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ACL - ArcelorMittal South Africa Limited - Unaudited Group earnings results and
physical information for the quarter ended 30 September 2008
ArcelorMittal South Africa Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1989/002164/06)
Share code: ACL
ISIN: ZAE 000103453
("ArcelorMittal South Africa", "the Company" or "the Group")
The lifeblood of a developing nation
Unaudited Group earnings results and physical information for the quarter ended
30 September 2008
- Record quarterly earnings - but outlook cautious
Group income statement
Quarter ended Year ended
30 September 30 September 30 June 31 December
2008 2007 2008 2007
Restated Audited
Rm Rm Rm Rm
Revenue 13 349 7 523 10 315 29 301
Flat Carbon Steel Products 8 448 4 790 7 083 19 240
Long Carbon Steel Products 4 120 2 493 3 016 9 238
Coke and Chemicals 999 553 1 025 2 065
Inter Group eliminations (218) (313) (809) (1 242)
Profit from operations 5 190 1 996 3 305 7 703
Flat Carbon Steel Products 3 257 1 001 2 154 4 827
Long Carbon Steel Products 1 570 765 596 2 652
Coke and Chemicals 525 208 546 727
Corporate and Other (162) 22 9 (503)
Gains/(losses) on changes 111 (174) (87) (131)
in foreign exchange rates
and financial instruments
Interest income 44 136 62 442
Finance costs (160) (1) (117)
Income from investments 1 1 1 4
Income from equity 188 26 217 270
accounted investments (net
of tax)
Profit before tax 5 374 1 984 3 498 8 171
Income tax expense (1 620) (931) (927) (2 455)
Profit for the period 3 754 1 053 2 571 5 716
Attributable to:
- Owners of the Company 3 754 1 053 2 571 5 716
ADDITIONAL INFORMATION
Attributable earnings per 842 236 577 1 282
share (cents)
Reconciliation of headline
earnings
Profit for the period 3 754 1 053 2 571 5 716
Adjusted for:
- Loss on disposal or 25 5 3 31
scrapping of assets
- Book value of assets held - - - 4
for sale written off
- Tax effect (7) (1) (1) (10)
Headline earnings 3 772 1 057 2 573 5 741
Headline earnings per share 846 237 577 1 288
(cents)
Physical information (`000 tonnes)
Quarter ended Year ended
30 September 30 September 30 June 31 December
2008 2007 2008 2007
Flat Carbon Steel Products
Liquid steel production 1 283 1 148 1 212 4 231
Sales 964 955 926 3 920
Long Carbon Steel Products
Liquid steel production 558 548 316 2 144
Sales 480 495 401 1 899
Total
Liquid steel production 1 841 1 696 1 528 6 375
Sales 1 444 1 450 1 327 5 819
- Local 1 268 1 078 1 196 4 422
- Export 176 372 131 1 397
- Local sales as % of total
sales 88 74 90 76
Financial results
Headline earnings for the quarter of R3 772 million were at record levels with
an increase of 47% compared to the previous quarter and 257% compared to the
corresponding period last year. At the operating income level the increases were
57% and 160% respectively. The main reasons for the improvements were higher
selling prices, improved sales volumes compared to the previous quarter as well
as foreign exchange gains compared to losses during the comparative periods.
These gains were partly offset by higher input costs. Cash cost per ton of hot
rolled coil for the quarter increased by 69% compared to the corresponding
period last year, while the cash cost of billets rose by 68%. The increases were
mainly driven by a substantial escalation in the cost of coal, scrap and
imported pellets and coke. Compared to the previous quarter, the cost of
producing hot rolled coil increased by 16% and the cost of billets by 13%, as a
result of sharp rises in the price of coal, scrap as well as imported pellets
and coke.
Market review
International
Export volumes for the quarter increased by 34% compared to the previous quarter
due to higher production volumes, but declined by 53% compared to the
corresponding period last year amid high volumes of domestic demand.
Average net export prices realised during the third quarter were 47% higher than
the previous quarter and 93% up on the corresponding period last year. Prices of
both flat and long steel products rose during most of the third quarter but
started to decline in September as the global financial crisis started to impact
on the real economy.
Domestic
Domestic sales volumes during the quarter increased by 6% compared to the
previous quarter and by 18% compared to the corresponding period last year,
driven largely by high fixed investment spending on capital projects to improve
the country`s infrastructure. But demand from the durable goods and residential
building sectors declined as higher interest rates continued to impact on
consumer spending.
Operational review
Liquid steel production for the quarter increased by 20% compared to the
previous quarter following the successful completion of the reline of the Corex
and Midrex plants at Saldanha Works and the mini reline of Blast Furnace N5 at
Newcastle Works during the second quarter.
Contingent liabilities
In the case brought before the Competition Tribunal by gold miners, Harmony Gold
Mining Company Limited and DRD Gold Limited alleging excessive pricing, an
appeal hearing took place on 23 and 24 October 2008. The ruling is still
pending. The administrative penalty imposed by the Competition Tribunal of R692
million remains disclosed as a contingent liability and no amount has been
raised as a provision.
In another case brought before the Competition Tribunal by Barnes Fencing
Industries (Proprietary) Limited - relating to alleged price and payment
discrimination on the sale of low carbon wire rod products - a date for the plea
hearing and the beginning of the initial proceedings are awaited.
Safety, health and environment
During the third quarter Newcastle and Vanderbijlpark Works achieved 1 million
man hours without a lost time injury.
This achievement was however overshadowed by the loss of two lives at Saldanha
Works. The accident happened on 22 September 2008, when a contractor employee
and a Saldanha Works employee lost their lives following exposure to carbon
monoxide gas during a maintenance stop at the Midrex facility. A full root cause
analysis was conducted and corrective measures to prevent re-occurrence are
being implemented.
Safety remains a key priority for management which is committed to achieving
zero fatalities throughout the organisation.
Environmental matters are another crucial priority. A number of high level
actions were initiated to fast-track the environmental improvement programme and
the resolution of issues raised by authorities and other stakeholders.
Key environmental projects are the installation of dust extraction units for the
Electric Arc Furnaces at both Vanderbijlpark and Vereeniging Works. Work at the
Vereeniging project started during the third quarter, while work at
Vanderbijlpark is scheduled to begin early next year. Other environmental
projects include the coke, gas and water cleaning project at Vanderbijlpark
Works, scheduled for commissioning during the fourth quarter, and the
desulphurisation station at Newcastle Works, which is due to be completed early
2009.
Capital projects
As previously reported two additional Direct Reduction kilns at Vanderbijlpark
Works will be completed shortly. This will enable the company to become less
reliant on expensive scrap as feedstock for the Electric Arc Furnaces as well as
adding 220 000 tonnes of liquid steel to our manufacturing capacity.
Outlook
Towards the end of the reporting period the global credit crisis started to
filter through to the real economy with a severe knock-on effect on
international demand and prices for steel, similar to the impact experienced by
most other commodities. South Africa`s economy is abiding by its long-term
correlation with the international economy with growth expected to slow further
over the next few months. The full extent of the impact of the financial
meltdown on the South African economy is still hard to predict at this stage.
However, the momentum of the South African economy, supported by a substantial
investment in infrastructure, should be sufficient in the short to medium term
to attain reasonable economic growth next year.
Management is introducing a wide range of short-term interventions to cushion
the company from the worst effects of the global financial crisis, focusing on
cost reduction initiatives, cash management and, critically, aligning production
at our operations with demand levels.
In the light of current economic conditions, the normal seasonal slowdown in
domestic activities during the December holiday period and relatively high
inventory levels at customers, we expect the earnings for the fourth quarter to
decline substantially compared to quarter three, although still relatively
strong compared to historic levels.
In line with the company`s commitment to Black Economic Empowerment,
shareholders have been advised that the company is currently contemplating a
Black Economic Empowerment equity transaction. No further details are available
at this time.
Forward-looking statements
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
risks and uncertainties whose impact 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 (Proprietary) Limited, 70
Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Directors:
Non-executive: Dr KDK Mokhele (Chairman)*, DK Chugh#, C Cornier,
EK Diack*, S Maheshwari#, LP Mondi, DCG Murray*, MJN Njeke*, ND Orleyn*, MAL
Wurthx
Alternate non-executive: AMO Poupart-Lafarge (For S Maheshwari#)
Executive: N Nyembezi-Heita (Chief Executive Officer), Dr LGJJ Bonte
(President)' HJ Verster (Executive Director Finance)
#Citizen of India'xCitizen of Luxembourg''Citizen of Belgium'Citizen of France
*Independent non-executive
Company Secretary: C Singh
Sponsor: Deutsche Securities (SA) (Proprietary) Limited, 87 Maude Street,
Sandton, 2146
Private Bag X9933, Sandton, 2143
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
5 November 2008
Sponsor to ArcelorMittal South Africa:
Deutsche Securities (SA) (Proprietary) Limited
Date: 05/11/2008 08:00:01 Supplied by www.sharenet.co.za
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