| Mon 2 Aug 2004, 15:32 | | Interim Report for the six months to 30 June 2004 |
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Highveld - Interim Report for the six months to 30 June 2004 and Trading
Statement
Highveld Steel And Vanadium Corporation Limited
Registration no. 1960/001900/06
(Incorporated in the Republic of South Africa)
Share code: HVL
ISIN: ZAE000003422
A member of the Anglo American plc group
(`Highveld` or `the corporation`)
Interim Report for the six months to 30 June 2004
Financial Results
The group results for the six months to 30 June 2004 set out below have been
prepared in accordance with the principal accounting policies of the group,
which comply with South African Statements of Generally Accepted Accounting
Practice, the International Financial Reporting Standards including the Interim
Financial Reporting Standard issued by the International Accounting Standards
Committee and are consistent with the prior year`s interim report and the
audited financial statements for the year ended 31 December 2003.
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 7 May 2004, the significantly
improved market conditions both locally and internationally contributed to
substantially higher headline earnings of R357.9 million compared to R18.6
million for the corresponding period last year. Operating profit improved to
R413 million from R16.7 million. Cost reduction initiatives generated savings of
R141.2 million for the period. The depreciation charge of R169 million includes
an amount of R92 million to write off obsolete plant.
The profit attributable to shareholders for the six months was R297 million
compared to R24.9 million in the corresponding period of 2003. This is after a
tax charge of R115.7 million (2003: R3.8 million).
The headline earnings per share were 365 cents, compared to 19.1 cents for the
first six months of 2003.
A net cash inflow of R302 million was achieved and the group`s net interest
bearing debt decreased to R121.3 million compared to R423.3 million at 31
December 2003.
In view of the results, the Board has decided to declare an interim dividend of
120 cents (2003: nil cents).
Steel
Growth in world crude steel output continued at a similar rate to that of 2003,
with output being up by 7.9 per cent at the end of June 2004, compared with the
same period last year. The increased output was again driven mainly by China, up
21.1 per cent and consuming 25 per cent of total world crude steel output.
Annualised crude steel output is now approaching 1 billion tons for the first
time. The sharp increase in world demand outstripped production, leading to
increases in international steel prices. Despite this the strong Rand negatively
impacted the export returns.
SA domestic consumption has improved considerably, with the result that
despatches into the local market were 40 per cent better than the corresponding
period last year. Particularly pleasing was the improved consumption of heavy
structural sections, resulting in the structural mill returning to full
production at the end of January 2004, following reduced operations since May
2003. Given the anticipated impact of the infrastructural developments leading
up to the 2010 Soccer World Cup, it is expected that the domestic market will
maintain these improved consumption levels.
International prices for the group`s export steel products reached all-time
highs in the second quarter. Some of these price levels have since declined
somewhat, but good margins are being maintained on most export steel sales.
Given the stronger domestic market, export sales volumes were lower than the
long-term average.
The new structural mill reheat furnace project is progressing within budget and
on time for commissioning in early October 2004. The upgrade of the walking beam
furnace for the rolling of coil has also been completed, resulting in much
improved volume, better yields and reduced gas consumption.
Vanadium
After the initial improvement of ferrovanadium prices during the third quarter
of 2003, prices reached a low of US$11 per kgV in December and then rose sharply
during the first quarter of this year reaching a peak of US$27 per kgV in May
2004. The main reason for the increase was a general shortage of vanadium units
in the market place, as a result of China becoming a net importer and a
shortfall in Russian production. Chinese vanadium consumption increased and was
boosted by new building regulations specifying vanadium in construction steel.
Ferro-alloys
Export prices for ferro-alloys, with the exception of ferrosilicon, improved
significantly during the early part of the period under review. Demand was
initially strong for silicomanganese and subsequently also improved for medium
carbon ferromanganese leading to improved margins and profitability.
Ferrosilicon is mainly sold into the local market and did not benefit from
improved prices although reasonable demand ensured full production could be
maintained. Some weakening in international demand and price levels especially
for silicomanganese was seen towards the end of the period due to reaction to
China`s efforts to slow its economic growth.
Full production of silicomanganese at Transalloys was maintained with all
furnaces operating. Two furnaces utilised in the past mainly for medium carbon
ferromanganese production were taken off-line for two months due to market
conditions and thereafter were used for either melting silicomanganese fines or
producing medium carbon ferromanganese.
Investments
The performance of the Spanish stainless steel maker Acerinox, S.A. for the six
months met expectations with dividends amounting to R6.4 million received during
the period and a further dividend amounting to R4.6 million in July 2004. An
additional dividend is expected later in the year. The performance of Columbus
Stainless (Proprietary) Limited improved due to the higher international
stainless steel prices and the lower nickel prices compared to prices ruling at
the end of 2003.
Capital Expenditure
Capital expenditure incurred by the group during the period amounted to R125.2
million (2003: R68.4 million) and the total commitment in respect of further
capital expenditure as at 30 June 2004 is R201.2 million compared to R187.8
million at 31 December 2003. This expenditure will be funded from internally
generated cash flows and available borrowing facilities.
Safety, Health, Environment and Quality
The lost time injury frequency rate per 200 000 hours (LTIFR) for the group
continued to improve to 0.15 from 0.48 in the same period of 2003. The focus
(enhanced by specific awareness programmes) on improving the safety behaviour of
employees at work has proven to be beneficial together with incentives to
employees which incorporate safety achievements. Four divisions in the group
also achieved one million lost time injury (LTI) free working hours and the
group achieved three LTI free months during the period under review. Of 14
divisions, 11 were still at a zero LTIFR as at 30 June 2004.
A broad-based wellness programme for employees has been implemented with the
focus on improving the general health of the corporation`s labour force and a
full time Wellness Co-ordinator has been employed to co-ordinate the
implementation of the programme. A total of 1 475 employees (39.3 per cent) have
undergone voluntary counselling and testing (VCT) as part of the HIV/AIDS
programme since the programme commenced. Of these a total of 104 were found to
be HIV positive and 11 are receiving anti-retroviral treatment.
All divisions in the group have achieved the ISO 14001 Environmental Management
System certification. Rand Carbide and Transalloys also maintained their
certification after recent audits. A programme has been implemented for the
implementation of the OHSAS 18001 system and the integration of all management
systems into one single system. Work continued in co-operation with the relevant
government departments in developing integrated water and waste management plans
for two divisions of the corporation, with the main focus on reducing possible
impacts on scarce water resources.
Directorate
Mr M Winstanley retired as a director of the corporation with effect from 1
April 2004 after ten years as director and twenty years in senior management of
the corporation. I thank him for his valuable contribution during this long
period of service.
I also welcome Messrs GG Gomwe and I Botha, who were appointed as non-executive
directors with effect from 5 March 2004.
Corporate Governance
The Board revised the ethics policy of the corporation during the period under
review with the focus on ensuring more stringent measures and more transparency
in the relationships with suppliers and contractors conducting business with the
corporation as well as the conduct of company executives and officials.
The membership of the Remuneration Committee was revised and now consists of
Messrs DD Barber (chairman and non-executive director), CB Brayshaw (independent
director) and GG Gomwe (non-executive director). Mr GG Gomwe (non-executive
director) was also appointed chairman of the Employment Equity Committee after
the resignation of Mr TE Jones as chairman of the Committee. The membership of
the latter committee now consists of Messrs GG Gomwe (chairman), AJ de Nysschen
(chief executive officer), E Barnardo (executive director), BJT Shongwe
(independent director) and Ms DR Motsepe (independent director).
Outlook and Trading Statement
Domestic demand for plate and coil as well as structural sections remains strong
and is expected to continue at current levels for the remainder of the year.
Local demand should also be further supported once projects which have been
under consideration for some time finally become a reality. The relatively high
interest rates and strong Rand remain a concern and will adversely impact on the
industry in general and specifically the added value manufacturing sector.
The strong demand for steel in China, which has been a major force behind the
improving international demand, and the resulting increased prices appear to be
moderating to some extent following the Chinese Government`s stated intention to
cool down their economy. The effect has already been felt in price reductions
but demand is, nevertheless, expected to remain strong.
The international vanadium and alloy markets have shown significant improvement
during the first half of the year, but have also slowed since the action by the
Chinese Government referred to above. Whilst more difficult to predict, it is
anticipated that the continued strong steel demand will result in acceptable
demand and price levels for the group`s vanadium and alloy products, all of
which are used in the steel making process. The actions of Chinese and Russian
vanadium producers may cause some price instability for vanadium, but the long-
term outlook for this product remains positive with a forecast that supply and
demand will be close to balance.
The group`s cost savings programme has yielded positive results and is expected
to achieve further savings whilst the group restructuring programme is also well
advanced and should assist in achieving improved operational efficiencies.
Provided the Rand does not strengthen from the average levels achieved in the
first six months and Chinese demand continues to drive markets, the expectation
is that the group`s performance in the second half of the year should be similar
to that of the first half. Earnings for the full year are therefore expected to
be substantially higher than those of the previous financial year. Shareholders
are advised that this trading statement has not been reviewed and reported on by
the group`s auditors.
For and on behalf of the Board
TE Jones Witbank
(Chairman) 2 August 2004
Notice of Interim Ordinary Dividend
On Monday, 2 August 2004, the directors of the corporation declared an interim
dividend no. 58 on the ordinary shares for the six months to 30 June 2004, as
follows:
Amount (South African currency) 120 cents per share
Last day to trade to qualify for dividend
(and for changes of address or dividend
instructions) Friday, 27 August 2004
Ex-dividend on the JSE Securities
Exchange South Africa Monday, 30 August 2004
Record date Friday, 3 September 2004
Payment date of dividend Monday, 6 September 2004
Share certificates may not be dematerialised or rematerialised between Monday,
30 August 2004 and Friday, 3 September 2004, both days inclusive.
By order of the Board
J Theiss Witbank
Company Secretary 2 August 2004
ABRIDGED CONSOLIDATED INCOME STATEMENTS
Reviewed for Reviewed for Audited for
the six months to the six months to the year to
30.6.2004 30.6.2003 31.12.2003
R`000 R`000 R`000
CONTINUING
OPERATIONS
Revenue 2 530 742 1 858 144 3 675 552
Operating profit 412 988 13 441 81 832
Investment income 7 170 6 467 17 374
Net interest paid (12 404) (3 457) (29 527)
Operation profit 407 754 16 451 69 679
after interest
DISCONTINUED
OPERATIONS
Revenue - 26 444 26 444
Operating profit - 3 280 3 280
Net interest - 1 1
received
Operating profit - 3 281 3 281
after interest
TOTAL OPERATIONS
Revenue 2 530 742 1 884 588 3 701 996
Operating profit 582 082 76 294 228 589
before
depreciation
Depreciation and 169 094 59 573 143 477
scrapping of
property, plant
and equipment
Operating profit 412 988 16 721 85 112
Investment income 7 170 6 467 17 374
Net interest paid (12 404) (3 456) (29 526)
Operating profit 407 754 19 732 72 960
after interest
Profit on sale of 5 019 9 019 7 053
operations
Profit before 412 773 28 751 80 013
taxation
Tax charge 115 731 3 805 15 164
Attributable 297 042 24 946 64 849
profit
HEADLINE EARNINGS
Attributable 297 042 24 946 64 849
profit
Add/(less) after 60 832 (6 313) (11 021)
tax effect of
loss/(profit) on
disposal and
scrapping of
property, plant
and equipment
Headline earnings 357 874 18 633 53 828
Weighted average 98 050 582 97 785 545 97 807 614
number of shares
in issue
Number of shares 99 449 998 97 795 398 97 913 798
in issue as at
period end date
Basic earnings 302.9 25.5 66.3
per share (cents)
Basic diluted 298.7 25.5 65.4
earnings per
share (cents)
Headline earnings 365.0 19.1 55.0
per share (cents)
Headline diluted 359.9 19.1 54.3
earnings per
share (cents)
Proposed dividend 120.0 - 20
per share
attributable to
calender profits
(cents)
Dividend cover 3.0 - 2.8
based on headline
earnings
ABRIDGED CONSOLIDATED BALANCE SHEETS
Reviewed Audited
as at as at
30.6.2004 31.12.2003
R`000 R`000
ASSETS
Property, plant and equipment 1 081 711 1 125 545
Investments 645 706 912 207
Net cash on hand/(short-term borrowings) 56 403 (227 046)
Net current assets 571 671 204 217
Current assets 1 494 412 933 149
Current liabilities 922 741 728 932
TOTAL ASSETS 2 355 491 2 014 923
EQUITY AND LIABILITIES
Shareholders` equity 1 983 929 1 629 864
Deferred taxation 87 816 75 964
Long-term liabilities 283 746 309 095
TOTAL EQUITY AND LIABILITIES 2 355 491 2 014 923
Net interest bearing debt 121 291 423 257
Debt to equity ratio-percentage 6 26
Net worth - cents/share 2 021 1 665
ABRIDGED CONSOLIDATED CASH FLOW STATEMENTS
Reviewed for Reviewed for Audited for
the the
six months to six months to the year ended
30.6.2004 30.6.2003 31.12.2003
R`000 R`000 R`000
Net cash 427 225 (20 881) (132 373)
inflow/(outflow)
from operating
activities
Net cash outflow (125 259) (18 377) (193 950)
from investing
activities
Net cash 301 966 (39 258) (326 323)
inflow/(outflow)
Financed as (301 966) 39 258 326 323
follows:
Net cash (231 617) (48 290) 309 674
(outflow)/inflow
from financing
activities
(Increase)/decrease (70 349) 87 548 16 649
in cash on hand
ABRIDGED STATEMENTS OF CHANGES IN EQUITY
Share
capital,
share premium
and
non- Fair value Retained Total
distributable reserve profit
reserve
R`000 R`000 R`000 R`000
Balance at 1 559 408 76 155 1 013 644 1 649 207
January 2003
Attributable 24 946 24 946
profit
Dividend: final (87 962) (87 962)
no. 56 - 2002
Proceeds from 700 700
shares issued
Reversal of fair (56 565) (56 565)
value surplus
Reversal of (3) (3)
translation
reserve
Balance at 30 560 105 19 590 950 628 1 530 323
June 2003
Attributable 39 903 39 903
profit
Dividend: final (49) (49)
no. 56 - 2002
Proceeds from 1 428 1 428
shares issued
Fair value 58 263 58 263
surplus
Reversal of (4) (4)
translation
reserve
Balance at 31 561 529 77 853 990 482 1 629 864
December 2003
Attributable 297 042 297 042
profit
Dividend: final (19 593) (19 593)
no. 57 - 2003
Proceeds from 3 090 3 090
shares issued
Fair value 76 947 76 947
surplus
Reversal of (3 421) (3 421)
translation
reserve
Balance at 30 561 198 154 800 1 267 931 1 983 929
June 2004
SEGMENTAL REPORT:
Financial information pertaining to continuing operations
Steel and Vanadium
Reviewed for Reviewed for Audited for
the six months to the six months to the year to
30.6.2004 30.6.2003 31.12.2003
R`000 R`000 R`000
Revenue* 1 954 518 1 384 498 2 724 668
Operating profit/(loss) 249 369 (10 937) 41 953
Ferro-alloys
Reviewed for Reviewed for Audited for
the six months to the six months to the year to
30.6.2004 30.6.2003 31.12.2003
R`000 R`000 R`000
Revenue* 576 224 473 646 950 884
Operating profit/(loss) 163 619 24 378 39 879
Total continuing operations
Reviewed for Reviewed for Audited for
the six months to the six months to the year to
30.6.2004 30.6.2003 31.12.2003
R`000 R`000 R`000
Revenue* 2 530 742 1 858 144 3 675 552
Operating profit/(loss) 412 988 13 441 81 832
* Revenue for the six month period pertaining to the steel and vanadium segment
comprises R1 215.6 million (2003: R1 042.2 million) in respect of steel and
R738.9 million (2003: R342.3 million) in respect of vanadium.
Revenue for the prior year pertaining to the steel and vanadium segment
comprises R2 billion in respect of steel and R0.7 billion in respect of
vanadium.
Registered Office Transfer Secretaries
Portion 29 of the farm Computershare Investor Services 2004 (Pty)
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) 370-5000
Tel: (013) 690-9911 (011) 370-7700
Fax: (013) 690-9033 Fax: (011) 688-5200
The interim report will be posted to all registered shareholders on or about 3
August 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, I Botha, L Boyd, C B Brayshaw, C J Colebank, G G Gomwe
(Zimbabwean), A Harris, L Matteucci, N B Mbazima (Zambian), Ms D R Motsepe, Dr A
J Pienaar and B J T Shongwe
ALTERNATE DIRECTOR: G F Young
Company Secretary: J Theiss
Date: 02/08/2004 03:15:11 PM
Produced by the JSE SENS Department
