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MLA
MLA
Mittal Steel - Audited Group Annual Financial Results and dividend announcement
Mittal Steel South Africa Limited
(Formerly Ispat Iscor Limited)
Registration number 1989/002164/06
Share code: MLA & ISIN: ZAE000064044
("the Company" or "the Group")
Audited Group Annual Financial Results and dividend announcement for the year
ended 31 December 2005
Financial results
Headline earnings for the year of R5 079 million represents an increase of 12%
compared to last year. This excellent result was driven by higher average
sales prices, higher export sales, significant gains on foreign exchange and
financial instruments, higher interest income and the Business Assistance
Agreement (BAA) remuneration payment during 2004 not being applicable during
2005. This was partially offset by lower domestic sales and an increase in
the cost of raw materials.
On a comparable basis headline earnings for the year, before BAA remuneration,
increased by 0,4% compared to last year.
Year ended 31 December
2005 2004
Audited Audited
Rm Rm
Revenue 24 032 23 053
Operating profit 6 855 7 458*
Gains/(losses) on foreign exchange
and financial instruments 246 (52)
Finance costs:
net interest income 169 31
imputed interest on
non-current provisions (140)** (170)**
Income from investments 5 5
Taxation (2 329) (2 465)
Equity earnings*** 275 258
Minority interest (2) (6)
Comparable headline earnings 5 079 5 059
In US$m 807 794
BAA remuneration (511)***
Headline earnings 5 079 4 548
Attributable earnings 5 068 4 878
* Before BAA remuneration payment of R731 million (R6 727 million after BAA
remuneration)
** Includes an additional charge of R69 million (2004: R100 million) as a
result of reducing the discount rate applied to estimated future cash
flows as a consequence of the significant reduction in interest rates
*** After tax
Quarterly comparable headline earnings
The quarterly earnings increased further to all time record levels during the
first and second quarters of 2005 but decreased by approximately 40% during
the third and fourth quarters of 2005 mainly due to a significant decline in
sales prices and an increase in costs. However, the level of earnings during
the last two quarters were still substantially higher compared to the levels
achieved during 2003 and the beginning of 2004.
Exchange
Quarter to US$m Rm rate
Average 2003 75 565 7,51
March 2004 99 669 6,75
June 2004 212 1 393 6,57
September 2004 248 1 575 6,35
December 2004 235 1 422 6,06
Average 2004 199 1 265 6,43
March 2005 264 1 578 5,97
June 2005 257 1 643 6,40
September 2005 152 987 6,50
December 2005 134 871 6,52
Average 2005 202 1 270 6,35
Operating results
Revenue Year ended 31 December
2005 2004
Audited Audited
Rm Rm
Vanderbijlpark 12 664 12 288
Saldanha 3 712 3 638
Long Products 7 173 6 339
Coke & Chemicals 1 014 1 253
Other 98 111
Inter-group eliminations (629) (576)
Total 24 032 23 053
Operating profit
Year ended 31 December
2005 2004
Audited Audited
Rm Rm
Vanderbijlpark 3 688 4 137
Saldanha 785 1 173
Long Products 2 100 1 783
Coke & Chemicals 301 462
Other 56 43
Corporate (75) (140)
Comparable totals 6 855 7 458
BAA remuneration (731)
Total 6 855 6 727
Operating profit of R6 855 million for the year decreased by 8% on a
comparable basis with declines at Coke and Chemicals (35%), Saldanha (33%)
and Vanderbijlpark (11%) while Long Products increased by 18%. Liquid steel
production increased by 3,2% compared with last year with an increase at
Vanderbijlpark of 5,4%, Saldanha of 1,4% and Long Products 0,7%.
The decrease at Saldanha and Vanderbijlpark is mainly attributable to lower
domestic sales and an increase in raw material input cost partially offset by
higher average sales prices.
The main reasons for the increase in operating profit for long products
compared to the decrease at our flat production units were a higher increase in
the average sales prices, a lower decline in domestic offtake and an increase
in total sales volumes for long products compared to a decrease for flat
products.
The significant decline in the profitability at our Coke and Chemicals
business was due to the sharp down-turn in international coke prices following
large-scale expansion of coke making capacity in China, which created an
imbalance in demand and supply.
Market review
International
Export volumes increased by 17% compared to last year mainly due to lower
domestic sales redirected to exports. Average export prices for 2005 were
11% higher compared to last year, however since quarter three we witnessed a
significant decrease in steel prices following a softening in demand in China
and a destocking effect following an inventory buildup by customers during the
first half of the year in anticipation of further price increases.
Domestic market
Domestic sales volumes decreased by 10% compared to last year mainly due to
higher inventory levels and a delay in orders due to anticipated lower prices.
However, during the last quarter domestic order intake showed a noticeable
improvement driven by low inventory levels as well as a general increase in
the demand for steel. Some of our customers, especially customers
manufacturing value added products, are experiencing difficulty to export as a
result of the strong rand while also competing with cheap imports from China.
Domestic prices were reduced during February and August 2005.
Cost
Cash cost per tonne of hot rolled coil increased by 11% compared to last year
and billets by 12%, driven by a substantial increase in the cost of coking
coal, iron ore pellets and scrap.
The increase in the international price of iron ore fines of 72% 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, and
being self sufficient in coke supply we were to a certain extent sheltered
from the significant global increase in costs.
Contingent liabilities
We submitted our objection, disputing the disallowance of the deductibility of
the payment made in terms of the BAA, to SARS during August 2005. SARS
responded by a request for more information which was subsequently submitted.
There is a contingent liability of R403 million plus interest thereon and no
liability has been raised in this regard.
Three complaints have been lodged with the Competition Authorities alleging
that Mittal Steel South Africa contravened the Competition Act. One of these
complaints will be heard by the Competition Tribunal at a hearing scheduled to
start during the middle of March 2006 while the other two complaints are still
under investigation by the Competition Commission. Management is of the
opinion, based on advice from legal counsel, that no significant exposure
exists in this regard and therefore no provision for a liability has been
accounted for.
Outlook quarter one 2006
On the local market we expect the recovery in demand which started towards the
end of 2005 to further improve, driven by good macro economic conditions.
However, if the Rand continues to strengthen, the offtake from domestic
customers, particularly by sectors reliant on exports, may be negatively
impacted. The first quarter also indicates a further marginal decline in
global steel prices. The full impact of the substantial price increase for
imported coal since third quarter 2005 will be reflected in our costs during
first quarter 2006.
It is expected that the results of our Coke & Chemical business will show a
moderate improvement as a result of higher international coke prices.
Overall the results for the next quarter are expected to be in line with the
previous quarter, subject to fluctuations in the exchange rate.
Dividend announcement
In line with the company"s policy, the Board declared a final dividend of 140
cents, covered approximately three times by headline earnings.
Payment in South African rands will be made on Monday, 20 March 2006 to
shareholders recorded in the register on Friday, 17 March 2006. The last day
to trade to qualify for the dividend will be Friday, 10 March 2006 and the
shares will trade ex-dividend from Monday, 13 March 2006. Share certificates
may not be dematerialised or rematerialised between Monday,13 March 2006 and
Friday, 17 March 2006 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 HC Banthia
(Chief Executive Officer) (Executive Director Finance)
13 February 2006
Registered Office Transfer Secretaries
Mittal Steel South Africa Computershare Investor Services 2004
(Pty) Limited
Room N3-5 70 Marshall Street
Main Building Johannesburg, 2001
Delfos Boulevard PO Box 61051
Vanderbijlpark, 1911 Marshalltown, 2107
Directors: K Ngqula (Chairman), DK Chugh* (Chief Executive Officer),
HC Banthia*, Dr SE Jonah KBE**, S Maheshwari*, JJ Mashaba, A Mittal*,
LN Mittal*, Dr KDK Mokhele, MJN Njeke
* Citizen of India
** Citizen of Ghana
Company Secretary: Xoliswa Motswai
Mittal Steel South Africa Limited
(Formerly Ispat Iscor Limited)
Registration number 1989/002164/06
Share code: MLA ISIN: ZAE 000064044
("the Company" or "the Group")
This report is available at Mittal Steel South Africa"s World Wide Web site
at: http://www.mittalsteelsa.com
Group income statement
Year ended 31 December
2005 2004
Audited Audited
Rm Rm
Revenue 24 032 23 053
Operating expenses (16 006) (15 367)
Earnings before interest, taxation,
depreciation and amortisation (Ebitda) 8 026 7 686
Depreciation (1 131) (919)
Amortisation of intangible assets (40) (40)
Profit from operations before impairment
and goodwill movements 6 855 6 727
Goodwill impairment (Note 2) (11) (21)
Impairment credit 502
Profit from operations 6 844 7 208
Gains/(losses) on foreign exchange and
financial instruments (Note 3) 246 (52)
Net interest income/(finance cost)
(Note 4) 29 (139)
Income from investments 5 5
Income from equity accounted
investments before taxation 292 347
Profit before taxation 7 416 7 369
Income tax expense (2 346) (2 485)
Profit for the year 5 070 4 884
Attributable to:
- Equity holders of the parent 5 068 4 878
- Minority interest 2 6
Attributable earnings per share (cents)
- basic 1 137 1 094
- diluted 1 135 1 092
Dividend per share (cents)
- interim 240 300
- final 140 100
ADDITIONAL INFORMATION
Profit attributable to ordinary
shareholders 5 068 4 878
Adjusted for:
- Goodwill impairment (Note 2) 11 21
- Impairment credit (502)
- Taxation on adjustments 151
Headline earnings 5 079 4 548
Performance per ordinary share
Headline earnings per share (cents)
- basic 1 139 1 020
- diluted 1 137 1 018
Net asset value per share (cents) 4 376 3 566
Ordinary shares (million)
- in issue 446 446
- weighted average number of shares 446 446
- diluted weighted average
- number of shares 447 447
Ratios (%)
Ebitda margin 33,4 33,3
Return on ordinary
shareholders" equity
per annum
- Attributable earnings 28,6 33,8
- Headline earnings 28,7 31,5
Net cash to equity 26,4 25,0
Market capitalisation (Rm) 27 302 29 197
Group balance sheet
As at 31 December
2005 2004
Audited Audited
Rm Rm
ASSETS
Non-current assets 14 570 13 934
Property, plant and equipment 13 133 12 701
Intangible assets 74 114
Goodwill 11
Investments in joint ventures - unlisted
(Note 7) 901 596
Non-current receivables 401 512
Non-current financial assets 61
Current assets 11 183 9 650
Inventories 3 910 3 105
Trade and other receivables 1 822 2 481
Taxation 117
Current receivables 47
Current financial assets 46
Cash and cash equivalents 5 241 4 064
Total assets 25 753 23 584
EQUITY AND LIABILITIES
Shareholders" equity
Stated capital 6 389 6 389
Reserves 600 306
Retained income 12 518 9 200
Ordinary shareholders" equity 19 507 15 895
Minority interest 9 7
Total equity 19 516 15 902
Non-current liabilities 3 392 2 990
Interest-bearing borrowings 71 81
Provisions 1 283 1 188
Provision for post-retirement
medical costs 6 13
Deferred tax liability 2 032 1 708
Current liabilities 2 845 4 692
Interest-bearing borrowings 10 10
Trade and other payables 2 647 2 295
Current financial liabilities 10
Taxation 857
Provisions 188 183
Dividends payable 1 337
Total equity and liabilities 25 753 23 584
Net cash (Note 8) 5 160 3 973
Group statement of changes in equity
Year ended 31 December
2005 2004
Audited Audited
Rm Rm
Ordinary shareholders" funds at
beginning of year 15 895 12 819
- as previously stated 16 040 12 971
- change in accounting policy -
mineral rights restated to cost (145) (152)
Changes in reserves 295 122
- management share trust (42) (49)
- cost of share options 8 2
- currency translation profit/(losses) 68 (84)
- financial instruments movements 25 1
- share of joint venture hedging reserves 1
- transfer of equity accounted earnings 235 252
Changes in retained income 3 317 2 954
- net profit for the year 5 068 4 878
- dividend paid (1 516) (1 672)
- transfer of equity accounted earnings (235) (252)
Ordinary shareholders" funds at
end of year 19 507 15 895
Minority interest at beginning of year 7 1
Minority interest in net profit
for the year 2 6
Minority interest at end of year 9 7
Total shareholders" funds at end of year 19 516 15 902
Group cashflow statement
Year ended 31 December
2005 2004
Audited Audited
Rm Rm
Cash inflows from operating activities 2 754 5 228
Cash generated from operations 8 416 6 422
Before BAA remuneration 8 416 7 153
BAA remuneration (731)
Net interest income 168 31
Dividend paid (2 853) (339)
Income tax paid (2 977) (886)
Cash outflows from investing
activities (1 519) (1 234)
Investment to maintain operations (1 210) (1 001)
Investment to expand operations (358) (253)
Proceeds from disposals of
property, plant
and equipment 6 14
Investment in other non-current assets (5)
Dividend from equity
accounted investments 38 6
Investment income 5 5
Normal net cash inflow 1 235 3 994
Cash outflows from financing activities (54) (1 036)
Increase in cash and cash equivalents 1 181 2 958
Effect of foreign exchange rate changes (4) (1)
Cash and cash equivalents
at beginning of year 4 064 1 107
Cash and cash equivalents at end of year 5 241 4 064
Notes to the audited
financial statements
1. Basis of preparation
The announcement has been prepared in conformity with IAS34 Interim Financial
Reporting.
These audited group financial results for the year ended 31 December 2005
constitute a summary of the group"s unqualified audited financial statements.
They have been prepared on the historical cost basis, except for the
revaluation of financial instruments and conform to International Financial
Reporting Standards and the Companies Act of South Africa. The group has
adopted all of the new and revised Standards and Interpretations issued by the
International Accounting Standards Board (IASB) and the International
Financial Reporting Interpretations Committee (IFRIC) of the IASB that are
relevant to its operations and effective for accounting periods beginning on 1
January 2005.
The group"s financial report for the year will be available by the end of
March 2006. The signed unqualified auditors" report issued by Deloitte &
Touche 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 change in the recognition of mineral
rights at cost previously recognised at fair value. (The net effect is a
decrease in opening retained earnings in 2004 of R152 million and
corresponding income statement effect is R7 million.)
Non-integrated software was reclassified from the category property, plant and
equipment to intangible assets. The net carrying value as at December 2004 was
R84 million. This has no impact on retained earnings.
Embedded derivative instruments were recognised as required by IAS39 Financial
Instruments: Recognition and Measurement. The net increase in retained
earnings for 2005 is R75 million.
2. Goodwill impairment
As part of a structured finance deal the company purchased on 1 July 2002 100%
in Pybus Fifty-Seven (Pty) Limited, resulting in the recognition of a R64
million positive goodwill asset on acquisition. The company assessed its
expected benefits from this investment to be less than the carrying value and,
as a result, the total amount of goodwill has been impaired.
Year ended 31 December
2005 2004
Audited Audited
Rm Rm
3. Gains/(losses) on foreign exchange
and financial instruments 246 (52)
Gains on changes in foreign
exchange rates 166 241
Losses on changes in foreign exchange
rates (58) (329)
Gains on changes in the fair value
of embedded derivative instruments 106
Gains on changes in the fair value
of hedging derivative instruments
accounted for as fair value and cash
flow hedges 32 36
4. Net interest income/(finance cost) 29 (139)
Interest income 190 94
Interest expense (21) (63)
Imputed interest on non-current
provisions (140) (170)
Year ended 31 December
2005 2004
Audited Audited
Rm Rm
5. Profit before taxation is
arrived at after
Directors" emoluments
- executive 7 24
- non-executive 1 1
Auditors" remuneration
- audit fees 9 7
- audit related fees 9
- other services 1 1
Business assistance agreement
remuneration 731
6. Taxation 2 346 2 485
Company and subsidiaries 2 329 2 396
Equity accounted investments 17 89
7.Investments in joint ventures
Unlisted investments
- directors" valuation 1 077 759
8. Net cash 5 160 3 973
Cash and cash equivalents 5 241 4 064
Interest-bearing borrowings
- non-current (71) (81)
- current (10) (10)
9.Capital expenditure
- incurred 1 568 1 254
- contracted 740 1 008
- authorised but not contracted 486 1 468
10.Contingent liabilities 623 234
- guarantees 120 134
- other contingent liabilities 503 100
11.Operating lease commitments 29 28
- less than one year 2 3
- more than one year and less than
five years 27 25
12. Related party transactions
The group is controlled by Mittal Steel Company N.V. which owns 52,02% of the
Company"s shares.
During the year the company and its subsidiaries, in the ordinary course of
business, entered into various sale and purchase transactions with joint
venturers.
These transactions occurred under terms that are no less favourable to Mittal
Steel South Africa than those arranged with third parties.
13. Directors" share option benefits
Rights to options and shares held by Executive Directors in terms of the
Mittal Steel SA/Iscor Management Share Scheme totalled 328 416 at 31 December
2005 (December 2004: 331 060), representing 0,07% (2004: 0,07%) of the issued
shares. During the year the directors sold a portion of their options
realising a gain of R0,9 million, which 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 Limited.
Unaudited supplementary physical information ("000 tonnes)
Year ended 31 December
2005 2004
FLAT STEEL PRODUCTS
- Vanderbijlpark
Liquid steel production 3 823 3 628
Sales 3 123 3 166
- local 2 017 2 224
- export 1 106 942
Local sales as percentage of total sales 65 70
- Saldanha Steel
Liquid steel production 1 244 1 227
Sales 1 160 1 163
- local 385 504
- export 775 659
Local sales as percentage of total sales 33 43
LONG STEEL PRODUCTS
Liquid steel production 2 194 2 178
Sales 1 947 1 894
- local 1 083 1 151
- export 864 743
Local sales as percentage of total sales 56 61
TOTAL
Liquid steel production 7 261 7 033
Sales 6 230 6 223
- local 3 485 3 879
- export 2 745 2 344
Local sales as percentage of total sales 56 62
Date: 15/02/2006 09:00:24 AM Produced by the JSE SENS Department
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