| Thu 14 Feb 2008, 8:00 | | KIO - Kumba - Audited condensed financial report and declaration of final cash |
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KIO
KIO
KIO - Kumba - Audited condensed financial report and declaration of final cash
dividend for the year ended 31 December 2007
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")
ANNUAL FINANCIAL RESULTS
AUDITED CONDENSED FINANCIAL REPORT AND DECLARATION OF FINAL CASH DIVIDEND FOR
THE YEAR ENDED 31 DECEMBER 2007
- Record production 32,4 million tonnes
- Operating profit R6,0 billion
- Headline earnings R3,1 billion
- Final cash dividend 400 cents per share
COMMENTARY
Reporting periods
Kumba Iron Ore Limited (Kumba) began trading on the JSE Limited in November
2006, following its unbundling from Exxaro Resources Limited (Exxaro).
Where reference is made 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 and is
provided purely for comparison purposes.
INTRODUCTION
2007 marks the first full year of Kumba as a pure-play iron ore business listed
on the main board of the JSE Limited and saw the Kumba share price close at R285
per share, up 156% for the year. The year heralded record production of 32,4
million tonnes (Mt), strong financial results and the commencement of production
of the 13 million tonnes per annum (Mtpa) Sishen Expansion Project (SEP), jig
plant.
Kumba increased revenue by 33% on the back of record production, higher sales
volumes, increased benchmark prices and quality premia on certain products.
Although operating expenses remained under pressure, Kumba`s operating margin
increased from 45%+ to 52% in 2007. Profit for the year ended 31 December 2007
was R3,9 billion. Headline earnings increased 44% from R2,1 billion to R3,1
billion.
Attributable and headline earnings for the year were 985 cents and 974 cents per
share respectively, on which a final dividend of 400 cents per share has been
declared and an interim dividend of 350 cents per share was paid. This brings
the total dividend for the year to 750 cents per share.
Of the profit of R3,9 billion, R802 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 (Proprietary)
Limited and SIOC Employee Share Participation Scheme (Envision) each hold an
interest of 3% in SIOC. In preparing the condensed consolidated financial
report, SIOC Community Development SPV and Envision are considered special
purpose entities and are consolidated for accounting purposes. Of the total
shareholders` equity of R2,7 billion at 31 December 2007, R192 million is
attributable to these entities through their interests in SIOC.
SAFETY PERFORMANCE
The safety performance of Kumba showed continued improvement during 2007.
Thabazimbi Mine achieved a lost-time injury frequency rate (LTIFR) of 0,12 for
2007, down from 0,31 in 2006. Kumba maintained a LTIFR of 0,22 for 2007 despite
increased activity at the Sishen Mine as a result of the construction of SEP.
Most regrettably, the group recorded one fatality for the year when Mr Samuel
Marutle was fatally injured at Sishen Mine in February 2007.
OPERATING RESULTS
Iron ore is a critical input of the global steel industry. The seaborne market
for iron ore has grown at a compound rate of 8,1% per annum from 454Mtpa in 2000
to 782Mtpa in 2007. The majority of this increase arises from demand growth in
China. China is expected to continue being the main driver of global steel
production growth, with current forecasts suggesting that China will increase
production from 420Mtpa in 2006 to 750Mtpa by 2012, requiring iron ore imports
in excess of 730Mtpa.
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 applied from 1 April 2007,
before accounting for quality premia on small volumes.
Strong financial and operational performance for the year ended 31 December 2007
was achieved on the back of revenue increasing 33% from R8,7 billion in 2006 to
R11,5 billion. Operating profit increased by R0,6 billion or 12% (R2,0 billion
or 52% before once-off items+) from R5,4 billion in 2006 to R6,0 billion,
principally as a result of:
- The year-on-year weighted average prices from export sale volumes increased by
12% from US$47,97 per tonne to US$53,83 per tonne in 2007, which buoyed
operating profit by R931 million.
- Increased revenue from shipping operations of R506 million.
- The weakening of the average exchange rate of the rand to the US dollar
(average spot exchange rates - R7,03/US$1,00 in 2007 compared with R6,73/US$1,00
in 2006), which contributed R521 million to operating profit.
- Increased sales volumes added R970 million.
- All of which was partially offset by an R885 million or 17% increase in
operating expenses and a R1,4 billion reduction in profits due to the inclusion
of certain once-off items in the 2006 financial results+.
The group increased total sales volumes by 10% from 29,8Mt in 2006 to 32,9Mt.
Export sales volumes from Sishen Mine for the year increased by 12% from 21,5Mt
in 2006 to 24,0Mt. Sales volumes increased on the back of record production at
Sishen Mine and the sale in the first quarter of 2007 of finished product
inventory that had built up at the Saldanha port as a result of equipment
breakdown at the port in September 2006. Domestic sales volumes were 7% higher
at 8,9Mt due to increased demand from ArcelorMittal. Sishen Mine saw record
production of 29,7Mt - an increase of 4% from 28,7Mt in 2006. Production at
Thabazimbi Mine was stable for the years ended 31 December 2006 and 2007.
Total tonnes mined at Sishen Mine increased 15% from 90,7Mt in 2006 to 104,4Mt.
Inflationary pressures and a rise in maintenance-related activities and external
contractor mining as a result of increasing mining activities at Sishen Mine
affected the cost of production for the period. During the year approximately
9,3Mt of B-grade material (with an iron content of between 55% and 60%) mined at
Sishen Mine with a cost of R440 million was stockpiled ahead of the full
commissioning and ramp-up of SEP. After taking into account this stockpiled
material, Sishen Mine`s unit cost increase of 2,5% was contained at R79,90 per
tonne compared to R77,93 per tonne in 2006, despite increased mining activities
and inflationary pressures.
The estimated closure cost for rehabilitation and decommissioning at Sishen Mine
has been revised to take into account the results of experiments undertaken over
recent years, an escalation in the cost of rehabilitation and the timing of the
cash flows. This change in estimate resulted in an increase of R131 million in
the non-current environmental rehabilitation and decommissioning provisions, of
which R125 million was charged as an operating expense during 2007.
Cash flows of R5,8 billion were generated by operations; an increase of 36% on
the R4,3 billion generated in 2006. These cash flows were used to pay taxation
of R1,4 billion and dividends of R1,4 billion during the year. Bank facilities
were used to fund R2,1 billion of capital expenditure for SEP and to maintain
operations. Certain interest-bearing borrowings were repaid with cash flows
generated during the year. At 31 December 2007 the group had a net debt position
of R2,6 billion.
PROJECT PIPELINE
Sishen Expansion Project: Capital expenditure on the project to date is R3,3
billion, with approximately R1,0 billion expected to be incurred in 2008 and
R0,6 billion in 2009. To date, four of the eight jig modules have been
successfully commissioned and two of the four tertiary crushers have been
brought into production. The primary and secondary crushers were successfully
commissioned in late January 2008. Plant commissioning was affected by the late
delivery of the primary and secondary crushers and delays due to a shortage of
skills and resources caused by constraints in the construction industry.
Production for the year of 0,2Mt was significantly lower than anticipated due to
these delays. However ramp-up to full design capacity of 13Mtpa is still
expected to be achieved in 2009.
Sishen South Project: The Sishen South Project, which involves development of a
new opencast operation some 70 kilometres south of Sishen Mine, is currently
being considered for development. A decision to proceed with this 9Mtpa mine is
imminent and depends on finalising logistical arrangements and the granting of
mining rights.
SEP II: A pre-feasibility study to increase production at Sishen Mine by 5 -
10Mtpa in addition to SEP is due to be completed during 2008. 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.
MINERAL RESOURCES AND RESERVES
There have been no material changes to the resources and reserves as disclosed
in the 2006 Kumba Annual Report.
ENERGY
South Africa`s power shortages have affected Kumba`s operations. A 10% reduction
in electricity usage is required nationally to restore integrity of the energy
supply. A variety of actions have been taken by Kumba, including a decision to
cease all electricity power-assisted trucking (pantograph system) in the short-
term. The group`s usage of diesel will therefore increase and the efficiencies
of the pantograph systems will be lost while the power reduction continues.
Consequently, a rise in unit costs is likely and a reduction in output is
possible if the crisis deepens.
PROSPECTS
Although global economic growth is expected to slow in the year ahead as the
unwinding of the housing finance problems in the United States impacts
negatively on economic growth in the United States and elsewhere, the global
market for iron ore is expected to remain tight in the short to medium term. The
economies of China and the rest of Asia are expected to continue growing on the
back of strong domestic demand and high levels of domestic fixed investment,
providing continued strong growth in the demand for iron ore. At the same time,
major suppliers continue to experience difficulties in bringing on new
production in time to meet increasing demand due to the global shortage in
engineering and construction resources. In addition, logistical constraints
associated with rail and port capacity and shortages in dry bulk vessel capacity
at times, are expected to affect the supply side of the seaborne iron ore
market. As a result, prices are expected to increase substantially in the
current iron ore year and remain firm in the medium term.
Operating expenses will remain under pressure, possibly exacerbated by energy
shortages and the need to use higher cost options to maintain production.
Production from SEP is expected to ramp up in 2008 with production of 13Mt
achieved in 2009. Most of the additional production is destined for markets in
China.
+Determined before taking into account the net increase in operating profit due
to the once-off profit of the sale of the non-iron ore assets of R1,6 billion
and the R153 million share-based payment expense arising from the disposal of a
3% interest in SIOC in 2006.
CONDENSED GROUP BALANCE SHEET
AS AT 31 DECEMBER
Audited Audited
2007 2006
Rm Rm
Assets
Non-current assets 5 944 4 021
Property, plant and equipment 5 748 3 864
Biological assets 6 7
Investments in associates and joint ventures 2 -
Investment held by environmental trust 165 147
Long-term financial assets and pre-payments 14 3
Deferred tax assets 9 -
Current assets 3 793 2 848
Inventories 1 310 749
Trade and other receivables 1 531 1 005
Cash and cash equivalents 952 1 094
Total assets 9 737 6 869
Equity and liabilities
Shareholders` equity 2 654 839
Minority interest 641 216
Total equity 3 295 1 055
Non-current liabilities 2 830 3 477
Interest-bearing borrowings 1 040 2 840
Deferred tax liabilities 1 451 485
Provisions 339 152
Current liabilities 3 612 2 337
Interest-bearing borrowings 2 490 1 179
Trade and other payables 1 058 555
Current tax liabilities 64 603
Total equity and liabilities 9 737 6 869
CONDENSED GROUP INCOME STATEMENT
FOR THE PERIOD ENDED 31 DECEMBER
Unaudited*
Audited pro forma Audited
12 months 12 months 2 months
2007 2006 2006
Rm Rm Rm
Revenue 11 497 8 654 2 171
Operating expenses (5 519) (3 301) (1 487)
Operating profit 5 978 5 353 684
Net finance costs (308) (64) (36)
Profit before taxation 5 670 5 289 648
Taxation (1 768) (1 014) (269)
Profit 3 902 4 275 379
Attributable to:
Equity holders of Kumba 3 100 3 381 264
Minority interests 802 894 115
3 902 4 275 379
Attributable earnings per
share (cents)
Basic 985 1 078 84
Diluted 970 1 060 83
Dividend per share (cents)
Interim 350
Final** 400 80 80
HEADLINE EARNINGS
FOR THE PERIOD ENDED 31 DECEMBER
Unaudited*
Audited pro forma Audited
12 months 12 months 2 months
2007 2006 2006
Rm Rm Rm
Reconciliation of headline
earnings
Attributable profit 3 100 3 381 264
Net (profit)/loss on disposal
or scrapping of property, (14) 2 (4)
plant and equipment
Realisation of foreign (34) - -
currency translation reserve
Net surplus on disposal of
investment in non-iron
ore assets - (1 571) -
3 052 1 812 260
Taxation effect of 1 (1) 1
adjustments
Minority interest in 9 314 1
adjustments
Headline earnings 3 062 2 125 262
Headline earnings per
share (cents)
Basic 974 677 83
Diluted 958 666 82
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED 31 DECEMBER
Audited Audited
12 months 2 months
2007 2006
Rm Rm
Total equity at the beginning of the period 1 055 -
Changes in share capital and premium
Shares issued during the period 53 3
Changes in reserves
Acquisition of business - 371
Equity settled share-based payments 73 182
Profit for the period 3 100 264
Foreign currency translation differences (51) 24
Revaluation of financial instruments 2 (5)
Dividends paid (1 362) -
Changes in minority interest
Acquisition of business - 93
Profit for the period 802 115
Dividends paid (383) -
Movement in minority interest in reserves 6 8
Total equity at the end of the period 3 295 1 055
Comprising
Share capital and premium 56 3
Equity settled share-based payment reserve 255 182
Foreign currency translation reserve 2 53
Cash flow hedge accounting reserve - (2)
Retained earnings 2 341 603
Shareholders` equity 2 654 839
- attributable equity holders of Kumba 2 462 774
- attributable to the minority interest in 192 65
SIOC***
Minority interest 641 216
Total equity 3 295 1 055
CONDENSED GROUP CASH FLOW STATEMENT
FOR THE PERIOD ENDED 31 DECEMBER
Unaudited*
Audited pro forma Audited
12 months 12 months 2 months
2007 2006 2006
Rm Rm Rm
Cash flows from operating 2 750 1 490 350
activities
Cash generated from 5 805 4 277 389
operations
Net finance costs paid (301) (55) (39)
Taxation paid (1 401) (1 198) -
Dividends paid (1 353) (1 534) -
Cash flows from investing (2 064) (48) (143)
activities
Capital expenditure (2 119) (1 718) (511)
Proceeds from the disposal of 26 1 571 6
non-current assets
Cash acquired on acquisition - - 400
of business
Acquisition of business - - (3)
Other 29 99 (35)
Cash flows from financing (828) (939) 887
activities
Share capital issued 53 - 3
Dividends paid to minority (392) - -
shareholders
Interest-bearing borrowings 1 311 2 840 2 840
raised
Interest-bearing borrowings (1 800) (3 779) (1 956)
repaid
(Decrease)/increase in cash (142) 503 1 094
and cash equivalents
Cash and cash equivalents at 1 094 591 -
beginning of period
Cash and cash equivalents at 952 1 094 1 094
end of period
SALIENT FEATURES AND OPERATING STATISTICS
FOR THE PERIOD ENDED 31 DECEMBER
Unaudited*
Unaudited pro forma
12 months 12 months
2007 2006
Share statistics (`000)
Total shares in issue 317 104 313 594
Weighted average number of shares 314 618 313 594
Diluted weighted average number of shares 319 660 319 003
Market information
Closing share price (Rand) 285 111
Market capitalisation (Rand million) 90 374 34 887
Market capitalisation (US$ million) 13 281 4 998
Net asset value per share (cents) 1 039 336
Capital expenditure (Rand million)
Incurred 2 119 1 718
Contracted 589 2 477
Authorised but not contracted 1 185 3 176
Capital expenditure relating to Thabazimbi
Mine to be financed by ArcelorMittal (Rand
million)
Contracted 2 1
Authorised but not contracted 2 2
Economic information
Average Rand/US dollar exchange rate 7,03 6,73
(Rand/US$)
Closing Rand/US dollar exchange rate 6,81 6,98
(Rand/US$)
Average export iron ore price (US$ per 53,83 47,97
tonne)
Average export iron ore price (Rand per 382 330
tonne)
Operating statistics (Mt)
Production 32,4 31,1
Sales 32,9 29,8
- export 24,0 21,5
- domestic 8,9 8,3
Sishen Mine unit cost (Rand per tonne) 79,90 77,93
Sishen Mine cash cost (Rand per tonne) 74,32 69,88
* Prepared on a basis consistent with that used for the preparation of the
unaudited pro forma financial information for the twelve months ended 31
December 2006 contained in the financial results for the two months ended 31
December 2006 issued on 14 February 2007.
** The final dividend was declared subsequent to 31 December 2007 and is
presented for information purposes.
*** 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 FINANCIAL REPORT
Basis of preparation and accounting policies
The condensed consolidated financial report for the year ended 31 December 2007
has been prepared in compliance with the South African Companies Act, No 61 of
1973, as amended, the Listing 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 financial report are consistent with
those applied for the period ended 31 December 2006, which comply with
International Financial Reporting Standards (IFRS).
The pre-acquisition reserve as presented in the statement of changes in equity
as at 31 December 2006 that arose from the acquisition of SIOC was reclassified
to the separate reserve classes.
Kumba adopted IFRS 7, Financial Instruments: Disclosures (IFRS 7) and the
related amendments to IAS 1, Presentation of Financial Statements and IFRIC 11,
IFRS 2 - Group and Treasury Share transactions (IFRIC 11) 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. IFRIC 11 provides
guidance on applying IFRS 2, Share-Based Payment in circumstances where an
entity chooses or is required to buy its own equity instruments (treasury
shares) to settle the share-based payment obligation. The adoption of this
standard, the related amendment and interpretation has had no effect on the
financial results and financial position of Kumba.
Further disclosure will be provided in the annual report for the year ended 31
December 2007.
The condensed consolidated 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 financial report is presented in Rand, which is
Kumba`s functional and presentation currency.
NET DEBT
Kumba`s net debt position at balance sheet dates is as follows:
Audited Audited
31 December 31 December
2007 2006
Rm Rm
Long-term interest-bearing borrowings 1 040 2 840
Short-term interest-bearing borrowings 2 490 1 179
Total 3 530 4 019
Cash and cash equivalents (952) (1 094)
Net debt 2 578 2 925
Total equity 3 295 1 055
SEGMENTAL REPORTING
Kumba`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 financial report.
SIGNIFICANT ITEMS INCLUDED IN OPERATING PROFIT
Operating profit for the periods ended 31 December has been derived after taking
into account the following items:
Unaudited*
Audited pro forma Audited
12 months 12 months 2 months
2007 2006 2006
Rm Rm Rm
Depreciation of property, 228 269 43
plant and equipment
Share-based payment 123 196 185
expenses
- SIOC Community - 153 153
Development SPV
- Envision 72 - -
- Management share 51 43 32
incentive plans
*Includes share-based payment expense of R46 million for the historical
Management Share Option Scheme transferred to Kumba from the unbundling from
Exxaro.
RELATED PARTY TRANSACTIONS
During the year Kumba, 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.
LEGAL PROCEEDINGS
Lithos has increased its claim for damages brought against Kumba from US$196
million to US$421 million. Kumba continues to defend the merits of the claim.
Management are of the view, and have been so advised, that Lithos would be
unlikely to succeed in any of its claims. The basis of quantification of the
claim is fundamentally flawed.
Kumba has initiated arbitration proceedings against La Societe Des Mines De Fer
Du Senegal Oriental (Miferso) and the Republic of Senegal under the Rules of
Arbitration of the International Chamber of Commerce. This process is
confidential in nature.
Kumba and ArcelorMittal have agreed to an arbitration process to resolve key
differences of interpretation of the Sishen Supply Agreement. Arbitration
proceedings were initiated in 2007 by Kumba. These proceedings are confidential
in nature.
POST-BALANCE SHEET DATE EVENTS
The directors are not aware of any matter or circumstance arising since the end
of the year and up to the date of this report, not otherwise dealt with in this
report.
CORPORATE GOVERNANCE
Kumba subscribes to the Code of Corporate Practices and Conduct as contained in
the second King Report on corporate governance.
CORPORATE INFORMATION
The condensed consolidated financial report of Kumba and its subsidiaries for
the year ended 31 December 2007 was authorised for issue on 14 February 2008.
Kumba is a limited liability company incorporated and domiciled in South Africa.
The group has its primary listing on the JSE Limited.
INDEPENDENT AUDIT OPINION
The auditors, Deloitte & Touche have issued their unmodified audit opinion on
the condensed consolidated financial report for the year ended 31 December 2007.
A copy of their unmodified audit opinion is available for inspection at the
Company`s registered office.
On behalf of the board
PL Zim EJ Myburgh 14 February 2008
Chairman Chief Executive Officer Pretoria
NOTICE OF FINAL DIVIDEND
At its board meeting on 13 February 2008 the directors declared a final cash
dividend of 400 cents per share on the ordinary shares from profits accrued
during the financial year ended 31 December 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) Friday, 7 March 2008
- Trading ex dividend commences Monday, 10 March 2008
- Record date Friday, 14 March 2008
- Dividend payment date Monday, 17 March 2008
Share certificates may not be dematerialised or rematerialised between Monday,
10 March 2008 and Friday, 14 March 2008, both days inclusive.
By order of the board
VF Malie 14 February 2008
Company secretary Pretoria
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
Date: 14/02/2008 08:00:01 Produced by the JSE SENS Department.
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