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Highveld - Report for the nine months to 30 September 2005 and Trading Statement
HIGHVELD Steel And Vanadium Corporation Limited
(Incorporated in the Republic of South Africa)
(Registration no. 1960/001900/06)
Share code: HVL & ISIN: ZAE000003422
("Highveld" or "the corporation")
A member of the Anglo American plc group
Developing global reach and business sustainability
Report for the nine months to 30 September 2005 and Trading Statement
Headline earnings for the three months to 30 September - R426 million
Second interim dividend - 430 cents per share
Cash generated from operations before taxation for the three months - R1.080
billion
Given that the major shareholder, Anglo American, after a strategic review has
decided to seek to dispose of its 79 per cent stake in the corporation, and
following the cautionary announcement published on 26 October 2005, the Board
has decided to publish this second interim report.
Financial results
Significantly improved market conditions for the group"s range of vanadium
products contributed to substantially higher headline earnings of R426 million
for the three months compared to R195 million for the same period last year.
Operating profit for the three months improved to R697 million from R268
million for the corresponding period in 2004. Profit improvement initiatives
generated savings of R100 million for the three months.
Profit attributable to shareholders for the three months was R425 million
compared to R184 million in the corresponding period of 2004. This is after a
tax charge of R292 million (2004: R85 million).
Headline earnings per share were 429.9 cents for the three months, compared
to 198.4 cents in 2004.
The group"s net cash on hand was R277 million compared to R146 million at 31
December 2004. The positive cash balance was achieved after a net cash outflow
of R1 242 million for the three months, mainly due to distributions to
shareholders amounting to R1 685 million in respect of the first half of 2005.
Revenue for the nine months to 30 September 2005 of R5 841 million exceeded the
2004 full year revenue of R5 036 million. The operating profit of R2 271
million for the first nine months of 2005 was more than twice the operating
profit of R1 050 million for the full year of 2004, partly as a result of
increased management focus on cost savings. Strong cash flow from operations
before tax of R2 535 million for the nine months to 30 September 2005 was
generated compared to R1 261 million for the full year of 2004.
In view of these results, especially the level of cash flows, the Board has
decided to declare a second interim dividend of 430 cents per share.
Steel
World crude steel production continued the upward trend of the past few years,
with the year on year growth to 30 September 2005 at 6.3 per cent. China
continues to dominate the growth, with an escalation in output of 27.4 per
cent. However, Indian crude steel production is now also showing an accelerated
growth trend, with output being 14.6 per cent up for the three months to 30
September 2005.
South African domestic steel despatches have declined by 9 per cent for the
nine months, compared with the same period in 2004. In keeping with this trend,
Highveld"s domestic despatches were also 9 per cent down on the same period in
2004, with structural sections being the worst affected product. This was
particularly disappointing, given the expectations at the beginning of the year
for general construction and infrastructural expenditure. The average domestic
price achieved in the three months to 30 September 2005 was slightly lower than
the first half of 2005.
As expected, international steel prices have levelled off, following the steep
declines seen in the first half of the year. In some instances, price increases
have even been noted on some of the group"s steel products. For export sales an
average price of US$537 per ton compared to US$510 per ton in the first half of
2005 was achieved.
The first new open slag bath furnace was commissioned in July 2005 with
encouraging results. Plans to convert a second furnace to open slag bath
configuration are well advanced, whilst a new ladle furnace has also been
ordered for commissioning during the fourth quarter of 2006. Plans are well
advanced to finalise a contract for the reduction of emissions from the
steelmaking operation.
Vanadium
The vanadium price continued to play a major role in the group"s performance.
The ferrovanadium price maintained its downward trend for most of the three
months to 30 September 2005 falling from US$84 per kilogram vanadium on 1 July
2005 to just below US$35 per kilogram vanadium at one stage. Once the European
summer ended, demand improved causing prices to rise steadily to just above
US$62 per kilogram vanadium during October 2005 before easing back slightly.
This resulted in an average price of US$68 per kilogram vanadium being achieved
in the three months to 30 September 2005 compared to US$19 in the corresponding
period in 2004.
The new slimes dam and mill circuit water separation installations were
commissioned during July 2005, which represents a major step forward in the
improvement of the group"s sustainable operating capacity.
Ferro-alloys
Ferro-alloy prices remained under severe pressure. As a consequence both
Transalloys and Rand Carbide were closed for part of the winter months when
electricity tariffs were high, in order to save electricity costs and provide
an opportunity for furnace maintenance. At Transalloys furnaces No. 3 and 5 and
at Rand Carbide furnace D were off-line for refurbishment. As a result, an
operating profit of R69 million for the three months to 30 September 2004
turned into an operating loss of R38 million for the same period in 2005. Two
out of three furnaces have been brought back into production at Rand Carbide
and five out of seven furnaces at Transalloys.
Capital Expenditure
Capital expenditure incurred by the group during the three months amounted to
R223 million (2004: R105 million) and the total commitment in respect of
further capital expenditure as at 30 September 2005 was R502 million compared
to R264 million at 30 September 2004 and 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
It is with deep regret and sadness that a fatality that occurred on 13 October
2005 has to be reported and we express our heartfelt sympathies to the family
of the deceased. This was particularly disappointing in light of the excellent
safety performance of the corporation. The lost time injury frequency rate for
the nine months was 0.21, which equals the ambitious target set for 2005.
ISO 9001 and ISO 14001 certification audits were completed during September
2005 and the relevant divisions retained their certification. Integration of
these management systems and OHSAS 18001 continued.
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. The
Employment Equity Committee of the Board was changed to the Transformation
Committee and its scope and terms of reference were expanded to include
transformation at all levels.
Outlook and Trading Statement
Recent indications are that the weaker Rand, together with a number of
announced capital projects and 2010 Soccer World Cup activities, will augur
well for domestic steel consumption, particularly structural sections. It is
likely that the export price levels referred to earlier, will be maintained for
the foreseeable future, as relief in input cost pressures is not expected
shortly.
Vanadium prices have levelled off with subdued activity in the market place. It
is anticipated that prices will decline from current levels during the
remainder of 2005.
It is expected that for the 12 month period ending 31 December 2005, the
headline earnings per share will increase to between 1 775 cents and 2 025
cents per share and basic earnings per share will increase to between 1 975
cents and 2 225 cents per share. The difference between the headline earnings
and basic earnings per share is predominantly due to the sale of the Acerinox,
S.A. and Columbus Stainless (Proprietary) Limited investments.
The main reasons for the increase in earnings per share are due to improved
market conditions, predominantly for vanadium products and a reduction in
operating costs.
The information in this trading statement has not been reviewed or audited by
the external auditors of the corporation.
For and on behalf of the Board
GG Gomwe - Chairman Witbank
A J de Nysschen - Chief Executive Officer 14 November 2005
Results for the nine months to 30 September 2005
The interim financial results have been prepared in accordance with IAS 34
(Interim Financial Reporting) and are in accordance with International
Financial Reporting Standards and the requirements for provisional annual
financial statements in terms of the 4th Schedule to the Companies Act in South
Africa. The accounting policies used to prepare the interim financial results
are consistent with the 2004 annual financial statements.
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
Reviewed Unaudited Reviewed
for the for the for the
nine nine three
months months months
ended ended ended
30 Sept 30 Sept 30 Sept
2005 2004 2005
Note Rm Rm Rm
CONTINUING OPERATIONS
Revenue 5 5 841 3 809 1 835
Operating profit 2 271 681 697
Profit on disposal of investments 243 - -
Interest and investment income
received 89 32 53
Interest paid 49 36 33
Profit before taxation 2 554 677 717
Taxation charge 892 199 292
Profit after taxation 1 662 478 425
DISCONTINUED OPERATIONS
Profit on disposal of discontinued
operations - 5 -
Taxation charge - 2 -
Profit after taxation - 3 -
TOTAL OPERATIONS
Revenue 5 5 841 3 809 1 835
Operating profit before depreciation 2 448 905 742
Depreciation and scrapping
of property, plant and equipment 177 224 45
Operating profit 2 271 681 697
Profit on disposal of investments 243 - -
Interest and investment income
received 89 32 53
Interest paid 49 36 33
Profit before disposal
of discontinued
operations 2 554 677 717
Profit on disposal of discontinued
operations - 5 -
Profit before taxation 2 554 682 717
Taxation charge 892 201 292
Attributable profit 1 662 481 425
Basic earnings per share Cents Cents Cents
Basic 1 680.5 490.3 428.9
Basic - Diluted 1 675.4 484.9 428.4
Reconciliation of headline earnings Rm Rm Rm
Attributable profit 1 662 481 425
Add/(less) after tax effect of:
Loss on disposal and scrapping
of property, plant and equipment 32 75 1
Profit on disposal of discontinued
operations - (3) -
Profit on disposal of
available-for-sale
investments (230) - -
Headline earnings 1 464 553 426
Headline earnings per share Cents Cents Cents
Headline 1 480.3 563.7 429.9
Headline - Diluted 1 475.8 557.5 429.4
Number of shares Million Million Million
Ordinary shares issued as at period
end date* 99.1 98.4 99.1
Weighted average number of ordinary
shares* 98.9 98.1 99.1
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 dividends proposed 1 050 120 -
Interim dividends paid 1 050 120 1 050
Final dividend proposed - - -
Final dividends paid 320 20 -
Special dividends proposed 650 - -
Special dividends paid 950 - 650
Proposed second interim dividend 430 - 430
Unaudited Audited
for the for
three the
months year
ended ended
30 Sept 31 Dec
2004 2004
Note Rm Rm
CONTINUING OPERATIONS
Revenue 5 1 278 5 036
Operating profit 268 1 050
Profit on disposal of investments - -
Interest and investment income
received 13 44
Interest paid 12 41
Profit before taxation 269 1 053
Taxation charge 85 311
Profit after taxation 184 742
DISCONTINUED OPERATIONS
Profit on disposal of discontinued
operations - 5
Taxation charge - 2
Profit after taxation - 3
TOTAL OPERATIONS
Revenue 5 1 278 5 036
Operating profit before depreciation 323 1 390
Depreciation and scrapping
of property, plant and equipment 55 340
Operating profit 268 1 050
Profit on disposal of investments - -
Interest and investment income
received 13 44
Interest paid 12 41
Profit before disposal
of discontinued
operations 269 1 053
Profit on disposal of discontinued
operations - 5
Profit before taxation 269 1 058
Taxation charge 85 313
Attributable profit 184 745
Basic earnings per share Cents Cents
Basic 187.2 758.7
Basic - Diluted 185.5 751.0
Reconciliation of headline earnings Rm Rm
Attributable profit 184 745
Add/(less) after tax effect of:
Loss on disposal and scrapping
of property, plant and equipment 11 124
Profit on disposal of discontinued
operations - (3)
Profit on disposal of
available-for-sale
investments - -
Headline earnings 195 866
Headline earnings per share Cents Cents
Headline 198.4 881.9
Headline - Diluted 196.6 873.0
Number of shares Million Million
Ordinary shares issued as at period
end date* 98.4 98.6
Weighted average number of ordinary
shares* 98.3 98.2
Diluted number of ordinary shares* 99.2 99.2
*Rounded to nearest hundred thousand
Dividends per share
- based on calendar profits Cents Cents
Interim dividends proposed - -
Interim dividends paid 120 120
Final dividend proposed - 320
Final dividends paid - 20
Special dividends proposed - 300
Special dividends paid - -
Proposed second interim dividend - -
ABRIDGED CONSOLIDATED BALANCE SHEETS
Reviewed Unaudited Audited
30 Sept 2005 30 Sept 2004 31 Dec 2004
Note Rm Rm Rm
ASSETS
Non-current assets 1 441 1 782 1 848
Property, plant and
equipment 1 436 1 131 1 194
Available-for-sale
investments 5 651 654
Current assets 2 133 1 779 1 881
TOTAL ASSETS 3 574 3 561 3 729
EQUITY AND
LIABILITIES
Shareholders" equity 1 536 2 062 2 337
Non-current
liabilities 310 344 312
Financial leases 115 178 115
Long-term liabilities 98 95 97
Deferred taxation 97 71 100
Current liabilities 1 728 1 155 1 080
TOTAL EQUITY AND
LIABILITIES 3 574 3 561 3 729
Net cash and cash
equivalents on
hand/(net borrowings) 4 277 (107) 146
Net worth -
cents/share 1 550 2 096 2 370
ABRIDGED CONSOLIDATED CASH FLOW STATEMENTS
Reviewed Unaudited Reviewed
for the for the for the
nine nine three
months months months
ended ended ended
30 Sept 30 Sept 30 Sept
2005 2004 2005
Rm Rm Rm
Cash available from operations
before taxation paid 2 535 772 1 080
Taxation paid (655) (88) (414)
Net distributions to shareholders (2 298) (138) (1 685)
Cash (outflow)/inflow from
operating activities (418) 546 (1 019)
Cash inflow/(outflow) from
investing activities 549 (230) (223)
Proceeds on disposal of investments 1 077 - -
Other investing activities (528) (230) (223)
Net cash inflow/(outflow) 131 316 (1 242)
(Utilised)/financed as follows: (131) (316) 1 242
Cash inflow/(outflow) from
financing activities 200 (235) (66)
(Increase)/decrease in cash on hand (331) (81) 1 308
Unaudited Audited
for the for the
three year
months ended
ended ended
30 Sept 31 Dec
2004 2004
Rm Rm
Cash available from operations
before taxation paid 324 1 261
Taxation paid (87) (93)
Net distributions to shareholders (118) (138)
Cash (outflow)/inflow from
operating activities 119 1 030
Cash inflow/(outflow) from
investing activities (105) (461)
Proceeds on disposal of investments - -
Other investing activities (105) (461)
Net cash inflow/(outflow) 14 569
(Utilised)/financed as follows: (14) (569)
Cash inflow/(outflow) from
financing activities (3) (399)
(Increase)/decrease in cash on hand (11) (170)
ABRIDGED STATEMENT OF CHANGES IN EQUITY
Share capital Non-distri- Fair
and share butable value
premium reserve reserve
Rm Rm Rm
Balance at 31 December 2003 - audited 560 1 78
Proceeds from shares issued 6
Currency translation difference (1)
Fair value revaluation 85
Attributable profit for the period
Dividend paid - Final no. 57 -
2003
Dividend paid - Interim no. 58 -
2004
Balance at 30 September 2004 -
unaudited 566 - 163
Proceeds from shares issued 4
Fair value revaluation 7
Attributable profit for the period
Balance at 31 December 2004 -
audited 570 - 170
Proceeds from shares issued 14
Currency translation difference (12)
Fair value revaluation (167)
Attributable profit for the period
Dividend paid - Final no. 59 - 2004
Dividend paid - Special no. 60 - 2005
Dividend paid - Interim no. 61 - 2005
Dividend paid - Special no. 62 - 2005
Balance at 30 September 2005 - reviewed 584 (12) 3
Retained
profit Total
Rm Rm
Balance 31 December 2003 - audited 990 1 629
Proceeds from shares issued 6
Currency translation difference (1)
Fair value revaluation 85
Attributable profit for the period 481 481
Dividend paid - Final no. 57 - 2003 (20) (20)
Dividend paid - Interim no. 58 - 2004 (118) (118)
Balance at 30 September 2004 - unaudited 1 333 2 062
Proceeds from shares issued 4
Fair value revaluation 7
Attributable profit for the period 264 264
Balance at 31 December 2004 - audited 1 597 2 337
Proceeds from shares issued 14
Currency translation difference (12)
Fair value revaluation (167)
Attributable profit for the period 1 662 1 662
Dividend paid - Final no. 59 - 2004 (316) (316)
Dividend paid - Special no. 60 - 2005 (297) (297)
Dividend paid - Interim no. 61 - 2005 (1 041) (1 041)
Dividend paid - Special no. 62 - 2005 (644) (644)
Balance at 30 September 2005 - reviewed 961 1 536
SEGMENTAL REPORTS
Reviewed Unaudited Reviewed
for the for the for the
nine nine three
months months months
ended ended ended
30 Sept 30 Sept 30 Sept
2005 2004 2005
Rm Rm Rm
Revenue
Steelworks 2 209 2 059 726
Vanadium 3 144 888 1 003
Ferro-alloys 488 862 106
Total revenue 5 841 3 809 1 835
Operating profit/(loss)
Steelworks 383 233 172
Vanadium 1 874 215 563
Ferro-alloys 14 233 (38)
Total operating profit 2 271 681 697
Unaudited Audited
for the for
three the
months year
ended ended
30 Sept 31 Dec
2004 2004
Rm Rm
Revenue
Steelworks 801 2 748
Vanadium 191 1 123
Ferro-alloys 286 1 165
Total revenue 1 278 5 036
Operating profit/(loss)
Steelworks 114 409
Vanadium 85 349
Ferro-alloys 69 292
Total operating profit 268 1 050
Notes to the financial statements
1. Corporate Governance
The group complies, in all material aspects, with the Corporate Governance code
as contained in the King ll 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
For the For the For the
nine nine three
months months months
ended ended ended
30 Sept 30 Sept 30 Sept
2005 2004 2005
Sales volumes of major
products
Total steel Tons 561 623 645 699 184 912
Vanadium pentoxide
(Vanchem) kg V2O5 3 303 143 3 335 995 1 129 237
Ferrovanadium (Vanchem) kg V 1 470 831 1 517 518 475 377
Weighted average
selling prices
achieved of major products
Total steel $/t 578 471 569
Vanadium pentoxide
(Vanchem) $/kg V2O5 38 10 39
Ferrovanadium (Vanchem) $/kg V 58 18 68
Average R/$
exchange rate 6.30 6.58 6.47
6. Financial ratios 30 Sept 30 Sept 31 Dec
2005 2004 2004
Current ratio 1.23 1.54 1.74
Market capitalisation - Rm 5 614 2 903 4 733
For the For
three the
months year
ended ended
30 Sept 31 Dec
2004 2004
Sales volumes of major
products
Total steel Tons 234 415 821 340
Vanadium pentoxide
(Vanchem) kg V2O5 1 263 627 4 365 985
Ferrovanadium (Vanchem) kg V 509 154 2 072 555
Weighted average
selling prices
achieved of major products
Total steel $/t 520 500
Vanadium pentoxide
(Vanchem) $/kg V2O5 10 11
Ferrovanadium (Vanchem) $/kg V 19 20
Average R/$
exchange rate 6.44 6.43
7. Subsequent events
There were no subsequent events.
Notice of Second Interim Dividend
On Monday, 14 November 2005, the directors of the corporation declared a second
interim dividend no. 63 of 430 cents per share (South African currency) on the
ordinary shares for the three months to 30 September 2005, as follows:
Amount (South African currency) 430 cents per share
Last day to trade to qualify for dividend
(and for changes of address
or dividend instructions) Thursday, 8 December 2005
Ex-dividend on the JSE Limited Friday, 9 December 2005
Record date Thursday, 15 December 2005
Payment date of dividend Monday, 19 December 2005
Share certificates may not be dematerialised or rematerialised between Friday,
9 December 2005 and Thursday, 15 December 2005, both days inclusive.
By order of the Board
Ms A Diener Witbank
Company Secretary 14 November 2005
The report for the nine months to 30 September 2005 will be posted to all
registered shareholders on Wednesday, 16 November 2005. Enquiries may be
directed to email address: general@hiveld.co.za.
Registered office: Transfer secretaries:
Portion 29 of the farm Computershare Investor Services
Schoongezicht no. 308 JS 2004 (Proprietary) Limited
District Witbank 70 Marshall Street
Mpumalanga Johannesburg 2001
PO Box 111 PO 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
J. P. Morgan Equities Limited
(Registration number 1995/011815/06)
Date: 14/11/2005 05:43:25 PM Produced by the JSE SENS Department
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