AUDITORS’ REPORTIndependent auditors’ report to the members of <strong>Foskor</strong> (Proprietary)LimitedWe have audited the annual financial statements and group annualfinancial statements of <strong>Foskor</strong> (Proprietary) Limited set out on pages17 to 53 for the year ended 31 March <strong>2006</strong>. These financial statementsare the responsibility of the company’s directors. Our responsibility is toexpress an opinion on these financial statements based on our audit.We conducted our audit in accordance with International Standards onAuditing. Those Standards require that we plan and perform the auditto obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, ona test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as wellas evaluating the overall financial statement presentation. We believethat our audit provides a reasonable basis for our opinion.In our opinion, the financial statements present fairly, in all materialrespects, the financial position of the company and of the group at31 March <strong>2006</strong>, and the results of their operations and cash flowsfor the year then ended in accordance with International Financial<strong>Report</strong>ing Standards and in the manner required by the CompaniesAct of South Africa.PRICEWATERHOUSECOOPERS INCRegistered Auditors19 June <strong>2006</strong>SunninghillNGUBANE & CO INCRegistered Auditors19 June <strong>2006</strong>Durban16
REPORT OF THE DIRECTORSFor the 12 Month period ended 31 March <strong>2006</strong>The directors have pleasure in submitting their report and the <strong>Annual</strong>Financial Statements of the company and the Group for the 12 monthperiod ended 31 March <strong>2006</strong>.The term Group, in the context of the financial statements, refers to thecompany and its subsidiaries.NATURE OF BUSINESSThe core business of the Group is the manufacture and supply ofinternational standard merchant grade phosphoric acid and relatedgranular fertiliser products at the Richards Bay plant. All the phosphoricacid is exported and the granular sales are divided between exports andlocal markets.More than 75% of the phosphate rock concentrate produced at thePhalaborwa mine is transported to the Richards Bay plant for theproduction of phosphoric acid. The balance of the phosphate rock issold in local markets and exported mainly to Japan and the Far East.Export prices are generally, on a net back basis, after distributioncosts, 15% to 20% more profitable than local salesFINANCIAL RESULTSExports contribute to more than 75% of the Group’s revenue andlocal sales are based on US Dollar denominated prices. The volatilityexperienced by the Rand on the foreign exchange market continues tohave a detrimental effect on the financial results for the period. Theaverage R/$ exchange rate for <strong>2006</strong> was R6.37/$ compared to theprevious period’s R6.17/$.Group revenue increased by R768m or 43%, from R1 806m (annualised)in 2005 to R2 574m in <strong>2006</strong>.The Group achieved a major turnaround in profitability of R456m, froman operating loss of R420m in 2005 to an operating profit of R36m forthe current year. Before taking into account the impairment of R300min the previous period, the operating profit improved by R156m.The net profit for the year increased by R552m from the previous year’s netloss of R477m to a net profit for the current year amounting to R75m.The activities of the Group fall into four principal classes of business,and the estimated proportion of net operating income attributable tothese classes is further explained in the annual report.SHARE CAPITALThe authorised capital remained unchanged during this period at:• 8 100 000 ordinary shares of R1 each; and• 23 500 000 new class ‘B’ ordinary shares of R1 each.During April 2005, <strong>Foskor</strong> issued the following shares to CoromandelFertilisers Limited (CFL):• 23 500 000 ‘B’ shares of R1 each with a share premium of R0.5821per share; and• 199 590 ordinary shares of R1 each with a share premium ofR0.60586.The issued ordinary share capital increases from 7 784 000 shares ofR1 each to 7 983 590 shares of R1 each. The shareholding in <strong>Foskor</strong>is as follows:• 97.5% of the shares are held by the Industrial DevelopmentCorporation (IDC) of South Africa Limited;• 2.5% of the shares are held by CFL, an Indian based company.The directors are authorised, until the next annual general meeting, toissue unissued ordinary shares.SUBSIDIARIESDetails of the subsidiaries and associates of the company are set out inNote 7 to the <strong>Annual</strong> Financial Statements.ENVIRONMENTAL ACCOUNTINGThe Group is aware of the increasing emphasis on environmentalaccounting and accountability. Management is continually assessingand monitoring the various environmental issues facing the Group.Based on a Mine Rehabilitation and Closure Cost Assessment done byAfrican EPA during 2005:Net shortfall at this stage R ‘000- Recommended mine closure cost 223,410- Estimated salvage value at this stage 204,967- Closure deficit at this stage 18,443- Contingencies 46,915- Net shortfall before realising assets held inEnvironmental Trust 65,358A contingent liability has been recognised for the issuing of guaranteesto the Department of Minerals and Energy as follows (refer Note 20 tothe <strong>Annual</strong> Financial Statements): R ‘000- Recommended mine closure cost at thisstage (ignoring salvage value) 223,410- Less assets held by the Environmental Trust(refer note below) 41,223- Shortfall 182,187- Guarantee to be issued July <strong>2006</strong> 50,000- Guarantee to be issued July 2007 50,000- Guarantee to be issued July 2009 (estimated at betweenR82m and R100m)The total environmental rehabilitation liability has been estimated atR152.4 million after taking into account the following (refer Note 25to the <strong>Annual</strong> Financial Statements): R ‘000- The closure cost of the mine 223 410- Contingencies 20 000- The weighted average cost of capital 12.1%- Estimated escalation per annum 4.8%- Costs discounted to present value 7.3%The value of the Trust amounting to R41.2m is offset against theliability of R152.4m leaving a net figure of R111.2 m on the BalanceSheet (refer Note 25 to the <strong>Annual</strong> Financial Statements).FOSKOR REHABILITATION TRUST (PHALABORWA MINE)Details of contributions to the Trust are as follows (refer Note 25 to the<strong>Annual</strong> Financial Statements):June 1995 R 4 500 000June 1996 R 5 894 000June 1997 R 1 217 000June 1998 R 1 160 000June 1999 R 500 000June 2000 R 496 083June 2004 R 3 000 000March <strong>2006</strong> R 8 000 000R 24 767 083The current market value of the assets in the Trust is R41.233 million,which is regarded as adequate at this point when considering theremaining life of the Phalaborwa mine.BUSINESS ASSISTANCE AGREEMENT – CONTINGENTLIABILITY (refer Note 20 to the <strong>Annual</strong> Financial Statements)<strong>Foskor</strong> entered into a Business Assistance Agreement (BAA) withCoromandel Fertilisers Limited (CFL) in February 2005 to provide17
Change language