| Wed 1 Feb 2006, 17:00 | | Highveld - Year-End Results |
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HVL
HVL
Highveld - Year-End Results
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
SUPERIOR VALUE FOR ALL STAKEHOLDERS THROUGH GLOBAL LEADERSHIP IN VANADIUM
ABRIDGED CHAIRMAN AND CEO"s REVIEW AND FINANCIAL DISTRIBUTION TO SHAREHOLDERS
* HEADLINE EARNINGS R1 722 MILLION
* OPERATING PROFIT R2 773 MILLION
* FINAL DIVIDEND OF 400 CENTS PER SHARE
Strategic direction
Highveld"s corporate vision is to create superior value and benefits on a
sustainable basis across commodity cycles for all stakeholders, by developing
the business into the world"s leading vanadium products producer, co-producing
low cost niche market steel products.
Financial results
Significantly improved market conditions for the Group"s range of vanadium
products contributed to more than doubling of headline earnings to R1 722
million from the R866 million achieved in 2004. Operating profit improved
significantly to R2 773 million from R1 050 million.
Efforts to further reduce costs and improve efficiencies, yields and output
continued during 2005 as part of Highveld"s vision of being a low cost
producer. Total cost savings in 2005 were R232 million compared with R264
million achieved in 2004.
The Group"s net borrowing position at year-end was R98 million compared with a
net cash on hand balance of R146 million at 31 December 2004.
Profit attributable to shareholders for the year was R1 916 million compared
with R745 million for the 2004 financial year. This was after a tax charge of
R1 136 million (2004: R313 million) and an unanticipated R80 million provision
for the future environmental rehabilitation and decommissioning costs, arising
from the recent approval of the Corporation"s Intergrated Water and Waste
Management Plans (IWWMPs) by the Department of Water Affairs and Forestry.
Headline earnings per share increased to 1 739.8 cents, compared with 880.8
cents in 2004.
Proceeds from the sale of the Acerinox, S.A. shares and the Group"s
shareholding in Columbus Stainless (Proprietary) Limited amounted to 1 088.9
cents per share.
Total dividends declared for the year, including the special dividends and a
final dividend of 400 cents, will amount to 2 830 cents (2004: 440 cents).
Operations
Vanadium
On the back of record steel production worldwide and global vanadium supply
difficulties, 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 reduced steel demand and production, together with
improved vanadium supply, prices consolidated and started to decline towards
the end of the second quarter, to more sustainable levels. During the third
quarter, prices of ferrovanadium, followed by vanadium pentoxide, declined
sharply, reaching a low during August before starting to recover. The weighted
average price achieved for ferrovanadium in 2005 was US$59 per kilogram
vanadium compared with US$20 per kilogram vanadium in 2004.
During the first half of 2005 the Group"s Vanchem operation produced above
expected production levels. Production during the second half was adversely
affected by a shutdown of kiln no. 3, to complete modifications to the
discharge end, and a kiln refractory reline. On the environmental side, a new
thickener and slimes dam were commissioned during the second half of 2005 as
well as two new ammonia scrubber units. Plans to build a storm water dam and
storm water trenches, as well as various waste water treatment projects in line
with the IWWMP, were submitted to the Department of Water Affairs and Forestry
with work commencing during the second half of 2005.
Steel
World crude steel production of 1.129 billion tons was another all-time record,
having surpassed the 1.038 billion tons produced in 2004. China again accounted
for most of the increase, with total production of 349.4 million tons, up 24.6
per cent on 2004 production. China now accounts for 31.5 per cent of global
steel production. In 2005 India also reflected above average growth, having
produced 38 million tons, a growth in output of 16.7 per cent. Demand did not
keep up with this growth in steel output, leading to price reductions during
the year.
Total steel despatches in the South African market declined by 7 per cent from
2004 and by comparison, the Group"s despatches were 6.7 per cent down on 2004.
The prospects over the medium-term are, however, positive, given the number of
capital projects that have been announced for infrastructural improvements,
mining projects and the 2010 Soccer World Cup. The decision earlier in 2005 to
supply grade 350WA steel as the new standard for structural steel into the
local market appears to have been well received by consumers.
Since the successful commissioning of furnace no. 5 to the new open slag bath
configuration at the Iron plant, the furnace has produced iron and vanadium
above expectations. Due to this conversion, the Iron plant only operated six
furnaces for six months, which impacted on iron and vanadium production. It is
currently planned to convert furnace no. 6 during 2006.
Ferro-alloys
The weakening of the ferro-alloy markets during the latter part of 2004
continued throughout 2005, resulting in a decision to switch all furnaces off
during the winter months at both Transalloys and Rand Carbide.
Safety, Health, Environmental and Quality
With deep regret it is reported that a fatal accident involving an employee
occurred during the year. The Group remains fully committed to a safe working
environment and continuously strives to improve its practices and systems so as
to achieve zero injuries on a sustainable basis. This has resulted in the
Group, including contractors, making progress in reducing the lost time injury
frequency rate by 42 per cent to 0.22 for the year, a world-class performance.
On the environment and quality fronts, ISO 14001 and ISO 9001 re-certification
audits were conducted by the certification authority within the Group and the
certification was maintained. The implementation of the OHSAS 18001 Safety
Management System continued, as well as integration thereof with other
management systems. It is envisaged that this process will be finalised with
certification audits during 2006.
Investments
During the year the Group disposed of its 12 per cent interest in Columbus
Stainless (Proprietary) Limited and its holding of 2.9 per cent in Acerinox,
S.A. The total proceeds realised amounted to R1 076 million which resulted in a
profit on sale of R243 million.
Capital expenditure
Capital expenditure for the year, aimed mainly at improving the Group"s
production costs and at addressing environmental requirements, amounted to
R624 million (2004: R421 million). The total commitment in respect of further
capital expenditure as at 31 December 2005 was R582 million (2004:
R314 million). This expenditure will be funded from internally generated cash
flows and available borrowing facilities.
Transformation
Transformation forms an integral part of the Highveld business strategy and is
a focus point for managing the business.
The importance of transformation is evidenced by the amendment, in 2005, of
the Board Charter to extend the responsibilities of the Employment Equity
Committee. In line with these new responsibilities, it was renamed the
Transformation Committee. This Committee is now responsible for the full
spectrum of the Group"s transformation activities and programmes. This
includes not only compliance with the Broad-Based Socio-Economic Charter for
the Mining Industry and the Broad-Based Black Economic Empowerment Act, but
also ensures that the spirit of transformation is conveyed - within the Group
and outside - in aspects such as its supply chain and community projects.
Directorate
Trevor Jones retired as non-executive Chairman of the Group with effect from
31 March 2005. On behalf of the Highveld Board, we extend our 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 Board wishes him well in his retirement.
Anglo American plc announcement
Shareholders were advised of the intention of Anglo American plc to sell its
approximate 79 per cent shareholding in Highveld in line with its future
business strategies and objectives. The directors have been advised by Anglo
American plc, that advisors have been appointed for the sale process and that
non-binding bids from a number of interested parties have been received.
Participants in this process will commence their due diligence investigations
in the coming weeks. The Board of Highveld has appointed a committee of
independent directors to advise it on matters relating to this sale as it
affects Highveld. This committee has appointed Standard Bank to carry out a
valuation and a fair and reasonable exercise once a final binding bid is
received.
Outlook for 2006
Despite announcements and speculations of new capacity, the global supply and
demand fundamentals for the vanadium market have not changed significantly in
recent months. The demand for vanadium products is likely to remain stable but
the price levels seen in 2005 are not expected to be repeated in 2006.
A strong improvement in domestic demand for Highveld"s steel products is
expected in 2006, supported by stable interest rates and an upswing in new
construction and industrial projects.
It would appear that global steel demand in 2006 will remain weak. However,
production cuts announced by some major international producers should
counteract the impact on prices. The current strength of the Rand will continue
to place pressure on export margins.
Taking into account the above factors, Highveld"s 2006 operating performance is
not anticipated to match the levels achieved in 2005.
The Group"s cost savings programme continues to yield positive results and it
is expected that further savings will be achieved in 2006. The Group"s
restructuring and continuing capital expenditure programmes are also well
advanced and should assist in achieving improved operational efficiencies and
cost savings.
In conclusion, the Board thanks the executives, management and all the Highveld
employees for their efforts and dedication, which contributed to the success
achieved in 2005.
For and on behalf of the Board
G G Gomwe - Chairman Witbank
A J de Nysschen - Chief Executive Officer 1 February 2006
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005
The Group"s financial results for the year ended 31 December 2005 set out below
have been prepared in accordance with the principal accounting policies of the
Group, which comply with International Financial Reporting Standards (IFRS) and
in the manner required by the Companies Act in South Africa and which are
consistent with those applied in the previous year except for IFRS 2 on
share-based payments adopted for the first time during the year, and a change
in accounting policy based on IAS 19 - Employee benefits. Comparative
information was not adjusted as a result of the impact of these on previous
periods being immaterial. These results are presented in terms of IFRS
applicable to interim financial reporting.
These abridged financial statements have been derived from the Group financial
statements and are consistent in all material respects with the Group financial
statements.
The financial information has been audited by Deloitte & Touche, whose
unqualified report is available for inspection at the Corporation"s registered
office.
ABRIDGED CONSOLIDATED INCOME STATEMENTS
Audited for the year ended
31 December 31 December
2005 2004
Note Rm Rm
CONTINUING OPERATIONS
Revenue 7 7 155 5 036
Operating profit before depreciation 3 005 1 390
Depreciation and scrapping of property,
plant and equipment 232 340
Operating profit 2 773 1 050
Profit on disposal of investments 243 -
Interest and investment income received 74 44
Interest paid 38 41
Profit before taxation 3 052 1 053
Taxation charge 1 136 311
Profit after taxation 1 916 742
DISCONTINUED OPERATION
Profit on disposal of discontinued
operation - 5
Taxation charge - 2
Profit after taxation - 3
TOTAL OPERATIONS
Revenue 7 7 155 5 036
Operating profit before depreciation 3 005 1 390
Depreciation and scrapping of property,
plant and equipment 232 340
Operating profit 2 773 1 050
Profit on disposal of investments 243 -
Interest and investment income received 74 44
Interest paid 38 41
Profit before disposal of discontinued
operation 3 052 1 053
Profit on disposal of discontinued
operation - 5
Profit before taxation 3 052 1 058
Taxation charge 1 136 313
Profit attributable to Highveld
shareholders 1 916 745
Basic earnings per share Cents Cents
Basic 1 936.2 757.8
Basic - Diluted 1 932.6 750.6
Reconciliation of headline earnings Rm Rm
Attributable profit 1 916 745
Add/(deduct) after tax effect of:
Profit on disposal of investments (230) -
Loss on disposal and scrapping of
property,
plant and equipment 36 124
Profit on disposal of discontinued
operations - ( 3)
Headline earnings 1 722 866
Headline earnings per share Cents Cents
Headline 1 739.8 880.8
Headline - Diluted 1 736.5 872.4
Number of shares Million Million
Ordinary shares in issue as at
year-end date* 99.1 98.6
Weighted average number of ordinary
shares* 99.0 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
Normal dividends 1 880 440
Special dividends 950 -
ABRIDGED CONSOLIDATED BALANCE SHEETS
Audited
31 December 31 December
2005 2004
Note Rm Rm
Non-current assets 1 678 1 848
Property, plant and equipment 1 571 1 194
Held-to-maturity investments 3 -
Available-for-sale investments 104 654
Current assets 2 221 1 881
TOTAL ASSETS 3 899 3 729
EQUITY AND LIABILITIES
Shareholders" equity 1 325 2 337
Non-current liabilities 386 312
Financial leases 36 115
Long-term provisions 3 186 97
Deferred taxation 164 100
Current liabilities 4 2 188 1 080
TOTAL EQUITY AND LIABILITIES 3 899 3 729
(Net borrowings)/net cash
and cash equivalents 5 (98) 146
Net worth - cents/share 1 336 2 370
ABRIDGED CONSOLIDATED STATEMENTS OF RECOGNISED INCOME
AND EXPENSE
Audited for the year ended
31 December 31 December
2005 2004
Rm Rm
Actuarial loss on defined benefits (impact of
IAS 19) (31) -
Tax on above item taken directly to equity
(impact of IAS 19) 9 -
Exchange differences on translation of foreign
operations (34) (1)
Fair value revaluation - 92
Net (expense) income recognised directly in
equity (56) 91
Transfers:
Fair value reclassified to income (166) -
Attributable profit for the year 1 916 745
Total recognised income and expense for the year 1 694 836
ABRIDGED CONSOLIDATED CASH FLOW STATEMENTS
Audited for the year ended
31 December 31 December
2005 2004
Rm Rm
Cash available from operations before taxation
paid 2 708 1 251
Dividends paid (2 724) (138)
Taxation paid (655) (93)
Cash (outflow)/inflow from operating activities (671) 1 020
Cash inflow/(outflow) from investing activities 412 (461)
Proceeds on disposal of investments 1 076 -
Other investing activities (664) (461)
Net cash (outflow)/inflow (259) 559
Cash inflow/(outflow) from financing activities 503 (389)
Increase in cash and cash equivalents 244 170
SEGMENTAL REPORTS
Audited for the year ended
31 December 31 December
2005 2004
Rm Rm
Revenue
Steelworks 2 846 2 748
Vanadium 3 624 1 123
Ferro-alloys 685 1 165
Total revenue 7 155 5 036
Operating profit
Steelworks 552 409
Vanadium 2 194 349
Ferro-alloys 27 292
Total operating profit 2 773 1 050
NOTES TO THE FINANCIAL STATEMENTS
1. Companies Act and Listings Requirements
General 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.
2. Related party transactions
Transactions entered into between the Group and its related parties
during the reporting periods were arm"s length transactions between
willing parties at fair value.
3. Long-term provisions
The increase in long-term provisions is mainly attributable to an
increase in the long-term portion of environmental rehabilitation and
decommissioning provision of R55 million and an increase in the
provision for post-retirement medical benefits of R34 million.
4. Current liabilities
Current liabilities increased from the prior year mainly as a result of
an increase of R403 million in the Group"s taxation liability.
5. (Net borrowings)/net cash and cash equivalents
(Net borrowings)/net cash and cash equivalents on hand are calculated
by subtracting the financial leases (long-term debt) and the short-term
loans from the cash and cash equivalents.
6. Consolidated statement of changes in shareholders" equity
Non-distributable reserves
Translation
and share
Share capital based Fair
and share payment value
premium reserve reserve
2004 Rm Rm Rm
Exchange differences on
translation of foreign operations (1)
Net income recognised directly in
equity - (1) -
Fair value reclassified to income 92
Attributable profit for the year
Total recognised income and
expense for the year - (1) 92
Balance at 31 December 2003 560 1 78
Recognition of share based
payments
Dividends paid
Proceeds from shares issued 10
Balance at 31 December 2004 570 - 170
2005
Actuarial loss on defined
benefits (impact of IAS 19)
Tax on above item taken directly
to equity (impact of IAS 19)
Exchange differences on
translation of foreign operations (34)
Net income recognised directly in
equity - (34) -
Fair value reclassified to income (166)
Attributable profit for the year
Total recognised income and
expense for the year - (34) (166)
Balance at 31 December 2004 570 - 170
Recognition of share based
payments (impact of IFRS 2) 3
Dividends paid
Proceeds from shares issued 15
Balance at 31 December 2005 585 (31) 4
Retained
profit Total
2004 Rm Rm
Exchange differences on translation of foreign
operations (1)
Net income recognised directly in equity - (1)
Fair value reclassified to income 92
Attributable profit for the year 745 745
Total recognised income and expense for the year 745 836
Balance at 31 December 2003 990 1 629
Recognition of share based payments
Dividends paid (138) (138)
Proceeds from shares issued 10
Balance at 31 December 2004 1 597 2 337
2005
Actuarial loss on defined benefits (impact of IAS 19) (31) (31)
Tax on above item taken directly to equity (impact of
IAS 19) 9 9
Exchange differences on translation of foreign
operations (34)
Net income recognised directly in equity (22) (56)
Fair value reclassified to income (166)
Attributable profit for the year 1 916 1 916
Total recognised income and expense for the year 1 894 1 694
Balance at 31 December 2004 1 597 2 337
Recognition of share based payments (impact of IFRS 2) 3
Dividends paid (2 724) (2 724)
Proceeds from shares issued 15
Balance at 31 December 2005 767 1 325
7. Supplementary revenue
information Unaudited Unaudited
31 December 31 December
2005 2004
Sales volumes of major products
Total steel Tons 735 307 821 340
Vanadium pentoxide (Vanchem) kg V2O5 4 406 811 4 365 985
Ferrovanadium (Vanchem) kg V 1 749 762 2 072 555
Vanadium slag Tons 66 750 67 587
Weighted average selling prices achieved
for major products
Total steel $/t 566 500
Vanadium pentoxide (Vanchem) $/kg V2O5 35 11
Ferrovanadium (Vanchem) $/kg V 59 20
Average R/$ exchange rate 6.31 6.43
8. Financial ratios
Current ratio 1.02 1.74
Market capitalisation - Rm 8 404 4 733
Notice of Final Ordinary Dividend
On Wednesday, 1 February 2006, the directors of the Corporation declared a
final dividend no. 64 of 400 cents per share (South African currency) on the
ordinary shares for the year ended 31 December 2005, as follows:
Amount (South African currency) 400 cents per share
Last day to trade to qualify for dividend
(and for changes of address or dividend instructions) Friday, 3 March 2006
Ex-dividend on the JSE Limited Monday, 6 March 2006
Record date Friday, 10 March 2006
Payment date of dividend Monday, 13 March 2006
Share certificates may not be dematerialised or rematerialised between Monday,
6 March 2006 and Friday, 10 March 2006, both days inclusive.
By order of the Board
Ms A Diener Witbank
Company Secretary 1 February 2006
The annual report will be posted to all registered shareholders during March
2006. 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, Johannesburg,
Mpumalanga 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
Sponsor
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
Date: 01/02/2006 05:01:02 PM Produced by the JSE SENS Department
