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Highveld - Interim Report For The Six Months To 30 June 2003
Release Date: 05/08/2003 14:27:35 Code(s): HVL
Highveld - Interim report for the six months to 30 June 2003
Highveld Steel And Vanadium Corporation Limited
Registration no. 1960/001900/06
(Incorporated in the Republic of South Africa)
Share code: HVL
ISIN: ZAE 000003422
A member of the Anglo American plc group
("Highveld" or "the corporation")
Interim report for the six months to 30 June 2003
- Domestic steel markets down
- Export margins eroded by S.A. rand"s strength
Financial Results
The group results for the half-year ended 30 June 2003 set out below have been
prepared in accordance with the principal accounting policies of the group,
which comply with Generally Accepted Accounting Practice and the International
Financial Reporting Standards issued by the International Accounting Standards
Committee and are consistent with the prior year"s interim report and the
audited financial statements at 31 December 2002.
The financial information has been reviewed, but not audited, by Deloitte &
Touche, whose unqualified review report is available for inspection at the
corporation"s registered office.
As notified in the trading update published on 12 May 2003, the decrease in
local demand due mainly to high interest rates, in combination with a strong
S.A. rand contributed to a substantially lower operating profit of R16.7 million
compared to R147.6 million for the corresponding period last year. Headline
earnings deteriorated to R18.6 million from R95.5 million. Cost reduction
initiatives generated savings of R60.9 million for the period.
The profit attributable to shareholders for the six months was R24.9 million
compared to R94.9 million in the corresponding period of 2002.
The headline earnings per share were 19.1 cents, compared to 97.8 cents in the
first six months of 2002.
A cash outflow of R39.3 million was experienced and the group"s net borrowings
increased to R136.2 million compared to R96.9 million at 31 December 2002.
In view of the results, the uncertain economic conditions and the cash outflow
the Board has decided to pass the interim dividend.
Vanadium
The upturn in the vanadium market which was evident at the end of 2002,
continued through the first quarter of 2003 with U.S. dollar prices for ferro
vanadium and vanadium pentoxide peaking during March at US$13.25 per kgV and
US$2.65 per lb V2O5 respectively. This was due to reduced supply as Vanady
Tulachermet, the Russian producer, had stopped operating. This firmness was also
assisted by Xstrata"s announcement during February of the closure of its
Windimurra vanadium pentoxide plant in Western Australia. This plant had a
capacity of 17 million lbs which represented some 10 per cent of current world
consumption. The market softened in the second quarter due to Vanady Tulachermet
restarting operations after being idle for four months.
The idled kiln at Vanchem was successfully commissioned during the first quarter
of the year and the ferro vanadium joint venture plant with Japanese partners
Nippon Denko and Mitsui was commissioned during July this year.
Steel
World crude steel production increased by 8.2 per cent in the first six months
of 2003 compared with the same period last year reaching an annualised rate of
931 million tons per annum including a monthly record in May 2003 of 80.8
million tons. All the regions in the world recorded increased production, with
China, the largest steel producing country, increasing by 21 per cent.
Domestically, the consumption of structural sections and hot rolled flat
products has decreased substantially, mainly due to the strength of the S.A.
rand and high interest rates. These factors caused a slow down in a number of
major projects and resulted in steel merchants embarking on inventory
reductions.
The structural mill consequently operated at reduced output levels from the end
of May.
Strong demand in China and other Asian countries, combined with increasing scrap
prices resulted in good prices for hot rolled coil and billets early in the
year. However, these declined in the second quarter.
In Western Europe, the appreciation of the Euro against the U.S. dollar and a
lacklustre domestic market, resulted in coil and sheet prices also declining,
rendering profitable sales difficult.
Demand in the U.S.A. was soft, with the result that negligible sales were made.
Ferro-alloys
Export prices for bulk ferro-alloys remained at adequate levels during the
period with a firm upward trend particularly in respect of ferrosilicon and
medium carbon ferromanganese. The price of ferrosilicon did however fall
significantly at the end of the period as capacity previously idled due to power
constraints was restarted. European prices in general also started to weaken as
projected demand faltered. Despite the favourable picture on U.S. dollar prices,
the strength of the S.A. rand squeezed margins.
Production of silicomanganese at Transalloys continued to be satisfactory.
However, a fire in the medium carbon ferromanganese section curtailed production
from early May until full production was resumed in late June.
Full production of ferrosilicon was maintained at Rand Carbide and was largely
channeled into a firm domestic market. Demand for electrode paste and char
continued to be depressed and output was flexed accordingly.
Investment
The performance of the Spanish stainless steel maker Acerinox, S.A. for the six
months met expectations with dividends amounting to R6.4 million having been
received during the period and a further dividend amounting to R5.4 million,
being paid on 4 July 2003. An additional dividend is expected later in the year.
The performance of Columbus was adversely affected by the strong S.A. rand but
continued to be profitable.
Capital Expenditure
Capital expenditure incurred by the group during the period amounted to R38.1
million (2002: R47.5 million) and the total commitment in respect of further
capital expenditure as at 30 June 2003 is R89.8 million compared to R81.9
million at 31 December 2002. This expenditure will be funded from existing
banking facilities.
Sale of Rheem
With the approval of the Competition Tribunal the sale of Rheem Crown to SAB
Miller was finalised on 17 March at net asset value.
Safety, Health, Environment and Quality
The safety drive in the group continued with the lost time injury frequency rate
per 200 000 hours (LTIFR) having improved to 0.48 from 0.78 in the same period
last year. The focus on previous initiatives was maintained with additional
emphasis on the safety behaviour of employees at work. Four divisions in the
group also achieved one million lost time injury (LTI) free working hours during
the period under review.
In addition to the corporation"s drive to minimise occupational diseases and
manage the impact of HIV/AIDS, attention is being given to the development of a
broad-based programme to improve the general health of the corporation"s labour
force.
A programme has been implemented to achieve the ISO 14001 Environmental
Management System certification in the remaining divisions of the corporation by
early 2004. Work continued in co-operation with the relevant government
departments in developing integrated water and waste management plans for the
divisions of the corporation, with the main focus on reducing possible impacts
on scarce water resources. Actions have been taken to reduce water consumption
within the operations.
Directorate
Messrs. JA Chegwidden and AJ Trahar resigned as directors of the corporation
with effect from 9 May 2003 and 30 June 2003, respectively. I thank them for
their valuable contributions over many years.
I also welcome Mr NB Mbazima who was appointed as non-executive director with
effect from 1 July 2003.
Corporate Governance
The Board formally adopted a charter in accordance with the second King
Committee Report on Corporate Governance.
Outlook
Domestic demand for the group"s specific steel products is driven by capital
investment in buildings and plant as well as the viability of added value
structural steel exports. With continuing high real interest rates and a strong
local currency both of these activities are at a low level and unlikely to pick
up quickly in the second half of 2003. However, a number of projects are under
consideration and demand for steel could increase rapidly once the South African
economic outlook improves.
In the short-term as a result of the strong S.A. rand and high winter
electricity tariffs it is uneconomic to export certain steel products and it was
decided to reduce iron output by about 20 per cent. Two iron making furnaces
were taken off-line in July, and will remain off during the high tariff month of
August.
Despite the slow economic recovery in the United States and stagnation in major
parts of the European Union, the short-term outlook for steel worldwide is that
consumption will continue to grow by more than 2 per cent per annum during the
latter part of this year, driven by China and the Asia/Pacific Rim. While
increasing production will keep pace with this it is likely that, together with
a weakness in the U.S. dollar, U.S. dollar prices will show some upward
movement.
Vanadium prices are above historic lows despite production being resumed in
Russia and it is to be hoped that responsible marketing will lead to more
stable, and somewhat improved, U.S. dollar prices.
Domestic demand for steel is down by over one third from the same period in 2002
while S.A. rand returns on all exports have deteriorated materially due to
currency fluctuation. Since S.A. rand costs have not fallen, margins will remain
under extreme pressure.
Management"s main focus continues to be to drive down operating costs, however
with the uncertainty prevailing over the S.A. rand exchange rate it is not
possible to make a meaningful forecast of earnings for the second half of this
year.
Without any significant weakening in the currency or change in trading
conditions it will not be possible to maintain the same level of earnings in the
second half of the year.
Should economic and trading conditions improve the dividend will be reviewed at
year-end.
For and on behalf of the Board
TE Jones - Chairman and Chief Executive Officer
Witbank
5 August 2003
ABRIDGED CONSOLIDATED INCOME STATEMENTS
Six months Six months Year to
to to
30.6.2003 30.6.2002 31.12.2002
R"000 R"000 R"000
CONTINUING OPERATIONS
Revenue 1 858 144 1 855 192 3 726 063
Operating profit 13 441 147 659 326 499
Investment income 6 467 - 5 866
Net interest paid 3 457 18 023 22 880
Operating profit after interest 16 451 129 636 309 485
DISCONTINUED OPERATIONS
Revenue 26 444 - 285 682
Operating profit 3 280 - 34 335
Net interest received/(paid) 1 - (2 034)
Operating profit after interest 3 281 - 32 301
TOTAL OPERATIONS
Revenue 1 884 588 1 855 192 4 011 745
Operating profit before depreciation 76 294 199 021 487 718
Depreciation 59 573 51 362 126 884
Operating profit 16 721 147 659 360 834
Investment income 6 467 - 5 866
Net interest paid 3 456 18 023 24 914
Operating profit after interest 19 732 129 636 341 786
Profit on sale of operations 9 019 - 20 348
Profit before taxation 28 751 129 636 362 134
Taxation charge 3 805 34 702 122 041
Attributable profit 24 946 94 934 240 093
HEADLINE EARNINGS
Attributable profit 24 946 94 934 240 093
(Less)/add after tax effect of:
(Profit)/loss on sale of operations (6 313) - 10 575
Cost of restructuring - 560 -
Loss on disposal of property, plant and - - 1 620
equipment
Headline earnings 18 633 95 494 252 288
Weighted average number of shares in 97 785 545 97 628 022 97 653 171
issue
Number of shares in issue as at period 97 795 398 97 661 886 97 735 898
end date
Basic earnings per share (cents) 25.5 97.2 245.9
Basic diluted earnings per share (cents) 25.5 97.2 242.9
Headline earnings per share (cents) 19.1 97.8 258.4
Headline diluted earnings per share 19.1 97.8 255.2
(cents)
Dividend per share attributable to - 45 135
calendar profits (cents)
Dividend cover based on headline earnings - 2.2 1.9
Loss on disposal of property, plant 18 633 95 494 252 288
and equipment
Headline earnings 97 785 545 97 628 022 97 653 171
Weighted average number of shares in 97 795 398 97 661 886 97 735 898
issue
Number of shares in issue as at period 25.5 97.2 245.9
end date
Basic earnings per share (cents) 25.5 97.2 242.9
Basic diluted earnings per share (cents) 19.1 97.8 258.4
Headline earnings per share (cents) 19.1 97.8 255.2
Headline diluted earnings per share - 45 135
(cents)
Dividend per share attributable to - 2.2 1.9
calendar profits (cents)
Dividend cover based on headline earnings 24 946 94 934 240 093
ABRIDGED CONSOLIDATED CASH FLOW STATEMENTS
Audited
Reviewed Unaudited for the
Six months Six months year
to to ended
30.6.2003 30.6.2002 31.12.2002
R"000 R"000 R"000
Net cash (outflow)/inflow from operating (20 881) 329 202 352 609
activities
Net cash (outflow)/inflow from investing (18 377) (86 392) 48 715
activities
Net cash (outflow)/inflow (39 258) 242 810 401 324
Net cash outflow from financing (48 290) (267 887) (728 858)
activities
Net decrease in cash and cash equivalents 87 548 25 077 327 534
NET BORROWINGS
Long-term borrowings 232 743 255 074 240 347
Short-term borrowings 20 305 54 348 60 991
Cash and cash equivalents (116 854) (239 868) (204 402)
136 194 69 554 96 936
ABRIDGED STATEMENTS OF CHANGES IN EQUITY
Share Fair Retained
capital, value
share premium
and
non- reserve profit Total
distributable
reserves
R"000 R"000 R"000 R"000
Balance at 1 January 2002 589 859 - 832 134 1 421 993
Attributable profit 94 934 94 934
Dividend: final no. 54 - (14 630) (14 630)
2001
Disposal of Columbus Joint (32 135) (32 135)
Venture
Proceeds from shares 626 626
issued
Balance at 30 June 2002 558 350 - 912 438 1 470 788
Attributable profit 145 159 145 159
Dividend: interim no. 55 - (43 953) (43 953)
2002
Proceeds from shares 1 058 1 058
issued
Fair value surplus 76 155 76 155
Balance at 1 January 2003 559 408 76 155 1 013 644 1 649 207
Attributable profit 24 946 24 946
Dividend: final no. 56 - (87 962) (87 962)
2002
Proceeds from shares 700 700
issued
Reversal of fair value (56 565) (56 565)
surplus
Reversal of translation (3) (3)
reserve
Balance at 30 June 2003 560 105 19 590 950 628 1 530 323
ABRIDGED CONSOLIDATED BALANCE SHEETS
Reviewed Unaudited Audited
as at as at as at
30.6.2003 30.6.2002 31.12.2002
R"000 R"000 R"000
ASSETS
Fixed assets 1 097 569 1 066 457 1 087 695
Investments (1) 853 966 847 593 910 509
Net cash on hand 96 549 185 520 143 411
Net current (58 192) 64 685 43 006
(liabilities)/assets
Current assets 1 088 907 1 086 416 1 095 066
Current liabilities 1 147 099 1 021 731 1 052 060
TOTAL ASSETS 1 989 892 2 164 255 2 184 621
EQUITY AND LIABILITIES
Shareholders" equity 1 530 323 1 470 788 1 649 207
Deferred taxation 66 673 260 634 66 612
Long-term liabilities 392 896 432 833 468 802
TOTAL EQUITY AND LIABILITIES 1 989 892 2 164 255 2 184 621
(1) Investments
Acerinox, S.A. - at cost 533 333 533 333 533 333
- fair value adjustment 19 590 - 76 155
Columbus Stainless (Pty) 300 000 300 000 300 000
Limited - at cost
Other 1 043 14 260 1 021
853 966 847 593 910 509
Debt to equity ratio - 9 5 6
percentage
Net worth - cents/share 1 565 1 506 1 687
Net borrowings 136 194 69 554 96 936
Segmental Reporting
Reviewed Unaudited Audited
Six months Six months Year to
to to
30.6.2003 30.6.2002 31.12.2002
R"000 R"000 R"000
Steel and Vanadium
Revenue* 1 384 498 1 412 857 2 811 989
Operating profit/(loss) (10 937) 67 888 192 649
Ferro-alloys
Revenue 473 646 442 335 914 074
Operating profit/(loss) 24 378 79 771 133 850
Continuing operations
Revenue 1 858 144 1 855 192 3 726 063
Operating profit/(loss) 13 441 147 659 326 499
* Revenue for the six month period pertaining to the steel and vanadium segment
comprises R1 042.2 million (2002: R1 110.8 million) in respect of steel and
R342.3 million (2002: R302.1 million) in respect of vanadium. Revenue for the
prior year pertaining to the steel and vanadium segment comprises R2.2 billion
in respect of steel and R0.6 billion in respect of vanadium.
The interim report will be posted to all registered shareholders on or about 6
August 2003.
Enquiries may be directed to e-mail address: general@hiveld.co.za
DIRECTORS:
T E Jones (Chairman and Chief Executive Officer), D D Barber, E Barnardo, L
Boyd, C B Brayshaw, C J Colebank, B E Davison, E K Diack, A Harris, L Matteucci,
N B Mbazima (Zambian), Ms D R Motsepe, Dr A J Pienaar, B J T Shongwe and M
Winstanley (British)
ALTERNATE DIRECTORS: PM Baum and GF Young
COMPANY SECRETARY: J Theiss
Registered Office Transfer Secretaries
Portion 29 of the farm Computershare Limited
Schoongezicht no. 308 JS Investor Services Division
District Witbank 70 Marshall Street, Johannesburg, 2001
Mpumalanga (P O Box 61051, Marshalltown, 2107)
(P O Box 111, Witbank, 1035) Tel: 011 - 370-5000
Tel: 013 - 690-9911Fax: 011 - 688-7721
Fax: 013 - 690-9033
