| Fri 27 Jul 2007, 9:48 | | KIO - Kumba - Condensed consolidated interim finan |
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KIO
KIO
KIO - Kumba - Condensed consolidated interim financial report and declaration
of interim dividend
Kumba Iron Ore Limited
A member of the Anglo American plc group
(Incorporated in the Republic of South Africa)
Registration number: 2005/015852/06
Share code: KIO & ISIN: ZAE000085346
("Kumba" or "the Company")
CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT AND DECLARATION OF INTERIM
DIVIDEND FOR THE SIX MONTHS ENDED 30 JUNE 2007
Revenue up 35%
Operating profit up 52%
Headline earnings up 38%
Interim dividend 350 cents per share
COMMENTARY
Reporting periods
Kumba Iron Ore Limited ("Kumba") commenced trading in November 2006, following
the unbundling of Kumba from Exxaro Resources Limited, formerly Kumba
Resources Limited ("Exxaro"). Where reference is made to the six month period
from 1 January 2006 to 30 June 2006, or to the 12 month period from 1 January
2006 to 31 December 2006, readers are advised that this supplementary
information has been prepared from financial information reported by Exxaro
and is unaudited. The unaudited comparative figures are provided purely for
comparison purposes.
Introduction
In the six months ended 30 June 2007, Kumba increased revenue by 35% on the
back of higher sales volumes, increased benchmark prices and quality premia on
certain products. Increased mining activity at the Sishen Mine resulted in
total tonnes mined increasing 23% from 41,5 million tonnes ("Mt") to 51,2 Mt
over the period. Operating expenses remained under pressure due to increases
in labour, contractors, raw materials, fuel, energy and other input costs.
Profit for the six months ended 30 June 2007 was R2,0 billion compared to R1,4
billion achieved for the comparative period ended 30 June 2006.
The Sishen Expansion Project ("SEP") continues to progress towards completion
within its budget. The jig technology to be used by SEP allows Kumba to
process "B" grade material (with a Fe content of between 55% and 60%) and
consequently 4,9 Mt of this material was stockpiled during the period,
primarily as feedstock into the jig plant. This had a positive impact on unit
costs at Sishen Mine.
Attributable and headline earnings for the six month period was 502 cents per
share on which a dividend of 350 cents per share has been declared.
Of the profit of R2,0 billion, R406 million is attributable to minority
interests in Sishen Iron Ore Company Proprietary (Limited) ("SIOC"). Exxaro
holds a 20% interest in SIOC and the SIOC Community Development SPV and SIOC
Employee Share Participation Scheme ("Envision") each hold an interest of 3%
in SIOC. For purposes of the preparation of the condensed consolidated interim
financial report SIOC Community Development SPV and Envision are considered
special purpose entities and are consolidated for accounting purposes. Of
total shareholders` equity of R2 220 million at 30 June 2007, R158 million is
attributable to these entities through their interests in SIOC.
Safety performance
Safety performance at Thabazimbi Mine has improved with a lost time injury
frequency rate ("LTIFR") of 0,25, down from 0,31 in December 2006. However, at
Sishen Mine the LTIFR was adversely affected by a higher than usual incidence
of injuries in February and March. Corrective steps have been taken and we are
pleased that the LTIFR trend has reversed. During this time and most
regrettably, the group suffered one fatality at the Sishen Mine during
February, when Mr Samuel Marutle, a truck driver employed by a contracting
company, died in a heavy vehicle incident when his vehicle overturned.
Operating results
On the back of increases in world steel consumption, crude steel production
continued to grow during the six months ended 30 June 2007. Asia continues to
dominate global steel demand, being driven primarily by China. The growth in
steel production is reflected in the increase in global demand for iron ore.
Export sales for the first three months of 2007 were based on the 19,0%
increase in the iron ore benchmark price for 2006/2007. An increase of 9,5% in
the benchmark price for the 2007/2008 iron ore year was applicable from 1
April 2007, before accounting for quality premia.
Financial and operational performance for the six months ended 30 June 2007
was strong with revenue increasing 35% from R4,0 billion in 2006 to R5,4
billion. Operating profit increased R1,0 billion or 52% from R1,9 billion in
2006 to R2,9 billion, principally as a result of the following:
- The year-on-year weighted average iron ore prices from export sale
volumes increased by 11% from US$47,87 per tonne to US$53,15 per tonne in
2007, which buoyed operating profit by R497 million;
- The weakening of the average exchange rate of the Rand to the US Dollar
(average spot exchange rates - R7,15/US$1,00 in 2007 compared with
R6,26/US$1,00 in 2006), which contributed R492 million to operating
profit;
- Increased sales volumes added R407 million;
Offset partially by a R382 million increase in operating expenses.
The operating margin increased from 48% for the six month period ended 30 June
2006 to 54% in 2007.
Export sales volumes for the six months ended 30 June 2007 increased by 5% to
11,8 Mt from 11,2 Mt in 2006. Volumes increased partially through the sale in
the first quarter of 2007 of finished product inventory that had built up at
the Saldanha port as a result of the breakdown of equipment at the port during
September 2006. Domestic sales volumes were 18% higher at 4,5 Mt, due to
increased demand from Mittal Steel. Sishen Mine`s production was stable at
14,2 Mt for both periods ended 30 June. Production at Thabazimbi Mine
increased to 1,4 Mt for the six months ended 30 June 2007 compared with 1,1 Mt
during the comparable period of the previous year and contributed R9 million
to operating profit.
Production costs increased due to inflationary pressures, increased
maintenance related activities and external contractor mining costs. An
increase in waste mined by contractors (10 Mt) and contracted prices resulted
in external contractor mining costs increasing twofold. During the first half
of 2007 approximately 4,9 Mt of "B" grade material mined at Sishen Mine with a
cost of R227 million was stockpiled. After taking into account this stockpiled
material, Sishen Mines` unit cost was R78,39 per tonne not withstanding
increased mining activities and inflationary pressures.
The business continued to generate strong cash flows, with an increase of 77%
in cash generated from operations from R1,7 billion to R3,0 billion. These
cash inflows were utilised to fund the capital expenditure on growth projects
of R1,2 billion, to pay taxation of R666 million, to reduce overdraft
facilities by R477 million and to pay dividends. Cash generated from
operations and cash on hand at 30 June 2007 will be utilised to fund the
interim dividend.
Project pipeline
Sishen Expansion Project: The construction of SEP is progressing well with the
mechanical aspects of the project substantially complete at 30 June 2007.
Commencement of production is, however, behind schedule due to earlier
engineering difficulties arising from skills shortages and capacity
constraints amongst suppliers and a seven month delay in the delivery of the
crushers. However, through mitigating actions the delay in commencement of
production has been limited to one month. It is anticipated that production
will commence in the third quarter of this year. Current planning and progress
on the project indicates that production of approximately 1,5 Mt can be
anticipated from SEP during the second half of 2007. Full ramp-up to the
design capacity of 13 million tonnes per annum ("Mtpa") is expected to be
achieved during the first half of 2009. This project will apply jig technology
to extract 13 Mtpa additional saleable ore from 21 Mtpa of feedstock, about 8
Mtpa material previously accounted for as waste and 13 Mtpa from new run-of-
mine material (of which 4,9 Mt of material mined was capitalised during the
six months to 30 June 2007). Despite the delays it is expected that the
project will be completed within its budget of R5,1 billion, will increase
annual production from the Sishen Mine to 42 Mtpa and contribute in bringing
down overall unit costs at Sishen Mine.
SEPII: A pre-feasibility study to increase production at Sishen Mine, by
between 5 to 10 Mtpa after SEP, is due to be completed during 2007. An
evaluation of the product strategy of the mine is part of the pre-feasibility
study to ensure that this strategy is aligned with future market developments
as well as the mining resource and production facilities at the operation.
Sishen South Project: The feasibility study has been finalised. Delays are
being experienced in finalising expansion and rail tariffs with Transnet. The
decision on the implementation of the project is subject to the conclusion of
an acceptable commercial agreement with Transnet for the expansion of the
Saldanha rail and port capacity above the current 47 Mtpa.
Project Phoenix: The feasibility study to extend the life of the Thabazimbi
Mine by some 20 years through exploitation of the in situ low iron content
banded ironstone has recently been completed. In December 2006 Mittal Steel
terminated its involvement in the project. Management continues to evaluate
alternative development scenarios for the commercial exploitation of this
resource.
Faleme - Senegal: The Faleme iron ore deposit is located in South East
Senegal. Kumba International BV ("KIBV") carried out driling operations at
Faleme since 2004. Following notification from Miferso that it disputes KIBV`s
rights to the development of the Faleme iron ore project, KIBV is currently
initiating arbitration proceedings against Miferso and the Government of
Senegal. The proceedings will be governed by the Rules of Arbitration of the
International Chamber of Commerce and wil be confidential.
Mineral resources and reserves
There have been no material changes to the resources and reserves as disclosed
in the 2006 Kumba annual report.
Outlook
The profitability of Kumba is sensitive to the Rand / US Dollar exchange rate.
The current strength of the Rand relative to the US Dollar, if sustained, will
adversely affect profitability. However, Kumba remains positive on the
prospects for iron ore given continued strong Chinese demand and upward
pressure on the spot price, as supply and logistics constraints delay bringing
on stream new production in response to increased demand. The successful
commissioning of SEP will be key in unlocking further value and reduce Sishen
Mine unit cost. It is encouraging that SEP remains within budget and only one
month behind target given the constraints in the engineering and construction
industries.
CONDENSED GROUP BALANCE SHEET
AS AT
Reviewed Audited
30 June 31 December
Rm 2007 2006
Assets
Non-current assets 5 064 4 021
Property, plant and equipment 4 901 3 864
Biological assets 6 7
Long-term financial assets 157 150
Current assets 3 337 2 848
Inventories 966 749
Trade and other receivables 1 007 1 005
Cash and cash equivalents 1 364 1 094
Total assets 8 401 6 869
Equity and liabilities
Shareholders` equity 2 220 839
Share capital and premium 29 3
Non-distributable reserves 227 201
Distributable reserves 1 964 635
Minority interest 548 216
Total equity 2 768 1 055
Non-current liabilities 4 143 3 477
Long-term interest-bearing borrowings 2 840 2 840
Deferred tax liability 1 128 485
Long-term provisions 175 152
Current liabilities 1 490 2 337
Short-term interest-bearing borrowings 693 1 179
Trade and other payables 675 555
Current tax liability 122 603
Total equity and liabilities 8 401 6 869
CONDENSED GROUP INCOME STATEMENT
FOR THE PERIOD ENDED
Unaudited* Unaudited*
Reviewed pro forma pro forma
6 months to 6 months to 12 months to
30 June 30 June 31 December
Rm 2007 2006 2006
Revenue 5 431 4 035 8 654
Operating expenses (2 482) (2 100) (3 301)
Operating profit 2 949 1 935 5 353
Net finance costs (150) (25) (64)
Profit before taxation 2 799 1 910 5 289
Taxation (814) (481) (1 014)
Profit 1 985 1 429 4 275
Attributable to:
Equity holders of Kumba 1 579 1 143 3 381
Minority interests 406 286 894
1 985 1 429 4 275
Attributable earnings per
share (cents)
Basic 502 364 1 078
Diluted 470 358 1 060
Dividend per share (cents)
Interim** 350
Final 80
HEADLINE EARNINGS
FOR THE PERIOD ENDED
Unaudited* Unaudited*
Reviewed pro forma pro forma
6 months to 6 months to 12 months to
30 June 30 June 31 December
Rm 2007 2006 2006
Reconciliation of headline
earnings
Profit 1 985 1 429 4 275
Net (profit)/loss on
disposal or scrapping of
property, plant
and equipment
(4) 3 2
Net surplus on disposal of
investment in non-iron ore
assets
- - (1 571)
Taxation effect of 3 (1) (1)
adjustments
1 984 1 431 2 705
Less: minority interests (406) (286) (894)
Adjustments attributable to
minority interests
- - 314
Headline earnings 1 578 1 145 2 125
Headline earnings per share
(cents)
Basic 502 365 677
Diluted 470 359 666
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED
Reviewed Audited
6 months to 2 months to
30 June 31 December
Rm 2007 2006
Total equity at the beginning of the 1 055 -
period
Changes in share capital and premium
Shares issued during the period 26 3
Changes in non-distributable reserves
Foreign currency translation differences (3) 24
Movement in the revaluation of financial
instruments
2 (5)
Equity settled share-based payment 28 182
Changes in distributable reserves
At acquisition reserves - 371
Profit for period 1 579 264
Dividends paid (251) -
Changes in minority interest
Acquisition of subsidiary - 93
Profit for period 406 115
Dividends paid (77) -
Movement in minority interest in reserves 3 8
Total equity at the end of the period 2 768 1 055
Comprising
Share capital and premium 29 3
Foreign currency translation reserve 20 24
Financial instruments revaluation reserve (3) (5)
Equity settled share-based payment 210 182
reserve
At acquisition reserves 371 371
Retained income 1 593 264
Shareholders` equity 2 220 839
- attributable equity holders of Kumba 2 062 774
- attributable to the BEE ownership in 158 65
SIOC***
Minority interest 548 216
Total equity 2 768 1 055
CONDENSED GROUP CASH FLOW STATEMENT
Unaudited* Unaudited*
Reviewed pro forma pro forma
6 months to 6 months to 12 months to
30 June 30 June 31 December
Rm 2007 2006 2006
Cash flows from operating
activities
1 953 429 1 490
Cash generated from 3 017 1 707 4 277
operations
Net finance costs (147) (17) (55)
Dividends paid (251) (551) (1 534)
Taxation paid (666) (710) (1 198)
Cash flows from investing
activities
(1 155) (429) (48)
Capital expenditure (1 166) (489) (1 718)
Proceeds from the disposal
of investments
- - 1 571
Other 11 60 99
Cash flows from financing
activities
(528) (259) (939)
Shares issued 26 - -
Dividends paid to minority
shareholders
(77) - -
Short-term interest-bearing
liabilities repaid
(477) (259) (939)
Increase in cash and cash
equivalents
270 (259) 503
Cash and cash equivalents
at
beginning of the period
1 094 591 591
Cash and cash equivalents
at end of the period
1 364 332 1 094
SALIENT FEATURES AND OPERATING STATISTICS
Unaudited Unaudited* Unaudited*
Reviewed pro forma pro forma
6 months to 6 months to 12 months to
30 June 30 June 31 December
2007 2006 2006
Share statistics (million)
Total shares in issue 315 314 314
Weighted average number
of shares 314 314 314
Diluted weighted average
number of shares 336 319 319
Market information
Closing share price (Rand) 185 n/a 111
Market capitalisation
(Rand million) 58 220 n/a 34 887
Net asset value per share 705 n/a 267
(cents)
Capital expenditure (Rand
million)
Incurred 1 166 489 1 718
Contracted 461 1 129 2 477
Authorised but not 1 937 2 086 3 176
contracted
Capital expenditure
relating to
Thabazimbi Mine to be
financed
by Mittal Steel (Rand
million)
Contracted 2 1 1
Authorised but not 12 3 3
contracted
Economic information
Average Rand/US dollar
exchange rate (Rand/US$) 7,15 6,26 6,73
Closing Rand/US dollar
exchange rate (Rand/US$) 7,08 7,13 6,98
Average export iron ore
price
(US$ per tonne) 53,15 47,87 49,03
Average export iron ore
price
(Rand per tonne) 380 300 330
Operating statistics (Mt)
Production 15 595 15 329 31 110
Sales 16 283 15 017 29 802
- export 11 775 11 207 21 495
- domestic 4 508 3 810 8 307
* Prepared on a basis consistent with that used for the preparation of the
pro-forma financial statements presented in the Kumba Iron Ore Limited
Pre-listing Statement, dated 9 October 2006.
** The interim dividend was declared subsequently to 30 June 2007 and is
presented for information purpose only.
*** Shareholders` equity attributable to BEE ownership of SIOC refers to the
3% that the SIOC Community Development SPV and the 3% that Envision hold
in SIOC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT
Basis of preparation and accounting policies
The condensed consolidated interim financial report for the six months ended
30 June 2007 has been prepared in compliance with the South African Companies
Act, No 61 of 1973, as amended, the Listings Requirements of the JSE Limited
and International Accounting Standard 34, Interim Financial Reporting.
Except as otherwise disclosed, the accounting policies applied in the
preparation of the condensed consolidated interim financial report are
consistent with those applied for the period ended 31 December 2006, which
comply with International Financial Reporting Standards ("IFRS").
IFRS 7, Financial Instruments: Disclosures ("IFRS 7") and the related
amendments to IAS 1, Presentation of Financial Statements were adopted by
Kumba with effect from 1 January 2007. IFRS 7 requires that every business
disclose information on the significance of financial instruments and the
nature and extent of risks arising from these financial instruments. The
disclosure requirements of IFRS 7 have been applied retrospectively. The
amendment to IAS 1 requires disclosure of the objectives, policies and
processes for managing capital. The adoption of this standard and the related
amendment had no effect on the financial results and financial position of the
group.
Further disclosure will be provided in the annual report for the year ending
31 December 2007.
The condensed consolidated interim financial report has been prepared in
accordance with the historic cost convention except for certain financial
instruments and biological assets which are stated at fair value.
The condensed consolidated interim financial report is presented in Rand,
which is Kumba`s functional and presentation currency.
Net debt
The group`s net debt position at balance sheet dates is as follows:
Reviewed Audited
30 June 31 December
Rm 2007 2006
Long-term interest-bearing borrowings 2 840 2 840
Short-term interest-bearing borrowings1 693 1 179
Total 3 533 4 019
Cash and cash equivalents (1 364) (1 094)
Net debt 2 169 2 925
Total equity 2 768 1 055
1 Repayable - November 2007
Segmental reporting
The group`s single business segment is the mining, extraction and production
of iron ore. The financial disclosures of the business segment are presented
in the condensed consolidated interim financial report.
The group generated its revenue through sales to customers in the following
geographical regions:
Unaudited*
Reviewed pro forma
6 months 6 months
to to
30 June 30 June
2007 2006
Revenue - sales to external
Customers
South Africa 634 12% 454 12%
Europe 1 557 29% 1 140 30%
China 1 877 35% 1 433 37%
Rest of Asia 1 363 25% 819 21%
Significant items included in operating profit
Operating profit has been derived after taking into account the following
items:
Unaudited* Unaudited*
Reviewed pro forma pro forma
6 months to 6 months to 12 months to
30 June 30 June 31 December
Rm 2007 2006 2006
Depreciation of property,
plant and equipment 129 138 269
Share-based payment 48 22 196
expenses
- SIOC Community
Development
Trust - - 153
- Envision 15 - -
- Management share
incentive
plans 33 22 43
Related party transactions
During the period the group, in the ordinary course of business, entered into
various sale and purchase transactions with associates and joint ventures.
These transactions were subject to terms that are no less favourable than
those offered by third parties.
Changes in contingent liabilities since 31 December 2006
There have been no significant changes in the contingent liabilities disclosed
at 31 December 2006 that arise from the guarantees provided for environmental
rehabilitation and decommissioning obligations of the Kumba Rehabilitation
Trust Fund and the guarantees provided to the Lakutshona Housing Company in
respect of low cost housing development.
Lithos has recently sought to increase its claim for damages brought against
Kumba from US$196 million to US$421 million. Kumba continues to defend the
merits of the claim and is of the view, and has been so advised, that the
basis of the claim and quantification thereof is fundamentally flawed.
Post balance sheet date events
The directors are not aware of any matter or circumstance arising since the
end of the period and up to the date of this report, not otherwise dealt with
in this report.
Corporate information
The condensed consolidated interim financial report of Kumba and its
subsidiaries for the six months ended 30 June 2007 was authorised for issue at
a meeting of the Board of Directors on 26 July 2007.
Kumba is a limited liability company incorporated and domiciled in South
Africa. The group has its primary listing on the JSE Limited.
Independent review opinion
The auditors, Deloitte & Touche have issued their review opinion on the
condensed consolidated interim financial report for the six months ended 30
June 2007.
A copy of their unmodified review opinion is available for inspection at the
company`s registered office.
On behalf of the board
PL Zim EJ Myburgh
Chairman Chief Executive Officer
26 July 2007, Pretoria
Notice of interim dividend
On Thursday, 26 July 2007 the directors declared an interim dividend of 350
cents per share on the ordinary shares for the six months ended 30 June 2007.
The salient dates are as follows:
Last day for trading to qualify and participate
in the interim dividend (and
change of address or dividend instructions) 31 August 2007
Trading ex dividend commences 3 September 2007
Record date 7 September 2007
Dividend payment date 10 September 2007
Share certificates may not be dematerialised or rematerialised between 3
September 2007 and 7 September 2007, both days inclusive.
By order of the board
VF Malie
Company secretary
Registered office: Lakefield Office Park, Corner West and Lenchen Roads,
Centurion, Pretoria, 0046. Republic of South Africa
Tel: +27 12 683 7000 Fax: +27 12 683 7009
Transfer secretaries: Computershare Investor Services 2004
(Pty) Limited, 70 Marshall Street, Republic of South Africa.
PO Box 61051, Marshalltown, 2107
Directors: Non-executive - PL Zim (chairman), PM Baum, GS Gouws, PB Matlare,
DD Mokgatle, AJ Morgan, N Moyo.
Executive - EJ Myburgh (chief executive officer), VP Uren (chief financial
officer)
Company secretary: VF Malie
Pretoria
27 July 2007
Issued by Sponsor: Deutsche Securities (SA) (Pty) Limited
Date: 27/07/2007 09:48:02 Produced by the JSE SENS Department.
