Wrap Text
EHS - Evraz Highveld Steel and Vanadium Limited - Group reviewed results for
the six months ended 30 June 2011
Evraz Highveld Steel and Vanadium Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1960/001900/06)
Share code: EHS ISIN: ZAE000146171
("the Company" or "the Group")
GROUP REVIEWED RESULTS
for the six months ended 30 June 2011
UP - Headline earnings of R90 million (H1 2010: loss of R138 million)
UP - Net profit of R86 million (H1 2010: loss of R144 million)
DOWN - Challenging Quarter 3 anticipated
UP - Balance sheet remains ungeared
UP - Level 5 BEE Contributor status
Chairman and CEO`s review
1. Safety
It is with deep regret that we state that Mr Aphane, a contractor in the
scrap processing department, suffered an injury on 25 June and ultimately
passed away on 31 July 2011. We extend our sincere condolences to his
family.
The Lost Time Injury Frequency Rate (LTIFR) as at 30 June 2011 was 1.75,
which is an improvement from the 1.91 LTIFR recorded on 31 March 2011. The
target rate is 1.50.
2. Key financials
The operating profit for the period was R53 million, compared to a loss of
R255 million for H1 2010. The main reasons for the improvement are higher
sales volumes and prices, as well as a decrease in cost of tons produced.
The EBITDA for the period was R169 million profit, compared to a R81 million
loss during the same period last year. Sales revenue increased to R2 985
million from R2 539 million for the same period during 2010 as a result of
higher sales volumes and prices.
Improvements of the following key indicators for the second quarter of 2011
compared to the first quarter are as set out below:
Q2 2011 Q1 2011
EBITDA R116 million R53 million
Net Profit R65 million R21 million
Cash: positive inflow R523 million R75 million
Earnings per share 65.6 cents 21.2 cents
3. Operations
Steel
The cast steel output for the period increased by 3% to 367 180 tons
compared to the same period 2010, despite a 1% reduction of hot liquid metal
output for the period as compared to the same period in 2010 mainly due to
the conversion of Furnace 7. Production of long products increased by 11%
mainly as a result of more stable mill operations. The production of flat
products decreased by 11%, due to the planned maintenance mill shut down,
which commenced in June. The shutdown was extended by one week due to the
SEIFSA strike of the Company`s contractors.
The Structural Mill was shut down during the second week of July and
subsequent to the reporting period was brought back on line during the
second week of August. Substantial maintenance was done, with the most
important aspects being the replacement of two of the four main mill motor
DC drives and the revamping of the pusher furnace and the roll straightening
machine.
The maintenance projects of the idle primary equipment in the Iron and Steel
plants were also negatively affected by the SEIFSA strike by approximately
two weeks and are now mostly completed. The maintenance of the Basic Oxygen
Furnaces 1 and 3 of the Steel plant and of Furnace 3 of the Ironmaking
division should be finalised by the end of August 2011.
The conversion project of Furnace 7 of the Ironmaking division to open slag
bath technology is progressing well and should be completed within budget.
However, as a result of the SEIFSA wage negotiation strikes, the project was
extended by 3 weeks with a planned completion date during the third week in
October 2011. Improvements in output, vanadium recovery and reduced
dependency on metallurgical coal are expected, once the furnace is brought
back on line.
Vanadium
A total of 33 827 tons of vanadium slag was produced with 4 485 tons of V in
V2O5 for the period, compared to 28 633 tons, with 3 945 tons of V in V2O5
produced for the same period last year. The maintenance projects of the
Steelworks did not negatively affect the contractual obligations for the
sale of vanadium slag due to available stock on hand.
4. Markets
Global markets
New annualised global steel output records were achieved in June 2011 with
month-on-month growth of 8% of 1.55 billion tonnes. The year-on-year growth
of the world, excluding China, was 5.8%, and the total world growth was
7.7%. This growth was mainly driven by Chinese output and the Chinese social
housing programme.
Evraz Highveld sales
Domestic steel sales volumes for the period, increased by 2%, compared to
2010.
Export steel sales volumes increased by 51%, with overall steel sales
volumes increasing by 13%. A key driver for the increase in steel sales
volumes was that during the first half of 2010 no billets were exported,
whereas during the period a total of 30 590 tons of billets were sold in the
export market.
An increase of 26% of domestic steel sales volumes was achieved for the
second quarter of 2011 compared to the first quarter of 2011. Export steel
sales volumes decreased by 64% for the second quarter of 2011 compared to
the first quarter, with a decrease of 11% for overall sales, which was
mainly due to reduced production as a result of the shutdown of the Flat
Products Mill.
Export vanadium slag sales increased by 31% for the period compared to the
same period 2010. Domestic vanadium slag sales decreased by 81%, as a result
of the tolling of slag into MVO and Nitrovan at Vametco Alloys. A total of
874 tons V MVO and Nitrovan were sold in the period.
5. Transformation
We are pleased to announce that the Company achieved a Level 5 BEE
Contributor status and that we intend to improve this status going forward.
6. Outlook
We anticipate reduced production during the third quarter as a result of the
labour unrest and strikes experienced during July, as well as the extensive
maintenance programmes of both mills. The continuation of the maintenance
programmes and other capital projects during the third quarter will be
funded from existing cash resources.
As we enter the middle of quarter three, we expect to see improved
operations for both of our Flat Products and Structural Mills as a result of
the significant work performed during the maintenance shutdowns.
The local market remains overstocked and it is uncertain how fast the demand
will return once the inventory levels have stabilised. International steel
prices are expected to weaken. We therefore expect a challenging third
quarter with prospects for moderate improvements towards the end of the
year.
B J T Shongwe M D Garcia
(Chairman) (Chief Executive Officer)
17 August 2011
Group reviewed financial results
Basis of preparation
The Group`s interim condensed consolidated financial statements for the six
months ended 30 June 2011 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
Group`s most recent annual financial statements, including the Standards and
Interpretations as listed below.
These results are presented in terms of International Accounting Standards
("IAS") 34 applicable to Interim Financial Reporting.
Significant accounting policies
The accounting policies adopted and methods of computation are consistent
with those of the previous financial year ended 31 December 2010, except for
the adoption of the following new and amended IFRS standards and IFRIC
interpretations during the current period as of 1 January 2011:
(i) IAS 32, Classification of Rights Issues (Amended)
(ii) IAS 24, Related Party Disclosures (Amended)
(iii) IFRIC 14, Pre-payments of a minimum funding requirement (Amended)
(iv) IFRIC 19, Extinguishing financial liabilities with equity instruments
(v) May 2010 Improvements to IFRS (improvements effective for the current
financial year).
The Group has not early adopted any other standard, interpretation or
amendment that has been issued but is not yet effective.
Where necessary, disclosures have been updated in accordance with these
standards, amendments or interpretations. The adoption thereof did not have
an impact on the results, cash flows or financial position of the Group in
the current period.
The financial information has been reviewed by Ernst & Young Inc. whose
unmodified review report is available for inspection at the Company`s
registered office.
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Reviewed Audited
as at as at as at
30 Jun 30 Jun 31 Dec
2011 2010 2010
Rm Rm Rm
ASSETS
Non-current assets 1 691 1 839 1 661
Property, plant and equipment 1 606 1 839 1 607
Deferred tax asset 85 - 54
Current assets 2 767 2 794 2 402
Inventories 824 1 146 1 084
Trade and other receivables and pre-payments 853 1 010 826
Cash and short-term deposits 1 090 638 492
TOTAL ASSETS 4 458 4 633 4 063
EQUITY AND LIABILITIES
Total equity 2 623 2 930 2 510
Non-current liabilities 566 616 536
Provisions 566 498 536
Deferred tax liability - 118 -
Current liabilities 1 269 1 087 1 017
Trade and other payables 1 010 836 745
Income tax payable 48 72 54
Provisions 211 179 218
TOTAL EQUITY AND LIABILITIES 4 458 4 633 4 063
Net asset value - cents per share 2 646 2 955 2 532
INTERIM CONSOLIDATED INCOME STATEMENT
Unaudited Reviewed Reviewed
for the for the for the
three months three months six months
ended ended ended
30 Jun 30 Jun 30 Jun
2011 2010 2011
Note Rm Rm Rm
Sale of goods 1 484 1 316 2 985
Revenue 1 484 1 316 2 985
Cost of sales (1 235) (1 368) (2 684)
Gross profit/(loss) 249 (52) 301
Selling and distribution costs (76) (72) (173)
Administrative expenses (80) (80) (155)
Other operating
(expenses)/income 5 (48) (27) 80
Operating profit/(loss) 45 (231) 53
Finance costs (9) (13) (20)
Finance income 10 8 14
Profit/(Loss) before tax 46 (236) 47
Income tax credit 6 19 109 39
Profit/(Loss) for the
period/year 65 (127) 86
Cents Cents Cents
Earnings/(Loss) per share
- basic and diluted 65.6 (128.1) 86.7
Reviewed Audited
for the for the
six months year
ended ended
30 Jun 31 Dec
2010 2010
Rm Rm
Sale of goods 2 539 5 125
Revenue 2 539 5 125
Cost of sales (2 441) (5 031)
Gross profit/(loss) 98 94
Selling and distribution
costs (132) (301)
Administrative expenses (195) (353)
Other operating
(expenses)/income (26) (263)
Operating profit/(loss) (255) (823)
Finance costs (25) (49)
Finance income 19 36
Profit/(Loss) before tax (261) (836)
Income tax credit 117 287
Profit/(Loss) for the
period/year (144) (549)
Cents Cents
Earnings/(Loss) per share
- basic and diluted (145.2) (553.7)
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Reviewed Reviewed
for the for the for the
three months three months six months
ended ended ended
30 Jun 30 Jun 30 Jun
2011 2010 2011
Rm Rm Rm
Profit/(Loss) for the period/year 65 (127) 86
Other comprehensive income/(loss):
Exchange differences on translation
of foreign operations 7 (2) 27
Total comprehensive income/(loss)
for the period/year 72 (129) 113
Reviewed Audited
for the for the
six months year
ended ended
30 Jun 31 Dec
2010 2010
Rm Rm
Profit/(Loss) for the period/year (144) (549)
Other comprehensive income/(loss):
Exchange differences on translation
of foreign operations - (15)
Total comprehensive income/(loss) for the period/year (144) (564)
HEADLINE EARNINGS PER SHARE
Unaudited Reviewed Reviewed
for the for the for the
three months three months six months
ended ended ended
30 Jun 30 Jun 30 Jun
2011 2010 2011
Rm Rm Rm
Reconciliation of headline earnings/(loss)
Profit/(Loss) for the period/year 65 (127) 86
Add after tax effect of:
Net loss on disposal and
scrapping of property,
plant and equipment 4 6 4
Headline earnings/(loss) 69 (121) 90
Cents Cents Cents
Earnings/(Loss) per share
- headline and diluted 69.6 (122.0) 90.8
Million Million Million
Number of shares
Ordinary shares in issue as at
end date *+ 99.2 99.2 99.2
Reviewed Audited
for the for the
six months year
ended ended
30 Jun 31 Dec
2010 2010
Rm Rm
Reconciliation of headline
earnings/(loss)
Profit/(Loss) for the period/year (144) (549)
Add after tax effect of:
Net loss on disposal and
scrapping of property,
plant and equipment 6 166
Headline earnings/(loss) (138) (383)
Cents Cents
Earnings/(Loss) per share
- headline and diluted (139.2) (386.3)
Million Million
Number of shares
Ordinary shares in issue as at end date *+ 99.2 99.2
* Rounded to nearest hundred thousand.
+ Agree to weighted average and diluted number of ordinary shares.
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period/year ended
Issued capital
and share ther capital Retained
premium reserves earnings Total
Rm Rm Rm Rm
2010
Balance at 1 January 2010 585 153 2 336 3 074
Loss for the period (17) (17)
Other comprehensive
income for the quarter 2 2
Balance at 31 March
2010 - Reviewed 585 155 2 319 3 059
Loss for the period (127) (127)
Other comprehensive
loss for
the quarter (2) (2)
Balance at 30 June
2010 - Reviewed 585 153 2 192 2 930
Loss for the period (28) (28)
Other comprehensive
income for
the quarter 2 2
Balance at 30
September 2010 -
Unaudited 585 155 2 164 2 904
Loss for the period (377) (377)
Other comprehensive
loss for
the quarter (17) (17)
Balance at 31 December
2010 - Audited 585 138 1 787 2 510
2011
Profit for the period 21 21
Other comprehensive
income for
the quarter 20 20
Balance at 31 March
2011 - Unaudited 585 158 1 808 2 551
Profit for the period 65 65
Other comprehensive
income for
the quarter 7 7
Balance at 30 June
2011 - Reviewed 585 165 1 873 2 623
Unaudited Reviewed Reviewed
for the for the for the
three months three months six months
ended ended ended
30 Jun 30 Jun 30 Jun
2011 2010 2011
Cents Cents Cents
Dividends per share
Dividends declared and paid - - -
Reviewed Audited
for the for the
six months year
ended ended
30 Jun 31 Dec
2010 2010
Cents Cents
Dividends per share
Dividends declared and paid - -
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Reviewed Audited
for the for the for the
six months six months year
ended ended ended
30 Jun 30 Jun 31 Dec
2011 2010 2010
Rm Rm Rm
Cash flows from operating activities
Cash generated by/(used in) operations
before tax paid 758 (211) (179)
Income tax paid (4) (83) (109)
Net cash generated by/(used in)
operating activities 754 (294) (288)
Cash flows from investing activities
Net additions to property, plant
and equipment (170) (110) (250)
Net cash used in investing activities (170) (110) (250)
Net increase/(decrease) in cash
and cash equivalents 584 (404) (538)
Cash and cash equivalents
at the beginning of the period/year 492 1 072 1 072
Effects of exchange rate changes
on cash held in foreign currencies 14 (30) (42)
Cash and cash equivalents
at the end of the period/year 1 090 638 492
NOTES TO THE INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. Companies Act and JSE Limited Listings Requirements
Compliance with the Companies Act, No.71 of 2008 as well as the Listings
Requirements of the JSE Limited has been maintained throughout the reporting
periods.
2. Related party transactions
Sales to East Metals S.A. (a fellow subsidiary) amounted to R505 million
(June 2010 YTD: R237 million) for the six months ended 30 June 2011. This
constitutes 17% of total revenue for the period, compared to 9% for the six
months ended 30 June 2010.
3. Segment information
The Group is organised into business units based on their products and has
two reportable segments as follows:
Steelworks
The major products of the steel segment are magnetite iron ore, structural
steel, plate and coil.
Vanadium
The major products of the vanadium segment are vanadium slag and
ferrovanadium. Vanadium slag is a waste product from the steelmaking
process, and this slag is transferred from the Steelworks to the Vanadium
plant, which then forms the input into the business of the Vanadium
business.
No operating segments have been aggregated to form the above reportable
operating segments. Management monitors the operating results of its
business units separately for the purposes of making decisions about
resource allocation and performance assessment. Segment performance is
evaluated based on operating profit.
The following tables present the revenue, operating profit and total assets
information regarding the Group`s operating segments:
Unaudited Reviewed Reviewed
for the for the for the
three months three months six months
ended ended ended
30 Jun 30 Jun 30 Jun
2011 2010 2011
Rm Rm Rm
Revenue from the sale of goods
Steelworks 1 083 960 2 131
Vanadium 401 356 854
Total 1 484 1 316 2 985
Reviewed Audited
for the for the
six months year
ended ended
30 Jun 31 Dec
2010 2010
Rm Rm
Revenue from the sale of goods
Steelworks 1 799 3 612
Vanadium 740 1 513
Total 2 539 5 125
Intersegment revenue is eliminated on consolidation.
Unaudited Reviewed Reviewed
for the for the for the
three months three months six months
ended ended ended
30 Jun 30 Jun 30 Jun
2011 2010 2011
Rm Rm Rm
Operating profit/(loss)
Steelworks (75) (370) (193)
Vanadium 120 139 246
Total 45 (231) 53
Reviewed Audited
for the for the
six months year
ended ended
30 Jun 31 Dec
2010 2010
Rm Rm
Operating profit/loss)
Steelworks (511) (1 220)
Vanadium 256 397
Total (255) (823)
Reviewed Reviewed Audited
as at as at as at
30 Jun 30 Jun 31 c
2011 2010 2010
Rm Rm Rm
Total assets
Steelworks 3 781 4 239 3 340
Vanadium 677 394 723
Total 4 458 4 633 4 063
4. Supplementary revenue information - Unaudited
For the For the For the
three months three months six months
ended ended ended
30 Jun 30 Jun 30 Jun
2011 2010 2011
Sales volumes of
major products
Total steel Tons 161 374 156 379 343 493
Ferrovanadium Tons V 1 439 1 366 2 940
Modified Vanadium
Oxide Tons V 56 - 304
Nitrovan Tons V 452 - 570
Vanadium slag Tons V2O5 160 493 355
Fines ore Tons 166 189 147 664 342 431
Vanadium slag sales reduced from 1 875 tons V2O5 for the six months ended 30
June 2010 to 355 tons V2O5 for the six months ended 30 June 2011. No sales
occurred in 2011 to a fellow subsidiary due to a slag tolling agreement with
this Company.
Weighted average selling prices achieved for major products
Total steel US$/t 907 713 819
Ferrovanadium US$/kg V 29 30 29
Modified Vanadium
Oxide US$/kg V 21 - 22
Nitrovan US$/kg V 28 - 28
Vanadium slag US$/kg V2O5 5 7 6
Fines ore US$/t 37 47 39
Average R/$
exchange rate 6.80 7.54 6.90
For the For the
six months year
ended ended
30 Jun 31 Dec
2010 2010
Sales volumes of major products
Total steel Tons 303 498 610 602
Ferrovanadium Tons V 3 116 5 488
Modified Vanadium Oxide Tons V - 468
Nitrovan Tons V - -
Vanadium slag Tons V2O5 1 875 2 102
Fines ore Tons 285 965 623 928
Vanadium slag sales reduced from 1 875 tons V2O5 for the six months ended 30
June 2010 to 355 tons V2O5 for the six months ended 30 June 2011. No sales
occurred in 2011 to a fellow subsidiary due to a slag tolling agreement with
this Company.
Weighted average selling prices achieved for major products
Total steel US$/t 706 715
Ferrovanadium US$/kg V 27 27
Modified Vanadium Oxide US$/kg V - 20
Nitrovan US$/kg V - -
Vanadium slag US$/kg V2O5 6 6
Fines ore US$/t 41 38
Average R/$ exchange rate 7.53 7.32
5. Other operating income
The R80 million other operating income for the six months ended 30 June 2011
relates mainly to the adjustment of the Net Realisable Value provision of
R141 million (income), net stock write down of R26 million (expense), profit
related bonus adjustment of R33 million (income) and idle plant cost of R86
million (expense). For the same period 2010, the expense of R26 million
consisted mainly of loss on sale of property, plant and equipment and
insurance.
6. Income tax
Unaudited Reviewed Reviewed
for the for the for the
three months three months six months
ended ended ended
30 Jun 30 Jun 30 Jun
2011 2010 2011
Rm Rm Rm
South African
Normal
Current - - -
Prior year under provision - - -
Deferred
Current (7) (97) (30)
Prior year under provision - - -
Non-South African
Normal
Current (3) (8) -
Prior year over provision (9) (4) (9)
Income tax credit (19) (109) (39)
The period income tax expense is accrued using the estimated average annual
effective income tax rate applied to the pre-tax income of the interim
report.
The effective tax rate of the foreign subsidiary is substantially lower than
the South African effective tax rate, resulting in an Income Statement tax
credit in 2011 even though profits on Group level are generated.
7. Financial ratios - Unaudited
Current ratio 2.18 2.57 2.18
Market capitalisation - Rm 5 354 7 783 5 354
Reviewed Audited
for the for the
six months year
ended ended
30 Jun 31 Dec
2010 2010
Rm Rm
South African
Normal
Current - -
Prior year under provision - 1
Deferred
Current (124) (318)
Prior year under provision - 21
Non-South African
Normal
Current 11 13
Prior year over provision (4) (4)
Income tax credit (117) (287)
The period income tax expense is accrued using the estimated average annual
effective income tax rate applied to the pre-tax income of the interim
report.
The effective tax rate of the foreign subsidiary is substantially lower than
the South African effective tax rate, resulting in an Income Statement tax
credit in 2011 even though profits on Group level are generated.
7. Financial ratios - Unaudited
Current ratio 2.57 2.36
Market capitalisation - Rm 7 783 8 279
8. Steel margins
Total steel margins improved from negative 11% for the six months ended 30
June 2010, to negative 6% for the six months ended 30 June 2011. The total
steel margins improved from negative 17% in Quarter 1, 2011 to positive 5%
in Quarter 2, 2011.
9. Contingent liabilities and guarantees
As required by the Mineral and Petroleum Resources Development Act, a
guarantee amounting to R264 million before tax and R190 million after tax
(2010: R264 million before tax and R190 million after tax) was issued in
favour of the DMR for the unscheduled closure of Mapochs Mine.
In terms of the Company`s employment policies, certain employees could
become eligible for post-retirement medical aid benefits at any time in the
future prior to their retirement, subject to certain conditions. The
potential liability, should they become medical scheme members in the
future, is R32 million before tax and R23 million after tax (2010: R32
million before tax and R23 million after tax).
As required by certain suppliers to the Company, guarantees were issued in
favour of these suppliers to the value of R9 million (2010: R9 million) in
the event that the Company will not be able to meet its obligations to the
suppliers.
10. Status of previously reported possible litigation
A summons was received on 13 May 2010 from the Competition Commission
relating to a complaint referring to price fixing allegations of flat
products. A comprehensive response with requested documentation was compiled
and submitted to the Commission on 5 July 2010. No further response has been
received from the Commission.
A summons was received on 3 March 2010 from Xai-Xai Slag Distributors
Proprietary Limited and Rothinvest 30 Proprietary Limited t/a Xai-Xai Slag
Management (in liquidation) ("Xai-Xai"). The Company brought an application
for exception, which was heard on 14 February 2011. An adverse judgement in
the exception hearing was received and the Company`s plea was filed and
served.
Further action is awaited from Xai-Xai.
11. Subsequent events
There are no events to be reported on since 30 June 2011.
Directors: B J T Shongwe (Chairman), G C Baizini (Italian), M Bhabha,
C B Brayshaw, Mrs B E de Beer, A V Frolov (Russian), M D Garcia
(Chief Executive Officer) (American), Mrs B Ngonyama, D Scuka (Czech),
P M Surgey, P S Tatyanin (Russian) and T I Yanbukhtin (Russian)
Company Secretary: Mrs C I Lewis
Registered office:
Portion 93 of the farm
Schoongezicht No. 308 JS
District eMalahleni
Mpumalanga
PO Box 111
Witbank 1035
Tel: (013) 690 9911
Fax: (013) 690 9293
Transfer secretaries:
Computershare Investor Services
Proprietary Limited
70 Marshall Street
Johannesburg
PO Box 61051
Marshalltown 2107
Tel: (011) 370 5000
Fax: (011) 688 5200
Date: 17/08/2011 17:23:01 Supplied by www.sharenet.co.za
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