| Fri 3 Aug 2007, 10:00 | | HVL - Highveld - Interim Report for the six months |
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HVL
HVL
HVL - Highveld - Interim Report for the six months to 30 June 2007
HIGHVELD STEEL AND VANADIUM CORPORATION LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1960/001900/06)
Share code: HVL & ISIN: ZAE000003422
("Highveld" or "the Corporation")
INTERIM REPORT
for the six months to 30 June 2007
- Headline earnings R643 million
- Cash available from operations R1 056 million
Financial Results
Headline earnings increased to R643 million compared with R401 million for the
corresponding period last year after a tax charge of R323 million (2006: R145
million). This improvement was mainly due to an increase of prices of steel on
the local market. Operating profit increased to R1 002 million from R573
million at 30 June 2006. The depreciation charge was R131 million, compared
with R103 million in 2006.
Headline earnings per share were 648.2 cents, compared with 404.9 cents in the
first six months of 2006. The financial results are the second best for the
first six months in the history of Highveld.
The net cash inflow for the period was R87 million decreasing the net borrowed
position to R463 million compared with R550 million at 31 December 2006. The
cash inflow from operations was R1 056 million, however, this was reduced by
the cash outflow for taxation payments of R258 million, dividend payments of
R446 million and capital expenditure of R275 million.
As the controlling shareholder, Evraz wish to undertake a total review of cash
requirements covering capital and environmental expenditure. As a result, the
Board decided that no interim dividend will be paid for the half year.
Operations
Steel
World crude steel output has continued to grow this year. Compared with the
first six months of 2006, world crude steel production is up by 8.4 per cent.
China continues to lead the surge in output, having produced 213 million tons
during this period, which is 17.8 per cent higher than the same period last
year. China now accounts for 35.4 per cent of global steel production.
Furnace No. 1 was taken out of operation in March 2007 for conversion to open
slag bath technology in accordance with the capital expenditure programme in
the Corporation`s strategic plan. The furnace is expected to be commissioned
during late 2007 or early 2008. This refurbishment was one of the main reasons
for the lower steel production for the first half of the year compared with the
corresponding period in 2006. As the furnace will be inoperative for the next
six months production for the remainder of the year is expected to be at
similar levels to the first half.
The Corporation`s total steel sales volumes for the first six months have
decreased by 9 per cent, limited by steel supply problems, however, domestic
despatches increased by 1 per cent compared with the same period last year.
Prospects for the domestic steel market in the second half of 2007 could be
constraint due to high levels of stock. We should, however, caution that we
have seen delays in the start-up of a number of projects, causing inventory
levels at the distributors to be on the high side.
International prices for all Corporation steel products remained firm over the
last six months mainly due to strong international demand driven by a strong
commodity cycle and increased consumption in China.
Vanadium
Ferrovanadium prices have been declining from October last year and bottomed
out during the first quarter of this year, before starting to improve towards
the end of the period under review.
It is expected that the market will improve after the European summer holidays
and will remain at current levels for the rest of the year.
Production at Vanchem for the first six months was above budget with no major
problems experienced. Two planned kiln refractory relines have been scheduled
for the second half of the year.
The integrated water and waste management plan at Vanchem is progressing well
and the barren treatment facility will be commissioned early during the second
half of the year. A study has commenced to find a suitable site for the new
calcine disposal facility.
The Board has recently approved the sale process to divest some of Highveld`s
vanadium assets which results from Evraz`s acquisition of the control of
Highveld. In terms of the ruling by the European Commission as well as the
South African Competition Tribunal, the transaction was approved on the
condition that Evraz divest a portion of the Mapochs mine interest, the Vanchem
operation as well as Highveld`s 50 per cent shareholding in South Africa Japan
Vanadium (Proprietary) Limited ("the divestiture assets").
The process would be monitored by a Trustee as required by the European
Commission and required, amongst others, the appointment of an Evraz Divestment
Manager as well as a Hold Separate Manager to manage the divestiture assets in
the interim.
Ferro-alloys
Production at Transalloys was below budget mainly due to furnace availability
problems as well as a shortage and quality of suitable raw materials.
One of the silicomanganese furnaces, furnace No. 5, was taken off line for
extensive repairs towards the end of the second quarter and furnace No. 7 is
scheduled for a major shutdown early during the second half of the year. One of
the two medium carbon ferromanganese furnaces will also be taken off line for
refractory and mechanical repairs.
Prices for manganese products have improved during the second quarter and it is
expected that prices will remain at acceptable levels for the rest of the year.
Ferrosilicon production was below budget due to a shortage of reactive coal and
furnace availability problems.
A number of furnace shutdowns had been scheduled during the high electricity
cost winter months and furnace F had been off-line towards the end of the
quarter for repairs.
Investments
The sale of Transalloys` assets (property, plant and equipment and inventories
less certain employee related provisions) was concluded on 18 July 2007 with
the signing of a sale and purchase agreement with a subsidiary of Renova
Investments but is subject to a number of conditions precedent including
regulatory approval. The proceeds from the disposal of the assets will amount
to R963 million and the after tax profit on this transaction will approximate
R450 million.
Capital Expenditure
Capital expenditure incurred by the Group during the period amounted to R275
million (2006: R194 million) and the total commitment in respect of further
capital expenditure as at 30 June 2007 is R745 million compared to R618 million
at 31 December 2006. This expenditure will be funded from internally generated
cash flows and available borrowing facilities.
Safety, Health, Environment and Quality
Highveld deeply regrets having to report the death of a contractor employee at
the Transalloys division on 19 July 2007. We, however, remain committed to
creating a safe working environment for all employees and contractor employees.
It is, however, pleasing to note that the lost time injury frequency rate for
the six months ended 30 June 2007 was 0.20 compared with 0.26 recorded for the
first six months of 2006 and 0.22 for the twelve months of 2006.
The Corporation continues to promote HIV/AIDS awareness, an initiative which
commenced in 2003. As at 30 June 2007, 70.91 per cent of the total workforce of
3 895 had undergone voluntary counselling and testing ("VCT"). VCT is re-done
every calendar year. A total of 21 employees are receiving free anti-
retroviral treatment.
The five-year programme, which was approved and commenced in 2005, to achieve
international best practice in emission control, waste management and water
conservation continued in the first half of 2007. During the first six months
R83 million was spent on capital projects in terms of this programme bringing
the total spent to date to R231 million. Delays are, however, being experienced
due to the lengthy process in acquiring regulatory approval for the major
projects.
Rand Carbide, Transalloys and Mapochs mine divisions achieved OHSAS 18001
certification during the period under review and Vanchem maintained its OHSAS
18001 certification after its first surveillance audit.
Black Economic Empowerment
During the period under review, goods and services worth R276 million (2006:
R209 million) were purchased from a total of 151 (2006: 148) black empowerment
enterprises.
Change in Controlling Shareholder
On 4 May 2007 Anglo American plc ("Anglo American") announced the disposal of
its remaining 29.2 per cent shareholding in Highveld to Evraz Group S.A.
("Evraz"). This disposal occurred when Evraz exercised its call option after
having obtained the required regulatory approvals, thus becoming the
controlling shareholder of the Corporation.
Subsequently, on 4 July 2007, Evraz offered unconditionally to acquire the
entire issued share capital of Highveld, other than those shares already held
by Evraz. The Board circulated a response to the offer on 19 June 2007.
The initial offer was increased by Evraz on 16 July 2007 with support from the
Board and the closing date of the increased offer was extended to 6 August
2007.
Directorate
Following the change in control the Anglo American representatives, namely
Messrs DD Barber, I Botha, CJ Colebank, GG Gomwe, A Harris and NB Mbazima,
resigned as Directors of Highveld on 4 May 2007.
Furthermore, on 6 July 2007, Andre de Nysschen was succeeded by Walter
Ballandino as Chief Executive Officer. The Highveld Board and staff extend
their appreciation to Andre for his valuable leadership and support to the
Corporation since joining in 2003 and throughout the transition period and wish
him every success in the future. On the same date Giuseppe Mannina was
appointed a Director of the Corporation.
Following the appointment of Dr Johan Pienaar as the Hold Separate Manager for
the divestiture assets, he resigned as Director on 27 July 2007. The Board and
staff extend their appreciation to Johan for his significant contribution to
the Corporation over more than 37 years of service, 16 years of which he served
on the Board.
By mutual agreement Luigi Matteucci will focus on disposal of non core assets.
As a result, Deon Pretorius is appointed as Chief Financial Officer with
immediate effect.
Auditors
By agreement the previous auditors of the Corporation, Deloitte & Touche,
resigned after the change in control and Ernst & Young Inc. was appointed as
auditors with effect from 9 May 2007.
Outlook
Domestic demand for all of the Corporation`s steel products is expected to come
under pressure due to current high stock levels at merchants. Improving
international demand, coupled also with significantly increased input costs for
producers, have resulted in improved international prices which will allow the
Corporation to, after satisfying domestic demand, sell all of its remaining
production.
Vanadium demand should remain stable and prices are expected to remain at
current levels.
Cost saving initiatives and productivity improvement projects are progressing
and should yield the planned savings which will assist in lowering costs.
Provided that the Rand remains at current levels a similar performance for the
second half of the year can be expected compared with the results of the first
half of 2007.
For and on behalf of the Board
L Boyd W G Ballandino
(Chairman) (Chief Executive Officer)
Emalahleni
2 August 2007
Group reviewed financial results
The Group`s financial results for the six months ended 30 June 2007 set out
below have been prepared in accordance with the principal accounting policies
of the Group, which comply with International Financial Reporting Standards
("IFRS") and in the manner required by the Companies Act in South Africa and
are consistent with those applied in the previous year, except for the
Standards and Interpretations as listed below.
These results are presented in terms of IAS 34 applicable to Interim Financial
Reporting.
In the current year, the Group has adopted all of the new and revised Standards
and Interpretations issued by the International Accounting Standards Board
("the IASB") and the International Financial Reporting Interpretation Committee
of the IASB ("IFRIC"), that are relevant to its operations and effective for
accounting periods beginning on 1 January 2007. The adoption of these new and
revised Standards and Interpretations has resulted in changes in the Group`s
accounting policies and are disclosed as follows:
IFRS 7 -Financial Instruments: Disclosures This Standard had no impact on the
Group`s interim financial results or disclosures.
IFRS 8 - Operating Segments This Standard is applicable to annual periods
beginning on or after 1 January 2009 and the Group does not intend to early
adopt this Standard.
IAS 1 - Presentation of Financial Statements
The revision to this Standard had no impact on the Group`s interim financial
results or disclosures.
IAS 23 - Borrowing Costs
The Group capitalises borrowing costs in terms of its existing policy and
accordingly complies with this revision.
IFRIC 11 - IFRS 2: Group and Treasury Share Transactions This interpretation
provides guidance on applying IFRS 2 in certain circumstances. The impact of
applying this new guidance had no material impact on the Group`s interim
results.
IFRIC 12 - Service Concession Arrangements This interpretation had no impact on
the Group`s interim results as the Group does not operate consession
arrangements.
IFRIC 13 - Customer Loyalty Programmes This interpretation had no impact on the
Group`s interim results as the Group has no customer loyalty programmes.
IFRIC 14 - IAS 19 - The Limit on a Defined Benefit Asset, minimum Funding
Requirements and their Interaction
This interpretation had no impact on the Group`s results as there are no plan
assets in respect of retirement benefits.
The financial information has been reviewed by Ernst & Young Inc. in accordance
with ISRE 2410 "Review of Interim Financial Information Performed by the
Independent Auditors of the entity", whose unmodified review report is
available for inspection at the Corporation`s registered office.
Condensed consolidated income statements
Reviewed for the Audited for the
six months ended year ended
30 Jun 2007 30 Jun 2006 31 Dec 2006
Note Rm Rm Rm
CONTINUING OPERATIONS
Revenue 4 2 874 2 431 5 066
Operating profit before
depreciation 797 472 1 294
Depreciation and scrapping of
property, plant and equipment (117) (76) (181)
Change in estimated useful lives of
property, plant and equipment (24) 10 10
Operating profit 656 406 1 123
Interest and investment income
received 17 9 33
Interest paid (27) (26) (56)
Profit before taxation 646 389 1 100
Taxation charge (256) (124) (273)
Profit after taxation 390 265 827
DISCONTINUED AND DISCONTINUING
OPERATIONS
Revenue 4 1 182 848 1 835
Operating profit before
depreciation 336 204 388
Depreciation and scrapping of
property,
plant and equipment (11) (42) (86)
Change in estimated useful lives of
property, plant and equipment 21 5 5
Operating profit 346 167 307
Profit on disposal of discontinued
operation - - 91
Interest and investment income
received 3 4 -
Interest paid (29) (14) (33)
Profit before taxation 320 157 365
Taxation charge (67) (21) (79)
Profit after taxation 253 136 286
TOTAL OPERATIONS
Revenue 4 4 056 3 279 6 901
Operating profit before
depreciation 1 133 676 1 682
Depreciation and scrapping of
property,
plant and equipment (128) (118) (267)
Change in estimated useful lives of
property, plant and equipment (3) 15 15
Operating profit 1 002 573 1 430
Profit on disposal of discontinued
operation - - 91
Interest and investment income
received 20 13 33
Interest paid (56) (40) (89)
Profit before taxation 966 546 1 465
Taxation charge (323) (145) (352)
Attributable profit 643 401 1 113
Basic earnings per share Cents Cents Cents
From continuing operations 392.3 267.8 834.1
From discontinued and discontinuing
operations 255.9 137.1 288.5
From total operations 648.2 404.9 1 122.6
Basic earnings per share - diluted
From continuing operations 392.3 267.8 834.1
From discontinued and discontinuing
operations 255.9 137.1 288.4
From total operations 648.2 404.9 1 122.5
Reconciliation of headline earnings Rm Rm Rm
Attributable profit 643 401 1 113
Add/(deduct) after tax effect of:
Profit on disposal of discontinued
operation - - (73)
Impairment losses recognised - - 11
Net profit on disposal and
scrapping
of property, plant and equipment - - (10)
Headline earnings 643 401 1 041
Headline earnings per share Cents Cents Cents
From continuing operations 392.3 267.8 831.0
From discontinued and discontinuing
operations 255.9 137.1 218.0
From total operations 648.2 404.9 1 049.0
Headline earnings per share -
diluted
From continuing operations 392.3 267.8 831.0
From discontinued and discontinuing
operations 255.9 137.1 218.0
From total operations 648.2 404.9 1 049.0
Number of shares Million Million Million
Ordinary shares in issue as at
period-end date * 99.1 99.1 99.1
Weighted average number of
ordinary shares * 99.1 99.1 99.1
Diluted number of ordinary shares * 99.1 99.2 99.1
Dividends per share - based on
calendar
profits Cents Cents Cents
Interim dividends proposed - 250 250
Interim dividends paid - - 250
Final dividend proposed i.r.o. 2006 - - 350
Final dividend paid i.r.o. 2005 - 400 400
Special dividend proposed i.r.o.
2006 - - 100
Special dividend paid i.r.o. 2006 100 - -
Final dividend paid i.r.o. 2006 350 - -
* Rounded to nearest hundred
thousand
Condensed consolidated balance sheets
Reviewed for the Audited for the
six months ended year ended
30 Jun 2007 30 Jun 2006 31 Dec 2006
Note Rm Rm Rm
ASSETS
Non-current assets 1 774 1 749 2 221
Property, plant and equipment 1 668 1 643 2 115
Environmental Trust investments 3 3 3
Available-for-sale investments 103 103 103
Current assets 1 919 2 327 2 348
Assets of disposal group
classified as
held-for-sale 6 1 103 33 -
TOTAL ASSETS 4 796 4 109 4 569
EQUITY AND LIABILITIES
Shareholders` equity 2 067 1 411 1 871
Non-current liabilities 514 390 570
Long-term borrowings 1 37 23
Long-term provisions 212 189 285
Deferred taxation 301 164 262
Current liabilities 1 986 2 302 2 128
Liabilities directly associated
with the assets
classified
as held-for-sale 6 229 6 -
TOTAL EQUITY AND LIABILITIES 4 796 4 109 4 569
Net borrowings 3 (463) (493) (550)
Net asset value - cents/share 2 085 1 423 1 887
Condensed statement of changes in equity
Non-distributable reserves
Translation and
Share capital share-based
and share payment
premium reserves
Rm Rm
2006
Currency translation differences 80
Fair value loss on VRB Power
Systems Inc.
Net income/(expense)
recognised directly in equity - 80
Attributable profit for the period
Total recognised income and
expense for the period - 80
Balance at 31 December 2005 585 (31)
Dividends paid
Recognition of share-based payments 2
Balance at 30 June 2006 - reviewed 585 51
Actuarial loss on defined
benefits recognised
directly in equity
Tax on above taken directly to equity
Currency translation differences 1
Net income/(expense)
recognised directly in equity - 1
Attributable profit for the period
Total recognised income and
expense for the period - 1
Subtotal 585 52
Dividends paid
Recognition of share-based payments 2
Balance at 31 December 2006 - audited 585 54
Interim - 2007
Currency translation differences 6
Net income recognised directly in equity - 6
Attributable profit for the period
Total recognised income and
expense for the period - 6
Subtotal - 6
Balance at 31 December 2006 - audited 585 54
Dividends paid
Recognition of share-based payments (7)
Balance at 30 June 2007 - reviewed 585 53
Fair value Retained
reserves profit Total
Rm Rm Rm
2006
Currency translation differences 80
Fair value loss on VRB Power Systems Inc. (1) (1)
Net income/(expense) recognised directly
in equity (1) - 79
Attributable profit for the period 401 401
Total recognised income and expense for
the period (1) 401 480
Balance at 31 December 2005 4 767 1 325
Dividends paid (396) (396)
Recognition of share-based payments 2
Balance at 30 June 2006 - reviewed 3 772 1 411
Actuarial loss on defined benefits
recognised
directly in equity (10) (10)
Tax on above taken directly to equity 3 3
Currency translation differences 1
Net income/(expense) recognised directly
in equity - (7) (6)
Attributable profit for the period 712 712
Total recognised income and expense for
the period - 705 706
Subtotal 3 1 477 2 117
Dividends paid (248) (248)
Recognition of share-based payments 2
Balance at 31 December 2006 - audited 3 1 229 1 871
Interim - 2007
Currency translation differences 6
Net income recognised directly in equity - - 6
Attributable profit for the period 643 643
Total recognised income and expense for
the period - 643 649
Subtotal - 643 649
Balance at 31 December 2006 - audited 3 1 229 1 871
Dividends paid (446) (446)
Recognition of share-based payments (7)
Balance at 30 June 2007 - reviewed 3 1 426 2 067
Condensed consolidated cash flow statements
Reviewed for the Audited for the
six months ended year ended
30 Jun 2007 30 Jun 2006 31 Dec 2006
Rm Rm Rm
Cash available from operations
before taxation paid 1 056 596 1 486
Taxation paid (258) (508) (637)
Net cash flows from operating
activities 798 88 849
Net cash flows used in
investing activities (275) (194) (774)
Net cash inflow/(outflow)
before financing
activities 523 (106) 75
Net cash flows (used in)/from
financing
activities excluding dividends paid (108) 363 261
Dividends paid (446) (396) (644)
Net decrease in cash and cash
equivalents (31) (139) (308)
Effects of exchange rate
changes on cash
held in foreign currencies 10 107 117
Cash and equivalents at
beginning of period 411 602 602
Cash and equivalents at end of period 390 570 411
Condensed consolidated
statements of
recognised income and expense
Reviewed for the Audited for the
six months ended year ended
30 Jun 2007 30 Jun 2006 31 Dec 2006
Rm Rm Rm
Actuarial loss on defined
benefits
recognised directly in equity - - (10)
Tax on above item taken
directly to equity - - 3
Currency translation differences 6 80 81
Fair value revaluation - (1) (1)
Net income recognised directly
in equity 6 79 73
Attributable profit for the period 643 401 1 113
Total recognised income and expense
for the period 649 480 1 186
Condensed segmental reports
Reviewed for the Audited for the
six months ended year ended
30 Jun 2007 30 Jun 2006 31 Dec 2006
Rm Rm Rm
Continuing operations
Revenue
Steelworks 2 026 1 596 3 446
Ferro-alloys 133 109 247
Vanadium 715 726 1 373
Total revenue 2 874 2 431 5 066
Operating profit
Steelworks 419 130 625
Ferro-alloys 25 22 39
Vanadium 212 254 459
Total operating profit 656 406 1 123
Discontinued and discontinuing
operations
Revenue
Vanadium 671 553 1 094
Ferro-alloys 511 295 741
Total revenue 1 182 848 1 835
Operating profit/(loss)
Vanadium 334 250 379
Ferro-alloys 12 (83) (72)
Total operating profit 346 167 307
Notes to the condensed consolidated financial statements
1. Companies Act and Listings Requirements
Compliance with the South African Companies Act No. 61 of 1973 as well as the
Listings Requirements of the JSE Limited has been maintained throughout the
reporting periods.
2. Related party transactions
Transactions entered into between the Group and its related parties during the
reporting periods were arm`s length transactions between knowledgeable, willing
parties at fair value.
3. Net borrowings
Interest bearing net borrowings are calculated by subtracting the financial
leases (long-term debt) and the short-term loans (including loans from
subsidiaries and joint ventures) from the cash and cash equivalents.
4. Supplementary revenue information
Unaudited Unaudited Unaudited
30 Jun 2007 30 Jun 2006 31 Dec 2006
Sales volumes of
major products
Total steel tons 381 657 420 723 802 648
Vanadium pentoxide
(Vanchem) kg V2O5 2 173 787 1 788 310 3 484 318
Ferrovanadium and
ferrovanadium nitride kg V 4 525 587 3 793 088 7 341 577
Vanadium chemicals kg V2O5 762 627 677 524 1 341 743
Vanadium slag tons V2O5 6 903 7 582 15 094
Weighted average
selling prices
achieved for
major products
Total steel $/t 702 566 605
Vanadium pentoxide
(Vanchem) $/kg V2O5 14 19 18
Ferrovanadium $/kg V 34 41 39
Vanadium chemicals $/kg V2O5 16 22 20
Average R/$ exchange rate 7.17 6.26 6.69
5. Financial ratios
Current ratio 1.16 1.02 1.10
Market capitalisation - Rm 9 221 7 435 7 733
6. Disposal groups
Transalloys division was treated as a disposal group for the six months ending
30 June 2007 and the sale of this division was concluded in July 2007.
In terms of an EEC competition ruling Highveld is required to dispose of the
Vanchem division and its interest in South Africa Japan Vanadium (Proprietary)
Limited. The Vanchem division and the interest in South Africa Japan Vanadium
(Proprietary) Limited have been treated as disposal groups for the period 1
March 2007 to 30 June 2007.The assets and related liabilities of these disposal
groups are as follows:
Reviewed Reviewed
30 Jun 2007 30 Jun 2006
Rm Rm
ASSETS
Non-current assets classified as held-for-sale 584 33
Current assets classified as held-for-sale 519 -
1 103 33
EQUITY AND LIABILITIES
Liabilities directly associated with assets
classified as held-for-sale 229 6
The cash flows were as follows:
Cash inflow from operating activities 192 5
Cash outflow from investing activities (75) (1)
Cash outflow from financing activities (62) -
Total cash inflow 55 4
The interim report will be posted to all registered shareholders on Wednesday,
8 August 2007. Enquiries may be directed to email address: general@hiveld.co.za
Directors:
L Boyd (Chairman), W G Ballandino (Chief Executive Officer) (Italian),
E Barnardo, C B Brayshaw, J W Campbell, A V Frolov (Russian),
G A Mannina (Swiss), L Matteucci, B J T Shongwe and A Sorokin (Russian)
Company secretary:
Ms A Diener
Registered office: Transfer secretaries:
Portion 29 of the farm Computershare Investor Services
Schoongezicht No. 308 JS 2004 (Proprietary) Limited
District Emalahleni 70 Marshall Street
Mpumalanga Johannesburg
P O Box 111 P O Box 61051
Witbank 1035 Marshalltown 2107
Tel: (013) 690-9911 Tel: (011) 370-5000
Fax: (013) 690-9033 Fax: (011) 688-5200
Creating value through innovation.
Sponsor: J.P.Morgan Equities Limited
Date: 03/08/2007 10:00:36 Produced by the JSE SENS Department.
