|
Highveld Steel and Vanadium Corporation Limited interim report for the 6 months to 30 June 2006
Financial Results
Headline earnings decreased to R401 million compared with R1 038 million for the corresponding period last year, mainly due to a decrease in the exceptionally high vanadium prices of 2005. Reduced vanadium output due to a lengthy kiln outage also impacted negatively on earnings. Operating profit decreased to R573 million from R1 574 million at 30 June 2005. Cost reduction initiatives generated savings of R113 million for the period compared with R117 million in 2005.The depreciation charge was R103 million, compared with R132 million in 2005 which included an amount of R44 million related to the loss on disposal and scrapping of property, plant and equipment.
Profit attributable to shareholders for the six months was R401 million compared with R1 237 million in the corresponding period of 2005, after a tax charge of R145 million (2005: R600 million).
Headline earnings per share were 404.9 cents, compared with 1 049.5 cents in the first six months of 2005. Notwithstanding the decrease in profits, the results are the second best for the first six months in the history of Highveld.
The net cash outflow for the period of R395 million increased the net borrowed position to R493 million compared with R98 million at 31 December 2005.The cash inflow from operations was R703 million, however, this was more than offset by the cash outflow from taxation payments of R508 million, dividend payments of R396 million and capital expenditure of R194 million.
In view of the results and expected future cash flow, the Board has decided to declare an interim dividend based on the first half results of 250 cents per share (2005: 1 050 cents).
Operations
Vanadium
After the all-time record vanadium prices achieved during the first half of last year, the price of ferrovanadium has settled down at more sustainable levels. Towards the end of the second quarter of this year the market experienced the usual slowdown as a result of the European summer holidays. However, on the back of the improved demand for steel, the demand for vanadium is expected to remain at acceptable levels for the rest of the year.
A number of projects which will increase the Corporation’s vanadium production are well underway. The first furnace modified to an open slag bath operation at the ironmaking division is performing well and a further furnace is currently off-line for conversion. The modified furnaces will increase iron production and vanadium recovery.
At Vanchem the upgrade and de-bottlenecking in the oxides area are well under way with new process equipment being commissioned. Following an unexpected breakdown, one of the three kilns was off-line for six weeks during the period under review for a refractory reline and a bag filter upgrade. The other two kilns are scheduled for refractory relines during the second half of the year and a major mechanical rebuild is planned for kiln no. 2 during this time.These shutdowns will result in lower vanadium production during the next six months. The integrated water and waste management plan at Vanchem is on target and a number of the planned projects have been successfully completed.
Steel
World crude steel output has continued to grow this year. Compared with the first six months of 2005, world crude steel production is up by 7.9 per cent. China continues to lead the surge in output, having produced 199.5 million tons during this period, which is 18.3 per cent higher than the same period last year. China now accounts for 33.5 per cent of global steel production.
Steel sales volumes for the first six months have increased by 12 per cent and domestic despatches increased by 29 per cent compared with the same period last year.This was mainly due to excellent domestic demand on the back of strong economic growth and spending on capital expansion projects. Prospects remain good for the domestic steel market in the second half of 2006 due to the low inflation and interest rate environment, a wealth of projects relating to government’s infrastructure programme, the 2010 Soccer World Cup, new projects in the mining and chemical sector and Eskom’s reinvestment programme.
International prices for all Group steel products have increased significantly in the latter part of the past six months from the low levels reached towards the end of last year. This is mainly due to improved international demand driven by a very strong commodity cycle and increased consumption in China. Prices and demand are expected to remain at current levels over the next few months.
Ferro-alloys
The Transalloys division incurred losses during the period mainly due to the depressed manganese alloy prices. These prices, however, improved towards the end of the second quarter to levels which warranted running furnaces during the high electricity cost winter months. The bulk of the current silicomanganese and medium carbon ferromanganese production is committed to the export market, mainly for North and South America. Prices are expected to remain at similar levels during the second half of the year.
Ferrosilicon production was satisfactory and most of the product was sold on the local market. Production will continue during the high electricity cost winter months at slightly reduced levels due to major furnace maintenance being carried out.
Investments
The process of selling Rand Carbide was terminated when the final bidder withdrew its offer. Negotiations with an international paste producer for the sale of the investment in Ferroveld are at an advanced stage.
Capital Expenditure
Capital expenditure incurred by the Group during the period amounted to R194 million (2005: R255 million)and the total commitment in respect of further capital expenditure as at 30 June 2006 is R733 million compared to R582 million at 31 December 2005. This expenditure will be funded from internally generated cash flows and available borrowing facilities.
Safety, Health, Environment and Quality
The Group regrettably experienced one fatality during the first half of the year. The lost time injury frequency rate as at 30 June 2006 was 0.26 compared with 0.26 recorded for the first six months of 2005 and 0.22 for the twelve months of 2005.
The Corporation continues to promote HIV/AIDS awareness, an initiative which commenced in 2003. As at 30 June 2006, 56 per cent of the total work force of 3 894 had undergone voluntary counselling and testing (“VCT”).VCT is re-done every calendar year.A total of 18 employees are receiving free anti-retroviral treatment.
The five-year programme, which was approved and commenced in 2005, to achieve international best practice in emission control, waste management and water conservation continued in the first half of 2006. During the first six months R25 million was spent on capital projects in terms of this programme bringing the total spent to date to R59 million.The programme may be delayed due to the lengthy process in acquiring regulatory approval for the major projects.
Black Economic Empowerment
During the period under review, goods and services worth R209 million (2005: R177 million) were purchased from a total of 146 (2005: 116) black empowerment enterprises.
Anglo American plc Announcement
Following Anglo American plc’s (“Anglo”) announcement on 26 October 2005 that it had decided to rationalise its portfolio and increase the focus on its controlled mining businesses, it is now confirmed that it has reduced its 79 per cent interest in Highveld. Evraz Group S.A. (“Evraz”) and Credit Suisse(“Credit Suisse”) have each acquired 24.9 per cent of Highveld’s share capital from Anglo. Anglo retains a 29.2 per cent interest in Highveld. Evraz has an option to increase its stake in Highveld once regulatory approvals are received, including from competition authorities in South Africa and elsewhere. Subject to Evraz receiving such regulatory approvals, Evraz will be entitled to purchase Anglo’s remaining 29.2 per cent shareholding as well as the 24.9 per cent holding of Credit Suisse through separate option agreements. Evraz intends to file for such regulatory approvals as soon as possible.
Anglo and Credit Suisse have agreed that Anglo will retain the voting rights in respect of the shares acquired by Credit Suisse. Anglo will retain representatives on the Highveld Board until such time as Anglo disposes of all its shares in Highveld. The Board has appointed Messrs A V Frolov, A Sorokin and J W Campbell as directors,representing Evraz, with immediate effect.
Outlook
Domestic demand for all of the Corporation’s steel products is expected to remain at record levels, driven by strong economic growth in general and higher capital expenditure as various projects associated with the 2010 Soccer World Cup and government initiatives get underway. Improving international demand, coupled with significantly increased input costs for producers, has resulted in improved international prices which will allow the Corporation to, after satisfying domestic demand, sell all of its remaining production, at a profit.
Vanadium demand should improve marginally but prices are expected to remain at current levels.The planned refurbishment of two kilns at the Corporation’s Vanchem facility will, however, negatively impact on production and sales. This will in part be made up in increased vanadium slag production emanating from the converted open slag bath furnaces.
Cost savings initiatives and productivity improvement projects are on target and should yield the planned savings which will assist in keeping costs in check.
Provided there is no sudden decrease in the vanadium price and the Rand remains at current levels an improved performance for the second half of the year can be expected compared with the results of the first half of 2006.
For and on behalf of the Board
G G Gomwe – Chairman Witbank
A J de Nysschen – Chief Executive Officer 27 July 2006
HIGHVELD STEEL AND VANADIUM CORPORATION LIMITED
(Incorporated in the Republic of South Africa)
(Registration no. 1960/001900/06)
Share code: HVL ISIN: ZAE000003422
(“Highveld” or “the Corporation”)
See complete set of results on Highveld Steel website:
http://www.highveldsteel.co.za
|
|
|
|
