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Mittal Steel South Africa Limited - Financial Report
Release Date: 10/08/2005 08:01:51 Code(s): MLA
Mittal Steel South Africa Limited - Financial Report
Mittal Steel South Africa Limited
(Formerly Ispat Iscor Limited and prior to that Iscor Limited)
Registration number 1989/002164/06
Share code: MLA ISIN: ZAE000064044
(`the company` or `the Group`)
Reviewed group interim financial results and dividend announcement for the six
months ended 30 June 2005
Record headline earnings R3221 million
Financial results
Headline earnings for the six months of R3.2 billion represents an all-time
record. This excellent result was driven by a continuation of the high
international price levels experienced since the second half of last year as
well as higher export volumes. This was partially offset by lower local sales
volumes, higher costs and a stronger rand.
Headline earnings increased by 108% compared to the corresponding period last
year while on a comparable basis, before BAA remuneration, the increase was
56%. In dollar terms it increased by 68% due to the rand`s strengthening by
7.7%.
Six months Year
ended ended
30 June 31 Dec 30 June 31 Dec
2005 2004 2004 2004
Rm Rm Rm Rm
Revenue 12 264 12 509 10 544 23 053
Operating profit 4 347 4 451 2 948 7 399
Finance costs:
- Net interest income/(expense) 83 50 (14) 36
- Interest adjustment on
non-current provisions (30) (37) (133)** (170)**
Taxation (1 329) (1 551) (914) (2 465)
Equity earnings* 153 79 179 258
Minority interest (3) (2) (4) (6)
Comparable headline earnings 3 221 2 990 2 062 5 052
In US$m 521 482 311 793
BAA remuneration* (511) (511)
Headline earnings 3 221 2 990 1 551 4 541
Attributable earnings 3 210 3 331 1 540 4 871
* After tax.
** Includes an additional charge of R100 million as a result of reducing the
discount rate applied to estimated future cash flows as a consequence of the
significant reduction in interest rates.
Quarterly comparable headline earnings
Earnings improved further for the past quarter, maintaining the trend of the
higher earnings level since second quarter 2004.
Quarter to Exchange
US$m Rm rate
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
September 2004 248 1 575 6,35
December 2004 234 1 415 6,06
March 2005 264 1 578 5,97
June 2005 257 1 643 6,40
Operating results
Revenue Six months Year
ended ended
30 June 31 Dec 30 June 31 Dec
2005 2004 2004 2004
Rm Rm Rm Rm
Vanderbijlpark 6 388 6 558 5 730 12 288
Saldanha 1 977 2 065 1 573 3 638
Long Products 3 646 3 428 2 911 6 339
Coke and Chemicals 517 741 512 1 253
Other 53 56 55 111
Inter-group (317) (339) (237) (576)
Total 12 264 12 509 10 544 23 053
Operating profit
Six months Year
ended ended
30 June 31 Dec 30 June 31 Dec
2005 2004 2004 2004
Rm Rm Rm Rm
Vanderbijlpark 2 332 2 289 1 840 4 129
Saldanha 685 799 348 1 147
Long Products 1 195 1 129 640 1 769
Coke and Chemicals 159 301 161 462
Other 12 24 18 42
Corporate (36) (91) (59) (150)
Comparable total 4 347 4 451 2 948 7 399
BAA remuneration (731) (731)
Total 4 347 4 451 2 217 6 668
Operating profit of R4.3 billion for the six months increased by 47% on a
comparable basis, with the most notable improvements at Saldanha (97%), Long
Products (87%) and Vanderbijlpark (27%). Liquid steel production increased by
7% compared to the corresponding period last year with an increase at Saldanha
of 9%, Vanderbijlpark of 9% and Long Products 2%.
Market review
International
Export volumes for the six months were higher than the corresponding period
last year by 6%. Export prices invoiced remained at the levels achieved during
the second half of 2004.
However, quarter three will witness a significant decline in prices, driven by
high inventory levels and the postponement of orders by customers in
anticipation of further price decreases.
Several steel manufacturers have reduced their production levels in response to
the decline in demand and prices and it now seems that the slowdown is
bottoming-out and that both demand and prices are starting to recover,
especially on flat products.
Domestic market
Local sales volumes for the six months declined by 7% compared to the
corresponding period last year and 12% compared to the previous six months.
This decline was driven by similar reasons applicable to the global slowdown,
i.e. high inventory levels and a delay in orders due to anticipated lower
prices. In general, the underlying local demand remains strong, in line with
the domestic economy.
Cost
Cash cost per tonne of hot rolled coil for the six months increased by 11%
compared to the corresponding period last year and billets by 16%, driven by a
substantial increase in the cost of coal (41%), alloys (51%) and scrap (28%).
In US dollar terms, the cost increased by 19% and 25% respectively due to the
strengthening of the rand.
The quantum increase in the international price of iron ore of 71% from January
2005 and more than 120% on coking coal from April 2005 have shifted the global
cost curve up considerably. Through our high level of raw material integration,
notably on iron ore, we were to a certain extent sheltered from the significant
global increase in costs.
Taxation
The notice received from the tax authorities during quarter one 2005,
indicating their intention to disallow the deductibility of the payment made in
terms of the Business Assistance Agreement, has now been confirmed by an
assessment. An official objection will be lodged by the company by the end of
August 2005.
The company maintains its position that the said payment was indeed revenue in
nature and hence tax deductible and therefore has not provided for the tax
under dispute. This is a contingent liability of R403 million in this regard.
Outlook for Quarter Three 2005
The local market is expected to improve slightly with inventories starting to
return to normal levels; supported by price decreases on flat products
announced effective from 1 August 2005, following the decline in international
prices.
Export volumes are expected to increase significantly as part of our plan to
keep inventory levels in control. Export prices will be lower although some
improvement is expected towards the end of the third quarter.
Costs are expected to increase from second quarter levels, driven mainly by a
substantial increase in the cost of imported iron ore pellets and coking coal.
Overall, the results for the next quarter are expected to remain reasonably
strong though materially lower compared to the second quarter 2005, driven
mainly by lower sales prices and an increase in costs. However, this impact
could be softened if the rand continues to weaken.
Dividend announcement
In line with the company`s policy, the Board declared an interim dividend of
240 cents, covered approximately three times by headline earnings.
Payment in South African rands will be made on Monday, 12 September 2005 to
shareholders recorded in the register on Friday, 9 September 2005. The last day
to trade to qualify for the dividend will be Friday, 2 September 2005 and the
shares will trade ex-dividend from Monday, 5 September 2005. Share certificates
may not be dematerialised or rematerialised between Monday, 5 September 2005
and Friday, 9 September 2005 both days inclusive. Dividend entitlements of less
than ten rand will be donated to charity in terms of the articles of
association.
On behalf of the Board
DK Chugh MJN Njeke
(Chief Executive Officer) (Chairman of the audit committee)
8 August 2005
Registered office Transfer secretaries
Mittal Steel South Africa Computer Investor Services 2004 (Pty) Limited
Room N3-5 70 Marshall Street
Main Building Johannesburg
Delfos Boulevard PO Box 61051,
Vanderbijlpark, 1911 Marshalltown, 2107
Directors: K Ngqula (Chairman), DK Chugh* (Chief Executive Officer),
S Maheshwari*, JJ Mashaba, A Mittal*, LN Mittal*, Dr KDK Mokhele,
MJN Njeke *Citizen of India
Company Secretary: Xoliswa Motswai
Group income statement
Six months Year
ended ended
30 June 2005 30 June 2004 31 Dec 2004
Reviewed Reviewed Audited
Rm Rm Rm
Revenue 12 264 10 544 23 053
Operating expenses (7 347) (7 848) (15 419)
Earnings before interest,
taxation, depreciation
and amortisation (Ebitda) 4 917 2 696 7 634
Depreciation (569) (478) (964)
Amortisation of intangible
assets (1) (1) (2)
Profit from operations before
impairment and
goodwill movements 4 347 2 217 6 668
Goodwill impairment (Note 2) (11) (11) (21)
Impairment credit (Note 3) 502
Profit from operations 4 336 2 206 7 149
Net financing
income/(expense) (Note 4) 53 (147) (134)
Share of profit of
equity-accounted joint
ventures
before taxation 166 211 347
Profit before taxation (Note
5) 4 555 2 270 7 362
Taxation expense (Note 6) (1 342) (726) (2 485)
Profit from ordinary
activities 3 213 1 544 4 877
Attributable to:
ordinary shareholders 3 210 1 540 4 871
minority interest 3 4 6
ADDITIONAL INFORMATION
Profit attributable to
ordinary shareholders 3 210 1 540 4 871
Adjusted for:
Goodwill impairment (Note 2) 11 11 21
Impairment credit (Note 3) (502)
Taxation on adjustments 151
Headline earnings 3 221 1 551 4 541
Performance per ordinary share
Attributable earnings per
share (cents)
basic 720 345 1 093
diluted 718 344 1 090
Headline earnings per share
(cents)
basic 723 348 1 019
diluted 721 346 1 016
Dividend per share (cents)
interim 240 300
final 100
Net asset value per share
(cents) 4 246 3 172 3 600
Ordinary shares (million)
in issue 446 446 446
weighted average number of
shares 446 446 446
diluted weighted average
number of shares 447 448 447
Ratios (%)
Ebitda margin 40,1 25,6 33,1
Return on ordinary
shareholders` equity
per annum
attributable earnings 36,7 22,7 33,6
headline earnings 36,8 22,9 31,3
Net cash to equity 22,6 9,7 24,8
Market capitalisation (Rm) 20 950 17 206 29 197
Group balance sheet
As at As at
30 June 2005 30 June 2004 31 Dec 2004
Reviewed Reviewed Audited
Rm Rm Rm
ASSETS
Non-current assets 14 170 13 201 14 079
Property, plant and equipment 12 826 12 124 12 930
Intangible assets 29 31 30
Goodwill 21 11
Investments in joint ventures
unlisted (Note 7) 856 567 596
Financial receivables (Note 8) 459 458 512
Current assets 10 965 7 010 9 650
Inventories 3 896 2 805 3 105
Trade and other receivables 2 708 2 625 2 481
Cash and cash equivalents 4 361 1 580 4 064
Total assets 25 135 20 211 23 729
EQUITY AND LIABILITIES
Shareholders` equity
Stated capital 6 389 6 389 6 389
Reserves 570 314 306
Retained income 11 959 7 428 9 345
Ordinary shareholders` capital 18 918 14 131 16 040
Minority interest 10 9 7
Total equity 18 928 14 140 16 047
Non-current liabilities 3 174 2 504 2 990
Interest-bearing borrowings 71 81 81
Provisions 1 220 1 179 1 188
Provision for post-retirement
medical costs 10 27 13
Deferred tax liability 1 873 1 217 1 708
Current liabilities 3 033 3 567 4 692
Interest-bearing borrowings 10 130 10
Trade and other payables 2 341 2 970 2 305
Current taxation 511 260 857
Provisions 171 207 183
Dividend payable 1 337
Total equity and liabilities 25 135 20 211 23 729
Net cash (Note 9) 4 280 1 369 3 973
Group statement of changes in equity
Six months Year
ended ended
30 June 2005 30 June 2004 31 Dec 2004
Reviewed Reviewed Audited
Rm Rm Rm
Shareholders` funds at
beginning
of period 16 040 12 971 12 971
as previously stated 16 040 12 956 12 956
-change in accounting policy 15 15
- consolidated treasury shares (2) (2)
- consolidated management
share trust
reserves 17 17
- change in interpretation on
negative
goodwill (2 585)
- adoption of IFRS3 2 585
Changes in reserves 264 127 124
- management share trust (31) (20) (45)
movement in treasury
shares (1)
share options - value of
services (3) (2)
currency translation
profit/(losses) 56 (10) (81)
share of revaluation
reserve 2
financial instruments
movements 14 (1) (2)
transfer of
equity-accounted earnings 150 173 252
transfer to insurance
reserve 2
share of foreign currency
translation
reserve 78 (16)
Changes in retained income 2 614 1 033 2 945
net profit for the period 3 210 1 540 4 871
dividend paid (446) (334) (1 672)
transfer of equity
accounted earnings (150) (173) (252)
transfer to insurance
reserve (2)
Shareholders` funds at end of
period 18 918 14 131 16 040
Group cash flow
Six months Year
ended ended
30 June 2005 30 June 2004 31 Dec 2004
Reviewed Reviewed Audited
Rm Rm Rm
Cash inflows/(outflows) from
operating
activities 790 1 755 5 239
Cash generated from operations 4 003 2 378 6 422
before BAA Remuneration 4 003 2 378 7 153
BAA Remuneration (731)
Share of profit of
equity-accounted
joint investments 3 6 6
Net financing income/(expense) 75 (22) 36
Taxation paid (1 508) (273) (886)
Dividend paid (1 783) (334) (339)
Cash outflows from investing
activities (473) (392) (1 245)
Investment to maintain
operations (407) (324) (1 001)
Investment to expand
operations (86) (81) (253)
Proceeds from disposal of
property, plant
and equipment 20 13 14
Investment in other
non-current assets (5)
Normal net cash inflow 317 1 363 3 994
Cash outflows from financing
activities (35) (889) (1 036)
Increase in cash and cash
equivalents 282 474 2 958
Cash and cash equivalents at
beginning
of period 4 064 1 107 1 107
Exchange gains/(losses) 15 (1) (1)
Cash and cash equivalents at
end of period 4 361 1 580 4 064
Notes to the reviewed 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 2004 financial statements. All IFRS and IFRIC interpretations
issued and effective as at 30 June 2005 have been applied. The accounting
policies adopted are consistent with those applied in the financial
statements for the year ended at 31 December 2004.
2. Goodwill impairment
As part of a structured finance deal the company purchased on 1 July 2002
100% in Pybus Fifty-Seven (Pty) Ltd, resulting in the recognition of a R64
million goodwill asset on acquisition. The Group assessed its expected
benefits from said company to be less than the carrying value, as a result,
an impairment loss of R11 million was realised for the interim period.
Together with the goodwill movements in prior periods (R53 million), the
total amount of goodwill (R64 million) has now been impaired.
3. Impairment credit
The Company`s share of the Saldanha Steel impairment charge raised in
2001 (R1 5 0 0 million) partly reversed in 2002 (R998 million) and further
reversed in 2004 (R502 million).
Six months Year
ended ended
30 June 2005 30 June 2004 31 Dec 2004
Reviewed Reviewed Audited
Rm Rm Rm
4. Net financing
income/(expense) 53 (147) (134)
Interest expense and loan
costs (8) (40) (63)
Interest income 88 24 94
Interest received from joint
ventures 3 2 5
Net interest income/(expense) 83 (14) 36
Interest adjustment on
non-current
provisions (30) (133) (170)
5. Profit before taxation is
arrived at after
Business assistance agreement
remuneration 731 731
6. Taxation 1 342 726 2 485
Company and subsidiaries 1 329 694 2 396
Equity accounted investments 13 32 89
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. Investments in
joint ventures
Unlisted investments
directors` valuation 1 028 567 759
8. Non-current
financial receivables
Non-derivative loans
and receivables
of determinable repayments 459 458 512
9. Net cash 4 280 1 369 3 973
Interest bearing borrowings
non-current (71) (81) (81)
current (10) (130) (10)
Cash and cash equivalents 4 361 1 580 4 064
10.Capital expenditure
incurred 493 405 1 254
contracted 1 019 552 1 008
authorised but not
contracted 1 018 677 1 468
Six months Year
ended ended
30 June 2005 30 June 2004 31 Dec 2004
Reviewed Reviewed Audited
Rm Rm Rm
11. Contingent liabilities 624 243 234
# guarantees 121 143 134
# other contingent liabilities 503 100 100
12. Operating lease
commitments 22 53 28
# less than one year 2 8 3
# more than one year and
less than five years 20 45 25
13. Related party transactions
The Group is controlled by Mittal Steel Company N.V. which owns marginally
over 50% of the Company`s shares. During the period the Company and its
subsidiaries in the ordinary course of business entered into various sale
and purchase transactions with joint venturers. The Company and its
subsidiaries in the ordinary course of business also incurred the cost of
compensat- ing its key management personnel. These transactions occurred
under terms that are not less favorable than those arranged with third
parties.
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), 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 Limited requirements
This interim announcement has been prepared in accordance with the
Listings Requirements of the JSE Limited.
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)
Six months ended Year ended
30 Jun 31 Dec 30 Jun 31 Dec
2005 2004 2004 2004
FLAT STEEL PRODUCTS
Vanderbijlpark
Liquid steel production 1 986 1 799 1 829 3 628
Sales 1 520 1 597 1 569 3 166
local 996 1 125 1 099 2 224
export 524 472 470 942
Local sales as percentage of total
sales 66 70 70 70
Saldanha Steel
Liquid steel production 616 664 563 1 227
Sales 547 593 548 1 141
local 214 306 198 504
export 333 287 350 637
Local sales as percentage of total
sales 39 52 36 44
LONG STEEL PRODUCTS
Liquid steel production 1 105 1 093 1 085 2 178
Sales 966 910 984 1 894
local 540 557 594 1 151
export 426 353 390 743
Local sales as percentage of total
sales 56 61 60 61
TOTAL
Liquid steel production 3 707 3 556 3 477 7 033
Sales 3 033 3 100 3 101 6 201
local 1 750 1 988 1 891 3 879
export 1 283 1 112 1 210 2 322
Local sales as percentage of total
sales 58 64 61 63
Three months ended
30 Jun 31 Mar 31 Dec
2005 2005 2004
FLAT STEEL PRODUCTS
Vanderbijlpark
Liquid steel production 1 010 976 994
Sales 753 767 786
local 504 492 525
export 249 275 261
Local sales as percentage
of total sales 67 64 67
Saldanha Steel
Liquid steel production 298 318 321
Sales 241 306 287
local 89 125 142
export 152 181 145
Local sales as percentage
of total sales 37 41 49
LONG STEEL PRODUCTS
Liquid steel production 550 555 551
Sales 505 461 437
local 285 255 245
export 220 206 192
Local sales as percentage
of total sales 56 55 56
TOTAL
Liquid steel production 1 858 1 849 1 866
Sales 1 499 1 534 1 510
local 878 872 912
export 621 662 598
Local sales as percentage
of total sales 59 57 60
30 Sept 30 June
2004 2004
FLAT STEEL PRODUCTS
Vanderbijlpark
Liquid steel production 805 995
Sales 811 772
local 600 580
export 211 192
Local sales as percentage
of total sales 74 75
Saldanha Steel
Liquid steel production 343 235
Sales 306 249
local 164 123
export 142 126
Local sales as percentage
of total sales 54 49
LONG STEEL PRODUCTS
Liquid steel production 542 557
Sales 473 489
local 312 320
export 161 169
Local sales as percentage
of total sales 66 65
TOTAL
Liquid steel production 1 690 1 787
Sales 1 590 1 510
local 1 076 1 023
export 514 487
Local sales as percentage
of total sales 68 68
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