| Thu 16 Aug 2001, 0:00 | | Iscor Limited - Audited Group Financial Results |
|
ISCOR LIMITED
Audited Group Financial Results
for the year ended 30 June 2001
- Headline operating profit up 100%
- Exceptional performance from steel
- Mining breaks through R1 billion operating profit level
- Headline earnings per share up from 18 cents to 216 cents
Comments
Group results
Headline earnings of R565 million showed a significant improvement over last
year's low of R46 million. Headline earnings per share at R2,16 compared
with the earnings of
R0,18 per share for the previous year.
Headline operating profit for the year of R1 713 million was more than
double the previous year's R855 million, despite a very difficult steel-
trading environment. The improvement was essentially driven by the benefits
flowing from the group-wide re-engineering programme, improved plant
stability at the Vanderbijlpark steel works, the increase in iron ore prices
and volumes, and the weakening of the Rand against the US Dollar.
It is particularly pleasing to report that the steel division generated an
operating profit of R608 million during one of the worst steel business
cycles on record and that the mining division broke through the R1 billion
operating income level for the first time.
Attributable earnings were negatively affected by a number of exceptional
items, resulting in an attributable loss for the year of R725 million
compared to last year's profit of R58 million:
- exceptional charges
- share of Saldanha Steel's asset impairment - R1 118 million
- scrapping of Ifcon furnace - R146 million
- increase in Pretoria Works closure provision - R47 million
- exceptional income
- a surplus on the 40% sale of the heavy minerals project - R81 million
Net debt increased by R1,6 billion to R3,7 billion, mainly due to the
additional investments in Saldanha Steel (R1,1 billion) and the heavy
minerals project (R0,6 billion).
Iron Ore
Net operating profit improved sharply by 46% due to higher production,
increased prices, cost savings and the weakening of the exchange rate
against the US Dollar.
Production for the year increased by 9% despite the loss of almost 1 million
tons during the tie-in of the expansion project blending bed conveyors
during the first quarter. Sales volumes did not increase due to bad weather
delaying shipments at year-end.
The expansion project at Sishen is on schedule and the planned 27 million
tons per annum annual output level should be achieved by July 2003. Despite
the current production cut-back taking place in the international steel
industry, demand for Sishen ore continues to exceed its capacity and no
problem is anticipated in exporting the increasing production volumes.
The additional tippler and stacker-reclaimer projects at the port and loops
on the Orex rail line are progressing according to plan and scheduled for
completion by December 2003. This will give added security to the
availability on the export channel and also increase its capacity to 29
million tons per annum. Additional rolling stock is all that is required to
increase the capacity to 38 million tons per annum.
The pre-feasibility study for the development of a new mine on the
Welgevonden iron-ore deposit, 70 km south of Sishen, has been completed
demonstrating an attractive investment opportunity. The detailed feasibility
study is now in progress.
Coal
Net operating profit for the year of R100 million was significantly higher
than last year's R22 million due to increased production and prices combined
with productivity improvements. While sales to Eskom remained at contractual
levels, other higher value sales increased by 10%.
An allocation of 2 million tons per annum of the phase 5 expansion of the
Richards Bay Coal Terminal will, in due course, facilitate an additional 1
million tons of exports and will also significantly reduce the current cost
of exporting.
A feasibility study is being conducted on the establishment of a new 1
million tons per annum mine at Kalbasfontein near Witbank, which could come
into production by 2003.
Segment results
Quarter ended Year ended
30 June 30 June
2001 2000 2001 2000
Rm Rm Rm Rm
REVENUE
Mining
Iron Ore 838 779 3 257 2 671
Coal 300 296 1 241 1 103
Base Metals 276 264 945 824
Other 80 72 275 277
Total Mining 1 494 1 411 5 718 4 875
Steel
Flat Steel Products 1 903 1 769 6 859 6 679
Long Steel Products 977 916 3 655 3 247
Other 221 194 804 742
Total Steel 3 101 2 879 11 318 10 668
Intra-group (388) (393) (1 921) (1 890)
Total 4 207 3 897 15 115 13 653
NET OPERATING PROFIT
Mining
Iron Ore 304 262 1 012 694
Coal 19 (11) 100 22
Base Metals 27 65 98 138
Heavy Minerals 2 (8) (22) (46)
Other 19 20 41 36
Total Mining 371 328 1 229 844
Steel
Flat Steel Products 61 34 390 (71)
Long Steel Products 46 70 126 151
Other 29 15 92 62
Total Steel 136 119 608 142
Group
Costs (31) (37) (115) (127)
Unrealised profit
adjustment 10 3 (9) (4)
Headline operating profit 486 413 1 713 855
Loss on scrapping of asset (209) (209)
Total net operating profit 277 413 1 504 855
Base Metals
Net operating profit fell by 29% to R98 million due to the dramatic drop in
the LME zinc price to under USD 900/t. Production for the year, although up
on last year by 3%, was lower than target due to problems in the roasting
plant at Zincor which have since been resolved. The efficiency improvement
targets at both Rosh Pinah mine and the Zincor smelter should result in
increased production and sales for the coming year.
Heavy Minerals
Phase 1 of the heavy minerals project, comprising the development of the
Hillendale mine and commissioning of the primary and secondary beneficiation
plants at Empangeni, were completed ahead of schedule and within budget. By
year-end, the primary beneficiation plant was operating at 40% of its design
capacity and the secondary plant was producing marketable quality ilmenite
and rutile six weeks ahead of schedule. Zircon production started in July
and by February 2002 the beneficiation plants are expected to be operating
at design capacities. Phase 1 will start contributing to profits in the year
ahead.
Phase 2, involving the construction of the smelter at Empangeni, is
scheduled to start during the third quarter of 2001.
During the year 40% of the project was sold to Ticor Limited, an Australian
listed company in which Iscor holds a 44% interest. The proceeds of R489
million are receivable after the year-end. Ticor has an option to obtain a
further 40% on the commissioning of the second smelter. Ticor's investment
will make it the world's third largest supplier of ilmenite feedstock once
the South African project reaches full production.
Flat Steel Products
Although revenue for the year only increased by 3%, net operating profit
showed a major turnaround from last year's loss of R71 million to a profit
of R390 million.
Improved plant stability combined with the significant progress in achieving
the re-engineering targets were the major factors in improving margins in a
very difficult market, characterised by weak domestic demand and the
precipitous fall-back in export prices.
Total sales volumes declined by 8% as a result of deliberate cutbacks on
exports and the need to increase inventory levels to support stable
production rates and the improved levels of on-time delivery to customers.
For the first half of the coming financial year margins are expected to
remain under severe pressure with international steel prices moving sideways
at historically low levels and domestic demand remaining sluggish. The
second half should improve as the international steel oversupply is worked
off and local demand picks up on the back of stronger domestic economic
growth.
Long Steel Products
Net operating profit for the year dropped by 17% to R126 million from last
year's
R151 million, following a reduction in US Dollar export prices and reduced
domestic demand combined with strong price competition.
Total sales volume was unchanged, but the 5% drop in domestic deliveries was
made up by an increase in lower margin exports.
While no significant increase in production volumes or domestic sales is
expected for the coming year, some improvement in margins should be achieved
as a result of continuous improvement initiatives and a better domestic
product mix. No significant export price improvement is expected until the
second half of the year.
Ifcon project
In view of the change in the application of the technology, the Ifcon
furnace, which was severely damaged during a construction incident, will not
be recommissioned and it has been decided to write off this asset. An after-
tax charge of R146 million has been taken to the income statement during the
year.
Pretoria Works
An additional provision of R47 million has been raised against the closure
cost of the Pretoria works.
Saldanha Steel
Iscor's share of Saldanha Steel's after-tax loss (excluding impairment
charge) for the year amounted to R526 million compared to R473 million for
last year. This was higher than anticipated due to the unexpected extent of
the fall-back in hot-rolled steel export prices and the technical problems
referred to below. The board of Saldanha Steel decided to raise an
impairment charge of R2 235 million after tax against the carrying value of
its fixed assets. Iscor has accounted for its share of the impairment
charge.
Production of finished product for the year of 863 000 tons represented 69%
of design capacity and was lower than target due to technical problems
experienced with the Corex melter/gasifier and in achieving continuous
availability of all equipment.
A solution to the Corex problem has been identified, requiring a mini-reline
of the unit in the first half of calendar 2002, and the continuous
production issue is being addressed by increasing buffer facilities in the
melting area. A focused project developed along the lines of Iscor's own re-
engineering programme has been put in place to achieve full ramp-up and the
original project production cash cost objective within eighteen months.
The plant has been successful in producing the high quality thin gauge
product it was designed for and in placing output in the very difficult
international steel market. Sales into the United States market have been
diverted to other areas pending the outcome of the current US countervailing
duty citings.
In view of the planned production interruption for the Corex repair, any
improvement in the operating results for the year ahead will depend on the
expected improvement in price levels.
Sale of non-core assets
Disposals of R124 million were made during the year. These comprised further
sales from the housing portfolio (R80 million) together with sales of other
non-core businesses
(R44 million). The sale of the investment in AST Group Ltd is currently
being negotiated.
Prospects
Mining results are expected to show further improvement in the year ahead.
Steel results will be under pressure for the first half of the year, but
should improve in the second half.
Dividend
In view of the uncertainty on the timing and extent of the recovery in steel
prices from their current historically low levels and the funding
requirements of Saldanha Steel, the board has decided not to declare a
dividend.
Restructuring
All statutory approvals for the proposed unbundling have been finalised.
Implementation, however, is subject to successful completion of negotiations
with the Industrial Development Corporation of South Africa Ltd and the
company's bankers on the refinancing and merger of Saldanha Steel into
Iscor, and amended iron ore procurement arrangements between the steel and
mining businesses. All parties are working towards achieving agreement as
soon as possible after which the proposals will be put to a special general
meeting of Iscor shareholders. The company will continue to operate under a
cautionary announcement during the negotiations.
On behalf of the board
H J Smith M Macdonald
Chairman Director
15 August 2001
Group income statement
Year ended 30 June
2001 2000
Rm Rm
Revenue 15 115 13 653
Operating expenses (13 402) (12 798)
Net operating profit 1 713 855
Loss on scrapping of Ifcon asset (209)
Total net operating profit 1 504 855
Net financing costs (459) (405)
Net loss from equity accounted
investments before taxation (Note 2) (567) (572)
Exceptional items (Note 3) 43 74
Share of Saldanha Steel's asset
Impairment (1 118)
Goodwill amortisation (27) (38)
Loss before taxation (Note 4) (624) (86)
Taxation (Note 5) (100) 144
(Loss)/profit from ordinary activities (724) 58
Minority interest (1)
Net (loss)/profit attributable to
ordinary shareholders (725) 58
Adjusted for:
- exceptional items (43) (74)
- share of Saldanha Steel's asset
impairment 1 118
- share of associates' goodwill
amortisation 40
- share of associates' exceptional items (14)
- goodwill amortisation 27 38
- net deficit on disposal or scrapping of
property, plant and equipment 245 35
- taxation on adjustments (Note 6) (83) (11)
Headline earnings 565 46
Ordinary shares (million)
- in issue 272 258
- weighted average number of shares 262 256
- diluted weighted average number
of shares 262 267
Attributable (loss)/earnings per
share (cents)
- basic (276,7) 22,7
- diluted (276,7) 21,7
Headline earnings per share (cents)
- basic 215,6 18,0
- diluted 215,6 17,2
Group statement of changes in equity
Year ended 30 June
2001 2000
Rm Rm
Shareholders' funds at beginning of year 7 966 7 980
Change in accounting policy (125)
Changes in share capital and premium
- odd-lot buyback (50)
- issue of share capital 139 30
- unbundling costs (65)
Changes in non-distributable reserves
- currency translation differences 81 66
- financial instruments movements (34) 12
- changes in reserves of associated
companies and joint ventures (222) (5)
- realised in joint venture (60)
- transfer of equity accounted earnings 145 145
- transfer of insurance reserve 6 (4)
- transfer of capital reserve 23
Changes in retained income
- net (loss)/profit for the year (725) 58
- realised in joint venture 60
- transfer of equity accounted earnings (145) (145)
- transfer of insurance reserve (6) 4
- transfer of capital reserve (23)
Shareholders' funds at end of year 7 140 7 966
Group balance sheet
At 30 June
2001 2000
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 9 668 8 690
Goodwill 47 70
Investments in associates and
joint ventures (Note 7)
- listed 804 709
- unlisted 307 950
Other financial assets 408 223
Derivative instrument against interest-
bearing borrowings 95
11 234 10 737
Current assets
Cash and cash equivalents 420 726
Other 5 074 3 935
Total assets 16 728 15 398
EQUITY AND LIABILITIES
Capital and reserves
Shareholders' funds 7 140 7 966
Minority interest 351 5
Non-current liabilities
Interest-bearing borrowings 1 887 2 011
Non-current provisions 1 309 1 173
Deferred taxation 1 399 1 176
12 086 12 331
Current liabilities
Interest-bearing borrowings 2 257 938
Other 2 385 2 129
Total equity and liabilities 16 728 15 398
Net debt (Note 8) 3 724 2 128
Net worth per share (cents) 2 625 3 088
Capital expenditure
- incurred 2 198 1 248
- contracted 378 988
- authorised but not contracted 805 1 174
Capital commitment for Saldanha
Steel (Note 9) 600
Operating lease commitment 227 169
Contingent liabilities
- Saldanha Steel 1 658 2 128
- Other 247 445
Group cash flow
Year ended 30 June
2001 2000
Rm Rm
Cash available from operations 1 659 1 165
Proceeds on disposal of assets 144 209
Investments
- Saldanha Steel (1 086)
- Other (115) (44)
Capital expenditure
- Other (1 542) (1 171)
- Heavy minerals project (656) (77)
Odd-lot shares buyout (50)
(Increase)/decrease in net debt (1 596) 32
Notes to the audited Group
financial results
1. Basis of preparation
These audited Group financial results constitute a summary of the Group's
unqualified audited annual financial statements which have been prepared on
the historical cost basis and conform to South African Statements of
Generally Accepted Accounting Practice and comply with International
Accounting Standards.
The principal policies are consistent with those applied in the previous
year except for the accounting policy for the provision for the long-term
environmental obligations for the future closure and restoration cost of the
Group's mines, and the consolidation of the special purpose entities for the
Rehabilitation Trust Fund (R124 million) and the structured finance
arrangement housing Iscor's indirect investment of R500 million in Saldanha
Steel. The adoption of the policies resulted in a net cumulative after-tax
reduction of the comparative opening retained income of R125 million and a
net profit of R12 million (4,7 cents headline earnings per share) for the
previous year. The change had no material impact on the current year's
earnings. The comparative figures have been adjusted.
2001 2000
Rm Rm
2. Net loss from equity accounted
investments before taxation
Saldanha Steel (751) (765)
Other 184 193
(567) (572)
3. Exceptional items
Surplus on sale of residential properties 49 48
(Loss)/gain on sale of investments (9) 26
Restructuring costs (31)
Increase in provision for
discontinuing operations (47)
Surplus on 40% sale of the heavy
minerals project 81
43 74
4. Loss before taxation is arrived at after
Depreciation (836) (787)
Financing costs (627) (613)
Interest received 168 208
Dividends received 33 24
5. Taxation
Equity accounted investments
- Saldanha Steel 225 292
- Other (8) (24)
217 268
Company and subsidiaries (317) (124)
(100) 144
6. Taxation on adjustments
Net deficit on disposal or scrapping of
property, plant and equipment 74 11
Restructuring cost 9
83 11
7. Investments
Listed investments
- market value 1 049 1 178
Unlisted investments
- directors' valuation 335 1 159
8. Net debt
Net debt comprises interest-bearing borrowings (current and non-current)
less derivative instrument against interest-bearing borrowings and cash and
cash equivalents.
9. Funding commitment for Saldanha Steel
The Saldanha Steel shareholders have a commitment to continue funding the
company for the next 12 months. The amount depends on the results of the
current refinancing negotiations.
Unaudited supplementary
physical information
Quarter ended 30 June Year ended 30 June
2001 2000 2001 2000
'000 tons '000 tons '000 tons '000 tons
IRON ORE
Production 7 401 6 693 27 044 24 825
Sales
- Exports 4 348 4 870 18 057 18 750
- Iscor 1 614 1 471 6 680 6 191
- Local 318 309 1 244 1 073
Total 6 280 6 650 25 981 26 014
COAL
Production
- Power station 2 865 2 940 12 037 11 840
- Coking 457 556 2 126 2 073
- Other 686 603 2 833 2 507
Total 4 008 4 099 16 996 16 420
Sales
- Eskom 3 153 3 081 11 934 12 072
- Iscor 527 582 2 273 2 357
- Export 168 235 1 115 746
- Local 431 367 1 615 1 438
Total 4 279 4 265 16 937 16 613
BASE METALS
Production
- Zinc concentrate 17 19 72 72
- Zinc metal 26 24 105 103
- Lead concentrate 6 5 22 20
Zinc metal sales
- Iscor 8 8 33 31
- Other 24 18 73 77
Total 32 26 106 108
Lead concentrate sales 11 5 23 23
FLAT STEEL PRODUCTS
Liquid steel
production 903 741 3 541 3 289
Sales
- Local 457 509 1 794 1 866
- Export 368 186 924 1 082
Total 825 695 2 718 2 948
Local sales as %
of total sales 55 73 66 63
LONG STEEL PRODUCTS
Liquid steel
production 506 515 1 985 1,998
Sales
- Local 211 194 774 793
- Export 227 259 891 854
Total 438 453 1 665 1,647
Local sales as %
of total sales 48 43 46 48
SALDANHA STEEL
Turnover (Rm) 405 281 1 601 1,015
Net operating
loss (Rm) (133) (82) (682) (615)
Impairment
charge (Rm) (2 235) (2 235)
Physical results
('000 tons)
- Hot-rolled
coil production 222 196 863 691
- Sales 241 126 901 576
Registered office: Iscor Head Office, Roger Dyason Road, Pretoria West,
Pretoria, 0002. Transfer secretaries: Mercantile Registrars Limited, First
National House, 11 Diagonal Street, Johannesburg, 2001. PO Box 1053,
Johannesburg, 2000.
Directors: H J Smith (Chairman), W A M Clewlow (Deputy Chairman), 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* (*executive)
Company secretary: A van der Merwe. Registration number: 1989/02164/06
This report is available at Iscor's worldwide website at:
http://www.iscor.com
