| Tue 10 Feb 2004, 14:54 | | Abridged audited results for the year ended 31 De |
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HIGHVELD STEEL AND VANADIUM CORPORATION LIMITED - RESULTS
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")
Abridged audited results for the year ended 31 December 2003
Abridged Chairman"s Review
The audited group results for the year ended 31 December 2003 set out below have
been prepared in accordance with the South African Statements of Generally
Accepted Accounting Practice and International Financial Reporting Standards and
on a basis consistent with the prior year"s audited financial statements at 31
December 2002. The auditors, Deloitte & Touche, have issued their opinion on the
group annual financial statements for the year ended 31 December 2003 and a copy
of the auditors" unqualified report is available for inspection at the
corporation"s registered office.
Financial Results
The reporting period was characterised by a strong Rand which resulted in
substantially lower revenue for all group exports. The strength of the currency
and the high real South African interest rates contributed to lower local sales.
Rand costs remained stubbornly high exacerbated by above inflation increases
from parastatal companies. These factors effectively eliminated operating
margins. As a consequence group operating profit, after releasing R54.6 million
from provisions, decreased to R85.1 million from R360.8 million in 2002.
The profit attributable to Highveld shareholders was R64.8 million compared to
R240.1 million in 2002. This was after a tax charge of R15.2 million (2002:
R122.0 million).
Headline earnings for the full year were R53.8 million, nearly 79 per cent down
on the previous year"s R252.3 million. This was equivalent to 55 cents per share
(2002: 258.4 cents per share).
The net cash outflow for the year was R326.3 million in 2003 (R401.3 million net
inflow in 2002) predominantly as a result of the tax payment of R286.9 million
relating mainly to the recoupment on the sale of the stainless steel operations.
This resulted in net borrowings of R423.3 million at year-end compared to R96.9
million at the end of 2002.
In view of the results achieved, the Board has decided to pay a final dividend
of 20 cents (2002: 90 cents).
Carbon Steel and Vanadium
World crude steel output as reported by the International Iron and Steel
Institute continued to rise steadily throughout the year, recording a 6.7 per
cent increase in 2003 to 945 million tons. This beat the previous record of 885
million tons produced in 2002. Output in China has risen by over 21 per cent
during the same period.
Demand for vanadium was strong during the year, driven by a world steel industry
producing at record levels. Nevertheless for most of the period US dollar prices
drifted up and down in a range which was unprofitable at the exchange rate and
prevailing Rand costs. This was disappointing in the light of the announcement
of the closure of the only Australian vanadium operation at the end of 2002, but
was partly due to the change in ownership of Vanady Tulachermet. Following
recommissioning of its operation the Russian producer subsequently had to find
its place in the market.
In the closing weeks of 2003 US dollar vanadium prices moved up strongly to
viable levels as a result of three factors. Firstly, there was a delayed
response to the weakness of the US dollar, secondly, significant enquiries
eminated from China and finally Xstrata announced the closure of another of its
plants, this time in South Africa.
Production at Vanchem increased during the year following the refurbishment of
kiln no.1 and its recommissioning during April. The chemical plant was also
upgraded with beneficial effect and the achievement of record production levels.
The plant for the ferrovanadium joint venture, South Africa Japan Vanadium
(Proprietary) Limited, with Japanese partners Nippon Denko and Mitsui, was
successfully commissioned during July. This produces various grades of
ferrovanadium for the Japanese market and above budget production levels were
achieved.
The strong international demand for steel caused steel prices in US dollar terms
to improve considerably. In some products, for example billets, record price
levels were achieved. Unfortunately, the dramatic strengthening of the Rand
versus the US dollar more than offset improved export steel price levels. As a
result of strong demand in China and the East, most of the group"s export volume
was shipped into those regions.
The continued appreciation of the Rand, together with high interest rates in the
earlier part of the year, resulted in stock reduction campaigns in the domestic
steel industry which were completed in the last quarter of 2003. This, together
with underlying low consumption, had a major impact on domestic orders and
despatches were considerably down on the record levels of 2002.
Specifically in the domestic market, demand for structural products remained
very depressed, mainly as a result of the delay in a number of capital projects,
and consequently the structural mill operated at reduced levels to the year-end.
Under these circumstances and due to Eskom"s policy of steeply increasing
electricity tariffs in the winter months, iron production was reduced in July
and August 2003.
Ferro-alloys
The export prices of manganese ferro-alloys generally maintained a firm trend in
US dollar terms throughout the year. Silicomanganese prices in the United States
progressively increased whereas a softer European market recovered strongly in
the fourth quarter. Medium carbon ferromanganese prices showed some
deterioration during the latter part of the year.
It should, however, be noted that despite historically acceptable US dollar
prices, the Rand returns were eroded by the exchange rate movement.
Production at Transalloys was unsatisfactory with furnace availability problems
in the silicomanganese operation and an extended outage of the medium carbon
ferromanganese operation due to damage caused by a fire.
Full production was maintained at Rand Carbide with satisfactory output of
ferrosilicon, which was mainly consumed in the local market.
Manpower
The restructuring of work methods and work teams gained significant momentum
during 2003 and this drive included the strengthening of supervision on shift.
This is part of continuous productivity improvement which is essential to the
corporation"s efforts to remain competitive in a global environment.
Safety, Health, Environmental and Quality
The safety drive to reduce injuries in the work place continued. It is pleasing
to report that no fatalities occurred during the year. Of the sixteen divisions
in the group, four achieved a zero lost time injury frequency rate (LTIFR) and
four divisions achieved or did better than the target LTIFR of 0.35 for the
year. Disappointingly the overall group LTIFR for 2003 was 0.54 which was mainly
due to several incidents concentrated in two divisions. A focussed behaviour
based safety effort is in place throughout the corporation. The group LTIFR
target for 2004 is 0.30.
Building from a sound base of HIV/AIDS awareness the thrust in 2003 was toward
voluntary counselling and testing (VCT) and at year-end 29 per cent of the total
work force of 3 938 employees had undergone VCT. A policy for the administering
of anti - retroviral treatment (ART) was put in place at the end of July 2003
and four employees are receiving ART.
It is pleasing to note that the steelworks complex and Mapochs mine have both
been recommended for ISO 14001 certification by the certification authority.
Success will mean that all divisions in the group will be ISO 14001 certified.
Regular liaison meetings are held with local community representatives and
interested parties, to discuss environmental concerns with open and frank
feedback being given on the programmes in place.
Black Economic Empowerment
During 2003, goods and services worth R162 million were purchased from a total
of 83 black empowerment enterprises and a business development officer was
appointed to assist with the BEE initiative.
The Spitskop quarry which supplied silica quartz to the group was sold to a BEE
company with a committed supply agreement.
Further discussions were held with the community located on the farm Aapjesboom,
Limpopo Province, to establish the viability of creating a small scale mining
operation in co-operation with the community. These discussions were problematic
due to a dispute between two tribal leaders in the area which it is hoped will
be resolved soon.
Investments
The corporation has holdings of 2.9 per cent in Acerinox,S.A. currently worth
R607 million and 12 per cent in Columbus Stainless (Proprietary) Limited.
Acerinox is the controlling shareholder in Columbus and is a major stainless
steel producer based in Spain with facilities in the European Union, United
States and South Africa.
The performance of both these companies was negatively affected by high nickel
prices and Columbus by the strong Rand resulting in both companies" earnings
being lower than in 2002. No dividend was paid by Columbus but dividends and
share premium distribution amounting to R16.5 million were received from
Acerinox (2002: R5.9 million).
Outlook
The demand for vanadium in 2004 is likely to be strong as a result of sustained
world production and consumption of steel, as well as the trend to the use of
more sophisticated micro-alloyed steels, particularly in China. This vanadium
demand will be met by existing world production capacity. It is pleasing to note
that the significant oversupply which existed for the last few years has been
minimised by the final closure early in 2003 of the only Australian producer,
followed at year-end by the closure of Xstrata"s Vantech facility in South
Africa.
Coupled with a weak US currency it is expected that the average US dollar price
for vanadium products will be significantly improved in 2004.
Real interest rates in South Africa remain high. However the reduction which
took place in nominal rates during 2003, together with the current slight
weakening of the Rand, should lead to improved local steel consumption. The
completion of stock reductions by domestic steel merchants should translate
quickly into improved South African steel sales for the group.
Export steel prices are expected to remain firm in US dollar terms on the basis
of strong demand and a weak dollar. Whether these returns will be attractive
will depend on the relative strength of our South African currency.
During 2003 a modernised casting machine was brought into production in the
steel plant as part of the continued attention to issues of improved plant
performance and cost reduction. This will show benefits during the current year.
The volatility of the South African currency has proved to be a major negative
factor both to individual companies and to the growth of the South African
economy in the past two and a half years.
The strength or weakness of the Rand relative to the major currencies of the
world and the currencies of competitors in our products remains the key
uncertainty affecting the prospects for the group.
Conditions going into 2004 are much more favourable for the group and provided
the Rand does not strengthen further against the Euro or the US dollar it is
expected that earnings will show a considerable improvement in 2004 over the
previous year.
General
2003 was a difficult year due to adverse trading conditions nevertheless
significant progress was made on cost savings and efficiencies. I thank the
employees for their efforts under these challenging circumstances.
TE Jones
Witbank
10 February 2004
Notice of final ordinary dividend
On Tuesday, 10 February 2004, the directors of the corporation declared a final
dividend no. 57 on the ordinary shares for the year ended 31 December 2003, as
follows:
Amount (South African currency) 20 cents per share
Last day to trade to qualify for
dividend (and for changes of address or
dividend instructions) Friday, 27 February 2004
Ex-dividend on the JSE Securities
Exchange South Africa Monday, 1 March 2004
Record date Friday, 5 March 2004
Payment date of dividend Monday, 8 March 2004
Share certificates may not be dematerialised or rematerialised between Monday, 1
March 2004 and Friday, 5 March 2004, both days inclusive.
By order of the Board
J Theiss Witbank
(Company Secretary) 10 February 2004
ABRIDGED AUDITED CONSOLIDATED INCOME STATEMENTS
for the years ended 31 December
2003 2002
R"000 R"000
CONTINUING OPERATIONS
Revenue 3 675 552 3 726 063
Operating profit 81 832 326 499
Interest and investment income received 43 555 34 873
Interest paid 55 708 51 887
Profit before taxation 69 679 309 485
Taxation charge (12 064) (81 428)
Profit after taxation 57 615 228 057
DISCONTINUED OPERATIONS
Revenue 26 444 285 682
Operating profit 3 280 34 335
Interest and investment income received 1 249
Interest paid - 2 283
Profit before disposal of discontinued 3 281 32 301
operations
Profit on disposal of discontinued operations 7 053 20 348
Profit before taxation 10 334 52 649
Taxation charge (3 100) (40 613)
Profit after taxation 7 234 12 036
TOTAL OPERATIONS
Revenue 3 701 996 4 011 745
Operating profit before depreciation 228 589 487 718
Depreciation 143 477 126 884
Operating profit 85 112 360 834
Interest and investment income received 43 556 35 122
Interest paid 55 708 54 170
Profit before disposal of discontinued 72 960 341 786
operations
Profit on disposal of discontinued operations 7 053 20 348
Profit before taxation 80 013 362 134
Taxation charge (15 164) (122 041)
Profit attributable to Highveld shareholders 64 849 240 093
Reconciliation of headline earnings
Profit attributable to Highveld shareholders 64 849 240 093
Add/(less) after tax effect of:
(Profit)/loss on disposal of discontinued (4 937) 10 575
operations
(Profit)/loss on disposal of property, plant (6 084) 1 620
and equipment
Headline earnings 53 828 252 288
Weighted average number of ordinary shares in 97 807 614 97 653 171
issue
Number of shares issued as at period end date 97 913 798 97 735 898
Earnings per share - cents
Basic 66.3 245.9
Basic- diluted 65.4 242.9
Headline 55.0 258.4
Headline - diluted 54.3 255.2
Headline - excluding discontinued operations 52.7 235.2
ABRIDGED AUDITED CONSOLIDATED BALANCE SHEETS
31 Dec 31 Dec
2003 2002
R"000 R"000
ASSETS
Fixed assets 1 125 545 1 087 695
Available-for-sale investments (1) 912 207 910 509
(Short-term borrowings)/net cash on (227 046) 143 411
hand
Net current assets 204 217 43 006
Current assets 933 149 1 095 066
Current liabilities 728 932 1 052 060
TOTAL ASSETS 2 014 923 2 184 621
EQUITY AND LIABILITIES
Shareholders" equity 1 629 864 1 649 207
Deferred taxation 75 964 66 612
Long-term liabilities 309 095 468 802
TOTAL EQUITY AND LIABILITIES 2 014 923 2 184 621
(1) Available-for-sale investments
Acerinox,S.A. - at cost 533 333 533 333
- fair value adjustment 74 455 76 155
Columbus Stainless (Pty) Ltd 300 000 300 000
Other 4 419 1 021
912 207 910 509
Debt to equity ratio-percentage 26 6
Net worth - cents/share 1 665 1 687
Net interest bearing debt 423 257 (96 938)
- Sale and leaseback and other long- (196 211) (240 349)
term funding
- Short-term borrowings (414 799) (60 991)
- Cash and cash equivalents 187 753 204 402
ABRIDGED STATEMENT OF CHANGES IN EQUITY
at 31 December 2003
Share capital,
share premium and
non-distributable Fair value Retained Total
reserve reserve profit
R"000 R"000 R"000 R"000
Balance at 559 408 76 155 1 013 644 1 649 207
31 December
2002
Attributable 64 849 64 849
profit
Dividends (88 011) (88 011)
Fair value 1 698 1 698
reserve
Currency (7) (7)
translation
differences
Proceeds 2 128 2 128
from shares
issued
Balance at 561 529 77 853 990 482 1 629 864
31 December
2003
ABRIDGED AUDITED CONSOLIDATED CASH FLOW STATEMENTS
for the years ended 31 December
2003 2002
R"000 R"000
Net cash inflow from operating 154 497 352 841
activities before tax payments
Taxation payments (286 870) (232)
Net cash (outflow)/inflow from investing (193 950) 48 715
activities
Net cash (outflow)/inflow (326 323) 401 324
Financed as follows: 326 323 (401 324)
Net cash inflow/(outflow) from financing 309 674 (728 858)
activities
Decrease in cash on hand 16 649 327 534
ABRIDGED AUDITED SEGMENTAL REPORT
Steel and vanadium Ferro-alloys
31 December 31 December 31 December 31 December
2003 2002 2003 2002
Revenue* 2 724 668 2 811 989 950 884 914 074
Operating 41 953 192 649 39 879 133 850
profit/(loss)
Continuing operations
31 December 31 December
2003 2002
Revenue* 3 675 552 3 726 063
Operating profit/(loss) 81 832 326 499
* Revenue pertaining to the steel and vanadium segment comprises R2.0 billion
(2002: R2.2 billion) in respect of steel and R0.7 billion (2002: R0.6 billion)
in respect of vanadium.
Registered Office Transfer Secretaries
Portion 29 of the farm Computershare Limited
Schoongezicht no. 308 JS 70 Marshall 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) 370-7916
The annual report will be posted to all registered shareholders on or about 5
March 2004.
Enquiries may be directed to e-mail address: general@hiveld.co.za
DIRECTORS:
T E Jones (Chairman), A J de Nysschen (Chief Executive Officer), D D Barber, E
Barnardo, PMBaum, L Boyd, C B Brayshaw, CJColebank, A Harris, L Matteucci, N B
Mbazima (Zambian), Ms DRMotsepe, Dr A J Pienaar, B J T Shongwe and M Winstanley
(British)
ALTERNATE DIRECTOR:
GF Young
Company Secretary:
J Theiss
Date: 10/02/2004 02:34:09 PM Produced by the JSE SENS Department
