Chairman's review |
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In October 2008, the extent of the world economic turmoil became apparent, with demand for carbon and stainless steels plunging, seriously impacting the prices and sales volumes for all of our divisions . . .I cannot recall a financial year in Assore’s history where the trading conditions in the constituent half-year periods have been so markedly different. Breaking these periods into fiscal quarters further crystallises the results of the group in relation to trading conditions experienced during the year under review. THE YEAR UNDER REVIEW
Despite the world economic turmoil which ensued in October 2008, the past financial year again produced record earnings for the group, and headline earnings of R3 266 million were 6,8% higher than the previous year.Assore’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. |
Metric | Metric | |||||
tons ‘000 | tons ‘000 | |||||
2009 |
2008 | % change | ||||
Iron ore | 7 409 | 6 581 | 13 | |||
Manganese ore* | 2 152 | 3 711 | (42) | |||
Manganese alloys* | 117 | 247 | (53) | |||
Charge chrome | 144 | 275 | (48) | |||
Chrome ore* | 256 | 304 | (16) | |||
* Excludes intragroup sales |
With the exception of iron ore, all sales volumes were significantly lower due to the world economic turmoil that started in the second fiscal quarter.
RESULTS FOR THE YEAR
Assore’s net profit for the year was R3,27 billion, 2,8% up on the previous year, due mainly to Assmang’s increased earnings, which was largely attributable to the strong markets in the first fiscal quarter, and the weaker SA rand in the second quarter.Turnover decreased marginally by 3,7% to R8,82 billion, and gross profit increased by 7,7%, to R4,83 billion. Headline earnings per share were 13 772 cents, up by 21,2%, mainly as a result of not including the impact of treasury shares held by a wholly owned subsidiary company. The total dividend per share in relation to these earnings was 2 000 cents (2008: 1 250 cents), an increase of 60%.
CAPITAL EXPENDITURE
The bulk of the group’s capital expenditure occurs in Assmang and is summarised by division for the year as follows:2009 | 2008 | |||
Rm | Rm | |||
Iron ore division | 1 529 | 2 231 | ||
Manganese division | 854 | 511 | ||
Chrome division | 397 | 158 | ||
Total – Assmang | 2 780 | 2 900 |
The major capital expenditure for the year occurred in the iron ore and manganese divisions. A total of R924 million was spent on infrastructural items at the recently commissioned Khumani Iron Ore Mine; R161 million was spent on the ore treatment plant at the Nchwaning Manganese Mine and R63 million at the Dwarsrivier Chrome Ore Mine. Furnace rebuilding and emission reduction projects, totalling R296 million, were undertaken at Cato Ridge Works and at Machadodorp Works. Apart from the expenditure in Assmang, R48 million has been spent on the development of 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 areas surrounding the mining operations.The estimated expenditure to complete this development is R60 million, which will be incurred in the following financial year.
MINING RIGHT CONVERSIONS
New order mining rights have already been obtained for the Khumani Iron Ore Mine and the chrome mine at Rustenburg. Applications were submitted during the previous year for the conversion of the group’s existing mining rights to ‘new order’ mining rights, as envisaged by the Minerals and Petroleum Resources Development Act.DIVIDENDS
An increased interim dividend of 1 000 cents (2008: 250 cents) per share was declared on 17 February 2009 and paid to shareholders on 16 March 2009.In line with the results for the year, the board declared an unchanged final dividend of 1 000 cents (2008: 1 000 cents), making a total dividend for the year of 2 000 cents per share (2008: 1 250 cents).The final dividend was paid to shareholders on 21 September 2009 and is not included in the income statement as it was declared after year-end.
OUTLOOK
Assore’s results remain linked to conditions in the global economy. As was cautioned in the results announcement in August, it is still not possible at this stage to predict the extent of a possible recovery in the global economy with sufficient certainty.Trading conditions have shown some signs of improving, however, the current weakness of the US dollar, and the volatility of the SA rand are creating additional uncertainties in predicting earnings and cash flows.Manganese ore sales are being seriously restricted by insufficient rail and shipping capacity through the terminal at Port Elizabeth. Discussions are being held with the relevant authorities to resolve this problem but there appears to be no short-term solution.
Recent reports of significant increases in the future cost of electricity will necessitate a review of the business models of our alloy production, however, we remain confident that these operations will retain their ability to increase shareholder value.
APPRECIATION
Another record year highlights the persistent dedication and commitment of management and staff, in particular in these challenging circumstances, for which I express my gratitude and thanks. Further, I wish to extend my thanks to the roles played by our customers, suppliers, shareholders and bankers which have again contributed greatly and receives our appreciation.Desmond Sacco
Chairman
28 October 2009