Wrap Text
Group reviewed results for the six months ended 30 June 2012
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 2012
Headline loss R455 million (H1 2011: profit
R90 million)
Net loss R376 million (H1 2011: profit R86 million)
Successful finalisation of arbitration matter against
the Channel Induction Furnace supplier
Chairman and CEOs review
1. Safety
The Lost Time Injury Frequency Rate (LTIFR) decreased by 20% from 1.31 in the second
quarter of 2011 to 1.05 in the second quarter of 2012, reflecting a 33% reduction in the
number of Lost Time Injuries during this period.
2. Key financials
The operating loss for the period was R200 million, compared to a profit of R53 million for
the same period in 2011. The main reason for the decrease was lower sales volumes. The
adjusted EBITDA for the period was a R170 million loss, compared to a R169 million profit
for the same period last year. Sales revenue decreased to R2 563 million compared to
R2 985 million for the same period last year as a result of lower sales volumes.
3. Operations
Steel
The cast steel output for the period decreased by 11% to 328 566 tons, mainly due to
problems with the availability of Steel Plant production equipment. Hot metal volumes
were reduced since June 2012 to focus mainly on the domestic market.
Production of long products decreased by 3% to 121 114 tons for the period compared to
the same period in 2011 mainly due to weakened demand. The production of flat products
decreased by 17%, to 136 851 tons due to the reduced availability of cast steel and a
weaker export market for heavy plate.
Vanadium
A total of 26 399 tons of vanadium slag was produced with 3 807 Mt V for the period,
compared to 33 827 tons, with 4 485 Mt V produced for the same period last year. The
lower production was as a result of lower hot metal production and lower vanadium yields.
4. Markets
Global and local markets
Global crude steel production for the first six months of 2012 increased slightly by 0.9% to
766 861 000 tons compared to the same period in 2011. South African production
contracted by 19.2% during this period.
EVRAZ Highveld sales
Domestic steel sales volumes for the period decreased by 19% to 194 928 tons, compared
to the same period in 2011. Export steel sales volumes decreased by 27% to 75 449 tons,
and overall steel sales volumes by 21%. This was mainly due to problems experienced
regarding the availability of Steel Plant production equipment, weaker export market for
heavy plate and a business stabilisation project aimed at re-aligning the business to the
current challenging trading enviroment. Total semi product sales for the period decreased
from 35 601 tons to 2 022 tons compared to the same period in 2011.
Domestic steel sales volumes in the second quarter of 2012 decreased by 21%, compared
to the first quarter of 2012. Export steel sales volumes increased by 110% for the second
quarter of 2012 compared to the first quarter, resulting in an increase of 3% in overall
sales volumes. The increase in export sales was mainly due to orders that were booked in
the first quarter and realised in the second quarter.
Export vanadium slag sales increased by 7% to 3 293 tons V for the period compared to
the same period in 2011. Domestic vanadium slag sales decreased by 80% to 40 tons
V, due to low demand during the first quarter of 2012. A total of 541 tons V modified vanadium oxide and
nitrovan were sold during the period (1H 2011: 874 tons V). This reduction is mainly due
to maintenance work carried out at the beginning of 2012.
5. Competition Commission Referral
The Company received a Referral from the Competition Commission on 2 April 2012
wherein the Commission alleges that the Company has participated in concerted
practices, direct or indirect, aimed at price fixing and dividing markets. The Company is
confident that it has good prospects of success in the matter.
6. Outlook
Global leading indicators paint a challenging picture with further imminent steel production
cutbacks, especially in Europe and North America, and weakening GDP forecasts for most
economies. The Eurozone debt crisis and slower growth in China have contributed to the
continued weakening of global apparent steel demand.
The local economic situation, especially the steel market, has not been left unscathed by
the current global economic situation, which is expected to continue for the time being.
Demand for steel products remains soft with prices reflecting a global over-supply situation.
The Company initiated a business stabilisation project in June 2012 which includes reduction
of fixed costs. As part of this initiative the Company has engaged with its workforce
regarding restructuring of its employee base. Numsa, the majority union, declared a strike
on 16 July 2012 and we are pleased that the strike was ultimately resolved on 10 August
2012 and the operations resumed on 13 August 2012. The ramp up of the operations are
expected to be at full capacity by the end of August 2012.
B J T Shongwe M D Garcia
(Chairman) (Chief Executive Officer)
22 August 2012
Basis of preparation
The Groups financial results for the half year ended 30 June 2012 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 Groups 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
(i) The Group has adopted the following new and revised Standards and Interpretations issued
by the International Accounting Standards Board (the IASB) and the International Financial
Reporting Interpretation Committee (IFRIC) of the IASB, that are relevant to its operations
and effective for accounting periods beginning on 1 January 2012. These Standards had
no impact on the results or disclosures of the Group:
Improvements to IFRS issued May 2010 (effective from 1 January 2011);
IAS 12, Amended Deferred tax: Recovery of underlying assets (effective from
1 January 2012);
IFRS 7, Amended Financial instruments: Disclosures transfers of financial assets
(effective from 1 July 2011); and
IFRS 1, Amended Severe hyperinflation and removal of fixed dates for first-time
adopters (effective from 1 July 2011).
(ii) The following Standards, amendment to the Standards and Interpretations, effective in
future accounting periods have not been adopted in these financial statements:
Improvements to IFRS issued May 2012 (effective from 1 January 2013);
IAS 1, Amended Financial statement presentation: Presentation of items of other
comprehensive income (effective from 1 July 2012);
IAS 19, Amended Employee benefits (effective from 1 January 2013);
IAS 27, Separate financial statements (as revised in 2011) (effective from 1 January
2013);
IAS 28, Investments in associates and joint ventures (as revised in 2011) (effective from
1 January 2013);
IFRS 9, Financial instruments classification and measurement (effective from 1 January
2013);
IFRS 10, Consolidated financial statements (effective from 1 January 2013);
IFRS 11, Joint arrangements (effective from 1 January 2013);
IFRS 12, Disclosure of involvement with other entities (effective from 1 January 2013);
IFRS 13, Fair value measurement (effective from 1 January 2013);
IFRIC 20, Stripping costs in the production phase of a surface mine (effective from
1 January 2013);
IFRS 7, Amended Disclosures: Offsetting financial assets and financial liabilities
(effective from 1 January 2013);
IAS 32, Amended Offsetting financial assets and financial liabilities (effective from
1 January 2014); and
IFRS 9 and IFRS 7, Amended Mandatory effective date and transition disclosures
(IFRS 9 effective from 1 January 2015, IFRS 7 depends on when IFRS 9 is adopted).
This abridged report was prepared under supervision of the Chief Financial Officer,
Mr Jan Valenta (Chartered Accountant).
The financial information has been reviewed by Ernst & Young Inc. whose unmodified review
report is available for inspection at the Companys registered office.
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
Reviewed as at Reviewed as at Audited as at
30 Jun 2012 30 Jun 2011 31 Dec 2011
Notes Rm Rm Rm
ASSETS
Non-current assets 1 707 1 691 1 927
Property, plant and equipment 1 700 1 606 1 760
Deferred tax asset 5 7 85 167
Current assets 2 299 2 767 2 531
Inventories 801 824 831
Trade and other receivables and
pre-payments 608 853 516
Cash and short-term deposits 890 1 090 1 184
TOTAL ASSETS 4 006 4 458 4 458
EQUITY AND LIABILITIES
Total equity 2 250 2 623 2 620
Non-current liabilities 653 566 624
Long-term borrowing 6 15
Provisions 638 566 624
Current liabilities 1 103 1 269 1 214
Trade and other payables 936 1 010 1 016
Income tax payable 45 48 45
Provisions 122 211 153
TOTAL EQUITY AND LIABILITIES 4 006 4 458 4 458
Net asset value cents per share 2 269.3 2 645.5 2 642.5
INTERIM CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited Reviewed Reviewed Audited
for the for the for the for the for the
three months three months six months six months year
ended ended ended ended ended
30 Jun 2012 30 Jun 2011 30 Jun 2012 30 Jun 2011 31 Dec 2011
Notes Rm Rm Rm Rm Rm
Sale of goods 1 232 1 484 2 563 2 985 5 587
Revenue 1 232 1 484 2 563 2 985 5 587
Cost of sales (1 255) (1 235) (2 582) (2 684) (4 750)
Gross (loss)/profit (23) 249 (19) 301 837
Other operating
income 7 115 112 80 87
Selling and
distribution costs (80) (76) (153) (173) (301)
Administrative
expenses (58) (80) (140) (155) (306)
Other operating
expenses (48) (366)
Operating (loss)/
profit (46) 45 (200) 53 (49)
Finance costs (9) (9) (20) (20) (50)
Finance income 1 10 4 14 26
(Loss)/profit before
tax (54) 46 (216) 47 (73)
Income tax
(expense)/credit 8 (228) 19 (160) 39 118
(Loss)/profit for the
period/year (282) 65 (376) 86 45
Cents Cents Cents Cents Cents
(Loss)/profit per
share basic and
diluted (284.3) 65.5 (379.0) 86.7 45.4
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
Unaudited Unaudited Reviewed Reviewed Audited
for the for the for the for the for the
three months three months six months six months year
ended ended ended ended ended
30 Jun 2012 30 Jun 2011 30 Jun 2012 30 Jun 2011 31 Dec 2011
Rm Rm Rm Rm Rm
(Loss)/profit for the
period/year (282) 65 (376) 86 45
Other comprehensive
income/(loss):
Exchange differences
on translation of foreign
operations 11 7 (2) 27 55
Total comprehensive
(loss)/income for the
period/year (271) 72 (378) 113 100
HEADLINE EARNINGS PER SHARE
Unaudited Unaudited Reviewed Reviewed Audited
for the for the for the for the for the
three months three months six months six months year
ended ended ended ended ended
30 Jun 2012 30 Jun 2011 30 Jun 2012 30 Jun 2011 31 Dec 2011
Rm Rm Rm Rm Rm
Reconciliation of headline
(loss)/earnings
(Loss)/profit for the
period/year (282) 65 (376) 86 45
(Deduct)/add after tax
effect of:
Insurance claim
proceeds on items
of property, plant and
equipment scrapped (63)
Proceeds on successful
litigation against the
Channel Induction
Furnace supplier (79) (79)
(Profit)/loss on disposal
and scrapping of
property, plant and
equipment (*) 4 (*) 4 3
Headline (loss)/profit (361) 69 (455) 90 (15)
*Less than R1 million.
Cents Cents Cents Cents Cents
(Loss)/earnings per share
headline and diluted (363.7) 69.6 (458.5) 90.8 (15.1)
Million Million Million Million Million
Number of shares
Ordinary shares in issue
as at end date * 99.2 99.2 99.2 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
Issued
capital
and share Other Retained
premium reserves earnings Total
Notes Rm Rm Rm Rm
2011
Balance at 1 January 2011 Audited 585 138 1 787 2 510
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
Loss for the period (117) (117)
Other comprehensive income
for the quarter 50 50
Balance at 30 September 2011
Unaudited 585 215 1 756 2 556
Profit for the period 76 76
Other comprehensive loss for the quarter (22) (22)
Share-based payment reserve 9 10 10
Balance at 31 December 2011 Audited 585 203 1 832 2 620
2012
Balance at 1 January 2012 Audited 585 203 1 832 2 620
Loss for the period (94) (94)
Other comprehensive loss for the quarter (13) (13)
Balance at 31 March 2012 Unaudited 585 190 1 738 2 513
Loss for the period (282) (282)
Other comprehensive income
for the quarter 11 11
Share-based payment reserve 9 8 8
Balance at 30 June 2012 Reviewed 585 209 1 456 2 250
Unaudited Unaudited Reviewed Reviewed
for the for the for the for the Audited
three months three months six months six months for the
ended ended ended ended year ended
30 Jun 2012 30 Jun 2011 30 Jun 2012 30 Jun 2011 31 Dec 2011
Cents Cents Cents Cents Cents
Dividends per share
Dividends declared
and paid
INTERIM CONSOLIDATED STATEMENT
OF CASH FLOWS
Unaudited Unaudited Reviewed Reviewed Audited
for the for the for the for the for the
three months three months six months six months year
ended ended ended ended ended
30 Jun 2012 30 Jun 2011 30 Jun 2012 30 Jun 2011 31 Dec 2011
Rm Rm Rm Rm Rm
Cash flows from
Operating
activities
Cash generated
by/(used in)
operations
before tax paid 76 644 (210) 758 1 070
Income tax paid (*) (4) (*) (4) (6)
Net cash generated
by/(used in)
operating activities 76 640 (210) 754 1 064
Cash flows from
investing activities
Proceeds
from sale and
scrapping of
property, plant
and equipment 1 90
Net additions to
property, plant
and equipment (36) (120) (97) (170) (485)
Net cash used in
investing activities (36) (120) (96) (170) (395)
Cash flows from
financing activities
Increase in long-
term loans 15
Net cash generated
by financing
activities 15
Net increase/
(decrease) in
cash and cash
equivalents 40 520 (291) 584 669
Cash and cash
equivalents at the
beginning of the
period/year 840 567 1 184 492 492
Effects of
exchange rate
changes on cash
held in foreign
currencies 10 3 (3) 14 23
Cash and cash
equivalents at the
end of the period/
year 890 1 090 890 1 090 1 184
*Less than R1 million.
NOTES TO THE INTERIM 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 A.G. (a fellow subsidiary) amounted to R347 million (June 2011 YTD:
R505 million) for the six months ended 30 June 2012. This constitutes 14% of total revenue for
the period, compared to 17% for the period ended 30 June 2011. Technical services (slag tolling
agreement) and other services with EVRAZ Vametco Alloys Proprietary Limited (a fellow subsidiary)
amounted to R42 million for the six months ended 30 June 2012 (June 2011 YTD: R60 million).
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 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
Groups operating segments:
Unaudited Unaudited Reviewed Reviewed Audited
for the for the for the for the for the
three months three months six months six months year
ended ended ended ended ended
30 Jun 2012 30 Jun 2011 30 Jun 2012 30 Jun 2011 31 Dec 2011
Rm Rm Rm Rm Rm
Revenue from the
sale of goods
Steelworks 882 1 083 1 878 2 131 3 957
Vanadium 350 401 685 854 1 630
Total 1 232 1 484 2 563 2 985 5 587
Intersegment revenue is eliminated on consolidation.
Unaudited Unaudited Reviewed Reviewed Audited
for the for the for the for the for the
three months three months six months six months year
ended ended ended ended ended
30 Jun 2012 30 Jun 2011 30 Jun 2012 30 Jun 2011 31 Dec 2011
Rm Rm Rm Rm Rm
Operating (loss)/
profit
Steelworks (153) (75) (387) (193) (542)
Vanadium 107 120 187 246 493
Total (46) 45 (200) 53 (49)
Reviewed Reviewed Audited
as at as at as at
30 Jun 2012 30 Jun 2011 31 Dec 2011
Rm Rm Rm
Total assets
Steelworks 3 149 3 781 3 664
Vanadium 857 677 794
Total 4 006 4 458 4 458
4. Supplementary revenue information Unaudited
For the For the For the For the
three three six six For the
months months months months year
ended ended ended ended ended
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec
2012 2011 2012 2011 2011
Sales volumes of major products
Total steel Tons 137 136 161 374 270 377 343 493 603 094
Ferrovanadium Tons V 1 301 1 439 2 855 2 940 6 031
Modified vanadium
oxide Tons V 213 56 228 304 398
Nitrovan Tons V 194 452 313 570 1 105
Vanadium slag Tons V2O5 71 160 71 355 664
Fines ore Tons 212 017 166 189 377 782 342 431 662 395
Vanadium slag sales reduced from 355 tons V2O5 for the six months ended 30 June 2011 to 71 tons
V2O5 for the six months ended 30 June 2012 due to lack of orders received and unavailability of
slag.
Weighted average selling prices
achieved for major products
Total steel US$/t 734 907 789 819 825
Ferrovanadium US$/kg V 24 29 24 29 27
Modified vanadium
oxide US$/kg V 18 21 18 22 21
Nitrovan US$/kg V 24 28 24 28 27
Vanadium slag US$/kg V2O5 4 5 4 6 5
Fines ore US$/t 22 37 21 39 33
Average R/$
exchange rate 8.13 6.80 7.95 6.90 7.26
5. Impairment of deferred tax assets
Deferred tax assets are tested for impairment bi-annually and when circumstances indicate the
carrying value may be impaired. The Groups impairment test for deferred tax assets is based on
clear projections that the deferred tax assets will be utilised in the foreseeable future. Due to the
current assessed loss and no specific indication as to when the assets will be utilised, the Group
decided to impair the assets. When more definite indications exist on the future utilisation of the
assets, the assets will be recognised to the value of the expected utilisation.
The amount derecognised during the period amounted to R163 million. Unrecognised deferred tax
assets of R243 million exist as at 30 June 2012.
The R7 million deferred tax asset that is recognised at period end relates to the deductible
temporary differences of the wholly owned foreign subsidiary.
6. Long-term borrowing
The long-term borrowing of R15 million (2011: Rnil million) consist of the loan due by Umnotho
Iron and Vanadium Proprietary Limited to Umnotho weSizwe Group. This loan has no fixed
repayment terms and interest is charged at prime rate.
7. Other operating income
The R112 million other operating income for the six months ended 30 June 2012 relates mainly to
a R109 million settlement received, relating to the claim against the Channel Induction Furnace
supplier, for the same period last year, R80 million other operating income for the six months ended
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 to bonus adjustment of
R33 million (income) and idle plant cost of R86 million (expense).
8. Income tax
Unaudited Unaudited Reviewed Reviewed
for the for the for the for the Audited
three months three months six months six months for the
ended ended ended ended year ended
30 Jun 2012 30 Jun 2011 30 Jun 2012 30 Jun 2011 31 Dec 2011
Rm Rm Rm Rm Rm
South African
Normal
Current
Deferred
Current 228 (7) 160 (30) (112)
Prior year (over)/
under provision (1)
Non-South African
Normal
Current * (3) * 3
Prior year (over)/
under provision (9) (9) (8)
Income tax
expense/(credit) 228 (19) 160 (39) (118)
*Less than R1 million.
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.
9. Share-based payment reserve
Certain key management personnel participate in a Long Term Incentive Plan (LTIP) for EVRAZ
Group plc shares. The shares are traded on the London Stock Exchange. The vesting of the shares
occur on or before the 90th day following the announcement of EVRAZ Group plc financial results.
The cost of the LTIP award will be settled in equity by EVRAZ Group plc. The amount recognised
according to IFRS 2 in 2012 is R8 million (2011: R10 million).
10. Guarantees
As required by the Mineral and Petroleum Resources Development Act, a guarantee amounting to
R264 million (2011: R264 million) was issued in favour of the Department of Mineral Resources for
the unscheduled closure of Mapochs Mine.
As required by certain suppliers to the Company, guarantees were issued in favour of these
suppliers to the value of R9 million (2011: R9 million) in the event that the Company will not be able
to meet its obligations to the suppliers.
11. Contingent liabilities
In terms of the Companys 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
R31 million before tax and R22 million after tax (2011: R31 million before tax and R22 million after
tax).
A supplier company has claimed against the Company in respect of structural damage to assets
sold in the past. The claim is in the amount of R42 million. The arbitration matter was heard and the
claim was dismissed with costs.
On 30 March 2012 the Competition Commission issued a Referral of Complaint to the Competition
Tribunal against EVRAZ Highveld and two others. The Commission is seeking orders from the
Tribunal, amongst other things, declaring that: (i) the parties have divided certain markets; (ii) the
parties directly or indirectly fixed the purchase prices of flat products; and (iii) the parties committed
a concerted practice which substantially prevented or lessened competition in the relevant market.
Should the matter not be settled, it is unlikely that it would be finalised in the 2012 financial year.
The Company is confident that it has good prospects of success in the matter. The maximum
administrative penalty which the Tribunal could impose in respect of the allegations contained in the
Referral is 10% of the annual turnover in South Africa of the Group (including exports from South
Africa) for the preceding financial year.
12. Subsequent events
There are no events to be reported on since 30 June 2012.
Directors: B J T Shongwe (Chairman), G C Baizini (Italian),
M Bhabha, M D Garcia (Chief Executive Officer) (American),
M F Mosololi, Mrs B Ngonyama, V M Nkosi, D Scuka (Czech),
P M Surgey, P S Tatyanin (Russian), J Valenta (Czech) and
T I Yanbukhtin (Russian)
Company Secretary: Mrs C I Lewis
Registered office Transfer secretaries
Portion 93 of the farm Computershare Investor Services
Schoongezicht No. 308 JS Proprietary Limited
District eMalahleni 70 Marshall Street
Mpumalanga Johannesburg
PO Box 111 PO Box 61051
Witbank 1035 Marshalltown 2107
Tel: (013) 690 9911 Tel: (011) 370 5000
Fax: (013) 690 9293 Fax: (011) 688 5200
Date: 22/08/2012 05:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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