| Wed 2 Aug 2006, 8:00 | | Mittal Steel - Reviewed Group interim financial re |
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MLA
MLA
Mittal Steel - Reviewed Group interim financial results and dividend
Mittal Steel South Africa Limited
(Formerly Ispat Iscor Limited)
(Incorporated in the Republic of South Africa)
(Registration number: 1989/002164/06)
Share Code: MLA
ISIN: ZAE000064044
("the Company" or "the Group")
Interim results
Reviewed Group interim financial results and dividend announcement for the six
months ended 30 June 2006
Financial results
Headline earnings for the past six months of R1 912 million declined by 41%
compared to the corresponding period last year but increased by 3% compared to
the previous six months.
The main reasons for the substantial decline from last year were lower sales
prices, an increase in costs, lower export volumes, lower equity accounted
earnings and voluntary retrenchment packages. This was partially offset by
higher local volumes and foreign exchange gains.
Six months ended Year
ended
30 Jun 31 Dec 30 Jun 31 Dec
2006 2005 2005 2005
Reviewed Unaudited Restated Restated
Rm Rm Rm Rm
Revenue 12 132 11 910 12 386 24 296
Operating profit 2 202 2 813 4 053 6 866
Gains/(Losses) on foreign 476 (42) 287 245
exchange and financial
instruments
Finance costs:
* net interest income 147 76 66 142
* imputed interest on non- (26) **(110) (30) **(140)
current provisions
Income from investments 2 2 3 5
Taxation (908) (1 001) (1 326) (2 327)
Equity earnings* 19 120 157 277
Attributable earnings 1 912 1 858 3 210 5 068
Headline earnings (Rm) 1 912 1 858 3 221 5 079
Headline earnings (US$m) 302 286 521 807
* After tax.
** Includes an additional charge of R69 million as a result of reducing the
discount rate applied to estimated future cash flows.
Quarterly comparable headline earnings (Unaudited)
Headline earnings for the quarter increased by 80% from the previous quarter and
was 32% higher than the average of the second half last year. However, compared
to the record average headline earnings achieved during the first half of 2005,
headline earnings for the past quarter was 24% down mainly due to lower selling
prices and an increase in costs.
Exchange
Quarter to US$m Rm rate
March 2005 264 1 578 5,97
June 2005 257 1 643 6,40
Average 261 1 611 6,19
September 2005 152 987 6,50
December 2005 134 871 6,52
Average 143 929 6,51
March 2006 112 684 6,13
June 2006 190 1 228 6,46
Average 151 956 6,29
Operating results
Revenue
Six months ended Year
ended
30 Jun 31 Dec 30 Jun 31 Dec
2006 2005 2005 2005
Reviewed Unaudited Restated Restated
Rm Rm Rm Rm
Flat products* 8 109 8 149 8 479 16 628
Long Products** 3 861 3 549 3 667 7 216
Coke & Chemicals*** 438 516 540 1 056
Inter-group eliminations (276) (304) (300) (604)
Total 12 132 11 910 12 386 24 296
Operating profit
Six months ended Year
ended
30 Jun 31 Dec 30 Jun 31 Dec
2006 2005 2005 2005
Reviewed Unaudited Restated Restated
Rm Rm Rm Rm
Flat products* 1 181 1 679 2 812 4 491
Long Products** 935 983 1 125 2 108
Coke & Chemicals*** 62 142 159 301
Corporate and other 24 9 (43) (34)
Total 2 202 2 813 4 053 6 866
* Flat products includes Vanderbijlpark and Saldanha. This represents a
change from previous disclosure, which reported the results of
Vanderbijlpark and Saldanha operations seperately, and now corresponds to
the current manner in which the Flat Steel business is reported internally.
** Long Products includes Vereeniging and Newcastle.
*** Coke & Chemicals includes Pretoria and Vanderbijlpark market coke
operations.
Operating profit for the six months of R2 202 million was 46% lower than the
corresponding period last year, with the most notable declines at our Flat Steel
and our Coke & Chemicals businesses while our Long Products business was more
stable.
In general the decline in our steel business was driven by lower sales prices
and a significant increase in costs. The increase in costs was aggravated at the
Vanderbijlpark and Saldanha plants by the production problems experienced during
the period. Liquid steel production at Vanderbijlpark and Saldanha decreased by
6% and 7%, respectively, while Long Products remained in line with the first
half last year.
The decline in operating income from our Coke & Chemicals business was mainly
due to a sharp decline in the international market coke price.
Market review
International Market
Export volumes for the six months declined by 14% compared to the corresponding
period last year and 25% compared to the previous six months mainly due to an
increase in domestic sales volumes.
Hot rolled coil export prices were significantly lower than last year mainly due
to the decline during the second half of last year which continued to prevail
during the first quarter of 2006.
However, during quarter two, prices of both flat and long products have shown a
remarkable strength in all major regions and order intake prices regained lost
ground during June 2006 on some products.
Prices are expected to remain strong during the second half of the year.
Domestic Market
Domestic demand during the past six months was very strong and increased by 22%
compared to last year, driven by growth in demand from the building and
construction, automotive and packaging sectors.
Domestic demand is expected to remain buoyant for the remainder of the year
while the recent weakening of the Rand should stimulate demand from export
orientated industries.
Cost
Cash cost per tonne of hot rolled coil and billets for the six months on average
increased by 10% compared to the corresponding period last year, driven by
substantial increases in the cost of imported coal, local coal and imported
pellets.
The cost of galvanized material increased by 76% due to an increase in the price
of zinc by more than 100%.
Voluntary retrenchment packages to the value of R155 million were provided and
paid during the past six months.
Contingent liabilities
An appeal was lodged with SARS against the disallowance of the deductibility of
the payment made in terms of the BAA. We requested SARS to follow the
Alternative Dispute Resolution (ADR) route to resolve the issue. A date still
has to be set by SARS. A contingent liability of R403 million plus interest
thereon exists and no provision has been made in this regard.
The case at the Competition Tribunal on alleged excessive pricing brought by the
goldminers, Harmony and DRD was delayed by the application from the goldminers
to amend their plea. Final dates for the closing arguments are scheduled for
November with a ruling only expected early next year. We maintain our view,
based on advice from senior counsel, that no significant exposure exists in this
regard. No provision has therefore been raised and no contingent liability
quantified as per note 10.
Outlook for quarter three 2006
The results for quarter three is expected to remain strong, driven by higher
sales prices, higher domestic volumes, a more stable production environment and
the full benefit of our voluntary retrenchment programme. However, the movement
in the exchange rate will always have a major impact.
Dividend announcement
In line with the Company"s policy, the Board declared an interim dividend of 143
cents, covered approximately three times by headline earnings.
Payment in South African Rand will be made on Monday, 4 September 2006 to
shareholders recorded in the register on Friday, 1 September 2006. The last day
of trade to qualify for the dividend will be Friday, 25 August 2006 and the
shares will trade ex-dividend from Monday, 28 August 2006. Share certificates
may not be dematerialised or rematerialised between Monday, 28 August 2006 and
Friday, 1 September 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 HJ Verster
(Chief Executive Officer) (Executive Director Finance)
31 July 2006
Registered Office Transfer Secretaries
Mittal Steel South Africa Computershare Investor Services 2004
Room N3-5 (Pty) Limited
Main Building 70 Marshall Street
Delfos Boulevard Johannesburg, 2001
Vanderbijlpark, 1911 PO Box 61051
Marshalltown, 2107
Directors:
K Ngqula (Chairman), DK Chugh* (Chief Executive Officer),
Dr SE Jonah KBE **, S Maheshwari*, JJ Mashaba, A Mittal*,
LN Mittal*, Dr KDK Mokhele, MJN Njeke, HJ Verster
* Citizen of India
** Citizen of Ghana
Company Secretary: Xoliswa Motswai
Forward-looking statements
Certain statements in this release that are neither reported financial results
nor other historical information, are forward-looking statements, including but
not limited to statements that are predictions of or indicate future earnings,
savings, synergies, events, trends, plans or objectives. Undue reliance should
not be placed on such statements because, by their nature, they are subject to
known and unknown risks and uncertainties and can be affected by other factors,
that could cause actual results and Company plans and objectives to differ
materially from those expressed or implied in the forward-looking statements (or
from past results).
CONDENSED GROUP INCOME STATEMENT
Six months ended Year ended
30 Jun 30 Jun 31 Dec
2006 2005 2005
Reviewed Restated Restated
Rm Rm Rm
Revenue 12 132 12 386 24 296
Operating expenses (9 330) (7 744) (16 232)
Earnings before interest, taxation, 2 802 4 642 8 064
depreciation and amortisation
(Ebitda)
Depreciation (583) (577) (1 147)
Amortisation of intangible assets (17) (1) (40)
Profit from operations before 2 202 4 064 6 877
goodwill impairment
Goodwill impairment (Note 2) (11) (11)
Profit from operations 2 202 4 053 6 866
Gains on foreign exchange and 476 287 245
financial instruments (Note 3)
Net interest income (Note 4) 121 36 2
Income from investments 2 3 5
Income from equity-accounted 22 171 295
investments before taxation
Profit before taxation 2 823 4 550 7 413
Income tax expense (Note 5) (911) (1 340) (2 345)
Profit for period 1 912 3 210 5 068
Attributable earnings per share
(cents)
* basic 429 720 1 137
* diluted 428 718 1 135
ADDITIONAL INFORMATION
Profit attributable to ordinary 1 912 3 210 5 068
shareholders
Adjusted for:
* goodwill impairment (Note 2) 11 11
Headline earnings 1 912 3 221 5 079
Performance per ordinary share
Dividend per share (cents)
* interim 143 240 240
* final 140
Headline earnings per share (cents)
* basic 429 723 1 139
* diluted 428 721 1 137
Net asset value per share (cents) 4 683 4 234 4 365
Ordinary shares (million)
* in issue 446 446 446
* weighted average number of 446 446 446
shares
* diluted weighted average number 446 447 447
of shares
Ratios (%)
Ebitda margin 23,1 37,5 33,2
Return on ordinary shareholders"
equity per annum
* attributable earnings 19,0 36,9 28,7
* headline earnings 19,0 37,0 28,7
Net cash to equity 28,6 22,5 26,3
Market capitalisation (Rm) 33 320 20 950 27 302
CONDENSED GROUP BALANCE SHEET
As at As at
30 Jun 30 Jun 31 Dec
2006 2005 2005
Reviewed Restated Restated
Rm Rm Rm
ASSETS
Non-current assets 15 088 14 673 15 094
Property, plant and equipment 13 976 13 775 14 038
Intangible assets 57 29 74
Investments in unlisted joint 938 867 911
ventures (Note 6)
Non-current receivables (Note 7) 10 2 10
Non-current financial assets 107 61
Current assets 12 743 10 863 11 017
Inventories 3 552 3 893 3 906
Trade and other receivables 2 919 2 640 1 731
Taxation 157 116
Current financial assets 75 46
Cash and cash equivalents 6 040 4 330 5 218
Total assets 27 831 25 536 26 111
EQUITY AND LIABILITIES
Shareholders" equity
Stated capital 6 389 6 389 6 389
Non-distributable reserves 624 581 610
Retained income 13 863 11 946 12 500
Ordinary shareholders capital 20 876 18 916 19 499
Non-current liabilities 3 792 3 518 3 700
Interest bearing borrowings 61 71 71
Provisions 1 260 1 219 1 282
Provision for post-retirement 7 10 6
medical costs
Non-current capital lease 304 385 349
commitment
Deferred tax liability 2 160 1 833 1 992
Current liabilities 3 163 3 102 2 912
Interest bearing borrowings 10 10 10
Current capital lease commitment 78 88 77
Trade and other payables 2 918 2 325 2 637
Current taxation 508
Provisions 157 171 188
Total equity and liabilities 27 831 25 536 26 111
Net cash (Note 8) 5 969 4 249 5 137
CONDENSED GROUP CASH FLOW
Six months ended Year ended
30 Jun 30 Jun 31 Dec
2006 2005 2005
Reviewed Restated Restated
Rm Rm Rm
Cash inflow from operating 1 340 780 2 754
activities
Cash generated from operations 2 595 3 990 8 407
Net interest income 153 74 167
Income tax paid (784) (1 501) (2 967)
Dividend paid (624) (1 783) (2 853)
Cash outflows from investing (503) (470) (1 518)
activities
Investments to maintain (363) (407) (1 209)
operations
Investments to expand operations (243) (86) (358)
Proceeds from disposal of 7 20 6
property, plant and equipment
Investment income 2 3 5
Dividend from equity accounted
investments 94 38
Net cash inflow 837 310 1 236
Cash outflows from financing (23) (35) (54)
activities
Increase in cash and cash 814 275 1 182
equivalents
Effect of foreign exchange rate 8 15 (4)
changes
Cash and cash equivalents at 5 218 4 040 4 040
beginning period
Cash and cash equivalents at end of 6 040 4 330 5 218
period
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Six months ended Year ended
30 Jun 30 Jun 31 Dec
2006 2005 2005
Reviewed Restated Restated
Rm Rm Rm
Stated capital
* At beginning of period 6 389 6 389 6 389
* At end of period 6 389 6 389 6 389
Non-distributable reserves
* At beginning of period 610 306 306
* Movement for period 14 275 304
- management share trust loss (16) (31) (42)
- cost of share options 9 (3) 8
- currency translation gains 117 56 68
- financial instruments fair value (21) 14 25
movement
- share of joint venture hedging 78 1
reserve
- transfer of equity accounted (75) 161 244
earnings
* At end of period 624 581 610
Retained income
* At beginning of period 12 500 9 343 9 192
- as previously stated 12 518 9 352 9 352
- change in accounting for Collect- (6) (10) (12)
a-Can
- adoption of IFRIC 4 (12) 4 4
- change in accounting policy (3) (152)
mineral rights restated to cost
* Movement for period 1 363 2 603 3 308
- net profit 1 912 3 210 5 068
- dividend paid (624) (446) (1 516)
- transfer of equity accounted 75 (161) (244)
earnings
* At end of period 13 863 11 946 12 500
Minority interest
* At beginning of period
- as previously stated 9 7 7
- change in accounting for Collect- (9) (7) (7)
a-Can
* At end of period
Total equity at end of period 20 876 18 916 19 499
NOTES TO THE REVIEWED FINANCIAL STATEMENTS
1. Basis of preparation
These interim condensed financial statements are prepared in accordance
with IAS 34 Interim Financial Reporting, and Schedule 4 to the South
African Companies Act, 1973, as amended, and should be read in conjunction
with the 31 December 2005 financial statements. All IFRS and IFRIC
interpretations issued and effective as at 30 June 2006 have been applied.
The accounting policies adopted and methods of computation are consistent
with those applied in the financial statements for the year ended 31
December 2005, except for the adoption of IFRIC 4, determining whether an
arrangement contains a lease. The net carrying value of property, plant and
equipment increased by R852 million, capital lease commitments increased by
R384 million, current receivables decreased by R88 million, non-current
receivables decreased by R438 million, opening retained earnings increased
by R4 million, 2005 earnings decreased by R16 million and 2005 earnings per
share decreased by 3 cents. The treatment of transport costs recovered from
customers as a deduction from revenue was re-assessed and is now included
in revenue (R337 million) and the cost paid to transport contractors is
included in cost of sales (R337 million). This has no impact on operating
profits. The Group has re-assessed its accounting treatment of the
investment in Collect-a-Can and is now accounted for it as a jointly
controlled entity, using the equity accounting method; previously this was
accounted for as a subsidiary. This resulted in a decrease of assets by R27
million, liabilities decreased by R7 million, opening retained earnings
decreased by R15 million, 2005 earnings increased by R5 million and an
increase of 1 cent in 2005 earnings per share.
The prior year results have been restated in compliance with IAS 8
Accounting policies, changes in accounting estimates and errors.
2. Goodwill impairment
The Company purchased as part of a structured finance deal 100% of Pybus
Fifty-Seven (Pty) Limited on 1 July 2002, 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.
Six months ended Year ended
30 Jun 30 Jun 31 Dec
2006 2005 2005
Reviewed Restated Restated
Rm Rm Rm
3. Gains on foreign exchange and 476 287 245
financial instruments
Gains on changes in foreign 504 341 165
exchange rates
Losses on changes in foreign (118) (76) (58)
exchange rates
Gains on changes in the fair value 66 106
of embedded derivative instruments
Gains on changes in the fair value 24 22 32
of hedging derivative instruments
accounted for as fair value and
cash flow hedges
4. Net interest income 121 36 2
Interest income 168 87 189
Interest expense (21) (21) (47)
Imputed interest on non-current (26) (30) (140)
provisions
Six months ended Year ended
30 Jun 30 Jun 31 Dec
2006 2005 2005
Reviewed Restated Restated
Rm Rm Rm
5. Taxation 911 1 340 2 345
Company and subsidiaries 908 1 326 2 327
Equity accounted investments 3 14 18
The income tax expense is based on the best estimate of the weighted average
annual effective income tax rate expected for the full financial year.
6. Investments in joint ventures
Unlisted investments
* directors" valuation 1 033 1 028 1 077
7. Non-current financial
receivables
Non-derivative loans and 10 2 10
receivables
8. Net cash 5 969 4 249 5 137
Cash and cash equivalents 6 040 4 330 5 218
Interest bearing borrowings
* non-current (61) (71) (71)
* current (10) (10) (10)
9. Capital expenditure
* incurred 606 493 1 567
* contracted 1 373 1 019 740
* authorised but not contracted 1 659 1 018 486
10. Contingent liabilities 633 624 623
* guarantees 130 121 120
* tax contingent liabilities 503 503 503
11. Operating lease commitments 297 22 29
* less than one year 124 2 2
* more than one year and less than 173 20 27
five years
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 period 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 not less favorable to
Mittal Steel South Africa than those arranged with third parties.
13. Independent review by the auditors
These interim results have been reviewed by our auditors, Deloitte &
Touche, in terms of International Standards on Review Engagements. 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 are not fairly
presented, in all material respects, in accordance with International
Financial Reporting Standards applicable to interim Financial Reporting and
the South African Companies Act. Their unmodified review report on the
condensed consolidated interim financial statements is available for
inspection at the registered office of the Company.
14. Listings Requirements
This interim announcement has been prepared in accordance with the Listings
Requirements of the JSE Limited.
15. Corporate governance
The Group fully supports the Code of Corporate Practices and Conduct as
contained in the second King Report on Corporate Governance.
UNAUDITED SUPPLEMENTARY PHYSICAL INFORMATION ("000 TONNES)
Six months Year
ended ended
30 Jun 31 Dec 30 Jun 31 Dec
2006 2005 2005 2005
FLAT STEEL PRODUCTS
Vanderbijlpark
Liquid steel production 1 863 1 837 1 986 3 823
Sales 1 677 1 603 1 520 3 123
Saldanha Steel
Liquid steel production 570 628 616 1 244
Sales 540 613 547 1 160
LONG STEEL PRODUCTS
Liquid steel production 1 100 1 089 1 105 2 194
Sales 1 015 981 966 1 947
TOTAL
Liquid steel production 3 533 3 554 3 707 7 261
Sales 3 232 3 197 3 033 6 230
* local 2 129 1 735 1 750 3 485
* export 1 103 1 462 1 283 2 745
Local sales as percentage of 66 54 58 56
total sales
Three months ended
30 Jun 31 Mar 31 Dec 30 Sept 30 Jun
2006 2006 2005 2005 2005
FLAT STEEL PRODUCTS
Vanderbijlpark
Liquid steel production 977 886 890 947 1 010
Sales 852 825 751 852 753
Saldanha Steel
Liquid steel production 310 260 299 329 298
Sales 273 267 300 313 241
LONG STEEL PRODUCTS
Liquid steel production 578 522 546 543 550
Sales 508 507 477 504 505
TOTAL
Liquid steel production 1 865 1 668 1 735 1 819 1 858
Sales 1 633 1 599 1 528 1 669 1 499
* local 1 095 1 034 880 855 878
* export 538 565 648 814 621
Local sales as percentage of 67 65 58 51 59
total sales
This report is available on the Mittal Steel South Africa World Wide Web site
at: http://www.mittalsteelsa.com.
Share queries: Please call the Mittal Steel Share care toll free on 0800 006 960
or +27 11 370 7850 if calling from outside South Africa
Date: 02/08/2006 08:00:18 AM Produced by the JSE SENS Department
