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ISCOR LIMITED - REVIEWED CONDENSED GROUP INTERIM FINANCIAL STATEMENTS AND
PHYSICAL INFORMATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2002
Iscor Limited
Registration number: 1989/002164/06
Share code: ISC ISIN code: ZAE000037453
REVIEWED CONDENSED GROUP INTERIM FINANCIAL STATEMENTS AND PHYSICAL INFORMATION
FOR THE SIX MONTHS ENDED 31 DECEMBER 2002
COMMENTS
Group financial results
Earnings for the half-year showed a major improvement on the comparative period
last year. This was the result of a number of significant developments during
the past twelve months:
a sharp turnaround in the international steel price cycle;
a weakening of the exchange rate against the US dollar;
strong growth in domestic steel demand;
achievement of full capacity output and improved efficiencies at Saldanha Steel
following the successful Corex repair; and
reduced finance charges as a result of the rights issue and strong cash flow.
Results for the December 2002 quarter improved on the September 2002 quarter due
to further rises in international steel prices and improved efficiencies
resulting in lower unit costs.
Market review
International
International steel prices have shown a significant upswing since February 2002,
triggered in part by safeguard measures introduced in the United States, the
European Union and China as well as by closer realignment of international steel
supply with demand. South Africa, as a developing economy member of the World
Trade Organisation, and through careful management of exports below the 3%
threshold level for imports into safeguard countries, has not been negatively
affected by the safeguard measures.
The steel markets in the major producer/consumer regions of North America, the
European Union, the Far East and Eastern Europe, collectively drive global steel
prices, although each has its own characteristics:
In the United States, as a result of the safeguard measures, hot rolled coil
prices escalated by 80% between January and September 2002, but have since
dropped back by some 18% due to a combination of weak demand and rising output
from previously idled facilities. This has restored a measure of price parity
with Europe and the Far East from the unsustainable levels reached in September
2002.
In the European Union steel demand has been phlegmatic, but supply-side
constrained by a more consolidated European steel industry has resulted in steel
prices continuing to increase to date. However, with no immediate prospects for
improvement in economic activity, EU steel prices are expected to flatten out in
the first half of 2003.
In Asia steel prices have continued to increase steadily in response to higher
input costs and strengthening demand. Chinese demand and imports continued to
grow strongly notwithstanding the renewed tariff-quota safeguards introduced in
November 2002. As these measures are less restrictive they should reduce price
volatility in the Asian steel markets, which has been evident over recent
months. Strong ongoing demand is expected to lead to further price increases in
the region.
In Eastern Europe and the CIS, steel markets have been positive in recent
months. Demand has been growing faster than production, leading to rising
domestic prices in most of these markets. This is positive for global steel
pricing as prices in this region usually influence the base for inter-regional
steel pricing.
Our geographic sales spread reflects our priorities given to the markets
offering the best margins. The strong growth in the African market, where we
enjoy logistic cost advantages, reflects the buoyant domestic demand and our
success in driving our strategy to increase our market share in the region.
North American markets offered particularly attractive prices although volumes
were capped by safeguard measure limitations.
Domestic
The first half of the financial year was characterised by continuing buoyant
demand driven by large resource projects, construction activity and secondary
exports, which have become more competitive with the weaker currency. South
African steel industry domestic deliveries, up 14% since last year, were further
boosted by an 11% drop in steel imports to the very low level of 3,8% of
consumption for the six months under review.
Domestic steel consumption has shown consistent growth since the first quarter
of 2001 and is approaching levels last seen in the late 1980s.
Our domestic market sector sales tons analysis shows clearly the importance of
the construction sector, which has shown particularly strong growth.
Cost reduction
We are committed to a policy of continuous cost reduction in excess of the long-
term real rate of steel price erosion, which has averaged 1,2% per annum over
the past 40 years and is expected to continue to decline in line with most
commodity prices.
The business assistance agreement with the LNM Group, approved by shareholders
in January 2002, is aimed at reducing non-labour cash costs by at least R700
million per annum, equivalent to some US$12/ton, within the next two years.
These savings will be over and above those we expect to achieve ourselves.
Significant potential savings, particularly on procurement, have already been
identified and started flowing through during the latter part of the half-year.
This initiative is calculated to drive down our already competitive position on
the lower quartile of the global cost curve even further.
Saldanha Steel
The successful repair of the Corex melter/gassifier unit during May and June
2002 allowed Saldanha to produce at full design capacity during the first half.
This was combined with significant efficiency improvements, particularly lower
coke and pellet usage, and a very satisfactory 39% production level of thin-
gauge material for which premium prices were received.
Combined with the improved pricing levels, Saldanha has swung from a major drag
on profits to a significant profit generator. Its 20% operating margin for the
half-year compares with Vanderbijlpark`s 23% and long products` 18%.
Further cost savings, as well as production levels above design capacity, are
targeted which should bring Saldanha`s cash costs per ton well within the lowest
quartile of the global cost curve, a position our other plants already enjoy.
The full operating results for Saldanha show a significant improvement.
Three months ended
31 December 30 September
2002 2002
Revenue 870 795
Operating profit/(loss) 208 128
Six months ended Year ended
31 December 31 December 30 June
2002 2001 2002
1 665 864 1 724
336 (186) (510)
Cash flow
Cash generation of R971 million for the half-year was very satisfactory,
reducing the net debt to R222 million at 31 December 2002. Tax is now being paid
by Iscor after working off the assessed tax loss during the past financial year
although Saldanha Steel still has a substantial assessed loss.
This half-year`s very strong cash flow during the upswing of the steel price
cycle as well as last year`s positive cash flow at the bottom of the cycle has
vindicated our objective of generating positive cash returns throughout the
cycle.
Outlook
Earnings outlook for the second half depends on three major factors:
Steel prices
International forecasting agencies are predicting maintenance of current
international steel prices. If this materialises our average selling price for
the second half, expressed in US dollars, should exceed that of the first half.
Domestic demand
This is expected to ease off from the very high levels achieved during the first
half.
R/US$ exchange rate
There is considerable uncertainty surrounding the future levels of the exchange
rate. The average spot rate for the first half, of R9,65/US$, compares with the
rate at 31 December 2002 of R8,60/US$ and latest consensus forecasts by five
major banks for the second half which vary between R8,84/US$ to R9,04/US$.
Barring any unforeseen production interruptions, we expect to maintain earnings,
expressed in terms of US dollars, at first half levels. However, achieving this
in rand terms would be difficult within the average consensus exchange rate
range.
Dividend
In a public announcement at the time of the annual general meeting on 25
November 2002, the Board stated its intention to resume the payment of interim
dividends. The directors have accordingly declared a dividend of 100 cents per
share to all shareholders recorded in the register on 14 February 2003 (the
record date).
The dividend is based on first half earnings with no attempt to anticipate the
level of the final dividend, which will be based on second half earnings. It is
the intention of the Board to maintain a half-yearly dividend ratio of
approximately one third of half-year earnings.
The last day to trade ("cum" dividend) in order to participate in the dividend
will be 7 February 2003. Our shares will commence trading "ex" dividend from the
commencement of business on 10 February 2003. Payment of the dividend will be
made in South African currency on 17 February 2003. The company`s shares may not
be dematerialised or rematerialised between 10 February 2003 and 14 February
2003, 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 M Macdonald
(Chief Executive Officer) (Executive Director, Finance)
13 January 2003
SEGMENT RESULTS
Three months ended
31 December 30 September
2002 2002
Reviewed Unaudited
Rm Rm
REVENUE
Flat Steel Products
- Vanderbijlpark 2 611 2 673
- Saldanha Steel 870 795
Long Steel Products 1 254 1 291
Suprachem 202 169
Other 301 196
Intra Group (317) (275)
Total 4 921 4 849
PROFIT FROM OPERATIONS
BEFORE IMPAIRMENT
CHARGE AND NEGATIVE
GOODWILL REALISED
Flat Steel Products
- Vanderbijlpark 705 524
- Saldanha Steel 208 128
Long Steel Products 226 223
Suprachem 43 30
Corporate (49) (20)
Total 1 135 885
Six months ended Year ended
31 December 30 June
2002 2001 2002
Reviewed Unaudited Audited
Rm Rm Rm
5 284 3 891 8 051
1 665 245 1 165
2 545 2 079 4 509
371 305 653
497 173 343
(592) (247) (533)
9 770 6 446 14 188
1 229 352 842
336 75 (247)
449 279 679
73 62 121
(67) (30) (87)
2 020 738 1 308
GROUP INCOME STATEMENT
Six months ended Year
ended
31 December 31 December 30 June
2002 2001 2002
Reviewed Unaudited Audited
Rm Rm Rm
Revenue 9 770 6 446 14 188
Operating expenses (7 319) (5 419) (12 150)
Earnings before interest,
taxation,
depreciation and 2 451 1 027 2 038
amortisation (Ebitda)
Depreciation (427) (286) (722)
Amortisation of intangible (4) (3) (8)
assets
Profit from operations
before impairment
charge and negative 2 020 738 1 308
goodwill realised
Impairment credit 998
Negative goodwill realised 2 585
Profit from operations 2 020 738 4 891
Net financing costs (77) (147) (388)
Net profit/(loss) from
equity accounted
investments (Note 2) 51 (245) (218)
Exceptional items (Note 3) 31 228 298
Profit before taxation 2 025 574 4 583
(Note 4)
Taxation (Note 5) (655) (191) (442)
Profit from ordinary 1 370 383 4 141
activities
Minority interest (1) (1)
Profit attributable to 1 369 382 4 141
ordinary shareholders
Adjusted for:
- exceptional items (Note (31) (228) (298)
3)
- impairment credit (998)
- negative goodwill (2 585)
realised
- taxation on adjustments (47) 220
Headline earnings 1 338 107 480
Perfomance per ordinary
share
Headline earnings per share
(cents)
- basic 300 34 139
- diluted 296 34 139
Attributable earnings per
share (cents)
- basic 307 122 1200
- diluted 303 121 1200
Dividend per share (cents) 100 40
Net asset value per share 2 737 2769 2490
(cents)
Ordinary shares (million)
- in issue 446 292 446
- weighted average number 446 314 345
of shares
- diluted weighted average 451 315 345
number of shares
Ratios (%)
Ebitda margin 25,1 15,9 14,4
Return on ordinary
shareholders` equity per
annum
- headline earnings 23,0 3,0 5,6
- attributable earnings 23,5 10,7 47,9
Net debt/equity 1,8 28,7 10,3
Market capitalisation (Rm) 9 472 3 314 9 812
GROUP BALANCE SHEET
Six months ended Year ended
31 December 31 December 30 June
2002 2001 2002
Reviewed Unaudited Audited
Rm Rm Rm
ASSETS
Non-current assets 12 536 13 487 13 078
Property plant and 11 937 10 782 11 993
equipment
Intangible assets 33 36 34
Investments in joint
ventures (Note 6)
- unlisted 388 456 419
Other financial assets 178 18 136
Derivative instruments 2 195 496
against interest-bearing
borrowings
Current assets 5 701 5 553 5 036
Cash and cash equivalents 1 049 1 540 578
Other 4 652 4 013 4 458
Total assets 18 237 19 040 18 114
EQUITY AND LIABILITIES
Capital and reserves 12 202 8 088 11 106
Ordinary shareholders` 12 199 8 085 11 104
equity
Minority interest 3 3 2
Non-current liabilities 2 474 6 208 2 354
Interest-bearing borrowings 636 4 534 726
Non-current provisions 1 036 923 961
Provision for post- 25 20 24
retirement medical costs
Deferred taxation 777 731 643
Current liabilities 3 561 4 744 4 654
Interest-bearing borrowings 458 1 519 1 487
Derivative instruments 177
against interest-bearing
borrowings
Other 2 926 3 225 3 167
Total equity and 18 237 19 040 18 114
liabilities
Net debt (Note 7) 222 2 318 1 139
GROUP CASH FLOW
Six months ended Year ended
31 December 31 December 30 June
2002 2001 2002
Reviewed Unaudited Audited
Rm Rm Rm
Cash inflow from operating 1 410 2 153 2 507
activities
Cash inflow before 1 410 1 247 1 601
unbundling transactions
Cash inflow from unbundling 906 906
transactions
Cash outflow from investing (439) (412) (1 153)
activities
Cash outflow from financing (500) (638) (1 213)
activities
Increase in cash and cash 471 1 103 141
equivalents
Cash and cash equivalents 578 437 437
at beginning of period
Cash and cash equivalents 1 049 1 540 578
at end of period
GROUP STATEMENT OF CHANGES IN EQUITY
Six months ended Year ended
31 December 31 December 30 June
2002 2001 2002
Reviewed Unaudited Audited
Rm Rm Rm
Shareholders` funds at 11 104 7 140 7 140
beginning of period
Changes in stated capital 271 1 930
- issue of share capital 325 1 995
- unbundling and rights (54) (65)
issue costs
Changes in non- (60) 2 094 (284)
distributable reserves
- unbundling transaction (597) (470)
- currency translation (33) 93 69
(losses/gains)
- revaluation of mineral 790 790
rights
- realised sale of mineral (621) (621)
rights
- revaluation transferred (169) (169)
to retained income
- financial instruments (63) (158) (2)
movements
- realised in joint (159)
ventures
- changes in attributable 224 223
reserves of associated
companies and joint
ventures
- transfer of equity 37 33 54
accounted earnings
- transfer (from)/to (1) 1 1
insurance reserve
- surplus on Saldanha 2 498
acquisition
Changes in retained income 1 155 (1 420) 2 318
- unbundling transaction (502) (502)
- distribution in specie (2 056) (2 056)
for the unbundling
- net profit for the period 1 369 382 4 141
- dividend paid (178)
- transfer of equity (37) (33) (54)
accounted earnings
- transfer from/(to) 1 (1) (1)
insurance reserve
- realised sale of mineral 621 621
rights
- revaluation transferred 169 169
from non-distributable
reserves
Shareholders` funds at end 12 199 8 085 11 104
of period
NOTES TO THE REVIEWED FINANCIAL STATEMENTS
1. Basis of preparation
The interim financial statements are prepared in accordance with International
Accounting Standards, South African Statements of Generally Accepted Accounting
Practice and Schedule 4 of the South African Companies Act, 1973, as amended,
and should be read in conjunction with the 2002 annual financial statements. The
accounting policies adopted are consistent with those applied in the annual
financial statements for the year ended at 30 June 2002.
Six months ended Year ended
31 December 31 December 30 June
2002 2001 2002
Reviewed Unaudited Audited
Rm Rm Rm
2. Net profit/(loss) 51 (245) (218)
from equity
accounted
investments before
taxation
Saldanha Steel (288) (288)
- ebidta (65) (65)
- depreciation (66) (66)
- financing cost (157) (157)
Other 51 43 70
3. Exceptional items 31 228 298
Surplus on sale of 31 21 52
residential
properties
Gain on sale of 363 364
investment
Restructuring costs (156) (118)
4. Profit before
taxation is arrived
at after
Financing costs (98) (240) (508)
Interest received 21 93 120
5. Taxation (191) (442)
Company and (181) (427)
subsidiaries
Equity accounted (10)* (15)*
investments*
* Taxation for
Saldanha Steel R nil
The income tax
expense is based on
the best estimate of
the weighted avarage
annual income tax
rate expected for
the full financial
year
6. Investments in
joint ventures
Unlisted investments
- directors` 388 479 419
valuation
7. Net debt 222 2 318 1 139
Interest-bearing
borrowings
- non-current 636 4 534 726
- current 458 1 519 1 487
Cash and cash (1 049) (1 540) (578)
equivalents
Derivative 177 (2 195) (496)
instruments against
interest-bearing
borrowings
8. Capital
expenditure
Incurred 396 271 969
Contracted 484 298 356
Authorised but not 753 769 824
contracted
9. Contingent 282 290 297
liabilities
10. Operating lease 70 63 82
commitments
Less than one year 21 19 25
More than one year 39 33 43
and less than five
years
More than five years 10 11 14
11. Related party transactions
During the period the company and its subsidiaries, in the ordinary course of
business, entered into various sale and purchase transactions with joint
ventures. These transactions occurred under terms that are no less favourable
than those arranged with third parties.
12. Independent review by the auditors
These interim results have been reviewed by our auditors, KPMG Inc., who have
performed their review in accordance with the Guideline for Auditors on Review
of Interim Financial Information issued by the South African Institute of
Chartered Accountants. The scope of the review was to enable the auditors to
report that nothing came to their attention that caused them to believe that the
accompanying condensed consolidated interim financial statements is not fairly
presented, in all material respects, in accordance with International Accounting
Standards, the Companies Act in South Africa and South African Statements of
General Accepted Accounting Practice. KPMG Inc.`s unmodified review report on
the condensed consolidated interim financial statements is available for
inspection at the registered office of the company.
13. Listings requirements
This interim announcement has been prepared in accordance with the Listings
Requirements of the JSE Securities Exchange South Africa.
14. Corporate governance
The Group subscribes to and complies, in all material respect, with the code on
Corporate Practices and Conduct as contained in the second King Report on
Corporate Governance.
UNAUDITED SUPPLEMENTARY PHYSICAL INFORMATION (`000 tons)
Three months ended
31 December 30 September
2002 2002
FLAT STEEL PRODUCTS
- VANDERBIJLPARK
Liquid steel production 943 957
Sales 727 816
- local 531 612
- export 196 204
Local sales as % of total 73 75
sales
- SALDANHA STEEL
Liquid steel production 334 311
Sales 321 275
- local 37 28
- export 284 247
Local sales as % of total 12 10
sales
LONG STEEL PRODUCTS
Liquid steel production 553 535
Sales 419 449
- local 227 278
- export 192 171
Local sales as % of total 54 62
sales
TOTAL
Liquid steel production 1 830 1 803
Sales 1 467 1 540
- local 795 918
- export 672 622
Local sales as % of total 54 60
sales
Six months ended Year ended
31 December 30 June
2002 2001 2002
1 900 1 811 3 512
1 543 1 492 2 984
1 143 1 004 2 016
400 488 968
74 67 68
645 535 933
596 455 887
65
531 455 887
11
1 088 1 047 2 008
868 869 1 749
505 499 1 032
363 370 717
58 57 59
3 633 3 393 6 453
3 007 2 816 5 620
1 713 1 503 3 048
1 294 1 313 2 572
57 53 54
Iscor limited
Registered office: Iscor Head Office, Roger Dyason Road, Pretoria West,
Pretoria, 0002
Transfer secretaries: Stakeholder Data Services (Pty) Limited, 108 Johan Avenue,
Sandton. PO Box 652000, Benmore, 2010
Directors: K Ngqula (Chairman), L L van Niekerk (Chief Executive Officer), D K
Chugh*, W F Coertzen, R G Cottrell, M Macdonald, S Maheshwari*, A Mittal*, L N
Mittal*, D D Mokgatle, K D K Mokhele, M J N Njeke, A M Thebyane, M J U T van
Wijngaarden Company Secretary: A van der Merwe *Citizen of India
This report is available on Iscor`s worldwide website at: http://www.iscor.com
Date: 14/01/2003 07:05:01 AM Produced by the JSE SENS Department
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