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DTA - Delta EMD Limited - Audited Group Results For The Year Ended 27 December
2009 And Declaration Of A Cash Dividend
DELTA EMD LIMITED
(Formerly Delta Electrical Industries Limited)
Registration number: 1919/006020/06
Share code: DTA ISIN: ZAE000132817
("Delta EMD" or "the Group")
AUDITED GROUP RESULTS FOR THE YEAR ENDED 27 DECEMBER 2009 AND DECLARATION OF A
CASH DIVIDEND
CONDENSED FINANCIAL STATEMENTS
CONDENSED GROUP INCOME STATEMENT
Audited year Audited
to year to
December December
2009 2008
Note R`000 R`000
Revenue 478,122 648,450
Profit before closure costs, 154,854 145,897
impairment, interest, taxation
and depreciation
Depreciation (20,915) (12,776)
Closure costs reversal / 81,748 (28,934)
(charged)
Impairment reversal / (charged) 7,155 (3,980)
Net foreign exchange (losses) / (4,783) 3,777
gains
Operating profit 218,059 103,984
Net interest received 17,123 22,198
Profit before taxation 235,182 126,182
Taxation (67,493) (36,750)
Normal taxation (42,910) (34,608)
Secondary taxation on companies (24,583) (5,165)
Capital gains taxation - 3,023
overprovided on disposal of the
industrial services division
Profit for the year 167,689 89,432
Attributable to:
Equity holders of parent company 167,689 89,432
Headline earnings attributable to 1 158,839 90,389
ordinary shareholders
Number of shares in issue (`000) 49,166 49,166
Weighted number of shares in 49,083 48,990
issue (`000)
Dilutive number of shares in 49,105 49,002
issue (`000)
Attributable earnings per share
(cents)
- basic 341.6 182.6
- diluted 341.5 182.5
Capital reduction per share - 229.0
(cents)
Special dividend per share 500.0 100.0
(cents)
CONDENSED GROUP BALANCE SHEET
Audited year at Audited year at
December December
2009 2008
R`000 R`000
ASSETS
Property, plant and equipment 282,412 293,664
Non current assets held for sale 15,957 10,368
Non current asset 1,051 1,051
Bank balances and cash 216,846 230,077
Other current assets 222,664 337,963
Total assets 738,930 873,123
EQUITY AND LIABILITIES
Total shareholders funds 522,964 595,400
Deferred taxation liabilities 57,085 59,865
Other non current liabilities 7,229 49,307
Current liabilities
- Trade and other 95,245 69,031
- Short term provisions 56,407 99,520
Total equity and liabilities 738,930 873,123
Net asset value per share 1,064 1,211
(cents)
GROUP STATEMENT OF CHANGES IN EQUITY
Share Foreign
capital currency
and translation Treasury
premium reserve shares
R`000 R`000 R`000
Balance at 27 December 2007 117,445 106,378 (1,922)
Increase in foreign currency - 16,259 -
translation reserve
Realisation of foreign currency - (66,383) -
translation reserve
Proceeds on disposal of treasury - - 787
shares
Net income recognised directly in - (50,124) 787
equity
Profit for the year - - -
Total recognised income and expense - (50,124) 787
Capital reduction (112,589) - -
Dividend paid - special - - -
Balance at 27 December 2008 4,856 56,254 (1,135)
Increase in foreign currency - 1,512 -
translation reserve
Realisation of foreign currency - (32,208) -
translation reserve
Profit on disposal of treasury shares - - 954
Net income recognised directly in - (30,696) 954
equity
Profit for the year - - -
Total recognised income and expense - (30,696) 954
Dividend paid - special - - -
Balance at 27 December 2009 4,856 25,558 (181)
Accumu-
lated
profit Total
R`000 R`000
Balance at 27 December 2007 428,600 650,501
Increase in foreign currency translation - 16,259
reserve
Realisation of foreign currency translation 66,383 -
reserve
Proceeds on disposal of treasury shares - 787
Net income recognised directly in equity 66,383 667,547
Profit for the year 89,432 89,432
Total recognised income and expense 155,815 756,979
Capital reduction - (112,589)
Dividend paid - special (48,990) (48,990)
Balance at 27 December 2008 535,425 595,400
Increase in foreign currency translation - 1,512
reserve
Realisation of foreign currency translation 32 208 -
reserve
Profit on disposal of treasury shares 2,995 3,949
Net income recognised directly in equity 35,203 600,861
Profit for the year 167,689 167,689
Total recognised income and expense 202,892 768,550
Dividend paid - special (245,586) (245,586)
Balance at 27 December 2009 492,731 522,964
CONDENSED GROUP CASH FLOW STATEMENT
Audited year Audited year
to to
December December
2009 2008
R`000 R`000
Cash generated by trading 140,803 120,902
Decrease in working capital 105,760 29,514
Cash generated by operations 246,563 150,416
Net interest received 17,123 22,198
Taxation paid - Normal (774) (2,187)
Taxation paid - Secondary taxation on (24,583) (5,165)
companies
Taxation refund - Capital gains - 3,023
taxation
Cash inflow from operating activities 238,329 168,285
Replacement capital expenditure (13,056) (5,422)
Proceeds on disposal of land, property, 2,313 8,430
plant and equipment
Cash (outflow)/inflow from financing (10,743) 3,008
activities
Net cash inflow before financing 227,586 171,293
activities
Capital reduction - (112,589)
Dividend paid - special (245,586) (48,990)
Proceeds on disposal of treasury shares 1,509 787
Cash outflow from financing activities (244,077) (160 792)
Net (decrease)/increase in cash and (16,491) 10,501
cash equivalents
Cash and cash equivalents at beginning 230,077 218,342
of year
Currency translation of cash in foreign 3,260 1,234
subsidiary
Cash and cash equivalents at end of 216,846 230,077
year
NOTES
1. Reconciliation between attributable earnings and headline earnings
Audited year Audited year
to December to December
2009 2008
R`000 R`000
Attributable earnings after taxation 167,689 89,432
Impairment (overprovided) / charged (7,155) 3,980
Over provision prior year - Capital - (3,023)
gains taxation
Profit on disposal of fixed assets (1,695) -
Taxation effect - -
Headline earnings attributable to 158,839 90,389
ordinary shareholders
Attributable headline earnings per
share
- basic 323.6 184.5
- diluted 323.5 184.5
2. Basis of presentation
The audited results have been prepared in accordance with the
Group`s accounting policies which are consistent with those of the
prior year and comply with International Financial Reporting
Standards, the Listing Requirements of the JSE Limited and the
Companies Act of South Africa. These condensed financial
statements have been extracted from the Group`s annual financial
statements and have been prepared in accordance with IAS 34 -
Interim financial reporting.
Audited year Audited year
to December to December
2009 2008
R`000 R`000
3. Commitments
Capital commitments - Authorised but 6,442 11,058
not contracted
Capital commitments - contracted 5,194 1,456
11,636 12,514
Operating lease commitment 1,207 1,262
Other - 980
4. CONTINGENT LIABILITIES
4.1 South African Revenue Services 27 191 -
4.2 Guarantees - 980
Total contingent liabilities 27 191 980
4.1 Following the Group`s 2005 disposal of its industrial services businesses, a
Group subsidiary company discontinued business and filed final tax returns. A
tax assessment received by the subsidiary company during 2007 resulted in a tax
refund as reported in the Group`s 2007 accounts. Thereafter the subsidiary
company satisfied its outstanding liabilities and distributed its assets. A
revised assessment of R27,2 million was recently issued by SARS for additional
capital gains taxation in respect of the 2005 disposal. The Group has objected
to the revised assessment, and no provision has been raised for this revised
assessment in the 2009 year end results. Given the uncertainty around the final
outcome of this matter, the amount has been disclosed as a contingent liability.
5. GEOGRAPHICAL SEGMENTATION INFORMATION
United Australia Europe and
States
of America and other Africa Asia Total
R`000 R`000 R`000 R`000 R`000
Year ended
December
2009
Revenue (by 406 270 - 21 108 50 744 478 122
destination)
Segmental - 93 381 645 549 - 738 930
assets
Capital - - 13 056 - 13 056
expenditure
Year ended
December
2008
Revenue (by 257 205 - 16 901 374 344 648 450
destination)
Segmental - 168 070 705 048 - 873 118
assets
Capital - - 5 422 - 5 422
expenditure
COMMENT ON RESULTS
Overview
Delta EMD`s underlying performance remained strong notwithstanding the global
economic crisis and reduced global demand for electrolytic manganese dioxide.
The Group`s strengthened management team successfully managed the EMD business
in more difficult market conditions, initiated significant operational
improvements and charted a strategic course for further improvement and
development of the business.
2009 Results
Revenue at the Group`s South African plant recorded an 18% improvement over
2008, with improved selling prices more than offsetting marginally lower sales
volumes. With sales from the Group`s former Australian operation concluding
during 2008, the Group`s total revenue reduced from R648.5 million to R478.1
million, a 26% reduction.
2009 operating profit benefited substantially from the reversal of R81.7 million
of rehabilitation provisions previously established for the Group`s Australian
plant and disposal sites (2008: R28.9 million charge), as well as from the
reversal of impairment provisions of R7.2 million related to those sites (2008:
R4.0 million charge). Including those provision adjustments, 2009 operating
profit improved to R218.1 million (2008: R104.0 million). Excluding those
provision adjustments, 2009 operating profit totaled R129.2 million, down from
2008 operating profit of R136.9 million, which benefited from the sale of
remaining Australian inventory.
Net interest received of R17.1 million ended lower than the R22.2 million
received in 2008, because of lower interest rates and reduced cash balances.
Profit before taxation of R235.2 million was recorded for the year compared with
R126.2 million in 2008. Excluding the provision adjustments noted above, profit
before taxation for the year totaled R146.3 million (2008: R159.1 million).
The 2009 taxation charge of R67.5 million (2008: R36.8 million) included
Secondary Taxation on Companies of R24.6 million (2008: R5.2 million) relating
to the R245.6 million of special dividends paid during the year.
Profit after taxation for the year totaled R167.7 million (2008: R89.4 million),
and earnings per share improved to 341.6 cents (2008: 182.6 cents), whilst
headline earnings per share improved to 323.6 cents (2009: 184.5 cents).
2009 cash inflow from operating activities improved to R238.3 million (2008:
R168.3 million). The collection of Australian trade debtors and of a substantial
account that was outstanding at year end 2008, changes in terms of sale, and
planned reductions in stock levels contributed to the favorable cash flow for
the year.
Cash balances at year end totaled R216.8 million, after having paid R245.6
million of special dividends and R24.6 million of Secondary Taxation on
Companies.
Following the Group`s 2005 disposal of its industrial services businesses, a
Group subsidiary company discontinued business and filed final tax returns. A
tax assessment received by the subsidiary company during 2007 resulted in a tax
refund as reported in the Group`s 2007 accounts. Thereafter the subsidiary
company satisfied its outstanding liabilities and distributed its assets. A
revised assessment of R27.2 million was recently issued by SARS for additional
capital gains taxation in respect of the 2005 disposal. An objection to the
revised assessment has been filed, and no provision has been raised for this
revised assessment in the 2009 year end results.
Performance and Prospects for the EMD Business
2009 was a very good year for the Delta EMD business: a substantially
strengthened senior management team relocated to the Delta EMD facility in
Nelspruit, significant operational improvements were initiated, overhead costs
were reduced, and financial performance remained strong notwithstanding reduced
volumes sold.
Global demand for electrolytic manganese dioxide reduced during the year as
consumer demand for batteries weakened with the global recession. Sales volumes
did not meet expectations and production at the Group`s South African plant was
limited substantially to reduce stocks to desired levels. The global market
nonetheless remained well balanced and selling prices afforded the margins
necessary to compensate for the underrecovery of overheads and to provide an
acceptable return.
The majority of the Group`s sales during the year were made in Rand denominated
selling prices, effectively protecting the Group`s margins from foreign exchange
movements. This marks an important change from historic practice and assures
more certain financial performance. The strengthening of the Rand during the
year did, however, reduce the competitiveness of the Group`s selling prices.
The Group`s product range and stocks were rationalised during the year to reduce
stock levels and to assure more responsive delivery to key customers. Our terms
of sale also were changed to provide that ownership of goods transfers at the
port of loading, also reducing the Group`s stock levels. These efforts together
with effective collection of outstanding debtors provided reduced working
capital levels and very good cash flow.
The operational improvements underway at the Nelspruit facility will provide
further efficiencies and cost savings as well, perhaps more importantly, the
opportunity to participate in market segments requiring higher performance EMD.
Production trials of EMD suitable for higher drain applications were successful
during the year, and a substantial volume of lithium EMD was produced and sold
for use in specialised batteries. These developments highlight the opportunities
for development of the EMD business.
The Group expects the global EMD market to strengthen somewhat during the year
as global economic conditions improve. Nonetheless, we do not expect to sell
sufficient volumes during 2010 to fully utilise our plant, and consequently will
continue to suffer from poor overhead recoveries. Pricing pressure is likely to
continue whilst market demand is relatively soft, and our price competitiveness
will be partly shaped by foreign exchange rates and the Rand, which remains
relatively strong. Nonetheless we remain confident in our competitive advantages
- favourable ore supply arrangements and relatively low conversion cost - and
expect improved market demand and participation in new market segments to
provide attractive prospects over the medium term.
Disposal of the Group`s Australian Plant and Residue Disposal Sites
An environmental assessment was concluded successfully during the year at the
Group`s former Australian plant site, and a site audit statement confirming that
the site is suitable for commercial and industrial uses without further
remediation or rehabilitation was issued. This statement will facilitate the
sale of the site, and a demolition contractor has been contracted to demolish
the structures remaining on the site. Earlier efforts to sell the site with
those structures proved unsuccessful, and the site will now be marketed as a
vacant site.
An amendment to the environmental license governing the rehabilitation of the
Kooragang Island residue disposal site was agreed with regulatory authorities
during the year and allows a more cost effective rehabilitation of the site.
Negotiations toward the sale of the Kooragang Island site are underway.
The net asset value of the Australian assets reflected on the Group`s balance
sheet at year end totalled R34.7 million, and included creditors of R6.9
million, Australian cash balances totalling R77.0 million, and provisions for
the closure and rehabilitation of the Group`s Australian sites totalling R51.4
million. During the year, R14.7 million of costs were incurred managing the
site, net of gains realised on the sale of sundry assets. At year end 5
employees and contractors were employed at the site overseeing security and the
disposal of remaining assets.
Planned Disposal of the Delta EMD Business
Shareholders were advised by a cautionary announcement dated 18 January 2010
that the Group had commenced a process intended to realise shareholder value
through a disposal of the Delta EMD business, the Group`s last remaining
operation. The board decided upon this course of action having concluded the
following. Firstly, that the Group`s substantially improved financial
performance had not provided appropriate additional shareholder value, most
likely because the Group remains a relatively small listed company with
essentially no broker or analyst coverage, and with poor liquidity and
tradability of its shares. And secondly, that the Delta EMD business does not
benefit from ownership through a publicly listed group, nor does it enjoy the
benefits of private ownership or of being part of a larger group with related
businesses.
The disposal process is now well underway with considerable interest indicated
in the Delta EMD business. The board does not expect the disposal process to
conclude until the second half of the year, and will advise shareholders
appropriately during the process.
Directorate
As announced on 4 December 2009, Mr. Johan Seymore joined the board as an
executive director with effect from 3 December 2009. Johan also serves as
financial director of the Delta EMD business.
At the board meeting on 18 February 2010, Mr. Seymore was appointed Financial
Director of the Group, succeeding Chris Jacobs, who will remain on the board as
a non-executive director. We thank Chris for his 24 years of service to the
Group and for agreeing to continue supporting the Group, particularly in
connection with the disposal process, as a consultant.
Dividend
The Group is pleased to announce the declaration of a final dividend of 80 cents
per share, which represents an appropriate payout from the Group`s underlying
2009 earnings. It shall be paid from existing cash balances. The salient dates
for the payment of the dividend will be as follows:
Last date to trade to qualify for the Friday 5 March 2010
dividend
Shares to commence trading ex-dividend on Monday 8 March 2010
the JSE Limited
Record date Friday 12 March 2010
Payment date Monday 15 March 2010
The dividend is declared in the currency of the Republic of South Africa. Share
certificates may not be dematerialised or rematerialised between Monday 8 March
2010 and Friday 12 March 2010, both days inclusive.
The board also anticipates payment of special dividends when the 2005 tax matter
noted above is favourably resolved and when value is realised through the sale
of the Group`s Australian EMD production and residue disposal sites.
REPORT OF THE INDEPENDENT AUDITORS
The auditors Deloitte & Touche have issued their unmodified audit opinion on the
Group`s condensed consolidated financial statements for the year ended 27
December 2009. A copy of their audit report is available for inspection at the
company`s registered office.
T.G. Atkinson (Chairman)
19 February 2010
Registered Office Transfer Secretaries
15 Heyneke Street Computershare Investor
Industrial Site Services (Proprietary) Limited
Nelspruit 70 Marshall Street, Johannesburg
1200 Marshalltown 2107
Directors: Independent non-executive:
LB Bird, AC Hicks, BR Wright
Non-executive (non-independent):
TG Atkinson* (Chairman)
Executive: P Baijnath (Chief Executive Officer), CJ Jacobs (Chief Financial
Officer), J S Seymore *USA
Date: 19/02/2010 10:00:01 Supplied by www.sharenet.co.za
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