2011 Annual Results presentation 1 - Evraz Highveldevrazhighveld.co.za/annual_reports/190312... ·...
45
1 2011 Annual Results presentation
Transcript of 2011 Annual Results presentation 1 - Evraz Highveldevrazhighveld.co.za/annual_reports/190312... ·...
1
1 2011 Annual Results presentation
2 Disclaimer Forward looking statements
This document may contain forward looking information and statements about Evraz Highveld Steel and Vanadium
Corporation Limited (Evraz Highveld) and its subsidiaries. These statements may include financial projections and
estimates and underlying assumptions, statements regarding plans, objectives and expectations with respect to
future performance. These forward looking statements are not guarantees or predictions of future performance, and
involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and which
may cause actual results to differ materially from those expressed in the statements contained in this presentation.
Evraz Highveld’s management believes that the expectations reflected in such forwarded looking statements are
reasonable; however, neither the Corporation nor any of its affiliates, advisors, or representatives accept any
responsibility for any loss arising from the use of any opinion expressed or forecast or data herein. Evraz Highveld
undertakes no obligation to publicly update its forward looking statements whether as a result of new information,
future events, or otherwise.
Reliance of third party information
The views expressed here contain information that has been derived from publicly available sources that have not
been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of
the information. This presentation should not be relied upon as a recommendation or forecast by Evraz Highveld.
No offer of securities
This presentation should not be construed as either an offer to sell or a solicitation of an offer to buy or sell Evraz
Highveld securities.
Financial information
Evraz Highveld’s results are reported under International Financial Reporting Standards (IFRS)
3 Contents Highlights 4
Overview 5
Health Safety and Environment 6
Key result drivers and production 10
Economic overview 12
Steel and vanadium markets 14
Operational results 22
Financial results 26
Investment program 34
Prospects 43
Page
4 Highlights
Michael D. Garcia
Chief Executive Officer
5 Overview (2011 vs. 2010) KEY FEATURES
Safety
■ 16% improvement in LTIFR from 2010 to 2011
■ 2 contractor fatalities occurred during 2011
Mapochs BEE empowerment deal
■ Transaction became effective on 29 February 2012
Finance
■ Headline loss of R15 million.
■ Revenue up 9% to R5 587 million.
■ EBITDA profit of R153 million in 2011 vs. R264 million loss in 2010
Steel Products
■ Overall steel sales volumes decreased by 1%
■ Domestic steel sales volumes increased by 15%.
■ Export steel sales volumes decreased by 35%.
Costs
■ Cost of sales down by 5.6%.
■ Energy costs down by 2.3%.
■ Service Costs up 4.8%.
Vanadium Products
■ Slag production decreased by 4.9%
■ FeV sales volumes increased by 10%.
6 Safety - Road Towards Zero Harm 6
Two fatalities were recorded during the year, which we deeply regret
Improvements on Safety (2010 v 2011):
16% improvement in (Lost Time Injury Frequency Rate) LTIFR to
1.57 for the year (2010: 1.87)
12% decrease in total injuries (2011: 211 v 2010:240)
Comprehensive contractor safety management program initiated
in October 2011
Furnace no 7 rebuild project was completed with zero recordable
injuries.
7 Safety - LTIFR
7
8 Safety -Total Injuries (Excl Fatalities) 8
9
Environment
Steelworks
Further discussions relating to the 2007 operational audit are ongoing
with the EMIs (Green Scorpions) and their response is awaited
Integrated water use license: engagement continues with the Water
Tribunal and Department of Water Affairs towards issuing of license
Mapochs Mine
Expecting a favourable response from the DWA for the integrated water
use license
Vanchem calcine waste disposal facility
Agreement in principle has been agreed to with Earth Metallurgical
Solutions regarding the reworking of the facility to comprehensively
address the environmental liability
10 Key Result Drivers
2H2011
vs.
1H2011
2011 vs.
2010
Liquid steel production 11.9% 15.1%
Cast steel production 17.3% 13.3%
Rolled production 22.2% 7.5%
Total steel sales volumes 24.4% 1.2%
Domestic steel sales volumes 2.3% 15.5%
Export steel sales volumes 75.5% 35.5%
Steel products average selling prices 14.1% 14.4%
Cost of sales 23.2% 5.6%
Productivity – tons per manyear * 24.4% 10.3%
Vanadium slag production 19.4% 4.9%
Ferrovanadium sales volumes 5.1% 9.9%
Ferrovanadium average selling prices 0.3% 0.3%
Average exchange rate (USD/ZAR) 10.4% 1.0%
* Based on complement at period end divided by total rolled product
11 Evraz Highveld Production Production 2H2011 1H2011 Var. 2H 2011 /
1H 2011
2011 2010 Var. 2011 /
2010
Blooms (kt) 156 193 (19.2)% 349 344 1.5%
Slabs (kt) 147 175 (14.9)% 322 429 (24.9)%
Sections (kt) 101 124 (18.6)% 225 210 7.1%
Plate (kt) 76 94 (19.2)% 170 212 (19.8)%
Coils (kt) 47 70 (32.9)% 117 132 (11.4)%
Vanadium slag (tons V) 3 606 4 485 (19.6)% 8 091 8 676 (6.7)%
Ferrovanadium (tons V) 3 223 2 836 13.6% 6 059 5 392 12.4%
Modified Vanadium Oxide (tons V) 648 828 (21.7)% 1 476 557 165.0%
Nitrovan (tons V) 553 570 (3.0)% 1 123 - 100%
Ore fines (kt) 337 303 11.2% 640 608 5.3%
12 Economic Overview- global economy The outlook of the global economy remains highly uncertain, with the biggest
risk factor remaining the European sovereign debt crisis and whether
European banks can be viably recapitalised.
Therefore, a sharp decline in GDP growth in the eurozone is expected.
However, there are some signs of reacceleration and rebound in growth rates
in H2 2012.
The US is the only region with above trend growth for 2012, as the US exits
the crisis.
A recovery in the US construction market could result in trend growth
sustainably above 5% for several years.
Credit Suisse – “Steel is the industrial cycle in our view, the cycle appears to
have troughed, and consequently this supports a bull run for commodities and
equities through to probably mid 2013.”
Sources: Credit Suisse, BER
13 Economic Overview – SA Economy Real GDP growth for 2011 was 3.1%, with a weaker forecast of 2.7% for 2012.
Higher consumer inflation of 6.2% is projected for 2012, compared to the inflation
rate of 5.0% of 2011.
The budget proposes R845 billion expenditure on public infrastructure over the
next 3 fiscal years, with an expected nominal growth of 15.8% during 2012/2013 of
such expenditure, which is expected to stimulate growth.
The Rand has strengthened by 6.4% against the US Dollar from R8.18/$ in
November 2011 to R7.63/$ in January 2012 with Reuters Econometer projecting
the rand to end the year at 7.59 to the dollar.
The external environment remains the biggest risk to the SA economy
Source: BER
14
Source: World Steel Association; Credit Suisse
Global Steel Markets
Global crude steel output increased by 6.8% to a record 1,527 Mt for 2011
compared to 2010.
South-Africa’s output decreased by 12.7% to 6.7 Mt in 2011 from 2010.
Global steel output has migrated from the developed to the developing
countries.
3 main movements in the steel market:
US recovered at a rapid rate with a 7.1% increase in output for 2011 v 2010, but with the
risk of peaking growth rates
Europe remains in negative growth and requires recovery of global demand for continued
momentum
China is experiencing a structural slowdown with a trough in Q 2 2012, to reaccelerate in
H2 2012
15
Global Steel Markets (cont)
Source: World Steel Association
16
Global Steel Markets (cont)
Source: World Steel Association
17 Global Vanadium Markets
The LMB FeV price gradually weakened on a quarterly basis throughout
2011 from an average price of US$30.75/kg V in Q 1 2011 to end at
US$ 25 /kg V in Q 4 2011.
2012 did not start off promising with an average price of US$ 23.01/kg V
for January 2012.
However, the price has since improved and is currently fluctuating
between US$ 25 and US$ 26/kg V.
It is expected that demand for high-strength micro alloyed steels will
continue to grow.
Vanadium remains a preferred micro alloy due to ease of use.
Source: Evraz Stratcor Inc
18
130
155
180
205
230
255
280
305
330
Worldwide Vanadium Consumption Rate M
illio
ns o
f L
bs.
of
V2O
5 p
er
Year
1998 2000 2002 2004 2006 2008 2010 2012
Through January 2012
Source: Evraz Stratcor, Inc.
19
125
150
175
200
225
250
275
300
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
Worldwide Steel Production vs. Worldwide Vanadium Consumption
1998 2000 2002 2004 2006 2008 2010 2012
Steel Production
Vanadium Consumption
Global 12-Month Moving Average
Annual Rates Through January 2012
Millio
ns o
f Lb
s. o
f V2 O
5 per Y
ear
Mil
lio
ns o
f M
etr
ic T
on
s o
f S
teel p
er
Year
Source: Evraz Stratcor, Inc.
Source: Evraz Stratcor, Inc.
20 Vanadium Production vs. Consumption M
illio
ns o
f L
bs.
of
V2O
5
130
150
170
190
210
230
250
270
290
310
1998 2000 2002 2004 2006 2008 2010 2012
Vanadium Production
Vanadium Consumption
Global 12-Month Moving Average
Annual Rates Through January 2012
Source: Evraz Stratcor, Inc.
21 Ferrovanadium Price Trends
Vanadium Production vs. Consumption
Vs. FeV Price
6 Month Moving Averages 11/11/2011
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 125
150
175
200
225
250
275
300
325 Million Lbs. V2O5 (Annualized Rate)
0
10
20
30
40
50
60
70
80 $/Lb.V
Consumption Production LMB FeV Price
Source: Evraz Stratcor, Inc.
22 Operational results
Michael D. Garcia
Chief Executive Officer
23 Steel Production and Capacity
-
20
40
60
80
100
120
140
160
180
200
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
kt
Quarterly Steel Production and Capacity - Mills
Structurals Flat Products Available Capacity
25% 68% 50% 16% 4% 16% 22% 22% 23%35% 19%3%11% 0% 48% 29%
24
Sales Trend
Flat products made up of coil and plate, Semis made up of billets, slabs, blooms and blocks
Local: Delivered; Export: FOB and CFR
78 75 7857
27 28
54 60 52 52 55 5068
5741
57
102 106 99
64
50 52
9098
94 102 89
53
94
88
60
61
2 31
1
26
92
3
1
12
5
56
20
15
2614
0
20
40
60
80
100
120
140
160
180
200
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
kt
Quarterly Steel Sales
Structurals Flat Products Semis
25 Steel Sales by Geographic Region
86.7%76.0%
61.6%
87.6% 83.0%
67.7%76.9%
92.1%
2008 2009 1H2009 2H2009 1H2010 2H2010 1H2011 2H2011
Sales by Geographic Area
Rest of World Asia Europe Americas Rest of Africa South Africa
26 Financial Results
Jan Valenta
Chief Financial Officer
27
Group Financial Summary
Rm 2H 2011
Actual
1H 2011
Actual
Var. 2H
2011 / 1H
2011
2011 Actual 2010 ActualVar. 2011 /
2010
Revenue 2,602 2,985 (12.8%) 5,587 5,125 9.0%
EBITDA (38) 191 (119.9%) 153 (264) 158.0%
EBITDA margin (1.5%) 6.4% (122.8%) 2.7% (5.2%) 153.2%
Cash and cash equivalents 1,184 1,090 8.6% 1,184 492 140.5%
Net cash to shareholders equity 45.2% 41.5% 8.8% 45.2% 19.6% 130.4%
Total liabilities to shareholders equity 70.1% 69.9% 0.3% 70.1% 61.9% 13.3%
Return on Capital Employed (ROCE%) (3.2%) 1.7% (289.7%) (1.5%) (27.0%) 94.4%
Net Asset Value (NAV) cents per share 2,643 2,646 (0.1%) 2,643 2,532 4.4%
Group Financial Summary
28 EBITDA 2011 vs. 2010
155,
580
(64,
307)
(43,
971)
(263
,110
) 153,
281
23,0
02
42,7
51
93,8
17
(99,
702)
76,4
77
(99,
506)
204,
708
40,9
78
(89,
203)
64,9
82
(15,
778)
98,1
58 14
,444
27,8
86
(11,
811)
(232
,399
)
51,9
03
190,
253
(6,2
60)
(5,6
12)
-300,000
-250,000
-200,000
-150,000
-100,000
-50,000
0
50,000
100,000
150,000
200,000
250,000
300,000
2010
EBI
TDA
Plat
e Pr
ice
(1)
Plat
e Co
st o
f sal
es
Plat
e Vo
lum
e an
d M
ix
Coil
Pric
e
Coil
Cost
of s
ales
(2)
Coil
Volu
me
and
mix
(3)
Stru
ctur
als P
rice
Stru
ctur
als C
ost o
f sal
es (
4)
Stru
ctur
als V
olum
e an
d m
ix (
5)
Sem
is P
rice
Sem
is C
ost o
f sal
es (
6)
Sem
is V
olum
e an
d m
ix
Exch
ange
rate
var
ianc
es
Scra
p Pr
ofit/
(Los
s) (
7)
Vana
dium
Pro
fit/(
loss
)
Ore
Pro
fit/(
loss
)
S and
D v
aria
nce
G an
d A
cost
var
ianc
e
Idle
Pla
nt co
st v
aria
nce
(8)
Rele
ase
of ac
crua
ls
NRV
adju
stm
ent (
9)
Envi
ronm
enta
l pro
v adj
Oth
er co
sts
2011
EBI
TDA
Group EBITDA : 2011 vs. 2010 (R'000s)
1. The increase in plate price is due to improved market conditions
2. Coil cost of salesare lower in 2011 due to decreased sales in 2011.3. Coil sales volumes are lower in 2011 mainly due to poor market conditions.
4. Structurals cost of sales increased due to an increase in sales volumes.5. Structurals volumes increased by 17kt, the significant variance is mainly due to the change in local/export sales ratio (2010: 54/64, 2011: 76/24).
6. Semi's cost of sales increased due to increased sales volumes in 2011 to ArcelorMittal South Afirica .
7. In 2011 a decreased loss on scrap sales were realised due to increased sales prices and lower volumes.8. Idle plant cost increased due to decreased production during 2011 due to furnace 7 being down for conversion to OSB, planned maintenance shut downs and the SEIFSA contractors strike.9. NRV adjustment - high stock levels of local & export steel at end 2010 were reduced during 1H 2011 resulting in a high NRV provision release - a large quantity of coil at the low bulk deal prices was included in stock at end 2010, which was mostly released in 1H 2011. Decrease in seconds and scrap stock and improvement in scrap selling prices during 2011 also contributed to the significant release.
29 EBITDA 2H 2011 vs. 1H 2011 19
1,76
1
16,9
11
91,3
24
(148
,070
)
43,4
04
191,
074
(169
,661
)
25,0
13
123,
707
(68,
345)
(8,7
50)
(30,
942)
26,3
50
106,
820
5,91
4
(108
,074
)
(30,
520)
43,5
70
(34,
801)
(169
,937
)
42,9
97
(169
,769
)
25,1
06
(40,
810)
8,19
7
(37,
529)
-200,000
-150,000
-100,000
-50,000
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
1H 20
11 E
BITD
A
Plat
e Pric
e
Plat
e Cos
t of s
ales
(1)
Plat
e Vol
ume a
nd m
ix (
2)
Coil P
rice
Coil C
ost o
f sal
es (3
)
Coil V
olum
e and
mix
(4)
Stru
ctur
als P
rice
Stru
ctur
als C
ost o
f sal
es (
5)
Stru
ctur
als V
olum
e and
mix
Sem
is Pr
ice
Sem
is Co
st of
sale
s
Sem
is Vo
lum
e and
mix
Exch
ange
rate
varia
nces
(7)
Scra
p Pr
ofit/
(Los
s)
Vana
dium
Prof
it/(lo
ss) (
8)
Ore P
rofit
/(lo
ss)
Selli
ng an
d dist
ribut
ion v
aria
nce
G&A
cost
varia
nce
Idle
Plan
t cos
t var
ianc
e (9
)
Stoc
k cou
nt a
djus
tmen
t
NRV
adju
stm
ent (
10)
Litig
atio
n adj
ustm
ent
Envi
ronm
enta
l pro
visio
n adj
Othe
r cos
ts
2H 20
11 E
BITD
A
Group EBITDA : 2H 2011 vs 1H 2011 (R'000)G
1. Plate cost of sales decreased due to lower sales in 2H.2. Plate volumes are lower in 2H due to a poor order book caused by a depressed domestic market.
3. Coil cost of sales decreased due to lower sales in 2H.4. Coil volumes are lower in 2H due to a combination of poor order book caused by a depressed domestic market and lower production caused by the SEIFSA contractors strike and shut downs of the Mill.
5. Structurals cost of sales decreased due to lower sales in 2H, due to lower production from the planned maintenance shutdown and the SEIFSA contractors strike.
6. Semi's cost of sales increased due to increased sales volumes in 2011 to ArcelorMittal South Afirica.
7. The average exchange rate during 1H was R6.90 compared to 2H of R7.61.8. The lower vanadium profit is mainly due to the lower LMB prices achieved in 2H (average $27.14),in comparison with 1H (average $30.35).9. Idle plant cost increased due to decreased production during second half of the year due to the SEIFSA contractors strike action in July and planned maintenance shut downs.10. A significant NRV release was realised in 1H 2011 due to reduction in steel stock and improvement of market prices.
30 Input Cost Trends % of TOC*
TOC= Total Operating Costs
24.6% 27.9%21.0%
12.8%12.1%
13.5%
9.4% 8.0%10.9%
27.3% 25.1% 29.7%
13.8% 12.9%14.8%
12.2% 14.1% 10.2%
2011 Actual 1H2011 2H2011
Input Cost Trends - Consolidated Operations Cost Distribution
Raw materials Energy Auxiliary Materials Services Staff costs Selling, Admin and Other
31
Cash Flow
Rm 2011 2010
Cash generated from operations 1 048 (215)
Net interest and investment income 22 36
Taxation paid (6) (109)
Net CAPEX additions (395) (250)
Sub-total 669 (538)
Effect of foreign exchange rate
changes on cash
23 (42)
Net cash flow 692 (580)
Cash and Cash equivalents 1 184 492
32 Working Capital Movements
2011 2010
Inventories (253) (144)
Finished products (21) (52)
Work-in-progress (152) 15
Raw materials (123) (130)
Plant spares & stores 43 23
Trade and other receivables (310) 115
Trade and other payables 271 (26)
Working capital movement (292) (55)
33 Headline Earnings Trends
468
829
785
478
131
14
-42
64
-17
-121
-30
-215
20 70
-118
13
-400
-200
0
200
400
600
800
1000
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
Rm
Headline Earnings
34 Investment Program
Michael D. Garcia
Chief Executive Officer
35 Capital Expenditure: 2011
Total budget: R507 million
Main project: R 175 million conversion of Furnace 7 to open slag bath technology
Increase in vanadium output,
utilisation of cheaper and less coal,
improved reliability; and
reduced furnace operational costs
36
Capital expenditure: 2011
Major maintenance projects: R145 million
Flat products mill project successfully completed during July 2011
Substantial Structural Mill project:
Replacement of 2 main motor DC drives
Revamping of pusher furnace
Iron and steel plants projects – rebuilds of Basic Oxygen Furnaces 1 & 3
completed at the end of August 2011
37
Capital expenditure: 2011
Major environmental projects: R20 million
2 ambient air quality monitoring stations at Steelworks
Meteorological station at Steelworks
Improved PM10 and PM2.5 ambient air quality network around Steelworks
In-stack monitoring instruments
Installed 8 stack caps on the off gas stacks on the kilns, with remaining 5 to be
completed within H1 2012
Meteorological station at Mapochs mine to monitor ambient air quality
Particulate monitoring programme at mine
38
Capital expenditure: 2011
Mapochs Mine Upgrading of washing and screening plant projects:
Budget: R24 million
Expenditure during 2011 financial year: R9.5 million
Completion is planned for June 2012
Expecting improvement of primary crushing plant availability of more than 90%
and accuracy of iron ore sizing
Mapochs mine change house for employees of R3.8 million was
successfully completed in December 2011
39
Capital expenditure: 2012
Approved budget: R 633 million
Major projects:
New equipment: R24 million
Replacement and maintenance: R260 million
Rolls: R55 million
IT Capex: R11 million
40 Energy cost mitigation projects Improvement and maintenance of iron ore quality feed to the kilns
Optimum ore size is crucial for stable and consistent kiln operations
Improvement of kiln operations
Iron ore pre-reduction and kiln emissions;
Kiln engineering availability and process stability;
Reduction in maintenance costs, esp. refractory costs; and
Installation of raw gas stack caps.
Variable speed drive implementation
Solid light lightning
Low flow shower heads
Co-generation
Converting off-gasses into electrical power
Pre-feasibility phase completed and EIA has already commenced
41
PROJECT RESTORE LED PROJECT
Corporate social investment
Established in 2011 as a 8400 m2 nursery next to Mapochs mine to rescue and
propagate indigenous plants for Mine Rehabilitation and Commercial Sale on
the market as part of the Social and Labour Plan initiatives.
42
HYDROPONICS & AGRICULTURAL LIVELIHOODS PROJECT COMMUNITY-OUTREACH
Corporate social investment
Empower local households, farmers and institutions with Sustainable
Agricultural Livelihoods, both for household Subsistence and Commercial
purposes. This includes achieving the provision of Healthy Nutrition for the
households.
43 Prospects
Michael D. Garcia
Chief Executive Officer
44
44
Future Prospects
Initial operational difficulties experienced, which could result in lower
steel sales volumes for Q1 2012
Weak domestic demand for structural products and consequently
export opportunities will be utilised
Lower flat products prices expected for Q1 2012 due to weaker
domestic demand and international prices
Improving vanadium prices
Investigating localisation initiatives and incentives to promote the use
of EH products in support of government's massive infrastructure
spend plan.
Significant presence of imports of steel products in the local market
45
45
Investor Relations: Cathie Lewis Evraz Highveld Steel and Vanadium Limited
Tel: +27 13 690 8888 Old Pretoria Road, district of eMalahleni
Mobile: +27 82 612 7332 Mpumalanga, South Africa
email: [email protected] +27 13 690 9911
www.evrazhighveldsteel.co.za
