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Strong growth in the domestic steel market is set to continue says Mittal Steel South Africa.
Mittal Steel South Africa today reported that higher local volumes along with foreign exchange gains resulted in headline earnings for the second quarter improving by 80% to R1, 22 billion when compared to the first quarter of the 2006 financial year.
Mittal Steel South Africa says domestic demand for steel products during the past months was very strong and improved by 22% compared to last year, driven by growth in demand from the building and construction, automotive and packaging sectors.
However lower sales prices, lower equity accounted earnings and higher costs resulted in headline earnings for the six months to 30 June 2006 falling 41% to R1, 912 billion, or 429 cents a share, when compared to the corresponding period last year.
Headline earnings increased by 3% when compared to the previous six months ending 31 December 2005.
Davinder Chugh, the Chief Executive Officer, says the results were also negatively impacted by a number of non-recurring items such as production problems and voluntary retrenchment packages.
“In the third quarter we expect full benefit of our voluntary retrenchment program and a more stable production environment.”
Chugh says he expects domestic demand to remain buoyant for the reminder of the year, while the recent weakening of the Rand should stimulate demand from export orientated industries.
Revenue for the period declined marginally to R12, 13 billion from R12, 38 billion during the corresponding period last year. Operating profit of R2, 2 billion for the first six months of the year was 46% lower than the previous year, with the most notable declines being experienced at flat steel products and Coke & Chemicals.
The decline in the operating income of the Coke & Chemicals business was mainly due to a sharp decline in the international price of market coke.
Net cash inflow for the six months was R837 million. Cash and cash equivalents at the end of the period totalled R6 billion.
An interim dividend of 143 cents was declared, covered three times by headline earnings.
Chugh says the once-off production problems resulted in the liquid steel production for flat steel products falling by 6% while production of long products remained relatively stable. Despatches to the market however improved by 7%. This was achieved through an inventory build- down.
During the period under review, cash costs per tonne of hot rolled coil and billets increased by an average of 10% compared to the first half last year, driven by a substantial increase in the cost of imported coal, local coal and imported pellets.
The cost of galvanised material increased by 76% due to an increase in the price of zinc by more than 100%.
Mittal Steel South Africa provided and paid voluntary retrenchment packages to the value of R155 million during the past six months.
Export volumes declined by 14% compared to the corresponding period last year and by 25% compared to the previous six months, mainly due to an increase in domestic sales volumes.
Chugh says hot rolled export prices were significantly lower than last year. However, during quarter two, prices of both flat and long steel products showed remarkable strength in all major regions.
“Prices are expected to remain strong during the second half of the year, ” he says.
Mittal Steel South Africa says prospects for the third quarter will remain strong, driven by higher prices, higher domestic volumes, a more stable production environment and the full benefit of the voluntary retrenchment packages. However, exchange rate movements will always have a major impact.
Contact:
Tami Didiza
General Manager, Corporate Affairs
Mittal Steel SA
Tel: +27 16 889 2462
Fax: +27 16 889 2465
Email: [email protected]
Source: Mittal Steel South Africa Ltd - 2 August 2006
For complete financial statements see Mittal Steel South Africa website:
http://www.mittalsteelsa.com
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