- Interest to the value of R1 075 160 charged at prime less 2% on the net
amounts owed to the SELCo Group by related parties for the period from
September 2002 up to 30 June 2005.
- For purposes of the current year, interest of R 639 688 was calculated at
prime less 2% on the net amount owed to the SELCo Group by related parties.
- Now that interest is being charged on the related party loan the transaction
will no longer constitute a related party transaction in terms of the JSE
Listings Requirements and therefore section 10.4(e) of the JSE Listings
Requirements is no longer contravened.
The audit report is also modified by drawing attention to the post balance
sheet note as disclosed below:
POST BALANCE SHEET EVENTS
SELCo Namibia obtained an urgent High Court interim order against the
Keetmanshoop Local Council on 7 September 2005, after the Council purported to
unilaterally terminate the Electricity Management Contract ("The Contract")
between SELCo Namibia and the Council. A return date in respect of the
interim order was set for 7 July 2006. On this date the Honourable Court
heard arguments from both parties and reserved judgement. The return date for
finalisation of the interim order was extended to 11 September 2006 and
subsequently to 16 October 2006 and then to 13 November 2006. The directors
believe that the interim order will be upheld and that the matter will be
settled in their favour. No loss is anticipated and the directors do not
believe that this matter will have any impact on the going concern of the
company.
Subsequent to year-end, discussions with various interested parties and
Governmental policy in Namibia has indicated that a regional electricity
distribution entity, SORED, is to be formed that will affect the area wherein
SELCo Namibia operates. The formation of SORED might have the effect that the
electricity distribution licences that have currently been issued to the local
authorities of Keetmanshoop, Karasburg and Aranos, will in future be issued to
SORED. The Directors have engaged all SORED stakeholders that have contracts
with SELCo and the relevant subcommittee tasked with the formation of SORED
and discussions have centered around the meaningful participation, or not, of
SELCo in the SORED initiative.
The Namibian Electricity Control Board ("ECB") position paper has expressly
acknowledged the financial investment SELCo has made in the network assets,
and the need to address this investment, compensation-wise or in any other
legitimate format, necessitated by the issuing of a single licence to SORED.
The Directors are confident that a suitable agreement can be achieved with all
SORED stakeholders and that a viable going concern will be maintained in one
form or another, either as a service provider to SORED under similar or better
conditions as the current agreements with the local authorities, or as a
shareholder in the entity to be formed (SORED), or as a compensated existing
contractor (as is presently the case) on such terms as agreed. Furthermore,
the Directors are pursuing various energy related business opportunities that
are unrelated to the said distribution licence aspect.
Consequently, the Directors are satisfied that the company will be able to
continue its operations as a going concern, irrespective of the outcome of the
allocation of distribution licences by the ECB and / or the finalisation of
the formation of a new distribution entity such as SORED.
REVIEW OF BUSINESS
In terms of our business for the year, SELCo"s primary operation remains in
the Namibian market where SELCo is not only a provider of resources to the
benefit of electricity users in Southern Namibia but also a contributor to tax
for utilisation by the Namibian government for the benefit of all the people
in Namibia. SELCo has both maintained its profitability through testing times
and managed to maintain quality and efficient services against an interim
expected decrease in sales revenues.
Regarding the business, we are pleased to note that earnings per share is up
by 237% (from 2.06 cents in 2005 to 6.95 cents in 2006) and headline earnings
per share is up from (0.03) cents in 2005 to 4.62 cents in 2006. Due to the
prior period adjustments, the 2005 earnings per share has been restated from
1.75 cents to 2.06 cents and the headline earnings per share from 2.24 cents
to (0.03) cents.
Sales for the period under review have been stable as expected, with the gross
profit having been negatively affected by the delay in implementation of
SELCo"s new electricity tariffs as regulated by the Electricity Control Board
in Namibia. In contrast, however, operating profit has increased by 98%
primarily due increased operation efficiencies which lead to a 24% decrease in
operating and marketing expenditure.
The 238% increase in net profit for the year was positively affected by an
increase in investment revenue, whereas 44% relates to prior year interest as
referred to in the audit report, an increase in fair value adjustment and a
decrease in finance costs. This was however adversely affected by an increase
in taxation.
SEGMENTAL ANALYSIS
The primary reporting format of the Group is by business segment. As the group
operates as a vertically integrated electricity distributor, there is only one
business segment as defined by IAS 14. (The rental income derived from the
investment property is insignificant by comparison and therefore included into
the primary business segment.)
The relevant disclosure is given in the financial statements.
BASIS OF PRESENTATION
In line with the Listing Requirements of the JSE Limited, the Group adopted
International Financial Reporting Standards (IFRS) for the first time in the
current year. The information presented has been prepared in accordance with
IFRS applicable at 30 June 2006.
The transitional adjustments from South African Statements of Generally
Accepted Accounting Practice (SA GAAP) to IFRS are set out under the heading
"Transitional report and prior year errors".
ACCOUNTING POLICIES
The accounting policies adopted are consistent with the previous financial
year except for treatment for investment properties, available-for-sale
financial instruments and the adoption of new / revised standards mandatory
for financial years beginning on or after 1 January 2005.
The audited financial statements are prepared on the historical cost basis,
except where stated otherwise, in accordance with IFRS and the interpretations
of those standards as adopted by the International Accounting Standards Board
and the Companies Act No. 61 of 1973.
The transitional adjustments from SA GAAP to IFRS are set out in the report
below.
TRANSITIONAL REPORT AND PRIOR PERIOD ERRORS
For the year ended 30 June 2005, the Group prepared its financial statements
under statements of South African Generally Accepted Accounting Practice ("SA
GAAP"). For the year ended 30 June 2006, the Group is required to prepare its
financial statements in accordance with IFRS.
This requirement applies to all financial reporting for accounting periods
beginning on or after 1 January 2005 and consequently the Group"s first set of
IFRS results will be for the year ended 30 June 2006. The date of transition
to IFRS for the Group is 1 July 2004.
In order to explain the effect of the adoption of IFRS on the Group"s reported
performance and financial position, the Group is required to restate
information previously published under SA GAAP to the equivalent basis under
IFRS. This restatement follows the guidelines set out in IFRS 1, First-time
Adoption of International Financial Reporting Standards ("IFRS 1"). The
adoption of IFRS had resulted in certain adjustments to comparative
information that may not be repeated in future reporting periods.
Reconciliation of equity at 30 June 2004
Note As reported Prior Effects of IFRS
under period transition
previous error to IFRS
GAAP
Issued capital 10,162,796 - - 10,162,796
Non-distributable 1 7,839,969 (7,823,854) - 16,115
reserve
Available-for-sale 2 - 649,690 - 649,690
investment reserve
Retained earnings 3 (2,279,532) 6,552,507 3,014,984 7,287,959
Total equity 15,723,233 (621,657) 3,014,984 18,116,560
Reconciliation of equity at 30 June 2005
Note As reported Prior Effects of IFRS
under period transition
previous error to IFRS
GAAP
Issued capital 10,162,796 - - 10 162,796
Non-distributable 1 7,839,969 (7,823,854) - 16,115
reserve
Available-for-sale 2 - 863,964 - 863,964
investment reserve
Retained earnings 3 (1,320,062) 6,465,237 3,274,671 8,419,846
Minority interest 35 - - 35
Total equity 16,682,738 (494,653) 3,274,671 19,462,756
Notes
1. Non-distributable reserve
In prior years Cape Pots and Tiles (Pty) Ltd, a wholly owned subsidiary of
Southern Electricity Company Investments (Pty) Ltd, did not comply with
previously AC135 - Investment properties. Revaluation gains of R7,586,071
(2004:R7,586,071) was incorrectly recorded against a non-distributable
reserve. This was not in accordance with previously AC135, which prescribes
that the revaluation gain be recorded in the income statement.
An amount of R217,886, representing goodwill on acquisition of a subsidiary
was erroneously disclosed under non-distributable reserves in the past and was
erroneously not impaired.
In the 2002 financial year the Group sold a property and accounted for the
capital profit of R455,669 on the sale of the property as a non-distributable
reserve. This accounting treatment was incorrect as the property was sold and
thus the capital profits were realised.
2. Available-for-sale investment
In prior years the company recorded the investment at cost and not at fair
value. This was not in accordance with AC133, which prescribes that the
investment be recorded at fair value.
3. Retained earnings
Adjustments to retained earnings include corrections as a result of note 1 and
2 above. The remaining adjustments refer to corrections of misallocated and
misstated expenses/income.
Whilst the above dealt with prior period errors, the following items pertain
to the effect of first time implementation of IFRS on property, plant and
equipment.
Property Plant and Equipment 2004
The carrying amount of Property, Plant and Equipment has been adjusted by
R4,639,859 to reflect the residual values and estimated useful lives of the
assets. A deferred tax liability of R1,624,875 has arisen to account for
timing differences on Property, Plant and Equipment which have arisen due to
the IFRS adjustment. The net effect on retained earnings is
R3,014,984.
Property Plant and Equipment 2005
The carrying amount of Property, Plant and Equipment has been adjusted by
R5,041,244 to reflect the residual values and estimated useful lives of the
assets. A deferred tax liability of R1,766,573 has arisen to account for
timing differences on Property, Plant and Equipment which have arisen due to
the IFRS adjustment. The net effect on retained earnings is
R3,274,671.
On behalf of the board 30 October 2006
DIRECTORS: B Hlongwa* (Chairman), CF Bosch (CEO), I Bosch, PH Jacobs,
F Sekandi*#, A van Zyl
* Non Executive
# Uganda
REGISTERED OFFICE:
156 Kleine Street, New Muckleneuk, Pretoria. PO Box 73130, Lynnwood Ridge,
0040.
TRANSFER SECRETARIES:
Link Market Services (Pty) Ltd, PO Box 4844, Johannesburg, 2000.
COMPANY SECRETARY: EA Steyn.
SPONSOR: Bridge Capital Advisors (Pty) Ltd.
AUDITORS: BDO Spencer Steward (Johannesburg) Inc.
Date: 30/10/2006 04:48:24 PM Produced by the JSE SENS Department
