Patrick Malaza CFO
The challenging trading conditions reported in the second half of FY15 have continued into FY16. These conditions are mainly reflected in the subdued local economy, poor commodity prices with adverse effects in mining demand, lower infrastructure activity coupled with electricity supply disruptions and local scrap prices above international benchmarks.
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.
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.
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.
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.
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
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.
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
|Statement of comprehensive income – key figures|
|Revenue||5 661||6 268||6 450|
|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)|
13 June 2016