| FINANCIAL CAPITAL |  |
MATERIAL
ISSUES
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Financial capital makes it possible for the other types of capital to be owned and traded. It is also representative of how successful we have been at achieving the sustainable development of our natural, human, social or manufactured capital.
Sustainable organisations need a clear understanding of how financial value is created, in particular dependence on other forms of capital. We enhance our financial capital by:
| • | effective management of risk |
| • | corporate governance structures |
| • | ensuring equitable use of wealth created |
| • | assessing the wider economic impact of our activities on society |
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Our annual financial statements form part of our online integrated report for 2015. They are also available from our Company Secretary. |
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Financial performance
| • | Revenue increased by 23% from the prior year mainly as a result of an 18% increase in ferrochrome sales volumes and a 17% weaker Rand/Dollar exchange rate which was partially offset by 12% lower net CIF ferrochrome prices |
| • | Production costs were well managed and contained |
| • | Corporate costs reduced by 41% from the prior year as a result of the once off restructuring costs included in the prior year as well as the reduced headcount at Merafe head office in 2015 |
| • | Headline earnings increased by 66% from the prior year and Merafe’s EBITDA margin increased from 16% in 2014 to 18% in 2015 |
| • | Depreciation increased by 12% from the prior year, mainly as a result of the additional depreciation from the Lion II project as well as the reassessment of useful lives and residual values |
| • | Net finance costs increased by 23% from the prior year as a result of increased interest rates and a reduction of capitalised borrowing costs resulting from the completion of Project Lion II |
| • | The current tax expense arose as a result of the full utilisation of capital expenditure in our Western taxation ring-fence. The cash tax rate increased from 13% in 2014 to 14% in 2015 |
Financial position and cash flow
| • | Property, plant and equipment increased from the prior year as a result of capital expenditure of which R259.1m (2014: R247.3m) was sustaining capex and R44.3m (2014: R195.9m) was expansionary capex and was partially offset by higher depreciation. No borrowing costs were capitalised in 2015 (2014: R9m) |
| • | Trade and other receivables reduced mainly as a result of a change in sales mix, earlier than expected receipts from debtors and higher utilisation of the debtors' financing facility. The utilisation of the debtors’ financing facility increased to R411.4m at 31 December 2015 (2014: R282.6m) |
| • | Trade and other payables reduced from the prior year primarily as a result of the R189m full repayment of the short-term stock facility |
| • | The Horizon mine which was fully written off in prior years was sold during 2015 for R1. The purchaser assumed the related rehabilitation liability |
| • | Merafe closed the year with a net cash balance of R309.6m at 31 December 2015 (2014: R162.5m net overdraft). Cash in Merafe’s books was R108.7m (2014: R14.6m) and Merafe’s share of the cash balance in the Venture was R200.9m (2014: R177.1m) |
| • | At 31 December 2015, Merafe had total debt owing to Absa and Standard Bank of R559.5m and R190.5m unutilised debt facilities. On 4 January 2016, R50m of the R559.5m debt was repaid |
| • | Merafe’s portion of ferrochrome stock as at 31 December 2015 was 120.7kt (2014: 115.8kt), which is approximately four months of sales |
| • | The interim dividend that was paid in 2015 amounted to R25m (2014: R27.9m) and a final dividend of R30m was declared by the Board on 7 March 2016 (2015: R20m) |
Future financial outlook
The Venture remains profitable and is well positioned as the lowest-cost ferrochrome producer
in South Africa and one of the lowest-cost producers in the world. Our suite of energy efficient
technology, recently enhanced with Project Lion II, allows us to remain in a healthy position to
withstand challenging market conditions.
Consistent with our renewed strategy announced in 2014, we remain committed to reducing debt and returning cash to shareholders.
Kajal Bissessor
Financial Director
| 31 December 2015 Audited R'000 |
31 December 2014 Audited R'000 |
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| Revenue | 4 428 075 | 3 609 066 | |||
| EBITDA | 815 992 | 589 265 | |||
| Depreciation and impairment | (273 753) | (237 335) | |||
| Net financing costs | (63 065) | (51 295) | |||
| Profit before taxation | 479 174 | 300 635 | |||
| Taxation | (135 717) | (86 538) | |||
| Profit and total comprehensive income for the period | 343 457 | 214 097 | |||
| Basic earnings per share (cents) | 13.7 | 8.6 | |||
| Diluted earnings per share (cents) | 13.7 | 8.5 | |||
| Headline earnings per share (cents)# | 13.9 | 8.4 | |||
| Diluted headline earnings per share (cents)# | 13.9 | 8.3 | |||
| Ordinary shares in issue | 2 510 704 248 | 2 505 353 877 | |||
| Weighted average number of shares for the year | 2 509 634 174 | 2 496 949 439 | |||
| Diluted weighted average number of shares for the year | 2 509 634 174 | 2 515 772 683 | |||
| # Headline earnings reconciliation | |||||
| 348 031 | 209 553 | ||||
| Profit and total comprehensive income for the year | 343 457 | 214 097 | |||
| Impairments* | 4 609 | – | |||
| Profit on sale of asset** | (35) | (4 544) | |||
* Net of taxation of R2m (2014: Nil)
** Net of taxation of R13k (2014: R1.8m)
Summarised consolidated statement of financial position
| 31 December 2015 Audited R'000 |
31 December 2014 Audited R'000 |
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| ASSETS | ||||
| Property, plant and equipment | 3 240 370 | 3 239 162 | ||
| Deferred tax asset | 17 995 | 13 518 | ||
| Total non-current assets | 3 258 365 | 3 252 680 | ||
| Inventories | 1 445 887 | 1 435 799 | ||
| Current tax assets | 10 773 | 15 485 | ||
| Trade and other receivables | 317 454 | 652 642 | ||
| Cash and cash equivalents | 325 126 | 44 541 | ||
| Total current assets | 2 099 240 | 2 148 467 | ||
| Total assets | 5 357 605 | 5 401 147 | ||
| EQUITY | ||||
| Share capital | 25 107 | 25 053 | ||
| Share premium | 1 269 575 | 1 269 578 | ||
| Equity-settled share-based payment reserve | – | 24 651 | ||
| Retained earnings | 2 120 007 | 1 804 220 | ||
| Total equity attributable to equity holders | 3 414 689 | 3 123 502 | ||
| LIABILITIES | ||||
| Loans and borrowings | 472 755 | 549 909 | ||
| Share-based payment liability | 3 147 | – | ||
| Provision for close down and restoration costs | 139 351 | 129 029 | ||
| Deferred tax liabilities | 763 724 | 687 215 | ||
| Total non-current liabilities | 1 378 977 | 1 366 153 | ||
| Loans and borrowings | 101 176 | 80 778 | ||
| Trade and other payables* | 444 314 | 615 773 | ||
| Provision for closure and restoration costs | – | 7 932 | ||
| Share-based payment liability | 2 893 | – | ||
| Bank overdraft | 15 556 | 207 009 | ||
| Total current liabilities | 563 939 | 911 492 | ||
| Total liabilities | 1 942 916 | 2 277 645 | ||
| Total equity and liabilities | 5 357 605 | 5 401 147 |
* Includes NIL (2014:R189m) short term stock facility
Summarised statement of changes in equity| 31 December 2015 Audited R'000 |
31 December 2014 Audited R'000 |
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| Issued share capital – ordinary shares | 25 107 | 25 053 | ||
| Balance at beginning of year | 25 053 | 24 942 | ||
| Share options exercised | 54 | 111 | ||
| Share premium – ordinary shares | 1 269 575 | 1 269 578 | ||
| Balance at beginning of year | 1 269 578 | 1 262 899 | ||
| Share premium arising from share options exercised | (3) | 6 679 | ||
| Equity-settled share-based payment reserve | – | 24 651 | ||
| Balance at beginning of year | 24 651 | 39 011 | ||
| Shares vested during the year | (2 205) | (6 471) | ||
| Share-based payments expensed during the year | 2 465 | 11 201 | ||
| Transfer to retained earnings | (8 090) | (19 090) | ||
| Transfer to share-based payment liability | (16 821) | – | ||
| Retained earnings | 2 120 007 | 1 804 220 | ||
| Balance at beginning of year | 1 804 220 | 1 598 985 | ||
| Profit and total comprehensive income for the year | 343 457 | 214 097 | ||
| Dividends paid | (45 192) | (27 952) | ||
| Transfer from share-based payment reserve and share-based payment liability | 17 522 | 19 090 | ||
| Total equity at end of year | 3 414 689 | 3 123 502 |
Summarised consolidated statement of cash flow
| 31 December 2015 Audited R'000 |
31 December 2014 Audited R'000 |
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| Profit before taxation | 479 174 | 300 635 | ||
| Interest paid | 65 008 | 52 372 | ||
| Interest received | (1 943) | (1 077) | ||
| Depreciation and impairment | 273 753 | 237 335 | ||
| Adjusted for non-cash items | 36 533 | 8 579 | ||
| Adjusted for working capital changes | 201 870 | (201 926) | ||
| Cash flows from operations | 1 054 395 | 395 918 | ||
| Interest paid | (41 201) | (43 915) | ||
| Interest received | 1 460 | 1 047 | ||
| Tax paid | (58 972) | (46 985) | ||
| Cash flows from operating activities | 955 682 | 306 065 | ||
| Cash flows from investing activities | (303 457) | (437 001) | ||
| Proceeds on disposal of property, plant and equipment | 48 | 6 311 | ||
| Acquisition of property, plant and equipment – sustaining | (259 185) | (247 359) | ||
| Acquisition of property, plant and equipment – expansionary | (44 320) | (195 953) | ||
| Cash flows from financing activities | (105 234) | 7 272 | ||
| Share grants vested | (2 888) | (6 471) | ||
| Proceeds from issue of shares | – | 6 790 | ||
| Dividends paid | (45 192) | (27 952) | ||
| Loans (repaid)/raised during the year | (57 154) | 34 905 | ||
| Net increase/(decrease) in cash and cash equivalents | 546 991 | (123 664) | ||
| Cash and cash equivalents at the beginning of the year | (162 468) | (10 746) | ||
| Effect of exchange rate fluctuations on cash held | (74 953) | (28 058) | ||
| Cash and cash equivalents at the end of the year | 309 570 | (162 468) |