| Tue 8 Feb 2005, 17:24 | | Results for the year ended 31 December 2004 |
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Highveld - Audited group results for the year ended 31 December 2004
HIGHVELD STEEL AND VANADIUM CORPORATION LIMITED
A member of the Anglo American plc group
(Incorporated in the Republic of South Africa)
(Registration no. 1960/001900/06)
Share code: HVL ISIN: ZAE000003422
(`Highveld` or `the Corporation`)
ABRIDGED CHAIRMAN`S REVIEW AND FINANCIAL DISTRIBUTION TO SHAREHOLDERS
* Headline earnings R866 million
* Final dividend of 320 cents per share
* Special dividend of 300 cents per share
* Net operating cash flow R1.1 billion
FINANCIAL RESULTS
Headline earnings for the full year amounted to R866 million, compared with the
previous year`s R54 million. This is equivalent to 880.8 cents per share (2003:
55 cents per share). The profit attributable to Highveld shareholders was R745
million compared with R65 million in 2003. This was after a tax charge of R313
million (2003: R15 million).
The reporting period was characterised by very strong domestic and export
markets leading to significantly improved demand and selling prices for
Highveld`s entire range of products. These improved conditions contributed to
record revenues and profits.
Production costs were well controlled and cost savings of R264 million were
achieved, resulting in substantially higher operating margins. Improved
production levels were also achieved. As a consequence the Group operating
profit increased to R1 050 million from R85 million in 2003.
The net cash inflow for the year was R569 million (R327 million net outflow in
2003). This resulted in a net cash and cash equivalents position of R146 million
at year-end compared with net borrowings of R423 million at the end of 2003.
In view of the results achieved, the Board has decided to pay a final dividend
of 320 cents (2003: 20 cents).
On 7 January 2005 the Corporation sold 3 866 666 Acerinox, S.A. shares for
Euro11.20 per share being the 50 per cent of its holding in respect of which the
lock-up had expired. The Board agreed to distribute the proceeds arising from
this sale in the form of a special dividend of 300 cents.
The total dividends including the special dividend for the year will amount to
740 cents (2003: 20 cents).
CARBON STEEL
World crude steel production increased further in 2004, reaching a new record of
1.05 billion tons, up 11 per cent on the record of 945 million tons set in 2003.
Once again, the strongest growth was recorded in China, with an increase of more
than 23 per cent over 2003.
Strong Chinese demand for steel products resulted in raw material costs rising
sharply in early 2004. This was exacerbated by steep increases in shipping
costs, which in turn resulted in higher steel prices. Given the strong
international and local demand levels, Highveld`s steel output was at capacity
for the full year.
Strong domestic sales were recorded, being 34 per cent up on 2003 and second
only to the record sales of 2002. Consumption in South Africa was broad based
and, with stocks apparently maintained at relatively low levels, it is expected
that domestic steel consumption will be firm in 2005.
VANADIUM
Prices for vanadium improved early during the first quarter of the year and
reached an initial peak during June. Due to the emerging shortage of vanadium
units in the market place, prices increased further during the fourth quarter to
levels last seen during 1989.
It is believed that the market is now benefiting from the full effect of the
closure of uneconomic production facilities, together with increased consumption
of vanadium in China. The shortage was further exacerbated by certain producers
reporting extended maintenance shutdowns, which affected their output.
Vanchem operated all three of its kilns during the year with stoppages only for
annual maintenance shutdowns, mainly for refractory repairs.
A capital programme commenced in the kiln and oxides area aimed at upgrading
plant and equipment, improving efficiencies and de-bottlenecking. Capital will
also be spent to further enhance the environmental performance of the plant.
FERRO-ALLOYS
The year 2004 will be remembered for the sharp increases in ferro-alloy prices
during the first quarter when prices rocketed to record levels peaking during
April. However, during the second quarter and continuing into the third quarter,
prices for silicomanganese as well as medium carbon ferromanganese reduced
materially.
Production at Transalloys was satisfactory and all silicomanganese furnaces
operated during the year. Major repairs to furnaces no. 5 and 7, including a
full upgrade of the electrode columns on furnace no. 7, were carried out during
the third quarter. Due to the improved market conditions, both medium carbon
ferromanganese furnaces operated for most of the year. Substantial capital was
spent during the year on furnace maintenance and refurbishment as well as on the
replacement of the mobile fleet. Further furnace refurbishments are planned for
2005, which will improve furnace availability and efficiency of the operation.
Rand Carbide performed well during the year with steady demand for its main
product, ferrosilicon.
MANPOWER
The changes in work methods continued as managers became more familiar and
experienced with their new responsibilities. Significant progress was made with
flexible working, particularly at artisan level. In most divisions, it is now
the norm to find artisans who both operate and maintain equipment. To accompany
the changes made and assist in the drive for continuous productivity
improvement, a formal mechanism of performance appraisal was introduced for all
employees from supervisory level and up. It was pleasing to note that manpower
productivity improved by some 15 per cent in the steel works compared with 2003.
SAFETY, HEALTH, ENVIRONMENTAL AND QUALITY
The Corporation deeply regrets having to report two fatalities, one an employee
and one a contractor, during the year. Each and every incident is fully
investigated and every possible action is taken to prevent a recurrence. The
Corporation remains totally committed to a safe working environment and
continuously updates its practises and systems aimed at this aspect of its
business. This has resulted in the Group making commendable progress in reducing
the Lost Time Injury Frequency Rate (LTIFR) by 27 per cent to 0.38 for the year.
The safety drive to reduce injuries in the work place included the
implementation of a Behaviour Based Safety (BBS) programme, which entailed the
appointment of 22 BBS coaches and one BBS champion. Management at all levels is
also expected to display Visible Felt Leadership, by regularly visiting the work
areas and focusing on safe working practices. It is pleasing to report that, of
the 16 divisions in the Group, seven (2003: four) achieved a zero LTIFR for the
year and of the remaining divisions, four achieved or did better than the target
LTIFR of 0.30 for the year. The Group is targeting a further LTIFR reduction of
45 per cent for 2005 to 0.21.
Following an initiative to increase HIV/AIDS awareness, and a thrust which
commenced in 2003 to promote voluntary counselling and testing (VCT), 54 per
cent of the total work force of 3 804 employees had undergone VCT at year-end. A
policy for administering anti-retroviral treatment (ART) was put in place in
2003 and as at the 2004 year-end 11 employees were receiving ART.
ISO 14001 surveillance audits were conducted by the certification authority
within the Group and the certification of all divisions was maintained.
Considerable work has been done to implement the OHSAS 18001 Safety Management
System and integrate it with the other management systems.
The Group reduced water consumption by 2.1 per cent during the year. A five-year
programme to achieve international best practice in emission control, waste
management and water conservation has in principle been approved. The Group has
also set an energy reduction target of 11.75 per cent over a ten-year period.
Regular liaison meetings were held in the various divisions with local community
representatives and interested parties, to discuss environmental concerns. The
discussions were open and frank feedback was given on existing programmes.
BLACK ECONOMIC EMPOWERMENT
During 2004, goods and services worth R300 million were purchased from a total
of 128 black empowerment enterprises. A business development officer assists all
Black Economic Empowerment (BEE) initiatives.
Further discussions continued with the communities located on the farm
Aapjesboom, in Limpopo Province, to establish the viability of creating a small-
scale mining operation. These discussions remained problematic due to a dispute
between two community leaders in the area, which it is hoped will be resolved
soon. A similar project is considered with the Madibaneng community on the farm
Parys, also situated in Limpopo Province. The establishment of a handpicking
operation at Mapochs mine is also being investigated with support from Anglo
Zimele Empowerment Initiative Limited, whose aim is to invest in small
businesses with the objective of creating wealth for previously disadvantaged
communities.
INVESTMENTS
After the sale of 3 866 666 shares the Corporation retains a holding of 1.45 per
cent in Acerinox which currently is worth R350 million. The Corporation also
holds a 12 per cent shareholding in Columbus Stainless (Proprietary) Limited.
Acerinox, a major stainless steel producer based in Spain with facilities in the
European Union, United States and South Africa, is the controlling shareholder
in Columbus.
The performance of both Acerinox and Columbus showed improvement as a result of
better conversion margins. Earnings of both companies were higher than those
achieved in 2003. Columbus paid no dividend but dividends and share premium
distribution amounting to R16 million were received from Acerinox (2003: R16
million).
CAPITAL
A number of medium sized capital projects which have been approved by the Board
were still in progress at year-end. At 31 December 2004, the approved capital,
which had not been spent, amounted to R314 million (2003: R188 million).
OUTLOOK
Total steel consumption in 2005 is expected to be higher than in 2004, despite
some slowing down in growth in China. With improved prospects for consumption in
the EU and the USA, steel prices are expected to maintain acceptable levels.
The demand for vanadium in 2005 is likely to remain 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. It is
pleasing to note that the significant oversupply, which existed for the last few
years, has been corrected by the closures of two production facilities. Current
capital expenditure will ensure that supply keeps up with demand.
Real interest rates in South Africa remain high. However, the reduction which
took place in nominal rates during 2004, resulting in significant growth in the
South African economy should ensure that local steel consumption remains at
current levels. The extensive capital expenditure plans announced by the South
African Government and the mining and chemical industries, as well as the
infrastructural developments envisaged for the 2010 Soccer World Cup tournament
should further support local demand for steel in the near future.
The strength of the South African currency has proved to be a major negative
factor both to individual companies and to the growth of South African
manufactured exports in the past three and a half years. It is expected that
this will remain an inhibiting factor impacting on the growth of local steel
consumption in the medium-term.
Export steel prices are expected to remain firm in US dollar terms on the basis
of strong demand and a weak dollar. Whether returns from export sales remain
attractive will depend on the relative strength of the South African currency.
During 2004 a new reheat furnace was brought into operation at the structural
mill as part of the continued attention to issues of improved plant performance
and cost reduction. This will show benefits during the current year. Two
furnaces must, however, be refurbished in the ironmaking division during the
year, which will impact on iron production.
The volatility of the Rand relative to the major currencies of the world and the
currencies of competitors in our products remains a key uncertainty affecting
the prospects for the Group.
On balance conditions going into 2005 remain 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 be similar to those achieved in 2004.
GENERAL
Mike Winstanley retired during the year and I thank him for his contribution to
the Corporation`s affairs during his ten years as a director. It is with
pleasure that I welcomed Ian Botha and Godfrey Gomwe to the Board during the
year. I look forward to their continuing contribution to the affairs of the
Corporation.
The year 2004 will be remembered for the significant corrections which took
place in both the vanadium and steel markets and which placed the Group in a
position to focus on its operational performance and its longer term strategies.
Good progress has been made in developing and implementing the plans that are
needed to position the Group for the future. I thank Andre de Nysschen and all
the employees for their efforts in taking advantage of these circumstances and
delivering the record results.
T E Jones
Witbank
8 February 2005
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004
The audited group results for the year ended 31 December 2004 set out below have
been prepared in accordance with South African Statements of Generally Accepted
Accounting Practice and International Financial Reporting Standards applicable
to Interim Financial Reporting and on a basis consistent with the prior year.
The auditors, Deloitte & Touche, have issued their opinion on the group annual
financial statements for the year ended 31 December 2004 and a copy of the
auditors unqualified report is available for inspection at the corporation`s
registered office.
ABRIDGED INCOME STATEMENTS
For the years ended 31 December
2004 2003
Rm Rm
CONTINUING OPERATIONS
Revenue 5 036 3 676
Operating profit 1 050 82
Interest and investment income received 44 44
Interest paid (41) (56)
Profit before taxation 1 053 70
Taxation charge (311) (12)
Profit after taxation 742 58
DISCONTINUED OPERATIONS
Revenue - 27
Operating profit - 3
Profit before disposal of discontinued operations - 3
Profit on disposal of discontinued operations 5 7
Profit before taxation 5 10
Taxation charge (2) (3)
Profit after taxation 3 7
TOTAL OPERATIONS
Revenue 5 036 3 703
Operating profit 1 050 85
Interest and investment income received 44 44
Interest paid (41) (56)
Profit before disposal of discontinued operations 1 053 73
Profit on disposal of discontinued operations 5 7
Profit before taxation 1 058 80
Taxation charge (313) (15)
Profit attributable to Highveld shareholders 745 65
Reconciliation of headline earnings
Profit attributable to Highveld shareholders 745 65
Add/(less) after tax effect of:
Profit on disposal of discontinued operations (3) (5)
Loss/(profit) on disposal and scrapping of
property, plant and equipment 124 (6)
Headline earnings 866 54
Weighted average number of
ordinary shares in issue 98 210 616 97 807 614
Number of shares issued as at year-end 98 552 598 97 913 798
Earnings per share - cents
Basic 757.8 66.3
Basic - diluted 753.2 65.4
Headline 880.8 55.0
Headline - diluted 875.5 54.3
ABRIDGED BALANCE SHEETS
at 31 December
2004 2003
Rm Rm
ASSETS (Net of short-term borrowings
and current liabilities)
Property, plant and equipment 1 194 1 126
Available-for-sale investments Note 1 654 912
Net cash on hand/(short-term borrowings) Note 2 261 (227)
Net current assets 540 203
Current assets 1 522 933
Current liabilities (982) (730)
TOTAL NET ASSETS 2 649 2 014
EQUITY AND LIABILITIES
Shareholders` equity 2 337 1 629
Deferred taxation 100 76
Interest bearing long-term liabilities 115 196
Long-term provisions 97 113
TOTAL EQUITY AND LIABILITIES 2 649 2 014
Note 1: Available-for-sale investments
Acerinox, S.A. - at cost 533 533
- fair value adjustment 167 75
- total 700 608
Columbus Stainless (Proprietary) Limited 300 300
Other 54 4
Total investments 1 054 912
Less: amount transferred to current assets (400) -
Non current portion 654 912
Note 2: Net cash and cash equivalents/(net borrowings)
Cash and cash equivalents 358 188
Short-term borrowings (97) (415)
Net cash on hand/(short-term borrowings) 261 (227)
Sale and lease-back and other long-term funding (115) (196)
Net cash and cash equivalents/(net borrowings) 146 (423)
Debt to equity ratio-percentage - 26
Net asset value - cents per share 2 371 1 665
ABRIDGED CASH FLOW STATEMENTS
For the years ended 31 December
2004 2003
Rm Rm
Net cash inflow from operating activities
before tax payments 1 119 154
Tax payments (88) (287)
Net cash outflow from investing activities (462) (194)
Net cash inflow/(outflow) 569 (327)
Financed as follows:
Net cash (outflow)/inflow from financing activities (399) 310
(Increase)/decrease in cash on hand (170) 17
(569) 327
ABRIDGED SEGMENTAL REPORT
for the years ended 31 December
Continuing
Steel and vanadium Ferro-alloys operations
2004 2003 2004 2003 2004 2003
Rm Rm Rm Rm Rm Rm
Revenue 3 871 2 725 1 165 951 5 036 3 676
Operating profit 758 42 292 40 1 050 82
ABRIDGED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2004
Share capital, share
premium and non- Fair
distributable value Retained
reserves reserve profit Total
Rm Rm Rm Rm
Balance at 31 December 2003 561 78 990 1 629
Attributable profit 745 745
Dividends (140 cents per share) (138) (138)
Fair value reserve 92 92
Currency translation differences (1) (1)
Proceeds from shares issued 10 10
Balance at 31 December 2004 570 170 1 597 2 337
NOTICE OF FINAL ORDINARY AND SPECIAL DIVIDENDS
On Tuesday, 8 February 2005, the directors of the Corporation declared a final
dividend no. 59 of 320 cents and a special dividend no. 60 of 300 cents (South
African currency) on the ordinary shares for the year ended 31 December 2004, as
follows:
Last day to trade to qualify for dividend
(and for changes of address
or dividend instructions) Friday, 25 February 2005
Ex-dividend on the JSE Securities
Exchange South Africa Monday, 28 February 2005
Record date Friday, 4 March 2005
Payment date of dividend Monday, 7 March 2005
Share certificates may not be dematerialised or rematerialised between Monday,
28 February 2005 and Friday, 4 March 2005, both days inclusive.
By order of the Board
Ms A Diener Witbank
Company Secretary 8 February 2005
The annual report will be posted to all registered shareholders during March
2005. Enquiries may be directed to e-mail address: general@hiveld.co.za
Registered Office Transfer Secretaries
Portion 29 of the farm Computershare Investor Services 2004
Schoongezicht no. 308 JS (Proprietary) Limited
District Witbank 70 Marshall Street
Mpumalanga Johannesburg, 2001
P O Box 111 P O Box 61051
Witbank 1035 Marshalltown 2107
Tel: (013) 690-9911 Tel: (011) 370-5000
Fax: (013) 690-9033 Fax: (011) 688-5200
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, B J T Shongwe
ALTERNATE DIRECTOR: G F Young
COMPANY SECRETARY: Ms A Diener
Sponsor: Cazenove
Date: 08/02/2005 03:48:15 PM
Produced by the JSE SENS Department
