| Wed 15 Aug 2001, 0:00 | | Saldanha Steel - Audited Financial Results For The |
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COMMENTS
The company continued to focus on creating stable production conditions and
achieved several records during the financial year under review.
Notwithstanding significant successes in production and marketing, the
improvement in prices a year ago was short lived. Because of the over supply
in the market, prices dropped and negatively impacted the results. If the
budgeted selling prices had been achieved a break-even situation would have
been reached.
Hot rolled coil (HRC) producers were especially hard hit with prices below
levels experienced during and immediately after the Asian crisis. In some
markets prices have fallen by as much as 40% over the past year.
OPERATIONS
During May production exceeded 90 percent of the design capacity of 100 000
tons a month. New day records were set at 3 800 and subsequently at 4 000
tons a day, both of which exceed the plant's design capacity.
Dramatic improvements were made during the last quarter in the
availabilities of the Corex and Midrex iron making units which positively
influenced the downstream processes.
Significant tonnages of 1 mm gauge HRC were rolled for the first time which
augers well for Saldanha Steel in pursuing its competitive advantage. The
company now complies with both the international environmental (ISO 14001)
and quality management (ISO 9002) standards.
A continuous improvement and cost reduction programme, Project Rainbow, has
been introduced. A leading international consultancy firm has confirmed that
the company can achieve full capacity and in a reasonably short period, a
cash cost of production which will rank in the lowest cost quartile of
international steel producers.
MARKETING
Notwithstanding the challenges in the market, both sales volumes and repeat
business showed excellent growth. Sales volumes grew by nearly 60 percent to
901 000 tons. Repeat business increased to 80% of total sales.
This was achieved despite anti-competition action taken by the North
American market to protect local steel producers. The USA applied trade
protectionism in the form of, at first, anti-dumping and countervailing
cases and now a Section 201 investigation. New markets in the Far East and
China were developed and these have shown good results. The market in Europe
was also expanded although the weakness of the Euro meant lower Dollar
receipts.
Saldanha Steel focuses on selling thin gauge products where the extra
margins provided some cushion against falling prices. Increases in sales and
repeat order business are in large part due to the company's ability to
produce quality, ultra thin gauge HRC. More than 70% of the company's
production is targeted at 2mm and thinner gauges.
RESULTS
Although the sales revenue increased by R586 million, as a result of the
depressed HRC prices, the headline loss for the year was R1 052 million.
This is R107 million more than the previous year and in line with
predictions at the interim stage. The net loss attributable to the
shareholders was impacted by a net impairment loss of R2 235 million.
It is extremely difficult to take an objective view of the future level of
steel prices from a perspective at the bottom of the worst steel price cycle
on record. However, in view of the uncertainty surrounding the management of
the current level of global steel making overcapacity which has caused the
current price collapse, the directors have decided to adjust downwards their
long-term view on steel prices and make an impairment provision of R3
billion against the carrying value of the company's assets. This is offset
by the R765 million deferred tax provision resulting in a net charge to the
income statement of R2 235 million. The impairment reflects a current view
of the long-term recoverable value of the assets and is not in any way an
attempt to put a current market value on the assets. Being an accounting
adjustment, the impairment does not impact cash flow although it will have
the effect of reducing the future annual depreciation charge.
The annual financial statements are prepared in accordance with South
African Statements of Generally Accepted Accounting Practice, International
Accounting Standards as well as the Companies Act and are consistent with
those applied in the previous year.
OUTLOOK
Market prices are not expected to recover appreciably until the third
quarter of the new financial year. However, Saldanha Steel will maintain
production levels around 90% of capacity until the mini rebuild of the Corex
planned for April - May 2002. After the shutdown, production at full
capacity should be achieved on a consistent basis.
Iscor and the IDC have reached an advanced stage of negotiations which will
probably result in the unbundled steel business of Iscor Limited acquiring
either the company or the business of Saldanha Steel. As part of this
process the shareholders have indicated that the debt of Saldanha Steel will
be repaid or settled in full. In the meantime they remain committed to
financing the company.
RG Cottrell MS Mulder
Chairman Managing Director and
Chief Executive Officer
13 August 2001
Income Statement Audited Audited
Year ended Year ended
30 June 30 June
2001 2000
Rm Rm
Revenue 1 601 1 015
Operating expenses
- depreciation 257 231
- other 2 026 1 399
Operating loss 682 615
Financing costs 820 915
Taxation (450) (585)
Headline loss 1 052 945
Net impairment loss 2 235 -
- provision 3000
- tax relief 765
Net loss attributable to shareholders 3 287 945
cash outflow
Cash outflow from operations 417 361
Financing costs 837 829
Increase in working capital 27 100
Capital expenditure 67 215
Sale of tax credits (297) (330)
Outflow before funding 1 051 1 175
Balance Sheet 30 June 30 June
2001 2000
Rm Rm
assets
Non-current assets
Property, plant and equipment 5 531 8 719
Other financial assets 37 39
Current assets
Cash and cash equivalents 95 36
Other 1 208 812
Total assets 6 871 9 606
Equity and Liabilities
Shareholders' funds 3 1 462
Non-current liabilities
Interest-bearing borrowings 4 194 4 838
Deferred tax credits - 959
Current liabilities
Interest-bearing borrowings 2 277 1 998
Other 397 349
Total equity and liabilities 6 871 9 606
Supplementary Physical
Information '000 tons '000 tons
Production of hot rolled coils 863 691
Sales of hot rolled coils 901 576
1. INTRODUCTION
Iscor has made available the following information relating to the Annual
Results of Saldanha Steel in which it holds a 50% interest.
Contact: MP Kalam
Group Executive
Corporate Affairs - Iscor Limited
Cell: 083 609 1222
2. EXECUTIVE SUMMARY
Salient features of the Saldanha Steel Annual Results for the period ending
30 June 2001 are as follows:
Headline loss of R1 052 million
Result of international steel price collapse
Masks positive production successes
Higher than expected a year ago
In line with interim expectations
Impairment provision of R3 billion made
Result of long-term price review
No impact on cashflow
Will reduce future depreciation charges
Good production and sales performance
Production up 28%
New monthly record of 91 389 tons (90% of production capacity)
Sales volume up 60%
Outlook
Resolution of corex issues
Continued production milestones
Emphasis on cost reduction and operational efficiencies
PRESS RELEASE
Collapse in steel prices masks production and sales performance
Saldanha Steel today reported a headline loss of R1 052 million directly
attributable to the collapse in international dollar prices for steel, which
slumped even lower than experienced during the Asian crisis.
Making the announcement at the company's annual results presentation, chief
executive Martiens Mulder said the very depressed market conditions resulted
in the company posting a disappointing operating loss for the year.
"This was higher than our expectation a year ago but was anticipated at the
interim stage after the price collapse became evident. The upward movement
in steel prices expected a year ago did not materialise as the trend lasted
for only a few months before dropping to new record lows. During the past
year prices have fallen by as much as 40% in some markets," Mulder said.
These adverse factors eclipsed many positive developments in the company's
operations. By the end of the financial year the positive findings of an in-
depth study undertaken by a leading international consulting firm, have been
confirmed by the excellent production results that were achieved during the
course of the last quarter.
Production for the year increased by 28% and several new production records
were set, including a new monthly production record of 91 389 tons
equivalent to 90% of capacity and a single day production record of 4 016
tons that exceeds the design capacity of the plant. The repair to the Corex
planned for the second quarter of 2002 will enable production to be
sustained at full design capacity.
Sales volumes grew by 60% notwithstanding the weak international steel
market and for the first time included significant tonnages of ultra thin
hot rolled coil (HRC).
This ability to produce excellent quality ultra thin steel, which attracts a
premium, continues to receive the approval of customers as reflected in an
increase of repeat business to 80% of total sales. This will advance the
company's market share in this niche segment to a greater extent than
originally anticipated.
Because of the uncertainty surrounding the international steel over-capacity
which has caused the current price collapse, the Saldanha Steel directors
have decided to adjust downwards their long-term view on steel prices and
make an impairment provision of R3 billion against assets. This has been
offset by a R765 million deferred tax provision resulting in a net charge to
the income statement of R2 235 million.
"As this is an accounting adjustment - in line with international accounting
standards - it does not impact on the company's cash flow, but will have the
effect of reducing future depreciation charges," said Mulder. "The
impairment reflects a current view of the long term recoverable value of the
assets and is not in any way an attempt to put a current market value on the
assets."
"While our financial results are indicative of the exceptionally poor
international steel market, the positive for Saldanha Steel is that we have
achieved noteworthy production and marketing successes," Mulder said.
He added that the shareholders are at an advanced stage of negotiations
regarding the refinancing of the company and have been meeting the company's
ongoing funding requirements through equity injections.
ends
