Financial review

Total revenue of R31.4 billion was 4% higher driven by a 12% increase in average net realised prices. Total steel shipments were down 7%, of which flat products were up 2% while long products dropped 24%, due to the dust catcher failure at Newcastle Works. Export sales decreased by 26% following an increase of 3% in domestic sales and lower production volumes. Revenue from our Coke and Chemicals business of R2.3 billion was 3% lower with commercial coke sales flat at 631 000 tonnes, tar sales down 6% and average net realised prices down by 1%.

The increase in revenue was offset by higher operating costs, with the production cash cost of hot rolled coil increasing by 19% and those of billets by 23%. The increase was due to a rise in prices of imported coking coal (52%), pellets (32%), iron ore (17%), scrap (29%) and electricity (28%), resulting in an operating profit of R297 million, a decrease of 86% from the previous year.

Included in the results is an interim insurance recovery of R489 million received during the fourth quarter, relating to the industrial accident at Newcastle, of which R384 million was to compensate for loss of income. The total claim is estimated at R1.1 billion with a deductible amount of R160 million.

Liquid steel production was lower by 221 000 tonnes or 4% compared to the previous financial year. Unplanned liquid steel production losses of 880 000 tonnes occurred during the year. Capacity utilisation for flat steel was at 71% compared to 67% for the corresponding period and for long steel at 61%, compared to 81%. On 29 December 2011, blast furnace D at Vanderbijlpark experienced a burn-through, resulting in a four-week stop to repair the damage. An increase in steel production from the electric arc furnaces compensated for the lost production during the repairs.

Finance costs of R168 million for the year were significantly lower than the R507 million reported for the previous year. Included in finance costs are net foreign exchange gains of R124 million for the year compared to the net foreign exchange loss of R150 million of last year. This was mainly due to the weakening of the rand against the US dollar from R6.62 at the end of December 2010 to R8.18 at December 2011

The net loss from equity accounted investments of R34 million for the year was mainly due to our share of losses incurred by Coal of Africa Limited offset by the equity income from Macsteel International Holdings BV.

The effective tax rate (ETR) for the year of 94% was disproportionate to the previous year (27%) due to the drop in pre-tax profit from R1 837 million to R126 million. Factors contributing to the increase in ETR are:

Available cash decreased by R3.2 billion as a consequence of an increase in working capital of R2.8 billion, capital projects of R1.2 billion, further investment of R180 million in associates and joint ventures of which R135 million related to Coal of Africa Limited, as well as a dividend payment of R221 million.

Quarter ended 31 December 2011 compared with quarter ended 31 December 2010 (unaudited)

Total revenue of R7.3 billion was 6% higher than the corresponding quarter of 2010. Total steel shipments were 17% down, with domestic steel shipments increasing by 10% and export steel shipments decreasing by 50% following a significant drop in demand and the production problems mentioned earlier. Average net realised prices for flat steel products increased by 26%, while long steel products rose by 43%. Shipments for flat steel products remained at the same level, whereas long steel products were down 52%. Revenue from our Coke and Chemicals business decreased by 3% following an 11% decline in commercial coke average net realised prices offset by a 7% increase in volumes.

The production cash cost of hot rolled coil increased by 17% and that of billets by 18%, largely due to increases in the prices of imported coking coal (30%), local coking coal (20%), scrap (40%) and electricity (26%).

Total liquid steel production was in line with the corresponding period. However, flat steel increased by 14% and long steel decreased by 37%. Capacity utilisation for flat steel was at 70% compared to 60% and for long steel at 36% compared to 58%.

The operating loss of R285 million reduced from the loss of R563 million reported in the corresponding period on the back of improved net realised prices.

Finance costs decreased by R52 million to R106 million for this quarter, mainly due to net foreign exchange losses of R76 million incurred during the fourth quarter of 2010, following a 5% strengthening of the rand against the US dollar over that quarter. Although the rand weakened against the US dollar during quarter four of 2011, foreign-denominated cash and receivables were low and resulted in an insignificant gain.

Income from equity-accounted investments of R120 million increased by R173 million compared to the loss of R53 million recorded in the corresponding quarter. The increase was due to the group’s share of losses in Coal of Africa Limited in the corresponding period against the reversal of the impairment recorded during the fourth quarter following the impairment loss recognised during the third quarter 2011. This was offset by lower income from Macsteel International Holdings BV.

Quarter ended 31 December 2011 compared with quarter ended 30 September 2011 (unaudited)

Revenue of R7.3 billion was 5% lower than the previous quarter. Total steel shipments were 12% down, with domestic steel shipments decreasing by 16% and export steel shipments remaining unchanged. Shipments for flat steel products remained static, while long steel products dropped by 44%. Revenue from the Coke and Chemicals business increased by 55% following the previous weak quarter where demand from the ferro-alloy industry was curtailed due to high electricity prices experienced during the winter months. Commercial coke volumes were 77% higher, but this was largely offset by a 5% drop in average net realised prices.

The production cash cost of hot rolled coil produced decreased by 4%, while billets increased by 2%. The prices of imported coal, electricity and pellets decreased by 7%, 30% and 6%, respectively, whereas the prices of scrap increased by 3%.

Total liquid steel production was 1% higher than the previous quarter, however flat steel increased by 8% and long steel decreased by 20%. Flat steel products achieved capacity utilisation of 70% compared to 64% the previous quarter. The equivalent figures for long steel were 36% and 46% respectively.

Income from equity-accounted investments for the quarter was R120 million compared to the loss of R145 million the previous quarter, following the reversal of the group’s share of the impairment loss in Coal of Africa Limited recognised in the third quarter.