The steel overcapacity in China and the consequent supply glut has resulted in a significant increase in cheap imports into South Africa which, notwithstanding favourable weaker rand-US dollar exchange rates, has pushed local steel producers against the wall due to a double whammy of lower margins and sales volumes.

Revenue

As a result of the challenging trading conditions the group’s total revenue of R5,7 billion is 9,7% lower than the prior year.

EBITDA

As a consequence of largely lower sales volumes and narrower realised margins, the group reported an EBITDA loss of R248 million compared to a loss of R254 million in the prior year.

Revenue R million

EBITDA R million

Non-operating special items

Due to anticipated continued difficult trading conditions, management initiated a set of turnaround initiatives that included sale of redundant properties, rightsizing and closure of loss-making operations. The combined effect of this was a net expense of R138 million including impairments and curtailment gain on post-retirement medical aid.

Finance costs

As a result of increased borrowings due to operating losses, compounding effects and the rise in interest rates, net finance costs increased from R466 million in FY15 to R477 million in FY16.

Capital expenditure

The group spent R176 million (FY15: R288 million) on capital expenditure during the period to maintain, improve and expand production capacity. Key capital expenditure projects for the period include the Fumex project, the Chain expansion project, side frame and bolsters (Omega project) and the Thermal sand reclamation project. Capital expenditure for the year was mainly funded by shareholder funds through preference shares.

Capital expenditure R million

  • Other stay in business capex: R37m
  • Fumex: R59m
  • Chain expansion: R29m
  • Thermal sand reclamation: R18m
  • Side frames and bolsters: R28m
  • GE mould sets: R5m
 

Funding

During the year, the IDC subscribed for additional preference shares in Scaw amounting to R181 million. The capital raised was fully utilised to fund capital expenditure projects in the period. Furthermore, to ease pressure on the working capital a one-year revolving credit facility of R300 million was raised from the IDC.

Outlook

While trading conditions are expected to remain challenging for the next 12 months, we maintain a positive outlook. On the back of completed capital expansion projects (Chain and Cast expansions), efficiency initiatives already implemented, strategic sourcing initiatives, government lobbying (anti-dumping import duties, scrap export control and dti incentives), continued export market drive and balance sheet restructure we anticipate improving our performance going forward.

Extracts from the group’s financial statements

  March 
2016 
Rm 
March 
2015 
Rm 
March 
2014 
Rm 
Statement of comprehensive income – key figures       
Revenue  5 661  6 268  6 450 
EBITDA (248) (254) 361 
Net finance costs (477) (466) (379)
Statement of financial position – extracts       
Non-current assets 2 546  2 658  2 245 
Current assets 2 168  2 562  2 525 
Total assets  4 714  5 220 4 770 
Total equity and non-current liabilities 2 657  3 130 3 666 
Current liabilities 2 057  2 090  1 104 
Total equity and liabilities  4 714  5 220  4 770 
Cash flows – extracts       
Cash flows from operating activities (55)  (51) 65 
Cash flows from investing activities (53)  (285) (338)
Cash flows from financing activities 296  272  22 
Net cash flow movement for the period  188  (64) (251)

 

Patrick Malaza
CFO

13 June 2016