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EHS
EHS
EHS - Evraz Highveld - Interim report for quarter three and the nine months to
30 September 2010
Evraz Highveld Steel and Vanadium Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1960/001900/06)
Share code: EHS
ISIN: ZAE000146171
("the Corporation" or "Evraz Highveld" or "the Group")
INTERIM REPORT FOR QUARTER THREE AND THE NINE MONTHS TO 30 SEPTEMBER 2010
CHAIRMAN AND CEO`S REPORT
- Sales revenue increased from R3 019 million (30 September 2009 YTD) to R3
911 million
- Operating loss of R313 million (September 2009 YTD: R113 million profit)
- Headline earnings negative R168 million (30 September 2009 YTD positive
R103 million)
- Ongoing weak domestic demand and continued uncertain market conditions
coupled with remaining strong Rand
- New non-executive director appointed on 11 November 2010
- Stabilised oxygen supply
- Non-commissioning of new furnace
1. Operations
Repair work by the oxygen supplier to their process plant has stabilised
the overall supply situation, resulting in the steel output recovering in
the third quarter.
Steel
Cast steel production for the first nine months of 2010 increased by 18% in
comparison to the same period 2009, but was still 10% lower than the
equivalent period in 2008. Production for the third quarter 2010 was 21%
higher than in the second quarter.
Production of semi-finished products, including billets, commenced during
the third quarter. This material will be sold during the fourth quarter.
Vanadium
A total of 44 668 tons of vanadium slag was produced with 6 023 tons of V
in V2O5 for the first nine months of 2010, compared to 30 998 tons, with 4
082 tons of V in V2O5 produced for the same period last year.
Production of iron ore fines for the first nine months of 2010 increased by
41% in comparison to the same period last year, while sales volumes for the
same periods increased by 27%. Production volume achieved in the third
quarter was similar to that of the second quarter 2010.
2. Key financials
An operating loss of R58 million was incurred for the third quarter, with a
cumulative loss of R313 million for the first nine months 2010. The
operating loss for the third quarter was partially mitigated by a write up
of 48 kt of internally generated scrap, amounting to a value of R98
million. This has come about due to a reassessment of our scrap stock
requirements.
The reduction in operating loss from the second quarter 2010 to the third
quarter was principally due to an increase in revenue of 4%, a decrease in
cost of sales of 8%.
Average FeV prices increased by 18% from US$25.52 kg V in the first nine
months of 2009 to US$30.13 kg V in 2010.
3. Markets
Global crude steel production increased by 19% for the first nine months of
2010 as compared to the same period last year, while the increase in South
Africa for the same comparative period was 5.7%.
Total steel sales increased by 7% for the first nine months of 2010 as
compared to the same period last year, and by 7% from the second quarter to
the third quarter of 2010. Export sales decreased by 36% for the first
nine months of 2010 in comparison to the same period last year. However,
we are now seeing export sales increasing again due to the ongoing weak
domestic market.
4. Safety, health and environment
It is disappointing that the Lost Time Injury Frequency Rate (LTIFR) has
increased to 1.86 at the end of September 2010 in comparison to a LTIFR of
1.80 for the year 2009. We have implemented a renewed focus in this key
area.
Following a renewed focus on Voluntary Counselling and Testing, the total
number of employees tested at the end of the third quarter had more than
doubled from the end of the first half 2010.
We have now embarked on a number of environmental projects which is part of
our long term environmental strategy, of which the development of the
integrated ambient air monitoring network is of significance.
5. Change in Directorate
We are pleased to announce the appointment of Dmitrij Scuka as non-
executive director as from today. Dmitrij is Director of Operations,
European and African Assets of Evraz Group SA, and has extensive experience
in specifically business transformation, ERP implementation and project
management which will be of great value to Evraz Highveld.
6. Prospects
The commissioning of the channel induction furnace has been fraught with
difficulties, which will lead to us reaching a final decision on the
equipment being fit for purpose during the last quarter of 2010. The
capital cost of this project is in the region of R230 million.
The financial position of the Corporation is not likely to improve during
the remainder of 2010, due to weakening local markets and the strong Rand.
We anticipate that the local economy will not substantially improve until
the second half 2011.
B J T Shongwe A S MacDonald
(Chairman) (Chief Executive Officer)
Directors: B J T Shongwe (Chairman), A S MacDonald (Chief Executive Officer)
(British), G C Baizini (Italian), M Bhabha, C B Brayshaw, Mrs B E de Beer, A V
Frolov (Russian), Mrs B Ngonyama, D Scuka (Czech), P M Surgey, P S Tatyanin
(Russian) and T I Yanbukhtin (Russian)
Company Secretary: Mrs C I Lewis
GROUP UNAUDITED FINANCIAL RESULTS
Basis of preparation
The Group`s condensed consolidated financial statements for the nine months
ended 30 September 2010 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 Group`s most
recent annual financial statements.
These results are presented in terms of International Accounting Standards (IAS)
34 applicable to Interim Financial Reporting.
Significant accounting policies
i) The Group has adopted the following new and revised Standards and
Interpretations issued by the International Accounting Standards Board (the
IASB) and the International Financial Reporting Interpretation Committee
(IFRIC) of the IASB, that are relevant to its operations and effective for
accounting periods beginning on 1 January 2010. These Standards had no
impact on the results or disclosures of the Group.
- IFRS 2, Amended - Share-based Payments: Group cash-settled share-based
payment transactions (effective from 1 January 2010)
- IFRS 3, Business Combinations (effective from 1 July 2009)
- IAS 27, Consolidated and Separate Financial Statements (effective from 1
July 2009)
- IAS 39, Financial Instruments: Recognition and Measurement - Eligible
Hedged Items (effective from 1 July 2009)
- IFRIC 17, Distribution of Non-cash Assets to Owners (effective from 1 July
2009)
- IFRIC 18, Transfers to Assets from Customers (effective from 1 July 2009)
- Improvements to IFRS (issued April 2009 - effective mostly from 1 January
2010)
ii) From January 2010, the Group changed its accounting policy for the
valuation of scrap inventory from a cost formula where equal costs per ton
were allocated to scrap and to prime steel, to a formula where scrap
inventory is valued at the prevailing market price. It is not possible to
apply this change in allocation retrospectively, therefore it has been done
on all scrap produced from 1 January 2010.
iii) The following Standard, effective in future accounting periods, have not
been adopted in these financial statements:
- Improvements to IFRS (issued May 2010 - effective mostly from 1 July 2010)
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited Reviewed Audited as
as at as at at
30 Sep 30 Sep 31 Dec
2010 2009 2009
Note Rm Rm Rm
ASSETS
Non-current assets 1 825 1 915 1 884
__________ __________ __________
Property, plant and 1 825 1 915 1 884
equipment
__________ __________ __________
Current assets 2 732 2 870 3 013
__________ __________ __________
Inventories 1 181 1 171 1 228
Trade and other 976 641 711
receivables and pre-
payments
Cash and short-term 5 575 1 058 1 074
deposits
__________ __________ __________
__________ __________ __________
TOTAL ASSETS 4 557 4 785 4 897
__________ __________ __________
EQUITY AND LIABILITIES
Total equity 2 904 2 900 3 074
Non-current 603 769 712
liabilities
__________ __________ __________
Provisions 519 452 469
Deferred tax liability 84 317 243
__________ __________ __________
Current liabilities 1 050 1 116 1 111
__________ __________ __________
Trade and other 773 864 771
payables
Interest-bearing loans 5 - - 2
and borrowings
Income tax payable 79 236 156
Provisions 198 16 182
__________ __________ __________
__________ __________ __________
TOTAL EQUITY AND 4 557 4 785 4 897
LIABILITIES
__________ __________ __________
Net cash 575 1 058 1 072
Net asset value - 2 928 2 925 3 101
cents per share
CONDENSED CONSOLIDATED INCOME STATEMENTS
Unaudited Reviewed Unaudited Reviewed Audited for
for the for the for the for the the year ended
three three nine nine
months months months months
ended ended ended ended
30 Sep 30 Sep 30 Sep 30 Sep 31 Dec 2009
2010 2009 2010 2009
Note Rm Rm Rm Rm Rm
_________ ________ _________ ________ _______
Sale of goods 1 372 1 114 3 911 3 019 4 252
_________ ________ _________ ________ _______
Revenue 1 372 1 114 3 911 3 019 4 252
Cost of sales (1 256) ( 922) (3 697) (2 573) (3 578)
_________ ________ _________ ________ _______
Gross profit 116 192 214 446 674
Selling and (85) (64) (217) (173) (243)
distribution
costs
Administrative (73) (76) (268) (148) (201)
expenses
Other operating (16) (4) (42) (12) (38)
expenses
_________ ________ _________ ________ _______
Operating (58) 48 (313) 113 192
(loss)/profit
Finance costs (12) (17) (37) (50) (61)
Finance income 10 13 29 62 73
_________ ________ _________ ________ _______
(Loss)/Profit (60) 44 (321) 125 204
before tax
Income tax 6 32 (85) 149 (20) (41)
credit/(expense)
_________ ________ _________ ________ _______
(Loss)/Profit (28) (41) (172) 105 163
for the
period/year
_________ ________ _________ ________ _______
Cents Cents Cents Cents Cents
_________ ________ _________ ________ _______
(Loss)/Earnings (28.2) (41.5) (173.5) 105.4 164.4
per share -
basic and
diluted
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited Reviewed Unaudited Reviewed Audited
for the for the for the for the for the
three three nine nine year
months months months months ended
ended ended ended ended
30 Sep 30 Sep 30 Sep 30 Sep 31 Dec
2010 2009 2010 2009 2009
Rm Rm Rm Rm Rm
(Loss)/Profit (28) (41) (172) 105 163
for the
period/year
Other
comprehensive
income/(loss):
Exchange 2 (2) 2 (47) (37)
differences on
translation of
foreign
operations
_________ _________ _________ _________ _________
Total (26) (43) (170) 58 126
comprehensive
(loss)/income
for the
period/year
_________ _________ _________ _________ _________
_________
HEADLINE EARNINGS PER SHARE
Unaudited Reviewed Unaudited Reviewed Audited
for the for the for the for the for the
three three nine nine year
months months months months ended
ended ended ended ended
30 Sep 30 Sep 30 Sep 30 Sep 31 Dec
2010 2009 2010 2009 2009
Rm Rm Rm Rm Rm
Reconciliation of
headline
(loss)/earnings
(Loss)/Profit for (28) (41) (172) 105 163
the period/year
Add after tax effect
of:
Net (gain)/loss on (2) (1) 4 (2) 4
disposal and
scrapping of
property, plant and
equipment
_________ ________ _________ ________ ________
Headline (30) (42) (168) 103 167
(loss)/earnings
_________ ________ _________ ________ ________
Cents Cents Cents Cents Cents
(Loss)/Earnings per (30.3) (42.8) (169.4) 103.5 168.1
share - headline and
diluted
_________ ________ _________ ________ ________
Million Million Million Million Million
Number of shares
Ordinary shares in 99.2 99.2 99.2 99.2 99.2
issue as at end date
*+
_________ ________ _________ ________ ________
* Rounded to nearest hundred thousand.
+ Agree to weighted average and diluted number of ordinary shares.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE PERIOD/YEAR ENDED
Issued Other Retained Total
capital capital earnings
and share reserves
premium
Rm Rm Rm Rm
2009
Balance at 1 January 2009 585 191 2 173 2 949
Profit for the period 130 130
Other comprehensive loss (10) (10)
for the quarter
_________ _________ ________ ________
Balance at 31 March 2009 - 585 181 2 303 3 069
Reviewed
Profit for the period 16 16
Other comprehensive loss (35) (35)
for the quarter
_________ _________ ________ ________
Balance at 30 June 2009 - 585 146 2 319 3 050
Reviewed
Loss for the period (41) (41)
Other comprehensive loss (2) (2)
for the quarter
_________ _________ ________ ________
Balance at 30 September 585 144 2 278 3 007
2009 - Reviewed
Profit for the period 58 58
Other comprehensive income 9 9
for the quarter
_________ _________ ________ ________
Balance at 31 December 2009 585 153 2 336 3 074
- Audited
_________ _________ ________ ________
2010
Loss for the period (17) (17)
Other comprehensive income 2 2
for the quarter
_________ _________ ________ ________
Balance at 31 March 2010 - 585 155 2 319 3 059
Reviewed
Loss for the period (127) (127)
Other comprehensive loss (2) (2)
for the quarter
_________ _________ ________ ________
Balance at 30 June 2010 - 585 153 2 192 2 930
Reviewed
Loss for the period (28) (28)
Other comprehensive income 2 2
for the quarter
_________ _________ ________ ________
Balance at 30 September 585 155 2 164 2 904
2010 - Unaudited
_________ _________ ________ ________
Note:
For the period from 1 January 2009 to date no dividend has been declared by the
Corporation.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited Reviewed Audited
for the for the for the
nine nine year
months months ended
ended ended
30 Sep 30 Sep 31 Dec
2010 2009 2009
Note Rm Rm Rm
Cash flows from operating
activities
Cash (used in)/generated by (215) 132 104
operations before tax paid
Income tax paid (83) (498) (565)
_________ ________ ________
Net cash used in operating (298) (366) (461)
activities
_________ ________ ________
Cash flows from investing
activities
Proceeds from disposal of - - 164
discontinued operations
Net additions to property, (172) (146) (196)
plant and equipment
_________ ________ ________
Net cash used in investing (172) (146) (32)
activities
_________ ________ ________
Cash flows from financing
activities
(Decrease)/Increase in short- (2) - 2
term loans
_________ ________ ________
Net cash (used in)/generated (2) - 2
by financing activities
_________ ________ ________
Effects of exchange rate (27) (31) (36)
changes on cash held in
foreign currencies
_________ ________ ________
Net decrease in cash and (499) (543) (527)
cash equivalents
Cash and cash equivalents at
the beginning of the 1 074 1 601 1 601
period/year
_________ ________ ________
Cash and cash equivalents at 5
the end of the period/year 575 1 058 1 074
_________ ________ ________
NOTES TO THE CONDENSED CONSOLIDATED 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
Steel sales to East Metals S.A., a fellow subsidiary, amounted to R331
million (September 2009 YTD: R403 million) for the nine months ended 30
September 2010. This constitutes 14% of total steel revenue for the period,
compared to 14% for the year ended 31 December 2009.
3. Segment information
The Group is organised into business units based on their products and has
two reportable segments as follows:
Steelworks
The major products of the steel segment are magnetite iron ore, structural
steel, plate and coil.
Vanadium
The major products of the vanadium segment are vanadium slag and
ferrovanadium. Vanadium slag is a waste product from the steelmaking
process, and this slag is transferred from the Steelworks to the Vanadium
plant, which then forms the input into the business of the Vanadium
business.
No operating segments have been aggregated to form the above reportable
operating segments. Management monitors the operating results of its
business units separately for the purposes of making decisions about
resource allocation and performance assessment. Segment performance is
evaluated based on operating profit.
The following tables present the revenue, operating profit and total assets
information regarding the Group`s operating segments:
Unaudited Reviewed Unaudited Reviewed Audited
for the for the for the for the for the
three three nine nine year
months months months months ended
ended ended ended ended
30 Sep 30 Sep 30 Sep 30 Sep 31 Dec
2010 2009 2010 2009 2009
Rm Rm Rm Rm Rm
Revenue from the
sale of goods
Steelworks 1 014 853 2 813 2 265 3 208
Vanadium 358 261 1 098 754 1 044
__________ ________ _________ ________ _______
Total 1 372 1 114 3 911 3 019 4 252
__________ ________ _________ ________ _______
Intersegment revenue is eliminated on consolidation.
Unaudited Reviewed Unaudited Reviewed Audited
for the for the for the for the for the
three three nine nine year
months months months months ended
ended ended ended ended
30 Sep 30 Sep 30 Sep 30 Sep 31 Dec
2010 2009 2010 2009 2009
Rm Rm Rm Rm Rm
Operating
(loss)/profit
Steelworks (150) 62 (661) 88 1
Vanadium 92 (14) 348 25 191
__________ ________ _________ ________ _______
Total (58) 48 (313) 113 192
__________ ________ _________ ________ _______
Unaudited Reviewed Audited
as at as at as at
30 Sep 30 Sep 31 Dec
2010 2009 2009
Rm Rm Rm
Total assets
Steelworks 4 280 4 374 4 413
Vanadium 277 411 484
__________ ________ ________
Total 4 557 4 785 4 897
__________ ________ ________
4. Supplementary revenue information - Unaudited
For the For the For the For the For the
three three nine nine year
months months months months ended
ended ended ended ended
30 Sep 30 Sep 30 Sep 30 Sep 31 Dec
2010 2009 2010 2009 2009
Sales volumes
of major
products
Total steel Tons 148 790 147 231 452 288 422 407 580 943
Ferrovanadium Tons V 1 219 1 147 4 336 3 524 4 884
Vanadium slag Tons 226 - 2 102 - 810
V2O5
Fines ore Tons 170 353 167 026 456 318 360 672 519 578
________ ________ ________ _______ _______
Weighted average selling prices achieved for major products
Total steel US$/t 786 695 726 591 621
Ferrovanadium US$/kg 27 26 27 23 23
V
Vanadium slag US$/kg 6 - 6 - 5
V2O5
Fines ore US$/t 34 40 38 26 24
Average R/$ 7.33 7.82 7.53 8.74 8.43
exchange rate
________ ________ ________ _______ _______
5. Net cash
Net cash is calculated as follows:
Unaudited Reviewed Audited
as at as at as at
30 Sep 30 Sep 31 Dec
2010 2009 2009
Rm Rm Rm
Cash and cash 575 1 058 1 074
equivalents
Bank overdraft included in other - - (2)
current liabilities
_________ ________ ________
Net cash 575 1 058 1 072
_________ ________ ________
6. Income tax
Unaudited Reviewed Unaudited Reviewed Audited
for the for the for the for the for the
three three nine nine year
months months months months ended
ended ended ended ended
30 Sep 30 Sep 30 Sep 30 Sep 31 Dec
2010 2009 2010 2009 2009
Rm Rm Rm Rm Rm
South African
Normal
Current - 32 - 18 35
Deferred (35) - (159) - -
Non-South African
Normal
Current 3 (13) 10 2 6
Reversal of - 66 - - -
deferred tax asset
_________ ________ _________ ________ _______
Income tax expense (32) 85 (149) 20 41
_________ ________ _________ ________ _______
In each period the income tax expense is accrued using the estimated
average annual effective income tax rate applied to the pre-tax income of
the interim report.
7. Financial ratios - Unaudited
Current ratio 2.60 2.57 2.60 2.57 2.71
Market 8 428 7 387 8 428 7 387 6 394
capitalisation - Rm
________ ________ ________ _______ _______
8. Contingent liabilities and guarantees
As required by the Mineral and Petroleum Resources Development Act, a
guarantee amounting to R264 million before tax and R190 million after tax
(2009: R235 million before tax and R169 million after tax) was issued in
favour of the Department of Mineral Resources for the unscheduled closure
of Mapochs Mine.
In terms of the Corporation`s employment policies, certain employees could
become eligible for post-retirement medical aid benefits at any time in the
future prior to their retirement, subject to certain conditions. The
potential liability, should they become medical scheme members in the
future, is R39 million before tax and R28 million after tax (2009: R39
million before tax and R28 million after tax).
As required by certain suppliers of the Corporation, guarantees were issued
in favour of these suppliers to the value of R8 million (2009: R8 million)
in the event that the Corporation will not be able to meet its obligations
to the suppliers.
9. Subsequent events
There have been no reportable events after the reporting period up to the
date of this announcement.
Registered office: Transfer secretaries:
Portion 93 of the farm Computershare Investor Services
Schoongezicht No. 308 JS (Proprietary) Limited
District eMalahleni 70 Marshall Street
Mpumalanga Johannesburg
PO Box 111 PO Box 61051
Witbank 1035 Marshalltown 2107
Tel: (013) 690 9911 Tel: (011) 370 5000
Fax: (013) 690 9293 Fax: (011) 688 5200
11 November 2010
Sponsor:
J.P. Morgan Equities
Date: 11/11/2010 17:30:01 Produced by the JSE SENS Department.
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