| Wed 18 Aug 2004, 8:18 | | RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2004 |
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Ispat Iscor Limited - Reviewed Group Interim Financial Results For The Six
Months Ended 30 June 2004
ISPAT ISCOR LIMITED
(formerly Iscor Limited)
Registration number: 1989/002164/06
Share code: ISC
ISIN: ZAE000037453
INTERIM RESULTS
REVIEWED GROUP INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2004
GROUP INCOME STATEMENT
Six months ended Six months
ended
30 June 30 June 31 December
2004 2003 2003
Reviewed Unaudited Audited
Rm Rm Rm
Revenue 10 544 9 312 9 175
Operating expenses (7 848) (7 146) (7 980)
Earnings before interest, taxation
depreciation and amortisation (Ebitda) 2 696 2 166 1 195
Depreciation (478) (451) (469)
Amortisation of intangible assets (1) (1) (1)
Profit from operations before
impairment
and goodwill movements 2 217 1 714 725
Goodwill amortisation (Note 2) (11) (21) (11)
Impairment charge (Note 3) (13)
Profit from operations 2 206 1 680 714
Net financing costs (Note 4) (147) (59) (69)
Net profit from equity accounted
investments
before taxation 211 52 88
Surplus on sale of residential
properties 26 12
Profit before taxation (Note 5) 2 270 1 699 745
Taxation (Note 6) (726) (561) (279)
Profit from ordinary activities 1 544 1 138 466
Minority interest (4) 1 (3)
Profit attributable to ordinary
shareholders 1 540 1 139 463
ADDITIONAL INFORMATION
Profit attributable to ordinary
shareholders 1 540 1 139 463
Adjusted for:
* Goodwill amortised (Note 2) 11 21 11
* Surplus on sale of residential
properties (26) (12)
* Impairment charge (Note 3) 13
* Taxation on adjustments (4)
Headline earnings 1 551 1 143 462
Performance per ordinary share
Attributable earnings per share (cents)
* basic 345 255 104
* diluted 344 253 103
Headline earnings per share (cents)
* basic 348 256 104
* diluted 346 253 103
Dividend per share (cents)
* interim 100
* final 75
Net asset value per share (cents) 3168 2895 2908
Ordinary shares (million)
* in issue 446 446 446
* weighted average number of shares 446 446 446
* diluted weighted average
number of shares 448 451 448
Ratios (%)
Ebitda margin 25,6 23,3 13,0
Return on ordinary shareholders` equity
per annum
* Attributable earnings 22,7 18,2 7,2
* Headline earnings 22,9 18,3 7,2
Net cash to equity 9,7 5,8 0,2
Market capitalisation (Rm) 17 206 7 132 12 838
GROUP BALANCE SHEET
As at As at
30 June 30 June 31 December
2004 2003 2003
Reviewed Audited Audited
Rm Rm Rm
ASSETS
Non-current assets 13 201 12 957 13 076
Property, plant and equipment 12 124 12 221 12 218
Intangible assets 31 33 32
Goodwill 21 43 32
Investments in joint ventures
* unlisted (Note 8) 567 375 418
Other financial assets 458 285 376
Current assets 7 010 5 569 5 498
Cash and cash equivalents 1 580 852 1 107
Taxation 67
Inventories 2 805 2 873 2 817
Trade and other receivables 2 625 1 844 1 507
Total assets 20 211 18 526 18 574
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` equity 14 131 12 913 12 971
Minority interest 9 2 5
Total equity 14 140 12 915 12 976
Non-current liabilities 2 504 2 198 2 298
Interest-bearing borrowings 81 92 92
Non-current provisions 1 179 1 013 1 054
Provision for post-retirement medical costs 27 34 30
Deferred taxation 1 217 1 059 1 122
Current liabilities 3 567 3 413 3 300
Trade and other payables 2 970 2 547 2 074
Interest-bearing borrowings 130 10 988
Taxation 260 769
Current provisions 207 87 238
Total equity and liabilities 20 211 18 526 18 574
Net cash (note 9) 1 369 750 27
GROUP STATEMENT OF CHANGES IN EQUITY
Six months ended Six months
ended
30 June 30 June 31 December
2004 2003 2003
Reviewed Unaudited Audited
Rm Rm Rm
Shareholders` funds at beginning
of period 12 971 12 285 12 913
* as previously stated 12 956 12 199 12 815
* change in accounting policy 15 86 98
- consolidated treasury shares (2) (6) (2)
- consolidated management share trust
reserves 17 92 100
Changes in stated capital (21) 13 17
* management share trust (20) 8 (83)
* movement in treasury shares (1) 4
* distribution from management share
trust 100
* odd-lot shares 1
Changes in non-distributable reserves 148 (38) 89
* currency translation losses (10) (85) (28)
* share of hedging reserves (13) 10
* share of revaluation reserve 2 (2)
* financial instruments movements (1) 15 44
* transfer of equity accounted earnings 173 43 65
* transfer from insurance reserve (3)
* share of foreign currency translation
reserve (16) 5
Changes in retained income 1 033 653 (48)
* net profit for the period 1 540 1 139 463
* dividend paid (334) (446) (446)
* transfer of equity accounted earnings (173) (43) (65)
* transfer from insurance reserve 3
Shareholders` funds at end of period 14 131 12 913 12 971
GROUP CASH FLOW
Six months ended Six months
ended
30 June 30 June 31 December
2004 2003 2003
Reviewed Unaudited Audited
Rm Rm Rm
Cash inflows/(outflows) from operating
activities 1 755 1 697 (486)
Cash retained from operations 2 378 2 294 999
* Before BAA Remuneration 2 378 2 294 1 612
* BAA Remuneration (613)
Income from equity accounted investments 6 2
Net financing costs (22) (96) (9)
Dividend paid (334) (446) (446)
Taxation paid (273) (55) (1 032)
Cash outflows from investing activities (393) (779) (337)
Capital expenditure (405) (780) (499)
Proceeds from disposal of property, plant
and equipment 13 40 46
Investment in other non-current assets 1
Foreign currency translations (1) (40) 116
Normal net cash inflow/(outflow) 1 362 918 (823)
Cash (outflows)/inflows from financing
activities (889) (1 115) 1 078
Increase in cash and cash equivalents 473 (197) 255
Cash and cash equivalents at beginning
of period 1 107 1 049 852
Cash and cash equivalents at end of
period 1 580 852 1 107
NOTES TO THE AUDITED FINANCIAL STATEMENTS
1. Basis of preparation
The interim financial statements are prepared in accordance with International
Financial Reporting 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 31 December 2003 financial
statements. The accounting policies adopted are consistent with those applied in
the financial statements for the six months ended at 31 December 2003, except
for a change in policy to now consolidate the Iscor Management Share Trust
retrospectively. The effect on equity for the above is reflected in the Group
statement of changes in shareholders equity. The effect on net profit for the
current period is Rnil. Where appropriate comparitive figures have been
restated, refer also to note 7.
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.
Six months ended Six months
ended
30 June 30 June 31 Dec
2004 2003 2003
Reviewed Unaudited Audited
Rm Rm Rm
4. Financing costs 147 59 69
Interest expense and loan costs 40 38 24
Interest income (24) (18) (11)
Interest received from joint ventures (2) (7) (2)
Losses on derivative instruments 87 23
Gains on currency difference (69) (18)
Net interest expense 14 31 16
Interest adjustment on non-current
provisions 133 28 53
5. Profit before taxation is arrived
at after
Business assistance agreement
remuneration 731 613
6. Taxation 726 561 279
Company and subsidiaries 694 557 258
Equity accounted investments 32 4 21
The income tax expense is based on the best estimate of the weighted average
annual income tax rate expected for the full financial year.
7. Consolidation of Iscor Management Share Trust
As the Iscor Management Share Trust has been consolidated for the period and the
prior year`s figures have been restated, the adjustments resulting from the
consolidation were as follows:
Balance sheet
Decrease/(increase) in stated capital 6 (98) (15)
Increase in other financial assets 9 97 30
Increase in trade and other receivables 6 20 5
Increase in trade and other payables (21) (18) (20)
Increase in taxation (1)
8. Investments in joint ventures
Unlisted investments
* directors` valuation 567 515 479
Six months ended Six months
ended
30 June 30 June 31 Dec
2004 2003 2003
Reviewed Unaudited Audited
Rm Rm Rm
9. Net cash 1 369 750 27
Interest bearing borrowings
* non-current (81) (92) (92)
* current (130) (10) (988)
Cash and cash equivalents 1 580 852 1 107
10. Capital expenditure
* incurred 405 780 499
* contracted 552 414 547
* authorised but not contracted 677 577 555
11. Contingent liabilities 243 532 245
* guarantees 143 223 145
* other contingent liabilities 100 309 100
12. Operating lease commitments 53 68 70
* less than one year 8 19 11
* more than one year and less than
five years 45 44 59
* more than five years 5
13. 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. Except for the business assistance
agreement, the company did not enter into any significant sale and purchase
transactions with the LNM Group.
14. 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 Financial
Reporting Standards (IAS 34 - Interim Financial Reporting), South African
Statements of General Accepted Accounting Practice (AC127) and the South African
Companies Act. KPMG Inc.`s unmodified review report on the condensed
consolidated interim financial statements is available for inspection at the
registered office of the company.
15. JSE Securities Exchange South Africa requirements
This interim announcement has been prepared in accordance with the listings
requirements of the JSE Securities Exchange South Africa.
16. 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 tonnes) Three months ended Six months ended
30 June 30 June 30 June 30 June 31 December
2004 2003 2004 2003 2003
Flat steel products
Vanderbijlpark
Liquid steel production 995 908 1 829 1 811 1 870
Sales 772 734 1 569 1 509 1 664
* local - DSP 82 54 176 134 150
- other 498 373 923 787 792
* export 192 307 470 588 722
Local sales as percentage
of total sales 75 58 70 61 57
Saldanha steel
Liquid steel production 235 306 563 606 645
Sales 249 265 548 565 622
* local - DSP 66 35 114 98 114
- other 57 37 84 72 70
* export 126 193 350 395 438
Local sales as percentage
of total sales 49 27 36 30 30
Long steel products
Liquid steel production 557 534 1 085 1 073 1 080
Sales 489 529 984 960 939
* local 320 239 594 460 496
* export 169 290 390 500 443
Local sales as percentage
of total sales 65 45 60 48 53
Total
Liquid steel production 1 787 1 748 3 477 3 490 3 595
Sales 1 510 1 528 3 101 3 034 3 225
* local - DSP 148 89 290 232 264
- other 875 649 1 601 1 319 1 358
* export 487 790 1 210 1 483 1 603
Local sales as percentage
of total sales
* Including DSP 68 48 61 51 50
* Excluding DSP 58 42 52 43 42
EARNINGS
Headline earnings for the first half were 36% up on last year. Significantly
improved global steel prices, firmer domestic steel demand and cost savings more
than offset the negative impact of the stronger rand and provision for the final
remuneration payable to the LNM Group for achieving the maximum cost savings
target set in the Business Assistance Agreement.
Comparable headline earnings, excluding the impact of charges not related to the
periods in which they were recorded, improved by 65%, and in US dollar terms by
99%, demonstrating the significance of the 21% strengthening of the exchange
rate over the past year.
Six months to
30 June 31 December
2004 2003 2003
Rm Rm Rm
Revenue 10 544 9 312 9 175
Operating profit 2 948 1 871 1 504
Finance costs:
* Net interest expense (14) (31) (16)
* Interest adjustment on
non-current provisions (133)# (28) (53)
Taxation (914) (608) (492)
Equity earnings* 179 48 67
Minority interest (4) 1 (3)
Comparable headline earnings 2 062 1 253 1 007
In US$m 311 156 145
BAA remuneration* (511) (429)
Restructuring costs* (116)
Power contract settlement charge* (110)
Headline earnings 1 551 1 143 462
Attributable earnings 1 540 1 139 463
* After tax
# Includes an additional charge of R100 million as a result of reducing the
discount rate applied to estimated future cash flows as a consequence of the
significant reduction in interest rates
QUARTERLY COMPARABLE HEADLINE EARNINGS
Quarterly comparable headline earnings for the past two years have improved
consistently in US dollar terms, with the exception of the September 2003
quarter, as a result of the sharp temporary drop in world prices, and the latest
quarter, where international steel prices rose sharply.
Quarter to US$m Rm Exchange
rate
September 2002 58 601 10,40
December 2002 76 737 9,64
March 2003 79 657 8,32
June 2003 77 596 7,73
September 2003 48 352 7,40
December 2003 97 655 6,72
March 2004 99 669 6,75
June 2004 212 1 393 6,57
OPERATING RESULTS
Operating profits improved at all business units despite the R120 million lost
as a result of the furnace burn-through at Saldanha. Some R70 million of the
Saldanha loss is expected to be recovered from insurance in due course.
Operating profit Revenue
Six months to Six months to
30 June 31 December 30 June 31 December
2004 2003 2003 2004 2003 2003
Rm Rm Rm Rm Rm Rm
Vanderbijlpark 1 840 1 200 979 5 730 4 921 5 026
Saldanha 348 272 107 1 573 1 482 1 364
Long Products 640 429 348 2 911 2 635 2 496
Coke & Chemicals 161 69 103 512 392 409
Other 18 (18) 28 55 51 62
Corporate (59) (81) (61)
Inter Group (237) (169) (182)
Comparable totals 2 948 1 871 1 504 10 544 9 312 9 175
BAA remuneration (731) (613)
Restructuring (166)
Power contract settlement (157)
Total 2 217 1 714 725 10 544 9 312 9 175
MARKET REVIEW
International
The exceptional global steel price surge since the third quarter of 2003 was
interrupted during the past quarter in the Far East by the measures taken by the
Chinese authorities to cool down their economy. Chinese importers withdrew from
the market causing Far East prices to fall sharply, although prices in other
markets remained buoyant, particularly in North America. Chinese imports have
since resumed, leading to price recovery in the Far East.
The major global steel input cost increases experienced since the second half of
2003, precipitated by the rapid increase in Chinese steel production, have
played a significant role in pushing up steel prices and are likely to temper
the extent of any cyclical price downturn for as long as the tight input supply
situation lasts.
Most commentators expect global steel demand to show continued growth with firm
prices through the remainder of 2004.
Export volumes declined during the past two quarters due to growing domestic
demand, which facilitated the successful reduction in our exposure to the less
attractive Far East market.
Our export order book covers the full third quarter at slightly above average
second quarter price levels.
Domestic
Domestic dispatches improved further during the second quarter and first half
volumes increased by 22% on last year. Second half growth is expected to
continue in line with the improvement in manufacturing activity but at a lower
rate as the re-stocking effect of the first half tails off.
COST REDUCTION DRIVE
The shared services restructuring programme has been implemented on schedule.
The planned savings of R200 million per annum have started to flow through and
should be fully effective by year end. The R120 million per annum labour
reduction programme may take longer as it is being implemented through a process
of voluntary and natural attrition.
Cash cost per tonne of hot rolled coil for the first half was 4% lower than the
first half of 2003, while billets remained at the same level despite some very
significant escalations of input costs - alloys, coal, scrap, freight and
railage in particular. In US dollar terms, however, cost per tonne increased by
15% and 20% due to the stronger exchange rate.
No reliable updated global steel industry cost curve statistics are available
yet, but the recent quantum input cost escalations have undoubtedly raised the
level of the curve considerably. While we have been sheltered from much of this
as a result of our high level of self-sufficiency in most key input areas other
than coking coal, alloys and freight costs, we have been severely impacted by
the strong currency. This has strengthened considerably more than the currencies
of all other steel producing countries resulting in a much greater relative
impact on our position on the cost curve.
Our primary focus remains to offset the negative impact on our costs in US
dollar terms.
BUSINESS ASSISTANCE AGREEMENT (`BAA`) WITH LNM GROUP
The audited annualised cost savings measured against the July to December 2001
base (excluding labour cost savings and a 2% deemed Iscor generated savings) in
terms of the BAA for the 6 months up to 31 December 2003 of R687 million,
exceeded the maximum target savings by 15%, increasing further to R1 326 million
(132%) for the 6 months to 30 June 2004. This entitles LNM to the balance of the
maximum remuneration due in terms of the BAA of R731 million.
The BAA has made a significant contribution to our cost reduction programme.
The total remuneration, of R1 344 million, reflects very favourably in relation
to the sustainable measured annual savings to date which are expected to
increase further by the end of 2004.
The BAA expires on 31 December 2004 but makes provision for renegotiation
subject to approval by shareholders other than LNM. Proposals in this regard
will be put to minority shareholders before the end of the year.
LNM GROUP SHAREHOLDING
The Competition Tribunal approved the merger of Iscor and LNM Holdings on 8 June
2004. Shortly thereafter LNM increased its shareholding to just over 50%, making
Iscor a subsidiary.
On 17 August 2004 shareholders approved the name change of ISCOR to ISPAT ISCOR
to fall in line with the practice throughout the LNM Group.
OUTLOOK
Third quarter headline earnings are expected to improve on those of the second
quarter, excluding the effect of the BAA remuneration charge. The benefits of
firm international steel prices, continued growth in domestic steel demand, and
cost savings, should offset the effect of currency movements and the impact of
the planned partial reline of blast furnace D at Vanderbijlpark during
July/August.
DISTRIBUTION TO SHAREHOLDERS
In view of the company`s strong cash flow, the Board has decided to review the
current distribution policy with a view to making an announcement on a reduction
of capital before the end of 2004. In the light of this, the board has decided
not to declare an interim dividend.
Notice concerning a special meeting of shareholders to approve the capital
reduction programme will be distributed shortly.
On behalf of the Board.
LL van Niekerk M Macdonald
(Chief Executive Officer) (Executive Director, Finance)
18 August 2004
Registered Office Transfer Secretaries
Ispat Iscor Corporate Centre Computershare Investor Services 2004 (Pty)
Roger Dyason Road Limited
Pretoria West 70 Marshall Street, Johannesburg
Pretoria, 0002 PO Box 61051, Marshalltown, 2107
Directors: K Ngqula (Chairman), LL van Niekerk (Chief Executive Officer),
Dr MJUT van Wijngaarden (Deputy Chief Executive Officer), DK Chugh*, RG
Cottrell, M Macdonald, S Maheshwari*, CE Markus, A Mittal*, LN Mittal*,
Dr KDK Mokhele, MJN Njeke.
*Citizen of India
Company Secretary: A van der Merwe
Ispat Iscor Limited
Registration number: 1989/002164/06
Share code: ISC ISIN: ZAE000037453
This report is available on the Ispat Iscor World Wide Web site at:
http://www.ispatiscor.com
Date: 18/08/2004 07:00:54 AM
Produced by the JSE SENS Department
