| Tue 28 Aug 2001, 0:00 | | Highveld Steel And Vanadium Corporation Ltd - Comp |
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HIGHVELD STEEL AND VANADIUM CORPORATION LIMITED
Registration no. 1960/001900/06
(Incorporated in the Republic of South Africa)
JSE CODE - HVL
ISIN NO. - ZAE000003422
Interim Report
A member of the Anglo American plc group
Interim report for the six months to 30 June 2001
* Market conditions poor, particularly for carbon and stainless steel
* Headline loss R26,3 million
The unaudited group results for the half-year ended 30 June 2001 set out
below have been prepared on a basis consistent with the prior year's interim
report and the audited financial statements at 31 December 2000.
Financial Results
As forecast in the 2000 annual report and followed by the profit warning in
July, the six months under review were difficult due to low international
prices for all of the group's products, resulting in an operating loss of
R28,8 million compared to a profit of R61,3 million for the corresponding
period last year. Headline earnings deteriorated from R52,7 million to a
R26,3 million loss. Included in this loss was the corporation's share of the
Columbus loss for the six month period which increased to R72,0 million
(2000: R11,6 million). In order to combat the unfavourable market
conditions, numerous further cost saving initiatives have been identified.
Mainly as a result of the anticipated loss of R427,0 million on the
prospective sale of Columbus the loss attributable to Highveld shareholders
was R453,3 million compared to a profit of R55,7 million in 2000. The
attributable loss also included a depreciation charge of R89,9 million
(2000: R86,1 million), net interest paid of R46,0 million (2000: R32,1
million) and a tax credit of R48,5 million (2000: R26,5 million).
Headline loss per share was 27,0 cents, compared to headline earnings of
54,1 cents per share in the first six months of 2000.
The cash inflow for the period was R34,4 million, despite the poor operating
conditions. The group's net borrowings decreased to R517 million compared to
R551 million in December 2000. In view of the results the Board has decided
not to declare an interim dividend (2000: 20 cents).
Carbon Steel and Vanadium
As stated in the year 2000 annual report, inventory build-up had a severe
impact on international steel prices and in the first six months of this
year they continued to be well below those achieved during the corresponding
period of last year.
While production in the USA and in the United Kingdom has fallen, current
world steel production remains at high levels. Inventory correction has not
yet occurred and prices thus remain under pressure. Against this background
there is clear motivation for the current initiatives to restructure the
world steel industry and the International Iron and Steel Institute's call
for a Multilateral Steel Agreement.
Trade actions world wide, particularly in North America, impact on our
ability to maintain sales. In the USA, the possible implementation of the
Section 201 safeguard regulation of the USA Trade Act may provide protection
to many uneconomical steel producers in the USA for a period of up to 4
years. Many of these have also invoked Chapter 11 of the Bankruptcy Code
protecting against forced liquidation by creditors. At present 18 steel
companies are either under this protection or have recently emerged to
continue operating.
Carbon steel production in South Africa grew marginally during the first six
months of 2001 to an annualised production rate of 8,5 million tons.
Domestic consumption improved marginally and it is pleasing to report that
group sales on the domestic market grew satisfactorily during the same
period.
World consumption of vanadium remained strong, however while prices improved
slightly early in the year, weakness reappeared at mid-year due to excess
supply, concerns about world steel production and the start of the Northern
Hemisphere summer holidays.
At Vanchem production was limited to kilns no. 2 and 3 with the modernised
kiln no. 1 idle, but ready for commissioning.
Production and sales of vanadium and vanadium chemicals continued to be
satisfactory during the period under review.
Ferro-alloys
The global economic downturn and its effect on steel production, inevitably
resulted in a general deterioration in the export prices for bulk ferro-
alloys. This impacted negatively on the ferrosilicon and medium carbon
ferromanganese business. An exception to this trend was the price of
silicomanganese in the USA which improved somewhat, underpinned by anti-
dumping action initiated by the local producer.
At Rand Carbide the continuing high local demand for ferrosilicon resulted
in full production being maintained despite the adverse export market.
Electrode paste production was, however, negatively impacted by the lower
utilisation of submerged arc furnaces in Southern Africa.
Full capacity utilisation was also maintained at Transalloys. An extensive
review of operating practices in silicomanganese production yielded benefits
in both output and costs.
Rheem
Slack demand continued to put pressure on both crown and metal container
margins, however cost control measures resulted in an improved performance.
The Rheem Can manufacturing plant was sold to Latasa, a beverage can
manufacturer, for their expansion projects in Brazil. Options for the
disposal of the other non-core Rheem operations are being explored.
Columbus Stainless
The period under review was characterised by the worst international trading
conditions for stainless steel in the past decade. For the first time since
the commissioning of the new plant, the mill was not run at full capacity
due to weak international demand and prices.
While international prices slumped back to the low levels reached in 1999
there was further sharp erosion of conversion margins due to high nickel
prices.
Sales into the domestic market were 49 329 tons (up 3 per cent) supported by
continued investment by the fabricated export industries, particularly the
automotive component sector. Increased competition from imports resulted
from the low international demand.
Steel plant production at 239 875 tons was 10 per cent down on the
comparative period last year with a saleable production of 176 818 tons
(down 23,5 per cent). This was as a result of the reduced order intake, a
less favourable mix of products, and operational problems which were
experienced in the steel plant.
The sharply lower prices and reduced demand in export markets resulted in
significantly increased losses compared to the same period last year.
Capital Expenditure
Capital expenditure by the group during the period amounted to R77,1 million
(2000: R74,0 million) and the total commitment in respect of further capital
expenditure is R46,2 million compared to R96,0 million at 31 December 2000.
Safety, Health and Environment
The disabling injury frequency rate for the period under review deteriorated
to 1,70 compared to 1,57 for the same period in 2000. The performance of the
second quarter was better than the first quarter as management continued to
focus on this area to reverse the trend, with particular attention being
given to occupational diseases.
It was pleasing to note the decrease in contractors disabling injuries from
19 for the first six months of 2000 to 11 for this reporting period.
The corporation continued with its policy of minimising any impacts on the
environment in which it operates.
Directorate
Mr GR Pardoe has given notice of resignation as director
of the corporation effective on 31 August 2001.
Mr PM Baum has been appointed as alternate director to
Mr BE Davison with effect from 20 August 2001.
Outlook
The possible start of a recovery in the United States economy early this
year did not materialise and the world economic outlook has in fact
deteriorated. With demand for most of the group's products being driven by
economic conditions in the major world economies, prices are unlikely to
improve until well into 2002. This applies particularly to carbon steel
where overcapacity and trade restrictions exacerbate the effects of the
economic downturn.
Vanadium will continue to be in oversupply as the world steel industry slows
down and no improvement in prices is likely this year. Nevertheless it is
anticipated that full production will be maintained in all operations, with
the exception of kiln no. 1 at Vanchem.
The Columbus Joint Venture stainless steel operation should report reduced
losses as a result of better orders and operations. The proposed sale of a
major interest to the Spanish group Acerinox is only expected to be
effective as from 1 January 2002 and thus will not affect the second half of
the current year. If concluded this sale is likely to be of benefit to the
group from 2002.
Regrettably the operations of the steelworks and alloys divisions have
already been negatively impacted by a militant and disruptive one week
strike in mid-August.
Under the prevailing difficult and uncertain economic circumstances the
group performance will be driven by the stainless steel operation of the
Columbus Joint Venture. It is expected that the results for the second half
of 2001 will show an improvement on the first half.
For and on behalf of the Board
T E JONES
Chairman and Chief Executive Officer
Witbank
28 August 2001
Six months ended 30 June 2001
ABRIDGED CONSOLIDATED INCOME STATEMENTS
Unaudited Audited
Six months to Year to
30.6.2001 30.6.2000 31.12.2000
R'000 R'000 R'000
Revenue 2 062 510 2 086 324 4 521 895
--------- --------- ---------
Operating (loss)/profit (28 814) 61 303 121 530
Net interest paid (45 984) (32 095) (65 447)
Taxation 48 486 26 453 32 415
--------- --------- ---------
Attributable (loss)/profit
before loss on prospective
sale (26 312) 55 661 88 498
After tax loss on
prospective sale (427 041) - -
Loss on prospective sale (610 059) - -
Deferred tax reversal on
prospective sale 183 018 - -
--------- --------- ---------
(Loss)/profit attributable to
Highveld shareholders (453 353) 55 661 88 498
--------- --------- ---------
Headline (loss)/earnings
(Loss)/profit attributable to
Highveld shareholders (453 353) 55 661 88 498
Add/(less) after tax
effect of:
Loss on prospective sale 427 041 - -
Discontinued operation - - 27 960
Profit on disposal of
unlisted investment - (2 982) (2 982)
Loss on disposal of property, plant
and equipment - - 2 120
--------- --------- ---------
Headline (loss)/earnings (26 312) 52 679 115 596
--------- --------- ---------
Weighted average number
of shares in issue 97 560 574 97 452 548 97 500 348
(Loss)/earnings per
share before loss
on prospective sale (cents) (27,0) 57,1 90,8
Headline (loss)/earnings
per share (cents) (27,0) 54,1 118,6
Dividend per share
attributable to
calendar profits (cents) - 20,0 50,0
Dividend cover n/a 2,9 1,8
ABRIDGED CONSOLIDATED BALANCE SHEETS
Unaudited as at Audited as at
30.6.2001 30.6.2000 31.12.2000
R'000 R'000 R'000
assets
Property, plant and
equipment 2 515 112 2 567 351 2 527 886
Investments 11 709 12 005 10 839
Current assets 1 863 611 1 875 412 1 949 221
--------- --------- ---------
total assets 4 390 432 4 454 768 4 487 946
--------- --------- ---------
equity and liabilities
Shareholders' equity 1 445 678 1 894 083 1 928 494
Deferred taxation 235 008 471 516 465 500
Long-term liabilities 676 767 794 527 717 344
Provision for loss on
prospective sale 610 059 - -
Current liabilities 1 422 920 1 294 642 1 376 608
--------- --------- ---------
total equity and
liabilities 4 390 432 4 454 768 4 487 946
--------- --------- ---------
Net worth - cents/share 1 482 1 944 1 977
ABRIDGED CONSOLIDATED CASH FLOW statementS
Unaudited Audited
Six months to Year to
30.6.2001 30.6.2000 31.12.2000
R'000 R'000 R'000
Net cash inflow/(outflow)
from operating activities 111 261 (83 116) 114 139
Net cash outflow from
investing activities (76 848) (72 110) (153 541)
--------- --------- ---------
Net cash inflow/(outflow) 34 413 (155 226) (39 402)
Net cash inflow from
financing activities 77 113 489 11 792
Net decrease in cash and
cash equivalents (42 700) (155 715) (51 194)
Net Borrowings
Long-term borrowings 545 030 643 975 585 608
Short-term borrowings 418 895 408 366 455 430
Cash and cash equivalents (446 974) (385 153) (489 674)
--------- --------- ---------
516 951 667 188 551 364
--------- --------- ---------
further cautionary announcemenT
Further to the cautionary announcement dated 24 July 2001, shareholders are
advised that negotiations relating to the possible acquisition by Acerinox
of a 64 per cent interest in Columbus from Highveld, Samancor Limited and
the Industrial Development Corporation of South Africa Limited (the partners
in the Columbus Joint Venture) are still in progress.
Accordingly, shareholders are advised to continue exercising caution when
dealing in the company's securities until further announcement.
For and on behalf of the Board
J Theiss
Company Secretary
Witbank
28 August 2001
CAZENOVE
Enquiries may be directed to e-mail address: general@hiveld.co.za
Registered Office Transfer Secretaries
Portion 29 of the farm Computershare Services Limited
Schoongezicht no. 308 JS Second Floor, Edura, 41 Fox Street
District Witbank Johannesburg, 2001
Mpumalanga (P O Box 61051, Marshalltown, 2107)
(P O Box 111, Witbank, 1035) Tel: (011) 370-7700
Tel: (013) 690-9911 Fax: (011) 836-0792
Fax: (013) 690-9033 (011) 838-6496
DIRECTORS: T E Jones (Chairman and Chief Executive Officer),
E Barnardo, L Boyd, W F E Bragg (British), C B Brayshaw, J A Chegwidden, B E
Davison, E K Diack, A Harris, D P Martin, L Matteucci,
Ms D R Motsepe, G R Pardoe, Dr A J Pienaar, B J T Shongwe, A J Trahar and M
Winstanley (British).
ALTERNATE Company
DIRECTORS:**P M Baum and G F Young secretary:**J Theiss
