CHAIRMAN’S REVIEW
Trading conditions improved during the second
half of the financial year, and earnings recovered
significantly…
As was the case in the previous year, this year was
characterised by two very different sets of trading
conditions. The extent of the world economic
turmoil became more apparent, with the global
economy being severely affected, in particular, the
banking sector and capital projects. This resulted in
the adverse trading conditions experienced in the
latter part of 2008, continuing to impact the results
for the year, especially in the first half.
THE YEAR UNDER REVIEW
Headline earnings for the group declined from
R3,27 billion in the previous financial year by
54,3% to R1,49 billion in the current financial year.
The conditions referred to above continued to
negatively impact the markets in which we trade
until the end of the 2009 calendar year. Conditions
in our markets improved during the second half
of the financial year, driven mostly by Chinese
and Asian demand, and as a result, earnings
recovered significantly. The extent of this recovery,
however, was not sufficient to enable the group to
generate earnings to the extent it did in the two
previous financial years. The results for the past
three financial years, on a six-monthly basis, are as
follows:
Headline earnings (R’million) |
The group’s prime focus remains its 50% shareholding in Assmang and the commissions and other income derived from marketing the group’s products and providing technical and management services to group companies. The contribution from Assmang’s divisions to Assore’s headline earnings for the past three years on a percentage basis is as follows:
Percentage of headline earnings (%) |
The Department of Labour inquiry into the explosion that occurred at furnace 6 at Cato Ridge Works in February 2008 has not yet been concluded, and the details of the findings are awaited.
SALES VOLUMES |
|||
Assmang’s sales volumes for the year by commodity were as follows: | |||
2010 |
2009 |
||
Metric |
Metric |
||
tons |
tons |
% |
|
’000 |
’000 |
increase |
|
Iron ore | 9 799 |
7 409 |
32 |
Manganese ore* | 3 095 |
2 152 |
44 |
Manganese alloys* | 238 |
117 |
103 |
Chrome ore* | 272 |
256 |
6 |
Charge chrome | 189 |
144 |
31 |
*Excludes intragroup sales |
Continued strong demand for the group’s commodities from the East resulted in sales volumes being more consistent throughout the year in comparison to the previous year, where the second half in that year was severely impacted by the world economic turmoil.
CAPITAL EXPENDITURE
The bulk of the group’s capital expenditure occurs in Assmang, with R3,3 billion of capital being spent across its operations (2009: R2,8 billion), and R2,1 billion being spent on infrastructural items, aimed at increasing Khumani’s capacity to 16 million sales tons per annum. This expansion is progressing according to schedule, and the mine is expected to achieve this level of production as from 1 July 2012. As previously announced, Assmang converted a ferrochrome furnace at Machadodorp to a ferromanganese furnace, the cost of which amounted to R46 million. A further R258 million was spent on rebuilding several ferromanganese and ferrochrome furnaces at the Cato Ridge Works and at the Machadodorp Works respectively. Apart from the expenditure in Assmang, R42 million has been spent on further developing two underground shafts at the Rustenburg Chrome Ore Mine, which is 44% held by a black economic empowerment partner for the benefit of historically disadvantaged groups in the area surrounding the mining operations. One of these shafts has recently been commissioned, and full production is expected towards the end of the 2011 calendar year.
Assmang’s capital expenditure is summarised by division for the year as follows: |
Assmang’s capital expenditure (R’million) |
New-order mining rights are in place for the Khumani Iron Ore Mine and the chrome mine at Rustenburg. Applications were submitted during 2008 for the conversion of the remainder of the group’s existing mining rights to new-order mining rights, as envisaged by the Minerals and Petroleum Resources Development Act. Assmang has since been notified that the new-order rights for Nchwaning and Gloria manganese mines have been approved.
Applications for the conversion of old-order rights for the Dwarsrivier chrome deposit and the Wonderstone pyrophyllite deposit were submitted timeously and are in the process of being approved.
DIVIDENDS
Due mainly to the trading conditions and uncertainties during the first half of the year, the board decreased the level of the interim dividend for the year to 500 cents (2009: 1 000 cents) per share.
In line with the improved trading conditions in the second half of the year, a final dividend of 1 200 cents (2009: 1 000 cents) per share was declared, resulting in the total dividend per share for the year amounting to 1 700 cents (2009: 2 000 cents), a decrease of 15%.
OUTLOOK
Assore’s results remain linked to conditions in the global economy, and specifically to those regions and countries where our products are beneficiated or processed into various grades of steel and stainless steel. As was noted in the results announcement in August, ore and alloy prices have recently come under pressure, however, in comparison to the previous year, there appears to be a greater degree of stability in these prices, and substantial fluctuations are not expected in the near future.
The current global economic climate makes it difficult to predict increases in demand for our products, and coupled with the current strong level of the rand, any recovery to the earnings levels of 2008 and 2009 will be dependent on favourable changes in these variables.
DIRECTORS
Subsequent to the year-end, Brian Hawksworth stood down as director on 27 August 2010, due to ill health. Brian has been associated with the group for over 40 years and served on the board as an independent non-executive director for 14 years, during which time he chaired the Audit and Risk, and Remuneration committees with consistent skill and professionalism. On behalf of the board, I would like to extend our thanks and appreciation for the valuable contribution he made during the term of his appointment.
We welcome Mr Bill Urmson who agreed to join the board with effect from 1 October 2010 as an independent non-executive director, and who will also serve on the group’s Audit and Risk, and Remuneration committees.
APPRECIATION
I am pleased to be able to end this report on a positive note, in that despite the significantly reduced level of earnings, the group did produce pleasing financial results in the second half of the year. I thank the management and staff for their ongoing support and commitment during the year. The roles played by our customers, agents, suppliers, shareholders and bankers have continued to contribute greatly to the group’s achievements and receive our appreciation.
Desmond Sacco
Chairman
22 October 2010