Wrap Text
ACL - ArcelorMittal South Africa - Unaudited Group Earnings And Physical
Information For The Quarter Ended 31 March 2008
ArcelorMittal South Africa Limited
(Formerly Mittal Steel South Africa Limited)
(Registration number: 1989/002164/06)
Share code: ACL
ISIN: ZAE000103453
("ArcelorMittal South Africa", "the Company" or "the Group")
Unaudited group earnings and physical information for the quarter ended 31 March
2008
*Headline earnings increased by 31%
*Domestic sales volumes increased from 79% to 85% of total sales
Financial results
Headline earnings for the quarter were significantly higher at R2 003 million
which represents an increase of 31% compared to both the previous quarter and
the corresponding period last year.
These increases were to a large extent driven by a substantial gain on foreign
exchange compared to a loss during the previous quarter and a small gain during
the corresponding quarter last year, higher equity accounted earnings from our
marketing and shipping joint venture as well as an improvement in operating
income, especially when compared to the previous quarter.
Operating income increased by 26% compared to the previous quarter and 5%
compared to the same period last year, driven by a substantial increase in
international steel prices, a weaker average Rand/US Dollar exchange rate, and a
substantial increase in the prices of market coke sales by our Coke and
Chemicals business. This was partially offset by lower steel sales volumes and a
significant increase in costs mainly due to higher input material prices.
The cash cost of hot rolled coil increased by 21% compared to the previous
quarter and by 34% compared to the corresponding quarter last year, while the
cash cost of billets increased by 20% and 31% respectively. These increases were
primarily driven by higher prices of coke, iron ore, coal, scrap and alloys, as
well as lower production volumes.
Market review
International
Global steel prices have increased substantially following a surge in raw
material prices, rising demand in almost all regions together with supply
constraints due to mills running close to full capacity.
ArcelorMittal South Africa`s exports declined by 47% compared to the previous
quarter and by 35% compared to the corresponding period last year due to higher
domestic sales and lower production volumes.
Domestic
Steel demand from South African steel-consuming sectors is exceeding supply,
notwithstanding higher interest rates and electricity constraints as a result of
higher demand from the manufacturing and building, and construction industries.
Local sales for the quarter increased by 14% compared to the previous quarter
and 1% compared to the corresponding period last year and now represent 85% of
total sales compared to 73% last quarter and 79% during the same period last
year.
Production
Liquid steel production for the quarter decreased by 3% compared to the previous
quarter and by 1% compared to the corresponding period last year. This was
mainly due to unstable production conditions at the blast furnaces at
Vanderbijlpark Works, electricity constraints and the Corex and Midrex relines
at Saldanha Works.
Contingent liabilities
During the quarter, the Alternative Dispute Resolution (ADR) process with the
South African Revenue Services was finalised with settlement being reached on
the dispute pertaining to the tax deductibility of payments made in terms of the
Business Assistance Agreement. Full and final settlement was reached for an
amount of R100 million. For the financial year ended December 2006, a
provisional obligation of R80 million was recognised in terms of the settlement
offer made during the ADR hearing. A further R20 million was recognised as an
expense in the quarter under review, bringing the total obligation settled to
R100 million.
In the case brought before the Competition Tribunal by gold miners, Harmony Gold
Mining Company Limited and DRDGold Limited alleging excessive pricing, an appeal
hearing is expected to take place during the latter part of 2008. Management and
the directors have critically assessed the facts of the case against the
recognition and measurement criteria of IAS 37, Provisions, Contingent
Liabilities and Contingent Assets, and concluded that no provision needs to be
raised regarding the administrative penalty of R692 million or other remedies
imposed.
In the case brought before the Competition Tribunal by Barnes Fencing Industries
(Pty) Limited of price and payment condition discrimination on the sale of low
carbon wire rod products, no date for the main hearing has been set. An
intervention application hearing was heard on 29 February 2008 after which the
Competition Tribunal granted leave to intervene by including additional
complaints, namely: prohibited virtual practices and abuse of dominance.
However, the request for a 10% administrative penalty was disallowed. Management
and the directors have concluded that no provision needs to be raised or
contingent liability quantified at this time.
Outlook
International steel prices are expected to increase further during the next
quarter underpinned by high demand, supply constraints and continued cost
pressures. In South Africa, although spending on durable goods is expected to
decline as a result of high interest and inflation rates, demand is expected to
remain strong primarily due to high fixed investment spending on capital
projects aimed at improving the country`s infrastructure.
The results for quarter two are expected to show a significant improvement from
quarter one, driven by higher sales prices and an improvement in production
stability, despite further increases in the cost of raw materials, mainly coal
and scrap.
Group income statement
Quarter ended Year ended
31 March 31 March 31 December 31 December
2008 2007 (1) 2007 (1) 2007 (1)
Rm Rm Rm Rm
Revenue 8 088 7 274 7 199 29 301
Flat Products 4 959 4 831 4 880 19 240
Long Products 2 739 2 260 2 119 9 238
Coke and Chemicals 834 432 578 2 065
Inter group eliminations (444) (249) (378) (1 242)
Operating profit 2 050 1 958 1 632 7 703
Flat Products 745 1 208 815 4 338
Long Products 884 646 541 2 652
Coke and Chemicals 381 119 226 727
Corporate and Other 40 (15) 50 (14)
Gains/(losses) on changes 464 199 (121) (131)
in foreign exchange rates
and financial instruments
Net interest income 52 74 27 325
Income from investments 1 1 1 4
Income after tax from 175 27 125 270
equity accounted
investments
Income tax expense (742) (743) (142) (2 455)
Profit from ordinary 2 000 1 516 1 522 5 716
activities
Profit attributable to:
- Ordinary shareholders 2 000 1 516 1 522 5 716
ADDITIONAL INFORMATION
Attributable earnings per 449 340 341 1 282
share (cents)
Reconciliation of headline
earnings
Profit for the period 2 000 1 516 1 522 5 716
Adjusted for:
- loss on disposal or 4 21 8 31
scrapping of assets
- book value of assets held 4 4
for sale written off
- tax effect (1) (7) (2) (10)
Headline earnings 2 003 1 530 1 532 5 741
Headline earnings per share 449 343 344 1 288
(cents)
(1) Restated
Physical information
Quarter ended Year ended
31 March 31 March 31 December 31
2008 2007 2007 December
`000 tonnes `000 tonnes `000 tonnes 2007
`000 tonnes
Flat Products
Liquid steel production 1 038 1 053 1 090 4 231
Sales 906 1 021 1 012 3 920
Long Products
Liquid steel production 525 526 522 2 144
Sales 497 488 428 1 899
Total
Liquid steel production 1 563 1 579 1 612 6 375
Sales 1 403 1 509 1 440 5 819
- Local 1 195 1 187 1 048 4 422
- Export 208 322 392 1 397
- Local sales as % of total 85 79 73 76
sales
Forward-looking statements
Certain statements in this release that are neither reported financial results
nor other historical information, are forward-looking statements, including but
not limited to statements that are predictions of or indicate future earnings,
savings, synergies, events, trends, plans or objectives. Undue reliance should
not be placed on such statements because, by their nature, they are subject to
known and unknown risks and uncertainties, and can be affected by other factors
that could cause actual results and company plans and objectives to differ
materially from those expressed or implied in the forward-looking statements (or
from past results).
Registered Office: ArcelorMittal South Africa Limited, Room N3-5, Main Building,
Delfos Boulevard, Vanderbijlpark, 1911
Transfer Secretaries: Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Directors: Non-executive: Dr KDK Mokhele (Chairman)*, DK Chugh^, EK Diack*, S
Maheshwari^, LP Mondi, M Mukherjee^, DCG Murray*, MJN Njeke*, ND Orleyn*, MAL
Wurth#
Executive: N Nyembezi-Heita (Chief Executive Officer) (Appointed 1 March 2008),
Dr LGJJ Bonte (President) (Appointed 1 March 2008), HJ Verster (Executive
Director Finance)
^Citizen of India #Citizen of Luxembourg Citizen of Belgium
*Independent non-executive
Company Secretary: C Singh
This report is available on the ArcelorMittal South Africa`s Web site at:
http://www.arcelormittal.com/southafrica/ Share queries: Please call the
ArcelorMittal South Africa share care toll free on 0800 006 960 or +27 11 370
7850
Vanderbijlpark
14 May 2008
Sponsor to ArcelorMittal South Africa:
Deutsche Securities (SA) (Proprietary) Limited
Date: 14/05/2008 08:00:01 Supplied by www.sharenet.co.za
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