The year in retrospect

The South African GDP growth during the past financial year at 1,3% was way short of the estimated 3,5% growth rate required for the steel industry to be viable. This explains the many internal and external challenges faced by local manufacturers in the steel and engineering sector. Our sector’s performance was also negatively affected by the flooding of heavily subsidised steel imports from the Far East. The crisis experienced during the year forced both labour and business to approach government in unison seeking protection from dumping in order to prevent massive job losses. Although the outcome was not ideal for both business and labour, there is great recognition that the support received from the government, in the form of import tariffs on the affected products, will go a long way to reduce company closures and retain employment.

The export of much needed steel scrap will continue to be a threat to our efforts to reduce our input costs. To this end, Scaw is working with all the relevant authorities to ensure that the export of steel scrap is limited and that the price of steel is affordable to the local steelmakers. We remain optimistic that a solution will be found to address vagaries in this market segment.

Despite external challenges encountered, Scaw continues to play a meaningful role in the South African economy. All efforts were put into making sure that the company remains dynamic and agile in responding to negative market externalities. Our company was rightsized, unviable operations were closed and new capital was injected in those areas of our business that show good prospects for growth. We continued to engage with both our suppliers and customers to ensure that our value chain remains active and our respective needs are met. Internally, we have been able to create a stable and conducive environment for engaging meaningfully with our trade unions.

Good progress has been made in restructuring our balance sheet. This year we received new capital injection in the form of equity from our shareholders and we started the process of attracting strategic equity partners into our different divisions who will, in addition to cash, introduce new technology and provide better access to new markets. This introduction of partners into Scaw will guarantee the sustainability of the company under all foreseen operating environments.

Future outlook

GDP growth is expected to be curtailed by high input costs and is currently forecast to be below 1,0%. This sets the local scene to be a difficult operating environment with subdued demand for our products and possible higher inflation. The depreciation of the rand, if sustained, is likely to bode well for our export revenue generation capacity and will cushion the negative impact introduced by all other external factors.

The Scaw leadership team has the capacity to continue to navigate the company during the expected difficult period ahead. Once again, the focus will be on operational cost control, customer satisfaction and protecting our market share in areas where we operate.

Appreciation

I would like to express my gratitude to our shareholders and Board of Directors for their contribution and support during the year. This has been by far the most challenging year to date. I am pleased with the dedication of our executive management who has relentlessly guided the group through tumultuous times and continues to work very hard to ensure that we remain on the right side of history.

My appreciation also goes to our customers and business partners for their ongoing support.

Ufikile Khumalo
Chairman

13 June 2016