| Thu 27 Jul 2006, 15:56 | | Highveld - Interim report for the six months to 30 |
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HVL
HVL
Highveld - Interim report for the six months to 30 June 2006
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")
SUPERIOR VALUE FOR ALL STAKEHOLDERS THROUGH GLOBAL LEADERSHIP IN VANADIUM
INTERIM REPORT FOR THE SIX MONTHS TO 30 JUNE 2006
- HEADLINE EARNINGS R401 MILLION
- INTERIM DIVIDEND 250 CENTS
- CASH GENERATED FROM OPERATIONS R703 MILLION
Financial Results
Headline earnings decreased to R401 million compared with R1 038 million for
the corresponding period last year, mainly due to a decrease in the
exceptionally high vanadium prices of 2005. Reduced vanadium output due to a
lengthy kiln outage also impacted negatively on earnings. Operating profit
decreased to R573 million from R1 574 million at 30 June 2005. Cost reduction
initiatives generated savings of R113 million for the period compared with
R117 million in 2005. The depreciation charge was R103 million, compared with
R132 million in 2005 which included an amount of R44 million related to the
loss on disposal and scrapping of property, plant and equipment.
Profit attributable to shareholders for the six months was R401 million
compared with R1 237 million in the corresponding period of 2005, after a tax
charge of R145 million (2005: R600 million).
Headline earnings per share were 404.9 cents, compared with 1 049.5 cents in
the first six months of 2005. Notwithstanding the decrease in profits, the
results are the second best for the first six months in the history of
Highveld.
The net cash outflow for the period of R395 million increased the net borrowed
position to R493 million compared with R98 million at 31 December 2005. The
cash inflow from operations was R703 million, however, this was more than
offset by the cash outflow from taxation payments of R508 million, dividend
payments of R396 million and capital expenditure of R194 million.
In view of the results and expected future cash flow, the Board has decided to
declare an interim dividend based on the first half results of 250 cents per
share (2005: 1 050 cents).
Operations
Vanadium
After the all-time record vanadium prices achieved during the first half of
last year, the price of ferrovanadium has settled down at more sustainable
levels. Towards the end of the second quarter of this year the market
experienced the usual slowdown as a result of the European summer holidays.
However, on the back of the improved demand for steel, the demand for vanadium
is expected to remain at acceptable levels for the rest of the year.
A number of projects which will increase the Corporation"s vanadium production
are well underway. The first furnace modified to an open slag bath operation at
the ironmaking division is performing well and a further furnace is currently
off-line for conversion. The modified furnaces will increase iron production
and vanadium recovery.
At Vanchem the upgrade and de-bottlenecking in the oxides area are well under
way with new process equipment being commissioned. Following an unexpected
breakdown, one of the three kilns was off-line for six weeks during the period
under review for a refractory reline and a bag filter upgrade. The other two
kilns are scheduled for refractory relines during the second half of the year
and a major mechanical rebuild is planned for kiln no. 2 during this time.
These shutdowns will result in lower vanadium production during the next six
months.
The integrated water and waste management plan at Vanchem is on target and a
number of the planned projects have been successfully completed.
Steel
World crude steel output has continued to grow this year. Compared with the
first six months of 2005, world crude steel production is up by 7.9 per cent.
China continues to lead the surge in output, having produced 199.5 million tons
during this period, which is 18.3 per cent higher than the same period last
year. China now accounts for 33.5 per cent of global steel production.
Steel sales volumes for the first six months have increased by 12 per cent and
domestic despatches increased by 29 per cent compared with the same period last
year. This was mainly due to excellent domestic demand on the back of strong
economic growth and spending on capital expansion projects. Prospects remain
good for the domestic steel market in the second half of 2006 due to the low
inflation and interest rate environment, a wealth of projects relating to
government"s infrastructure programme, the 2010 Soccer World Cup, new projects
in the mining and chemical sector and Eskom"s reinvestment programme.
International prices for all Group steel products have increased significantly
in the latter part of the past six months from the low levels reached towards
the end of last year. This is mainly due to improved international demand
driven by a very strong commodity cycle and increased consumption in China.
Prices and demand are expected to remain at current levels over the next few
months.
Ferro-alloys
The Transalloys division incurred losses during the period mainly due to the
depressed manganese alloy prices. These prices, however, improved towards the
end of the second quarter to levels which warranted running furnaces during
the high electricity cost winter months. The bulk of the current
silicomanganese and medium carbon ferromanganese production is committed to
the export market, mainly for North and South America. Prices are expected
to remain at similar levels during the second half of the year.
Ferrosilicon production was satisfactory and most of the product was sold on
the local market. Production will continue during the high electricity cost
winter months at slightly reduced levels due to major furnace maintenance being
carried out.
Investments
The process of selling Rand Carbide was terminated when the final bidder
withdrew its offer. Negotiations with an international paste producer for the
sale of the investment in Ferroveld are at an advanced stage.
Capital Expenditure
Capital expenditure incurred by the Group during the period amounted to R194
million (2005: R255 million) and the total commitment in respect of further
capital expenditure as at 30 June 2006 is R733 million compared to R582 million
at 31 December 2005. This expenditure will be funded from internally generated
cash flows and available borrowing facilities.
Safety, Health, Environment and Quality
The Group regrettably experienced one fatality during the first half of the
year. The lost time injury frequency rate as at 30 June 2006 was 0.26 compared
with 0.26 recorded for the first six months of 2005 and 0.22 for the twelve
months of 2005.
The Corporation continues to promote HIV/AIDS awareness, an initiative which
commenced in 2003. As at 30 June 2006, 56 per cent of the total work force of
3 894 had undergone voluntary counselling and testing ("VCT"). VCT is re-done
every calendar year. A total of 18 employees are receiving free anti-retroviral
treatment.
The five-year programme, which was approved and commenced in 2005, to achieve
international best practice in emission control, waste management and water
conservation continued in the first half of 2006. During the first six months
R25 million was spent on capital projects in terms of this programme bringing
the total spent to date to R59 million. The programme may be delayed due to the
lengthy process in acquiring regulatory approval for the major projects.
Black Economic Empowerment
During the period under review, goods and services worth R209 million (2005:
R177 million) were purchased from a total of 146 (2005: 116) black empowerment
enterprises.
Anglo American plc Announcement
Following Anglo American plc"s ("Anglo") announcement on 26 October 2005 that
it had decided to rationalise its portfolio and increase the focus on its
controlled mining businesses, it is now confirmed that it has reduced its
79 per cent interest in Highveld. Evraz Group S.A. ("Evraz") and Credit Suisse
("Credit Suisse") have each acquired 24.9 per cent of Highveld"s share capital
from Anglo. Anglo retains a 29.2 per cent interest in Highveld. Evraz has an
option to increase its stake in Highveld once regulatory approvals are
received, including from competition authorities in South Africa and elsewhere.
Subject to Evraz receiving such regulatory approvals, Evraz will be entitled to
purchase Anglo"s remaining 29.2 per cent shareholding as well as the 24.9 per
cent holding of Credit Suisse through separate option agreements. Evraz intends
to file for such regulatory approvals as soon as possible.
Anglo and Credit Suisse have agreed that Anglo will retain the voting rights in
respect of the shares acquired by Credit Suisse. Anglo will retain
representatives on the Highveld Board until such time as Anglo disposes of all
its shares in Highveld.The Board has appointed Messrs A V Frolov, A Sorokin and
J W Campbell as directors, representing Evraz, with immediate effect.
Outlook
Domestic demand for all of the Corporation"s steel products is expected to
remain at record levels, driven by strong economic growth in general and higher
capital expenditure as various projects associated with the 2010 Soccer World
Cup and government initiatives get underway. Improving international demand,
coupled with significantly increased input costs for producers, has resulted in
improved international prices which will allow the Corporation to, after
satisfying domestic demand, sell all of its remaining production, at a profit.
Vanadium demand should improve marginally but prices are expected to remain at
current levels. The planned refurbishment of two kilns at the Corporation"s
Vanchem facility will, however, negatively impact on production and sales. This
will in part be made up in increased vanadium slag production emanating from
the converted open slag bath furnaces.
Cost savings initiatives and productivity improvement projects are on target
and should yield the planned savings which will assist in keeping costs in
check.
Provided there is no sudden decrease in the vanadium price and the Rand remains
at current levels an improved performance for the second half of the year can
be expected compared with the results of the first half of 2006.
For and on behalf of the Board
G G Gomwe - Chairman Witbank
A J de Nysschen - Chief Executive Officer 27 July 2006
REVIEWED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006
The Group financial results for the six months to 30 June 2006 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. These results are presented
in terms of IFRS applicable to interim financial reporting (IAS 34).
The financial information has been reviewed, but not audited, by Deloitte &
Touche, whose unmodified review report is available for inspection at the
Corporation"s registered office.
ABRIDGED CONSOLIDATED INCOME STATEMENTS
Reviewed for the Audited for the
six months ended year ended
30 Jun 2006 30 Jun 2005 31 Dec 2005
Note Rm Rm Rm
CONTINUING OPERATIONS
Revenue 3 253 4 006 7 155
Operating profit
before depreciation 673 1 706 3 005
Depreciation and
scrapping
of property,
plant and equipment (103) (132) (232)
Operating profit 570 1 574 2 773
Profit on disposal of
investments - 243 243
Interest and investment
income received 13 36 74
Interest paid (40) (16) (38)
Profit before taxation 543 1 837 3 052
Taxation charge (145) (600) (1 136)
Profit after taxation 398 1 237 1 916
DISCONTINUING OPERATION 3
Revenue 26 - -
Operating profit
before depreciation 3 - -
Depreciation and
scrapping of
property, plant
and equipment* - - -
Operating profit 3 - -
Interest and
investment income
received* - - -
Profit before taxation 3 - -
Taxation charge* - - -
Profit after taxation 3 - -
* Nil due to rounding
TOTAL OPERATIONS
Revenue 3 279 4 006 7 155
Operating profit before
depreciation 676 1 706 3 005
Depreciation and
scrapping
of property, plant
and equipment (103) (132) (232)
Operating profit 573 1 574 2 773
Profit on disposal of
investments - 243 243
Interest and investment
income received 13 36 74
Interest paid (40) (16) (38)
Profit before taxation 546 1 837 3 052
Taxation charge (145) (600) (1 136)
Attributable profit 401 1 237 1 916
Basic earnings per
share Cents Cents Cents
Basic 404.9 1 250.8 1 936.2
Basic - Diluted 404.9 1 247.0 1 932.6
Reconciliation of
headline earnings Rm Rm Rm
Attributable profit 401 1 237 1 916
Add/(deduct) after tax
effect of:
Profit on disposal
of investments - (230) (230)
Loss on disposal and
scrapping of property,
plant and equipment - 31 36
Headline earnings 401 1 038 1 722
Headline earnings per
share Cents Cents Cents
Headline 404.9 1 049.5 1 739.8
Headline - Diluted 404.9 1 046.4 1 736.5
Number of shares Million Million Million
Ordinary shares in
issue as
at period-end date * 99.1 99.0 99.1
Weighted average number
of ordinary shares * 99.1 98.9 99.0
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 1 480
Interim dividends paid - - 1 480
Final dividend
proposed in
respect of 2005 - - 400
Final dividend paid
in respect of 2004 - 320 320
Special dividends paid - 300 950
Final dividend paid
in respect of 2005 400 - -
ABRIDGED CONSOLIDATED BALANCE SHEETS
Reviewed Audited
30 Jun 2006 30 Jun 2005 31 Dec 2005
Note Rm Rm Rm
ASSETS
Non-current assets 1 766 1 263 1 678
Property, plant and equipment 1 660 1 259 1 571
Environmental Trust investments 3 - 3
Available-for-sale investments 103 4 104
Current assets 2 343 3 747 2 221
TOTAL ASSETS 4 109 5 010 3 899
EQUITY AND LIABILITIES
Shareholders" equity 1 411 2 814 1 325
Non-current liabilities 391 312 386
Financial leases 37 115 36
Long-term provisions 190 99 186
Deferred taxation 164 98 164
Current liabilities 2 307 1 884 2 188
TOTAL EQUITY AND LIABILITIES 4 109 5 010 3 899
(Net borrowings)/net cash
and cash equivalents 5 (493) 1 519 (98)
Net worth - cents/share 1 423 2 843 1 336
ABRIDGED CONSOLIDATED STATEMENTS OF RECOGNISED INCOME AND EXPENSE
Reviewed for the Audited for the
six months ended year ended
30 Jun 2006 30 Jun 2005 31 Dec 2005
Rm Rm Rm
Actuarial loss on defined benefits - - (31)
Tax on above item taken
directly to equity - - 9
Exchange differences on
translation of foreign
operations 80 8 (34)
Fair value reclassified to income - (166) (166)
Fair value revaluation (1) (1) -
Net income/(expense) recognised
directly in equity 79 (159) (222)
Attributable profit for the period 401 1 237 1 916
Total recognised income and expense
for the period 480 1 078 1 694
ABRIDGED CONSOLIDATED CASH FLOW STATEMENTS
Reviewed for the Audited for the
six months ended year ended
30 Jun 2006 30 Jun 2005 31 Dec 2005
Rm Rm Rm
Cash available from operations
before dividends and taxation paid 703 1 455 2 708
Dividends paid (396) (613) (2 724)
Taxation paid (508) (241) (655)
Cash (outflow)/inflow from operating
activities (201) 601 (671)
Cash (outflow)/inflow from investing
activities (194) 772 412
Proceeds on disposal of investments - 1 077 1 076
Other investing activities (194) (305) (664)
Net cash (outflow)/inflow (395) 1 373 (259)
Cash inflow from financing activities 363 266 503
(Decrease)/increase in cash and
cash equivalents (32) 1 639 244
SEGMENTAL REPORTS FOR TOTAL OPERATIONS
Reviewed for the Audited for the
six months ended year ended
30 Jun 2006 30 Jun 2005 31 Dec 2005
Rm Rm Rm
Revenue
Steelworks 1 596 1 483 2 846
Vanadium 1 280 2 141 3 624
Ferro-alloys 403 382 685
Total revenue 3 279 4 006 7 155
Operating profit/(loss)
Steelworks 130 211 552
Vanadium 503 1 311 2 194
Ferro-alloys (60) 52 27
Total operating profit 573 1 574 2 773
NOTES TO THE FINANCIAL STATEMENTS
1. Companies Act and Listings Requirements
Compliance, as detailed in the 2005 Annual Report, 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 at arm"s length between willing parties at fair value.
The Group had borrowed R250 million on call at period end from Anglo American
Corporation of South Africa Limited.
3. Discontinuing operation
The Group is in advanced negotiations with a buyer for the sale of the
Ferroveld Joint Venture. The sale is expected to be completed during the second
half of 2006. As a result, the Ferroveld Joint Venture is treated as a disposal
group and the results of the joint venture for the period ended 30 June 2006
are included on the face of the income statement under discontinuing
operations. The balance sheet of Ferroveld Joint Venture as at 30 June 2006 is
as follows:
ASSETS Rm
Non-current assets
Property, plant and equipment 17
Current assets 16
TOTAL ASSETS 33
EQUITY AND LIABILITIES
Shareholders" equity 27
Non-current liabilities
Long-term provision 1
Current liabilities 5
TOTAL EQUITY AND LIABILITIES 33
4. Consolidated statement of changes in shareholders" equity
Non-distributable reserves
Translation
and share
Share capital based Fair
and share payment value
premium reserves reserve
Rm Rm Rm
Exchange differences on
translation of foreign operations 8
Fair value revaluation (167)
Net income recognised
directly in equity - 8 (167)
Attributable profit for the period
Total recognised income
and expense for the period - 8 ( 167)
Balance at 31 December 2004 570 - 170
Dividends paid
Proceeds from shares issued 12
Balance at 30 June 2005 - reviewed 582 8 3
Actuarial loss on defined
benefits (impact of IAS 19)
Tax on above item (impact of IAS 19)
Exchange differences on
translation of foreign operations (42)
Fair value revaluation 1
Net income recognised
directly in equity - (42) 1
Attributable profit for the period
Total recognised income and
expense for the period - (42) 1
Subtotal 582 (34) 4
Recognition of share based
payments (impact of IFRS 2) 3
Dividends paid
Proceeds from shares issued 3
Balance at 31 December 2005 -
audited 585 (31) 4
Interim 2006 - reviewed
Exchange differences on
translation of foreign operations 80
Fair value revaluation (1)
Net income recognised
directly in equity - 80 (1)
Attributable profit
for the period
Total recognised income
and expense for the period - 80 (1)
Balance at 31 December 2005 585 (31) 4
Recognition of share
based payments (impact of IFRS 2) 2
Dividends paid
Balance at 30 June 2006 585 51 3
Retained
profit Total
Rm Rm
Exchange differences on
translation of foreign operations 8
Fair value revaluation (167)
Net income recognised
directly in equity - (159)
Attributable profit for the period 1 237 1 237
Total recognised income
and expense for the period 1 237 1 078
Balance at 31 December 2004 1 597 2 337
Dividends paid (613) (613)
Proceeds from shares issued 12
Balance at 30 June 2005 - reviewed 2 221 2 814
Actuarial loss on defined
benefits (impact of IAS 19) (31) (31)
Tax on above item (impact of IAS 19) 9 9
Exchange differences on
translation of foreign operations (42)
Fair value revaluation 1
Net income recognised
directly in equity (22) (63)
Attributable profit for the period 679 679
Total recognised income and
expense for the period 657 616
Subtotal 2 878 3 430
Recognition of share based
payments (impact of IFRS 2) 3
Dividends paid (2 111) (2 111)
Proceeds from shares issued 3
Balance at 31 December 2005 - audited 767 1 325
Interim 2006 - reviewed
Exchange differences on
translation of foreign operations 80
Fair value revaluation (1)
Net income recognised
directly in equity - 79
Attributable profit
for the period 401 401
Total recognised income
and expense for the period 401 480
Balance at 31 December 2005 767 1 325
Recognition of share
based payments (impact of IFRS 2) 2
Dividends paid (396) (396)
Balance at 30 June 2006 772 1 411
5. (Net borrowings)/net cash and cash equivalents
(Net borrowings)/net cash and cash equivalents are calculated by subtracting
the financial leases (long-term debt) and the short-term loans (Including loans
from subsidiaries and joint ventures) from cash and cash equivalents.
6. Financial ratios (unaudited)
Current ratio 1.02 1.99 1.02
Market capitalisation - Rm 7 435 5 484 8 404
7. Supplementary
revenue
information Unaudited Unaudited Unaudited
30 Jun 2006 30 Jun 2005 31 Dec 2005
Sales volumes of
major products
Total steel Tons 420 723 376 711 735 307
Vanadium
pentoxide
(Vanchem) kg V2O5 1 788 310 2 173 906 4 406 811
Ferrovanadium
(Vanchem and
Hochvanadium) kg V 3 293 624 3 403 735 6 349 348
Vanadium slag Tons 31 830 32 612 66 750
Weighted average
selling prices
achieved for
major products
Total steel $/t 566 582 566
Vanadium
pentoxide
(Vanchem) $/kg V2O5 19 37 35
Ferrovanadium
(Vanchem and
Hochvanadium) $/kg V 39 70 64
Average R/$
exchange rate 6.26 6.21 6.31
Notice of Interim Ordinary Dividend
On Thursday, 27 July 2006, the directors of the Corporation declared an interim
dividend no. 65 of 250 cents per share (South African currency) on the ordinary
shares for the six months to 30 June 2006, as follows:
Amount (South African currency) 250 cents per share
Last day to trade to qualify for dividend
(and for changes of address
or dividend instructions) Friday, 25 August 2006
Ex-dividend on the JSE Limited Monday, 28 August 2006
Record date Friday, 1 September 2006
Payment date of dividend Monday, 4 September 2006
Share certificates may not be dematerialised or rematerialised between Monday,
28 August 2006 and Friday, 1 September 2006, both days inclusive.
By order of the Board
Ms A Diener Witbank
Company Secretary 27 July 2006
The interim report will be posted to all registered shareholders
Wednesday, 2 August 2006. Enquiries may be directed to email
address: general@hiveld.co.za
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, J W Campbell ,
C J Colebank, A V Frolov (Russian), A Harris
L Matteucci, N B Mbazima (Zambian), Ms D R Motsepe, Dr A J Pienaar
B J T Shongwe and A Sorokin (Russian)
ALTERNATE DIRECTOR: G F Young COMPANY SECRETARY: Ms A Diener
Registered office:
Portion 29 of the farm, Schoongezicht no. 308 JS, District Witbank
Mpumalanga, PO Box 111, Witbank 1035
Tel: (013) 690-9911 Fax: (013) 690-9033
Transfer secretaries:
Computershare Investor Services 2004 (Proprietary) Limited
70 Marshall Street, Johannesburg, 2001, PO Box 61051, Marshalltown 2107
Tel: (011) 370-5000 Fax: (011) 688-5200
SPONSOR
J.P Morgan Equities Limited
(Registration number 1995/011815/06)
Date: 27/07/2006 03:56:33 PM Produced by the JSE SENS Department
