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ACL - ArcelorMittal South Africa - Unaudited Group Earnings And Physical
Information For The Quarter Ended 31 March 2010 And Renewal Of Cautionary
announcements
ArcelorMittal South Africa Limited
(Incorporated in the Republic of South Africa)
Registration number: 1989/002164/06
Share code: ACL & ISIN: ZAE000134961
("ArcelorMittal South Africa", "the company" or "the group")
Unaudited group earnings and physical information for the quarter ended 31 March
2010 and renewal of cautionary announcements
* Revenue increased by 22% to R7.5 billion
* Operating profit positive
Financial review
ArcelorMittal South Africa has posted a headline profit of R748 million for the
three months ended 31 March 2010. This was achieved as a result of an
improvement in trading conditions, good cost containment and lower raw material
prices compared to the first quarter last year. This quarter`s profit compares
to a loss of R237 million and a profit of R469 million reported for the first
and fourth quarters of 2009 respectively.
The company`s total steel sales for first quarter 2010 were
1.3 million tonnes, 30% higher than the corresponding period last year, and 15%
higher than the previous quarter.
Net realised selling prices were on average 1% higher than the preceding quarter
but 12% lower than the corresponding period last year. In US Dollar terms
however, prices were up 11% compared to the first quarter last year due to the
strengthening of the Rand from an average Rand/US Dollar exchange rate of 9.96
during the first quarter of 2009 to an average of 7.52 during the first quarter
of 2010.
The cash cost of steel sales for the quarter decreased by 27% compared to the
corresponding period last year driven largely by a sharp decline in the cost of
coal, scrap and alloys as well as an increase in production volumes. Compared to
the preceding quarter, the cash cost of steel sales decreased by 3%.
Market review
International
Apparent steel demand increased above fourth quarter 2009 levels supported by
restocking (outside China) and rapidly rising steel prices in almost all
regions, driven by increasing raw materials costs. Underlying demand is rising
strongly in emerging markets, but remains weaker in developed markets.
Developing regions continue to rebound given stronger domestic demand
underpinned by better fundamentals and less indebted governments and consumers.
Demand in China remains strong on the back of an expected real GDP growth rate
of 10% for 2010, up from an already impressive 8.7% in 2009. ArcelorMittal South
Africa`s exports increased by 33% compared to the preceding quarter.
Domestic
Growth in real GDP accelerated to an annualised rate of 3.2% in the fourth
quarter following an increase of 0.9% in the third quarter of 2009. Sales to the
domestic market during the first quarter of 2010 increased by 8% compared to the
fourth quarter 2009 with a further improvement expected during the second
quarter, supported by lower interest rates.
Segmental review
Flat Carbon Steel Products
The flat products business posted an operating profit of R601 million compared
to a loss of R276 million during the corresponding period last year and a profit
of R262 million during the preceding quarter.
Sales increased by 22% from a year ago to 860 000 tonnes, up 17% on last
quarter. On average, sales prices were 4% below the prices achieved a year ago
due to the strengthening of the Rand, but increased by 1% compared to the
preceding quarter.
Liquid steel production remained in line with the previous quarter, but
increased by 40% compared to the corresponding period last year. Production
levels increased to approximately 75% of capacity compared to 55% a year ago.
The cash cost of production for hot rolled coil decreased by 19.3% compared to
the corresponding period last year and 3.3% compared to the previous quarter.
Long Carbon Steel Products
The long products business posted an operating profit of R322 million compared
to a loss of R8 million during the corresponding period last year and a profit
of R189 million recorded in quarter four 2009.
Sales increased by 49% to 471 000 tonnes compared to the same period last year
and 12% compared to the preceding quarter. Sales prices on average were 25%
below the prices achieved a year ago due to higher volatility of long steel
prices and the strengthening of the Rand but increased by 1% compared to the
preceding quarter.
Liquid steel production for the first quarter remained in line with the previous
quarter, but increased by 23% compared to the corresponding period last year.
Production levels increased to approximately 85% of capacity compared to 70% a
year ago. The cash cost of production for billets decreased by 30.8% compared to
the corresponding period last year and 0.6% compared to the preceding quarter.
Coke and Chemicals
The Coke and Chemicals business posted an operating profit of R201 million
compared to a profit of R15 million during the corresponding period last year
and a profit of R213 million during the preceding quarter. Sales of 143 000
tonnes increased substantially from a year ago due to a sharp rise in demand
from the ferro-alloy industry. However, compared to the preceding quarter, sales
dropped by 27% due to capacity constraints as a result of higher metallurgical
coke requirements in the steel manufacturing process. Chinese coke prices
increased by 14% compared to prices achieved a year ago and remained in line
with the preceding quarter.
Contingent liabilities
- The case brought before the Competition Tribunal ("Tribunal") by
Barnes Fencing Industries Limited relating to alleged price and
payment discrimination on the sale of low carbon wire rod products
is continuing in accordance with Tribunal procedures. A date for the
hearing has not been set.
- The Competition Commission ("Commission") has referred ArcelorMittal
South Africa and four other primary steel producers in South Africa
to the Tribunal for alleged market collusion and price fixing of
certain long steel products. The Commission has recommended the
imposition of a financial penalty of 10% of the company`s 2008
turnover. The parties and the Commission are engaged in preliminary
applications regarding access to documents. The matter continues.
- ArcelorMittal South Africa received notice from Sishen Iron Ore
Company (Proprietary) Limited ("SIOC") on 5 February 2010, asserting
that with effect from 1 March 2010, it will no longer supply iron
ore to ArcelorMittal South Africa on a cost plus 3% basis as
provided for in the supply agreement concluded between the parties
in 2001, on the grounds that ArcelorMittal South Africa has lost its
21.4% undivided share in the mineral rights at the Sishen mine.
ArcelorMittal South Africa has rejected this assertion and is of the
firm opinion that SIOC is obligated to continue to supply iron ore
to ArcelorMittal South Africa at cost plus 3%. The parties have
commenced the arbitration process to resolve the abovementioned
dispute.
SIOC has further advised that it will continue to invoice
ArcelorMittal South Africa on a cost plus 3% basis until the dispute
has been resolved, but will seek to hold ArcelorMittal South Africa
liable for the difference between a price derived from an export
parity principle and the contractual cost plus 3% price, in the
event SIOC prevails in the arbitration.
Subsequent to the end of the period under review, an invoice has
been received from SIOC for the month of March 2010 indicating a
difference between export parity price and the contractual cost plus
3%. ArcelorMittal South Africa has notified SIOC that it disputes
SIOC`s entitlement to this amount. A contingent liability is noted
in this regard.
As a result of the higher iron ore prices now being demanded by
SIOC, ArcelorMittal South Africa has announced that an iron ore
surcharge will be introduced from 1 May 2010 on domestic sales until
the dispute is resolved. ArcelorMittal South Africa further
announced that the surcharge will be refunded should the company
prevail in the arbitration. The company is in the process of
evaluating various alternative options to determine the most
appropriate mechanism to implement such a refund in consultation
with its customers for the benefit of the steel industry in South
Africa. This surcharge will not be recognised as revenue, but
recorded as a liability.
Safety, health and environment
Our lost time injury frequency rate, measured over a million man hours, improved
to 1.7 from 2.9 reported in the fourth quarter of 2009. There were no fatalities
during this period. A number of concrete measures were taken to reinforce
adherence to safety standards and entrenched a positive safety culture.
Various environmental improvement projects that had to be delayed due to the
impact of the global financial crisis have now gained momentum and are scheduled
for completion over the next two to three years.
The company is also advanced in its preparations to become compliant with the
new Air Emission Standards that were promulgated on 31 March 2010.
Capital projects and investments
Several large capital investments were approved during the first quarter of
2010. These are mainly aimed at maintaining capability and environmental legal
compliance.
Competition Commission investigations
The Commission is also investigating a case of alleged price fixing in the flat
steel market and a case of alleged prohibited pricing behaviour in the tinplate
market. ArcelorMittal South Africa is co-operating fully with the Commission in
these investigations.
Outlook for quarter two 2010
Financial results for the second quarter of 2010 are expected to show some
improvement on the first quarter mainly due to higher expected sales volumes and
prices offset by higher raw material input costs as well as electricity and rail
tariffs. The movements in the Rand/US Dollar exchange rate will always have an
important impact.
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).
Group income statement
Quarter ended Year ended
Rm 31 March 31 March 31 December 31
2010 2009 2009 December
2009
Revenue 7 507 6 177 6 735 25 598
Flat Carbon Steel 4 837 4 149 4 226 16 292
Products
Long Carbon Steel 2 415 1 988 2 176 8 531
Products
Coke and Chemicals 516 150 681 1 653
Intergroup (261) (110) (348) (878)
eliminations
Profit/(loss) from 1 106 (145) 521 229
operations
Flat Carbon Steel 601 (276) 262 (614)
Products
Long Carbon Steel 322 (8) 189 315
Products
Coke and Chemicals 201 15 213 449
Corporate and Other (18) 124 (143) 79
Losses/(gains) on (12) (14) 29 (813)
changes in foreign
exchange rates and
financial
instruments
Interest received 14 118 8 199
Finance costs (95) (97) (51) (276)
Interest expenses on (2) (3) (9) (43)
bank overdrafts and
loans
Interest expense on (20) (18) (20) (79)
finance lease
obligations
Discounting rate (28) (27) 33 49
adjustment of the
non-current
provisions
Unwinding of the (45) (49) (55) (203)
discounting effect
in the present
valued carrying
amount of the non-
current provisions
Income from 1 1 1 3
investments
Income from equity 26 40 89 206
accounted
investments
(net of tax)
Impairment reversal 9 9
Income tax expense (295) (142) (164) (35)
Profit/(loss) from 745 (239) 442 (478)
ordinary activities
Profit/(loss)
attributable to:
- Ordinary 745 (239) 442 (478)
shareholders
ADDITIONAL
INFORMATION
Attributable 186 (54) 110 (113)
earnings/(loss) per
share (cents)
Reconciliation of
headline
earnings/(loss)
Profit/(loss) for 745 (239) 442 (478)
the period
Adjusted for:
- loss on disposal 4 3 14 29
or scrapping of
assets
- impairment charge 26 26
- impairment (9) (9)
reversal
- tax effect (1) (1) (4) (8)
Headline 748 (237) 469 (440)
earnings/(loss)
Headline 186 (53) 117 (104)
earnings/(loss) per
share (cents)
Physical information
Quarter ended Year ended
(`000 tonnes) 31 March 31 March 31 December 31
2010 2009 2009 December
2009
Flat Carbon Steel
Products
Liquid steel 1 052 753 1 080 3 428
production
Sales 860 704 737 2 858
Long Carbon Steel
Products
Liquid steel 497 405 485 1 879
production
Sales 471 316 419 1 615
Total
Liquid steel 1 549 1 158 1 565 5 307
production
Sales 1 331 1 020 1 156 4 473
- Local 904 686 836 3 072
- Export 427 334 320 1 401
- Local sales as % of 68 67 72 69
total sales
Further cautionary announcements
Further to the following cautionary announcements relating to:
a) SIOC Dispute (dated 3 March 2010 and 30 March 2010); and
b) the Proposed Broad-Based Economic Empowerment Ownership transaction (dated 30
March 2010)
shareholders are advised that the full impact of the above events are still
being determined and that these events may have a material effect on the price
of the company`s securities.
Accordingly shareholders are advised to continue to exercise caution when
dealing in the company`s securities until full announcements on the above are
made.
Directors:
Non-executive
MJN Njeke* (Chairman), DK Chugh
, CPD Cornier#, EK Diack*,
M Macdonald*, S Maheshwari
, LP Mondi, DCG Murray*, ND Orleyn*, AMHO Poupart-
Lafarge#
Executive
N Nyembezi-Heita (Chief Executive Officer),
HJ Verster (Chief Financial Officer)
Citizen of India #Citizen of France
*Independent non-executive
Company Secretary: Premium Corporate Consulting Services (Proprietary) Limited
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
Sponsor:
Deutsche Securities (SA) (Proprietary) Limited
87 Maude Street, Sandton, 2196
Private Bag X9933, Sandton, 2146
This report is available on ArcelorMittal South Africa`s website 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
29 April 2010
Vanderbijlpark
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 29/04/2010 07:05:02 Supplied by www.sharenet.co.za
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