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ACL - ArcelorMittal South Africa Limited - Unaudited group earnings results
and physical information for the quarter ended 30 September 2010
ArcelorMittal South Africa Limited
Registration number: 1989/002164/06
Share code: ACL ISIN: ZAE000134961
("ArcelorMittal South Africa", "the company" or "the group")
Unaudited group earnings results and physical information for the quarter
ended 30 September 2010
Group income statement
Quarter ended Nine months Year ended
30 30 ended 31
September September 30 June 30 December
2010 2009 2010 September 2009
Rm Rm Rm 2010 Audited
Rm Rm
Revenue 7 227 6 903 8 658 23 392 25 598
Flat Carbon Steel 4 574 4 311 5 621 15 032 16 292
Products
Long Carbon Steel 2 389 2 292 2 741 7 545 8 531
Products
Coke and Chemicals 641 513 671 1 828 1 653
Intergroup (377) (213) (375) (1 013) (878)
eliminations
Profit/(loss) from 365 30 1 243 2 714 229
operations
Flat Carbon Steel (137) (299) 556 1 020 (614)
Products
Long Carbon Steel 215 138 390 927 315
Products
Coke and Chemicals 252 141 280 733 449
Corporate and Other 35 50 17 34 79
(Losses)/gains on (188) (147) 125 (75) (813)
changes in
foreign exchange rates
and financial
instruments
Interest income 27 8 10 51 199
Finance costs (99) (84) (81) (275) (276)
Interest expense on (13) (2) (43)
bank overdraft and
loans
Interest expense on (20) (22) (22) (62) (79)
finance lease
obligations
Discounting rate (32) (15) (75) 49
adjustment of the
non-current provisions
Unwinding of the (47) (49) (44) (136) (203)
discounting effect in
the present value
carrying amount
of the non-current
provisions
Income from 1 1 3
investments
Impairment reversal 9
Income from equity 40 76 109 175 206
accounted
investments (net of
tax)
Profit/(loss) before 145 (116) 1 406 2 591 (443)
tax
Income tax expense (81) 44 (374) (750) (35)
Profit/(loss) for the 64 (72) 1 032 1 841 (478)
period
Attributable to:
- Owners of the 64 (72) 1 032 1 841 (478)
Company
ADDITIONAL INFORMATION
Attributable earnings/ 16 (18) 257 459 (113)
(loss) per share
(cents)
Reconciliation of
headline
earnings/
(loss)
Profit/(loss) for the 64 (72) 1 032 1 841 (478)
period
Adjusted for:
- Loss on disposal or 5 10 34 43 29
scrapping
of assets
- Impairment charge 26
- Impairment reversal (9)
- Tax effect (1) (3) (10) (12) (8)
Headline earnings/ 68 (65) 1 056 1 872 (440)
(loss)
Headline earnings/ 17 (16) 263 467 (104)
(loss) per share
(cents)
Physical information (`000 tonnes)
Quarter ended Nine months Year
Ended ended
30 31
September December
2010 2009
30 30 30 June
September September 2010
2010 2009
Flat Carbon Steel
Products
Liquid steel 910 822 986 2 948 3 428
production
Sales 768 774 912 2 540 2 858
Long Carbon Steel
Products
Liquid steel 518 543 511 1 526 1 879
production
Sales 374 475 457 1 302 1 615
Total
Liquid steel 1 428 1 365 1 497 4 474 5 307
production
Sales 1 142 1 249 1 369 3 842 4 473
- Local 848 847 1 001 2 753 3 072
- Export 294 402 368 1 089 1 401
Local sales as % of 74 68 73 72 69
total sales
Financial review
ArcelorMittal South Africa`s results for the quarter were characterised by a
sharp rise in raw material prices coupled with a worse-than-expected slowdown
in steel demand. A strengthening currency further exacerbated the situation.
The company`s efforts to redirect a larger proportion of sales to export
markets resulted in an increase in steel inventory levels due to the longer
sales cycle inherent in servicing those markets. Commercial coke sales
remained relatively robust over the period.
Headline earnings of R68 million for the quarter ended 30 September 2010,
compared to a loss of R65 million reported for the corresponding period of the
previous year. However, this is significantly lower than the earnings of R1
056 million reported last quarter. This decline was due to reduced
infrastructural spending following the 2010 FIFA World CupTrade Mark, as well
as a significant increase in the cost of key raw materials. The Rand
strengthened by 6% against the US Dollar compared to the same period last year
and 3% against the previous quarter.
The decline compared to the previous quarter was driven by a 17% drop in sales
volume, while net realised prices were 8% down during the same period.
Compared to the corresponding period last year, sales volumes decreased by 9%,
while average net realised prices increased by 6%.
Cash costs of steel sales for the quarter increased by 11% over the previous
quarter, mainly due to higher coal prices. It rose by 7% compared to the
corresponding period last year due to higher coal and iron ore prices.
Market review
International
The weakness in steel demand experienced in most regions globally continued
into the third quarter of 2010 with spot prices for most steel products
slipping in certain industrialised regions, particularly in the United States
of America and Europe. Steel prices in the Asian region, however, have been
steady because of continued demand.
Activity in the construction industry continues to be weak in mature markets
and buyers are likely to reduce inventories, while lower scrap prices are
pushing long product prices downwards.
The Group`s average export prices over the last quarter were 7% higher than
those of the previous quarter due to the increased focus on targeted growth
markets.
Domestic
Early indications are that the economic growth in the South African economy
slowed marginally to about 3% in the last quarter from 3.2% achieved in the
second quarter of 2010. A 3% growth rate in gross domestic product is still
expected for 2010.
Activities in steel markets during the quarter declined following the
completion of the building of stadia and related infrastructure for the 2010
FIFA World CupTrade Mark, and the postponement of certain key projects. This,
together with the negative impact of the stronger Rand on the competitiveness
of value added exporters, led to a 15% drop in the group`s steel sales to the
domestic market compared to the previous quarter.
Segmental review
Flat Carbon Steel Products
The flat products business posted an operating loss of R137 million compared
to a loss of R299 million during the corresponding period last year and a
profit of R556 million on during the preceding quarter. On an earnings before
interest, tax, depreciation and amortisation (EBITDA) basis, the flat products
business made a profit of R136 million.
Sales volumes decreased by 1% to 768 000 tonnes against the corresponding
period last year and 16% compared to the previous quarter. On average, sales
prices in Rand terms were 5% down on the prices achieved a year ago and 14%
lower than the previous quarter.
Liquid steel production of 910 000 tonnes increased by 11% over the
corresponding period last year and decreased by 8% compared to the previous
quarter. The cash cost of production for hot rolled coil increased by 19% on
last year and 7% over the previous quarter.
Long Carbon Steel Products
The long products business posted an operating profit of R215 million, which
compares to R138 million for last year and R390 million recorded during the
preceding quarter. On an EBITDA basis, the long products business made a
profit of R281 million.
Sales volumes decreased by 21% to 374 000 tonnes compared to the same period
last year and were 18% lower than last quarter. Sales prices in Rand terms
were on average 28% higher than the prices achieved a year ago and up 6% on
the previous quarter.
Liquid steel production of 518 000 tonnes decreased by 5% compared to the
corresponding period last year and was 1% higher than the previous quarter.
The cash cost of production for billets increased by 30% against last year and
increased by 9% from the preceding quarter. The higher increase of billets
compared to hot rolled coil for the same period last year is mainly due to
Newcastle Works, which produced less expensive coal during the third quarter
last year while Vanderbijlpark Works was still consuming higher-cost coal
contracted for in 2008.
Coke and Chemicals
The Coke and Chemicals business posted an operating profit of R252 million
compared to a profit of R141 million during the corresponding period last year
and a profit of R280 million during the preceding quarter. Sales volumes of
153 000 tonnes increased by 4% from a year ago, while sales volumes decreased
by 13 000 tonnes compared to the previous quarter.
Contingent liabilities
The following contingent liabilities were recorded for the quarter:
- The case brought before the Competition Tribunal ("Tribunal") by Barnes
Fencing Industries Limited relating to alleged price and exclusionary conduct
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 three other primary steel producers in South Africa to the Tribunal
for alleged price fixing and market division in respect of certain long steel
products. The Commission has recommended the imposition of a financial penalty
of 10% of the company`s 2008 annual turnover. On 3 September 2010, the
Tribunal notified the Company of its decision not to release all the
documentation requested by the company. ArcelorMittal South Africa has
appealed this decision.
Competition Commission investigations
The Commission is formally investigating four cases against ArcelorMittal
South Africa. These have not been referred to the Tribunal. The first case
involves alleged price fixing in the flat steel market and the second case,
alleged prohibited pricing behaviour in the tinplate market. The third
investigation involves alleged prohibited vertical practices in respect of
purchases of scrap steel. The fourth investigation appears to involve an
extension of the Barnes Fencing Industries Limited case described above. The
allegations concern essentially the same conduct as in the Barnes Fencing
Industries Limited case. The company is co-operating fully with the Commission
in all these investigations.
Safety
Despite an intensive focus on safety and the fatality prevention standards,
the lost time injury frequency rate, measured over one million man hours,
worsened to 2.0 at the end of September 2010 from 1.4 reported at 30 June
2010. At the end of 30 September 2009 the lost time injury frequency rate
reported was 3.3. Improving this performance remains one of ArcelorMittal
South Africa`s key priorities.
Capital projects
The focus of capital expenditure continues to be in the environmental and
maintenance areas. The environmental spend is largely in the water and air
quality domain, with the Zero Effluent Discharge implementation at Newcastle
Works accounting for the bulk of spend in this category. The company is
rolling out an intensive business improvement programme and capital funds will
also be allocated toward this initiative going forward.
Dispute with Sishen Iron Ore Company (Proprietary) Limited
The preparation for the arbitration proceedings are in progress and no date
for a hearing has yet been set.
Broad-based black economic empowerment transaction
The cautionary renewal announcement issued on SENS on 21 October 2010 refers.
The satisfaction of conditions precedent remains outstanding. A further
announcement will be made in due course.
Appointment of director
Mr RH Torlage was appointed as the Chief Financial Officer and Executive
Director with effect from 3 September 2010.
Outlook for fourth quarter 2010
Earnings in the fourth quarter of 2010 are expected to be lower, driven by
lower international steel prices, and the seasonal slowdown in domestic sales
offset by an increase in export volumes while input material costs will remain
high. Changes in the Rand/US Dollar exchange rate will always have an
important impact.
On behalf of the board of directors
NMC Nyembezi-Heita (Chief Executive Officer)
RH Torlage (Chief Financial Officer)
20 October 2010
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
Directors:
Non-executive: MJN Njeke* (Chairman), DK Chugh#, C Cornier,
M Macdonald*, S Maheshwari#, LP Mondi, DCG Murray*, ND Orleyn*,
AMHO Poupart-Lafarge
Executive: NMC Nyembezi-Heita (Chief Executive Officer),
RH Torlage (Chief Financial Officer)
#Citizen of India Citizen of France *Independent non-executive
Company Secretary:
Premium Corporate Consulting Services (Proprietary) Limited
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, 2146
Private Bag X9933, Sandton, 2143
Share queries:
Please call the ArcelorMittal South Africa share care toll free on 0800 006
960 or +27 11 370 7850
This report is available on ArcelorMittal South Africa`s website at:
http://www.arcelormittal.com/southafrica/
Vanderbijlpark
26 October 2010
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 26/10/2010 07:05:03 Supplied by www.sharenet.co.za
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