| Tue 6 Feb 2007, 15:33 | | HVL - Highveld Steel - Annual financial results: y |
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HVL
HVL
HVL - Highveld Steel - Annual financial results: year ended 31 December 2006
Highveld Steel and Vanadium Corporation Limited
Registration No. 1960/001900/06
Incorporated in the Republic of South Africa
Share code: HVL
ISIN code: ZAE000003422
Annual financial results for the year ended 31 December 2006
* Headline earnings R1 041million
* Final dividend of 350 cents per share
* Special dividend of 100 cents per share
* Rolled steel production - best in 10 years
* Record local steel despatches
Creating value through innovation ...
Group audited financial results
The Group`s financial results for the year ended 31 December 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 are
consistent with those applied in the previous year, except for the Standards and
Interpretations as listed below.
These results are presented in terms of IAS 34 applicable to Interim Financial
Reporting. These condensed consolidated financial statements have been derived
from the Group`s annual financial statements and are consistent in all material
respects with the Group`s annual financial statements.
In the current year, the Group has adopted all of the new and revised Standards
and Interpretations issued by the International Accounting Standards Board ("the
IASB") and the International Financial Reporting Interpretation Committee of the
IASB, that are relevant to its operations and effective for accounting periods
beginning on 1 January 2006. The adoption of these new and revised Standards and
Interpretations has resulted in changes in the Group`s accounting policies and
are disclosed as follows:
IFRS 4 - Insurance Contracts and IFRS 6 - Exploration for and Evaluation
of Mineral Resources
These Standards had no impact on the Group`s financial results or disclosures.
IAS 21 - The effect of Changes in Foreign Exchange Rates
The changes resulting from this Standard were immaterial to the Group`s results
and accordingly no separate disclosure was considered necessary.
IAS 39 - Financial Instruments: Recognition and Measurement
These amendments were already adopted in the Group`s 2005 accounts and they did
not have a significant impact on the Group`s results.
IFRIC 4 - Determining whether an Arrangement contains a Lease
The adoption of this Interpretation had no material effect on the financial
results of the Group and accordingly no separate disclosure was considered
necessary.
IFRIC 5 - Rights to Interest arising from Decommissioning, Restoration and
Environmental Rehabilitation Funds
The requirements of this Interpretation were already adopted in the Group`s 2005
accounts and they did not have a significant impact on the Group`s results.
IFRIC 6 - Liabilities arising from Participating in a Specific Market -
Waste Electrical and Electronic Equipment
The Group is not involved in the production or sale of household equipment and
this Interpretation will have no effect on the financial results or disclosures
of the Group.
The financial information has been audited by Deloitte & Touche, whose
unmodified report is available for inspection at the Corporation`s registered
office.
Condensed consolidated income statements
Audited for the year ended
Note 31.12.2006 31.12.2005
Rm Rm
Continuing operations
Revenue 6 832 7 155
Operating profit before depreciation 1 666 3 005
Depreciation and scrapping of property, (252) (232)
plant and equipment
Operating profit 1 414 2 773
Profit on disposal of investments - 243
Interest and investment income received 33 74
Interest paid (89) (38)
Profit before taxation 1 358 3 052
Taxation charge (330) (1 136)
Profit after taxation 1 028 1 916
Discontinued operation
Revenue 69 -
Operating profit 16 -
Profit on disposal of discontinued 91
operation
Profit before taxation 107
Taxation charge (22) -
Profit after taxation 85 -
Total operations
Revenue 5 6 901 7 155
Operating profit before depreciation 1 682 3 005
Depreciation and scrapping of property, (252) (232)
plant and equipment
Operating profit 1 430 2 773
Profit on disposal of investments - 243
Interest and investment income received 33 74
Interest paid (89) (38)
Profit before disposal of discontinued 1 374 3 052
operation
Profit on disposal of discontinued 91 -
operation
Profit before taxation 1 465 3 052
Taxation charge (352) (1 136)
Attributable profit 1 113 1 916
Basic earnings per share Cents Cents
From continuing operations 1 035.9 1 936.2
From discontinued operations 86.7 -
From total operations 1 122.6 1 936.2
Basic earnings per share - diluted Cents Cents
From continuing operations 1 035.8 1 916.7
From discontinued operations 86.7 -
From total operations 1 122.5 1 916.7
Reconciliation of headline earnings Rm Rm
Attributable profit 1 113 1 916
Add/(deduct) after tax effect of:
Profit on disposal of discontinued (73) -
operation
Impairment losses recognised 11 -
Net (profit)/loss on disposal and (10) 36
scrapping of property, plant and
equipment
Profit on disposal of investments - (230)
Headline earnings 1 041 1 722
Headline earnings per share Cents Cents
From continuing operations 1 036.8 1 739.8
From discontinued operations 12.2 -
From total operations 1 049.0 1 739.8
Headline earnings per share - diluted Cents Cents
From continuing operations 1 036.8 1 721.9
From discontinued operations 12.2 -
From total operations 1 049.0 1 721.9
Number of shares Million Million
Ordinary shares in issue as at year-end 99.1 99.1
date*
Weighted average number of ordinary 99.1 99.0
shares*
Diluted number of ordinary shares* 99.1 99.0
* Rounded to nearest hundred thousand
Dividends per share - based on calendar Cents Cents
profits
Interim dividends proposed and paid 250 1 480
Final dividend proposed 350 400
Final dividend paid 400 320
Special dividends proposed 100 950
Special dividend paid - 950
Condensed consolidated balance sheets
Audited as at
Note 31.12.2006 31.12.2005
Rm Rm
Assets
Non-current assets 2 221 1 678
Property, plant and equipment 2 115 1 571
Held-to-maturity investments 3 3
Available-for-sale investments 103 104
Current assets 2 348 2 221
Total assets 4 569 3 899
Equity and liabilities
Shareholders` equity 1 871 1 325
Non-current liabilities 570 386
Financial leases 23 36
Long-term provisions 285 186
Deferred taxation 262 164
Current liabilities 2 128 2 188
Total equity and liabilities 4 569 3 899
Net borrowings 3 (550) (98)
Net asset value - cents/share 1 887 1 336
Condensed consolidated statements of recognised income and expense
Audited for the year ended
31.12.2006 31.12.2005
Rm Rm
Actuarial loss on defined benefits recognised (10) (31)
directly in equity
Tax on above taken directly to equity 3 9
Currency translation differences 81 (34)
Fair value re-classified to income - (166)
Fair value revaluation (1) -
Net income/(expense) recognised directly in 73 (222)
equity
Attributable profit for the year 1 113 1 916
Total recognised income and expense for the 1 186 1 694
year
Condensed consolidated cash flow statements
Audited for the year ended
31.12.2006 31.12.2005
Rm Rm
Cash available from operations before taxation 1 486 2 708
paid
Taxation paid (637) (655)
Net cash generated by operating activities 849 2 053
Effects of exchange rate changes on cash held 117 -
in foreign currencies
Net cash (used in)/generated by investing (774) 412
activities
Investing activities (774) (664)
Proceeds on disposal of investments - 1 076
Net cash inflow before financing activities 192 2 465
Net cash generated by financing activities 261 503
before dividends paid
Dividends paid (644) (2 724)
Net (decrease)/increase in cash and cash (191) 244
equivalents
Condensed segmental reports (Continuing operations)
Audited for the year ended
31.12.2006 31.12.2005
Rm Rm
Revenue
Steelworks 3 445 2 846
Vanadium 2 468 3 624
Ferro-alloys 919 685
Total revenue 6 832 7 155
Operating profit/(loss)
Steelworks 619 552
Vanadium 838 2 194
Ferro-alloys (43) 27
Total operating profit 1 414 2 773
Notes to the condensed consolidated financial statements
1 Companies Act and JSE Limited 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.
2 Related party transactions
Transactions entered into between the Corporation and its related
parties during the reporting periods were arm`s length transactions
between willing parties at fair value.
3 Net borrowings
Net borrowings are calculated by subtracting the cash and cash
equivalents from financial leases (long-term debt) and short-term
loans.
Condensed statements of changes in equity
Non-distributable
reserves
Share Translatio Fair Retaine Total
capita n and value d
l and share- reserve profit
share based s
premiu payment
m reserves
Rm Rm Rm Rm Rm
2005
Actuarial loss on (31) (31)
defined benefits
recognised directly in
equity
Tax on above taken 9 9
directly to equity
Currency translation (34) (34)
differences
Net income recognised - (34) - (22) (56)
directly in equity
Fair value re-classified (166) (166)
to income
Attributable profit for 1 916 1 916
the year
Total recognised income - (34) (166) 1 894 1 694
and expense for the year
Balance at 31 December 570 - 170 1 597 2 337
2004
Dividends paid (2 724) (2
724)
Recognition of share- 3 3
based payments
Proceeds from shares 15 15
issued
Balance at 31 December 585 (31) 4 767 1 325
2005
2006
Actuarial loss on (10) (10)
defined benefits
recognised directly in
equity
Tax on above taken 3 3
directly to equity
Currency translation 81 81
differences
Fair value loss on VRB (1) (1)
Power Systems Inc.
Net income recognised - 81 (1) (7) 73
directly in equity
Attributable profit for 1 113 1 113
the year
Total recognised income - 81 (1) 1 106 1 186
and expense for the year
Balance at 31 December 585 (31) 4 767 1 325
2005
Dividends paid (644) (644)
Recognition of share- 4 4
based payments
Balance at 31 December 585 54 3 1 229 1 871
2006
Unaudited
5 Supplementary revenue information 31.12.2006 31.12.2005
Sales volumes of major products
Total steel tons 802 648 735 307
Vanadium pentoxide (Vanchem) kg V2O5 3 484 318 4 406 811
Ferrovanadium and ferrovanadium kg V 7 341 577 7 112 457
nitride
Vanadium chemicals kg V2O5 1 341 743 1 116 929
Vanadium slag tons V2O5 15 094 13 803
Weighted average selling prices
achieved for major products
Total steel $/ton 605 566
Vanadium pentoxide (Vanchem) $/kg V2O5 18 35
Ferrovanadium $/kg V 39 64
Vanadium chemicals $/kg V2O5 20 29
Average R/$ exchange rate 6.69 6.31
6 Financial ratios
Current ratio 1.10 1.02
Market capitalisation - Rm 7 733 8 407
7 Contingent liabilities
As required by the Mineral and Petroleum Resources Development Act, No.
28 of 2002, a guarantee amounting to R176 million (2005: R Nil) was
issued on 1 February 2007 in favour of the Department of Minerals and
Energy for the unscheduled closure of Mapochs mine.
Notice of final ordinary and special dividends
On Tuesday, 6 February 2007, the directors of the Corporation declared a final
dividend No. 66 of 350 cents per share (South African currency) and a special
dividend No. 67 of 100 cents (South African currency) on the ordinary shares for
the year ended 31 December 2006, as follows:
Last day to trade to qualify for dividends
(and for changes of address or dividend instructions) Friday, 2 March 2007
Ex-dividends on the JSE Limited Monday, 5 March 2007
Record date Friday, 9 March 2007
Payment date of dividends Monday, 12 March 2007
Share certificates may not be dematerialised or rematerialised between Monday, 5
March 2007 and Friday, 9 March 2007, both days inclusive.
By order of the Board
Ms A Diener Emalahleni
Company Secretary 6 February 2007
The annual report will be posted to all registered shareholders during March
2007.
Enquiries may be directed to email address: general@hiveld.co.za
Strategic direction
During 2006, Highveld Steel and Vanadium Corporation Limited ("Highveld" or "the
Corporation") continued to maintain and grow its position as the world`s leading
vanadium producer, and continued striving towards its goal of being amongst the
lowest cost quartile steel producers of the world.
Despite the sharp reduction in the vanadium price during the year, the
Corporation remained on track with its long-term vision to create superior value
and benefits, on a sustainable basis across commodity cycles, for all
stakeholders. It did so, inter alia, by completing the conversion of a second
furnace at the Ironmaking division to the open slag bath configuration and
progressing various other projects and initiatives aimed at improving
efficiencies, and yields, reducing costs and increasing output.
Financial results
Following the stabilisation of vanadium prices at a more sustainable level after
the record highs of 2005, reduced vanadium production and weaker ferro-alloy
markets, the Group`s headline earnings declined to R1 041 million from the best-
ever R1 722 million reported in 2005. The decline was moderated, however, by an
exceptionally strong domestic demand for steel and the on-going efforts to
reduce costs further and improve efficiencies, yields and output - which
contributed to total cost savings of R199 million (2005: R232 million). The 2006
results were Highveld`s second best in history.
Profit attributable to shareholders for the year was R1 113 million (2005: R1
916 million). Headline earnings per share decreased to 1 049.0 cents (2005: 1
739.8 cents).
Despite an increase in the Group`s net debt position at year-end, due mainly to
capital expenditure and tax payments of R1 423 million (2005: R1 279 million),
the Board`s confidence in the Group`s business position and future cash flow is
reflected in its declaration of a final dividend of 350 cents per share and a
special dividend from the sale of Ferroveld of 100 cents. This brings the total
ordinary dividends to 600 cents (2005: 1 880 cents) and special dividends to 100
cents (2005: 950 cents).
Operations
Vanadium
Demand for vanadium, over the next 10 years, is expected to grow at a marginally
lower rate than the annual compounded growth rate of 4 per cent experienced over
the last 15 years. The growth rate is mainly influenced by global demand for
steel, particularly from China, as well as increased demand for vanadium-based
chemicals. In recent years, vanadium output from China and Russia has been
increasing, off-setting a decrease in South African and Australian output.
In 2006, the average ferrovanadium price achieved was $39 per kilogram vanadium,
compared with the 2005 average of $64 per kilogram.
At the Group`s Vanchem operation, vanadium production was lower than 2005, due
to the planned kiln refractory reline involving all three kilns, and a bag
filter upgrade. In addition to the planned relining of the kilns, one kiln also
had to undergo a major mechanical overhaul following a shell and ring gear
failure.
The completion of the filter press and fusion furnace projects at Vanchem
resulted in improved working conditions and enhanced performance. A number of
projects required by the Integrated Water and Waste Management Plan at Vanchem
have been successfully completed.
Steel
Global steel consumption has grown consistently by an average annual rate of 6
per cent from 2000 to 2005. This growth has been driven mainly by the demand in
China. In 2006, the global production of crude steel rose by 8.8 per cent
compared with 5.7 per cent in 2005, while production in China increased by 18.5
per cent. Towards the end of 2006, the growth in global steel demand started
declining, and prices followed suit, led by declines in America, where major
mills started implementing production cutbacks.
Highveld`s rolled steel production increased by 12 per cent compared with 2005,
and a strong domestic demand saw local steel despatches increase by 25 per cent.
This increased demand is attributed to broad-based demand led by the mining and
chemical industries.
The Group`s performance also benefited from the increase in international prices
for its export steel products, as a result of strong commodity prices.
Ferro-alloys
Market conditions for manganese alloys started to improve during the second
quarter of 2006 to the extent that it was possible to operate all furnaces
during the high cost winter months, positively influencing production and sales.
Although prices also improved in Europe, North and South America remained the
most profitable markets for manganese products. Demand for the Group`s
ferrosilicon products also improved during the year but prices remained at
relatively low levels despite significant improvements in world-wide stainless
steel demand.
Safety, health, environment and quality
Highveld deeply regrets the death of two contractor employees at the Ironmaking
division and the South Africa Japan Vanadium (Proprietary) Limited plant
respectively during the year.
Safety, employee health, the environment and quality assurance remain key focus
areas at the Corporation. This is reflected in the lost-time injury frequency
rate (LTIFR), which remained stable at 0.22 for the year (2005: 0.22) and a non
lost-time injury frequency rate which improved by 22 per cent - a world-class
performance. Seven of the 14 divisions achieved a zero LTIFR compared with five
in 2005.
All divisions are ISO 14001 certified according to the 2004 standard and all
divisions remain ISO 9001 certified. As planned, all divisions underwent phase 1
of the OHSAS 18001 Safety Management System certification audit in 2006. Vanchem
also completed phase 2 and achieved certification. The remaining divisions
continue working towards obtaining certification.
The Corporation`s five-year programme to achieve international best-practice for
emission control, waste management and water and energy conservation, has been
adjusted during the year under review to include steps to ensure that the
Corporation complies with new air quality legislation.
In September 2006, Transalloys became one of the first South African companies
to receive approval from the International Methodology Panel for the methodology
to be used for calculating the carbon emission savings on a furnace modification
project. The project will now be submitted for registration in order to obtain
the Certified Emission Reductions (CDM trading units) generated since 2004.
Similar applications will be made for the Steel Plant induction furnace project
and the Ironmaking division open slag bath furnace modifications.
Investments
Highveld continued its policy of divesting from non-core assets, with the sale
of its 50 per cent holding in Ferroveld, to Elkem International AS, a leading
global producer of high-quality electrode paste for R120 million.
Capital expenditure
Capital expenditure, aimed at improving production, safety and environmental
impacts, amounted to R818 million (2005: R624 million). At year-end, an amount
of R458 million (2005: R582 million) had been committed, which will be funded
from internally generated cash flows or available borrowing facilities.
Transformation
Transformation, driven by the Transformation Committee of the Board, forms an
integral part of Highveld`s business strategy, management approach, supply chain
philosophy and community projects.
Sale of Anglo American plc shares in Highveld
Following the announcement in 2005 that Anglo American plc planned to sell its
shareholding in Highveld, in line with its revised business strategies and
objectives, Evraz Group S.A. ("Evraz") and Credit Suisse Group ("Credit Suisse")
both purchased 24.9 per cent of Highveld for an aggregate consideration of $412
million. Evraz has an option to increase its stake in Highveld once regulatory
approvals are received. Subject to Evraz receiving such regulatory approvals,
Evraz will be entitled to purchase Anglo American`s remaining 29.2 per cent
shareholding for $266 million. This amount will be reduced by any dividends paid
by Highveld prior to Anglo American selling its remaining shares. In terms of a
separate option agreement, Evraz has an option over the 24.9 per cent held by
Credit Suisse in Highveld. Should Evraz increase its interest beyond 35 per
cent, it will be obliged to make an offer to all shareholders of Highveld.
Directorate
Following the Evraz/Credit Suisse transactions, we welcome three Evraz directors
to the Highveld Board, namely James Campbell, Alexander Frolov and Alexander
Sorokin. We value the global perspective they bring to the Board.
Outlook for 2007
Assuming ferrovanadium prices around the current levels of $32 per kilogram
vanadium and a Rand exchange rate at above R7.00 to the Dollar respectively,
Highveld`s performance in 2007 should be similar to that of 2006.
The strong domestic demand for the Corporation`s steel products is expected to
continue and should support earnings in the new year. The international demand
for steel is expected to remain stable which should also positively impact on
the Group`s earnings.
The Rand exchange rate appears to have eased off its position of strength of the
past few years, and any further weakening will benefit export sales especially
for vanadium products. A continued cost savings drive will further support
earnings.
Recently completed capital projects, notably the two completed open slag bath
conversions, and the second ladle furnace, will bolster output of vanadium as
well as iron and steel and improve efficiencies which will underpin performance
and allow the Group to satisfy the expected strong domestic demand for steel.
In conclusion, the Board thanks the executives, management and all Highveld
employees, who met the challenges of 2006 head-on, including the period of
uncertainty during the bidding process for the Anglo American shareholding. The
team`s resilience and continued commitment during the transition period
following the sale of shares in Highveld by Anglo American is appreciated.
Thanks to its loyal and enthusiastic people, Highveld remains well positioned to
optimise its coveted position in the vanadium and steel markets.
G G Gomwe A J de Nysschen
Chairman Chief Executive Officer
6 February 2007
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: Transfer secretaries:
Portion 29 of the farm Computershare Investor Services
Schoongezicht No. 308 JS 2004 (Proprietary) Limited
District Emalahleni, 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:
J.P. Morgan Equities Limited
Registration number 1995/011815/06
Date: 06/02/2007 15:33:01 Produced by the JSE SENS Department.
