Wrap Text
Group unaudited results for the quarter ended 31 March 2013
EVRAZ Highveld Steel and Vanadium Limited
(Incorporated in the Republic of South Africa)
(Registration No: 1960/001900/06)
Share code: EHS
ISIN: ZAE000146171
(“the Company” or “the Group”)
GROUP UNAUDITED RESULTS FOR THE QUARTER ENDED 31 MARCH 2013
Chairman and CEO’s Review
- Headline profit R30 million (Q4 2012: loss R222 million)
- Net profit R30 million (Q4 2012: loss R222 million)
1. Safety
EVRAZ Highveld improved its employee’s safety performance by 50% for Q1 2013 compared to Q4 2012.
For all hours worked at the Company, the progressive Lost Time Injury Frequency Rate (LTIFR), the key
indicator of safety at work, decreased by 48% from 2.58 in Q4 2012 to 1.34 in Q1 2013, which ended on 31
March 2013.
2. Key Financials
The operating profit for Q1 2013 was R50 million, compared to a loss of R283 million in Q4 2012. The
improved performance can be attributed to increased sales, higher vanadium prices and reduction in costs.
The EBITDA for the period was a profit of R124 million, compared to a R212 million loss for Q4 2012.
Revenue increased to R1 414 million in Q1 2013 compared to R1 029 million Q4 2012.
3. Operations
Steel
Steel output increased by 6% from 165 715 to 175 397 tons as a result of improved shaking ladle process
control and melting of stockpiled iron units.
Production of rolled products was flat relative to Q4 2012 at 123 774 tons.
Longer processing times and availability issues in both mills have resulted in increased inventories of cast
steel, which are expected to be worked down during the winter months when high peak period electricity
tariffs impact on iron production.
The project to improve kiln pre-reduction performance remains on track for completion in Q3 2013. This
project will result in a reduction of electrical energy consumption in the Ironmaking furnaces.
Mining
Production of ROM, lumpy and fines ore showed an increase in volumes for Q1 2013 compared to all
quarters of 2012. Fine ore was dispatched for Q1 2013 at favourable pricing. In March 2013 pit mining
trial commenced and will be running until June 2013. The trial will provide data needed to extend current
ore reserves at Mapochs Mine.
The SLP housing programme has reached its final planning stages with all tenders and proposals finalised.
Municipal infrastructure has been completed and construction of the houses will commence in Q3 2013.
Vanadium
Improved operating performance of vanadium in Q1 2013 resulted in a total of 12 057 tons of vanadium
slag produced containing 1 627tons V compared to 10 209 tons slag containing 1 487tons V during the
previous quarter.
4. Markets
Global and local markets
Global crude steel production for January and February 2013 was 253 million tons versus 246 million tons
during the same period in 2012. This 2.8% increase was on the back of increased production in Asia while
crude steel production in most other major global regions declined when comparing the first two months of
2013 to the same period in 2012.
South African crude steel production for January and February 2013 was 1.085 million tons versus 1.214
million tons produced during the first two months of 2012, a decline of 10.6%. Consumption information is
published by SAISI on an annual basis thus domestic consumption information is not available for Q1
2013.
EVRAZ Highveld Sales
Steel sales volumes increased by 21% to 135 512 tons in Q1 2013 against 111 587 tons in Q4 2012. This
includes approximately 11,000 tons of Q4 2012 production despatched in Q1 2013 as customers were
closed the last two weeks of December 2012.
Domestic steel sales increased from 108 647 in Q4 2012 to 134 231 in Q1 2013. Export steel sales
volumes decreased by 56% to 1 281 tons in Q1 2013 against 2 940 tons in Q4 2012.
Ferrovanadium sales for Q1 2013 increased to 1 084 tons V compared to 870 tons V in Q4 2012. Nitrovan
sales increased from 193 tons V in Q4 2012 to 224 tons V in Q1 2013. Domestic vanadium slag sales were
at 104 tons V in Q1 2013 compared to 101 tons V in Q4 2012.
5. Outlook
In the absence of major government infrastructure spending growth, domestic steel demand is expected to
remain correlated with GDP growth. As the Chinese economy has not recovered to an extent that it can
absorb more of its own output and while the European economic contraction has not stabilised, the
international steel market suffers from oversupply which is unlikely to subside. Most 2013 forecasts predict
global steel growth between 2% and 5% largely driven by China and non-residential US construction.
Following a strong performance in the closing months of 2012 and during Q1 2013, Vanadium prices
started to retreat in April 2013. Although demand growth is expected, ramp-ups in Chinese vanadium
production could mitigate future price increases.
The Company participated in the NERSA public hearings in Q1 2013 regarding the Eskom MYPD3 and
was notified by Eskom that final adjudication by NERSA resulted in a 9.6% tariff increase for 2013/14,
compared to the original 21% applied for. Although this development offers welcome relief, energy and
labour costs are expected to remain major challenges in the medium term.
BJT Shongwe MD Garcia
(Chairman) (Chief Executive Officer)
20 May 2013
Directors: B J T Shongwe (Chairman), M D Garcia (Chief Executive Officer) (American), G C Baizini (Italian), M Bhabha,
Mrs B Ngonyama, T Mosololi, VM Nkosi, D Šcuka (Czech), P M Surgey, P S Tatyanin (Russian), J Valenta )(Czech) and
T I Yanbukhtin (Russian)
Acting Company Secretary: Ms A Weststrate
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
Sponsor:
J.P. Morgan Equities South Africa (Pty) Ltd
GROUP UNAUDITED FINANCIAL RESULTS
Basis of preparation
The Group's financial results for the quarter ended 31 March 2013 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 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
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 2013.
These Standards had no impact on the results or disclosures of the Group.
- IAS 12, Amended - Deferred taxes: Recovery of underlying assets (effective from 1 January 2012);
- IAS 1, Amended - Presentation of items of other comprehensive income (effective from 1 July 2012);
- IAS 27, Separate financial statements (consequential revision due to the issue of IFRS 10) (effective from 1
January 2013);
- IAS 28, Investments in associates and joint ventures (consequential revision due to the issue of IFRS 10
and 11) (effective from 1 January 2013);
- IFRS 7, Amended - Disclosures: Offsetting financial assets and financial liabilities (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 interest in 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); and
- Improvements to IFRS - Issued May 2012 (effective from 1 January 2013).
ii)
The Group implemented IAS 19 Employee Benefits from 1 January 2013. The Group previously only recognised
the net cumulative unrecognised actuarial gains and losses, which exceeded 10% of the greater of the defined
benefit obligation and the fair value of the plan assets. As a consequence, the Group's statement of financial
position did not reflect a significant part of the unrecognised net actuarial gains and losses. In 2013 the Group
changed its accounting policy to recognise actuarial gains and losses in the period in which they occur in total in
other comprehensive income. Changes have been applied retrospectively in accordance with IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors, resulting in the adjustment of prior year financial
information.
As a result of the accounting policy change, the following changes were made to the financial statements:
As of 1 January 2012:
- Increase in employee benefit liability: R26 million
- Decrease in opening retained earnings: R26 million
As of 31 December 2012:
- Increase in employee benefit liability: R29 million
- Net expense recognised on other comprehensive income: R3 million
- Decrease in retained earnings: R26 million
For the period ended 31 March 2013:
- No increase in employee benefit liability - will be calculated during 2013.
- No deferred tax impact as the Company is in an assessed loss position and the deferred tax asset has
been impaired.
iii)
The following Standards, amendment to the Standards and Interpretations, effective in future accounting periods
have not been adopted in these financial statements:
- IAS 32, Amended - Offsetting financial assets and financial liabilities (effective from 1 January 2014);
- IFRS 9, Financial instruments - classification and measurement (effective from 1 January 2015); 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).
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited as
at Restated as at Restated as at
31 Mar 2013 31 Dec 2012 1 Jan 2012
Notes Rm Rm Rm
ASSETS
Non-current assets 1 767 1 801 1 927
Property, plant and equipment 1 688 1 722 1 760
Deferred tax asset 79 79 167
Current assets 2 167 1 866 2 531
Inventories 876 858 831
Trade and other receivables and pre-
payments 5 708 480 516
Taxation - 1 -
Cash and short-term deposits 583 527 1 184
TOTAL ASSETS 3 934 3 667 4 458
EQUITY AND LIABILITIES
Total equity 1 789 1 709 2 594
Non-current liabilities 801 789 650
Interest-bearing loans and borrowings 6 16 16 -
Provisions 785 773 650
Current liabilities 1 344 1 169 1 214
Trade and other payables 808 924 1 016
Interest-bearing loans and borrowings 6 402 102 -
Income tax payable 1 - 45
Provisions 133 143 153
TOTAL EQUITY AND LIABILITIES 3 934 3 667 4 458
Net Cash 165 409 1 184
Net asset value - cents per share 1 804 1 724 2 616
CONDENSED CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited
for the three for the three Audited for
months months the year
ended ended ended
31 Mar 2013 31 Mar 2012 31 Dec 2012
Note Rm Rm Rm
Revenue 1 414 1 334 4 354
Sale of goods 1 413 1 331 4 346
Cost of sales (1 244) (1 327) (4 746)
Gross profit / (loss) 7 169 4 (400)
Other operating income 8 11 - 138
Selling and distribution costs (64) (73) (248)
Administrative expenses (61) (82) (289)
Other operating expenses (5) (3) (55)
Operating profit / (loss) 50 (154) (854)
Finance costs (19) (11) (52)
Finance income 1 3 8
Profit / (loss) before tax 32 (162) (898)
Income tax (expense) / credit 9 (2) 68 (45)
Profit / (loss) for the period/year 30 (94) (943)
Cents Cents Cents
Profit / (loss) per share - basic and diluted 30.3 (94.8) (951.1)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited for Unaudited
the three for the three Restated for
months months the year
ended ended ended
31 Mar 2013 31 Mar 2012 31 Dec 2012
Rm Rm Rm
Profit / (loss) for the period/year 30 (94) (943)
Other comprehensive income/ (loss):
Exchange differences on translation of foreign 47 (13) 49
operations
Actuarial loss on defined benefit plan - (3)
Total comprehensive income / (loss) for the
period/year 77 (107) (897)
HEADLINE EARNINGS PER SHARE
Unaudited Unaudited
for the three for the three Audited for
months months the year
ended ended ended
31 Mar 2013 31 Mar 2012 31 Dec 2012
Rm Rm Rm
Reconciliation of headline profit / (loss)
Profit / (loss) for the period/year 30 (94) (943)
(Deduct)/add after tax effect of:
Proceeds on successful litigation against the
Channel Induction Furnace supplier - - (79)
(Profit) / loss on disposal and scrapping of
property, plant and equipment * * (*)
Headline profit / (loss) 30 (94) (1 022)
* Less than R1 million.
Cents Cents Cents
Profit / (loss) per share - headline and diluted 30.3 (94.8) (1 030.4)
Million Million Million
Number of shares
+
Ordinary shares in issue as at end date * 99.2 99.2 99.2
* Rounded to nearest hundred thousand.
+
Agree to weighted average and diluted number
of ordinary shares.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Issued
capital
and share Other Retained
premium reserves earnings Total
Note Rm Rm Rm Rm
2012
Balance at 1 January 2012 - Restated 585 203 1 806 2 594
Loss for the period (94) (94)
Other comprehensive loss for the quarter (13) (13)
Balance at 31 March 2012 - Restated 585 190 1 712 2 487
Loss for the period (282) (282)
Other comprehensive income for the
quarter 11 11
Share-based payment reserve 8 8
Balance at 30 June 2012 - Restated 585 209 1 430 2 224
Loss for the period (345) (345)
Other comprehensive income for the
quarter 13 13
Share-based payment reserve 2 2
Balance at 30 September 2012 -
Restated 585 224 1 085 1 894
Loss for the period (222) (222)
Other comprehensive income for the
quarter 38 38
Actuarial loss on defined benefit plan (3) (3)
Share-based payment reserve 2 2
Balance at 31 December 2012 -
Restated 585 264 860 1 709
2013
Balance at 1 January 2013 - Restated 585 264 860 1 709
Profit for the period 30 30
Other comprehensive income for the
quarter 47 47
Share-based payment reserve 10 3 3
Balance at 31 March 2013 - Unaudited 585 314 890 1 789
Unaudited for Unaudited for Audited for
the three the three the year
months ended months ended ended
31 Mar 2013 31 Mar 2012 31 Dec 2012
Cents Cents Cents
Dividends per share
Dividends declared and paid - - -
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
for the for the
three three Audited for
months months the year
ended ended ended
31 Mar 31 Mar 31 Dec
2013 2012 2012
Rm Rm Rm
Cash flows from operating activities
Cash used in operations before tax paid (233) (286) (608)
Income tax paid (1) (*) (2)
Net cash used in operating activities (234) (286) (610)
Cash flows from investing activities
Proceeds from sale and scrapping of
property, plant and equipment * 1 4
Net additions to property, plant and
equipment (38) (61) (203)
Net cash used in investing activities (38) (60) (199)
Cash flows from financing activities
Increase in long-term interest-bearing loans
and borrowings - 15 15
Increase in short-term interest-bearing
loans and borrowings 300 - 102
Net cash generated by financing activities 300 15 117
Net increase/(decrease) in cash and cash
equivalents 28 (331) (692)
Cash and cash equivalents at the beginning of
the period/year 527 1 184 1 184
Effects of exchange rate changes on cash
held in foreign currencies 28 (13) 35
Cash and cash equivalents at the end of the
period/year 583 840 527
* Less than R1 million.
NOTES TO THE 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 A.G. (a fellow subsidiary) amounted to R60 million (March 2012 YTD: R74 million) for the
3 months ended 31 March 2013. This constitutes 4% of total revenue for the period, compared to 6% for the
period ended 31 March 2012. Technical services (slag tolling agreement) and other services with EVRAZ
Vametco Alloys Proprietary Limited (a fellow subsidiary) amounted to R20 million for the year 3 months ended
March 2013 (March 2012 YTD: R17 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 by-
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 for
the three Unaudited for Audited for
months the three months the year
ended ended ended
31 Mar 2013 31 Mar 2012 31 Dec 2012
Rm Rm Rm
Revenue
Steelworks 1 117 1 005 3 181
Vanadium 372 335 1 199
Elimination in
intersegmental revenue (75) (9) (26)
Total 1 414 1 331 4 354
Unaudited for
the three Unaudited for Audited for
months the three months the year
ended ended ended
31 Mar 2013 31 Mar 2012 31 Dec 2012
Rm Rm Rm
Operating profit/(loss)
Steelworks (37) (234) (1 153)
Vanadium 87 80 299
Total 50 (154) (854)
Unaudited
as at Audited as at
31 Mar 2013 31 Dec 2012
Rm Rm
Total assets
Steelworks 3 310 2 935
Vanadium 624 732
Total 3 934 3 667
4 Supplementary revenue information - Unaudited
For the three
For the three months For the year
months ended ended ended
31 Mar 2013 31 Mar 2012 31 Dec 2012
Sales volumes of major products
Total steel Tons 135 512 133 241 453 836
Ferrovanadium Tons V 1 084 1 554 4 766
Modified Vanadium Oxide Tons V 0 16 244
Nitrovan Tons V 224 119 669
Vanadium slag Tons V 104 0 181
Fines ore Tons 183 970 165 765 687 380
Weighted average selling prices achieved for major products
Total steel US$/t 762 849 764
Ferrovanadium US$/kg V 29 23 23
Modified Vanadium Oxide US$/kg V - 17 18
Nitrovan US$/kg V 30 24 23
Vanadium slag US$/kg V 10 - 7
Fines ore US$/t 44 19 20
Average R/$ exchange
rate 8.95 7.76 8.21
5 Trade and other receivables and pre-payments
The increase of R192 million can mainly be attributed to increased sales volumes and prices in 2013.
December months are also historically low sales months due to the holiday periods.
6 Interest-bearing loans and borrowings
The long-term borrowings of R16 million (2012: R16 million) consist of the loan due by Umnotho Iron and
Vanadium Proprietary Limited payable to Umnotho weSizwe Group Proprietary Limited. This loan has no
fixed repayment terms and interest is charged at prime rate. The short-term borrowings are with Citibank and
Investec Bank. The loans are uncommitted and carry interest at market related interest rates.
7 Gross profit / (loss)
The improvement in gross profit is as a result of improved steel selling prices, increased vanadium- and fines
ore selling prices and reduction in costs.
8 Other operating income and expenses
The R11 million (2012: Rnil million) other operating income includes sundry income and inventory
adjustments. The other operating expense of R5 million (2012: R3 million) includes foreign exchange
differences of R4 million.
9 Income tax
Unaudited
Unaudited for for the three Audited for
the three months the year
months ended ended ended
31 Mar 2013 31 Mar 2012 31 Dec 2012
Rm Rm Rm
South African
Normal
Prior year - - (44)
Deferred
Current - (68) 86
Non-South African
Normal
Current 2 * 3
Income tax
expense/(credit) 2 (68) 45
* 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.
10 Share-based payment reserve
Certain key management personnel participate in a Long Term Incentive Plan (LTIP) over shares in EVRAZ
plc. The shares are traded on the London Stock Exchange. The vesting of the shares occur on the 90th day
following the announcement of EVRAZ plc financial results. The cost of the LTIP award will be settled in
equity by EVRAZ plc. The amount recognised according to IFRS 2 in Q1 2013 is R3 million (2012 year: R12
million).
11 Guarantees
As required by the Mineral and Petroleum Resources Development Act, a guarantee amounting to R264
million (2012: R264 million) was issued on 1 February 2007 in favour of the Department of Mineral
Resources (DMR) for the unscheduled closure of Mapochs Mine. This guarantee is issued by EVRAZ
Highveld on behalf of Mapochs Mine.
As required by certain suppliers of the Group, guarantees were issued in favour of these suppliers to the
value of R9 million (2012: R9 million) in the event the Group will not be able to meet its obligations to the
supplier.
12 Contingent liabilities
In terms of the Group'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 for the Group should they become medical scheme members in the future is R32 million
before tax and R23 million after tax (2012: R32 million before tax and R23 million after tax).
On 5 June 2008, the Commission initiated a complaint against Highveld for an alleged contravention of
section 4(1)(b)(i) of the Competition Act, No. 89 of 1998 ("the Competition Act"). The allegations against
Highveld are that it fixed prices and trading conditions for flat and long steel products. In a letter from the
Commission dated 18 September 2009, the Commission confirmed that it would not be pursuing a case of
collusion in the long steel market against Highveld. On 30 March 2012 the Commission referred the
complaints relating to the the flat steel market to the Competition Tribunal for prosecution. The allegations
against Highveld contained in the Commission’s complaint referral are that Highveld fixed prices and trading
conditions for flat steel products, and divided markets in respect of flat steel products, which are
contraventions of sections 4(1)(b)(i) and 4(1)(b)(ii) of the Competition Act respectively. It is further alleged in
the Commission’s Complaint Referral that Highveld has contravened sections 4(1)(b)(i) and 4(1)(b)(ii),
alternatively section 4(1)(a), of the Competition Act by engaging in the exchange of information with a
competitor through information exchanges and meetings of the South African Iron and Steel Institute or its
committees. Should the Competition Commission be successful, it could raise a maximum penalty of R554
million against EVRAZ Highveld.
13 Subsequent events
There are no events to be reported on since 31 March 2013.
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