| Wed 6 Feb 2008, 16:38 | | HVL - Highveld Steel And Vanadium Corporation - Audited Results For The Year |
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HVL
HVL
HVL - Highveld Steel And Vanadium Corporation - Audited Results For The Year
Ended 31 December 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")
AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
- Group turnover increased by 9 per cent
- Headline earnings increased by 41 per cent
Group Audited Financial Results
The Group`s financial results for the year ended 31 December 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 changes in
accounting policies and the Standards and Interpretations as listed below.
These condensed consolidated financial statements have been derived from the
Group`s audited annual financial statements and are consistent in all material
respects with the Group`s annual financial statements.
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, 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 Instrument: Disclosures
This Standard had no impact on the Group`s financial results, however, it did
result in certain additional disclosures.
IAS 1 - Presentation of Financial Statements
This Standard had no impact on the Group`s financial results, however, it did
result in certain additional disclosures.
IFRIC 7 - Applying the Restatement Approach under IAS 29, Financial reporting
in Hyperinflationary Economies
This Interpretation had no impact on the Group`s financial results.
IFRIC 8 - Scope of IFRS 2, Share-based Payments
This Interpretation had no impact on the Group`s financial results.
IFRIC 9 - Reassessment of Embedded Derivatives
As the Group has no embedded derivatives that require separation from the host
contract, this Interpretation had no impact on the Group`s results.
IFRIC 10 - Interim Financial Reporting and Impairment
The Group had not previously recognised impairment losses on assets within the
scope of this Interpretation and therefore this Interpretation had no impact on
the Group`s results.
During the year the Group changed the following accounting policies to align
with the accounting policies of its new Holding Company:
IAS 19 - Employee Benefits
Previously the Group recognised actuarial gains and losses in respect of the
post-retirement benefits directly in equity in the period in which the
actuarial gains or losses occurred. The Group now recognises actuarial gains or
losses as income or expense when the net cumulative unrecognised actuarial
gains or losses at the end of the previous financial reporting period exceed
10% of the defined benefit obligation.
IAS 23 - Borrowing Costs
In the previous year the Group capitalised borrowing costs directly to
qualifying assets. This policy has been changed resulting in borrowing costs
being expensed as incurred.
IAS 31 - Investments in Joint Ventures
The Group has changed its accounting policy for accounting for investments in
joint ventures from proportional consolidation to the equity method.
The financial information has been audited by Ernst & Young Inc., whose
unmodified report is available for inspection at the Corporation`s registered
office.
Chairman and CEO`s Review
Highveld in the Evraz fold
Evraz Group S.A., one of the world`s largest vertically integrated steel and
mining businesses, registered in Luxembourg, became the controlling shareholder
in Highveld Steel and Vanadium Corporation Limited on 4 May 2007.
Strategic direction
Highveld is now a focused producer of steel and vanadium-bearing slag, the
latter through its steel manufacturing process. It aims to rationalise its
steel production and further optimise efficiencies, in support of the Evraz
vision to be a world-class steel and mining company. Furthermore, increased
efficiencies in the steel manufacturing process will result in an increase in
the production of vanadium-bearing slag.
Financial results
The Corporation experienced its second best year ever in 2007 in respect of
headline earnings. In contrast with the record results achieved in 2005 where
the most significant contribution to earnings was the high vanadium price, the
main contributor to the 2007 results was the domestic steel market.
Overall demand for steel and vanadium remained strong in Highveld`s market
sphere, although at lower than the 2006 levels. Vanadium prices remained stable
throughout the year and within a narrow range at a level similar to the prices
experienced at the end of 2006.
The Group`s turnover increased by 9 per cent from R6 562 million in 2006 to R7
158 million. Profit for the year increased by 73 per cent from R1 098 million
to R1 903 million. Net cash generated by operating activities increased by 41
per cent from R896 million to R1 257 million.
Following a Board decision to re-invest earnings in the Corporation`s
production optimisation programme, no dividend was declared.
Business risks
The availability of all services supplied by the three tiers of Government has
been elevated on the list of event risks, following the severe impact which the
unannounced municipal water supply as well as electricity supply interruptions
had on production and business in the second half of the year.
Electricity and other services
The sudden and recent impact of infrastructural shortcomings and under
capacities in Government related sectors of the South African services industry
pose unprecendented challenges to business. While it will be impossible to
redress the majority of these under capacities in the short term, it is
important that Government, at all levels, prioritise capital investment to
assist in alleviating pressure on the industry, particularly in relation to
electricity, water and rail infrastructure.
In the second half of the year, random interruptions to electricity and water
supply negatively affected production. Load-shedding and demand market
participation agreements with Eskom resulted in 35 hours of lost production,
equivalent to approximately 2 000 tons of finished rolled steel products.
Whilst the impact in 2007 was not significant, continued future interruptions
due to the current severity of electricity availability poses a considerable
threat to operations, with 150 hours of lost production equivalent to
approximately 8 500 tons lost in January 2008.
Operations
Steel
In 2007, the global production of crude steel exceeded the one billion ton
mark for the fourth consecutive year. Approximately 1 340 million tons crude
steel were produced. Africa remains Highveld`s major market. The Corporation is
the primary producer of medium and heavy structural sections and thick plate in
South Africa.
Highveld`s gross rolled steel output decreased slightly compared with
2006. Output was negatively affected by operational interruptions due to
capital projects, unannounced electricity supply interruptions and operational
difficulties, as well as the planned closure in May of a submerged arc furnace
for conversion to an open slag bath furnace.
Vanadium
In 2007, the vanadium supply and demand were well matched. Prices remained
fairly constant throughout the year.
In the first six months of the year, Vanchem was operating above target. The
plans to maintain this level for the full year were not realised, because of
municipal electricity and water supply interruptions during the second half of
the year, with Vanchem at one stage being without water and electricity for
several days.
A significant portion of future capital expenditure at Vanchem is earmarked for
projects that form part of the Integrated Water and Waste Management Plan.
Ferro-alloys
Demand for ferrosilicon remained high throughout the year, from both overseas
and local markets.
Production was adversely affected by operational problems and unannounced
interruptions to the water supply from the local municipality.
Safety, health, environment and quality
The Board deeply regrets the death of an employee at the Steelworks and a
contractor employee at Transalloys during 2007. This was most disappointing,
especially in the light of the Corporation`s efforts to maintain a safe working
environment and entrench its safety practices and systems. Despite Highveld`s
focused safety efforts, its lost-time injury frequency rate increased to 0.33
(2006: 0.22) per 200 000 hours worked. A comprehensive range of initiatives are
in place to ensure that safety becomes entrenched as a way of life at all
Highveld operations.
Highveld maintains a dual focus on health: occupational health and employee
wellness, which includes the HIV Wellness and Personal Well-being Programmes.
The Corporation`s programme for emission control, waste management and water
and energy conservation remains ongoing.
Members of the Environmental Management Inspectorate (the "Green Scorpions") of
the Department of Environmental Affairs and Tourism ("DEAT") visited Vanchem in
August and the Steelworks in November. Their inspection formed part of
"Operation Ferro", a national environmental compliance campaign focusing on the
iron, steel and ferro-alloy industries. All issues noted by DEAT had already
been addressed in existing management plans.
Safety, health, environment and quality assurance remain key focus areas at the
Corporation. All divisions are certified to the ISO 14001: 2004 and ISO 9001:
2000 series of management system standards. As planned, all divisions, with the
exception of the main Steelworks, have attained certification to OHSAS
18001:1999 during the first quarter of 2007. Work to attain certification for
the Steelworks is continuing.
Disposal groups
The sale, effective on 1 October 2007, of non-core division Transalloys
resulted in a cash inflow in excess of R965 million.
Capital expenditure
The Board has committed to a structured capital expenditure programme, mainly
aimed at improving efficiencies and cost reductions in the production process
and improving environmental impacts. During the year, R703 million (2006: R818
million) was spent, and at year-end, an amount of R471 million (2006: R618
million) has been committed, which will be funded from internally generated
cash flows.
Directorate
Following the changes in the Corporation`s ownership structure, one executive
and three non-executive directors have been appointed to the Board. Walter
Ballandino joined the Corporation as Chief Executive Officer and was appointed
as a Board member. He brings extensive international experience to Highveld.
We also welcome three new non-executive directors: Giacomo Baizini, Giuseppe
Mannina and Pavel Tatyanin.
The following directors resigned and we thank them for their support over many
years and their dedication to Highveld during the period of transition in
ownership: Dave Barber, Ian Botha, Chris Colebank, Tony Harris, Norman Mbazima,
Daphne Motsepe and Alexander Sorokin. A special word of appreciation to the
other retired directors, namely Godfrey Gomwe (previous chairman) and executive
directors Andre de Nysschen (previous CEO), Eben Barnardo, Luigi Matteucci and
Johan Pienaar.
Dr Pienaar has been contracted in an independent capacity as Hold Separate
Manager of Vanchem and related vanadium interests earmarked for disposal as
stipulated by the Commission of the European Communities.
Outlook for 2008
The full commissioning of the third open slag bath furnace early in 2008 will
improve efficiencies, to the benefit of both steel and vanadium-bearing slag
production.
The demand for steel is expected to remain strong, both on the local market and
in Highveld`s niche export markets. Vanadium prices and volumes are expected to
strengthen.
Recently completed capital projects will contribute to the Corporation
achieving its medium-term objective of increasing steel output to the
Steelworks design capacity of over one million tons per year and at the same
time, increasing the production of vanadium-bearing slag. Investment in the
flat products mill will also contribute to improved product mix.
However, low availability of governmental services, namely energy, transport,
water and others is a reality going into the future. A negative impact on the
financial performance is expected as a result of these low availabilities and
will not be offset by the financial benefits of the already introduced cost
reduction programmes.
Failure by Government to spend the necessary capital on infrastructure will
severely impact economic growth, employment and an already stressed current
account together with the impacts that the associated multiplier effects will
have on the country.
The Board expresses its appreciation to the management team and all Highveld
employees, who ensured a smooth period of transition. The Board is further
confident that, with the guidance of the controlling shareholder, Highveld will
continue to grow and prosper, to the benefit of all its stakeholders.
L Boyd W G Ballandino
(Chairman) (Chief Executive Officer)
6 February 2008
Condensed Group Income Statements
Audited for the year ended
Restated
31.12.2007 31.12.2006
Note Rm Rm
CONTINUING OPERATIONS
Revenue 5 378 4 818
Operating profit before depreciation 1 421 1 245
Depreciation and scrapping of
property, plant and equipment (250) (157)
Operating profit 1 171 1 088
Interest and investment income received 92 23
Finance charges (64) (102)
Profit before taxation 1 199 1 009
Taxation charge (146) (173)
Profit after taxation from
continuing operations 1 053 836
DISCONTINUED OPERATIONS
Revenue 1 780 1 744
Operating profit before depreciation 569 436
Depreciation and scrapping of
property, plant and equipment 6 (89)
Operating profit 575 347
Profit on disposal of
discontinued operation 572 91
Interest and investment income received 5 4
Finance charges (4) -
Share in loss of joint venture - (10)
Profit before taxation 1 148 432
Taxation charge (298) (170)
Profit after taxation from
discontinued operations 850 262
TOTAL OPERATIONS
Revenue 6 7 158 6 562
Operating profit before depreciation 1 990 1 681
Depreciation and scrapping of property,
plant and equipment (244) (246)
Operating profit 1 746 1 435
Profit on disposal of discontinued
operation 572 91
Interest and investment income received 97 27
Finance charges (68) (102)
Share in loss of joint venture - (10)
Profit before taxation 2 347 1 441
Taxation charge (444) (343)
Profit for the year 1 903 1 098
The earnings per ordinary share
information below is restated in accordance
with the changed accounting policies.
The impact is disclosed in note 5.
Basic earnings per share Cents Cents
From continuing operations 1 061.9 843.0
From discontinued operations 857.5 264.2
From total operations 1 919.4 1 107.2
Basic earnings per share - diluted Cents Cents
From continuing operations 1 061.9 842.9
From discontinued operations 857.5 264.2
From total operations 1 919 .4 1 107.1
Reconciliation of headline earnings Rm Rm
Profit for the year 1 903 1 098
Add/(deduct) after tax effect of:
Profit on disposal of
discontinued operation (455) (73)
Impairment losses (reversed)/recognised (7) 11
Net loss/(profit) on disposal
and scrapping of property,
plant and equipment 3 (10)
Headline earnings 1 444 1 026
Headline earnings per share
- basic and diluted Cents Cents
From continuing operations 1 058.0 839.9
From discontinued operations 398.8 193.7
From total operations 1 456.8 1 033.6
Number of shares Million Million
Ordinary shares in issue
as at year- end date * 99.1 99.1
Weighted average number
of ordinary shares * 99.1 99.1
Diluted number of ordinary shares * 99.1 99.1
* Rounded to nearest hundred thousand
Dividends per share
- based on calendar profits Cents Cents
Final dividend proposed i.r.o. 2006 - 350
Final dividend paid i.r.o. 2006 350 -
Special dividends proposed i.r.o. 2006 - 100
Special dividend paid i.r.o. 2006 100 -
Condensed Group Balance Sheets
Audited as at
Restated
31.12.2007 31.12.2006
Note Rm Rm
ASSETS
Non - current assets 1 764 2 082
Property, plant and equipment 1 763 2 076
Environmental trust investment - 3
Available for sale investments 1 3
Current assets 2 276 2 380
Assets of disposal group
classified as held for sale 8 884 -
TOTAL ASSETS 4 924 4 462
EQUITY AND LIABILITIES
Total equity 3 3 379 1 885
Non - current liabilities 723 538
Long- term borrowings - 23
Long- term provisions 344 246
Deferred taxation 379 269
Current liabilities 749 2 039
Liabilities directly associated
with the assets
classified as held for sale 8 73 -
TOTAL EQUITY AND LIABILITIES 4 924 4 462
Net cash/(borrowings) 4 785 (439)
Net asset value - cents per share 3 408 1 902
Condensed Group Cash Flow Statements
Audited for the year ended
Restated
31.12.2007 31.12.2006
Rm Rm
Cash generated by operating activities
before taxation paid 1 922 1 533
Taxation paid (665) (637)
Net cash generated by operating activities 1 257 896
Net cash generated by/(used in)
investing activities 389 (771)
Net cash inflow before financing activities 1 646 125
Net cash flows (used in)/from financing
activities excluding dividends paid (965) 212
Dividends paid (446) (644)
Net increase/(decrease) in cash
and cash equivalents 235 (307)
Effects of exchange rate changes on cash
held in foreign currencies 22 117
Cash and cash equivalents at beginning of the 511 701
Cash and cash equivalents at end of the year 768 511
Condensed Group Statements of Recognised Income and Expense
Audited for the year ended
Restated
31.12.2007 31.12.2006
Rm Rm
Currency translation differences 47 81
Fair value adjustments (3) (1)
Net income recognised directly in equity 44 80
Profit for the year 1 903 1 098
Total recognised income and expense for the year 1 947 1 178
Condensed Group Segmental Reports
Audited for the year ended
31.12.2007
Continuing operations
Steelworks Vanadium Total
Rm Rm Rm
Revenue
Revenue from external customers 3 929 1 449 5 378
Intersegmental revenue 135 - 135
Total segment revenue 4 064 1 449 5 513
Audited for the year ended
31.12.2007
Discontinued operations
Vanadium Ferro - alloys Total
Rm Rm Rm
Revenue
Revenue from external customers 957 823 1 780
Intersegmental revenue 181 97 278
Total segment revenue 1 138 920 2 058
Audited for the year ended
Restated
31.12.2006
Continuing operations
Steelworks Vanadium Total
Rm Rm Rm
Revenue
Revenue from external customers 3 445 1 373 4 818
Intersegmental revenue 134 - 134
Total segment revenue 3 579 1 373 4 952
Audited for the year ended
Restated
31.12.2006
Discontinued operations
Vanadium Ferro - alloys Total
Rm Rm Rm
Revenue
Revenue from external customers 825 919 1 744
Intersegmental revenue 165 129 294
Total segment revenue 990 1 048 2 038
Audited for the year ended
31.12.2007
Continuing Discontinued
operations operations Total
Operating profit/(loss)
Steelworks 749 - 749
Vanadium 422 458 880
Ferro- alloys - 117 117
Total 1 171 575 1 746
Audited for the year ended
Restated
31.12.2006
Continuing Discontinued
operations operations Total
Operating profit/(loss)
Steelworks 629 - 629
Vanadium 459 396 855
Ferro- alloys - (49) (49)
Total 1 088 347 1 435
Notes to the Condensed Group Financial Statements
1. Companies Act and JSE Limited Listings Requirements
Compliance with the 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 Corporation and its related parties
during the reporting periods were arms length transactions between
knowledgeable, willing parties at fair value.
3. Reconciliation of equity balances
Non-distributable reserves
Translation and
Share capital share -based
and share payment Fair value
premium reserves reserves
Rm Rm Rm
2006
Currency translation
differences 81
Fair value adjustment (1)
Net income/(expense)
recognised
directly in equity 81 (1)
Profit for the year
Total recognised income
and expense for the year 81 (1)
Restated balance at 31
December 2005 585 (31) 4
Balance at 31 December 2005 585 (31) 4
Changes in accounting policy
Dividends paid
Recognition of share
-based payments 4
Restated balance at 31
December 2006 585 54 3
2007
Currency translation
differences 47
Fair value adjustments (3)
Net income/(expense)
recognised
directly in equity 47 (3)
Profit for the year
Total recognised income
and expense for the year 47 (3)
Restated balance at 31
December 2006 585 54 3
Dividends paid
Share -based payment
reserve reclassified (7)
Balance at 31 December
2007 585 94 -
Distribut-
able
reserves
Retained Total
profit reserves
2006 Rm Rm
Currency translation differences 81
Fair value adjustment (1)
Net income/(expense) recognised
directly in equity 80
Profit for the year 1 098 1 098
Total recognised income and
expense for the year 1 098 1 178
Restated balance at 31 December 2005 789 1 347
Balance at 31 December 2005 767 1 325
Changes in accounting policy 22 22
Dividends paid (644) (644)
Recognition of share -based payments 4
Restated balance at 31 December 2006 1 243 1 885
2007
Currency translation differences 47
Fair value adjustments (3)
Net income/expense) recognised
directly in equity 44
Profit for the year 1 903 1 903
Total recognised income and
expense for the year 1 903 1 947
Restated balance at 31 December 2006 1 243 1 885
Dividends paid (446) (446)
Share -based payment
reserve reclassified (7)
Balance at 31 December 2007 2 700 3 379
4. Net cash/borrowings)
Net cash/borrowings) is calculated by subtracting the financial leases (long
-term debt) and short- term loans from cash, cash equivalents including
loans receivable from Joint Venture, and short-term deposits with an original
maturity of three months or less.
5. Impact of changes in accounting policies
Basic Basic-Diluted
Cents Cents
Earnings per share 31 December 2006 as
previously reported 1 122.6 1 122.5
Impact of changes in accounting policies:
Equity accounting of joint ventures (4.5) (4.5)
Capitalisation of borrowing cost (9.9) (9.9)
Employee benefits (1.0) (1.0)
Earnings per share 31 December 2006 as
restated 1 107.2 1 107.1
Headline Headline-Diluted
Cents Cents
Earnings per share 31 December 2006 as
previously reported 1 049.0 1 049.0
Impact of changes in accounting policies:
Equity accounting of joint ventures (4.5) (4.5)
Capitalisation of borrowing cost (9.9) (9.9)
Employee benefits (1.0) (1.0)
Earnings per share 31 December 2006 as
restated 1 033.6 1 033.6
6. Supplementary revenue information
Unaudited
31.12.2007 31.12.2006
Sales volumes of major products
Total steel Tons 730 228 802 648
Vanadium pentoxide (Vanchem) kg V2O5 4 276 779 3 484 318
Ferrovanadium and ferrovanadium
nitride kg V 8 723 085 7 341 577
Vanadium chemicals kg V2O5 1 300 759 1 341 743
Vanadium slag Tons V2O5 14 243 15 094
Weighted average selling prices
achieved
for major products
Total steel $/t 731 605
Vanadium pentoxide (Vanchem) $/kg V2O5 15 18
Ferrovanadium $/kg V 35 39
Vanadium chemicals $/kg V2O5 18 20
Average R/$ exchange rate 7.06 6.69
7. Financial ratios
Current ratio 3.84 1.17
Market capitalisation - Rm 11 203 7 733
8. Disposal groups
The Rand Carbide division has been sold, the effective date being 1 February
2008, and has been treated as a disposal group from 1 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 ("SAJV").
The Vanchem division and SAJV have been treated as disposal groups since 1
March 2007. The identifiable assets and related liabilities of these disposal
groups are as follows:
Audited
31.12.2007 31.12.2006
Rm Rm
ASSETS
Non - current assets classified as held for sale 573 -
Current assets classified as held for sale 311 -
884 -
EQUITY AND LIABILITIES
Long-term provisions 17 -
Current liabilities 56 -
Liabilities directly associated with assets
classified as held for sale 73 -
The cash flows were as follows:
Cash inflow from operating activities 417 168
Cash outflow from investing activities (117) (121)
Cash outflow from financing activities (66) (366)
Total cash inflow/(outflow) 234 (319)
9. Contingent liabilities
As required by the Mineral and Petroleum Resources Development Act, a guarantee
amounting to R176 million (2006: R176 million) was issued in favour of the
Department of Minerals and Energy for the unscheduled closure of Mapochs mine.
The annual report will be posted to all registered shareholders during March
2008. Enquiries may be directed to email address: general@hiveld.co.za
Directors:
L Boyd (Chairman), W G Ballandino (Chief Executive Officer) (Italian),
G C Baizini (Italian), C B Brayshaw, J W Campbell, A V Frolov (Russian),
G A Mannina (Swiss), B J T Shongwe, P S Tatyanin (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
Sponsor
JP Morgan
Date: 06/02/2008 16:38:53 Produced by the JSE SENS Department.
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