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FINANCIAL RESULTS
Headline earnings for the quarter of R684 million declined by 21% compared to the previous quarter and by 57% compared to the corresponding period last year. The main reasons for the substantial decline from last year were lower sales prices, an increase in costs, lower export volumes and voluntary retrenchment packages provided for during the past quarter. This was partially offset by higher local sales volumes.
MARKET REVIEW
International
Export sales volume declined by 13% compared to the previous quarter and 15% compared to the corresponding period last year due to a higher domestic offtake. The decline in international steel prices was mainly driven by a softening in demand in China and a destocking effect following an inventory buildup by customers during the first half of last year in anticipation of further price increases.
Domestic
Domestic sales volume was 18% higher than the previous quarter and 19% higher than the corresponding period last year mainly due to equilibrium between supply and demand following the 2005 reduction in inventory levels and a general improvement in economic activities. Domestic spot prices for the quarter were below that of last year following two price reductions announced
during 2005.
PRODUCTION
Liquid steel production declined by 4% compared to the previous quarter and by 10% compared to the corresponding period last year. The Vanderbijlpark plant experienced instability at Blast Furnace D during March while one of the three Electric Arc Furnaces was out of operation for five weeks during January/February due to cables damaged by fire. The Saldanha plant experienced power interruptions resulting in delays in the iron and steel making units.
COST
Cash cost of hot rolled coil increased by 14% compared to the first quarter last year and billets by 5%, driven by a substantial increase in the cost of coking coal, iron ore pellets and scrap. The higher increase for hot rolled
coil is mainly due to the production problems experienced at our Flat Product plants discussed above. The cost of our galvanized products was also negatively impacted by a significant increase in the price of zinc.
CONTINGENT LIABILITIES
Our objection, disputing the disallowance of the deductibility of the payment made in terms of the BAA, was rejected by SARS during April 2006. We intend to appeal against this decision during May 2006. There is a contingent liability of R403 million plus interest thereon and no provision has been made in this regard.
The hearing by the Competition Tribunal, on allegations that we contravened the Competition Act, started during the middle of March 2006. Closing statements are scheduled for the end of May 2006 with a possible ruling expected during July 2006. Management is of the opinion, based on advice from legal counsel, that no significant exposure exists in this regard and therefore no provision has been raised.
OUTLOOK
We expect the local market to remain buoyant driven by strong economic conditions. A moderate improvement in global steel prices is also expected.
For complete financial statements see Mittal Steel South Africa website:
http://www.mittalsteelsa.com
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