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YEAR ENDED 30 JUNE 2002
Iscor Limited
Registration number: 1989/002164/06
Share code: ISC ISIN code: ZAE000022729
Audited group financial results & dividend announcement for the year ended 30
June 2002
- Unbundling Releases Huge Value
- Earnings Up Sharply
- Saldanha Turnaround On Target
- Strategic Alliance in Place
COMMENTS
Group results
The group results for the year ended 30 June 2002 reflect the financial
information of the new Iscor as a focused integrated steel producer after the
successful completion of the following major transactions:
- the unbundling of the mining assets (other than an undivided share of the
mining rights in the Sishen iron ore mine) effective 1 July 2001 leading to
significant release of shareholder value;
- the recapitalisation of Saldanha Steel and the acquisition of the
Industrial Development Corporation of South Africa`s 50% share on 28 November
2001; and
- a rights issue of R1 670 million during March/April 2002 at R10-92 per
share, increasing the issued share capital to 446 million shares and
substantially strengthening the capital structure.
All statutory financial information for the comparative period includes the
mining operations as at 30 June 2001 which have been treated as discontinued
operations. To facilitate comparisons with the current years results, unaudited
pro forma results for the year ended 30 June 2001, excluding the unbundled
mining operations, are also shown.
Operating results for the year improved significantly compared to the previous
year. Revenue increased by 30% while net operating profit increased by 115% to
R1 308 million as a result of efficiency improvements, stronger domestic demand,
the benefit of receiving iron ore at cost and the weaker exchange rate. These
positive contributions more than offset inflationary cost increases and the very
poor international steel prices for most of the year.
The improvement in operating results flowed through to headline earnings, which
increased to R480 million in comparison with the pro forma loss of R163 million
for the previous year. Headline earnings per share were 139 cents against the
pro forma loss of 54 cents.
Attributable profit of R4 141 million for the year included the following net
exceptional items:
Rm
- negative goodwill realised (note 2) 2 585
- reversal of asset impairment (note 3) 998
- surplus on sale of offshore mining assets 364
- surplus on sale of residential properties 52
- restructuring costs at Vanderbijlpark (118)
3 881
- taxation on adjustments (220)
Total 3 661
Although the normal net cash inflow of R811 million was R1 697 million higher
than last year`s pro forma outflow of R886 million, net debt reduced only by a
small margin from R1 183 million at 30 June 2001 to R1 139 million as a result
of the take-over of Saldanha Steel`s loans which were partly offset by the
proceeds from the rights issue. Nevertheless, it is far less than the R1 800
million indicated in the unbundling revised listing particulars.
SEGMENT RESULTS
Year ended 30 June
2002 2001
Rm Rm
REVENUE
Flat steel products
- Vanderbijlpark 8 051 6 859
- Saldanha Steel* 1 165
Long steel products 4 628 3 655
Suprachem 653 463
Other 343 339
Intra group (652) (433)
Total 14 188 10 883
NET OPERATING PROFIT
Flat steel products
- Vanderbijlpark 842 460
- Saldanha Steel* (247)
Long steel products 679 159
Suprachem 121 67
Other 17 25
Group costs (104) (102)
Total 1 308 609
*Since becoming a wholly owned subsidiary on 28 November 2001.
FLAT STEEL PRODUCTS
The domestic demand for flat products, which dropped steeply during the latter
half of the 2001 financial year showed a 15% increase year-on-year. This was
attributable to a buoyant demand for durable goods, a strong increase in
secondary exports which benefited from a weak South African rand against the US
dollar, and large projects in the primary sector.
Vanderbijlpark
Against the previous year, the healthy domestic market, which accounted for a
12% volume increase and an improvement in average net selling prices, drove
eighty percent of the strong revenue growth. Despite depressed dollar export
prices (with an average realised hot rolled coil price of some 15% below 2001
levels) and near-flat volumes, export revenue benefited from the 30% year-on-
year weakening of currency. The improvement in revenue was notably evident in
the last quarter of the financial year.
Following the improvement in revenue, net operating profit rose by an impressive
83%. The performance required intensive cost management as the full inflationary
brunt of the depreciating rand was felt on the year`s second-half cost
structures.
The dual influence of escalating costs and depressed export prices was partially
mitigated by fixed cost savings arising from the final stage of the re-
engineering programme, which released R120 million before tax. The full annual
savings will be equivalent to R201 million.
Saldanha Steel
The repair to the Corex Liquid Iron plant was affected during the last quarter
resulting in a production loss of some 120 000 tons. The purpose of the repair
was to eliminate design deficiencies in the refractory cooling system. This will
assist in the drive to reach the hot rolled coil production design capacity of
1.25 million tons per annum. During the stoppage other critical projects
necessary to restore and improve stability and increase through-yield, were
undertaken.
A significant increase in revenue is expected, driven by the improvement in the
price cycle. Cost pressures should largely be offset by improvement initiatives
focused on through-yield, quality and cost control.
Performance of the Corex plant after the reline is encouraging having already
achieved 93% of design capacity during the month following the rebuild. The
primary objective for Saldanha Steel will be to maintain a stable production
environment at designed production levels and achieve a further reduction in
unit costs.
The prospects for the Saldanha Steel operation have improved dramatically during
the second half as a result of a number of very positive developments: the
successful Corex repair, the lower iron ore costs, the sharp improvement in
prices, the cost drive programme and the weaker exchange rate.
LONG STEEL PRODUCTS
Net operating profit for the year increased by 327% compared with last year.
This exceptional performance was achieved on the back of strong growth in
domestic demand and prices and supported by the favourable impact of the
depreciating rand on export revenue as well as cost savings realised through the
continuous improvement programme and lower iron ore costs. This was partially
offset by the effects of the weaker rand on dollar based input costs as well as
an unfortunate production loss at Newcastle`s blast furnace where cold furnace
conditions were experienced following a planned maintenance shutdown during the
last quarter resulting in a 65 000 ton loss of production.
Suprachem
Although only a moderate 8% increase in sales volumes occurred, there was a
significant increase in revenue of 41% and net operating profit of 81%
attributable to the deterioration in the exchange rate, surplus stock reductions
and additional coke making capacity made available at Vanderbijlpark.
LNM business assistance agreement
At a general meeting held on 15 January 2002, shareholders approved a three-year
business assistance agreement with steel producer LNM Holdings N.V., now the
world`s second largest steel producer.
The agreement is a performance-based deal in terms of which LNM will provide
business, technical, purchasing and marketing assistance over the next three
years in exchange for between 5% and 10% of our issued capital after the rights
offer, provided that sustainable annual cost savings of between R350 million and
R700 million over the period are achieved.
LNM would also invest at least $75 million before 31 March 2003 in market
purchases of Iscor shares. By year-end it had acquired a 30% shareholding and a
close working relationship had been set up creating the platform from which to
drive the targeted cost savings.
The potential future earnings leverage for non-LNM shareholders on achievement
of the targeted savings outweighs by far the dilutionary effect of the
consequent issue of shares.
OUTLOOK
Market conditions are expected to remain favourable resulting in further strong
profit growth for the year ahead.
DIVIDEND ANNOUNCEMENT
The directors have resolved to declare a dividend of 40 cents per share to all
shareholders recorded in the register on Friday 4 October 2002. The last day to
trade ("cum" the dividend) in order to participate in the dividend will be
Friday, 27 September 2002. The company`s shares will commence trading "ex" the
dividend from the commencement of business on Monday, 30 September 2002, and the
record date will be Friday, 4 October 2002. Payment of the dividend will be made
on Monday, 7 October 2002. The company`s shares may not be dematerialised or
rematerialised between Monday, 30 September 2002 and Friday, 4 October 2002,
both days inclusive. Dividend entitlements of less than R10 will be donated to
charity in terms of the articles of association of the company.
On behalf of the Board
L L van Niekerk (Chief Executive Officer) M Macdonald (Executive Director,
Finance)
19 August 2002
GROUP INCOME STATEMENT
Year ended 30 June
2002
Rm 2001 2001
Audited Rm Rm
Unaudited Audited
Pro forma
excluding including
Mining Mining
Revenue 14 188 10 883 15 115
- Continued 14 188 10 883 10 883
- Discontinued 4 232
Operating 12 880 10 274 13 611
expenses
Net operating 1 308 609 1 504
profit
- Continued 1 308 609 609
- Discontinued 895
Net financing (388) (188) (459)
costs
Negative 2 585
goodwill
realised (Note
2)
Impairment 998 (1 500) (1 500)
credit/(charge)
(Note 3)
Net loss from (218) (703) (567)
equity
accounted
investments
before taxation
(Note 4)
Exceptional 298 (29) 43
items (Note 5)
Goodwill (27)
amortisation
Profit/(loss) 4 583 (1 811) (1 006)
before taxation
(Note 6)
Taxation (Note (442) 482 282
7)
Profit/(loss) 4 141 (1 329) (724)
from ordinary
activities
Minority (1) (1)
interest
Net 4 141 (1 330) (725)
profit/(loss)
attributable to
ordinary
shareholders
Adjusted for:
- negative (2 585)
goodwill
realised
- impairment (998) 1 500 1 500
(credit)/charge
- exceptional (298) 29 (43)
items
- share of 40
associates
goodwill
amortisation
- share of (14)
associates
exceptional
items
- goodwill 27
amortisation
- net deficit
on disposal or
scrapping of
property, plant 42 245
and equipment
- taxation on 220 (404) (465)
adjustments
Headline 480 (163) 565
earnings/(loss)
Ordinary shares
(million)
- in issue 446 272 272
- weighted 345 301 301
average number
of shares
- diluted 345 301 301
weighted
average number
of shares (note
10)
Attributable
earnings/(loss)
per share
(cents)
- basic 1 200 (442) (241)
- diluted 1 200 (442) (241)
Headline
earnings/(loss)
per share
(cents)
- basic 139 (54) 188
- diluted 139 (54) 188
Dividend per 40
share (cents)
GROUP BALANCE SHEET
As at 30 June
2002 2001 2001
Rm Rm Rm
Audited Unaudited Audited
Pro forma
excluding including
Mining Mining
ASSETS
Non-current
assets
Property, plant 11 993 5 302 9 668
and equipment
Intangible 34
assets
Goodwill 47
Investments in
associates and
joint ventures
(Note 8)
- unlisted 419 301 307
- listed 804
Other financial 136 114 408
assets
Derivative 496
instrument
against interest-
bearing
borrowings
13 078 5 717 11 234
Current asset
Cash and cash 578 420
equivalents
Other 4 458 5 185 5 074
Total assets 18 114 10 902 16 728
EQUITY AND
LIABILITIES
Capital and
reserves
Shareholders` 11 104 6 176 7 140
funds
Minority 2 2 351
interest
Non-current
liabilities
Interest-bearing 726 1 051 1 887
borrowings
Non-current 985 911 1 309
provisions
Deferred 643 675 1 399
taxation
13 460 8 815 12 086
Current
liabilities
Interest-bearing 1 487 132 2 257
borrowings
Other 3 167 1 955 2 385
Total equity and 18 114 10 902 16 728
liabilities
Net debt (Note 1 139 1 183 3 724
9)
Net worth per 2 490 2 271 2 625
share (cents)
Capital
expenditure
- incurred 969 901 2 198
- contracted 356 85 378
- authorised but 824 412 805
not contracted
Operating lease 82 77 227
commitment
Contingent 297 1 876 1 905
liabilities
GROUP STATEMENT OF CHANGES IN EQUITY
Year
ended 30
June
2002 2001
Rm Rm
Audited Audited
including
Mining
Shareholders` funds at 7 140 7 966
beginning of year
Changes in stated capital
- issue of capital 1 995 139
- unbundling and rights issue (65) (65)
costs
Changes in non-distributable
reserves
- unbundling transaction (470)
- currency translation 69 81
differences
- revaluation of mineral 790
rights
- realised sale of mineral (621)
rights
- revaluation transferred to (169)
retained income
- financial instruments (2) (34)
movements
- realised in joint ventures (159)
- changes in attributable 223 (222)
reserves of associated
companies and joint ventures
- transfer of equity 54 145
accounted earnings
- transfer to insurance 1 6
reserve
Changes in retained income
- unbundling transaction (502)
- distribution in specie for (2 056)
the unbundling
- net profit/(loss) for the 4 141 (725)
year
- transfer of equity (54) (145)
accounted earnings
- transfer to insurance (1) (6)
reserve
- realised sale of mineral 621
rights
- revaluation transferred 169
from non-distributable
reserves
Shareholders` funds at end of 11 104 7 140
year
GROUP CASH FLOW
Year ended 30
June
2002 2001 2001
Rm Rm Rm
Audited Unaudited Audited
Pro forma
excluding including
Mining Mining
Cash available from 1 521 1 076 1 707
operations
Proceeds on disposal of 487 92 144
assets
Investments
- Saldanha Steel (228) (1 086) (1 086)
- Other (67) (115)
Capital expenditure (969) (901) (2 198)
Normal net cash 811 (886) (1 548)
inflow/(outflow)
Adjustment to movement in
net debt
- unbundling adjustments 590 527
- take over of Saldanha (2 923)
Steel loans at hedged
value
- rights issue proceeds 1 670
- unbundling and rights (112) (48) (48)
issue expenses
- share issue 8
Decrease/(increase) in net 44 (407) (1 596)
debt
NOTES TO THE AUDITED GROUP FINANCIAL RESULTS
1. Basis of preparation
These audited group financial results for the year ended 30 June 2002 constitute
a summary of the group`s unqualified audited annual financial statements. They
have been prepared on the historical cost basis and conform to South African
Statements of Generally Accepted Accounting Practice. They also comply with
International Accounting Standards and the Companies Act of South Africa.
The group`s annual financial report will be available by the end of September
2002. KPMG`s Inc. signed unqualified auditors report for the year is available
for inspection at the company`s registered address. The principal policies are
consistent with those applied in the previous year except for the accounting
policy for the valuation of mineral rights which was changed to accommodate the
capital structure of the unbundling transaction between Iscor and Kumba
Resources Limited. The mineral rights comprising the 6,25 million tons of iron
ore per annum from Kumba Resources Limited were valued at R169 million and are
amortised over 25 years. The comparative figures have not been adjusted.
2. Negative goodwill realised
The additional 50% Saldanha Steel shareholding was acquired at a time when heavy
losses were expected to be incurred. The difference between the impaired net
asset value in the books of Saldanha Steel at the time of the acquisition, and
the cost of shares, amounted to R2,6 billion and was recorded as negative
goodwill. Since acquisition, however, various economic, commodity and production
factors have improved significantly and it is now expected that Saldanha Steel
will no longer incur the anticipated losses. Consequently the negative goodwill
is now regarded as a realised surplus in accordance with accounting practice and
has been recorded as such in the income statement.
3. Impairment credit/(charge)
Iscor`s share of the Saldanha Steel impairment charge, raised last year, was
largely reversed, applying the same valuation basis, as Saldanha Steel`s
economic prospects have improved significantly. The restated carrying value of
its assets was confirmed by an independent valuator.
Year
ended 30
June
2002 2001 2001
Rm Rm Rm
Audited Unaudited Audited
Pro forma
excluding including
Mining Mining
4. Net loss from
equity accounted
investments
before taxation
Saldanha Steel* (288) (751) (751)
Other 70 48 184
(218) (703) (567)
* As from 1 July
2001 to 27
November 2001
whereafter
Saldanha Steel
became a wholly
owned
subsidiary.
5. Exceptional
items
Surplus on sale 52 49 49
of residential
properties
Gain/(loss) on 364 (9)
sale of
investments
Restructuring (118) (31) (31)
costs
Increase in (47) (47)
provision for
discontinuing
operations
Surplus on 40% 81
sale of Heavy
Minerals Project
298 (29) 43
6. Profit/(loss)
before taxation
is arrived at
after
Depreciation and (730) (496) (836)
amortisation
Financing costs (508) (257) (627)
Interest 120 69 168
received
Directors
emoluments
- executive 6 12 12
- non-executive 1 1 1
Auditors
remuneration
- audit fees 5 5 5
- other services 1 1 1
Dividends 33
received
7. Taxation
Company and (427) (125) (317)
subsidiaries
Equity accounted (15) 607 599
investments
(442) 482 282
8. Investments in
associates and
joint ventures
Unlisted 419 301 358
investments -
director`s
valuation
Listed 1 049
investments -
market value
9. Net debt
Interest-bearing
borrowings
- non-current 726 1,051 1 887
- current 1 487 132 2 257
Cash and cash (578) (420)
equivalents
Derivative (496)
instruments
against interest-
bearing
borrowings
1 139 1 183 3 724
10. Diluted weighted average number of shares
Although the LNM Business Assistance Agreement provides for the issue of
10% of the company`s issued capital to LNM Holdings if certain targets are met
and sustained for a period, the dilutionary effect, if any, has not been taken
into consideration as it is only contingent at this stage with no certainty
whether the targets will be met.
11. Directors` share option benefits
Options issued to and shares purchased by Executive Directors in terms of
the Iscor Management Share Scheme totalled 3 025 070 at 30 June 2002 (2001: 2
453 560), representing 0,7% (2001: 0,9%) of the issued shares.
12. Corporate governance
The group subscribes to and substantially complies with the Code on
Corporate Practices and Conduct as contained in the second King Report on
Corporate Governance. Matters requiring further attention have been identified
and will be addressed during the current financial year.
UNAUDITED SUPPLEMENTARY PHYSICAL INFORMATION
Year ended 30
June
2002 2001
000 tons 000 tons
FLAT STEEL PRODUCTS
VANDERBIJLPARK
Liquid steel production 3 512 3 541
Sales 2 984 2 718
- local 2 016 1 794
- export 968 924
Local sales as % of total 68 66
sales
Saldanha steel
Liquid steel production 933 942
Hot-rolled coil
- production 872 863
- sales 887 901
LONG STEEL PRODUCTS
Liquid steel production 2 008 1 985
Sales 1 749 1 665
- local 1 032 774
- export 717 891
Local sales as % of total 59 46
sales
Total sales 5 620 5 284
- local 3 048 2 568
- export 2 572 2 716
Local sales as % of total 54 49
sales
Registered office: Iscor Head Office, Roger Dyason Road, Pretoria West,
Pretoria, 0002. Transfer secretaries:+ Stakeholder Data Services (Pty)
Limited, First National House, 108 Johan Avenue, Sandton. PO Box 652000,
Benmore, 2010.
Directors: W A M Clewlow (Chairman), L L van Niekerk (Chief Executive Officer),
D K Chugh*, W F Coertzen, M Macdonald, A Mittal*, L N Mittal*, D D Mokgatle, Dr
K D K Mokhele, K Ngqula, M J N Njeke, A M Thebyane, J L van den Berg, Dr M J U T
van Wijngaarden *Citizen of India Company Secretary: A van der Merwe +
With effect from September 2002
This report is available on Iscor`s worldwide website at: http://www.iscor.com
Date: 22/08/2002 07:44:59 AM Produced by the JSE SENS Department
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