Unaudited interim financial results for the six months ended 31 August 2014

Transcription

1 METMAR LIMITED Incorporated in the Republic of South Africa (Registration number 1998/007269/06) Share code: MML ISIN code: ZAE ( Metmar or the Company or the Group ) interim financial results for the six months ended Highlights Core trading business profitable in challenging market environment Sefateng Chrome project issued with Mining Right Long-term chrome off-take agreement signed with Sefateng Chrome Shipment of manganese sinter from Kalagadi tolling commences Turnover up 11% Operating expenses down 4% Financial performance (See also divisional performance report hereunder) Description Unit of measurement August August % increase/ (decrease) Volumes Tonnes Revenue R m 1 035,4 933,0 11 Gross margin % 5,0 7,1 (30) Trading margin (non-ifrs)^ % 5,1 7,9 (35) Operating expenses (excluding impairments) R m (60,8) (63,3) (4) EBITDA R m 11,1 29,9 (63) Net impairments and fair value adjustments R m (6,6) 7,5 (188) Attributable loss per share Cents (11,4) (17,4) (34) Headline loss per share Cents (22,5) (11,0) 105 Closing net cash balance R m 14,2 85,4 (83) Total assets R m 1 386, ,3 (13) Net asset value R m 410,5 600,2 (32) ^Trading margin is calculated as gross margin less contract expenses (including contract finance costs and realised gain/loss on forex) that are not cost of sales per IFRS. Owing to commencement of sale of manganese sinter, turnover increased by 11%. A general decline in commodity prices such as manganese and iron ore, which in the last 12 months have declined by 23% and 25% respectively, led to margin contraction. A gross margin of 5% was achieved, which is 30% below the same period last year. This equates to a R15,2 million decline in gross profit in absolute terms. Trading margin of 5,1% is lower than the 7,9% achieved in the previous period due to the aforementioned drop in key commodity prices. Operating expenses declined by 4% to R60,8 million reflecting an effective cost containment strategy critical in the midst of weak commodity prices. EBITDA of R11,1 million is 63% down from the previous period as a result of low gross margins. Fair value adjustments relate to mark-to-market losses of R23,0 million arising from Alphamin Resources share price decline from 39 CAD cents to 21 CAD cents and Afarak Group share price decline from 37 EUR cents to 31 EUR cents. The investment in Afarak Group is non-core and its disposal is in progress. An impairment reversal amounting to R29,6 million was implemented following the award of the mining right to Sefateng Chrome. The recently signed off-take agreement will be valued at financial year end. Finance costs of R40,8 million, 6% up from the previous period, are expected to reduce in the second half as manganese sinter sales become more regular. As a result of the above, the attributable loss for the period decreased by 34% to R30,4 million, while headline loss increased to R60,1 million. Divisional performance and prospects The Group comprises two reportable segments which are trading and investments. interim financial results for the six months ended 1

2 Trading The trading activities are further subdivided into Core trading and Kalagadi tolling project. Key area Unit of measurement August August % (decrease)/ increase Core trading Revenue R m 839,5 917,1 (8) Gross margin % 4,7 6,3 (25) EBITDA R m 21,1 33,7 (37) Profit/(loss) before discontinued operations R m 11,1 (1,9) 684 Discontinued operations R m (22,0) 100 Kalagadi tolling project Revenue R m 182,6 100 Gross margin % 3,7 100 EBITDA R m 3,1 100 Loss after tax R m (13,0) (100) Core trading Core trading revenue decreased by 8% to R839,5 million. Volumes (excluding sinter) were 23% down on the prior year mainly due to volume decreases in zinc, chrome and manganese ore. Tin, coal, and iron ore volumes increased compared to the prior period. Gross margins of 4,7% were 25% down as a result of unfavourable product mix and reduced prices in commodities such as iron ore. Although EBITDA was down 37%, profit before discontinued operations was R11,1 million compared to a loss of R1,9 million in the previous year. Tolling project The Kalagadi tolling project made a loss of R13,0 million mainly due to high interest charges arising from financing inventory. Manganese commodity prices decreased significantly over the period resulting in lower profit margins than forecast. After solving numerous commissioning issues, the sinter plant is now stable and we expect higher production to drive increased sales volumes in the second half, as well as decreasing inventory levels and finance charges. Investments Description Unit of measurement August August % decrease Operating expenses R m (13,6) (32,3) (58) Net finance charges R m (6,1) (8,2) (26) Investments revenue was negative in the current year following the reversal of intercompany sales and profits with Metmar Trading. Operating expenses are down 58% to R13,6 million and this trend is expected to continue into the second half. Net finance costs have decreased by 26% and are expected to further decrease as coke breeze is consumed in the sinter tolling project. Over the past two years various investments were impaired, and where uncertainties existed, non-core investments were identified and transferred to non-current assets held for sale. Our investment portfolio is now streamlined to withstand market fluctuations. The five core investments are: Kalagadi Manganese (effective 4,6% interest Manganese) Sefateng Chrome Mine (effective 19,9% interest Chrome) Alphamin Resources (3,5% interest Tin) FPT Minerals (26% interest Container handling facility) Steelpoort Chrome Mines (51% interest Chrome) Core investments gained traction during the period. The signing of a long-term off-take agreement for chrome following the award of a Mining Right to Sefateng Chrome will result in significant additional volumes going forward. The off-take will require minimal cash investment from Metmar Trading to commence mining, as well as providing stability to future trading volumes. FPT Minerals, a 26% held investment in a container handling facility located in Maputo, completed its commissioning in January and material from Sefateng Chrome will fully utilise its current capacity of tonnes per month. 2 interim financial results for the six months ended

3 The Kalagadi Manganese sinter plant began production during the period. Commissioning issues have been addressed and the plant is now running at a production level to match improving outbound logistics. Production volumes are expected to be higher in the second half as the technical team fine tunes the production process. Alphamin Resources declared further drilling results which firmed up its resource status. An updated resource statement is expected in the second half of the financial year. Steelpoort Chrome is currently completing an application for a water use licence which will be submitted in the second half of the financial year. Upon award of this licence, Steelpoort Chrome will commence mining under its existing mining right and deliver chrome to Metmar as per the signed off-take agreement. The process of disposing non-core assets gained momentum during the period. Most of the property, plant and equipment previously disclosed as non-current assets held for sale were successfully disposed of during the period. All other non-core investments are held at minimal investment balances, pending sale or conversion to cash-generating assets. The appointment of Mr Rob Still as Chairman of the Company has further strengthened the board and enabled the removal of acting positions. Metmar Trading China has been in operation since January allowing further upward integration for the Company. Its effectiveness is already benefiting the business through agents fees cost savings, increased access and interaction with customers and quick turnaround times. Our strategy over the last year has been and still is to refocus on Core trading activities. We will continue to take further steps to clarify and expand our strategic intent as part of improving accountability and ownership. The key areas of focus going forward are: Core trading Kalagadi tolling project Sefateng Chrome off-take Core investments including chrome, manganese, tin and container handling facility We believe the business is appropriately resourced and structured to deliver on our strategy. The departure of Mr Michael Golding comes after fulfilling his intentions of successfully trimming, restructuring and streamlining the Investments business, which we believe is now better positioned to deliver on its objectives by the remaining investments team. Directorate Our non-executive Chairman, Mr Rob Still, was appointed by the board on 1 May. Luigi Matteucci stepped down as an acting chairman of the Company and reverted back to his role as chairman of the audit and risk committee. Subsequent to the period end Adv KD Moroka tendered her resignation as an independent non-executive director of the company, as well as a member of the audit and risk committee of the board. This follows her decision to scale down on her commitments, board positions and business activities. The board and the management of Metmar are grateful for her contribution and take this opportunity to wish her all the best in her future endeavours. Subsequent events There are no major events subsequent to the period end that warrant being reported on. Outlook Declining growth rates in China reflect a subdued commodity market. Chinese buyers have been opportunistic as commodity prices have weakened during the period. Many mines and commodity trading companies are not sustainable at these reduced commodity prices and hence natural attrition has prevailed which provides opportunities for the Company. Going forward we intend to continue ramping up and exploiting signed off-take agreements, deliver profits from the sinter tolling agreement, reduce costs and seek diversified profitable opportunities. interim financial results for the six months ended 3

4 Condensed consolidated statements of financial position Note at at at ASSETS Non-current assets Property, plant and equipment Goodwill and other intangible assets Investment in associates Other long-term financial assets Deferred tax Current assets Inventories Other short-term financial assets Current tax receivable Trade and other receivables Cash and cash equivalents Non-current assets classified as held for sale Total assets EQUITY AND LIABILITIES Capital and reserves Non-current liabilities Borrowings Other liabilities Deferred tax liabilities Current liabilities Trade and other payables Current tax liabilities Bank overdraft Non-current liabilities classified as held for sale Total liabilities Total equity and liabilities Net asset value per share (cents) 153,58 224,52 165,48 Net tangible asset value per share (cents) 135,54 186,28 147,44 Number of shares in issue interim financial results for the six months ended

5 Condensed consolidated statements of comprehensive income Note Continuing operations Revenue Cost of sales ( ) ( ) ( ) Gross profit Other income Operating expenses 8 (60 830) (63 333) ( ) Operating profit Finance income Impairment reversals/(losses) (4 171) ( ) Fair value adjustments (23 032) (3 319) Loss from equity accounted investment (1 053) (6 379) (12 245) Finance costs 9 (40 769) (38 583) (64 337) Loss before taxation (22 198) (24 895) ( ) Taxation 10 (8 518) (1 908) Loss for the period from continuing operations (30 716) (26 803) ( ) Discontinued operations Loss before taxation (22 528) (20 348) Taxation (1 651) Loss for the period from discontinued operations 2 (21 284) (21 999) Total Loss before taxation (22 198) (47 423) ( ) Taxation (8 518) (664) Loss for the period (30 716) (48 087) ( ) Other comprehensive (loss)/income: (1 656) (25 423) Revaluations of investments and deferred tax on financial assets (31 932) Movement in foreign currency reserves (1 656) Total comprehensive loss for the period (32 372) (44 391) ( ) Loss attributable to: Owners of the parent (30 418) (46 625) ( ) Non-controlling interests (298) (1 462) (20 048) (30 716) (48 087) ( ) Total comprehensive loss attributable to: Owners of the parent (32 074) (42 929) ( ) Non-controlling interests (298) (1 462) (25 423) (32 372) (44 391) ( ) Loss per share: Basic and diluted (cents) (11,4) (17,4) (60,9) Headline (cents) 11 (22,5) (11,0) (17,6) Weighted average number of shares interim financial results for the six months ended 5

6 Condensed consolidated statements of changes in equity Share capital and premium Foreign currency translation reserve Revaluation reserve Acquisition of shares in subsidiary Shareholders loans Retained earnings Noncontrolling interests Balance at 1 March (27 547) (48 098) Total comprehensive loss for the period (46 625) (1 462) (44 391) Increase in shareholders loans Balance at (27 547) (49 560) Total comprehensive loss for the period 316 (24 059) ( ) (23 962) ( ) Transfer of reserves into equity (78 396) Realisation of capital gain on investment Movement in shareholders loans in subsidiaries (6 192) Balance at (33 739) (67 330) Total comprehensive loss for the period (1 656) (30 418) (298) (32 372) Increase in shareholders loans Balance at (33 739) (67 628) Total equity Condensed consolidated statements of cash flows Note Net cash used in operating activities Cash (used in)/generated from operations 12 (4 934) (11 434) Net finance costs (32 176) (26 764) (50 920) Taxation (paid)/received (1 188) 445 (10 373) Cash flows of held-for-sale/discontinued operation Net cash used in operating activities (38 298) (37 753) (13 647) Net cash (used in)/generated from investing activities Net expenditure on property, plant and equipment (133) (1 086) Net movement in financial assets (3 809) Business combinations (1 327) Sale of businesses Purchase of derivative financial instruments (6 078) Investment in associates (6 334) (19 581) Net cash (used in)/generated from investing activities (133) Net cash used in financing activities Net movement in financial liabilities (885) (48 839) Net movement in borrowings (1 133) (6 081) (5 937) Increase in shareholder loans 541 Net cash used in financing activities (592) (6 966) (54 776) Total cash movement for the period (39 023) (22 051) Cash/(overdraft) at the beginning of the period (19 742) (19 742) Overdraft cancelled following discontinued operation Cash from business combination 456 Cash and cash equivalents at the end of the period interim financial results for the six months ended

7 Notes to the unaudited interim financial statements 1. Basis of preparation The unaudited consolidated interim financial results have been prepared in accordance with, and containing the information required by IAS 34 Interim Financial Reporting, International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council the South African Companies Act, as amended, and the JSE Listings Requirements. Except for the new standards adopted below, all accounting policies applied by the Group in the preparation of these condensed consolidated interim financial statements are consistent with those applied by the Group in its consolidated financial statements for the year ended. The Group has adopted the following new standards: Amendment to IFRS 2 Share-Based Payments Amendment to IFRS 3 Business Combinations Amendment to IFRS 8 Operating Segments Amendment to IFRS 13 Fair Value Measurements Amendments to IAS 16 Property, Plant and Equipment Amendments to IAS 19 Employee Benefits Amendments to IAS 24 Related Party Disclosures Amendments to IAS 38 Intangible Assets Amendments to IAS 40 Investment Properties There was no material impact on the interim financial statements identified based on management s assessment of these standards. 2. Discontinued operations Revenue Expenses ( ) ( ) Profit before taxation Taxation (1 668) (1 651) Profit for the period from discontinued operations (before impairments) Profit on sale of discontinued operation Impairment of goodwill and intangible assets (net of tax) (44 150) (44 909) Loss for the period from discontinued operations (after impairments) (21 284) (21 999) 3. Investment in associates Sefateng Chrome Mine Proprietary Limited Kivu Resources Limited (Registered in Mauritius) FPT Mineral Terminal Limitada (Registered in Mozambique) Loss from associate Sefateng Chrome Mine Proprietary Limited (667) (29) (1 435) Loss from associate Kivu Resources Limited (5 015) (8 052) Loss from associate FPT Mineral Terminal Limitada (386) (1 335) (2 758) Loans to associate Sefateng Chrome Mine Proprietary Limited Loans to associate Kivu Resources Limited Loans to associate FPT Mineral Terminal Limitada Reversal of impairment/(impairment) of associate Sefateng Chrome Mine (34 774) Impairment of associate Kivu Resources Limited (30 041) interim financial results for the six months ended 7

8 Notes to the unaudited interim financial statements continued 4. Other financial assets and non-current assets classified as held for sale Other long-term financial assets Kalahari Resources Proprietary Limited SA Metals Equity Proprietary Limited Zimbabwe Alloys Chrome (Private) Limited Alphamin Resources Corp (Canada) shares of CAD$0,21 each Other short-term financial assets Alphamin Resources Corp (Canada) shares of CAD$0,18 each Afarak Group OYJ (Finland) (previously Ruukki Group Plc (Finland)) listed shares of EUR0,38 each Investment in Alphamin Resources Corporation options and shares as well as Afarak Group Plc shares are level 1 fair value measurements since their fair value is determined from quoted prices in the active Toronto Stock Exchange and Helsinki Stock Exchange markets respectively. Other financial assets are classified as level 3 fair value measurements since its fair value determination is not based on observable market data. Discounted cash flow valuation methods were used to determine fair value. An independent valuation was performed at year end for level 3 fair value measurements. No independent valuation of level 3 transactions was undertaken at the two interim reporting periods and the next independent valuation will be undertaken for the financial year ending All financial assets are carried at fair value. Non-current assets classified as held for sale Property, plant and equipment Pering Base Metals Proprietary Limited SA Metals Equity Proprietary Limited Intangible assets Afarak Group OYJ (Finland) (previously Ruukki Group Plc (Finland)) listed shares of EUR0,31 each The Company owns 20% of Pering Base Metals which owns a lead and zinc mining project. This project is not operational and seeks injection of funding to purchase capital equipment and resume mining. The Company will not participate in further fund raising and is divesting from the project in line with its strategy to refocus on core trading activities. The Company owns 20% of SA Metals Equity Proprietary Limited which runs a project to develop a pig iron recovery operation. This project is up for disposal in line with our strategy to refocus on core trading activities and divest from projects which are unlikely to be cash generative within the next 12 months. Afarak Group OYJ is non-core to the Company s activities and is in the process of being disposed in the Helsinki Stock Exchange. 8 interim financial results for the six months ended

9 Notes to the unaudited interim financial statements continued 5. Trade and other payables Trade and other payables Trade finance facilities Cash and cash equivalents Cash and cash equivalents Less: Bank overdrafts (23 790) (211) (6) Other income Includes: Profit on sale of 24 Sloane Street Properties Proprietary Limited Rental income Profit on foreign exchange Gain on disposal of property, plant and equipment Other Operating expenses Consulting and professional fees Depreciation Employee costs Legal fees Operating lease charges Repairs and maintenance Travel and accommodation (local and overseas) Logistics and handling fees Loss on foreign exchange Other interim financial results for the six months ended 9

10 Notes to the unaudited interim financial statements continued 9. Finance costs Includes: Contract interest Bank overdrafts Financing effect on purchases and trade and other payables Taxation Normal taxation Capital gains taxation Deferred taxation (1 768) (24 339) (4 936) 11. Reconciliation of headline loss Loss for the period (30 418) (46 625) ( ) Adjustments for: Loss/(gain) on disposal of property, plant and equipment (77) Gain on disposal of 24 Sloane Street Properties Proprietary Limited (7 892) (7 892) Gain on disposal on West African Group Division (19 170) (19 170) Write-off of goodwill following discontinued operation Write-off of intangible assets (net of taxation and non-controlling interest) Impairment of goodwill and intangibles (West African Group Division) (Reversal)/impairment of associates (29 634) Impairment of property, plant and equipment Impairment of non-current assets held for sale Headline loss (60 129) (29 420) (46 986) Headline (loss)/earnings per share (cents) (22,5) (11,0) (17,6) Weighted average number of shares in issue* * Weighted average number of shares is equal to the number of shares in issue as at. 12. Cash (utilised in)/generated from operations Loss before taxation (22 198) (24 895) ( ) Adjustments for: Non-cash items (7 747) Net finance costs Impairment (reversal)/loss (29 634) Changes in working capital: Inventories ( ) ( ) Trade and other receivables ( ) ( ) Trade and other payables ( ) (4 934) (11 434) interim financial results for the six months ended

11 Notes to the unaudited interim financial statements continued 13. Disposal of West African Group (division of Metmar Trading Proprietary Limited) Total net asset value Gain on disposal of division Consideration received Bank overdraft facility reduced division being sold Net increase in cash and cash equivalents Disposal of 24 Sloane Street Properties Proprietary Limited Trade and other receivables 1 1 Property, plant and equipment Current tax receivable Deferred tax (20) (20) Trade and other payables (8) (8) Total net asset value Gain on disposal of 24 Sloane Street Properties Proprietary Limited Consideration received Total consideration received Write-off of goodwill and intangible assets Goodwill Intangible assets Total Deferred tax on intangibles (2 912) (2 153) Net write-off of goodwill and intangibles Segment report In identifying its operating segments, management generally distinguishes investment in resource-based operations from the trading activities of the Group. The following factors have been used to identify reportable segments of the Group: distinction between the investments and trading activities; investment segment includes investment in equity, property, plant and equipment; and trading segment relates to the traditional core trading activities of the Group together with the resource-based activities emanating from offtake agreements and arrangements in place as a result of investment in equity, property, plant and equipment. There has been no aggregation of the two segments identified as: investments; and trading. interim financial results for the six months ended 11

12 14. Segment report continued Segmental report Group Trading Investment Adjustments and eliminations Total Trading Investment Adjustments and eliminations Total Trading Investment Adjustments and eliminations Total Segment revenues ( ) (97 769) ( ) Finance costs (30 086) (6 269) (4 414) (40 769) (27 487) (9 996) (1 100) (38 583) (41 149) (18 398) (4 790) (64 337) Finance income Depreciation, amortisation and impairments of non-financial assets (368) (593) (1 484) (1 461) (47 062) (50 007) (1 303) (3 468) (1 446) (6 217) (83 042) ( ) ( ) The totals presented for the Group s operating segments reconcile to the entity s key financial results as presented: Segment revenues ( ) (97 769) ( ) Other income (9 135) (1 782) ( ) ( ) ( ) Segment profit/ (loss) Segment operating profit/(loss) (48 068) (13 497) (92 692) Impairments (4 171) (4 171) (7 944) ( ) (1 942) ( ) Fair value adjustments (18 813) (4 219) (23 032) (1 289) (1 260) (770) (3 319) (28 918) Finance costs (30 086) (6 269) (4 414) (40 769) (27 487) (9 996) (1 100) (38 583) (41 149) (18 398) (4 790) (64 337) Finance income Discontinued operations (22 495) (33) (22 528) (19 833) (515) (20 348) Loss from equity accounted investment (1 053) (1 053) (6 379) (6 379) (12 245) (12 245) Total (loss)/profit before taxation (2 615) (44 368) (22 198) (26 312) (5 719) (15 392) (47 423) ( ) (60 683) ( ) Taxation (10 777) (8 518) (3 090) (664) (15 682) (Loss)/profit for the period (1 968) (42 756) (30 716) (23 886) (5 719) (18 482) (48 087) ( ) (55 411) ( ) Segment assets ( ) (7 226) ( ) Segment liabilities ( ) ( ) ( ) Corporate governance The Metmar Group complies with the Code of Good Corporate Practice and Conduct published in the King III Report on Corporate Governance. 16. Related party transactions During the period, the Company and its subsidiaries in the ordinary course of business, entered into various transactions with their associates. These transactions were subject to terms that are no less favourable than those arranged with third parties. R G Still Non-executive Chairman D J Ellwood Chief Executive Officer 28 October Directors: R Still* (Chairman), L Matteucci*, DJ Ellwood (Chief Executive Officer), TI Borman**, PP Boshoff, D Earp*, GP Lotis, D Mashile-Nkosi**, SMS Nkosi (Chief Financial Officer) * Independent non-executive ** Non-executive Company Secretary: AC Swart Sponsor: Nedbank Capital Registered office: 25 Culross Road, corner Main and Culross, Bryanston, 2191 (PO Box 98549, Sloane Park, Bryanston 2152) Transfer Secretaries: Computershare Investor Services Proprietary Limited (PO Box 61051, Marshalltown, 2107) Auditors: EY These results may be viewed on the internet on 12 interim financial results for the six months ended