CONTENTS ADMINISTRATION

Transcription

1 D E L T A E L E C T R I C A L I N D U S T R I E S L I M I T E D A N N U A L R E P O R T

2 CONTENTS Page Administration 1 Financial highlights 2 Chairman s review 3 Divisional operating structure 4 Comparative statistics for the past six years 5 Value added statement 6 Report of the directors 7 Corporate practices and conduct 11 Directors approval 13 Report of the independent auditors 13 Certificate by secretary 13 Income statements 14 Balance sheets 15 Statements of changes in equity 16 Cash flow statements 17 Notes to the cash flow statements 18 Notes to the annual financial statements 19 Investments in subsidiary companies 35 Shareholders profile 36 Shareholders diary 36 Notice to members 37 Form of proxy 38 ADMINISTRATION Directors P G JOUBERT (68) *# Chairman Appointed to board 1994 E W VAN ZYL (52) # Joint Managing Director of Delta Electrical Industries Appointed to Board 1988 B R WRIGHT (55) # Joint Managing Director of Delta Electrical Industries Appointed to board 1987 P L CAMPBELL (65) *+ Director of Companies Appointed to board 1995 D J GLEESON (69) *#+ Director of Companies Appointed to board 1991 B G HITCHCOCK (43) Financial Director of Delta Electrical Industries Appointed to board 1995 M E RAMANO (48) *+ Director of Companies Appointed to board 1994 J P SCOTT-MAXWELL (50) *# Chief Executive of Delta plc Appointed to board 1996 (BRITISH) M P W ROBSON (44) * Financial Director of Delta plc Appointed to board August 2001 (BRITISH) P M A M Smits (58) * Director of Delta plc Resigned August 2001 (NETHERLANDS) * Non-executive # Member of the remuneration committee + Member of the audit committee Secretary and Registered Office C J Jacobs, 11th Floor, Sandton City Office Tower, Rivonia Road, SANDOWN 2196 PO Box 78396, Sandton 2146 Transfer Secretaries Mercantile Registrars Limited, 11 Diagonal Street, JOHANNESBURG 2001 Auditors Deloitte & Touche Bankers First National Bank of Southern Africa Limited The Standard Bank of South Africa Limited Delta Electrical Industries Limited (Reg. No 1919/006020/06) 1

3 FINANCIAL HIGHLIGHTS GROUP SUMMARY Change R 000 R 000 % Revenue Operating profit Headline earnings attributable to ordinary shareholders ORDINARY SHARE PERFORMANCE Cents per share Earnings attributable basis 448,2 223,6 100 headline basis 448,0 336,2 33 Dividends per share 169,0 130,0 30 FINANCIAL RATIOS % % Operating profit to revenue Return on average capital employed Net interest bearing debt to total shareholders funds Current assets to current liabilities (times) 1,5 1,8 HEADLINE EARNINGS AND DIVIDENDS PER SHARE SHARE PRICE MOVEMENTS Cents 200 Cents Years Years HEPS (Cents) DPS (Cents) Share price at year end CASH INFLOWS FROM OPERATIONS MARKET CAPITALISATION OF SHARES AT YEAR END Rand (millions) Years Rand (millions) Years 1 2

4 CHAIRMAN S REVIEW Trading conditions and performance Excellent results were achieved under very difficult, uncertain and volatile trading conditions. Headline earnings per share of 448,0 cents represents a 33% increase over the 336,2 cents reported in All operating companies within the Group achieved positive cash flows and after paying a dividend of R69 million in cash, inflow from operating activities amounted to R122 million. The net cash balance at the end of the year was R20 million. Delta EMD was the main contributor to the strong earnings growth benefiting mainly from the significant depreciation of the Rand against the US Dollar. Electrical Repair Engineering, Wire Electric, Transwire and Equipment Spare Parts all achieved acceptable growth although market conditions remained fairly flat throughout the year. The South African economy grew by 2,1% for the year offering very limited opportunities for growth in the markets serviced by Delta s local businesses. Interest rates remained stable for most of the year and the Rand depreciated dramatically against the US Dollar at the year end, losing 36% of its value over the full year. The international economies in which Delta EMD operates were weak and uncertain for most of the year and were aggravated by the tragic events of September 11. Destocking by Delta EMD s customers coupled with the slowdown in the United States economy resulted in an increase in EMD inventories. Management therefore decided to delay the commissioning of the South African plant expansion until the latter part of 2002 and continue running the existing plants at full capacity. Outlook for 2002 It is anticipated that the United States economy should start recovering during 2002 although the timing and extent of such recovery remains uncertain. The South African economy is expected to grow by 2,3% in 2002 provided there is no adverse impact from the elections in Zimbabwe. Headline inflation is expected to increase to 7,1% following the recent devaluation of the Rand. The EMD business is well positioned to consolidate its position as the world s leading EMD manufacturer. The investment that has been made in research and development has enabled Delta EMD to produce premium grades of EMD that are being used by two of the world s leading battery manufacturers for the production of their premium products. Process efficiency improvements and cost reductions at both of its plants have enabled the company to compete effectively in the highly competitive Chinese market. The expected return to the historic growth trend in demand for EMD coupled with a continuing weak Rand will have a positive impact on earnings in The Electrical Repair Engineering division should continue to benefit from new business opportunities in various niche markets which it is pursuing. Equipment Spare Parts is expected to build on its recent success in the mining sector by offering it s customers significant opportunities for cost savings. The more favourable outlook for the United States economy, the continuing weak Rand and the group s dominant position in the markets which it serves, places it in a favourable position to continue to produce earnings growth in P G Joubert 28 February

5 DIVISIONAL OPERATING STRUCTURE E L E C T R I C A L I N D U S T R I E S L I M I T E D ELECTROLYTIC MANGANESE DIOXIDE REPAIRS & SERVICES REPLACEMENT PARTS DELTA EMD ELECTRICAL REPAIR ENGINEERING EQUIPMENT SPARE PARTS AFRICA DELTA EMD SOUTH AFRICA L H MARTHINUSEN DELTA EMD AUSTRALIA MARTHINUSEN & COUTTS METALPLUS REID & MITCHELL TEMSO TRIVETTS ELECTRICAL SERVICES TRANSWIRE WIRE ELECTRIC 4

6 COMPARATIVE STATISTICS SIX YEARS * 1999 * 1998 # 1997 # 1996 # R 000 R 000 R 000 R 000 R 000 R 000 OPERATING RESULTS Revenue Operating profit Exceptional items (56 303) (3 680) (20 280) (2 626) Profit before interest Net interest received/(paid) (581) Profit before taxation Taxation Profit after taxation Outside shareholders' interest Attributable profit Dividends ASSETS Non-current assets Current assets Total assets EQUITY AND LIABILITIES Ordinary shareholders' equity Outside shareholders' interest Non-current liabilities Current liabilities Total equity and liabilities Cash inflows from operations RATIOS AND STATISTICS Ordinary shares in issue - 000's Number of shares on which earnings per share is based - 000's Earnings per share - attributable - cents 448,2 223,6 225,5 146,5 120,0 116,1 - headline - cents 448,0 336,2 231,7 181,9 124,9 99,3 Dividend per share - cents 169,0 130,0 77,5 72,0 46,8 39,5 Dividend cover policy (headline earnings) -times 2,5 2,5 2,5 2,5 2,5 2,5 Price earnings ratio (attributable) Price earnings ratio (headline) Dividend yield - % 3,12 3,42 2,9 3,6 2,5 2,9 Return on average capital employed - % Return on average ordinary shareholders' funds - % (after taxation) Net interest bearing debt to total shareholders' funds - % Total liabilities to total shareholders' funds - % Current assets to current liabilities 1,5 1,8 1,8 1,5 1,9 1,4 Net asset value per share - cents Net asset value to market capitalisation - % 26,3 27,7 33,8 34,2 26,6 31,5 Share price - highest - cents lowest - cents closing - cents Total number of shares traded - 000's Volume of shares traded as a percentage of total shares issued - % Number of employees Revenue per employee - R000's Total assets per employee - R000's * Restated, refer note 2 # Not restated 5

7 VALUE ADDED STATEMENT for the year ended 27 December 2001 Group WEALTH CREATED R 000 % R 000 % Revenue Paid to suppliers for materials and services Value added Interest received Exceptional items (56 303) Total wealth created WEALTH DISTRIBUTION To Employees Salaries, wages and other benefits To Government Current taxation Secondary tax on companies Regional service council levies Foreign taxation Gross contributions to central and local government Less: Government concessions and subsidies (1 707) (1 339) To Providers of finance Interest paid To Providers of capital Dividends paid by holding company Income attributable to outside shareholders To Reinvestment within the group Retained income Depreciation and amortisation Deferred taxation (41 008) (4 359) Total wealth distribution VALUE ADDED RATIOS Headline earnings per employee (R 000 s) Wealth created per employee (R 000 s)

8 REPORT CHAIRMAN S OF THE DIRECTORS REVIEW for the year ended 27 December 2001 The directors have pleasure in submitting the annual financial statements for the year ended 27 December GENERAL REVIEW The following major capital expenditure to accommodate capacity expansions, approved by the directors of the company in the year 2000, was incurred during the 2001 financial year: R75 million (2000: R48 million) on the 11,000 tonne EMD plant expansion at Nelspruit, Mpumalanga and the Ore Reduction facility in the Northern Cape. R22 million on the purchase of 5 hectares of additional land adjoining the Delta EMD Australia, Newcastle plant, which will be utilised to accommodate future plant expansions at Delta EMD Australia. GROUP RESULTS FOR THE YEAR The results for the company and the group are set out in the annual financial statements. SEGMENTAL ANALYSIS Business Segment Information Electrolytic Manganese Repairs and Replacement Year ended Dioxide Services Parts Other Total 27 December 2001 R'000 R'000 R'000 R'000 R'000 Revenue (58 256) Operating profit Depreciation and amortisation Capital expenditure Segmental assets Deferred taxation asset Cash and cash equivalents Total assets Segmental liabilities Deferred taxation liability Taxation Total liabilities

9 REPORT CHAIRMAN S OF THE DIRECTORS REVIEW for the year ended 27 December 2001 Business Segment Information Electrolytic Manganese Repairs and Replacement Year ended Dioxide Services Parts Other Total 27 December 2000 R'000 R'000 R'000 R'000 R'000 Revenue (50 726) Operating profit Depreciation and amortisation Capital expenditure Segmental assets Cash and cash equivalents Total assets Segmental liabilities (5 435) Deferred taxation liability Taxation Total liabilities Geographical Segment Information United States of Year ended America Australia Africa Other Total 27 December 2001 R'000 R'000 R'000 R'000 R'000 Revenue (by destination) Segmental assets Capital expenditure Year ended 27 December 2000 Revenue (by destination) Segmental assets Capital expenditure REVIEW OF OPERATIONS Electrolytic Manganese Dioxide Electrolytic Manganese Dioxide (EMD) is used in the manufacture of primary and rechargeable dry cell batteries. The division manufactures and distributes EMD to the world s leading battery manufacturers located in the United States, Europe and Asia. Delta (E.M.D.) (Proprietary) Limited Chairman & Managing Director: E W van Zyl The division had a difficult start to 2001 as a result of the slowdown in the US economy and continued destocking by the major battery manufacturers. While trading conditions improved during the second half of 2001 as battery manufacturers increased production to replace depleted inventories, total EMD sold during the year was significantly down on the previous year. Management decided to delay the commissioning of the South African plant expansion as a result of the deteriorating trading conditions and operate existing production facilities at full capacity in order to minimise unit costs of production. Further debottlenecking and improvement in operational efficiencies of the Newcastle plant has increased the capacity by 17% to 27,000 metric tonnes per annum. Management are confident that due to the short term fall in demand for EMD, the holding cost of increased inventories will be more than compensated for by lower unit costs of production. The deterioration in demand for EMD coupled with the re-entry of the Japanese producers into the US market placed severe pressure on prices. The weakness of the South African Rand and the Australian Dollar, coupled with the benefits of improved operating efficiencies ensured that Delta EMD remained highly competitive and was able to continue to increase its market share in Significant success has been achieved in the Chinese market where Delta EMD was able to compete effectively with low cost Chinese producers. Delta EMD is now the preferred 8

10 REPORT CHAIRMAN S OF THE DIRECTORS REVIEW for the year ended 27 December 2001 supplier to two of the world s four largest battery manufacturers and is a supplier to one of the largest battery manufacturers in China. The ongoing investment in research and development, which will be increased to in excess of 2% of sales revenue in 2002, has strengthened Delta s position as the world s leading EMD manufacturer. Raw materials manufactured by Delta EMD are now being utilised in the production of the flagship products of two of the world s leading battery manufacturers. Market conditions are expected to continue to improve with the growth in demand for batteries and EMD, returning to the historic growth trend. This coupled with the continued weakness of the Rand is expected to positively impact on earnings in Repairs and Services This division repairs and services rotating machines and transformers, provides electrical diagnostic and maintenance services to industry, manufactures bare and covered copper conductors and distributes electrical insulating materials, industrial tapes and abrasive consumable materials to a broad spectrum of industrial consumers. Electrical Repair Engineering (Proprietary) Limited Managing Director: C M E Baret A very satisfactory result was achieved despite market conditions, which provided little opportunity for growth. Improvements in operating efficiencies contributed positively to the year s result. Growth was achieved in the heavy transformer division and in traditional market sectors such as traction and off-highway vehicle repairs. Good progress was made in broadening the range of services provided by the company with the highlight being the complete refurbishment of two dragline electrical drive systems. A significant contract for the refurbishment of electrical equipment on the Zambian copper mines was successfully completed during the year. Further investments were made in state of the art equipment to ensure that the company maintains its market leadership position in the electrical repair industry. The company s strategy of broadening its range of services and expanding its market geographically is expected to provide continuing earnings growth in Any upturn in the South African economy should further benefit earnings. Transwire (Proprietary) Limited Managing Director: P J S Mateus Satisfactory earnings growth was achieved despite a reduction in purchases by a major export customer and a decline in sales in certain key market sectors. Production efficiencies were adversely affected as a result of the local producer of copper rod being unable to meet delivery schedules. The company s earnings were positively affected by the supply of new product into the transformer industry and an increase in export sales. Future earnings growth will be dependent on export sales and an improvement in local market conditions. Wire Electric (Proprietary) Limited Managing Director: G S Venter Good earnings growth was achieved in a difficult market, which provided only minimal sales growth. The improvement resulted from further rationalisation of the company s product range and customer base, and improved management of working capital. Earnings are expected to continue to grow based on improved sales to the transformer and abrasives market. Replacement Parts This division is a major supplier of replacement parts, ground-engaging tools and undercarriage parts for earthmoving equipment and parts for diesel engines, transmissions and heavy trucks. 9

11 REPORT CHAIRMAN S OF THE DIRECTORS REVIEW Equipment Spare Parts Africa (Proprietary) Limited Managing Director: A L Grobler Excellent results were achieved despite only moderate growth in sales. The transport industry remained depressed and there was only minimal increased activity in the construction industry. Export sales enjoyed good growth and significant inroads were made into the mining industry. The significant devaluation of the Rand resulted in difficult trading conditions with the company doing well to maintain margins. Operating profits were protected by ensuring that costs increased at a rate that was lower than inflation. Further reductions in working capital were also achieved. Future results will be dependent on conditions in the South African economy with some benefit expected from the recent devaluation of the Rand. SHARE CAPITAL There were no new issues of shares to raise capital during the year under review. Details of the company s share capital are set out in note 13 to the annual financial statements. SUBSIDIARY COMPANIES for the year ended 27 December 2001 Details of the company s interests in its subsidiary companies are set out in Annexure A to this report. EXECUTIVE SHARE INCENTIVE SCHEME The number of shares in issue are as follows: Balance of shares in issue at beginning of year Shares sold to participants in terms of the Scheme (81 952) ( ) Balance of shares in issue at end of year The authority to issue shares to employees is limited to (2000: ) shares. DIRECTORS AND SECRETARY Details of the directors and secretary are given on page 1. In terms of the company s Articles of Association, Messrs P L Campbell, D J Gleeson, B G Hitchcock and M P W Robson retire at the forthcoming annual general meeting and being eligible, offer themselves for re-election. DIVIDENDS The following dividends were paid in respect of the 2001 financial year: R 000 R 000 Final Dividend No 58 of 92,0 cents (2000: 64,0 cents) per share declared on 16 February 2001 to shareholders registered on 2 March 2001 and settled on 23 March Interim Dividend No 59 of 43,0 cents (2000: 38,0 cents) per share declared on 24 August 2001 to shareholders registered on 31 August 2001 and settled on 3 September On 28 February 2002 the directors declared dividend No 60 of 126,0 cents. This dividend will be paid to shareholders on 25 March Dividend policy It is the company s policy to declare dividends for the year based on a dividend cover of 2.5 times headline earnings per share. 10

12 CORPORATE CHAIRMAN S PRACTICES REVIEW AND CONDUCT HOLDING COMPANY The holding company of Delta Electrical Industries Limited is Delta SA (Pty) Limited which held 56,4% (2000: 56,4%) of the issued share capital of the company at the year end. Delta SA (Pty) Limited is a wholly-owned subsidiary of Delta plc which is incorporated in the United Kingdom. Delta Electrical Industries Limited is committed to effective corporate governance. The directors endorse, and during the year under review have in all material respects applied the Code of Corporate Practice and Conduct as set out by the King Commission. By supporting the Code the directors have recognised the need to conduct the enterprise with integrity and in accordance with generally accepted corporate practices. Certain of the group s important corporate practices are as follows: Annual Financial Statements The directors have prepared the annual financial statements contained on pages 7 to 35 in accordance with South African Statements of Generally Accepted Accounting Practice. The annual financial statements are based on appropriate accounting policies which have been consistently applied and are supported by reasonable and prudent judgements and estimates. The directors have no reason to believe that the group s businesses will not continue as going concerns in the year ahead. In the context of their audit, the external auditors concur with the disclosures of the directors with respect to their going concern assertion. Remuneration Committee The Remuneration Committee consists of Messrs P G Joubert (Chairman), J P Scott-Maxwell, D J Gleeson, E W van Zyl* and B R Wright*. The Committee reviews and approves the annual salaries, bonus arrangements, allocation of shares in terms of the share incentive schemes, senior appointments, succession planning and service agreements for the executive directors and senior management. *except where their own remuneration is being considered. Audit Committee The group has an Audit Committee which meets at least twice per annum under the chairmanship of a non-executive director, Mr D J Gleeson. Messrs P L Campbell and M E Ramano who are both non-executive directors are also Audit Committee members. The external auditors have unrestricted access to the committee and attend Audit Committee meetings. These meetings are also attended by appropriate executives including those responsible for finance. The Audit Committee deals with matters concerning risk assessment, audit scope and the internal audit function. The Audit Committee reviews the effectiveness of internal controls of the group with reference to the findings of both the internal and external auditors. Other areas covered include the review of important accounting issues, material pending litigation, specific disclosures in the annual financial statements, and a review of the major external audit recommendations. Risk Management The group has disciplines in place which include the identification, documentation and management of critical risk areas affecting all operating units within the group. Critical risk areas are reviewed and updated on a regular basis by the management of the individual operating units, the audit committee and the board of directors of Delta Electrical Industries Limited. Internal Controls The directors are responsible for, and ensure that the group maintains internal controls and systems designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability for its assets. Such controls are based on established policies and procedures and are implemented by trained personnel with an appropriate segregation of duties, except in isolated instances where it is not practically possible to achieve an appropriate segregation of incompatible functions due to the size of the operation. 11

13 CORPORATE PRACTISES AND CONDUCT The effectiveness of these internal controls and systems is monitored in a number of ways, as set out below, dependent upon the particular circumstances: through the utilisation by management of internal control checklists; formalised reporting of defalcation and other losses; the use of an internal audit function, which independently reviews the adequacy and effectiveness of internal controls. The external auditors, through the audit work that they perform, confirm that the abovementioned monitoring procedures are being effectively applied. Nothing has come to the attention of the directors, nor to the attention of the external auditors, to indicate that any material breakdown in the functioning of the abovementioned internal controls and systems has occurred during the year under review. Management Reporting There are comprehensive management reporting disciplines in place which include the preparation of annual budgets by all operating units. Individual operational budgets are reviewed and approved by the relevant company boards of directors. Monthly results and the financial status of operating units are reported against approved budgets and compared to the prior year. Profit projections and cash flow forecasts are updated monthly while working capital and cash and borrowing levels are monitored on an ongoing basis. Code of Business Conduct The directors and officers maintain the highest ethical standards and ensure that the group s business practices are conducted in a manner which is beyond reproach and encourage all employees to do so. Worker Participation and Affirmative Action At operating company level appropriate structures are in place to foster good employee/employer relationships through effective sharing of relevant information, consultation and the identification and resolution of conflict. Relevant training and development programs have been implemented at operating company level in order to develop employees whilst ensuring that all are afforded equal opportunity for reward and progress based on ability and merit. All companies have carried out a full review of employment policies and procedures to ensure that all discriminatory practices have been eliminated. All operations which were required to submit affirmative action plans in terms of the Employment Equity Act did so within the prescribed period. Skills development plans were also submitted within the prescribed period to the respective Sectorial Education and Training Authorities. 12

14 DIRECTORS APPROVAL The annual financial statements set out on pages 7 to 35 were approved by the board of directors on 28 February 2002 and are signed on its behalf by: P G Joubert Chairman B R Wright Joint Managing Director REPORT OF THE INDEPENDENT AUDITORS To the members of Delta Electrical Industries Limited We have audited the annual financial statements and group annual financial statements of Delta Electrical Industries Limited set out on pages 7 to 10 and 14 to 35 for the year ended 27 December These financial statements are the responsibility of the company s directors. Our responsibility is to express an opinion on these financial statements based on our audit. Scope We conducted our audit in accordance with statements of South African Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes: examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Audit Opinion In our opinion, these annual financial statements fairly present, in all material respects, the financial position of the company and the group at 27 December 2001 and the results of their operations and cash flows for the year then ended in accordance with South African Statements of Generally Accepted Accounting Practice and in the manner required by the Companies Act in South Africa. Deloitte & Touche Chartered Accountants (SA) Registered Accountants and Auditors Johannesburg 28 February 2002 CERTIFICATE BY SECRETARY In terms of section 268 G(d) of the Companies Act, 1973, as amended ( Act ), I certify that Delta Electrical Industries Limited has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Act. Further, that such returns are true, correct and up to date. CJ Jacobs Secretary Sandton 28 February

15 INCOME STATEMENTS for the year ended 27 December 2001 Company Group R 000 R 000 Notes R 000 R 000 Revenue 1, Earnings before interest, taxation, depreciation and amortisation Foreign exchange gains Depreciation (40 018) (33 975) Amortisation (589) (589) Operating profit Exceptional item 4 (56 303) Profit before interest Interest received Interest paid 5 (19 651) (18 710) Profit before taxation Taxation Profit after taxation Outside shareholders' interest Net profit attributable to ordinary shareholders Earnings per share - cents - attributable 7 448,2 223,6 - headline 7 448,0 336,2 Dividends per share - cents 8 169,0 130,0 14

16 BALANCE SHEETS at 27 December 2001 Company Group R 000 R 000 Notes R 000 R 000 ASSETS NON-CURRENT ASSETS Property, plant & equipment Subsidiaries 11 Loans to Executive Share Incentive Scheme Trusts Deferred taxation CURRENT ASSETS Inventories Trade and other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES CAPITAL AND RESERVES Share capital and premium Non-distributable reserves Distributable reserves Accumulated profit Total shareholders' equity Outside shareholders' interest Total capital and reserves NON-CURRENT LIABILITIES Deferred taxation CURRENT LIABILITIES Trade and other payables Provisions Bank overdraft Short term loan Taxation Total equity and liabilities

17 STATEMENTS CHAIRMAN S OF CHANGES REVIEW IN EQUITY 27 December 2001 Share Non- Capital and distributable Distributable Premium Reserves Reserves Total Group R 000 R 000 R 000 R 000 Balance at 28 December As previously stated Prior year adjustment (refer note 2 for details) Net profit for the year Dividends declared and paid (50 149) (50 149) Unrealised exchange gain Balance at 27 December Net profit for the year Dividends declared and paid (66 373) (66 373) Unrealised exchange gain Balance at 27 December Company Balance at 28 December As previously stated Prior year adjustment (refer note 2 for details) Net profit for the year Dividends declared and paid (50 149) (50 149) Balance at 27 December Net profit for the year Dividends declared and paid (66 373) (66 373) Balance at 27 December

18 CASH CHAIRMAN S FLOW STATEMENTS REVIEW for the year ended 27 December 2001 Company Group R 000 R 000 Notes R 000 R 000 Cash inflows from operations Cash generated from/(utilised in) (1) 36 operations Decrease/(increase) in working (1 396) capital Net interest received (1) (2) Taxation paid 3 ( ) (68 149) Dividends received CASH AVAILABLE FROM OPERATIONS (66 373) (50 149) Dividends paid 4 (69 046) (54 951) CASH INFLOWS FROM OPERATIONS Cash outflows from investing activities Purchase of property, plant and equipment ( ) (80 676) Replacement of property, plant and equipment (39 304) (33 075) Capital expenditure on plant expansions Delta (E.M.D.) (Pty) Limited (97 359) (47 601) Proceeds on disposal of property, plant and equipment Investments in businesses 5 (79 620) CASH OUTFLOWS FROM INVESTING ACTIVITIES ( ) ( ) Cash in/(out)flows from financing activities Executive Share Incentive Scheme Trusts (2 093) (620) Loans to subsidiaries CASH IN/(OUT)FLOWS FROM (2 093) (620) FINANCING ACTIVITIES Movement in cash and (53) 54 cash equivalents (10 831) Translation difference on net borrowings (8 589) Cash and cash equivalents 54 at beginning of year CASH AND CASH EQUIVALENTS AT 1 54 END OF YEAR

19 NOTES TO CHAIRMAN S THE CASH FLOW REVIEW STATEMENTS for the year ended 27 December 2001 Company Group R 000 R 000 R 000 R Cash generated from /(utilised in) operations Profit before taxation Adjustments for: - Depreciation of property, plant and equipment Goodwill on acquisitions written off Amortisation of trademark Other (736) (12) (6) - Net interest received (5 731) (3 070) - Translation differences (19 062) (5 503) - Unrealised exchange gain on intergroup monetary items (50 974) (19 200) - Profit on disposal of property, plant and equipment (660) (416) (65 902) (52 179) - Dividends received Cash generated from /(utilised in) (1) 36 operations Decrease/(increase) in working capital Increase in inventories (56 450) (29 148) (1 441) Decrease/(increase) in receivables (17 115) Increase in payables (1 396) Decrease/(increase) in working capital Taxation (1) (1) Taxation owing at beginning of year (71 464) (53 623) (3) (2) Current and Secondary taxation ( ) (85 276) Translation difference (9 572) (714) 3 1 Taxation owing at end of year (1) (2) Taxation paid ( ) (68 149) 4. Dividends paid (66 373) (50 149) Dividends paid by holding company (66 373) (50 149) Dividends paid by subsidiaries to minorities (2 673) (4 802) (66 373) (50 149) Dividends paid (69 046) (54 951) 5. Investments in businesses Capital and reserves (23 318) Goodwill on acquisition (56 302) Investments in businesses (79 620) 6. Cash and cash equivalents Cash and cash equivalents consists of: 1 54 Bank balances Bank overdraft (27 825) (32 595) Short term loans ( ) (29 449) 1 54 Cash and cash equivalents

20 NOTES TO THE ANNUAL FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES The annual financial statements are prepared under the historical cost convention in accordance with South African Statements of General Accepted Accounting Practice. The principal accounting policies of the group are set out below. 1.1 Consolidation The consolidated annual financial statements include the results and financial position of the company and enterprises controlled by the company up to 27 December each year. Control is achieved where the company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statements from the effective date of acquisition or up to the effective date of disposal, as appropriate. 1.2 Revenue Revenue represents the net value of sales to customers. Inter-group revenue is eliminated. Sales of goods are recognised when goods are delivered and title has passed. Revenue arising from services is recognised on the accrual basis in accordance with the substance of the relevant agreements. Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. 1.3 Exceptional Items Exceptional items are defined as items of income and expense within profit and loss from ordinary activities which, due to their size, nature or incidence, require separate disclosure to explain the performance of the group. 1.4 Retirement Benefits The policy of the group is to provide retirement benefits for its employees via its defined contribution retirement benefit plan. The contributions by group companies to fund obligations for the payment of retirement benefits are charged against income in the year they become payable. Payments made to industry-managed retirement benefit schemes are dealt with as defined contribution plans where the group s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit plan. 1.5 Foreign Currency Transactions Transactions denominated in foreign currencies are recorded at the rate of exchange ruling on the transaction date. If a foreign currency denominated transaction is appropriately hedged with a forward exchange contract, the costs of hedging are included in the measurement of the underlying transaction and the transaction is therefore recorded at the forward rate. 1.6 Research and Development Expenditure Research expenditure is written off in the year in which it is incurred. Development costs are reviewed annually and are expensed if they do not qualify for capitalisation. 1.7 Impairment At each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, its carrying amount is reduced to its recoverable amount. Impairment losses are recognised in the income statement immediately. 19

21 NOTES TO THE ANNUAL FINANCIAL STATEMENTS 1.8 Goodwill and Trademarks The net excess of the cost of acquisition of subsidiary companies over the fair value of net assets acquired (goodwill) is recognised as an asset and amortised on a systematic basis over its estimated useful life subject to a maximum of 20 years. Previously goodwill was expensed in full in the year in which it arose. On disposal of a subsidiary the attributable amount of unamortised goodwill is included in the determination of the profit or loss on disposal. Trademarks are amortised over their estimated useful lives (ten years). Their values are reviewed annually to assess whether any diminution has occurred. Any decline in value is accounted for in the income statement. 1.9 Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are dealt with in income in the period in which they are incurred Property, Plant and Equipment Depreciation is provided on bases which write off the book cost of the assets over their estimated useful lives. Assets which have been commissioned, but not brought into use, are depreciated in terms of group policy. Provision for depreciation or replacement of loose tools and moulds is not made, as the costs of renewals are written off in the year in which they are incurred. The rates of depreciation generally applied on a straight line basis are as follows: Freehold buildings 2% Leasehold improvements 12.5% Plant and machinery 10% Fixtures, fittings and equipment 7.5% % Vehicles 25% % 1.11 Inventories Inventories are valued at the lower of cost or net realisable value with due allowances being made for obsolescence wherever applicable. Cost is determined on the following basis: Raw materials on the average or first-in, first-out methods Work in progress at cost of materials on the average or first-in, first-out methods together with direct labour and appropriate works overheads according to the stage of production reached Finished goods on the average or first-in, first-out methods together with direct labour and appropriate works overheads Merchandise on the average or first-in, first-out methods Profit on short-term contracts and work in progress is taken only when completed work is invoiced Translation of Financial Statements Prepared in Foreign Currencies Balance sheets of consolidated foreign entities are translated into Rand at rates of exchange ruling at 27 December. The related income, expenditure and cash flows are translated at the average rate of exchange for the year. Aggregated gains and losses are taken directly to non-distributable reserves. Foreign exchange gains or losses arising on the conversion of intergroup monetary items at the year end rate are, in terms of GAAP, not eliminated and are included in foreign exchange differences in operating profit. 20

22 NOTES TO THE ANNUAL FINANCIAL STATEMENTS 1.13 Deferred Taxation Deferred taxation is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred taxation liabilities are recognised for all taxable temporary differences and deferred taxation assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised Borrowings Loans which are repayable within one year of the balance sheet date are classified as short-term loans and are included in current liabilities. Loans repayable after one year of the balance sheet date are classified as non-current liabilities which cannot be specifically allocated to any division Provisions Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made for the amount of the obligation. Where the effect of discounting to present value is material, provisions are adjusted to reflect the time vaue of money Investments Investments are stated at cost to the group, less amounts written off to give recognition to declines in value Financial Instruments Financial assets The group s principal financial assets are deposits with banks, trade and other receivables, and loans to subsidiaries. Trade receivables are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Long term investments, where the group is not in a position to exercise significant influence or joint control, are stated at cost less impairment losses recognised, where the investment s carrying amount exceeds its estimated recoverable amount. Financial liabilities Principal financial liabilities include bank overdrafts, trade and other payables, and a loan from Delta Group Services in the United Kingdom. Interest bearing bank overdrafts and the loan from Delta Group Services are recorded at the proceeds received. Finance charges are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade and other payables are stated at their nominal value. Off balance sheet derivative instruments The policy adopted for instrument designed to hedge foreign exchange risks is outlined under Foreign Currency Transactions above Environment and Rehabilition The cost of ongoing programmes to prevent and control pollution and to rehabilitate the environment is charged against income as incurred. Where a present constructive or legal obligation for future rehabilitation exists, a provision is raised for the future cost. 21

23 NOTES TO THE ANNUAL FINANCIAL STATEMENTS 1.19 Segmental Information The group consists of three major operating divisions Electrolytic Manganese Dioxide, Repairs and Services and Replacement Parts. These divisions represent the basis on which the group reports its primary segment information. Significant geographical region is the basis for secondary segment information. Segment revenue reflects sales to third parties including arm s length inter-segment sales. The segment result is presented as segment operating profit. Segment assets and liabilities include all operating assets and liabilities employed by the segments excluding cash and cash equivalents and income tax assets and liabilities which cannot be specifically allocated to any division Comparative Figures When an accounting policy is altered, comparative figures are restated in accordance with the new policy where material 22

24 NOTES TO THE ANNUAL FINANCIAL STATEMENTS Group R 000 R PRIOR YEAR ADJUSTMENTS During the year the group implemented the revised Statement of Generally Accepted Accounting Practice, AC132 (Consolidated Financial Statements and Accounting for Investments in Subsidiaries) which had the impact of eliminating revenue arising on intergroup sales.the impact of the above on the reported results of the prior year is as follows: Revenue as previously reported Elimination of intergroup sales (50 726) Revenue as restated The group also implemented AC107 (Events After the Balance Sheet Date) by recognising dividends only in the period in which they were declared. The impact of the above on the reported results of the prior year is as follows: Dividends declared and paid as previously reported Less: Final dividend for 2000 declared and paid in 2001 (45 232) Add: Final dividend for 1999 declared and paid in Dividends declared and paid as restated In restating the final dividend for 2000, an accrual made for Secondary Taxation on Companies of R has been reversed. 23

25 NOTES TO THE ANNUAL FINANCIAL STATEMENTS R 000 R OPERATING PROFIT Operating profit has been arrived at after taking into account: GROUP INCOME Profit on disposal of property, plant and equipment EXPENSES Auditor s remuneration audit fees fees for other services expenses under provision prior year Total auditors remuneration Cost of sales Depreciation of property, plant and equipment plant and equipment buildings leasehold improvements Total depreciation of property, plant and equipment Amortisation of trademarks Administration, management and technical fees Operating lease expenses land and buildings plant and equipment Total operating lease expenses Pension fund contributions (refer note 23) 687 Research and development expenditure Operating expenses by function distribution costs administration costs staff costs COMPANY INCOME Dividends from subsidiaries

26 NOTES TO THE ANNUAL FINANCIAL STATEMENTS Group Company R 000 R 000 R 000 R EXCEPTIONAL ITEM Goodwill on acquisitions written off (56 303) Total exceptional items (56 303) 5. INTEREST PAID Total interest paid Amounts capitalised (7 717) Interest paid TAXATION South African normal current deferred (29 235) Total current year Foreign taxation current deferred (1 195) (14 530) Total current year Secondary taxation on companies Under/(over)provision in prior year South African normal current deferred (10 578) (244) Total prior year Total taxation Reconciliation of rate of taxation: % % % % South African company tax rate 30,0 30,0 30,0 30,0 Decrease in rate of taxation due to: RIDP incentive income 0,1 0,8 Non-taxable income 2,0 0,4 30,0 30,0 Overprovision in prior year 3,2 Foreign income 11,1 5,3 12,3 30,0 30,0 Increase in rate of taxation due to: Underprovision in prior year 4,0 0,7 Non-deductable expenses 1,0 1,0 Secondary taxation on companies 0,9 0,3 Foreign taxation 13,1 Taxable dividend 0,5 Goodwill written off 8,7 6,4 23,8 Effective rate of taxation 31,1 41,5 25