| Thu 1 Mar 2001, 0:00 | | Iscor Limited - Interim Results |
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Iscor Limited
Registration number: 1989/002164/06
Interim financial results for the six months
ended 31 December 2000
Net operating profit up 334%
Steel turnaround through re-engineering
Now ready for restructuring and unbundling
Comments
GROUP RESULTS
Net operating profit for the second quarter ended 31 December 2000 showed a
significant improvement on the first quarter despite very difficult steel
markets. Revenue increased by 17% and net operating profit by 163%.
As predicted, both the Mining and Steel operating units posted very
satisfactory operating results for the six months compared to the same period
last year. Revenue increased by 9%, while net operating profit improved by 334%
Headline earnings for the six months of R207 million were R401 million more
than last year's first half loss of R194 million, notwithstanding accounting
for Iscor's share of Saldanha Steel's after tax loss of R253 million
(1999/2000: R231 million).
Headline earnings per share at 80 cents compared with the headline loss of 76
cents per share for last year's first half.
SEGMENT RESULTS
Quarter ended Six months ended Year ended
31 Dec 30 Sep 31 December 30 June
2000 2000 2000 1999 2000
Rm Rm Rm Rm Rm
Revenue
Iron Ore 872 621 1 493 1 286 2 671
Coal 335 299 634 530 1 103
Base Metals 327 227 554 467 821
Flat Steel Products 1 794 1 549 3 343 3 456 7 035
Long Steel Products 898 827 1 725 1 534 3 252
Group (332) (198) (530) (678) (1 229)
Total 3 894 3 325 7 219 6 595 13 653
Net operating profit
Iron Ore 282 134 416 266 694
Coal 23 21 44 26 22
Base Metals 40 15 55 37 138
Heavy Minerals (6) (8) (14) (25) (46)
Flat Steel Products 200 48 248 (179) (71)
Long Steel Products 12 12 24 70 151
Group
* Unrealised profit
adjustment (4) (16) (20) (12) (4)
* Income from other
entities 36 23 59 39 99
* Group costs (35) (21) (56) (48) (132)
Total 548 208 756 174 851
Iron Ore
The Sishen mine achieved record production levels during the second quarter.
The expansion of the capacity of the Sishen-Saldanha rail line is progressing
well and record tonnages have been railed during December, resulting in a more
than doubling in net operating profit for the quarter of R282 million against
R134 million the previous quarter.
For the six months net operating profit increased by 56% in comparison with the
same period last year. Business fundamentals are very positive with good market
demand and both operating mines performing well.
The Sishen expansion project is 58% complete and progressing according to
schedule. The new load-out station has been commissioned. The drilling
programme for the Welgevonden feasibility study is also progressing according
to plan.
Coal
Net operating profit increased by 10% during the second quarter due to
increased volumes in both the export and local markets other than Eskom.
Selling prices increased substantially in the export market in the second
quarter. Sales to Eskom, which are energy-based rather than tonnage-based,
remained at contractual energy levels.
The increase of 69% in net operating profit for the six months is due to an
increase in export volumes as a result of market development together with
higher coal export prices.
Base Metals
Net operating profit improved by 167% during the second quarter, despite an
increase in revenue of only 44%. The lower net operating profit during the
first quarter was due to the extended maintenance shut in August. Increased
lead exports from Rosh Pinah, coupled with operating cost savings contributed
substantially to improved results during the second quarter.
Revenue for the six months increased by 19% due to better run-of-mine
throughput at Rosh Pinah, multiple lead export parcels and the sale of part of
the copper/cobalt residue at Zincor. The weaker exchange rate offset the
negative effects of the lower zinc price.
Net operating profit for the first six months improved by 49% compared to last
year due to higher sales levels, the achievement by Rosh Pinah of its
re-engineering targets and more favourable treatment charges negotiated on lead
sales.
Good progress was made with the joint venture exploration project in Southern
Namibia. Iscor/PE Minerals was also awarded a substantial portion of the newly
accessible Sperrgebiet exploration area.
Heavy Minerals (IHM)
The mining phase of the project was 53% completed at the end of December 2000
and hot commissioning will commence during April 2001 as planned. The
construction of the smelter phase of the project will be implemented once the
Ticor transaction becomes unconditional.
Ticor's shareholders have recently approved the purchase of a 40% share in the
IHM project with an option to buy Iscor's remaining interest when fully
commissioned, subject to regulatory approval. This represents a major direct
investment in SA and opens the way for Ticor to become one of the top three
international producers of heavy minerals.
Earnings and cash flow for Ticor are expected to improve further based on sound
performance and the sale of the shareholding in German Creek Coal Mine.
Flat Steel Products
Net operating profit improved significantly for the quarter and the first half
result of R248 million represented a major turn-around from last year's first
half loss of R179 million.
A very satisfactory level of stability in steel production has been achieved
since the blast furnace disruption in June and July 2000. Liquid steel
production in the second quarter would comfortably have exceeded first quarter
levels but for the decision to bring forward a planned maintenance shut on one
of the casters while export prices are at their lowest level. Production
improved by 6% compared with last year's first half and by 17% compared with
last year's second half. Flowing from the stabilised production environment
secondary grade output has dropped by a third since last year and the best
practice goal of 10% is now achievable.
Although domestic sales for the second quarter were up by 9%, this was due to a
catch-up on arrear deliveries. Underlying demand remained weak and was only 2%
up on last year's depressed levels.
Export sales volumes and total dispatches were down sharply on last year and
well below production levels due to the need to rebuild inventory levels and
process buffer stocks following the disruptions.
International steel prices continued to deteriorate during the quarter and have
reached the historic low levels experienced during the Asian crisis of 1998/99.
Our average realised price per ton, however, improved over last year's first
half as a result of the weaker exchange rate, the much reduced level of
non-prime material and the higher percentage of domestic sales.
During the quarter Iscor was cited for alleged dumping of hot rolled coil in
Argentina. In addition it also became known that the USA and Canada were
preparing to introduce dumping actions on hot rolled coil. The claims are being
vigorously defended as shipments to these countries have been consistently
below the "de minimis" levels.
Costs per ton for the quarter were contained at the same level as a year ago
and were 7,5% down on the first quarter. The sharp increases experienced in
iron ore, coke, coal and refractory costs as a result of the weakening of the
exchange rate together with the inflationary pressure on local costs were
offset by the impact of the re-engineering programme.
Environmental issues at the Vanderbijlpark Works are being managed under a
holistic master plan with a view to achieving ISO 14001 accreditation and
satisfying all official standards by dates agreed with the relevant authorities
The capital expenditure programme involving a number of re-engineering related
projects directed at efficiency improvements over the next two years, including
the SAP integrated information system, are on target and within forecast cost
levels.
Long Steel Products
Net operating profit for the half year of R24 million was well below the R70
million generated last year.
Production levels have been stable for the past two years and the operations
are within the lowest quartile on the international cost curve. However, cost
pressures on internationally priced inputs have put pressure on unit costs. A
6% drop in local sales volumes for the first half due to weak demand and the
further deterioration of export prices, put pressure on margins, despite the
positive impact of the weaker exchange rate. International prices are now at
historically low levels.
SALDANHA STEEL
The R297 million net operating loss for the first half was a significant
improvement on last year's comparative period loss of R400 million, but
nevertheless disappointing in relation to earlier expectations.
The sudden collapse in international prices in the June 2000 quarter continued
during the first half and prices have fallen again to the historical lows
experienced during the Asian crisis.
Production for the half year reached a level of 71% of rated capacity, 32%
above last year's first half and 15% above last year's second half, but still
below target. With the Midrex shaft furnace now operating at rated
availability, every effort is being made to achieve rated throughput as soon as
possible, despite problems still being experienced in the Corex unit.
A high-level team including international experts continue to focus on the
ramp-up to achieve rated capacity. The objective is to get cash costs below
$220/ton in line with the original projections.
The refinancing of Saldanha Steel is currently the subject of discussion
between the two shareholders.
SALE OF NON-CORE ASSETS
Further sales of R42 million from the housing portfolio during the period
brought the cumulative non-core asset sales since July 1996 to R600 million.
EXCHANGE RATE
The average exchange rate realised for the period of R6,95/USD resulted in a
R108 million (29 cents per share after tax) opportunity loss compared with the
average spot rate of R7,29/USD as a result of the hedging policy. For the
second half 76% of the estimated foreign earnings are hedged at a rate of
R7,47/USD.
PROSPECTS
Operating results for the iron ore, coal and zinc business units are expected
to improve significantly in the second half. Iron ore and zinc volumes should
improve and price increases are likely for iron ore and coal. The impetus
should continue through into next year when the heavy minerals project should
also start contributing.
Steel prices are expected to bottom-out during the second half. However, the
continuing flow of re-engineering benefits and a more favourable hedged
exchange rate will assist in mitigating the impact of lower average prices.
Saldanha Steel's second half results are unlikely to improve; the effect of
increased volumes will be offset by lower average prices.
DIVIDEND
Dividends are considered annually in August, based on the full year's results.
RESTRUCTURING
In November 2000 shareholders authorised the Board to proceed with the transfer
of the operating assets of the company to separate legal entities under the
Moratorium legislation prior to a broader restructuring.
The Board now proposes that Iscor be unbundled into two separate listed steel
and mining companies with effect from 1 July 2001. This is more fully explained
in a separate announcement and will be put to shareholders for formal approval
at a general meeting to be held before the end of the financial year.
On behalf of the Board
H J Smith M Macdonald
(Executive Chairman) (Executive Director, Finance)
1 March 2001
GROUP INCOME STATEMENT
Six months ended Year ended
31 December 30 June
2000 1999 2000
Unaudited Unaudited Audited
Rm Rm Rm
Revenue 7 219 6 595 13 653
Operating expenses 6 463 6 421 12 802
Net operating profit 756 174 851
Net financing costs (228) (219) (410)
Exceptional items (Note 1) 25 25 74
Goodwill amortisation (23) (26) (38)
Share of pre-taxation
(loss)/income
from equity accounted
investments (Note 2) (268) (356) (572)
Profit/(loss) before
taxation (Note 3) 262 (402) (95)
Taxation (51) 195 141
Profit/(loss) after
Taxation 211 (207) 46
Outside shareholders'
Interest (2) (1)
Net profit/(loss)
attributable to
ordinary shareholders 209 (208) 46
Adjusted for:
- exceptional items (25) (25) (74)
- goodwill amortisation 23 26 38
- net deficit on disposal
or scrapping
of property, plant and
equipment 19 35
- taxation on adjustments (6) (11)
Headline earnings/(loss) 207 (194) 34
Saldanha Steel's equity
accounted loss 253 231 473
Headline earnings excluding
Saldanha Steel 460 37 507
Ordinary shares (million)
- in issue 258 255 258
- weighted average number
of shares 258 257 256
- diluted weighted average
number of shares 269 270 267
Attributable earnings/
(loss) per share (cents)
- basic 81,0 (80,9) 18,0
- diluted 77,7 (77,0) 17,2
Headline earnings/(loss)
per share (cents)
- basic 80,2 (75,5) 13,3
- diluted 77,0 (71,9) 12,7
GROUP BALANCE SHEET
31 December 30 June
2000 1999 2000
Unaudited Unaudited Audited
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and
Equipment 9 206 8 390 8 690
Goodwill 58 68 70
Investments in associates
and joint ventures (Note 4)
- listed 779 628 709
- unlisted 825 718 450
Other financial assets 228 128 118
Derivative instrument
against interest-
bearing borrowings 95
11 096 9 932 10 132
Current assets
Cash and cash equivalents 991 1 476 726
Other 4 153 3 493 3 935
Total assets 16 240 14 901 14 793
EQUITY AND LIABILITIES
Capital and reserves
Shareholders' funds 8 184 7 722 8 079
Minority interest 6 3 5
Non-current liabilities
Interest-bearing borrowings 2 032 1 650 1 511
Non-current provisions 1 201 990 920
Deferred taxation 1 084 1 068 1 211
12 507 11 433 11 726
Current liabilities
Interest-bearing borrowings 1 275 1 491 938
Other 2 458 1 977 2 129
Total equity and
Liabilities 16 240 14 901 14 793
Net debt (Note 5) 2 316 1 665 1 628
Net worth per share (cents) 3 172 3 028 3 130
Capital expenditure
- incurred 944 458 1 248
- contracted 1 078 634 988
- authorised but not
contracted 9991 427 1 174
Capital commitment for
Saldanha Steel 600
Contingent liabilities
- Saldanha Steel
(loan guarantees) 1 716 1 700 2 128
- other 429 549 445
- operating lease 217 172 169
GROUP CASH FLOW
Six months ended Year ended
31 December 30 June
2000 1999 2000
Unaudited Unaudited Audited
Rm Rm Rm
Net cash flows from
operating activities 856 496 1 279
Net cash used in investing
activities
- capital expenditure (944) (458) (1 248)
- investments in joint
ventures and associates (600) (44)
- other 7
Net cash (outflow)/inflow (688) 45 (13)
Net cash flows from
financing activities
- odd-lot buyout (50) (50)
- net borrowings raised 953 752 60
Net increase/(decrease) in
cash and cash equivalents 265 747 (3)
Cash and cash equivalents
at beginning of period 726 729 729
Cash and cash equivalents
at end of period 991 1 476 726
GROUP STATEMENT OF CHANGES IN EQUITY
31 December 30 June
2000 1999 2000
Unaudited Unaudited Audited
Rm Rm Rm
Shareholders' funds at
beginning of period 8 079 7 980 7 980
Changes in share capital
and premium
- issue of shares 30
- odd-lot buyout (50) (50)
Changes in non-distributable
reserves
- currency translation
differences 72 20 66
- financial instruments
movements (114) (21) 12
- changes in attributable
reserves of
associated companies
and joint ventures 1 (5)
- transfer of equity
accounted earnings 70 60 (145)
- transfer of insurance
reserve 1 4
Changes in retained
income
- net effect of change in
accounting policy (64)
- net profit/(loss)
for the period 211 (208) 46
- transfer of equity
accounted earnings (70) (60) 145
- transfer of insurance
reserve (1) (4)
Shareholders' funds
at end of period 8 184 7 722 8 079
NOTES TO THE FINANCIAL STATEMENTS
Six months ended Year ended
31 December 30 June
2000 1999 2000
Unaudited Unaudited Audited
Rm Rm Rm
Note 1
Exceptional items
- surplus on sale of
residential properties 25 21 48
- profit on sale of
investment 4
- surplus on sale of joint
venture 26
25 25 74
Note 2
(Loss)/income from equity accounted
investments before taxation
- Saldanha (358) (426) (765)
- other 90 70 193
Note 3
Profit/(loss) before taxation is arrived at after
- depreciation (427) (390) (787)
- financing costs (301) (306) (602)
- interest received 73 81 192
- dividends received 12 8 24
Note 4
Listed investments
- market value 997 1 153 1 178
Unlisted investments
- directors' valuation 970 773 659
Note 5
Net debt comprises interest-bearing borrowings (current and non-current) less
derivative instrument against interest-bearing borrowings and cash and cash
equivalents.
Additional notes to the interim
financial statements
1. The interim financial statements should be read in conjunction with the 2000
annual financial statements. They are prepared in accordance with International
Accounting Standard 34 on Interim Financial Reporting and the accounting
policies used are consistent with those applied at the previous year end,
except for the accounting policy for the provision for the long-term
environment obligations for the future closure and restoration cost of the
group's mines, and the rehabilitation fund to finance such obligations. The
adoption of the policy had a net cumulative after-tax reduction of the opening
retained income of R64 million, with no material impact on the current year's
earnings. The comparative interim period and year-end figures have not been
adjusted.
2. During the period the company and its subsidiaries, in the ordinary course
of business, entered into various sale and purchase transactions with
associates and joint ventures. These transactions occurred under terms that are
no less favourable than those arranged with third parties.
3. Net debt increased by R688 million over the last six months, comprising
mainly the R600 million equity investment in Saldanha Steel. The after-tax
effect of the increased borrowings on headline earnings amounted to
approximately 8 cents per share.
PHYSICAL INFORMATION
Three months ended Six months ended Year ended
31 December 30 September 31 December 30 June
2000 2000 2000 1999 2000
Unaudited Unaudited Unaudited Unaudited Unaudited
'000 tons '000 tons '000 tons '000 tons '000 tons
IRON ORE
Production 7 225 5 758 12 983 11 819 24 825
Sales
- Exports 4 802 3 561 8 363 9 580 18 750
- Iscor 1 826 1 626 3 452 3 151 6 191
- Other 300 270 570 496 1 073
Total 6 928 5 457 12 385 13 227 26 014
COAL
Production
- Power
station 2 882 3 289 6 171 6 048 12 261
- Coking 564 583 1 147 979 2 073
- Other 681 595 1 276 1 118 2 086
Total 4 127 4 467 8 594 8 145 16 420
Sales
- Eskom 2 742 3 136 5 878 5 921 12 072
- Iscor 645 573 1 218 1 190 2 357
- Export 406 238 644 344 746
- Other 417 375 792 734 1 438
Total 4 210 4 322 8 532 8 189 16 613
BASE METALS
Production
- Zinc
concentrate 19 19 38 35 70
- Zinc metal 28 23 51 51 103
Zinc sales
- Iscor 9 8 17 17 31
- Other 15 19 34 39 77
Total 24 27 51 56 108
FLAT STEEL PRODUCTS
Liquid steel
production 895 933 1 828 1 725 3 289
Sales
- Local 476 437 913 891 1 866
- Export 205 156 361 678 1 082
Total 681 593 1 274 1 569 2 948
Local sales
as % of total
sales 70 74 72 57 63
LONG STEEL PRODUCTS
Liquid steel
production 512 491 1 003 1 008 1 998
Sales
- Local 179 189 368 391 793
- Export 235 208 443 400 854
Total 414 397 811 791 1 647
Local sales
as % of total
sales 43 48 45 49 48
SALDANHA STEEL
Revenue (Rm) 381 405 786 411 1 014
Net operating
loss (Rm) 161 136 297 400 615
Physical results
('000 tons)
- Hot-rolled coil
production 209 216 425 322 691
- Sales 190 209 399 279 576
Registered office: Iscor Head Office, Roger Dyason Road, Pretoria West, 0002.
Transfer secretaries: Mercantile Registrars Limited, First National House, 11
Diagonal Street, Johannesburg, 2001. PO Box 1053, Johannesburg, 2000.
Excellent performance despite adverse trading conditions
Operating profit up by 334% to R756m
Revenue up by 17% to R7,219m
Headline earnings up by R401m to R207m (1999:R(194)m)
Headline earnings per share at 80cents (1999: (76)cents)
Steel turnaround through re-engineering
Record production levels at Sishen
Coal increased export & local market volumes
Increased lead exports & improved cost savings at Base Metals
Ticor to purchase 40% of IHM projects (subject to regulatory approval)
Major turnaround at Flat Steel Products
Businesses well poised for future growth
Hans Smith commented:
"These results are testimony to the restructuring programme that is being felt
across the Group. This is an excellent performance which everyone at Iscor can
be proud of. Early indications are that the second half of the year has
started well. Iscor has an exciting future ahead of it."
1 March 2001
Enquiries:
Iscor Limited
Hans Smith Tel: +27 12 307 4127
Executive Chairman
Phaldie Kalam Tel: +27 12 307 4042
General Manager: Corporate Affairs
JP Morgan
Mike Haworth Tel: +27 11 507 0511
Director Corporate Finance
College Hill
Mark Garraway
Tom Allison Tel: +27 11 447 3030
Directors: H J Smith (Executive Chairman), W A M Clewlow, T L de Beer, C J
Fauconnier, C T Fenton, J J Geldenhuys, G S Gouws, D Konar, M Macdonald, K
Mokhele, J L van den Berg, L L van Niekerk. Company secretary: A van der Merwe.
This report is available at Iscor's worldwide website at: http://www.iscor.com
