| Thu 23 Jul 2009, 8:00 | | KIO - Kumba Iron Ore - Reviewed condensed consolidated financial report for |
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KIO
KIO
KIO - Kumba Iron Ore - Reviewed condensed consolidated financial report for
the six months ended 30 june 2009 and interim cash dividend declaration
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")
Reviewed Condensed Consolidated Financial Report for the six months ended 30
June 2009 and interim cash dividend declaration
- Outstanding safety performance continues - LTIFR of 0.08
- Sishen Mine production up 14% to 18Mt
- Export sales volumes up 29% to 17.1Mt
- Unit cash cost contained at R104/tonne
- Operating profit up 31% to R6.8bn
- Interim cash dividend R7.20 per share
Commentary
Highlights
In the current global economic climate Kumba`s financial results for the
period continue to reflect its strength as an iron ore supplier.
Notwithstanding lower export volumes to Europe and Japan, the group`s revenue
increased by 33% to R12.0 billion on the back of higher sales volumes into
China, which was partially offset by lower iron ore export prices. Kumba
maintained its operating profit margin, through cost management and a weaker
Rand exchange rate, at 57% for the six months (62% from mining activities),
down 1% from 58% (63% from mining activities)
in 2008. Profit for the six months ended 30 June 2009 was R4.3 billion, an
increase of 23% from R3.5 billion in 2008, while headline earnings increased
by 22% from R2.8 billion to R3.4 billion. Cash generated by operations for the
period increased to R7.5 billion, up 63% compared to the R4.6 billion
generated during 2008.
Attributable and headline earnings for the six months were R10.81 per share
and R10.76 per share respectively, on which an interim cash dividend of R7.20
per share has been declared.
Safety performance
It is with regret that the group reports a fatality for the period when Mr
Tebogo David Marope, a 23 year old contractor of Concor, was fatally injured
during road construction at the Sishen South Project on 28 January 2009.
Kumba further improved its safety performance during the period at existing
operations with only five lost-time injuries (`LTI`s`) being recorded. This
translates into a lost-time injury frequency rate (`LTIFR`) of 0.08 compared
to the 0.12 incurred for the 2008 year (a 33% improvement). Thabazimbi Mine
also continued its excellent performance by recording no LTI`s during the
period.
The Board remains committed to zero harm at all the Kumba sites.
Operating results
Challenges faced by the global economy led to unprecedented volatility and
rapid decreases in commodity prices and off-take volumes. Steel mills in
Europe, Japan and Korea are operating on average at 60% to 70% of capacity.
However, annualised steel production in China has increased by almost 10% from
the 2008 average. This increase in production coupled with lower Chinese
domestic iron ore production, resulted in record seaborne iron ore imports by
China.
Total tonnes mined at Sishen Mine increased by 15% from 50.9Mt in 2008 to
58.3Mt, of which waste mined was 36.1Mt, an increase of 23% from the prior
year. This increase in waste mining activity is undertaken to mitigate
geological constraints in the pit and secure the future of the mine. Total
production at Sishen Mine increased by 14% to 18.0Mt from 15.8Mt in 2008. The
ramp up of production from the Sishen Expansion Project (`SEP`) jig plant has
seen a healthy increase during the six months, reaching 830 000 tonnes in June
2009, equivalent to an annualised rate of 10Mtpa. The 4.4Mt produced by the
jig plant during the period, accounted for 24% of Sishen Mine`s production.
Kumba remains on schedule to achieve an annualised rate of 13Mtpa from the jig
plant during the fourth quarter of 2009. Production from the Dense Media
Separation (`DMS`) plant was stable during the period at 13.6Mt, in line with
expectations.
The group increased total sales volumes by 16% from 17.3Mt in 2008 to 20.0Mt.
Export sales volumes from Sishen Mine for the six months increased by 29% from
13.3Mt in 2008 to 17.1Mt on the back of increasing volumes from the jig plant,
the sale of stock built up towards the end of 2008, as well as the successful
introduction of a new blended fines product. China accounted for more than 80%
of Kumba`s export sales volumes during the period. Domestic sales volumes to
ArcelorMittal SA for the period are down by 26% or 0.7Mt due to lower demand.
Notwithstanding continued adverse market conditions, Kumba continues to
conclude long-term iron ore export contracts and is active in customer
development in other regions.
Through tight cost management and an increase in production from the jig
plant, Sishen Mine`s cash unit cost increase has been contained at 8%, R104.12
per tonne compared to R96.53 per tonne at the end of 2008, despite increased
mining activity. On a like-for-like basis total unit cost has increased by 9%
from R105.44 per tonne in 2008 to R114.98 per tonne.
Finished product stockpile levels are closely monitored and have reduced from
5.8Mt to 4.6Mt; 1.2Mt below 2008 closing levels. Volumes railed on the Sishen-
Saldanha export channel increased by 32%.
Production at Thabazimbi Mine reduced by 13% for the six months ended 30 June
2009 as a result of lower off-take by ArcelorMittal SA. The decrease in
domestic demand has resulted in a build up of ArcelorMittal SA`s finished
product stock at Thabazimbi Mine, with stockpiles growing 0.4Mt to 0.7Mt.
Export sales to long-term contractual customers for the first three months of
2009 were based on an average 93% increase in the iron ore benchmark price for
the 2008/2009 iron ore year, although it was predominantly fine ore that was
sold during this period. Final settlement for the 2009/2010 iron ore year has
not been reached between Kumba and all its customers. Kumba was able to
redirect into China lost export contract volumes from Europe and Japan, which
volumes were sold predominantly at spot prices. In preparing these financial
results Kumba has used a prudent estimate of the expected decrease in iron ore
prices for 2.8Mt which remain subject to contractual settlements.
Kumba has achieved a strong financial performance for the six months ended 30
June 2009 on the back of the solid operational performance with revenue
increasing by 33% from R9.0 billion in 2008 to R12.0 billion. Operating profit
increased by R1.6 billion or 31% from R5.2 billion in 2008 to R6.8 billion,
principally as a result of:
- Increased sales volumes, which contributed R1.9 billion, offset by the year-
on-year weighted average decrease in export iron ore prices, reducing
operating profit by R677 million,
- A R133 million decrease in profit from shipping operations. Total tonnes
shipped increased by 8.5Mt to 12.1Mt during 2009. This increase in volume was
offset by a decrease in the shipping margin achieved (average shipping margin
- US$3/tonne in 2009, net of the release of the unused portion of the
provision recognised at 31 December 2008 on three voyages during the period,
compared with US$18/tonne in 2008),
- The weakening of the average exchange rate of the Rand to the US Dollar
(average exchange rates - R9.16/US$1.00 in 2009 compared with R7.65/US$1.00 in
2008), which contributed R1.5 billion to operating profit,
- All of which was further offset by a R1.0 billion or 39% increase in
operating expenses (excluding shipping expenses), as a result of the 14%
increase in volumes produced, 23% increase in waste mined and higher freight
and logistics costs during the period. This increase was fuelled by
inflationary pressures, offset by decreasing cost of diesel and blasting
products and cost management.
Kumba has implemented a number of revenue enhancing and cost management
initiatives which have realised R726 million of operating profit during the
period. These initiatives are predominantly recurring in nature and will
assist in enhancing the financial performance of the group and protecting
operating profit margins in the future. These initiatives include, amongst
others: increasing tonnes on which shipping services can be provided,
decreasing maintenance shutdown intervals, producing and selling niche
products to enhance the premium received, doubling first hour mining tonnages
through improved shift transitions and procurement and operating efficiency
cost savings.
The group continued to generate substantial cash from its operations, with
R7.5 billion generated during the period, an increase of 63% on the R4.6
billion generated in 2008. These cash flows were used to pay taxation of R1.1
billion and dividends of R4.1 billion during the period. Capital expenditure
of R348 million was incurred to maintain operations and R1.2 billion to expand
operations, mainly on the Sishen South Project. At 30 June 2009 the group had
a gross debt position of R5.5 billion and cash on hand of R5.2 billion.
Interest cover remained strong at 51 times (27 times at the end of 2008).
During July 2009 Kumba successfully negotiated a new debt facility of R3.2
billion to replace the R2.8 billion revolving debt facility that would have
matured in November 2009.
In line with the dividend policy, the Board has reviewed the dividend cover of
Kumba in the light of current market uncertainties, Kumba`s growth plans and
availability of credit, and deemed it prudent to increase Kumba`s dividend
cover from one to one comma five times. In light of this more prudent approach
the Board has approved a dividend of R7.20 per share (R8.00 per share June
2008).
Sishen South Project
Despite the challenges in the global economy, development of the Sishen South
Project continues and remains on schedule for first production during the
first half of 2012, ramping up to full capacity of 9Mtpa in 2013. Construction
on the project is progressing well with R1.8 billion capital expenditure
incurred to date, of which R1.0 billion has been incurred during the six
months ended 30 June 2009.
Mineral resources and reserves
There have been no material changes to the resources and reserves as disclosed
in the 2008 Kumba Annual Report.
Prospects
Kumba remains on track with its targeted 10% annual increase in production
volumes, should market conditions permit. However, there is limited visibility
in demand for seaborne iron ore for the remainder of 2009. Whilst no recovery
in the European iron ore market is anticipated in 2009, the Japanese and
Korean markets appear to be near the bottom of the cycle and a small
improvement in demand is likely. Although the sustainability of China`s
increasing appetite for imported iron ore is uncertain, Kumba remains
cautiously optimistic on its continued ability to redirect its export sales
volumes into China. Domestic sales volumes remain dependent on the off-take
requirements from ArcelorMittal SA which are likely to be lower than in 2008.
Industry annual iron ore price negotiations have commenced with certain
settlements reflecting annual price reductions of some 33% for fine ore and
44.5% for lump ore. Kumba anticipates settlement with its customers within the
next three months. As Kumba`s operating profit remains highly sensitive to the
Rand/US Dollar exchange rate, earnings for the second half of 2009 are likely
to be adversely affected given a stronger Rand relative to the US Dollar and
the year-on-year iron ore price reductions anticipated.*
*The forecast financial information has not been reviewed and reported on by
Kumba`s auditors.
Production report for the six months ended 30 June 2009
Production summary
Total iron ore production increased by 11% in the second quarter from a year
earlier to 9,82Mt. This was due mainly to the additional production delivered
by the jig plant and stable performance from the DMS plant.
Six month overview
Year-to-date
30 June 30 June %
`000 tonnes 2009 2008 change
Iron ore 19 147 17 063 12
- Lump 11 671 10 180 15
- Fines 7 476 6 883 9
Mine production 19 147 17 063 12
- Sishen Mine 18 032 15 788 14
DMS plant 13 617 13 998 (3)
Jig plant 4 415 1 292 242
Other - 498 -
- Thabazimbi Mine 1 115 1 275 (13)
Quarterly overview
Quarter ended Quarter ended
30 30 31 31
June June % March March %
`000 tonnes 2009 2008 change 2009 2008 change
Iron ore 9 824 8 873 11 9 323 8 190 14
- Lump 6 076 5 292 15 5 595 4 888 14
- Fines 3 748 3 581 5 3 728 3 302 13
Mine
production 9 824 8 873 11 9 323 8 190 14
- Sishen Mine 9 339 8 247 13 8 693 7 541 15
DMS plant 6 964 6 841 2 6 653 7 157 (7)
Jig plant 2 375 908 162 2 040 384 431
Other - 498 - - - -
- Thabazimbi
Mine 485 626 (23) 630 649 (3)
Condensed group balance sheet
as at
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 Dec
2009 2008 2008
Rm Rm Rm
Assets
Non-current assets 9 592 6 605 8 205
Property, plant and
equipment 9 267 6 359 7 911
Biological assets 7 6 8
Investments in associates
and joint ventures 11 3 6
Investments held by
environmental trust 258 188 237
Long-term prepayments 33 34 32
Deferred tax assets 16 15 11
Current assets 8 257 6 115 8 498
Inventories 1 905 1 433 1 879
Trade and other receivables 1 195 2 637 2 262
Current tax asset - 36 547
Cash and cash equivalents 5 157 2 009 3 810
Total assets 17 849 12 720 16 703
Equity and liabilities
Shareholders` equity 6 006 4 444 6 859
Minority interest 1 381 1 067 1 647
Total equity 7 387 5 511 8 506
Non-current liabilities 5 371 4 809 3 351
Interest-bearing borrowings 2 678 2 840 977
Provisions 410 358 384
Deferred tax liabilities 2 283 1 611 1 990
Current liabilities 5 091 2 400 4 846
Short-term interest-bearing
borrowings 2 862 1 463 2 881
Short-term provisions 126 7 310
Trade and other payables 1 649 930 1 655
Current tax liabilities 454 - -
Total equity and liabilities
17 849 12 720 16 703
Condensed group income statement
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 Dec
2009 2008 2008
Rm Rm Rm
Revenue 11 987 9 048 21 360
Operating expenses (5 166) (3 802) (7 847)
Operating profit 6 821 5 246 13 513
Finance income 157 49 154
Finance costs (230) (100) (405)
Profit before taxation 6 748 5 195 13 262
Taxation (2 404) (1 650) (4 179)
Profit for the period 4 344 3 545 9 083
Attributable to:
Owners of Kumba 3 435 2 816 7 208
Minority interests 909 729 1 875
4 344 3 545 9 083
Earnings per share for
profit attributable to the
owners of Kumba (Rand per
share)
Basic 10.81 8.90 22.80
Diluted 10.73 8.75 22.54
Condensed group statement of other comprehensive income
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 Dec
2009 2008 2008
Rm Rm Rm
Profit for the period 4 344 3 545 9 083
Other comprehensive income
for the period, net of tax (237) 129 707
Exchange differences on
translating foreign
operations (228) 130 713
Net effect of cash flow
hedges (15) - 5
Tax on other comprehensive
income 6 (1) (11)
Total comprehensive income 9 790
for the period 4 107 3 674
Attributable to:
Owners of Kumba 3 247 2 919 7 774
Minority interests 860 755 2 016
4 107 3 674 9 790
Condensed group statement of changes in equity
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 Dec
2009 2008 2008
Rm Rm Rm
Total equity at the
beginning of the period 8 506 3 397 3 397
Changes in share capital and
premium
Shares (including treasury
shares) issued during the
period 65 25 80
Purchase of treasury shares (53) - -
Changes in reserves
Equity-settled share-based
payment 51 35 88
Total comprehensive income
for the period 3 247 2 919 7 774
Dividends paid (4 163) (1 271) (3 819)
Changes in minority interest
Total comprehensive income
for the period 860 755 2 016
Dividends paid (1 138) (358) (1 051)
Movement in minority
interest in reserves 12 9 21
Total equity at the end of
the period 7 387 5 511 8 506
Comprising
Share capital and premium 148 81 136
Equity-settled share-based
payment reserve 394 290 343
Foreign currency translation
reserve 388 104 564
Cash flow hedge accounting
reserve (9) - 4
Retained earnings 5 085 3 969 5 812
Shareholders` equity 6 006 4 444 6 859
- attributable to the owners
of Kumba 5 592 4 124 6 365
- attributable to the
minority interest in SIOC 414 320 494
Minority interest 1 381 1 067 1 647
Total equity 7 387 5 511 8 506
Dividend (Rand per share)
Interim * 7.20 8.00 8.00
Final - - 13.00
* The interim dividend was declared subsequently to 30 June 2009 and has not
been recognised as a liability in this interim financial report. It will be
recognised in shareholders` equity in the year to 31 December 2009.
Condensed group cash flow statement
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 Dec
2009 2008 2008
Rm Rm Rm
Cash flows from operating
activities 2 129 1 494 6 013
Cash generated from
operations 7 503 4 581 14 519
Net finance costs paid (125) (185) (401)
Taxation paid (1 112) (1 639) (4 311)
Dividends paid (4 137) (1 263) (3 794)
Cash flows from investing
activities (1 312) (869) (2 487)
Capital expenditure (1 500) (806) (2 563)
Proceeds from the disposal
of non-current assets 23 1 -
Investments in associates
and joint ventures (6) (1) (3)
Other 171 (63) 79
Cash flows from financing
activities 530 432 (668)
Share capital issued 65 25 80
Purchase of treasury shares (53) - -
Dividends paid to minority
shareholders (1 164) (365) (1 076)
Net interest-bearing
borrowings raised 1 682 772 328
Increase in cash and cash 1 347 1 057 2 858
equivalents
Cash and cash equivalents at 3 810 952 952
beginning of period
Cash and cash equivalents at 5 157 2 009 3 810
end of period
Headline earnings
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 Dec
2009 2008 2008
Rm Rm Rm
Reconciliation of
headline earnings
Attributable profit 3 435 2 816 7 208
Net (profit)/loss on
disposal or scrapping of
property, plant and
equipment (22) - 12
Impairment of property,
plant and equipment - - 50
Realisation of foreign
currency translation
reserve - - 19
3 413 2 816 7 289
Taxation effect of
adjustments 6 - (9)
Minority interest in
adjustments 3 - (4)
Headline earnings 3 422 2 816 7 276
Headline earnings (Rand
per share)
Basic 10.76 8.90 23.02
Diluted 10.69 8.75 22.75
The calculation of basic
and diluted earnings and
headline earnings per
share is based on the
weighted average number
of ordinary shares in
issue as follows:
Weighted average number
of ordinary shares 317 890 540 316 563 167 316 140 923
Diluted weighted average
number of ordinary
shares 320 125 852 321 975 153 319 778 849
The adjustment of
2 235 312 shares to the
weighted average number
of ordinary shares is as
a result of the expected
vesting of share options
already granted under
the various share-based
payment arrangements.
Salient features and operating statistics
for the period ended
Unaudited Unaudited Unaudited
6 months 6 months 12 months
30 June 30 June 31 Dec
2009 2008 2008
Share statistics (`000)
Total shares in issue 319 461 317 104 319 461
Weighted average number of
shares 317 891 316 563 316 141
Diluted weighted average
number of shares 320 126 321 975 319 779
Treasury shares 763 900 1 795
Treasury shares (Rand
million) 75 18 86
Market information
Closing share price (Rand) 181 315 162
Market capitalisation (Rand
million) 57 822 99 888 51 753
Market capitalisation (US$
million) 7 408 12 636 5 482
Net asset value (Rand per
share) 18.80 14.01 21.63
Capital expenditure (Rand
million)
Incurred 1 500 806 2 563
Contracted 2 616 1 271 2 090
Authorised but not contracted 6 676 1 989 8 753
Capital expenditure relating
to Thabazimbi Mine to be
financed by ArcelorMittal SA
(Rand million)
Contracted 2 1 -
Authorised but not contracted 12 40 -
Operating commitments
Operating lease commitments 132 49 144
Shipping services 193 600 395
Economic information
Average Rand/US dollar
exchange rate (Rand/US$) 9.16 7.65 8.25
Closing Rand/US dollar
exchange rate (Rand/US$) 7.81 7.91 9.37
Operating statistics (Mt)
Production 19.1 17.1 36.7
Sales 20.0 17.3 33.0
- export 17.1 13.3 24.9
- domestic 2.9 4.0 8.1
Sishen Mine FOR unit cost
- Unit cost (Rand per tonne) 114.98 93.39 110.77
- Cash cost (Rand per tonne) 104.12 86.14 101.86
- Unit cost (US$ per tonne) 12.55 12.21 13.43
- Cash cost (US$ per tonne) 11.37 11.18 12.35
Notes to the condensed consolidated interim financial report
1. Corporate information
Kumba is a limited liability company incorporated and domiciled in South
Africa. The main business of Kumba, its subsidiaries, joint ventures and
associates is the exploration, extraction, beneficiation and marketing, sale
and shipping of iron ore. The group has its primary listing on the JSE
Limited.
The condensed consolidated interim financial report of Kumba and its
subsidiaries for the six months ended 30 June 2009 was authorised for issue in
accordance with a resolution of the directors on 22 July 2009.
2. Basis of preparation and accounting policies
The condensed consolidated interim financial report for the six months ended
30 June 2009 has been prepared in compliance with the South African Companies
Act No 61 of 1973, as amended, the Listings Requirements of the JSE Limited
and International Accounting Standard 34, Interim Financial Reporting. The
condensed consolidated interim financial report has been prepared in
accordance with International Financial Reporting Standards (`IFRS`).
The condensed consolidated interim financial report has been prepared in
accordance with the historical cost convention except for certain financial
instruments, share-based payments and biological assets which are stated at
fair value, and is presented in Rand, which is Kumba`s functional and
presentation currency.
Except as disclosed below, the accounting policies and methods of computation
applied in the preparation of the condensed consolidated interim financial
report are consistent with those applied for the year ended 31 December 2008.
The group adopted the following amendment to an existing standard and new
standard with effect from 1 January 2009.
IAS 1 (revised), Presentation of Financial Statements
The revised standard requires that changes in equity resulting from
transactions with owners (holders of instruments classified as equity) be
presented separately from non-owner changes in equity (also known as other
comprehensive income). In addition specific disclosures for components of
other comprehensive income have been introduced. The adoption had no effect on
the financial position or performance of the group.
IFRS 8, Operating Segments
IFRS 8 replaces IAS 14, Segment Reporting, and requires a `management
approach` under which segment information is presented on the same basis as
that used for internal reporting purposes. This has resulted in an increase in
the number of reportable segments presented, as the previously reported
business segment, mining (being mining, extraction and production of iron ore)
has been split further into the different mines that the group operates as
well as its shipping operations.
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Kumba
executive committee.
The accounting standards, amendments to issued accounting standards and
interpretations, which are relevant to the group, but not yet effective at 30
June 2009, have not been adopted. The group is currently evaluating the impact
of these pronouncements.
3. Property, plant and equipment
The group incurred capital expenditure on property, plant and equipment of
R1.2 billion for the six months ended 30 June 2009 (2008: R589 million) for
the expansion of its operations, mainly on the Sishen South Project, and R348
million (2008: R217 million) to maintain its operations, mainly for the
acquisition of mining equipment.
A total of R205 million was transferred from assets under construction to
machinery, plant and equipment for the period. Of this, R88 million related to
the jig plant at Sishen Mine.
4. Share capital
The group acquired 301 603 of its own shares through purchases on the JSE
Limited during the period. The total amount paid to acquire the shares was R53
million. The shares have been utilised in the allocation of conditional share
awards under the Kumba Bonus Share Plan. The shares are held as treasury
shares and the purchase consideration has been deducted from equity.
Options exercised under the management share option scheme during the period
to 30 June 2009 resulted in 1 333 740 shares being issued (2008: 759,610
shares) with exercise proceeds of R65 million (2008: R25 million).
5. Interest-bearing borrowings
Kumba`s net debt position at balance sheet dates is as follows:
Reviewed Reviewed Audited
30 June 30 June 31 Dec
2009 2008 2008
Rm Rm Rm
Long-term interest-bearing
borrowings 2 678 2 840 977
Short-term interest-bearing
borrowings 2 862 1 463 2 881
Total 5 540 4 303 3 858
Cash and cash equivalents (5 157) (2 009) (3 810)
Net debt 383 2 294 48
Total equity 7 502 5 511 8 506
Interest cover (times) 51 27 33
Movements in interest-bearing borrowings are analysed as follows:
Reviewed Reviewed Audited
30 June 30 June 31 Dec
2009 2008 2008
Rm Rm Rm
Opening balance as at 1
January 3 858 3 530 3 530
Debt raised 1 700 2 840 3 847
Repayment of borrowings (18) (2 067) (3 519)
Closing balance 5 540 4 303 3 858
Subsequent to 30 June 2009 Kumba has secured a R3.2 billion term loan to
refinance the revolving facility that matures in November 2009. To date R2.7
billion of the R5.4 billion term debt facility raised in 2008 has been drawn
down to finance Kumba`s expansion. This facility matures on 28 November 2013.
The maximum net debt in terms of current covenants is R5.5 billion, Kumba will
be released from this covenant upon repayment of the maturing revolving
facility. Kumba was not in breach of any of its covenants during the period.
The group had undrawn borrowing facilities at 30 June 2009 of R6.7 billion.
6. Significant items included in operating profit
Operating expenses
Operating expenses is made up as follows:
Reviewed Reviewed Audited
30 June 30 June 31 Dec
2009 2008 2008
Rm Rm Rm
Production costs 2 581 1 864 4 030
Movement in inventories (111) 97 (289)
Finished products (117) 219 (190)
Work-in-progress 6 (122) (99)
Cost of goods sold 2 470 1 961 3 741
Selling and distribution
costs 1 468 865 1 977
Cost of services rendered -
shipping 1 234 979 2 085
Impairment of property, plant
and equipment - - 50
Sublease rent received (6) (3) (6)
Operating expenditure 5 166 3 802 7 847
Operating profit has been derived after taking into account the following
items:
Reviewed Reviewed Audited
30 June 30 June 31 Dec
2009 2008 2008
Rm Rm Rm
Staff costs 786 601 1 376
Share-based payment expenses 68 54 106
Depreciation of property,
plant and equipment 205 134 332
Impairment of property, plant
and equipment - - 50
(Profit)/loss on disposal and
scrapping of property, plant
and equipment (22) - 12
Finance gains (97) (159) (1 043)
- Gains on derivative
financial instruments (491) (206) (133)
- Foreign currency
losses/(gains) 394 47 (910)
Operating profit capitalised - 352 370
- Revenue - 574 579
- Expenses - (222) (209)
7. Income taxes
The income tax expense is recognised based on management`s best estimate of
the effective annual income tax rate expected for the full financial year. The
estimated effective annual tax rate (excluding Secondary Taxation on
Companies) used for the year to 31 December 2009 is 27.5% (2008: 28.4%).
8. Related party transactions
During the six months 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.
Included in cash and cash equivalents at 30 June 2009 is a short-term deposit
facility placed with Anglo American SA Finance Limited of R450 million.
9. Segmental reporting
The chief operating decision-maker which is responsible for allocating
resources and assessing performance of the operating segments, has been
defined as the Kumba executive committee. Management has determined the
operating segments of the group based on the reports reviewed by the executive
committee.
The executive committee considers the business principally according to the
nature of the products and service provided, with the segment representing a
strategic business unit. The reportable operating segments derive their
revenue primarily from mining, extraction, production and selling of iron ore
and shipping services charged to external clients.
Corporate, administration and other expenditure not allocated to the different
segments therefore form part of the reconciliation to profit before taxation
under the heading `Other segments`.
The Kumba executive committee assesses the performance of the operating
segments based on a measure of earnings before interest and tax (`EBIT`). This
measurement basis is consistent with `operating profit` in the financial
statements. Interest income and expenditure are not allocated to segments, as
this type of activity is managed on a central group basis.
The total segment revenue comprises revenue from external customers as the
group does not have any inter-segment revenue.
Sishen Thabazimbi Shipping
Mine Mine operations Total
Rm Rm Rm Rm
Six months ended 30
June 2009
Revenue (from
external customers) 10 175 267 1 545 11 987
EBIT 6 718 6 305 7 029
Six months ended 30
June 2008
Revenue (from
external customers) 7 365 260 1 423 9 048
EBIT 4 973 9 440 5 422
Year ended 31
December 2008
Revenue (from
external customers) 18 308 640 2 412 21 360
EBIT 13 705 32 317 14 054
A reconciliation of EBIT to total profit before taxation is provided
as follows:
Reviewed Reviewed Audited
30 June 30 June 31 Dec
2009 2008 2008
Rm Rm Rm
Total EBIT for reportable
segments 7 029 5 422 14 054
Other segments (208) (176) (541)
Operating profit 6 821 5 246 13 513
Net finance costs (73) (51) (251)
Profit before taxation 6 748 5 195 13 262
Kumba is domiciled in South Africa. The result of its revenue from external
customers and its non-current assets (other than financial instruments and
deferred tax assets) disclosed on a geographical basis, are set out below:
Revenue from external customers:
Reviewed Reviewed Audited
30 June 30 June 31 Dec
2009 2008 2008
Rm Rm Rm
Total revenue 11 987 9 048 21 360
South Africa 622 603 1 341
Export 11 365 8 445 20 019
Europe 520 2 207 5 218
China 9 115 4 482 9 203
Rest of Asia 1 730 1 756 5 598
Non-current assets:
Reviewed Reviewed Audited
30 June 30 June 31 Dec
2009 2008 2008
Rm Rm Rm
Total 9 532 6 553 8 156
South Africa 9 530 6 511 8 155
China 1 - -
Rest of Africa 1 42 1
10. Changes in contingent liabilities since 31 December 2008
There have been no significant changes in the contingent liabilities disclosed
at 31 December 2008 that arise from the guarantees provided for environmental
rehabilitation and decommissioning obligations of the Kumba Rehabilitation
Trust Fund. The bank guarantees for property acquisitions have been exercised
subsequently to the 2008 year end.
11. Legal proceedings
Lithos Corporation (Pty) Limited (Lithos)
Kumba continues to defend the merits of the claim and is of the view and has
been so advised, that the basis of the claim and the quantification thereof is
fundamentally flawed. A trial date has been provisionally allocated, being 8
March 2010 to 2 April 2010. No liability has been recognised for this
litigation.
Miferso
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. The arbitration
process will commence during the third quarter of 2009. These proceedings are
confidential in nature.
ArcelorMittal SA Limited
Kumba and ArcelorMittal SA have agreed to arbitration to resolve the
differences in interpretation of the Sishen Supply Agreement. Arbitration
proceedings were initiated by Kumba. Arbitrators have been appointed and
hearings commenced in June 2009. These proceedings are confidential in nature.
12. Post-balance sheet date events
The directors are not aware of any matter or circumstance arising since the
end of the period and up to the date of this report, not otherwise dealt with
in this report.
13. Corporate governance
The group subscribes to the Code of Good Corporate Practices and Conduct as
contained in the King II Report on corporate governance and the Board has
satisfied itself that Kumba has complied throughout the period under review in
all material aspects with the code.
14. Independent audit opinion
The group`s auditors, Deloitte & Touche, have issued their unmodified review
opinion on the condensed consolidated interim financial report for the six
months ended 30 June 2009. A copy of their unmodified review opinion is
available for inspection at the company`s registered office.
On behalf of the Board
PL Zim CI Griffith 22 July 2009
Chairman Chief Executive Officer Pretoria
Notice of interim cash dividend
At its Board meeting on 22 July 2009 the directors declared an interim cash
dividend of R7.20 per share on the ordinary shares from profits accrued during
the year ending 31 December 2009. 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, 14 August 2009
Trading ex dividend commences Monday, 17 August 2009
Record date Friday, 21 August 2009
Dividend payment date Monday, 24 August 2009
Share certificates may not be dematerialised or rematerialised between Monday,
17 August 2009 and Friday, 21 August 2009, both days inclusive.
By order of the Board
VF Malie 22 July 2009
Company secretary Pretoria
Registered office Transfer secretaries
Computershare Investor Services (Pty)
Centurion Gate Limited
Building 2B 70 Marshall Street
124 Akkerboom Road Republic of South Africa
Centurion, 0157 PO Box 61051, Marshalltown, 2107
Republic of South Africa Sponsor to Kumba:
Tel: +27 12 683 7000 Rand Merchant Bank (a division of
Fax: +27 12 683 7009 FirstRand Bank Limited)
Directors
Non-executive - PL Zim (chairman), PM Baum, GS Gouws, PB Matlare, DD Mokgatle,
AJ Morgan, N Moyo, ZBM Bassa; Executive - CI Griffith (CEO), VP Uren (CFO)
Company secretary: VF Malie
Further financial results available at www.kumba.co.za
Date: 23/07/2009 08:00:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
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