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DIRECTORS’ REPORT
FOR THE YEAR ENDED 31 DECEMBER 2011
DIRECTORS’ REPORT
COMPANY REGISTRATION NUMBER 2005/015852/06
The directors have pleasure in presenting the annual financial
statements of Kumba and the group for the year ended
31 December 2011.
NATURE OF BUSINESS
Kumba was incorporated in South Africa on 16 May 2005 and
commenced trading in November 2006 following the unbundling
of Kumba from Exxaro Resources Limited (previously Kumba
Resources Limited). Subsequent to unbundling, Kumba listed on the
JSE Limited (JSE) on 20 November 2006 as the only pure play iron
ore company on the JSE.
Kumba is a mining group of companies focusing on the exploration,
extraction, beneficiation, marketing, shipping and sale of iron ore. Kumba
produces iron ore in South Africa at Sishen and Kolomela mines in
Province. The Kolomela mine commenced commercial production on
1 December 2011, almost five months ahead of schedule.
The nature of the businesses of the group’s subsidiaries, associates
and joint ventures is set out in annexures 1 and 2.
CORPORATE GOVERNANCE
The group subscribes to the Code of Good Corporate Practices and
Conduct as contained in the King III report on corporate governance.
The board has satisfied itself that Kumba has complied in all material
aspects with the code as well as the JSE Listings Requirements
throughout the year under review. The corporate governance report
is set out on pages 82 to 93of the Integrated Report 2011.
IR Page 82
FINANCIAL RESULTS
The financial statements on pages 13 to 81 set out fully the financial
position, results of operations and cash flows of the group for the
financial year ended 31 December 2011. The financial statements
have been prepared under the supervision of Martin Poggiolini,
CA(SA), acting chief financial officer.
Operating results for the year
Summary of the group’s key financial results for the year ended
31 December:
Rand million 2011 2010
% Increase/
(decrease)
Revenue 48,553 38,704 25
Operating profit 31,966 25,131 27
Cash generated from
operations (excluding
mineral royalties paid) 34,331 26,965 27
The group’s total mining revenue (excluding shipping operations
– R2.7 billion in 2011; R2.9 billion in 2010) of R45.8 billion for
the year was 28% higher than the R35.8 billion of 2010 due to a
weighted average increase of 26% in export prices.
Operating profit increased by 27% from R25.1 billion to R32.0 billion.
The group’s operating profit margin increased marginally to 66%.
Excluding the margin earned from providing shipping services to
customers, the group’s mining operating margin remained stable at
69%. The operating profit achieved was impacted by an increase
in operating expenses on the back of the growth in mining volumes
across the group and above-inflation cost increases.
The group continued to generate substantial cash from its operations,
with R34.3 billion (before the mineral royalty of R1.7 billion)
generated during the year, 27% more than the R27.0 billion of
2010. These cash flows were used to pay aggregate dividends
of R17.9 billion, taxation of R7.0 billion, Envision phase one of
R2.7 billion and mineral royalties of R1.7 billion during 2011.
Attributable and headline earnings for the year were R53.11
and R53.13 per share respectively. Refer to note 20, ‘Per share
information’, of the group annual financial statements for an analysis
of movements in the group’s basic and headline earnings per share.
FINANCIAL POSITION
Summary of the group’s financial position as at 31 December:
Rand million 2011 2010 (decrease)
% Increase/
Property, plant and
equipment 20,878 15,866 32
Net working capital
(excluding cash and
cash equivalents) 2,845 2,924 (3)
Net cash 1,551 1,670 (7)
Net asset value per
share (R) 49.16 44.54 10
Property, plant and equipment
Capital expenditure of R5.8 billion was incurred. R2.7 billion was
invested to maintain operations, mainly on Sishen mine’s fleet
expansion programme to mitigate mining and production risks.
A further R3.1 billion was incurred to expand operations, mainly on
the development of Kolomela mine.
Excellent progress was made at Kolomela mine, which was brought
into production ahead of schedule. The plant was successfully
commissioned during 2011, delivering production of 1.2Mt during the
fourth quarter, bringing total production for 2011 to 1.5Mt. Kolomela
mine is on track to produce between 4Mt and 5Mt in 2012 during
ramp up, before producing at full design capacity of 9Mtpa in 2013.
Audited annual financial statements
Annual Financial Statements 2011
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