group financial results presentation 2003 for the year ended 30 june 2003 harnessing the power of...
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GROUP FINANCIAL RESULTS
PRESENTATION 2003For the year ended 30 June 2003
HARNESSING THE POWER OF THE EARTH
www.kumbaresources.com
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CON FAUCONNIERCHIEF EXECUTIVE
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KEY FINANCIALS
Revenue R 7 469 m
Net operating profit R 1 212 m
Headline earnings R 784 m
Headline earnings per share 264 cents
Dividend per share 60 centsHeadline EPS
Sound performance despite challenging environment
195
385
264
FY01 FY02 FY03
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HIGHLIGHTS
Solid operating performance
Heavy Minerals
• Acquired controlling interest in Ticor Ltd
• Furnace #1 start-up
First venture into Chinese operations
Despite adverse market conditions, 60 cents dividend declared
Realising diversification strategy
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RAND VOLATILITY EFFECT
• Currency impact: 10c R 45 m EBIT
• Unrealised currency translation impact R 73 m
• Ongoing cost focus
Bottom line impacted by exchange rate
0
4
8
12
16
R/US$
FY02 FY03
R10.18 R9.01
R10.37
R7.42
average realised:
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HEAVY MINERALS
• Holding in Ticor Limited increased to 51.4%
• Ticor Limited now a subsidiary – results consolidated from 1 April 2003
• Ticor South Africa
• Mine & MSP performance
• First production of slag and pig iron
• First shipments
Diversification, control and growth …
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STAKEHOLDER ISSUES
• Competition Tribunal
• Mineral and Petroleum Resources Development Act
• Mining Charter and Scorecard
• Royalties Bill
• Empowerment in Kumba
• Wage negotiations
• HIV/AIDS
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MIKE KILBRIDEEXECUTIVE DIRECTOR OPERATIONS
HARNESSING THE POWER OF THE EARTH
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SAFETY, HEALTH & ENVIRONMENT
• Fatalities reduced by 50%
• Lost time injuries sustained below industry average
• International environmental certifications at Sishen and Zincor
• Strategy to achieve international certification at all operations
Lost day injury frequency rate
Zero tolerance… key focus
0
1
2
3
4
5
FY
01
FY
02
FY
03
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IRON ORE – MARKETS
• Strong international demand driven by China
• Kumba has 7.6% of Chinese imports
• Strong domestic sales
• 9% price increase
Total Chinese imports
Chinese market driving growth
Kumba Chinese exports
0
2
4
6
8
10
'98 '99 '00 '01 '02 '03
Mt
% Share
40
60
80
100
120Mt
FY
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141618
20222426
2830
'99 '00 '01 '02 '03
Mt
Export sales Production
IRON ORE – OPERATIONS
• Total production 28.6 Mt
• Production record at Sishen 26.2 Mt
• Exports record 20.9 Mt
• Total tonnes mined +7%
• Focus on selective mining
Steady increase in output
28.6 Mt
20.9 Mt
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12
10
15
20
25
30
'99 '01 '03 '05(T)
Mt
Kumba Other
IRON ORE - LOGISTICS
• Railage record 26.1 Mt
• 29 Mtpa expansion in progress
• Further expansion under investigation
Sishen-Saldanha rail performance
Expansion critical for further growth in exports
29
26.1
(Target)
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COAL – MARKETS
• Strong demand from metals market
• High volumes to Matimba sustained - 13.1 Mt
• Record demand from Iscor - 2.8 Mt
• Improved sales mix
Eskom43%
Metals31%
Exports17%
Domestic9%
Coal revenue profile
Valuable earnings contributor
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COAL – OPERATIONS
• Good operational performance
• Strong continuous improvement focus
• Threat from rail tariffs
Coal production volumes
10
12
14
16
18
20
'00 '01 '02 '03
Mt
Grootegeluk Leeuwpan
Tshikondeni Durnacol
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Hydraulic mining
Primary Wet Plant
Mineral Separation
Plant
HMC
Furnaces
Sand tailingsSlimes Chloride slag
Sulphate slagZirconRutile
Process overview
crude ilmenite
Roaster / URIC
ROM ilmenite
Metal plant
Slag plant
• Mine/PWP and MSP have met all performance tests
• Furnace #1 ramp-up on schedule
• Slag plant in process of ramp-up
• Furnace #2 construction ahead of schedule
TICOR SA - PROCESS OVERVIEW
Pig iron
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HEAVY MINERALS – OPERATIONS
Ticor SA (60%)
• Successful ramp-up
• Zircon production 53 kt
• Rutile production 20 kt
• Ilmenite production 91 kt
World no 3 in TiO2 units
Ticor Ltd (51.4%)
TiWest results:
• Zircon production 80 kt
• Rutile production 36 kt
• Synthetic rutile production 179 kt
• Pigment production 94 kt
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BASE METALS - MARKETS
• Price remains depressed
• Rand price down 13%
• Lower treatment charges
Zinc metal price
700
800
900
1,000
1,100
1,200
1,300
FY00 FY01 FY02 FY03
US$
5,000
6,000
7,000
8,000
9,000
10,000ZAR
US$/t ZAR/t
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BASE METALS - OPERATING RESULTS
• Record zinc metal production 115 kt
• Sales increased by 5%
• Record concentrate output from Rosh Pinah
Zn metal ‘000t
Rosh Pinah
103105 105
115
'00 '01 '02 '03
Zn conc. ‘000t
Zincor
72 72 7591
'00 '01 '02 '03
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ZINC BUSINESS IMPROVEMENT
• Despite low cost operations, margin under pressure
• Initiative to target R 100 m improvement
Source: Brooke Hunt
Zn refinery cost curve
Zincor
0
5
10
15
20
25
30
35USc/lb
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INDUSTRIAL MINERALS
• Record ferrosilicon production
• Good market share growth
• Record dolomite sales
Dolomite sales (Mt)
FeSi production
(t)
Strategically important
0.97 0.92
1.26 1.30 1.32
'99 '00 '01 '02 '03
4105 4518 4669 43335350
'99 '00 '01 '02 '03
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Kumba continues to drive initiatives associated with the performance improvement programme
OPERATIONAL EXCELLENCE
2003 actuals 2004 targets
ThroughputIncreased sales tonnage to the value of R 429 m
Targeted increase in sales tonnage of 2% to the value of R 426 m
CostsContained production costs below inflation - R 29 m
Targeted reduction in real production costs of 2% to the value of R 123 m
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DIRK VAN STADENEXECUTIVE DIRECTOR FINANCE
HARNESSING THE POWER OF THE EARTH
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REVENUE
R million FY03 FY02 % Change
Iron ore 4 234 4 340 (2)
Coal 1 638 1 489 10)
Base metals 892 941 (5)
Heavy minerals 587 227 159)
Industrial minerals 78 57 37)
Other 40 128 (69)
Total 7 469 7 182 4)
5 year compound annual growth rate of 14%
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OPERATING PROFIT / MARGIN
FY03 FY02 % Change
Rm) (%) Rm (%) in R-value
Iron ore 882) 21 1 221 28 (28)
Coal 279) 17 255 17 9)
Base metals 15) 2 102 11 (85)
Heavy minerals 59) 10 54 24 9)
Industrial minerals 21) 27 15 26 40)
Other (44) 36
Total EBIT 1 212) 16 1 683 23 (28)
Total EBITDA 1 744) 23 2 137 30 (18)
US$/R exchange rate realised 9.01) 10.18
Valuation rate at end of period 7.42) 10.37
5 year compound annual growth rate of 21%
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EBIT COMPARISON
• Higher iron ore and heavy minerals volumes
• Lower iron ore prices
• Higher coal prices
• Stronger currency impact
• Higher production costs:
• volumes
• maintenance, stripping, environmental, insurance
1683
1212
483138 655
77
360
FY
02 E
BIT
Vol
ume
Pric
e
Tot
al e
xcha
nge
rate
impa
ct
Pro
duct
ion
cost
Dis
trib
utio
nco
st
FY
03 E
BIT
R million
Significant currency impact
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CURRENCY IMPACT
R million FY03 FY02
EBIT 1 212) 1 683)
Unrealised translation loss/(gain) 73) (9)
Currency exchange movements 92)
Derivatives (19)
Realised exchange rate impact 573)
EBIT excluding exchange rate impact 1 858) 1 674)
Margin excl. exchange rate (%) 23) 23)
Rand appreciation reduces margin
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EARNINGS
R million FY03 FY02 % Change
Net operating profit (EBIT) 1 212) 1 683) (28)
Net financing cost (244) (242) (1)
Goodwill and impairment (23) (75) 70)
Equity income 2) 83) (98)
Taxation (229) (465) 51)
Profit after taxation 718) 984) (27)
Outside shareholders’ interest -) (8)
Attributable earnings 718) 976) (26)
Adjustments 66) 122)
Headline earnings 784) 1 098) (29)
Headline earnings per share (cents) 264) 385) (31)
Excluding after tax currency impact 432) 383) 13)
Average number of shares in issue (million) 297) 285) 4)
HEPS 264 cents
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CASH FLOW
R million FY03 FY02
Opening net debt (1 143) (2 541)
Net cash flow from operating activities 780) 2 175)
Net cash used in investing activities
Heavy minerals project capital (923) (631)
Other capital expenditure (463) (454)
Net impact of consolidation of Ticor Ltd (510)
Other 2) (25)
Other cash flow movements 349)
Non-cash flow movements in net debt (117) (16)
(Increase)/decrease in net debt (1 231) 1 398)
Closing net debt (2 374) (1 143)
Net debt / equity ratio 39%
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DEBT STRUCTURE
R million Drawn Undrawn Maturity profile
Long term 2004 407
Corporate 1 403) 2005 697
Heavy minerals project finance 1 059) 60 2006 1 126
Ticor Ltd 746) 2007 273
3 208)
Short term 130) 1 820 After 2007 705
Total debt 3 338) 3 208
Cash and cash equivalents (964)
Net debt 2 374)
Post FY03 pre-tax divestment inflow: R 100 million
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CAPITAL EXPENDITURE
R million FY04(E) FY03 FY02
Iron ore 241 211 254
Coal 205 125 99
Base metals 127 73 90
Heavy minerals - Ticor SA - Ticor Ltd
48032
92325
631-
Industrial minerals 4 5 3
Other 42 24 8
Total 1 131 1 386 1 085
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TICOR LTD CONSOLIDATION IMPACT
R million Consolidated Group
Ticor Ltd effect
Revenue 7 469 275
EBIT 1 212 35
Equity income 2 57
Attributable earnings 718 49
Headline earnings 784 46
Net debt 2 374 432
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RATIOS
R million FY03 FY02
Margin excluding captive arrangements
EBIT (%) 22 30
EBITDA (%) 28 35
Net financing cost cover
EBIT (times) 5.0 7.0
EBITDA (times) 7.1 8.8
Return on equity - attributable income (%) 15 20
Net debt / equity (%) 39 22
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CON FAUCONNIERCHIEF EXECUTIVE
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STRATEGY
• Strategic thrusts
• Empowerment
• Northern Cape iron ore industry
• Heavy minerals
• China opportunities
• RBCT Phase 5 expansion
• Review of non-core assets
• Mincor
• Safore
• AST
Focused portfolio with clear strategic direction
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OUTLOOK
• Business climate remains challenging
• Strong Rand environment
• Pedestrian global growth
• High oil prices
• Continued domestic cost pressures
• Given these assumptions, earnings are likely to be adversely affected
• But, earnings will be underpinned by:
• Solid operational performance
• Higher iron ore prices
• Growing contribution from heavy minerals
• Continued strong focus on cost and operating efficiencies
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THANK YOU.
HARNESSING THE POWER OF THE EARTH
www.kumbaresources.com
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ADDITIONAL SLIDES
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KEY DATES
Financial year end 30 June 2003
Dividend declaration 19 August 2003
Last date to trade cum dividend 18 September 2003
Ex dividend trade commences 19 September 2003
Record date 26 September 2003
Dividend payment 29 September 2003
Annual Report distribution 30 September 2003
Annual General Meeting 19 November 2003
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CAPITAL EXPENDITURE
R million FY04 (E) FY03 FY02
Sustaining and environmental 394 264 308
Expansion
• Heavy minerals
- Ticor SA 480 923 631
- Ticor Ltd - - -
• Group (other) 257 199 146
1 131 1 386 1 085
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DEPRECIATION PER SEGMENT
R million FY03 FY02
Iron ore 235 215
Coal 137 130
Heavy minerals 92 47
Base metals 41 29
Industrial minerals 6 6
Corporate 21 27
Total 532 454
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EBIT CONTRIBUTION FY03
Iron ore70%
Base metals
1%
Industrial minerals
2%Heavy
minerals5%
Coal22%
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COAL – PHYSICAL INFORMATION
Coal production volumesCoal sales volumes
0
5
10
15
20
'01 '02 '03
Mt
Export
Other domestic
Eskom
0
5
10
15
20
'01 '02 '03
Mt
Other
Coking coal
Steam coal
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HEAVY MINERALS – MARKETS
• Strong Chinese demand for Zircon
• Flat US economic activity
Ilmenite4%
Rutile7%
Sulphate slag11%
LMPI15%
Zircon16%
Chloride slag47%
Indicative steady state Ticor SA revenue contribution
Will develop into second largest business