| Wed 1 Aug 2007, 8:00 | | MLA - Mittal Steel South Africa - Reviewed Group |
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MLA
MLA
MLA - Mittal Steel South Africa - Reviewed Group Interim Financial Results,
Dividend and Capital Reduction Announcement
Mittal Steel South Africa Limited
Registration number 1989/002164/06
Share code: MLA ISIN: ZAE000064044
("Mittal Steel South Africa", "the Company" or "the Group")
Reviewed Group interim financial results, dividend and capital reduction
announcement for the six months ended 30 June 2007
Financial results
Headline earnings for the past six months of R3 117 million increased by 63%
compared to the corresponding period last year and by 14% compared to the
previous six months.
The substantial increase from the corresponding period last year was mainly
driven by higher international steel prices, higher domestic sales volumes, an
improved sales mix and higher income from our Coke and Chemicals business. This
was partially offset by lower export volumes, an increase in costs and lower
gains on foreign exchange and financial instruments.
Six months ended Year ended
30 Jun 31 Dec 30 Jun 31 Dec
2007 2006 2006 2006
Reviewed Unaudited Reviewed Audited
Rm Rm Rm Rm
Revenue 14 554 13 439 11 924 25 363
Profit from operations 4 082 3 618 2 215 5 833
Gains and losses on changes
in foreign exchange rates
and financial instruments 123 4 476 480
Net interest 163 87 106 193
income/(finance cost)
* interest income 256 194 168 362
* interest on bank
overdrafts, borrowings and
finance lease
obligations (33) (32) (36) (68)
* imputed interest on non- (60) (75) (26) (101)
current provisions
Income from investments 2 5 2 7
Income from equity 140 173 22 195
accounted investments
Income tax expense (1 393) (1 151) (911) (2 062)
Attributable earnings 3 117 2 736 1 910 4 646
Headline earnings (Rm) 3 117 2 736 1 910 4 646
Headline earnings (US$m) 435 378 302 680
Comparable headline earnings (Unaudited)
Headline earnings for the quarter increased by 7% from the previous quarter and
is 18% higher than the average of the second half of last year mainly due to an
increase in international steel prices. The headline earnings for the past six
months was almost back on the same level as the record earnings achieved during
the first half of 2005, driven by higher steel prices and an improved sales
mixture but partially offset by higher costs.
Quarter to US$m Rm Exchange
rate
March 2005 264 1 578 5,97
June 2005 257 1 643 6,40
Average 261 1 611 6,19
September 2005 152 987 6,50
December 2005 133 869 6,52
Average 143 928 6,51
March 2006 112 684 6,13
June 2006 190 1 226 6,45
Average 151 955 6,29
September 2006 205 1 470 7,16
December 2006 173 1 266 7,31
Average 189 1 368 7,24
March 2007 208 1 504 7,24
June 2007 227 1 613 7,10
Average 218 1 559 7,17
Operating results
Revenue
Six months ended Year
ended
30 Jun 31 Dec 2006 30 Jun 31 Dec
2007 2006 2006
Reviewed Unaudited Reviewed Audited
Rm Rm Rm Rm
Flat Products 9 570 9 374 7 976 17 350
Long Products 4 626 3 905 3 786 7 691
Coke and Chemicals 934 595 438 1 033
Inter-group eliminations (576) (435) (276) (711)
Total 14 554 13 439 11 924 25 363
Operating profit
Flat Products 2 475 2 357 1 193 3 550
Long Products 1 345 1 164 936 2 100
Coke and Chemicals 293 122 62 184
Corporate and Others (31) (25) 24 (1)
Total 4 082 3 618 2 215 5 833
Revenue for the six months increased by 22% compared to the corresponding period
last year and by 8% compared to the previous six months despite lower sales
volumes of 8% and 2% respectively, driven by higher sales prices and an improved
sales mixture.
Operating profit for the six months of R4 082 million increased by 84% compared
to the corresponding period last year, with the most notable increases in our
Flat Products and Coke and Chemicals businesses which increased by 107% and 373%
respectively. Our Long Products business, with a traditionally less volatile
price cycle, also realised a healthy 44% increase.
The higher operating profit for the Coke and Chemicals business was mainly due
to a sharp increase in the international market coke price and the new coke
battery at Newcastle Works operating at full capacity.
Liquid steel production for the six months of 3,067 million tonnes decreased by
13% compared to both the corresponding period last year and to the previous six
months mainly due to lower production following an extended rebuild of one of
the Blast Furnaces at Vanderbijlpark Works.
Market review
International Market
Export volumes for the six months declined by 39% compared to the corresponding
period last year and 12% compared to the previous six months mainly due to lower
production volumes and an increase in domestic sales.
In general steel demand remained strong during the past six months, driven by
growth in the emerging markets notably Brazil, Russia, India and China while
demand also remained strong in most Euro countries. Apparent consumption within
East and South East Asia increased by almost 3 million tonnes between first and
second quarters of this year, and year on year consumption growth for the region
reached 14,7% for the second quarter. However, in North America, steel prices
decreased due to weak demand, high production levels and destocking by service
centres.
Average export prices realised continued their upward trend since the second
quarter of 2006 and reached all-time record levels during the second quarter of
2007, supported by higher international prices. The lower available export
volumes created the opportunity to withdraw from less attractive markets.
Exports for the past six months represented 22% of total sales compared to 33% a
year ago.
Domestic Market
Domestic sales during the past six months increased by 8% compared to the
corresponding period last year and by 1% compared to the previous six months,
driven by strong demand from the building and construction as well as packaging
sectors. The demand from the automotive sector slowed down due to the effect of
higher interest rates and the introduction of the National Credit Act while high
inventory levels at merchants temporarily suppressed demand from this sector.
Cost
The cash cost per tonne of hot rolled coil and billets both increased by 18% in
Rand terms and 3.6% in US Dollar terms compared to the corresponding period last
year. The higher costs were mainly driven by substantial increases in the prices
of scrap, tin, nickel, aluminium, imported iron ore pellets, imported coke and
ferro alloys while the lower production volumes resulted in a higher fixed cost
per tonne. The impact of a significantly weaker Rand on imported raw materials
also contributed to the increase in Rand costs.
The cost of galvanised material increased by 23% compared to the corresponding
period last year due to the increase in the cost of hot rolled coil and a 71%
increase in the price of zinc.
Contingent liabilities
The Alternative Dispute Resolution process followed with SARS regarding the
disallowance of the tax deduction for the payments made in terms of the Business
Assistance Agreement is still in progress. The full amount at risk is R403
million of tax plus interest. We maintained our provision for 20% of the tax
effect, accounted for at the 2006 year end.
In the case at the Competition Tribunal on alleged excessive pricing brought by
the gold miners, Harmony Gold Mining Company Limited and DRD Gold Limited,
arguments on administrative penalties were presented at the end of July 2007. A
ruling on penalties is still awaited from the Competition Tribunal. We have
already lodged an appeal against the ruling that Mittal Steel South Africa
contravened section 8(a) of the Competition Act by charging excessive prices for
its flat products and also intend to appeal against any penalty the Competition
Tribunal may impose upon us. No provision has been raised and no contingent
liability has been quantified in respect of this ruling.
During the previous quarter a complaint was referred to the Competition Tribunal
involving accusations by Barnes Fencing Industries of price and payment
condition discriminations on domestic sales of low carbon wire rod products.
Mittal Steel South Africa filed its answering affidavit on 26 April 2007 and is
still awaiting a date to be set for a hearing. No provision has been raised nor
any contingent liability quantified in respect of this complaint.
Outlook for quarter three 2007
The results for quarter three are expected to be in line with quarter two.
Production and sales volumes are expected to increase although sales prices are
expected to be slightly softer due to the seasonal slowdown during the European
summer holiday period. International markets are expected to remain strong
supported by the imposition of Chinese export taxes which should limit exports
to non-Asian countries.
Dividend and capital reduction announcement
CAPITAL REDUCTION
The directors continue to review the balance sheet of the Group with a
commitment to maintaining an efficient capital structure and have resolved to
return R6 350 million (1425 cents per share) of capital to shareholders.
R4 550 million (1021 cents per share) will be distributed to shareholders in
terms of the current general authority to make payments to shareholders in terms
of Section 90 of the Companies Act. In terms of this authority, which was
approved at the annual general meeting held on 11 May 2007, the maximum payment
is limited to 20% of the company`s issued share capital including reserves.
The balance of the R6 350 million being R1 800 million will be distributed to
shareholders in terms of a specific authority which will be sought at a general
meeting of shareholders.
A circular and notice of general meeting regarding the second tranche of the
capital distribution amounting to R1 800 million will be posted to on or about
27 August 2007.
The unaudited pro forma financial effects provided below are the responsibility
of the directors. The unaudited pro forma financial effects have has been
prepared for illustrative purposes only and because of its nature, may not
fairly reflect the financial position, changes in equity, results of operations
or cash flows of the Group after the capital reduction.
The pro forma financial effects of the first capital distribution on the
earnings, headline earnings, net asset value and tangible net asset value, based
on the reviewed financial results for the six months ended 30 June 2007, are set
out below:
Before(1) After(3) Percentage
(2)
Per Share (cents) (cents) change (%)
Earnings (Note 4) 699 668 (4,46)
Headline earnings (Note 4) 699 668 (4,46)
Net asset value (Note 5) 5 633 4 612 (18,12)
Tangible net asset value (Note 5) 5 622 4 601 (18,16)
Notes:
1 Based on 445 752 132 shares in issue as at 30 June 2007.
2 Extracted from the reviewed financial results for the six months ended 30 June
2007.
3 Pro forma financial effects after the capital distribution. The income
statement effect was determined based on actual interest rates over the period,
adjusted for the statutory tax rate of 29%.
4 The headline earnings and earnings per share were calculated assuming that the
capital distribution had been effective 1 January 2007.
5 The net asset value per share and the tangible net asset value per share were
calculated assuming that the capital distribution had been effective 30 June
2007.
This pro forma financial information set out above, has been subject to a
limited assurance engagement performed by our auditors, Deloitte & Touche. The
procedures performed do not constitute an audit or review of any of the
underlying financial information conducted in accordance with International
Standards on Auditing or International Standards on Review Engagements and
accordingly, Deloitte & Touche does not express an audit or review opinion on
the above pro forma financial information. The scope of the engagement was to
enable our auditors to report that based on their examination, nothing came to
their attention that caused them to believe that, in terms of the section 8.17
and 8.30 of the JSE Limited Listings Requirements, the pro forma financial
information has not been properly compiled on the basis stated, such basis is
inconsistent with the accounting policies of the issuer, and the adjustments are
not appropriate for the purposes of the pro forma financial information as
disclosed. Their unqualified report on the pro forma financial information is
available for inspection at the registered office of the company.
In terms of the requirements of the Companies Act, the directors confirm that
after the payment of the first distribution, the Group will be able to pay its
debts as they become due in the ordinary course of business, and the Company and
the Group`s assets fairly valued exceed its liabilities.
DIVIDEND ANNOUNCEMENT
In line with the Company`s policy, the Board declared an interim dividend of 233
cents, covered three times by headline earnings.
Payment in South African Rands of both the initial capital reduction of 1021
cents a share and the dividend distribution will be made on Monday, 3 September
2007 to shareholders recorded in the register on Friday, 31 August 2007. The
last day of trade to qualify for the dividend will be Friday, 24 August 2007 and
the shares will trade ex-dividend from Monday, 27 August 2007. Share
certificates may not be dematerialised or rematerialised between Monday, 27
August 2007 and Friday, 31 August 2007, both days inclusive.
Dividend entitlements of less than ten Rand will be donated to charity in terms
of the articles of association.
On behalf of the Board
EM Reato HJ Verster
Chief Executive Officer Executive Director Finance
30 July 2007
GROUP INCOME STATEMENT
Six months ended Year ended
30 Jun 2007 30 Jun 2006 31 Dec 2006
Reviewed Reviewed Audited
Rm Rm Rm
Revenue 14 554 11 924 25 363
Raw materials and consumables used (5 020) (4 501) (11 071)
Employee costs (1 052) (1 168) (2 243)
Energy (630) (650) (1 332)
Movement in inventories of finished (309) (337) 623
goods and work in progress
Depreciation (550) (588) (1 150)
Amortisation of intangible assets (8) (17) (16)
Other operating expenses (2 903) (2 448) (4 341)
Profit from operations 4 082 2 215 5 833
Gains and losses on changes in foreign 123 476 480
exchange rates and financial
instruments (Note 2)
Net interest income/(finance costs) 163 106 193
(Note 3)
- Interest income 256 168 362
- Finance costs (93) (62) (169)
Income from investments 2 2 7
Income from equity accounted 140 22 195
investments before taxation
Profit before taxation 4 510 2 821 6 708
Income tax expense (Note 4) (1 393) (911) (2 062)
Profit for the period 3 117 1 910 4 646
Attributable earnings per share
(cents)
- basic 699 428 1 042
- diluted 697 428 1 041
ADDITIONAL INFORMATION
Headline earnings 3 117 1 910 4 646
Reconciliation of earnings before
interest, taxation, depreciation and
amortisation (EBITDA)
Profit from operations 4 082 2 215 5 833
Adjusted for:
- Depreciation 550 588 1 150
- Amortisation of intangible assets 8 17 16
EBITDA 4 640 2 820 6 999
Performance per ordinary share
Headline earnings per share (cents)
- basic 699 428 1 042
- diluted 697 428 1 041
Dividend per share (cents)
- interim 233 143 143
- final 204
Net asset value per share (cents) 5 633 4 672 5 147
Ordinary shares (thousands)
- in issue 445 752 445 752 445 752
- weighted average number of shares 445 752 445 752 445 752
- diluted weighted average number of 446 943 445 890 446 449
shares
Ratios (%)
EBITDA margin 31,9 23,6 27,6
Return on ordinary shareholders`
equity per annum
- attributable earnings 25,9 19,0 21,9
- headline earnings 25,9 19,0 21,9
Net cash to equity 35,1 28,7 33,5
Market capitalisation (Rm) 56 789 33 320 43 795
CONDENSED GROUP CASH FLOW STATEMENT
Six months ended Year ended
30 Jun 2007 30 Jun 2006 31 Dec 2006
Reviewed Reviewed Audited
Rm Rm Rm
Cash inflows from operating activities 1 863 887 3 463
Cash generated from operations 3 627 2 207 6 147
Net interest income 217 153 294
Dividend paid (909) (624) (1 261)
Income tax paid (1 116) (784) (1 660)
Realised foreign exchange movement 44 (65) (57)
Cash outflows from investing (760) (503) (1 263)
activities
Investment to maintain operations (578) (363) (910)
Investment to expand operations (182) (243) (536)
Proceeds from disposals of property, 2 7 9
plant and equipment
Investments acquired (4)
Investment income - interest 2 2 7
Dividend from equity accounted 94 167
investments
Net cash inflow 1 103 384 2 200
Cash outflows from financing (12) (23) (89)
activities
Increase in cash and cash equivalents 1 091 361 2 111
Effect of foreign exchange rate 38 460 420
changes
Cash and cash equivalents at beginning 7 750 5 219 5 219
of period
Cash and cash equivalents at end of 8 879 6 040 7 750
period
GROUP BALANCE SHEET
Six months ended Year ended
30 Jun 2007 30 Jun 2006 31 Dec 2006
Reviewed Reviewed Audited
Rm Rm Rm
Assets
Non-current assets 15 921 15 212 15 675
Property, plant and equipment 14 575 14 100 14 526
Intangible assets 51 57 58
Investments in joint ventures - 1 086 938 953
unlisted (Note 5)
Non-current financial assets 205 107 134
Non-current loan receivables (Note 6) 4 10 4
Current assets 16 704 12 743 14 926
Assets classified as held for sale 2 6
Inventories 4 514 3 552 4 775
Trade and other receivables 2 968 2 919 2 088
Taxation 231 157 179
Current financial assets 110 75 128
Cash and cash equivalents 8 879 6 040 7 750
Total assets 32 625 27 955 30 601
Equity and liabilities
Shareholders` equity 25 110 20 826 22 943
Stated capital 6 389 6 389 6 389
Non-distributable reserves 762 624 684
Retained income 17 959 13 813 15 870
Non-current liabilities 4 498 3 960 4 245
Interest-bearing borrowings 51 61 61
Non-current finance lease obligations 436 472 502
Deferred income tax liability 2 653 2 160 2 355
Provision for post-retirement medical 7 7 8
costs
Non-current provisions 1 351 1 260 1 319
Current liabilities 3 017 3 169 3 413
Trade and other payables 2 751 2 918 3 041
Interest-bearing borrowings 8 10 10
Current finance lease obligations 27 84 93
Current financial liability (Note 7) 27 - -
Current provisions 204 157 269
Total equity and liabilities 32 625 27 955 30 601
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
Six months ended Year ended
30 Jun 2007 30 Jun 2006 31 Dec 2006
Reviewed Reviewed Audited
Rm Rm Rm
Profit for the period 3 117 1 910 4 646
Other recognised income and expenses
Exchange differences on translation of (18) 117 102
foreign operations
Movement in gains and losses deferred (58) (21) 23
to equity on cash flow hedges
Income tax on income taken directly to 11 (5)
equity
Total recognised income for the period 3 052 2 006 4 766
Attributable to:
Equity holders of the company 3 052 2 006 4 766
NOTES TO THE REVIEWED FINANCIAL STATEMENTS
1. Basis of preparation
The interim condensed financial statements have been prepared in accordance with
International Accounting Standard 34, Interim Financial Reporting and Schedule 4
of the South African Companies Act, 1973, as amended, and should be read in
conjunction with the 31 December 2006 financial statements.
The accounting policies adopted and methods of computation are consistent with
those applied in the financial statements for the year ended 31 December 2006.
Reclassifications and policy changes made during the second half of 2006 had
impacted the June 2006 results as follows:
* Treatment of settlement discount allowed
Settlement discount allowed is now deducted from revenue to comply with IAS 18.
Revenue and operating expenses decreased by R208 million for the six months
ended 30 June 2006. This had no impact on operating profits.
* Adoption of IFRIC 4, Determining whether an arrangement contains a lease
The net carrying value of property, plant and equipment increased by R124
million, finance lease obligations increased by R174 million, opening retained
earnings, as at 1 January 2006, decreased by R50 million, and for the six months
ended 30 June 2006 earnings decreased by R2 million.
The Group has adopted all of the new and revised Standards and Interpretations
issued by the International Financial Reporting Interpretations Committee
(IFRIC) of the IASB that are relevant to its operations and effective as at 1
January 2007.
IFRS 7 Financial Instruments: Disclosure, standard effective for annual periods
beginning 1 January 2007 will be addressed in the 2007 annual financial
statements.
Six months ended Year ended
30 Jun 2007 30 Jun 2006 31 Dec 2006
Reviewed Reviewed Audited
Rm Rm Rm
2. Gains and losses on changes in 123 476 480
foreign exchange rates and financial
instruments
Gains on changes in foreign exchange 52 474 413
rates
Losses on changes in foreign exchange (10) (2)
rates
Losses on changes in the fair value of
derivative instruments
designated as fair value through
profit and loss (2) (102) (124)
Gains on changes in the fair value of
embedded derivative
instruments 39 66 145
Fair value gains transferred from
equity on derivative
instruments designated as
cash flow hedges 34 48 48
3. Net interest income/(finance costs) 163 106 193
Interest income 256 168 362
Interest expense on bank overdrafts (7) (8) (14)
and loans
Interest expense on finance lease (26) (28) (54)
obligations
Imputed interest on non-current (60) (26) (101)
provisions
4. Taxation 1 393 911 2 062
Company and subsidiaries 1 372 908 2 002
Equity accounted investments 21 3 60
The income tax expense is based on the best estimate of the weighted average
effective tax rate expected for the full financial year.
5. Investments in joint ventures
Unlisted investments
- directors` valuation of unlisted 1 120 1 033 1 037
shares in joint ventures
6. Non-current loan receivables
Non-current interest free loan 4 10 4
receivables
7. Current financial liability
Base metal forward contracts 27
8. Reconciliation of movement in
shareholders` equity
Balance at beginning of period 22 943 19 451 19 451
Total recognised income for the period 3 052 2 006 4 766
Dividends paid (909) (624) (1 261)
Share-based payment reserve 21 9 17
Transfer to the management share trust (13) (16) (30)
Investment recognised as available for 16
sale
Balance at end of period 25 110 20 826 22 943
9. Capital expenditure
- incurred 760 606 1 446
- contracted 1 115 1 373 960
- authorised but not contracted 1 082 1 659 769
10. Contingent liabilities 524 633 530
- guarantees 111 130 115
- litigation and claims 413 503 415
11. Operating lease commitments 36 26 44
- less than one year 2 5
- more than one year and less than 34 26 39
five years
12. Related party transactions
The Group is controlled by Mittal Steel Holdings A.G. which owns 52,02% of the
Company`s shares. During the year the Company and its subsidiaries, in the
ordinary course of business, entered into various sale and purchase transactions
with associates and joint ventures. These transactions occurred under terms that
are no less favourable to Mittal Steel South Africa than those arranged with
third parties.
13. Independent review by the auditors
These interim results have been reviewed by our auditors, Deloitte & Touche, in
terms of International Standards on Review Engagements 2410. The scope of the
review was to enable the auditors to report that nothing came to their attention
that caused them to believe that the accompanying condensed consolidated interim
financial statements is not presented, in all material respects, in accordance
with International Accounting Standard 34, Interim Financial Reporting and the
South African Companies Act. Their unmodified review report on the condensed
consolidated interim financial statements is available for inspection at the
registered office of the Company.
14. Corporate governance
The Group fully supports the Code on Corporate Practices and Conduct as
contained in the second King Report on Corporate Governance.
15. Listings requirements
This interim announcement has been prepared in compliance with the Listings
Requirements of the JSE Limited.
UNAUDITED SUPPLEMENTARY PHYSICAL INFORMATION
(`000 TONNES)
Six months ended Year ended
30 Jun 2007 30 Jun 2006 31 Dec 2006
Flat Products
Liquid steel production 1 993 2 433 4 863
Sales 1 963 2 189 4 268
Long Products
Liquid steel production 1 074 1 100 2 192
Sales 978 1 003 1 926
Total
Liquid steel production 3 067 3 533 7 055
Sales 2 941 3 192 6 194
- local 2 296 2 129 4 400
- export 645 1 063 1 794
Local sales as percentage of total 78 67 71
sales
Forward-looking statements
Certain statements in this release that are neither reported financial results
nor other historical information, are forward-looking statements, including but
not limited to statements that are predictions of or indicate future earnings,
savings, synergies, events, trends, plans or objectives. Undue reliance should
not be placed on such statements because, by their nature, they are subject to
known and unknown risks and uncertainties and can be affected by other factors,
that could cause actual results and company plans and objectives to differ
materially from those expressed or implied in the forward-looking statements (or
from past results).
Registered Office Transfer Secretaries
Mittal Steel South Africa Computershare Investor Services 2004
Room N3-5 (Pty) Limited
Main Building 70 Marshall Street
Delfos Boulevard Johannesburg, 2001
Vanderbijlpark, 1911 PO Box 61051
Marshalltown, 2107
Directors:
Non-executive:
Dr KDK Mokhele (Chairman), DK Chugh*, EK Diack, S Maheshwari*,
LP Mondi (Appointed 11 May), M Mukherjee*, DCG Murray (Appointed 11 May), MJN
Njeke, ND Orleyn, M Wurth**
Executive:
EM Reato (Chief Executive Officer), JJA Mashaba, HJ Verster
* Citizen of India
** Citizen of Luxembourg
Acting Company Secretary: JH Venter
Johannesburg
1 August 2007
Sponsor: Deutsche Securities (SA) (Proprietary) Limited
This report is available on the web site at: http://www.mittalsteelsa.com.
Share queries: Please call the Mittal Steel Share care toll free on 0800 006 960
or +27 11 370 7850
Date: 01/08/2007 08:00:01 Produced by the JSE SENS Department.
