| Wed 16 Mar 2011, 17:34 | | EHS - Evraz Highveld Steel and Vanadium Limited - Audited results for the year |
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EHS
EHS
EHS - Evraz Highveld Steel and Vanadium Limited - Audited results for the year
ended 31 December 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 Company" or "Evraz Highveld" or "the Group")
AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2010
EBITDA loss of R263 million
(2009: positive R447 million)
Headline loss of R383 million
(2009: earnings R167 million)
Sales revenue increased to
R5.1 billion from R4.3 billion in 2009
Chairman and CEO`s Review
1. Key financials
The operating loss for the period was R823 million, compared to an operating
profit of R192 million made in 2009. Domestic steel sales prices decreased by
5%, resulting in a R145 million reduction in revenue.
Cost increases were mainly due to: a 13% strengthening of the Rand against the
Dollar, resulting in a R280 million loss in export revenue; an impairment of
R230 million for the channel induction furnace; R200 million increase in energy
costs, mainly due to a 24% price increase; additional maintenance costs of R160
million due to the deferment of maintenance projects in 2009 and an increase in
provisions of R150 million.
As a result of the interruption in gas supply experienced during the first half
of the year, a substantial volume of tons of both steel and vanadium slag were
lost. In order to address the issue, arbitration has been initiated against the
gas supplier, namely Afrox.
2. Health and Safety
The Company`s lost time injury frequency rate for 2010 was 1.85, compared to
1.80 for 2009. This is disappointing considering that Safety is the key priority
for the Company. An aggressive strategy, including intensified focus on a
culture of a safe working environment and zero tolerance for unsafe acts, is
being implemented.
3. Operations
Steel
The casted steel output for the period increased by 12% to 773,646 tons compared
to the same period last year. However, production was less than planned mainly
as a result of disruptions in the gas supply and operational shutdowns.
Vanadium
A total of 64,202 tons of vanadium slag was produced with 8,673 tons of V in
V2O5 for the period, compared to 46,614 tons, with 6,297 tons of V in V2O5
produced for the same period last year.
Environment
The Company is working together with the Department of Environmental Affairs to
address the quality of its emissions. Environmental capital projects have
commenced and a comprehensive action plan has been submitted.
4. Markets
Global and South African markets
Global crude steel production increased by 15.7% to 1.39 billion tons and by
20.6%, excluding China, in 2010, compared to 2009. In South Africa, steel
production for the period increased by a more modest 13.3%. Real consumption in
South Africa in 2010 increased by approximately 7% compared to 2009. However,
the imports into South Africa increased by approximately 26.6% during 2010
compared to 2009, mainly as a result of the strengthening of the Rand.
Evraz Highveld sales
Domestic steel sales volumes during the period increased by 8% compared to 2009.
As a result of increased mining activities in South Africa as well as
neighbouring countries, rail sales increased by 84% compared to 2009.
Total international steel sales volumes decreased by 1% during 2010 compared to
2009. However, the export sales volumes of semi-finished products decreased by
52%.
Conversely, export sales volumes of structural steel products increased by 111%
and that of flat-rolled products by 106% in 2010, compared to 2009. Both
domestic vanadium slag sales volumes and export sales volumes increased with
159% and 17% respectively during 2010 compared with 2009.
5. Granting of new order mining rights
The Department of Mineral Resources ("DMR") granted the Company`s application
for the conversion of its old order mining rights on 28 January 2011. The formal
process of notarial execution and registration is continuing and it is expected
to be completed within the forthcoming quarter. This will bring about the
finalisation of the empowerment transaction with Umnotho weSizwe for the Mapochs
Mine.
6. Outlook
2010 was an extremely difficult and challenging year. However, indications of
market improvement are becoming evident with increases in demand and prices for
both steel and vanadium. The construction sector is currently still weak, with
some indications that it would improve in the longer term.
B J T Shongwe A S MacDonald
Chairman) (Chief Executive Officer)
16 March 2011
Group audited financial results
Basis of preparation
The Group`s financial results for the quarter and twelve months ended 31
December 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, including the Standards and Interpretations as
listed below.
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, Revised - Business Combinations (effective from 1 January 2010)
* IAS 27, Amended - Consolidated and Separate Financial Statements (effective
from 1 January 2010)
* IAS 39, Amended - Financial Instruments: Recognition and Measurement -
Eligible Hedged Items (effective from 1 January 2010)
* IFRIC 17, Distribution of Non-cash Assets to Owners (effective from 1 January
2010)
* IFRIC 18, Transfers to Assets from Customers (effective from 1 January 2010)
* 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 Standards, amendment to the Standards and Interpretations,
effective in future accounting periods have not been adopted in these financial
statements:
* IAS 32, Amended - Classification of rights issues denominated in a foreign
currency (effective from 1 May 2010)
* IAS 24, Amended - Related party disclosures (effective from 1 January 2011)
* IFRS 9, Financial Instruments Classification and Measurement (effective from
1 January 2013)
* IFRIC 14, Amended - Prepayments of a minimum funding requirement (effective
from 1 January 2011)
* IFRIC 19, Extinguishing financial liabilities with equity instruments
(effective from 1 July 2010)
* IFRS 1, Amended - Severe Hyperinflation and removal of fixed dates for
First-time adopters (effective from 1 July 2011)
* IFRS 7, Amended - Financial Instruments: Disclosures (effective from 1 July
2011)
* IAS 12, Amended (previously ED 2010/11) - Deferred Tax: Recovery of underlying
assets (effective from 1 July 2011)
* Improvements to IFRS (effective from either 1 July 2010 or 1 January 2011)
The financial information has been audited by Ernst & Young Inc. whose
unmodified audit report is available for inspection at the Company`s registered
office.
CONDENSED CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION
Audited Audited
as at as at
31 Dec 31 Dec
2010 2009
Rm Rm
ASSETS
Non-current assets 1 661 1 884
Property, plant and equipment 1 607 1 884
Deferred tax asset 54 -
Current assets 2 402 3 011
Inventories 1 084 1 228
Trade and other receivables and prepayments 826 711
Cash and short-term deposits 492 1 072
TOTAL ASSETS 4 063 4 895
EQUITY AND LIABILITIES
Total equity 2 510 3 074
Non-current liabilities 536 712
Provisions 536 469
Deferred tax liability - 243
Current liabilities 1 017 1 109
Trade and other payables 745 771
Income tax payable 54 156
Provisions 218 182
TOTAL EQUITY AND LIABILITIES 4 063 4 895
Net cash 492 1 072
Net asset value - cents per share 2 532 3 101
CONDENSED CONSOLIDATED INCOME STATEMENTS
Unaudited Unaudited Audited Audited
for the for the for the for the
three months three months year year
ended ended ended ended
31 Dec 31 Dec 31 Dec 31 Dec
2010 2009 2010 2009
Note Rm Rm Rm Rm
Sale of goods 1 214 1 233 5 125 4 252
Revenue 1 214 1 233 5 125 4 252
Cost of sales (1 334) (1 004) (5 031) (3 578)
Gross (loss)/profit (120) 229 94 674
Selling and
distribution costs (84) (70) (301) (243)
Administrative expenses (85) (53) (353) (201)
Other operating expenses (221) (26) (263) (38)
Operating (loss)/profit (510) 80 (823) 192
Finance costs (12) (11) (49) (61)
Finance income 7 10 36 73
(Loss)/Profit before tax (515) 79 (836) 204
Income tax credit/(expense) 5 138 (21) 287 (41)
(Loss)/Profit for the
period/year (377) 58 (549) 163
Cents Cents Cents Cents
(Loss)/Earnings per share
- basic and diluted (380.2) 59.0 (553.7) 164.4
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited Audited
for the for the for the for the
three months three months year year
ended ended ended ended
31 Dec 31 Dec 31 Dec 31 Dec
2010 2009 2010 2009
Rm Rm Rm Rm
(Loss)/Profit for the
period/year (377) 58 (549) 163
Other comprehensive
(loss)/income:
Exchange differences on
translation of foreign
operations (17) 9 (15) (37)
Total comprehensive (loss)/income
for the period/year (394) 67 (564) 126
HEADLINE EARNINGS PER SHARE
Unaudited Unaudited Audited Audited
for the for the for the for the
three months three months year year
ended ended ended ended
31 Dec 31 Dec 31 Dec 31 Dec
2010 2009 2010 2009
Rm Rm Rm Rm
Reconciliation of headline
(loss)/earnings:
(Loss)/Profit for the
period/year (377) 58 (549) 163
Add after tax effect of:
Net loss on disposal and
scrapping of property,
plant and equipment 162 6 166 4
Headline (loss)/earnings (215) 64 (383) 167
Cents Cents Cents Cents
(Loss)/Earnings per
share - headline and diluted (216.8) 64.6 (386.3) 168.1
Headline (loss)/earnings per share is calculated in terms of Circular 8/2007
Headline Earnings issued by the South African Institute of Chartered
Accountants.
Million Million Million Million
Number of shares
Ordinary shares in issue
as at end date * 99.2 99.2 99.2 99.2
* 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 capital
and share Other capital
premium reserves
Rm Rm
2009
Balance at 1 January 2009 585 191
Profit for the period
Other comprehensive loss for the quarter (10)
Balance at 31 March 2009 - Reviewed 585 181
Profit for the period
Other comprehensive loss for the quarter (35)
Balance at 30 June 2009 - Reviewed 585 146
Loss for the period
Other comprehensive loss for the quarter (2)
Balance at 30 September 2009 - Reviewed 585 144
Profit for the period
Other comprehensive income for the quarter 9
Balance at 31 December 2009 - Audited 585 153
2010
Loss for the period
Other comprehensive income for the quarter 2
Balance at 31 March 2010 - Reviewed 585 155
Loss for the period
Other comprehensive loss for the quarter (2)
Balance at 30 June 2010 - Reviewed 585 153
Loss for the period
Other comprehensive income for the quarter 2
Balance at 30 September 2010 - Unaudited 585 155
Loss for the period
Other comprehensive loss for the quarter (17)
Balance at 31 December 2010 - Audited 585 138
Retained
earnings Total
Rm Rm
2009
Balance at 1 January 2009 2 173 2 949
Profit for the period 130 130
Other comprehensive loss for the quarter (10)
Balance at 31 March 2009 - Reviewed 2 303 3 069
Profit for the period 16 16
Other comprehensive loss for the quarter (35)
Balance at 30 June 2009 - Reviewed 2 319 3 050
Loss for the period (41) (41)
Other comprehensive loss for the quarter (2)
Balance at 30 September 2009 - Reviewed 2 278 3 007
Profit for the period 58 58
Other comprehensive income for the quarter 9
Balance at 31 December 2009 - Audited 2 336 3 074
2010
Loss for the period (17) (17)
Other comprehensive income for the quarter 2
Balance at 31 March 2010 - Reviewed 2 319 3 059
Loss for the period (127) (127)
Other comprehensive loss for the quarter (2)
Balance at 30 June 2010 - Reviewed 2 192 2 930
Loss for the period (28) (28)
Other comprehensive income for the quarter 2
Balance at 30 September 2010 - Unaudited 2 164 2 904
Loss for the period (377) (377)
Other comprehensive loss for the quarter (17)
Balance at 31 December 2010 - Audited 1 787 2 510
Unaudited Unaudited Audited Audited
for the for the for the for the
three months three months year year
ended ended ended ended
31 Dec 31 Dec 31 Dec 31 Dec
2010 2009 2010 2009
Cents Cents Cents Cents
Dividends per share
Dividends declared and paid - - - -
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited Unaudited Audited Audited
for the for the for the for the
three months three months year year
ended ended ended ended
31 Dec 31 Dec 31 Dec 31 Dec
2010 2009 2010 2009
Rm Rm Rm Rm
Cash flows from operating
activities
Cash from/(used in) operations
before tax paid 36 (27) (179) 104
Income tax paid (26) (68) (109) (565)
Net cash from/(used in)
operating activities 10 (95) (288) (461)
Cash flows from investing
activities
Proceeds from disposal of
discontinued operations - 164 - 164
Net additions to property,
plant and equipment (78) (50) (250) (196)
Net cash (used in)/from
investing activities (78) 114 (250) (32)
Net (decrease)/increase in
cash and cash equivalents (68) 19 (538) (493)
Cash and cash equivalents at
the beginning of the period/year 575 1 058 1 072 1 601
Effects of exchange rate changes
on cash held in foreign
currencies (15) (5) (42) (36)
Cash and cash equivalents at
the end of the period/year 492 1 072 492 1 072
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
Sales to East Metals S.A. (a fellow subsidiary of Mastercroft Limited) amounted
to R895 million (2009: R490 million) for the twelve months ended 31 December
2010. This constitutes 17% of total revenue for the year, compared to 11% 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 at zero cost, 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 Unaudited Audited Audited
for the for the for the for the
three months three months year year
ended ended ended ended
31 Dec 31 Dec 31 Dec 31 Dec
2010 2009 2010 2009
Rm Rm Rm Rm
Revenue from the sale of goods
Steelworks 799 943 3 612 3 208
Vanadium 415 290 1 513 1 044
Total 1 214 1 233 5 125 4 252
Unaudited Unaudited Audited Audited
for the for the for the for the
three months three months year year
ended ended ended ended
31 Dec 31 Dec 31 Dec 31 Dec
2010 2009 2010 2009
Rm Rm Rm Rm
Operating (loss)/profit
Steelworks (559) (64) (1 220) 1
Vanadium 49 144 397 191
Total (510) 80 (823) 192
Audited Audited
as at as at
31 Dec 31 Dec
2010 2009
Rm Rm
Total assets
Steelworks 3 340 3 996
Vanadium 723 899
Total 4 063 4 895
4. Supplementary revenue information - Unaudited
For the For the
three months three months
ended ended
31 Dec 31 Dec
2010 2009
Sales volumes of major products
Total steel Tons 158 315 158 536
Ferrovanadium Tons V 1 153 1 360
Modified Vanadium Oxide Tons V 421 -
Vanadium slag Tons V2O5 - 810
Fines ore Tons 167 610 158 906
Weighted average selling prices
achieved for major products
Total steel US$/t 663 756
Ferrovanadium US$/kg V 28 23
Modified Vanadium Oxide US$/kg V 21 -
Vanadium slag US$/kg V2O5 - 6
Fines ore US$/t 37 19
Average R/$ exchange rate 6.91 7.51
For the For the
year year
ended ended
31 Dec 31 Dec
2010 2009
Sales volumes of major products
Total steel Tons 610 602 580 943
Ferrovanadium Tons V 5 488 4 884
Modified Vanadium Oxide Tons V 468 -
Vanadium slag Tons V2O5 2 102 810
Fines ore Tons 623 928 519 578
Weighted average selling prices
achieved for major products
Total steel US$/t 715 621
Ferrovanadium US$/kg V 27 23
Modified Vanadium Oxide US$/kg V 20 -
Vanadium slag US$/kg V2O5 6 5
Fines ore US$/t 38 24
Average R/$ exchange rate 7.32 8.43
5. Income tax
Unaudited Unaudited Audited Audited
for the for the for the for the
three months three months year year
ended ended ended ended
31 Dec 31 Dec 31 Dec 31 Dec
2010 2009 2010 2009
Rm Rm Rm Rm
South African
Normal
Current - (16) - 2
Prior year over provision 1 - 1 -
Deferred
Current (159) 23 (318) 23
Prior year under provision 21 10 21 10
Non-South African
Normal
Current (1) 4 9 6
Income tax (credit)/expense (138) 21 (287) 41
The period/annual income
tax expense is accrued using
the estimated average annual
effective income tax rate
applied to the pre-tax income
of the interim report.
6. Financial ratios - Unaudited
Current ratio 2.36 2.72 2.36 2.72
Market capitalisation - Rm 8 279 6 394 8 279 6 394
7. Impairment of channel induction furnace
In the fourth quarter of 2010 the Board resolved to impair, in its present
condition, the channel induction furnace resulting in a write-off of the book
value of R230 million in terms of accounting principles. This furnace was
originally intended for superheating blown metal after the shaking ladle and to
melt extra scrap in the Steel Plant. After two major breakdowns it was concluded
that the furnace is most probably not fit for purpose. The Company has placed
the supplier on terms, in that the supplier must produce a furnace that is fit
for the purpose of the channel induction furnace within a reasonable time.
8. Inventories
The amount of write-down of inventories due to net realisable value provision
requirement is R178 million (2009: R101 million)(Work-in-Progress R92 million
(2009: R76 million) and finished goods R86 million (2009: R25 million)).
9. 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 DMR
for the unscheduled closure of Mapochs Mine.
In terms of the Company`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 R32
million before tax and R23 million after tax (2009: R39 million before tax and
R28 million after tax).
As required by certain suppliers of the Company, guarantees were issued in
favour of these suppliers to the value of R9 million (2009: R8 million) in the
event that the Company will not be able to meet its obligations to the
suppliers.
10. Status of previously reported possible litigation
A new summons was received on 13 May 2010 from the Competition Commission
relating to a complaint referring to price fixing allegations of flat products.
A comprehensive response with requested documentation was compiled and submitted
to the Commission on 5 July 2010. No further response has been received from the
Commission.
A summons was received on 3 March 2010 from Xai-Xai Slag Distributors
(Proprietary) Limited and Rothinvest 30 (Proprietary) Limited t/a Xai-Xai Slag
Management (in liquidation). The Company brought an application for exception,
which was heard on 14 February 2011. The judgement is awaited.
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
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
Sponsor:
J.P. Morgan Equities Limited
Date: 16/03/2011 17:34:00 Produced by the JSE SENS Department.
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