South African iron and steel producer Ispat Iscor on Thursday reported basic headline earnings per share of 1Â 019 cents for the year ended December 31 2004, from 360 cents a year ago.
A final dividend of 100 cents per share was declared from 75 cents a year earlier, making a total for the year of 400 cents from 175 cents a year ago.
The group said headline earnings for the year increased by 183% compared with last year, with record high global steel prices, strong domestic steel demand and cost containment through savings, the main drivers. However, this was partially offset by the negative impact of the stronger rand.
Revenue was up to R23,053-billion from R18,487-billion rand before, while headline earnings rose to R4,541-billion from R1,605-billion.
The group said operating profits more than doubled at all business units for the year, despite the Conarc furnace burn-through at Saldanha Steel, the planned throat armour repair of blast furnace C at Vanderbijlpark and the planned interim repair of blast furnace D at Vanderbijlpark.
Saldanha Steel’s results improved by more than 200% due to a higher percentage ultra-thin gauge product in the sales mix, an increase in local sales volumes and higher sales prices, while the bulk of the loss as a result of the Conarc furnace burn-through was compensated through insurance payout.
Coke and Chemicals also improved its profits by more than 150% due to the strong volumes and international coke prices.
The company said the surge in global steel demand, driven by fixed investment in China, robust growth in the United States and developing markets, and a sharp increase in all major input costs led to record price levels during the second half of 2004.
During the year, global hot rolled coil export prices increased by more than 60%, but the latter part of the year witnessed a deceleration in the Chinese demand due to local measures to cool down the overheated Chinese economy.
However, this slack was picked up by a robust demand in the US and elsewhere, ending the year with growth for the industry at 8,4% over 2003.
Stable year expected
The group said 2005 is expected to be a stable year for the global steel industry, marked by a recovery in Chinese demand, a sharp increase in raw material prices and continued good global economic growth, with average prices, anticipated to be similar to or slightly better than 2004.
The substantial growth in domestic demand led to a 25% decline in export volumes. Exports to the Far East decreased during the year while exports to Europe, the Middle East and the rest of Africa increased.
Ispat Iscor’s domestic dispatches increased by 22% during 2004, driven by a robust local economy, but during the second half of the year, the growth in order intake was somewhat lower compared with the first half due to the inventory/destocking effect, though the underlying demand remained firm.
Cash cost per tonne for hot rolled coil and billets for the year was higher, driven by higher prices for imported coal, alloys, scrap, freight and railage. In dollar terms, the cost increased by 22% and 26% respectively due to the strong rand.
“Given the quantum increase in raw material input prices, the global cost curve has shifted up considerably. The high level of raw material integration, together with significant cost savings realised during 2004, enabled the company to contain the impact of escalation in the cost of coking coal, alloys, scrap and freight,” it said.
“The strengthening of the rand against the dollar has put the company’s position on the global cost curve under pressure. Our strategy continues to address this key issue with the aim to maintain the company’s position in the lowest cost quartile of the global cost curve.”
Business assistance agreement
The group said the business assistance agreement (BAA) with Mittal Steel, which expired on December 31 2004, made a sterling contribution to the cost-reduction programme. The total remuneration of R1,344-billion compares very favourably with the cumulative realised savings over the three-year period of R1,985-billion, it said.
Mittal Steel received R731-million, the balance of remuneration payable in terms of the BAA, for savings generated during the first half of 2004. The audited annualised cost savings for the six months ended December 31 2004 in terms of the BAA amounted to R926-million, for which Mittal Steel is not entitled to any further remuneration in terms of the BAA.
The management will review and recommend to the board a new contract to replace the expired one, which will be subject to approval of shareholders, other than Mittal Steel, it said.
Mittal Steel increased its shareholding to above 50% in June last year, making Ispat Iscor a subsidiary. Towards the end of 2004, LNM Holdings, the controlling shareholder of Ispat Iscor, was acquired by Ispat International NV, another arm of the group. The combined company called Mittal Steel Company NV is listed on the New York and Amsterdam stock exchanges.
Ispat Iscor is in the process of changing its name to Mittal Steel South Africa, subject to approval by the shareholders and other legal requirements before the end of March this year.
Looking ahead, the group said it expects the strong local demand for steel to continue, driven by good macro-economic conditions. However, if the rand continues to strengthen further, the industrial production, particularly of sectors reliant on exports, may impact negatively.
During the first quarter of 2005, it expects volumes to be generally in line with the fourth quarter of 2004, while local prices could be lower due to price adjustments announced to reflect the strong rand.
Overall, the results for the next quarter are expected to remain generally in line with the fourth quarter of 2004, although slightly impacted due to the recently announced price decreases, Ispat Iscor concluded. — I-Net Bridge