| Thu 10 Feb 2005, 10:17 | | Audited annual results |
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Ispat - Audited annual results and dividend announcement for the year ended 31
December 2004
ISPAT ISCOR LIMITED:
(Formerly Iscor Limited)
Registration number 1989/002164/06
Share code: IIS ISIN: ZAE000057162
(`Ispat` or `the company` or `the Group`)
AUDITED ANNUAL RESULTS AND DIVIDEND ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER
2004
CHANGE IN REPORTING PERIOD
This reporting period covers the twelve months of 2004 following the decision to
change the year-end to December of each year in order to coincide with the year-
end of our holding group Mittal Steel. Comparative figures are given for the
corresponding 12 months of 2003 and also for the last financial period, for the
six months ended 31 December 2003.
HEADLINE EARNINGS
Headline earnings for the year increased by 183% compared to last year. Record
high global steel prices, strong domestic steel demand and cost containment
through savings, were the drivers for these excellent results. This was
partially offset by the negative impact of the stronger rand.
The comparable headline earnings before BAA remuneration went up by 124% over
the previous year. However, in dollar terms it went up by 163% due to the 17%
strengthening of the rand during 2004.
Year Six months
ended ended
31 Dec 31 Dec
2004 2003 2003
Audited Audited Audited
Rm Rm Rm
Revenue 23 053 18 487 9 175
Operating profit 7 399 3 375 1 504
Finance costs:
- Net interest income/(expense) 36 (47) (16)
- Interest adjustment on
non-current provisions# (170) (81) (53)
Taxation (2 465) (1 100) (492)
Equity earnings* 258 115 67
Minority interest (6) (2) (3)
Comparable headline earnings 5 052 2 260 1 007
In US$m 793 301 145
BAA remuneration* (511) (429) (429)
Restructuring costs* (116) (116)
Power contract settlement charge* (110)
Headline earnings 4 541 1 605 462
Attributable earnings 4 871 1 602 463
* After tax
# Includes an additional charge of R100 million due to a lower discount rate
applied to estimated future cash flows, as a result of the significant reduction
in interest rates.
QUARTERLY COMPARABLE HEADLINE EARNINGS
The quarterly earnings increased more than 100% from the first quarter 2004 to
the second quarter 2004 and improved again during the last two quarters 2004 due
to the factors of strong global steel demand, high international steel prices
and solid growth in the local market. Fourth quarter 2004 earnings were lower by
6% in US dollar terms compared to the third quarter 2004 mainly due to the
strengthening of the rand as well as lower volumes delivered during the December
holiday season. However, this was partially offset by higher prices.
Quarter to US$m Rm
March 2003 79 657
June 2003 77 596
September 2003 48 352
December 2003 97 655
March 2004 99 669
June 2004 212 1 393
September 2004 248 1 575
December 2004 234 1 415
OPERATING RESULTS
Operating profits more than doubled at all business units for the year. This was
despite the Conarc furnace burn through at Saldanha Steel, the planned throat
armour repair of blast furnace C at Vanderbijlpark and the planned interim
repair of blast furnace D at Vanderbijlpark. The results of Saldanha Steel
improved by more than 200% due to a higher percentage ultra thin gauge product
in the sales mix, an increase in local sales volumes and higher sales prices,
while the bulk of the loss as a result of the Conarc furnace burn through was
compensated through insurance payout. Coke and Chemicals also improved its
profits by more than 150% due to the strong volumes and international coke
prices.
Operating profit Revenue
Six months Six months
Year ended ended Year ended ended
31 Dec 31 Dec 31 Dec 31 Dec
2004 2003 2003 2004 2003 2003
Audited Audited Audited Audited Audited Audited
Rm Rm Rm Rm Rm Rm
Vanderbijlpark 4 129 2 179 979 12 288 9 947 5 026
Saldanha Steel 1 147 379 107 3 638 2 846 1 364
Long Products 1 769 777 348 6 339 5 131 2 496
Coke & Chemicals 462 172 103 1 253 801 409
Other 42 10 28 111 113 62
Corporate (150) (142) (61)
Inter Group (576) (351) (182)
Comparable profit 7 399 3 375 1 504 23 053 18 487 9 175
/ revenue
BAA remuneration (731) (613) (613)
Restructuring (166) (166)
Power contract
settlement (157)
Total 6 668 2 439 725 23 053 18 487 9 175
MARKET REVIEW
INTERNATIONAL
The surge in global steel demand, driven by fixed investment in China, robust
growth in US and developing markets together with a sharp increase in all major
input costs, led to all time record price levels during the second half of 2004.
During the year 2004, global hot rolled coil export prices increased in excess
of 60%. The latter part of the year witnessed a deceleration in the Chinese
demand due to local measures to cool down the overheated Chinese economy.
However, this slack was picked up by a robust demand in the US and elsewhere
ending the year with growth for the industry at 8,4% over 2003.
2005 is expected to be a stable year for the global steel industry, marked by a
recovery in Chinese demand, a sharp increase in raw material prices and
continued good global economic growth, with average prices, anticipated to be
similar to or slightly better than 2004.
The substantial growth in domestic demand led to a 25% decline in export
volumes. Exports to the Far East decreased during the year while exports to
Europe, the Middle East and the rest of Africa increased.
DOMESTIC
Our domestic despatches increased by 22% during 2004, driven by a robust local
economy. During the second half of the year, the growth in order intake was
somewhat lower compared to the first half due to the inventory/destocking
effect, though the underlying demand remained firm.
COST POSITION
Cash cost per ton for hot rolled coil and billets for the year, was higher
driven by higher prices for imported coal, alloys, scrap, freight and railage.
In US dollar terms, the cost increased by 22% and 26% respectively due to the
strengthening of the rand.
Given the quantum increase in raw material input prices, the global cost curve
has shifted up considerably. The high level of raw material integration together
with significant cost savings realised during 2004, enabled the company to
contain the impact of escalation in the cost of coking coal, alloys, scrap and
freight.
The strengthening of the rand against the dollar has put the company`s position
on the global cost curve under pressure. Our strategy continues to address this
key issue with the aim to maintain the company`s position in the lowest cost
quartile of the global cost curve.
BUSINESS ASSISTANCE AGREEMENT (BAA) WITH MITTAL STEEL
The BAA, which expired on 31 December 2004, made a sterling contribution to our
cost reduction programme. The total remuneration of R1 344 million compares very
favourably in relation to the cumulative realised savings over the three year
period of R1 985 million.
Mittal Steel received R731 million, the balance of remuneration payable in terms
of the BAA, for savings generated during the first half of 2004. The audited
annualised cost savings for the six months ended 31 December 2004 in terms of
the BAA amounted to R926 million, for which Mittal Steel is not entitled to any
further remuneration in terms of the BAA.
Management will review and recommend to the Board, a new contract to replace the
expired one, which will be subject to approval of shareholders, other than
Mittal Steel.
MITTAL STEEL`S SHAREHOLDING
Mittal Steel increased its shareholding to above 50% in June 2004 making Ispat
Iscor, a subsidiary. Towards the end of 2004, LNM Holdings, the controlling
shareholder of Ispat Iscor, was acquired by Ispat International N.V., another
arm of the group. The combined company called Mittal Steel Company N.V. is
listed on the New York and Amsterdam stock exchanges.
Ispat Iscor is in the process of changing its name to Mittal Steel, South
Africa, subject to approval by the shareholders and other legal requirements
before the end of March 2005.
OUTLOOK
On the local market, we expect the strong demand for steel to continue, driven
by good macro economic conditions. However, if the rand continues to strengthen
further, the industrial production, particularly of sectors reliant on exports,
may impact negatively. During the first quarter 2005, we expect volumes to be
generally in line with the fourth quarter 2004, while local prices could be
lower due to price adjustments announced to reflect the strong rand.
Overall, the results for the next quarter are expected to remain generally in
line with the fourth quarter 2004, although slightly impacted due to the
recently announced price decreases.
DIVIDEND ANNOUNCEMENT
Considering the current cash position, future capital expenditure and working
capital requirements, the Board has decided to distribute one third of the
headline earnings adjusted for once-off charges, in line with the current
dividend policy.
The board declared an interim dividend of 300 cents per share on 17 December
2004. The dividend was recorded in the 2004 financial statements together with
the 12,5% secondary tax on companies thereon. Payment was made on 10 January
2005 to shareholders.
A final dividend of 100 cents per share was declared by the Board on 8 February
2005, which brings the total dividend for 2004 to 400 cents, covered about three
times by headline earnings of 1 133 cents per share. The dividend will be
recorded in the 2005 financial statements together with the 12,5% secondary tax
on companies thereon. Payment in South African rands will be made on Monday, 14
March 2005 to shareholders recorded in the register on Friday, 11 March 2005.
The last day to trade to qualify for the dividend will be Friday, 4 March 2005.
Shares will trade ex-dividend from Monday, 7 March 2005 and the record date will
be Friday, 11 March 2005. Shares may not be dematerialised or rematerialised
between Monday, 7 March 2005 and Friday, 11 March 2005, 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
DK Chugh V Sethuraman
(Chief Executive Officer) (Executive Director, Finance)
8 February 2005
Registered Office Transfer Secretaries
Ispat Iscor Head Office Computer Investor Services 2004 (Pty) Limited
Delfos Boulevard 70 Marshall Street
Vanderbijlpark Johannesburg
1911 PO Box 61051, Marshalltown, 2107
Directors: K Ngqula (Chairman), DK Chugh* (Chief Executive Officer), S
Maheshwari*, JJA Mashaba, A Mittal*, LN Mittal*, Dr KDK Mokhele, MJN Njeke, V
Sethuraman*
*Citizen of India
Company Secretary: CLS Consulting Services (Pty) Limited
This report is available at Ispat Iscor`s World Wide Web site at:
http://www.ispatiscor.com
GROUP INCOME STATEMENT
Year Year Six months
ended ended ended
31 Dec 31 Dec 31 Dec
2004 2003 2003
Audited Audited Audited
Rm Rm Rm
Revenue 23 053 18 487 9 175
Operating expenses (15 419) (15 126) (7 980)
Earnings before interest, taxation,
depreciation and amortisation (Ebitda) 7 634 3 361 1 195
Depreciation (964) (920) (469)
Amortisation of intangible assets (2) (2) (1)
Profit from operations before impairment
and goodwill movements 6 668 2 439 725
Goodwill impairment (Note 2) (21) (32) (11)
Impairment credit/(charge) (Note 3) 502 (13)
Profit from operations 7 149 2 394 714
Net financing costs (Note 4) (134) (128) (69)
Net profit from equity accounted
investments before taxation 347 140 88
Surplus on sale of residential properties 38 12
Profit before taxation (Note 5) 7 362 2 444 745
Taxation (Note 6) (2 485) (840) (279)
Profit from ordinary activities 4 877 1 604 466
Minority interest (6) (2) (3)
Profit attributable to ordinary
shareholders 4 871 1 602 463
ADDITIONAL INFORMATION
Profit attributable to ordinary shareholders 4 871 1 602 463
Adjusted for:
* Goodwill impairment (Note 2) 21 32 11
* Impairment (credit)/charge (Note 3) (502) 13
* Surplus on sale of residential properties (38) (12)
* Taxation on adjustments 151 (4)
Headline earnings 4 541 1 605 462
Performance per ordinary share
Attributable earnings per share (cents)
* basic 1 093 359 104
* diluted 1 090 358 103
Headline earnings per share (cents)
* basic 1 019 360 104
* diluted 1 016 359 103
Dividend per share (cents)
* interim 300 100
* final 100 75 75
Net asset value per share (cents) 3 598 2 910 2 910
Ordinary shares (million)
* in issue 446 446 446
* weighted average number of shares 446 446 446
* diluted weighted average number
of shares 447 447 448
Ratios (%)
Ebitda margin 33,1 18,2 13,0
Return on ordinary shareholders` equity
per annum
* attributable earnings 33,6 12,7 7,2
* headline earnings 31,3 12,8 7,2
Net cash to equity 24,8 0,2 0,2
Market capitalisation (Rm) 29 197 12 838 12 838
GROUP BALANCE SHEET
As at As at
31 Dec 31 Dec
2004 2003
Audited Audited
Rm Rm
ASSETS
Non-current assets 14 079 13 076
Property, plant and equipment 12 930 12 218
Intangible assets 30 32
Goodwill 11 32
Investments in joint ventures
* unlisted (Note 7) 596 418
Other financial assets 512 376
Current assets 9 650 5 498
Cash and cash equivalents 4 064 1 107
Inventories 3 105 2 817
Trade and other receivables 2 481 1 507
Taxation 67
Total assets 23 729 18 574
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` equity 16 040 12 971
Minority interest 7 5
Total equity 16 047 12 976
Non-current liabilities 2 990 2 298
Interest-bearing borrowings 81 92
Non-current provisions 1 188 1 062
Provision for post-retirement medical costs 13 22
Deferred taxation 1 708 1 122
Current liabilities 4 692 3 300
Trade and other payables 2 305 2 074
Interest-bearing borrowings 10 988
Taxation 857
Current provisions 183 238
Shareholders for dividend 1 337
Total equity and liabilities 23 729 18 574
Net cash (Note 8) 3 973 27
GROUP STATEMENT OF CHANGES IN EQUITY
Year Year Six months
ended ended ended
31 Dec 31 Dec 31 Dec
2004 2003 2003
Audited Audited 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
- change in interpretation on negative
goodwill (2 585) (2 585) (2 585)
- adoption of IFRS 3 2 585 2 585 2 585
Changes in stated capital 101 100
* distribution from management share trust 100 100
* odd-lot shares 1
Changes in non-distributable reserves 124 (20) 6
* management share trust (45) (75) (83)
* movement in treasury shares 4
* cost of share options (2)
* currency translation losses (81) (113) (28)
* financial instruments movements (2) 59 44
* transfer of equity accounted earnings 252 108 65
* share of hedging reserves (3) 10
* share of revaluation reserve (2) (2)
* transfer to insurance reserve 2 (3)
* share of foreign currency
translation reserves 5
Changes in retained income 2 945 605 (48)
* net profit for the period 4 871 1 602 463
* dividend paid (1 672) (892) (446)
* transfer of equity accounted earnings (252) (108) (65)
* transfer to insurance reserve (2) 3
Shareholders` funds at end of period 16 040 12 971 12 971
GROUP CASHFLOW STATEMENT
Year Year Six months
ended ended ended
31 Dec 31 Dec 31 Dec
2004 2003 2003
Audited Audited Audited
Rm Rm Rm
Cash inflows/(outflows) from
operating activities 5 239 1 397 (486)
Cash retained from operations 6 422 3 460 999
Before BAA remuneration 7 153 4 073 1 612
BAA remuneration (731) (613) (613)
Income from equity accounted investments 6 7 2
Net financing costs 36 (43) (9)
Dividend paid (339) (892) (446)
Taxation paid (886) (1 135) (1 032)
Cash outflows from investing activities (1 246) (1 248) (337)
Capital expenditure (1 254) (1 278) (499)
Proceeds from disposals of property,
plant and equipment 14 84 46
Investment in other non-current assets (5)
Foreign currency translations (1) (54) 116
Normal net cash inflow/(outflow) 3 993 149 (823)
Cash (outflows)/inflows from
financing activities (1 036) (91) 1 078
Increase in cash and cash equivalents 2 957 58 255
Cash and cash equivalents at beginning
of period 1 107 1 049 852
Cash and cash equivalents at end of period 4 064 1 107 1 107
NOTES TO THE AUDITED FINANCIAL STATEMENTS
1. Basis of preparation
These audited Group financial results for the year ended 31 December 2004
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 year will be available by the end of
March 2005. The signed unqualified auditors` report issued by KPMG Inc. for the
year is available for inspection at the company`s registered address. The
principal accounting policies are consistent with those applied in the previous
period, except for the following:
* 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
* the accounting treatment for negative goodwill arising on the
acquisition of the remaining 50% of Saldanha Steel was re-examined. It has now
been established that the original interpretation of IAS22 in 2002 for treatment
of negative goodwill was not in line with the preferred interpretation at that
time. Accordingly, negative goodwill should have been amortised over the life of
the Saldanha Steel plant. This change in interpretation has been corrected
retrospectively
* the Group early adopted the following International Financial
Reporting Standards, and the 2003 figures have been amended as required in
accordance with the relevant requirements:
Net income Shareholders`
increase/(decrease) equity
Year Year Six months increase/
ended ended ended (decrease)
31 Dec 31 Dec 31 Dec as at as at
2004 2003 2003 2004 2003
Rm Rm Rm Rm Rm
Consolidation of the Iscor Management
Share Trust (26) 15
Preferred interpretation for
treatment of goodwill (2 585)
IFRS2 Share Based Payments (2) (2)
IFRS3 Business Combinations 2 585
IFRS4 Insurance Contracts *
IFRS5 Non-current Assets Held for Sale and
Discontinued Operations *
IAS36 (Revised) Impairment of Assets *
IAS38 (Revised) Intangible Assets *
* The adoption of these standards had no impact on net income or shareholders`
equity.
2. Goodwill impairment
The group assessed its expected benefits from one of its subsidiaries, Pybus
Fifty-Seven (Pty) Limited to be less than the carring value, as a result an
impairment loss of R21 million was realised for the year.
3. Impairment credit
Ispat Iscor`s share of the Saldanha Steel impairment charge raised in 2001
(R1 500 million) partly reversed in 2002 (R998 million), was further reversed,
applying the same valuation basis as in the past, as Saldanha Steel`s economic
prospects have improved significantly.
Year Year Six months
ended ended ended
31 Dec 31 Dec 31 Dec
2004 2003 2003
Audited Audited Audited
Rm Rm Rm
4. Net financing costs 134 128 69
Interest expense and loan costs 63 62 24
Interest income (94) (29) (11)
Interest received from joint ventures (5) (9) (2)
Losses on derivative instruments 110 23
Gains on currency difference (87) (18)
Net interest (36) 47 16
Interest adjustment on non-current provisions 170 81 53
5. Profit before taxation is arrived at after
Directors` emoluments
* executive 23 24 15
* non-executive 1 1 1
Auditors` remuneration
* audit fees 5 8 5
* other services 1 3 1
Business assistance agreement remuneration 731 613 613
6. Taxation 2 485 840 279
Company and subsidiaries 2 396 815 258
Equity accounted investments 89 25 21
7. Investments in joint ventures
Unlisted investments
* directors` valuation 759 479 479
8. Net cash 3 973 27 27
Interest-bearing borrowings
* non-current (81) (92) (92)
* current (10) (988) (988)
Cash and cash equivalents 4 064 1 107 1 107
9. Capital expenditure
* incurred 1 254 1 278 499
* contracted 1 008 547 547
* authorised but not contracted 1 468 555 555
10. Contingent liabilities 234 245 245
* guarantees 134 145 145
* other contingent liabilities 100 100 100
11. Operating lease commitments 28 70 70
* less than one year 3 11 11
* more than one year and less than
five years 25 59 59
12. 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 Mittal Steel Group.
13. Directors` share option benefits
Rights to options and shares held by executive directors in terms of the
Iscor Management Share Scheme totalled 331060 at 31 December 2004 (December
2003: 904 990), representing 0,07% (December 2003: 0,2%) of the issued shares.
During the period the directors sold a portion of their options realising a gain
of R7 million, of which R7 million was paid to them in terms of the Scheme
during the year.
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 (the `JSE`).
Unaudited supplementary physical information (`000 tonnes)
Year Year Six months
ended ended ended
31 Dec 31 Dec 31 Dec
2004 2003 2003
FLAT STEEL PRODUCTS
- Vanderbiljpark
Liquid steel production 3 628 3 681 1 870
Sales 3 166 3 173 1 664
* local 2 224 1 863 942
* export 942 1 310 722
Local sales as percentage of total sales 70 59 57
- Saldanha Steel
Liquid steel production 1 227 1 251 645
Sales 1 141 1 187 622
* local 504 354 184
* export 637 833 438
Local sales as percentage of total sales 44 30 30
LONG STEEL PRODUCTS
Liquid steel production 2 178 2 153 1 080
Sales 1 894 1 899 939
* local 1 151 956 496
* export 743 943 443
Local sales as percentage of total sales 61 50 53
TOTAL
Liquid steel production 7 033 7 085 3 595
Sales 6 201 6 259 3 225
* local 3 879 3 173 1 622
* export 2 322 3 086 1 603
Local sales as percentage of total sales 63 51 50
