Income statement

Sales revenue

Against the background of continued robust demand for platinum group metals, F2008 was again characterised by buoyant metal prices which more than offset the decrease in production and sales volumes. The combination of a 33.7% increase in the average US Dollar basket price received to US$1 722 per ounce, together with a marginal weakening of the Rand by some 2.9% resulted in the average Rand basket price received increasing by 37.6% to R409 159 per kg. This more than offset a 19.8% decrease in unit sales to 8 586 kg (276 059oz), and resulted in sales revenue increasing by 3.9% to R3 886 million.

SALES

	F2008			F2007
	Units sold Kg	Average price received R/kg	Revenue R000		Units sold Kg	Average price received R/kg	Revenue R000
Platinum	5 275	396 780	2 093 212		6 609	278 045	1 837 603
Palladium	2 523	94 894	239 379		3 014	78 258	238 849
Rhodium	643	1 792 075	1 151 946		877	1 225 945	1 074 565
Gold	145	196 990	28 662		203	151 337	30 826
Sub-total – 3PGE+Au	8 586	409 159	3 513 199		10 703	297 292	3 181 843
Iridium	208	102 822	21 427		270	93 350	25 221
Ruthenium	1 059	99 302	105 122		1 046	83 475	87 308
Other precious metals	188	n/a	852		287	n/a	2 095
Sub-total – precious metals	10 041		3 640 600		12 306		3 296 467
Nickel			211 089				403 744
Copper			30 769				36 851
Other by-product revenue			3 679				2 743
Total sales revenue			3 886 137				3 739 805

Cost of sales

Cost of sales, as set out below, fell by 6.9% to R1 609 million, primarily as a result of an increase in metal inventories. This increase is attributable to the increase in unit operating costs (R70 million) and an increase in reverts (R173 million) which will be treated once the smelter rebuild is complete.

 

COST OF SALES

	F2008	F2007
	R000	R000
Labour	716 717	593 080
Stores	502 569	448 700
Utilities	110 226	103 740
Sundries	297 862	218 698
Decommissioning and restoration	(764)	(3 400)
Total operating costs	1 626 610	1 360 818
Concentrates purchased	-	106 447
Refining and other costs	75 540	91 816
Depreciation	149 325	129 040
Change in metal inventories	(242 827)	39 824
Cost of sales	1 608 648	1 727 945

Operating costs

Total operating costs increased by 19.5% from R1 361 million to R1 627 million, reflecting inflationary cost pressures, particularly in respect of chemicals, steel and timber. This, combined with the lower metal production resulted in unit cash operating costs increasing by 29.5% to R175 197 per kilogram.

Labour costs increased by some 20.8% which comprised the cost of the 2007 wage settlement of 9.6%, interim adjustments to salaries to retain employees with scarce skills (5.3%) as well as an amount of R30 million (5.1%) in respect of an initial contribution to be made to The Toro Employee Empowerment Trust.

The increase of 12% in the cost of consumables is primarily accounted for by significant increases in respect of the costs of chemicals, timber and steel.

Utility costs rose by 6.3%. The increase in power tariffs amounted to 14.7%, which was offset by the lower tonnage mined.

Sundries increased by 36.2%. The major factors contributing to this increase were increases in insurance costs and increased mineral royalties as a result of more ore being mined from the area subject to royalties. In addition, more diamond drilling was performed in negotiating the complex geology of the Northam mine, while increases in underground track and haulage maintenance and costs associated with processing the waste dump accounted for the balance of the sundry expenditure.

Decommissioning and restoration charges reflect a reduction in costs following a change in the discount rate, as more fully set out in note 14 of the notes to the annual financial statements (PDF - 200KB).

Concentrate purchases

There were no purchases of concentrates during the year.

Refining and other costs

Refining and other costs decreased by 17.7% to R76 million compared to the previous year, as a result of a 62.3% decline in nickel refining costs, which costs are linked to fluctuations in the nickel price.

Depreciation

The depreciation charge increased by 15.7% as a result of the higher capital expenditure.

Change in metal inventories

The change in metal inventories is primarily as a result of an increase in metal inventories which is attributable to the increase in unit operating costs (R70 million) and an increase in reverts (R173 million) which will be treated once the smelter rebuild, discussed in the business review, is complete.

Investment income and net sundry income

Improved cash flows and higher interest rates had a positive impact on investment income which was 16.6% higher at R98 million. Net sundry income reduced by some R3.5 million to R1.8 million compared to the previous year, primarily as a result of an increase in currency translation losses of R4.8 million, offset by an increase in royalties from the chrome recovery plant of R1.2 million and dividends received of R2.3 million.

Expenditure on the Booysendal Platinum Project

Costs associated with the Booysendal Platinum Project, which included transaction costs of R8.3 million, amounted to R18 million.

Hedging

No currency or metal was hedged during the period, and there were no outstanding contracts at the end of the period.

Tax charge

The tax charge of R866 million equates to an effective rate of 36.7%, some 8.7% higher than the statutory rate of 28.0%. This additional 8.7% is accounted for by state’s share of profits of 5.3%, secondary tax on companies (STC) of 5.0% and reduced by permanent and other minor differences of 1.6%, as more fully set out in note 23 to the annual financial statements (PDF - 200KB).

Profit attributable to shareholders

Profit attributable to shareholders increased by 12.6% to R1 493 million, with headline earnings per share increasing from 560.1 cents per share to 627.2 cents per share.

Cash flow

Operating cash flow

The cash flow from operations declined slightly by R8 million to R1 547 million with the increase in cash generated from the operations increasing from R2 157 million to R2 429 million, reflecting the improvement in operating profits. Interest income increased to R95 million from R81 million primarily as a consequence of the higher average cash balance and higher interest rates. Working capital increased by R265 million (F2007 : R106 million) as a result of an increase in inventories (R250 million), increases in accounts receivable (R90 million) and increases in accounts payable (R76 million). The increase in tax payments from R584 million to R748 million reflects the increase in profits and higher dividends for the year.

Investing cash flow

The net investing cash flow was R264 million (F2007: R212 million), comprising capital expenditure of R265 million less proceeds from sundry disposals of R3 million and township development expenditure of R2 million.

The major items contributing to the capital expenditure of R265 million were: development expenditure (R89 million); access infrastructure to 1 and 14 levels (R24 million); upgrading of the backfill reticulation system (R12 million); extensions to the hydropower infrastructure (R6 million); critical spares and an additional crusher in the concentrator plant (R21 million); upgrading of IT systems (R7 million); additional accommodation for employees (R19 million). The balance comprised routine capital expenditure.

Planned capital expenditure for F2009 amounts to a total of R340 million and includes the following major items: access infrastructure to 1 level and below 14.5 level and development through the 20 line fissure (R130 million), additional backfill facilities and extensions to the ventilation system (R25 million), upgrading of the power management system (R11 million), rebuilding of the smelter (R45 million) improvements to the metallurgical plants (R20 million), additional underground equipment (R14 million) and employee amenities (R36 million).

A further R2 million was spent on an employee housing project. The sale of the houses to employees was delayed by the lack of power reticulation by the local authority, but it is anticipated that the necessary power will be available within the coming months.

Financing cash flows

An amount of R22 million (F2007 – R12 million) was received following the exercise of share options by employees. The dividends of R1 billion paid reflect the strong performance of the group, and comprise the final dividend for F2007 of 280 cps and the interim dividend for F2008 of 145 cps. A final dividend of 185 cps for F2008 has been declared bringing the total to 330 cps.

Balance sheet

The group’s balance sheet remains strong, with cash and cash equivalents at the year end of R1 500 million (F2007: R1 210 million) and net current assets of R1 592 million (F2007: R1 179 million) The environmental decommissioning and restoration liability is R56 million (F2007: R22 million). Apart from this liability and the deferred tax provision of R388 million (F2007: R376 million) the group has no debt.