| Wed 18 Feb 2004, 7:53 | | Interim results and dividend announcement |
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ISCOR LIMITED - AUDITED GROUP FINANCIAL RESULTS AND DIVIDEND ANNOUNCEMENT FOR
THE SIX MONTHS ENDED 31 DECEMBER 2003
ISCOR LIMITED
Registration number 1989/002164/06
Share code: ISC ISIN: ZAE000037453
("Iscor" or "the company" or "the Group")
AUDITED GROUP FINANCIAL RESULTS AND DIVIDEND ANNOUNCEMENT FOR THE SIX MONTHS
ENDED 31 DECEMBER 2003
CHANGE IN REPORTING PERIOD
The current reporting period covers the six months from July to December 2003
following the decision to change the year-end to December. Comparative figures
are given for the six months to 31 December 2002 and for the last financial year
to 30 June 2003.
HEADLINE EARNINGS
Headline earnings were significantly impacted by the following items not
relating to the trading results for the periods in which they were recorded:
* for the six months to December 2003
-remuneration of R613 million paid in terms of the business assistance agreement
("BAA") with the LNM Group; and
-restructuring charges of R166 million
*.for the year to June 2003
-power contract settlement of R157 million
The following table separates these charges in order to give a comparable view
on earnings relating to the periods under review:
Six months ended Year ended
31 December 30 June
2003 2002 2003
Rm Rm Rm
Revenue 9 175 9 770 19 082
Operating profit 1 504 2 020 3 891
Finance costs (69) (77) (136)
Taxation (492) (641) (1 248)
Equity earnings* 67 37 85
Minority interest (3) (1)
Comparable headline earnings 1 007 1 338 2 592
BAA remuneration* (429)
Restructuring costs* (116)
Power contract settlement charge* (110)
Headline earnings 462 1 338 2 482
Comparable headline earnings in US$m 143 134 287
* After tax
The comparable headline earnings were 25% lower than for the all-time record
December 2002 period due to the adverse change in the trading environment (the
stronger exchange rate, weaker domestic steel demand and higher input prices).
Expressed in US dollar terms, however, earnings actually increased by 7%. The
following table of comparable headline earnings in rands and US dollars for the
past six quarters, emphasises the volatility of our rand earnings in relation to
the exchange rate, with US dollar earnings demonstrating far greater stability:
Quarter to US$m Rm
September 2002 58 601
December 2002 76 737
March 2003 79 657
June 2003 77 597
September 2003 48 352
December 2003 97 655
The sharp drop in earnings for the September 2003 quarter was the result of
deliveries made against orders taken during the previous quarter when
international prices suffered a severe dip. The improvement in the December
quarter earnings followed the strong recovery in prices, higher sales volumes
through inventory reduction and significant flow-through of exchange rate
benefits on the cost of US dollar-based inputs.
It is encouraging to note that the above factors resulted in positive headline
earnings for the December quarter of R110 million, which includes the after-tax
cost of R545 million for the BAA remuneration payment and restructuring charges.
Our annualised return on equity of 15,6%, based on comparable headline earnings
for the period, was sharply down on the comparative six months" record of 23%,
but compared more favourably with our current cost of capital of 16,5%.
Finance costs comprise mainly top-up adjustments to provisions for the present
value of future expenditure which increased by 89% from R28 million to R53
million. Net interest charges dropped from R49 million to R16 million as a
result of the lower level of borrowings.
The effective tax rate of 37% includes the 12,5% tax on the dividend payment
relating to the previous year"s record earnings. The effective normal tax rate
was 32%.
Equity accounted earnings from investments increased by 81% as a result of the
substantial improvement in the profitability of Macsteel International.
OPERATING RESULTS
Operating profit Revenue
Six months Year Six months Year
ended ended ended ended
31 December 30 June 31 December 30 June
2003 2002 2003 2003 2002 2003
Rm Rm Rm Rm Rm Rm
Vanderbijlpark 979 1 229 2 429 5 026 5 284 10 205
Saldanha 107 336 608 1 364 1 665 3 147
Long Steel Products 348 449 878 2 496 2 545 5 180
Coke & Chemicals# 103 73 142 409 371 763
Other 28 2 (16) 37 39 89
Corporate (61) (69) (150)
Inter-Group (157) (134) (302)
Comparable profit 1 504 2 020 3 891 9 175 9 770 19 082
BAA remuneration (613)
Restructuring (166)
Power contract
settlement (157)
Total 725 2 020 3 734 9 175 9 770 19 082
# Previously Suprachem
The operating profit of R1 504 million before the non-comparable items was 26%
down on the comparable period"s record results of R2 020 million. The net result
R725 million, however, was 64% lower.
Liquid steel production for the period decreased marginally by 1% (38 000
tonnes) compared to the previous year. However, sales volumes increased by 7%,
or 218 000 tonnes, due to a reduction in the abnormally high level of inventory
at 30 June 2003 following the rail and port congestion at that time.
Higher margin domestic sales volumes fell by 19% as a result of the lower level
of economic activity following the appreciation of the currency. While average
US dollar prices improved by 16%, the 42% strengthening of the currency had a
major negative impact. Overall, our average rand price per tonne on total sales
dropped by 13% compared with the same period last year.
Operating profits and margins at all steel plants were down significantly from
the previous year"s all-time record results despite a very satisfactory
international steel price environment during the December 2003 quarter.
Saldanha Steel maintained its good physical operating performance but its
financial results were more severely impacted by the strengthening of the
exchange rate because of its low proportion of higher margin domestic sales
relative to our other steel plants.
MARKET REVIEW
International
The global steel supply/demand balance is increasingly being driven by the
phenomenal growth of the Chinese economy. World steel demand continues to
increase despite the stagnant western economies, with China now accounting for
27% of the total.
Steel prices recovered from the dip experienced during the June 2003 quarter
precipitated by the Chinese price speculation bubble early in 2003. At the end
of 2003, the CRU average steel price index stood at a new high.
With the exception of the EU, where steel price increases in local currency have
been more subdued, significant increases have been experienced in the US, Asia
and emerging market countries such as India and Brazil.
The upward trend in global prices is expected to continue into the first half of
2004. Any further developments will depend on supply restrictions, economic
recovery in Western Europe and the sustainability of the upswing in the US and
Japanese economies.
In the longer term the sustainability of Chinese steel demand at levels in
excess of its growing production will be the key factor in determining world
steel prices.
Domestic
The drop in domestic steel demand, which started towards the end of 2002,
bottomed out in the second quarter of 2003 and showed some revival in the second
half. However, total South African domestic dispatches for the second half of
2003 were down 17% compared with the second half of 2002.
Steel imports increased only marginally to 5,4% of total domestic steel
consumption during 2003 compared with 4,5% during 2002.
The recent pick-up in steel deliveries was mainly due to restocking and
underlying demand is only expected to show real improvement in the second half
of 2004 as economic growth gains momentum.
COST REDUCTION DRIVE
Steel production costs per tonne decreased by 7% compared with the previous year
as a result of cost savings and the positive impact of the stronger exchange
rate on our US dollar-based costs, despite sharp increases in prices of many
steel-making inputs precipitated by the rapid growth in Chinese steel
production.
Our restructuring programme announced in August 2003 is aimed at further cost
reduction in order to counter the negative impact of the substantial
strengthening of the currency. Annualised savings of R320 million are expected
to be achieved by the second half of 2004. The R166 million once-off costs
associated with the programme have been provided for in the period under review.
BUSINESS ASSISTANCE AGREEMENT WITH LNM GROUP
The measurement of annualised sustainable cost savings in terms of the BAA for
the 18 months up to 30 June 2003 was finalised during the reporting period. This
exceeded the minimum target level and entitled the LNM Group to remuneration of
R613 million. In view of our strong financial position this was settled in cash
rather than by a share issue in order to avoid shareholder earnings dilution.
Further remuneration will depend on savings achieved during the six-month
periods ending 31 December 2003, 30 June 2004 and 31 December 2004, each of
which must be sustained for a period of six months immediately thereafter. The
next possible future remuneration qualification will be determined after
measuring the sustainability of the savings for the December 2003 six-monthly
period sometime after 30 June 2004.
The BAA has made a significant contribution to our cost reduction programme and
the quantified benefits received show an excellent return on the cost of the
remuneration.
LNM GROUP SHAREHOLDING
During December 2003 LNM increased its shareholding from 47,2% to 49,9% and
lodged an application with the Competition Commission requesting permission to
increase its holding above 50%. The ruling is not expected before March 2004.
OUTLOOK
International steel prices have increased sharply during the first quarter of
2004 and are expected to remain firm for at least the first half of 2004.
Certain of our key input costs will continue to escalate, but we hope to
neutralise much of this through our cost reduction measures. We anticipate that
underlying domestic steel demand will start improving by the second half of 2004
although some restocking may take place earlier.
First half earnings for 2004 should exceed those for the past six months
excluding the effect of the BAA remuneration and restructuring charges. However,
any significant variation in the exchange rate from the average spot rate for
the past six months of R7,06/US dollar will have a major impact on earnings,
particularly in the short term where the impact is largely on the revenue line.
DIVIDEND ANNOUNCEMENT
Our policy is to pay a six-monthly dividend of approximately one-third of
headline earnings. However, in respect of the six months ended 31 December 2003
the directors have decided to exclude the effects of the BAA remuneration as
well as the restructuring charges from headline earnings in calculating the
dividend so as to preserve a more even dividend payment pattern.
A dividend of 75 cents per share was accordingly declared by the Board on 16
February 2004, covered three times by headline earnings of R1 007 million before
the BAA remuneration and restructuring charges. The dividend will be recorded in
the 2004 financial statements together with the 12,5% Secondary Tax on Companies
thereon. Payment in South African rands will be made on Monday, 15 March 2004 to
shareholders recorded on the register on Friday, 12 March 2004. The last day to
trade to qualify for the dividend will be Friday, 5 March 2004. Shares will
trade ex-dividend from Monday, 8 March 2004 and the record date will be Friday,
12 March 2004. Shares may not be dematerialised or rematerialised between
Monday, 8 March 2004 and Friday, 12 March 2004, both days inclusive. Dividend
entitlements of less than R10,00 will be donated to charity in terms of the
articles of association.
On behalf of the Board
L L van Niekerk M Macdonald
(Chief Executive Officer) (Executive Director, Finance)
16 February 2004
Registered Office Transfer Secretaries
Iscor Head Office GS Registrars (Pty) Ltd
Roger Dyason Road 108 Johan Avenue
Pretoria West Sandton
Pretoria, 0002 PO Box 653224, Benmore, 2010
Directors: K Ngqula (Chairman), L L van Niekerk (Chief Executive Officer),
D K Chugh*, R G Cottrell, M Macdonald, S Maheshwari*, C E Markus, A Mittal*,
L N Mittal*, Dr K D K Mokhele, M J N Njeke,
Dr M J U T van Wijngaarden *Citizen of India
Company Secretary: A van der Merwe
This report is available at Iscor"s World Wide Web site at: http://www.iscor.com
GROUP INCOME STATEMENT
Six months Six months Year
ended ended ended
31 Dec 2003 31 Dec 2002 30 June 2003
Audited Reviewed Audited
Rm Rm Rm
Revenue 9 175 9 770 19 082
Operating expenses (7 980) (7 319) (14 465)
Earnings before interest, taxation,
depreciation and amortisation (Ebitda) 1 195 2 451 4 617
Depreciation (469) (430) (881)
Amortisation of intangible assets (1) (1) (2)
Profit from operations before
impairment and goodwill movements 725 2 020 3 734
Goodwill amortisation (Note 2) (11) (21)
Impairment charge (Note 3) (13)
Profit from operations 714 2 020 3 700
Net financing costs (69) (77) (136)
Net profit from equity accounted
investments before taxation 88 51 103
Surplus on sale of residential properties 12 31 57
Profit before taxation (Note 4) 745 2 025 3 724
Taxation (Note 5) (279) (655) (1 215)
Profit from ordinary activities 466 1 370 2 509
Minority interest (3) (1)
Profit attributable to ordinary
...shareholders 463 1 369 2 509
ADDITIONAL INFORMATION
Profit attributable to ordinary shareholders 463 1 369 2 509
Adjusted for:
.* Surplus on sale of residential properties (12) (31) (57)
* Goodwill amortised (Note 2) 11 21
* Impairment charge (Note 3) 13
* Taxation on adjustments (4)
Headline earnings 462 1 338 2 482
Performance per ordinary share
Attributable earnings per share (cents)
* basic 104 307 563
* diluted 103 303 559
Headline earnings per share (cents)
* basic 104 300 557
* diluted 103 296 553
Dividend per share (cents)
* interim 100 100
* final 75 100
Net asset value per share (cents) 2 907 2 737 2 875
Ordinary shares (million)
* in issue 446 446 446
* weighted average number of shares 446 446 446
* diluted weighted average number of shares 448 451 449
Ratios (%)
Ebitda margin 13,0 25,1 24,2
Return on ordinary shareholders"
equity per annum
* attributable earnings 7,2 23,5 21,0
* headline earnings 7,2 23,0 20,8
Net cash/(debt) to equity 0,2 (1,8) 5,9
Market capitalisation (Rm) 12 838 9 472 7 132
GROUP BALANCE SHEET
As at As at As at
31 Dec 2003 31 Dec 2002 30 June 2003
Audited Reviewed Audited
Rm Rm Rm
ASSETS
Non-current assets 13 046 12 536 12 860
Property, plant and equipment 12 218 11 937 12 221
Intangible assets 32 33 33
Goodwill 32 43
Investments in joint ventures
- unlisted (Note 6) 418 388 375
Other financial assets 346 178 188
Current assets 5 493 5 701 5 549
Cash and cash equivalents 1 107 1 049 852
Taxation 67
Other 4 319 4 652 4 697
Total assets 18 539 18 237 18 409
EQUITY AND LIABILITIES
Capital and reserves 12 956 12 199 12 815
Ordinary shareholders" equity 12 956 12 199 12 815
Minority interest 5 3 2
Non-current liabilities 2 298 2 474 2 198
Interest bearing borrowings 92 636 92
Non-current provisions 1 084 1 061 1 047
Deferred taxation 1 122 777 1 059
Current liabilities 3 280 3 561 3 394
Trade and other payables 2 054 2 350 2 529
Interest bearing borrowings 988 458 10
Taxation 481 768
Current provisions 238 95 87
Derivative instruments against
interest bearing borrowings 177
Total equity and liabilities 18 539 18 237 18 409
Net cash/(debt) (Note 7) 27 (222) 750
GROUP STATEMENT OF CHANGES IN EQUITY
Six months Six months Year
ended ended ended
31 Dec 2003 31 Dec 2002 30 June 2003
Audited Reviewed Audited
Rm Rm Rm
Shareholders" funds at
beginning of period 12 815 11 104 11 104
Changes in stated capital 100 1
* distribution from management share trust 100
* odd-lot shares 1
Changes in non-distributable reserves 89 (60) (99)
* currency translation losses (28) (33) (119)
* financial instruments movements 44 (63) (48)
* transfer of equity accounted earnings 65 37 80
* share of hedging reserves 10 (13)
* share of revaluation reserve (2)
* transfer from insurance reserve (1) (4)
* share of foreign currency translation reserves 5
Changes in retained income (48) 1 155 1 809
* net profit for period 463 1 369 2 509
* dividend paid (446) (178) (624)
* transfer of equity accounted earnings (65) (37) (80)
* transfer from insurance reserve 1 4
Shareholders" funds at end of period 12 956 12 199 12 815
GROUP CASH FLOW STATEMENT
Six months Six months Year
ended ended ended
31 Dec 2003 31 Dec 2002 30 June 2003
Audited Reviewed Audited
Rm Rm Rm
Cash (outflows)/inflows
from operating activities (486) 1 410 3 107
Cash retained from operations 999 2 177 4 471
* Before BAA remuneration 1 612 2 177 4 471
* BAA remuneration (613)
Income from equity accounted investments 2
Net financing costs (9) (78) (174)
Dividend paid (446) (178) (624)
Taxation paid (1 032) (511) (566)
Cash outflows from investing activities (337) (439) (1 218)
Capital expenditure (499) (396) (1 176)
Proceeds from disposals of
property, plant and equipment 46 48 88
Investment in other non-current assets 1 2
Foreign currency translations 116 (92) (132)
Normal net cash (outflow)/inflow (823) 971 1 889
Cash inflows/(outflows) from
financing activities 1 078 (500) (1 615)
Increase in cash and cash equivalents 255 471 274
Cash and cash equivalents
at beginning of period 852 578 578
Cash and cash equivalents at end of period 1 107 1 049 852
NOTES TO THE AUDITED FINANCIAL STATEMENTS
1. Basis of preparation
These audited Group financial results for the six months ended 31 December 2003
constitute a summary of the Group"s unqualified audited 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 Financial Reporting Standards and the Companies Act of South
Africa.
The Group"s financial report for the six months will be available by the end of
March 2004. The signed unqualified auditors" report issued by KPMG Inc. for the
period is available for inspection at the company"s registered address. The
principal accounting policies are consistent with those applied in the previous
year.
2. Goodwill amortised
As part of a structured finance deal Iscor purchased on 1 July 2002 100% in
Pybus Fifty-Seven (Pty) Ltd, resulting in R64 million positive goodwill on
acquisition. The goodwill has been amortised over three years which takes into
account the period over which future benefits will accrue.
3. Impairment charge
The impairment charge was raised on specific assets which will not be generating
adequate cash flows for the value in use to exceed the book value.
4. Profit before taxation is arrived at after
Six months Six months Year
ended ended ended
31 Dec 2003 31 Dec 2002 30 June 2003
Audited Reviewed Audited
Rm Rm Rm
Financing costs 82 98 182
Interest received (13) (21) (46)
Directors" emoluments
* executive 16 15 24
* non-executive 1 1 1
Auditors" remuneration
* audit fees 5 1 8
* other services 1 3 5
5. Taxation 279 655 1 215
Company and subsidiaries 258 641 1 197
Equity accounted investments 21 14 18
6. Investments in joint ventures
Unlisted investments
* directors" valuation 479 388 515
7. Net cash/(debt) 27 (222) 750
Interest bearing borrowings
* non-current (92) (636) (92)
* current (988) (458) (10)
Cash and cash equivalents 1 107 1 049 852
Derivative instruments against
interest bearing borrowings (177)
8. Capital expenditure
* incurred 499 396 1 176
* contracted 547 484 414
* authorised but not contracted 555 753 577
9. Contingent liabilities 245 282 532
10. Operating lease commitments 70 70 68
* less than one year 11 21 19
* more than one year and less
than five years 59 39 44
* more than five years 10 5
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. Diluted weighted average number of shares
Although the BAA provides for the further issue of 4,23% 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
nor whether shares will be issued or cash paid in settlement should the targets
be met.
13. Directors" share option benefits
Rights to options and shares held by Executive Directors in terms of the Iscor
Management Share Scheme totalled 904 990 at 31 December 2003 (30 June 2003: 1
691 970), representing 0,2% (30 June 2003: 0,4%) of the issued shares. During
the period the directors sold a portion of their options realising a gain of R11
million, of which R6 million was paid to them in terms of the Scheme during the
period.
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.
15. Listings requirements
This announcement has been prepared in compliance with the Listings Requirements
of the JSE Securities Exchange South Africa.
UNAUDITED SUPPLEMENTARY PHYSICAL INFORMATION
Six months Six months Year
ended ended ended
("000 tonnes) 31 Dec 2003 31 Dec 2002 30 June 2003
FLAT STEEL PRODUCTS
- Vanderbijlpark
Liquid steel production 1 870 1 900 3 711
Sales 1 664 1 543 3 052
* local 942 1 246 2 167
* export 722 297 885
Local sales as percentage of total sales 57 81 71
- Saldanha Steel
Liquid steel production 645 645 1 251
Sales 622 596 1 160
* local 184 241 406
* export 438 355 754
Local sales as percentage of total sales 30 40 35
LONG STEEL PRODUCTS
Liquid steel production 1 080 1 088 2 161
Sales 939 868 1 828
* local 496 505 965
* export 443 363 863
Local sales as percentage of total sales 53 58 53
TOTAL
Liquid steel production 3 595 3 633 7 123
Sales 3 225 3 007 6 040
* local 1 622 1 992 3 538
* export 1 603 1 015 2 502
Local sales as percentage of total sales 50 66 59
Date: 18/02/2004 07:00:13 AM Produced by the JSE SENS Department
