CURRENTLY VIEWING: Final results for the year ended 30 June 2013 » Commentary
Headline earnings for the financial year to 30 June 2013 have decreased marginally by 4,7% on the previous year to R3,5 billion (2012: R3,7 billion). This reduction is mainly due to the decline in the headline earnings of Assmang Limited (Assmang), which decreased by 7,1% to R6,5 billion (2012: R7,0 billion), compared to the previous financial year. Increased turnover in Assmang resulted in higher commissions earned by the Group, partly limiting the extent of the decline in headline earnings and whilst these earnings for the six months ended 31 December 2012 amounted to R1,1 billion, second half headline earnings amounted to R2,4 billion for the reasons set out in the narrative below.
Assore holds a 50% interest in Assmang, which is proportionately consolidated in accordance with International Financial Reporting Standards (“IFRS”). Assmang’s headline earnings were negatively impacted by lower US Dollar selling prices for iron ore, which were mostly offset by a weaker Rand/ US Dollar exchange rate and increased sales volumes achieved for iron and chrome ores. Support for the sale of the Group’s products remained mainly from within China, where crude steel production was at record levels for the second half of the financial year.
Sales of iron ore increased in Assmang’s Iron Ore Division due to the availability of additional railage capacity from the Khumani Iron Ore Mine. Assmang’s Chrome Division achieved record sales volumes of chrome ore, due to the suspension by Assmang of charge chrome production at Machadodorp because of the depressed global market conditions for ferrochrome and the increasing cost of electricity in South Africa. Assmang was required to record an impairment charge of R312 million against furnaces and associated equipment in its Manganese, and Chrome Divisions, which had become unprofitable to operate under current market conditions and cost structures. Assmang’s turnover for the year under review increased by 5,5% to R25,0 billion (2012: R23,7 billion). The following table sets out the sales volumes of Assmang’s products for the year under review:
|Year ended 30 June||(decrease)|
|Metric tons ’000||2013||2012||%|
|Iron ore||16 070||14 753||9|
|Manganese ore*||2 856||2 905||(2)|
|Chrome ore*||1 054||521||102|
|*Excluding intra-group sales to alloy plants|
The bulk of the Group’s capital expenditure occurs in Assmang and amounted to R4,1 billion (2012: R4,5 billion) for the year under review. R2,2 billion was spent at the Khumani Iron Ore Mine, with R553 million spent on the Wet High Intensity Magnetic Separation (WHIMS) plant designed to increase yields on low grade ore, R223 million on the Khumani Optimisation Project (KOP), aimed at plant debottlenecking and R185 million spent on deviating the rail line to enable expansion of the King Pit. A further R362 million was spent at Beeshoek Iron Ore Mine on waste-stripping. Within Assmang’s Manganese Division, R339 million was spent on sustainable capital together with feasibility studies and early establishment costs to expand the capacity of the manganese mines to at least 4 million tons per annum. The bulk of the remainder of the capital expenditure was spent on replacement capital.
On 19 June 2013, the Company announced the conditional approval for the construction by a joint venture comprising Assmang, Sumitomo Corporation and China Steel of a manganese alloy smelting facility in Sarawak State, Malaysia to be known as Sakura Ferroalloys SDN.BHD. (“Sakura”). Sakura is a greenfields project and the facility will be constructed in the Samalaju Industrial Park, in Sarawak. Sakura will initially consist of two 81MVA furnaces, complete with all related infrastructure, equipment and services to allow for the production of both high-carbon ferromanganese and silicon-manganese alloys. Besides being the majority shareholder, Assmang will provide marketing and technical services to Sakura. The total project value is set at US Dollar 328 million and construction is due to start in early 2014. Assmang’s current cash resources are adequate to meet its share of the project commitment.
The level of global crude steel production is expected to decline in the short term, which, together with more iron ore becoming available from new and established Australian producers, is expected to cause downward pressure on iron ore prices. Stocks of iron ore in China have stabilised at low levels, which should counteract any significant decline in selling prices. New entrants from South Africa into the manganese ore market are creating downward pricing pressure on medium grade manganese ore, which is also negatively impacting on high grade ore. Additional downward pricing pressure is expected on manganese ores for the foreseeable future due to increased volumes becoming available from producers in Australia and Gabon. The level and impact of state and regulatory intervention in the significant global economic powers remains unclear, creating a lack of certainty over the extent of global economic growth in the short, to medium term. Whilst it is expected that sales volumes are not likely to change significantly, the factors mentioned above could have a significant impact on the selling prices of the Group’s products. The Group remains exposed to fluctuations in exchange rates.
The results in this announcement include the interim dividend of 250 cents (2012: 250 cents) per share which was declared on 12 February 2013 and paid to shareholders on 11 March 2013. In line with the results for the year, the directors of Assore (“the Board”) have declared a final dividend of 350 cents (2012: 300 cents) per share, making a total dividend in respect of profit for the year of 600 cents (2012: 550 cents) per share. The final dividend will be paid to shareholders on or about 23 September 2013 and, in accordance with IFRS, is not included in the results contained in this announcement as it was declared after year end.
Review by auditors
Ernst & Young Inc, the Group’s auditors, have reviewed and issued an unmodified report on the condensed financial results included in this announcement in accordance with ISRE 2410 – Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A copy of their report is available for inspection at the registered office of the Company.
Accounting policies and basis of preparation
The financial results for the year under review have been prepared under the supervision of Mr CJ Cory, CA(SA) in accordance with IAS 34 – Interim Financial Reporting and comply with IFRS, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Listings Requirements of the JSE Limited (“JSE”) and the Companies Act No 71 of 2008. The accounting policies applied are consistent with those adopted in the financial year ended 30 June 2012. Amendments to IFRS effective in the period have not had any significant impact on the results or disclosures of the Group for the year under review.
Declaration of final dividend
Shareholders are advised that the Board has declared final gross dividend number 113 (“the Dividend”), of 350 cents (2012: 300) per share (gross) for the year ended 30 June 2013 on 27 August 2013.
In terms of paragraph 11.17 of the Listings Requirements of the JSE, shareholders are advised of the following with regard to the declaration:
- the Dividend has been declared from retained earnings;
- the local Dividend Tax rate is 15%;
- the Company does not have any Secondary Companies Tax (“STC”) credits available to reduce the impact of the Dividend Tax;
- the net local dividend amount is 297,5 cents per share for shareholders liable to pay the Dividends Tax;
- the issued ordinary share capital of Assore is 139 607 000 shares; and
- Assore’s Income Tax reference number is 9045/018/84/4.
The salient dates for the Dividend are as follows:
|Last day for trading to qualify and participate in the final dividend||Friday, 13 September 2013|
|Trading “ex dividend” commences||Monday, 16 September 2013|
|Record date||Friday, 20 September 2013|
|Dividend payment date||Monday, 23 September 2013|
Share certificates may not be dematerialised or rematerialised between Monday, 16 September 2013 and Friday, 20 September 2013, both days inclusive.
|Desmond Sacco||CJ Cory|
|Chairman||Chief Executive Officer|
28 August 2013