| Mon 1 Aug 2005, 16:51 | | REPORT FOR THE SIX MONTHS TO 30 JUNE 2005 |
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Highveld Steel And Vanadium Corporation Limited - Interim Report For The Six
Months To 30 June 2005
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`)
Developing global reach and business sustainability
1
INTERIM REPORT FOR THE SIX MONTHS TO 30 JUNE 2005
* Record headline earnings R1.038 billion * Interim dividend of 1 050 cents
per share
* Special dividend of 650 cents per share * Net cash flow R1.373 billion
Financial results
Significantly improved market conditions in the group`s range of vanadium
products contributed to substantially higher headline earnings of R1 038
million compared to R358 million for the corresponding period last year.
Operating profit improved to R1 574 million from R413 million. Cost reduction
initiatives generated savings of R117 million for the period. The depreciation
charge of R132 million includes an amount of R44 million relating to the loss
on disposal and scrapping of property, plant and equipment.
Profit attributable to shareholders for the six months was R1 237 million
compared to R297 million in the corresponding period of 2004. This is after a
tax charge of R600 million (2004: R116 million).
Headline earnings per share were 1 049.5 cents, compared to 364.9 cents in the
first six months of 2004.
A net cash inflow of R1 373 million was achieved and the group`s net cash on
hand was R1 519 million compared to R146 million at 31 December 2004.
In view of the results, the Board has decided to declare an interim dividend
based on the first half results of 1 050 cents per share (2004: 120 cents). In
addition, the Board has declared a special dividend of 650 cents per share from
the proceeds of the disposal of the Acerinox, S.A. shares and the investment in
Columbus Stainless (Proprietary) Limited.
Steel
World crude steel output continued to grow. Compared to the first six months
of 2004, world crude steel production is up by 7.6 per cent. China is still
leading the surge in output, having produced 165 million tons during this
period, which is 28 per cent higher than the same period last year. China now
accounts for 30 per cent of global steel production.
Overall group steel sales volumes have decreased by 8 per cent and domestic
despatches by 7 per cent, compared to the same period last year. This was
mainly the result of lower steel output, due to the rebuilding and upgrading of
the new open slag bath configuration of the ironmaking furnace no. 5. It is,
however, expected that sales volumes in the second half of the year will be an
improvement on those of the first half.
Having reached all-time highs towards the middle of last year, international
prices for all the group`s steel products have dropped over the past six
months. However, following production cuts announced by various producers
and substantial input cost increases, selling prices are expected to stabilise
over the next few months as supply and demand are brought into balance.
The group recently launched 350WA structural steel as the new standard in the
domestic market. This product is 17 per cent stronger than the former standard
grade 300WA, whilst maintaining the same formability and welding properties.
This should enhance the competitiveness of structural steel as a construction
material and result in increased consumption.
Vanadium
On the back of record steel production worldwide and global vanadium supply
problems, vanadium reached all-time record prices towards the end of the first
quarter and peaked at more than double the previous record price achieved
during 1989. In line with subsequent reduced steel demand and improved vanadium
supply, prices consolidated and started to decline towards the end of the
second quarter to more sustainable levels.
In contrast to many other producers which experienced supply problems,
vanadium production at Vanchem was at record levels for the period under
review. A new slimes dam and thickener are in the process of being
commissioned. The discharge-end modification of kiln no. 3, which is expected
to improve performance substantially, is well advanced.
Ferro-alloys
After the all-time record prices achieved for manganese alloys as well as for
ferrosilicon during 2004, prices started to decline towards the end of 2004
and continued to fall during the first two quarters of 2005 to uneconomic
levels. Reduced stainless steel demand also impacted on the sale of
ferrosilicon.
As a result of the low export prices, excessive price increases for raw
materials and high electricity costs during the winter months, all manganese
furnaces and one ferrosilicon furnace were taken off line in June. Repairs and
refurbishments of these units will be carried out during the outage period.
Investments
It was announced on 7 January 2005 and 13 May 2005 that the group`s Acerinox,
S.A. shares were sold in two tranches. The first tranche of 3 866 666 shares
was sold for Euro 43.3 million and the second equal tranche for Euro 43.9
million. Total Rand proceeds amounted to R698 million and a profit of R165
million was achieved.
The group`s 12.5 per cent investment in Columbus Stainless (Proprietary)
Limited was sold on 13 May 2005 for Euro 47.5 million which yielded R379
million. This resulted in a profit of R78 million.
The process to sell Transalloys was terminated when it became clear that due to
the changed market conditions Fair value would not be obtained. A process that
may result in the disposal of the Rand Carbide operation continues.
Capital Expenditure
Capital expenditure incurred by the group during the period amounted to R255
million (2004: R31 million) and the total commitment in respect of further
capital expenditure as at 30 June 2005 is R425 million compared to R314 million
at 31 December 2004. This expenditure will be funded from internally generated
cash flows and available borrowing facilities.
Safety, Health, Environment and Quality
The group experienced no fatalities during the first half of the year. The
lost time injury frequency rate (LTIFR) as at 30 June 2005 was 0.26 compared to
0.38 recorded for 2004. The group LTIFR target for 2005 is 0.21.
The corporation continues to promote HIV/AIDS awareness, an initiative which
commenced in 2003. As at 30 June 2005, 63 per cent of the total work force of
3 899 had undergone voluntary counselling and testing. Eleven employees are
receiving free anti-retroviral treatment.
A five-year programme to achieve international best practice in emission
control, waste management and water conservation was implemented this year and
projects amounting to approximately R141 million have been completed or are in
the process of completion. Steady progress has been made in respect of
complying with requirements needed for the various licences required in terms
of new legislation for the group`s water consumption and waste generation.
Black Economic Empowerment
During the period under review, goods and services worth R177 million (2004:
R104 million) were purchased from a total of 116 black empowerment enterprises
(2004: 96). The group also participated in the establishment of a small scale
BEE mining operation at Mapochs mine.
Directorate
Mr T E Jones retired as director and non-executive chairman of the corporation
with effect from 31 March 2005. The Highveld Board extends its appreciation to
him for his significant contribution during his 37 years with the
corporation and for the leadership role he played most recently as
non-executive chairman. The Highveld Board and staff wish him well in his
retirement.
Corporate Governance
The Board considers that it complies in all material respects with the Code of
Corporate Practices and Conduct as embodied in the King II Report.
Outlook
As indicated above, domestic demand for our steel products has slowed. This
should, however, improve during the fourth quarter as merchant de-stocking
terminates. Relatively low interest rates and the current weaker Rand will
impact positively on the industry in general and specifically the value added
manufacturing sector.
Internationally, strong demand for steel in China, which has been a major force
behind the improving international demand experienced last year, and the
resulting increased prices appear to be moderating to some extent following the
Chinese government`s stated intention to cool down their economy. Demand in
Europe is down substantially. The effect has already been felt in international
price reductions and softening demand across the full range of products.
Production cuts by all major producers will, however, moderate the impact and
should reverse price weakness in the fourth quarter.
The international vanadium market, whilst showing price improvement during the
first half of the year, has also slowed in line with this weaker steel demand.
Improved supply will also serve to bring prices down to more realistic levels
in line with supply and demand.
The group`s cost savings programme continues to yield positive results and it
is expected that further savings will be achieved. The group restructuring
programme is also well advanced and should assist in achieving improved
operational efficiencies.
Assuming exchange rates remain at current levels and taking into account the
softening in demand and prices for steel, the fall in vanadium prices and the
very weak alloy demand and prices, it will not be possible to maintain the
same level of earnings in the second half of the year.
For and on behalf of the Board.
G G Gomwe - Chairman
A J de Nysschen - Chief Executive Officer
Witbank
1 August 2005
Reviewed results for the six months ended 30 June 2005
The group results for the six months to 30 June 2005 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 and the Interim
Financial Reporting Standard issued by the International Accounting Standards
Committee, and in the manner required by the Companies Act in South Africa and
are consistent with the prior year`s interim report and the audited financial
statements at 31 December 2004.
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.
ABRIDGED CONSOLIDATED INCOME STATEMENTS
Audited
Reviewed for the for the year
six months ended ended
30 June 30 June 31 December
2005 2004 2004
Note Rm Rm Rm
CONTINUING OPERATIONS
Revenue 5 4 006 2 531 5 036
Operating profit 1 574 413 1 050
Profit on disposal of
investments 243 - -
Interest and investment income
received 36 19 44
Interest paid 16 24 41
Profit before taxation 1 837 408 1 053
Taxation charge 600 114 311
Profit after taxation 1 237 294 742
DISCONTINUED OPERATIONS
Profit on disposal of
discontinued operations - 5 5
Taxation charge - 2 2
Profit after taxation - 3 3
TOTAL OPERATIONS
Revenue 5 4 006 2 531 5 036
Operating profit before
depreciation 1 706 582 1 390
Depreciation and scrapping of
property,
plant and equipment 132 169 340
Operating profit 1 574 413 1 050
Profit on disposal of
investments 243 - -
Interest and investment income
received 36 19 44
Interest paid 16 24 41
Profit before disposal of
discontinued operations 1 837 408 1 053
Profit on disposal of
discontinued operations - 5 5
Profit before taxation 1 837 413 1 058
Taxation charge 600 116 313
Attributable profit 1 237 297 745
Reconciliation of headline earnings Rm Rm Rm
Attributable profit 1 237 297 745
Add/(less) after tax effect of:
Loss on disposal and scrapping of
property,
plant and equipment 31 64 124
Profit on disposal of discontinued
operations - (3) (3)
Profit on disposal of investments (230) - -
Headline earnings 1 038 358 866
Earnings per share Cents Cents Cents
Basic 1 250.8 302.8 758.7
Basic - Diluted 1 247.0 299.4 751.0
Headline 1 049.5 364.9 881.9
Headline - Diluted 1 046.4 360.9 873.0
Number of shares Million Million Million
Ordinary shares issued as at
period end date* 99.0 98.2 98.6
Weighted average number of
ordinary shares* 98.9 98.1 98.2
Diluted number of ordinary shares* 99.2 99.2 99.2
*Rounded to nearest hundred thousand
Dividends per share - based on calendar
profits Cents Cents Cents
Interim dividend proposed 1 050 120 -
Interim dividend paid - - 120
Final dividend proposed - - 320
Final dividends paid 320 20 20
Special dividends proposed 650 - 300
Special dividend paid 300 - -
ABRIDGED CONSOLIDATED BALANCE SHEET
Reviewed Audited
30 June 30 June 31 December
2005 2004 2004
Rm Rm Rm
ASSETS
Non-current assets 1 263 1 728 1 848
Property, plant and equipment 1 259 1 082 1 194
Available-for-sale investments 4 646 654
Current assets 3 747 1 752 1 881
TOTAL ASSETS 5 010 3 480 3 729
EQUITY AND LIABILITIES
Shareholders` equity 2 814 1 984 2 337
Non-current liabilities 312 372 312
Financial leases 115 178 115
Long-term liabilities 99 106 97
Deferred taxation 98 88 100
Current liabilities 1 884 1 124 1 080
TOTAL EQUITY AND LIABILITIES 5 010 3 480 3 729
Net cash and cash equivalents on
hand/(net borrowings) (Note 4) 1 519 (121) 146
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Audited
Reviewed for the for the year
six months ended ended
30 June 30 June 31 December
2005 2004 2004
Rm Rm Rm
Cash inflow from operating activities 601 427 1 030
Cash inflow/(outflow) from investing
activities 772 (125) (461)
Proceeds on disposal of investments 1 077 - -
Other investing activities (305) (125) (461)
Net cash inflow 1 373 302 569
Utilised as follows: (1 373) (302) (569)
Cash inflow/(outflow) from financing
activities 266 (232) (399)
Increase in cash on hand (1 639) (70) (170)
ABRIDGED STATEMENT OF CHANGES IN EQUITY
Share capital Non- Fair
and share distributable value Retained
premium reserve reserve profit Total
Rm Rm Rm Rm Rm
Balance
at 30 June 2004
- reviewed 563 (2) 155 1 268 1 984
Proceeds
from shares
issued 7 7
Currency
translation
difference 2 2
Fair value
revaluation 15 15
Attributable profit for
the period 448 448
Dividends paid -
Interim
no. 58 - 2004 (119) (119)
Balance
at 31 December 2004
- audited 570 - 170 1 597 2 337
Proceeds
from shares
issued 12 12
Currency
translation
difference 8 8
Fair value
revaluation (167) (167)
Attributable profit for
the period 1 237 1 237
Dividends paid
- Final
no. 59 - 2004 (316) (316)
Dividends paid
- Special
no. 60 - 2005 (297) (297)
Balance
at 30 June 2005
- reviewed 582 8 3 2 221 2 814
SEGMENTAL REPORT
Audited
Reviewed for the for the year
six months ended ended
30 June 30 June 31 December
2005 2004 2004
Rm Rm Rm
Revenue
Steelworks 1 483 1 258 2 748
Vanadium 2 141 697 1 123
Ferro-alloys 382 576 1 165
Total revenue 4 006 2 531 5 036
Operating profit
Steelworks 211 119 409
Vanadium 1 311 130 349
Ferro-alloys 52 164 292
Total operating profit 1 574 413 1 050
NOTES TO THE FINANCIAL STATEMENTS
1. Corporate Governance
The group complies, in all material respects, with the Corporate Governance
code as contained in the King II Report. The code has been applied
throughout the disclosed periods.
2. Companies Act and Listings Requirements
Compliance with the Companies Act no. 61 of 1973, as well as the Listings
Requirements of the JSE Limited has been maintained throughout the
reporting periods.
3. Related party transactions
Transactions entered into, between the group and its related parties,
during the reporting periods were arms length transactions between willing
parties at fair value.
4. Net cash and cash equivalents on hand/(net borrowings)
Net cash and cash equivalents on hand/(net borrowings) are calculated by
subtracting the financial leases (long-term debt) and the short-term loans
from the cash and cash equivalents.
5. Supplementary revenue information
30 June 2005 30 June 2004 31 Dec 2004
Sales volumes of
major products
Total steel Tons 376 711 411 284 821 340
Vanadium pentoxide
(Vanchem) kg V2O5 2 173 906 2 072 368 4 365 985
Ferrovanadium (Vanchem) kg V 995 454 1 008 364 2 072 555
Weighted average
selling prices
achieved of major
products
Total steel $/t 582 443 500
Vanadium pentoxide
(Vanchem) $/kg V2O5 37 10 11
Ferrovanadium (Vanchem) $/kg V 65 17 20
Average R/$ exchange
rate 6.21 6.67 6.43
6. Financial ratios
Current ratio 1.99 1.56 1.74
Net worth - cents/share 2 842 2 020 2 370
Market capitalisation - Rm 5 484 1 899 4 733
Notice of Interim Ordinary and Special Dividends
On Monday, 1 August 2005, the directors of the corporation declared an interim
dividend no. 61 of 1 050 cents per share and a special dividend no. 62 of 650
cents per share (South African currency) on the ordinary shares for the six
months to 30 June 2005, as follows:
Amount (South African currency) 1 700 cents per share
Last day to trade to qualify for dividend
(and for changes of
address or dividend instructions) Friday, 26 August 2005
Ex-dividend on the JSE Limited Monday, 29 August 2005
Record date Friday, 2 September 2005
Payment date of dividend Monday, 5 September 2005
Share certificates may not be dematerialised or rematerialised between Monday,
29 August 2005 and Friday, 2 September 2005, both days inclusive.
By order of the Board
Ms A Diener Witbank
Company Secretary 1 August 2005
The interim report will be posted to all registered shareholders on Wednesday,
3 August 2005. Enquiries may be directed to email address: general@hiveld.co.za
Registered Office Transfersecretaries
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: G G Gomwe (Chairman) (Zimbabwean), A J de Nysschen (Chief Executive
Officer), D D Barber, E Barnardo, I Botha, L Boyd, C B Brayshaw,
C J Colebank, 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: Ms A Diener
Sponsor
JP MORGAN EQUITIES LIMITED
Date: 01/08/2005 04:41:58 PM
Produced by the JSE SENS Department
