To view the PDF file, sign up for a MySharenet subscription.

KIO - Kumba - Audited Group operating results for the two months ended 31

Release Date: 15/02/2007 07:00
Code(s): KIO
Wrap Text

KIO - Kumba - Audited Group operating results for the two months ended 31 December 2006 Kumba Iron Ore Limited and its subsidiaries (Incorporated in the Republic of South Africa) (Reg No 2005/015852/06) JSE code: KIO & ISIN: ZAE000085346 ("Group" or "Kumba" or "the Company") Highlights Audited Unaudited 2 mths 12 mths * Revenue R2,2bn R8,7bn * Operating profit R684m R5,4bn * Headline earnings R262m R2,1bn * Earnings per share (cps) 84 1 080 * Maiden dividend 80 cents per share * Fully empowered mining company COMMENTARY Reporting period Kumba Iron Ore Limited ("Kumba" or "Company") was registered as a legal entity in May 2005. No trading took place in Kumba until November 2006, following the unbundling of Kumba from Kumba Resources Limited ("Kumba Resources") in terms of the Kumba Resources empowerment transaction. The published audited results therefore include trading for only the two-month period ended 31 December 2006. Where reference is made to the 10-month period from 1 January 2006 to 31 October 2006, or to the 12-month period from 1 January 2006 to 31 December 2006, readers are advised that this supplementary information has been prepared from financial information reported by Kumba Resources and is unaudited. As Kumba did not trade before 1 November 2006, being the date that the Kumba Iron Ore Limited Group ("Group") came into existence, no comparative figures are provided. Audited Group operating results for the two months ended 31 December 2006 Profit after tax Rm 379 Profit attributable to ordinary shareholders Rm 264 Profit before interest and tax (EBIT) Rm 684 Basic earnings per share cps 84 Dividend declared per share cps 80 The profit for the period ended 31 December 2006 was R379 million, of which R115 million was attributable to minority interest holders. The minority interest holders` share in the result for the period is effectively 30,3%, compared to the actual minority interest shareholding of 26%. An accounting charge of R153 million arises from the sale of 3% of the issued shares in Sishen Iron Ore Company (Proprietary) Limited ("SIOC") which Kumba sold to the SIOC Community Development Trust as part of the conditions of the Kumba Resources empowerment transaction. In terms of IFRS 2 the difference between the offer price and the fair value is charged to the income statement and is not shared by minority shareholders. Profit before interest and tax (EBIT) was R684 million for the two month period. * Export volumes for the two months were 4 million tons ("Mt") bringing total exports for the year to 21,5 Mt. Domestic sales volumes to Mittal Steel South Africa Limited ("Mittal Steel") for November and December totalled 1,6 Mt. The majority of export sales during the two months were shipped to customers in China. * Costs incurred to maximise throughput and to comply with new pit wall safety requirements, as well as human resources costs resulted in cost increases, particularly at the Sishen mine. Cash flow Cash and cash equivalents at 31 December 2006 were R1,1 billion, whilst cash generated from operating activities amounted to R389 million. A net cash outflow of R140 million for the period related largely to capital expenditure on the Sishen Expansion Project ("SEP") (R511 million) partially offset by a R400 million increase in cash resources being the opening balance of cash in SIOC upon the acquisition of SIOC from Kumba Resources. Net interest bearing borrowings of R884 million were taken up during the two months reporting period. Net debt During November 2006, the Group entered into loan agreements in order to replace previous back to back loan facilities provided by Kumba Resources. Overview of the 12 months ended 31 December 2006 (unaudited) Kumba was unbundled from Kumba Resources and subsequently listed on the JSE Limited ("JSE") on 20 November 2006. Following completion of the Kumba Resources empowerment transaction, Kumba will comply with the 2014 equity ownership requirements of the Mining Charter. Applications for conversion of SIOC held old order rights were lodged in December 2005 and with the Kumba Resources empowerment transaction now completed, conversion representations to the Department of Mineral and Energy are in progress. Global crude steel production for 2006, was 1,201 Mt, an increase of 8,8% over 2005. China`s share of world steel output increased from 31% in 2005 to 34% in 2006, entrenching its position as the largest global producer of steel. The global iron ore market continued its very strong growth trend of the past few years, increasing by 13,9% to 1 750 Mt in 2006. China`s consumption of global iron ore production increased by 33% to 560 Mt. The continued tight supply situation of iron ore was reflected by the 19% benchmark price increase for 2006/2007 that was settled in May 2006. This was followed by an early settlement of 9,5% between certain iron ore producers and steel mills during December 2006 for the 2007/2008 iron ore year, starting on 1 April 2007. In 2006, Kumba`s financial and operational performance was strong with year on year revenue and EBIT increasing from R6,6 billion to R8,7 billion and from R3,9 billion to R5,4 billion respectively. The underlying EBIT margin increased from 42% in 2005 to 46% in 2006. This excludes the proceeds on the settlement of Hope Downs in 2005, and the profit on the offshore non-iron ore assets sold to Kumba Resources in terms of the Kumba Resources empowerment transaction in 2006. It also excludes the IFRS2 expense of R153 million arising on the sale of equity to the SIOC Community Development Trust. Inflationary pressure had a negative impact on profit but was partially offset by continued operating cost savings from improvement initiatives. Costs were higher, primarily due to higher fuel, human resource and project-linked operating costs as well as an increase in stripping and maintenance related activities. As part of the Kumba Resources empowerment transaction, all offshore non-iron ore assets were sold to Kumba Resources resulting in a non-recurring profit of R1,6 billion in September 2006. Export sales volumes for 2006 decreased by 3% from 2005 to 21,5 Mt, hampered by a breakdown of loading equipment at the Saldanha port in September 2006. This constrained shipments and necessitated the rescheduling of vessels. Production volumes at Sishen mine increased by 1% to 28,7 Mt and tonnage railed from the mine to the port of Saldanha increased by 1% to 24,3 Mt. Domestic sales volumes decreased by 9% to 8,3 Mt due to lower demand from Mittal Steel. Cash from operating activities for the 12 months ended 31 December 2006 increased by 65% from R2,6 billion to R4,3 billion. Cash outflow for capital expenditure increased from R402 million in 2005 to R1,7 billion in 2006 due to increased capital expenditure on growth projects. Safety performance Kumba made good progress on its way to zero harm status by achieving a lost time injury frequency rate ("LTIFR") of 0,22 and 0,31 at Sishen and Thabazimbi respectively. Despite this improvement, and most regrettably the Group had one fatality at its Sishen operation in April 2006. Sishen mine made good progress in reducing the number of lost time incidents ("LTI") suffered in 2006; achieved three million man hours without a LTI for the second time since 2002, and on 31 March 2006 recorded an all time record of 5,3 million man hours without an LTI. The SEP project achieved an LTIFR of 0,11 during 2006. Project pipeline Sishen Expansion Project (SEP): Physically the construction of SEP was 76% completed at 31 December 2006. Despite engineering difficulties relating to skills shortages amongst suppliers the project is expected to ramp up according to plan during the second half of 2007. This project will apply jig technology to extract 13 million tons per annum ("Mtpa") additional saleable ore from 21 Mtpa of feedstock; about 8 Mtpa material previously accounted for as waste and 13 Mtpa from new run-of-mine material. In August 2006, a decision was taken to expand SEP production from 10 Mtpa to 13 Mtpa at an additional capital cost of R1,3 billion. The project is expected to be completed within its budget of R5,1 billion. Ramp up to full capacity is expected in early 2009 and will increase annual production from Sishen to 42 Mtpa. A pre feasibility study to expand the current Sishen mine by a further 10 Mtpa - 20 Mtpa, in addition to SEP is due to be completed during 2007, with production currently anticipated to commence by 2011. Sishen South Project: The feasibility study will be completed in March 2007. Following the finalisation of the Transnet feasibility study for the expansion of the Sishen Saldanha export channel, and successful negotiations of rail tariffs, Kumba is expected to make an investment decision on the development of the Sishen South Project in the second half of 2007. The capital cost is currently estimated at approximately R3 billion for a 9 Mtpa mine. Project Phoenix: The feasibility study to extend the life of the Thabazimbi mine by some 20 years through exploitation of the in situ low iron content banded ironstone formation will be completed in April 2007. However, Mittal Steel advised in December 2006 that it no longer wishes to participate in Project Phoenix. The Group is considering alternative options to ensure maximum resource utilisation. Faleme - Senegal: Following notification from Miferso that it disputes Kumba`s rights to the development of the Faleme iron ore project Kumba continues to engage with the Government of Senegal to resolve the dispute amicably. It remains the view of the Board that if these negotiations prove to be unsuccessful, legal action available to Kumba will be pursued to preserve its contractual rights. Kumba`s legal advisors have concluded that the particulars of the claim for US$196 million from an erstwhile potential partner in the Faleme project, Lithos, as presently framed, do not sustain a cause of action and accordingly no provision has been raised. Prospects The upward trend in global iron ore demand is expected to continue during the coming year. Prospects for continued real growth in global steel demand remain positive in 2007, with the strongest growth again expected to come from China with an anticipated increase of 8% - 10% in steel consumption. The outlook for Kumba for 2007 is expected to remain positive, given a stable macro economic environment, continued strong iron ore demand and firm iron ore prices. Kumba will focus on growth through its current operations whilst broadening its` production base further as it actively pursues its pipeline of projects. PL Zim EJ Myburgh Chairman Chief Executive Officer 14 February 2007 Pretoria Registered office Transfer secretaries Lakefield Office Park Computershare Investor Services Corner West and Lenchen Roads 2004 (Pty) Limited Centurion, Pretoria, 0046 70 Marshall Street Republic of South Africa Johannesburg, 2001 Tel: +27 12 683 7000 South Africa Fax: +27 12 683 7009 (PO Box 61051, Marshalltown, 2107) Condensed group income statement Unaudited* Audited pro forma 2 months to 12 months to
31 December 31 December 2006 2006 Rm Rm Revenue 2 171 8 654 Operating expenses (1 487) (3 301) Operating profit 684 5 353 Finance income 7 39 Finance costs (43) (103) Profit before taxation 648 5 289 Taxation (269) (1 014) Profit for the year 379 4 275 Attributable to: - Equity holders of the parent 264 3 381 - Minority interest 115 894 Ordinary shares (million) - in issue 314 314 - weighted average number of shares 314 314 - diluted weighted average number of shares 319 319 Attributable earnings per share (cents) - basic 84 1 080 - diluted 83 - Dividend declared per share (cents) 80 - Reconciliation of Headline Earnings Net profit attributable to ordinary 264 3 381 shareholders - Net profit on disposal or scrapping of property, plant and equipment (4) 2 - Net surplus on disposal of investment in non-iron ore assets - (1 571) - Transfer to minority interest 1 314 - Taxation effect of adjustments 1 (1) Headline earnings (Rm) 262 2 125 (cps) 83 677 *Prepared on a basis consistent as used for the preparation of the pro- forma financial statements presented in the Kumba Iron Ore Limited Pre- listing Statement, dated 9 October, 2006. Condensed group balance sheet as at 31 December 2006 Audited 31 December
2006 Rm Assets Non-current assets 4 021 Property, plant and equipment 3 864 Biological assets 7 Financial assets 150 Current assets 2 848 Inventories 749 Trade and other receivables 1 005 Cash and cash equivalents 1 094 Total assets 6 869 Shareholders` equity and liabilities Capital and reserves 839 Share capital 3 Non-distributable reserves 201 Distributable reserves 635 Minority interest 216 Total shareholders` equity 1 055 Non-current liabilities 3 477 Interest-bearing borrowings 2 840 Non-current provisions 152 Deferred taxation 485 Current liabilities 2 337 Trade and other payables 555 Current portion of long-term loans 1 179 Current taxation 603 Total liabilities 5 814 Total equity and liabilities 6 869 Net asset value per share (cents) 336 Capital expenditure - incurred 511 - contracted 2 477 - authorised but not contracted 3 176 Capital expenditure relating to Thabazimbi (captive mine), which will be financed by Mittal Steel - contracted 1 - authorised but not contracted 2 Condensed group cash flow statement Unaudited*
Audited pro forma 2 months to 12 months to 31 December 31 December 2006 2006
Rm Rm Cash flows from operating activities 350 1 490 Cash generated from operating activities 389 4 277 Dividend paid - (1 534) Taxation paid - (1 198) Interest paid (46) (94) Interest received 7 39 Cash flows from investing activities (140) (48) Capital expenditure (511) (1 718) Proceeds on disposal of property, plant and equipment 6 - Surplus from the disposal of investment in non-iron ore assets - 1 571 Increase in cash resources on acquisition of a controlling interest in subsidiaries - note 400 - 3 Other (35) 99 Cash flows from financing activities 884 (939) Long and short-term loans raised 2 840 2 840 Long and short-term loans repaid (1 956) (3 779) Increase in cash and cash equivalents 1 094 503 At beginning of year - 591 At end of year 1 094 1 094 *Prepared on a basis consistent as used for the preparation of the pro- forma financial statements presented in the Kumba Iron Ore Limited Pre- listing Statement, dated 9 October, 2006.. Condensed Group statement of changes in equity Audited 2 months to 31 December
2006 Rm Shareholders` funds at the beginning of the year - Changes in share capital and premium - issue of shares 3 - share premium - Changes in non-distributable reserves - Currency translation differences 24 - Financial instruments movements (5) - Equity settlement reserve 182 Changes in distributable reserves - At acqusition reserve 371 - net profit for the year 264 Changes in minority interest - Acquisition of subsidiary 93 - Income charge for the year 115 - Transfer to minority reserve 8 Shareholders` funds at the end of the year 1 055 Segmental reporting The business of the Group represents the iron ore division that has been unbundled from Kumba Resources and as such is managed as a single business unit. Segmental reporting is therefore not presented. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Companies Act and JSE Listing Requirements Compliance with the Companies Act No 61 of 1973 as well as the Listing Requirements of the JSE has been maintained throughout the reporting period. 2. Related-party transactions During the year the Company and its subsidiaries, in the ordinary course of business, entered into various sale and purchase transactions with associates and joint ventures. These transactions were subject to terms that are no less favourable than those arranged with third parties. 3. Increase in cash resources on acquisition of a controlling interest in subsidiaries
Rm Cash paid on acquisition of share (3) Transferred to pre-acquisition reserves (371) Fair value of assets acquired (374) The assets and liabilities arising from the acquisition are as follows: Property, plant and equipment 3 400 Investments in joint ventures and associates 1 Financial assets 150 Biological assets 4 Cash and cash equivalents 403 Inventories 785 Trade and other receivables 912 Non-current provisions (157) Deferred taxation (535) Receiver of revenue (358) Trade and other payables (1 024) Minority (93) Short term borrowings (3 114) Fair value of net assets 374 Total purchase consideration (3) Less: Cash and cash equivalents in subsidiary acquired 403 Net cash inflow 400 4. Contingent liabilities Contingent liabilities at balance sheet date not otherwise provided for in the consolidated annual financial statements, arise from a guarantee for environmental rehabilitation closure liability of R13 million and guarantee of R10 million to the Lakutshona Housing Company. Corporate information The condensed consolidated financial statements of Kumba and its subsidiaries for the year ended 31 December 2006 were authorised for issue in accordance with a resolution of the Board of Directors passed on 14 February 2007. Kumba is a limited liability company incorporated and domiciled in South Africa. The Group has its primary listing on the JSE. BASIS OF PREPARATION AND ACCOUNTING POLICIES Basis of preparation This condensed report complies with International Accounting Standard 34, Interim Financial Reporting, and Schedule 4 of the South African Companies Act. The Group financial results have been prepared on the historical cost basis excluding financial instruments and biological assets which are valued at fair value, and conform to International Financial Reporting Standards. Audit opinion The auditors, Deloitte & Touche have issued their opinion on the Group`s financial statements for the year ended 31 December 2006. The audit was conducted in accordance with International Standards on Auditing. They have issued an unmodified audit opinion. A copy of their audit report is available for inspection at the Company`s registered office. These summarised financial statements have been derived from the Group financial statements and are consistent in all material respects with the Group annual financial statements. Comparatives The Group was formed with the completion of the Kumba Resources empowerment transaction during November 2006. Before this date, the holding company was a dormant company, with issued share capital to the value of R100 and a loan account of the same amount. No comparative information is therefore presented in this report. Significant accounting policies The accounting policies are consistent with those applied in the Kumba Resources Limited financial statements for the year ended 31 December 2005. The Group applied all the relevant new and revised standards and interpretations that were in issue and effective for years ended on or after 31 December 2005 other than IFRS4 relating to Thabazimbi. Unbundling transaction The Group was formed as part of the Kumba Resources empowerment transaction. The unbundling of Kumba was effected by way of a distribution of Kumba distribution shares (in specie) in terms of section 90 of the Companies Act and in accordance with section 46 of the Income Tax Act in the ratio of one Kumba distribution share for every one Kumba Resources share held at the close of business on the record date. For accounting purposes, the transaction was treated as a transaction between commonly controlled entities, including IFRIC4 in respect of Thabazimbi and therefore all assets and liabilities were included at the respective book values at the unbundling date. SIOC Community Development Trust and SIOC Employee Share Purchase Scheme SIOC Community Development Trust and SIOC Employee Share Purchase Scheme each hold a 3% share in SIOC. These two entities are treated as special purpose entities, and are therefore included in the Group consolidated results as presented in this report. Profit before taxation for the two month period 1 November 2006 - 31 December 2006 is derived after taking the following into account: 2006
Rm IFRS2 fair value charge 153 Amortisation and depreciation 43 Net financing costs 36 Net realised foreign exchange loss 54 Net unrealised foreign exchange loss 31 Net realised gains on revaluation of derivative instruments (36) Net profit on disposal of property, plant and equipment (4) Consultancy fees 26 Operating lease rental expenses 12 Share based payment expenses 32 Net debt The following schedule provides a summary of the Group`s net debt position at 31 December 2006: Effective 2006 Net debt interest Maturity Rm rate % Non-current Revolving facility JIBAR + 30.11.09 2 840 100bp
Current Revolving facility JIBAR + 28.11.07 668 70bp Interest on non-current facility JIBAR + 31.05.07 34 100bp Call facility 9,2% 477 1 179 Total borrowings 4 019 Cash and cash equivalents 1 094 Net debt 2 925 Total shareholders` equity 1 055 2006 2006
Unaudited physical information 2 months 12 months Iron ore Production Tons 5 401 31 110 thousands
Sales - Export Tons 3 984 21 495 thousands
- Domestic Tons 1 543 8 307 thousands Total sales Tons 5 527 29 802 thousands
Notice of maiden dividend On Wednesday, 14 February 2007 the directors declared a maiden dividend of 80 cents per share on the ordinary shares for the year ended 31 December 2006, as follows: - Last day to trade to qualify for dividends (and change of address or dividend Thursday 15 March 2007 instructions) - Ex dividend on the JSE Friday 16 March 2007 - Record date Friday 23 March 2007 - Payment date of dividends Monday 26 March 2007 Share certificates may not be dematerialised or rematerialised between Friday, 16 March 2007 and Friday, 23 March 2007, both days inclusive. By order of the Board Ms A van der Merwe Company secretary 14 February 2007 Pretoria Directors: EJ Myburgh*, VP Uren*, PL Zim, PM Baum, GS Gouws, PB Matlare, AJ Morgan, ND Moyo, DD Mokgatle *Executive Date: 15/02/2007 07:00:02 Supplied by www.sharenet.co.za Produced by the JSE SENS Department.

Share This Story