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ACL - ArcelorMittal South Africa Limited - Unaudited group earnings results and
physical information for the quarter ended 30 September 2011
ArcelorMittal South Africa Limited
Registration number: 1989/002164/06
Share code: ACL ISIN: ZAE 000134961
("ArcelorMittal South Africa", "the company" or "the group")
Unaudited group earnings results and physical information for the quarter ended
30 September 2011
- Steel shipments down only 1%
- Revenue of R7,6 billion
- Headline loss of R460 million
Overview
Operating conditions in the steel industry deteriorated markedly during the
third quarter. The local economy weakened measurably, with major steel consuming
sectors suffering the most reversals in fortunes. All our key business drivers
exhibited stable to negative trends. Electricity and raw material prices
escalated further while subdued demand put pressure on steel prices, resulting
in further margin erosion. The Rand was stable but relatively strong although it
did start to weaken in the latter part of the reporting period.
The nationwide industrial action in the steel sector in July also had a negative
impact on results, with many of our customers forced to delay product
deliveries. In terms of our own wage negotiations, we reached agreement with the
representative unions and employees at the end of September with no effect on
production.
Our operational performance suffered a major setback when the Newcastle plant
experienced a catastrophic failure of its blast furnace`s dust catcher in early
August. This resulted in a substantial loss of production with a concomitant
impact on our quarterly results. To minimise the impact on our customers, a
total of 240 000 tonnes of steel was secured locally and from other
ArcelorMittal group mills globally and despatched from mid-October onwards.
Repairs to the dust catcher are progressing well and indications are that
production will start in early December. The total insurance claim is currently
estimated at R1.1 billion with a deductible amount of R360 million.
The repair of the corex tap-hole at Saldanha Works was completed on schedule and
within budget. Production re-commenced during the last week of September.
The safety of our employees and contractors is our number one priority. It is
therefore deeply saddening to report that we experienced five fatalities for the
year to date, of which three occurred during the third quarter. The board of
directors has extended its deepest condolences to the families, friends and
colleagues of the deceased. These tragic fatalities have undermined a safety
performance that was, in other respects, starting to look encouraging.
Management has taken urgent steps to restore a positive trend in our safety
performance. The lost-time injury frequency rate per million man-hours worked
for the quarter was 1.8 compared to 1.2 the previous quarter and 2.0 at the same
time last year.
Financial results
We are disappointed to report a headline loss of R460 million for the quarter
ended 30 September 2011 compared to headline earnings of R473 million achieved
in the previous quarter and headline earnings of R68 million achieved for the
previous corresponding quarter. The primary contributors are lower sales,
significantly higher raw material prices, electricity prices which increased by
25% during the quarter as well as our share of losses in equity accounted
investments.
Key statistics
Quarter ended
30 Sept 30 June 30 Sept
2011 2011 2010
Revenue (R million) 7 620 8 799 7 227
EBITDA (R million) 3 987 706
EBITDA/tonne (R/t) 3 766 618
EBITDA margin (%) 11 10
(Loss)/profit from operations (R million) (347) 631 365
Net (loss)/profit (R million) (462) 470 64
Headline (loss)/earnings (R million) (460) 473 68
Headline (loss)/earnings per share (cents) (115) 118 17
Liquid steel production (`000 tonnes) 1 180 1 639 1 428
Steel sales (`000 tonnes) 1 133 1 289 1 142
- Local 862 1 024 848
- Export 271 265 294
Lost time injury frequency rate 1.8 1.2 2.0
Market review
International
Global steel demand remains subdued with the debt crisis facing Europe leading
to great economic uncertainty in the region and beyond. In Europe, the
manufacturing and construction sectors continue on the weaker side, while the
general housing market in the US is still sluggish. China, which so far has been
the main engine of growth, started showing signs of a slowdown, with a recent
weakening trend in steel demand leading to price erosion in the Chinese domestic
market. In the sub-Saharan region, overall demand has been moderate. However,
strong growth was experienced in countries such as Kenya, Zambia and
particularly Zimbabwe, with increased activities in the construction and mining
sectors.
Global steel prices across all products recorded a slight increase in September
due to flat product price increases in North America, following raw material
price increases. It is expected that global demand will remain sluggish with
customers reluctant to place orders as there are significant downside risks to
demand and growth in the short term. Spot prices of key raw materials have
started falling, therefore we can expect steel prices to decline in the near
term.
Domestic
The South African economy is demonstrating signs of weakness, with GDP growing
at an annualised rate of 3% in the second quarter and an estimate of 2.6% in the
third quarter. Negative growth rates were registered in the mining,
manufacturing and agriculture sectors, with the construction sector remaining
subdued at a growth rate of 0.5%. Very recently, we have seen an uptick in order
intake which indicates a recovery in demand, although the main driver appears to
be speculative buying in anticipation of further price increases following the
weakening of the Rand.
Financial review
Quarter ended 30 September 2011 compared with quarter ended 30 September 2010
Total revenue increased by 5% on the back of an 11% increase in average net
realised prices. Total steel shipments remained flat however shipments from long
steel products decreased by 10% and flat steel products increased by 4%. Revenue
from the Coke and Chemicals business fell 38% following a 40% decline in
commercial coke sales and an 11% decrease in average net realised prices. Sales
were hampered by weaker demand from the ferro-alloy industry following the
traditional curtailment of their production during winter months as a result of
high winter electricity tariffs and the drop in ferro-alloy prices.
Cash costs of hot rolled coil increased by 22% and billets by 18%. This was due
to a rise in prices of coking coal, scrap and electricity by 23%, 37% and 25%
respectively. The cost of production of commercial coke dropped 14.1%.
Liquid steel production declined by 17% due primarily to the structural dust
catcher failure at Newcastle Works. Capacity utilisation at flat steel products
remained in line with the corresponding quarter of 2010, but was 46% at long
steel products compared to 90% for the previous corresponding quarter.
The increase in revenue offset by higher operating costs resulted in a decrease
in operating profit from R365 million in the previous corresponding quarter to
an operating loss of R347 million this quarter.
The net gain in foreign exchange of R23 million in the quarter compares with a
loss of R188 million in the previous corresponding quarter. The Rand/US Dollar
exchange rate weakened over the quarter by 17% and strengthened by 9% over the
corresponding quarter. Offshore cash holdings decreased from R2.2 billion at the
end of the previous corresponding quarter to R239 million at the end of this
quarter.
Our share of the loss relating to equity accounted investments after taxation of
R145 million was mainly due to ArcelorMittal South Africa`s 16% share of an
impairment loss recognised by CoAL of Africa of USD97.3 million for the year
ended 30 June 2011, partially offset by our share of profits from Macsteel
International Holdings BV.
The effective tax rate for the quarter was 17% compared to 55% in the
corresponding quarter. The main reason for the higher effective tax charge for
the corresponding quarter relates to the secondary tax on companies (STC) charge
of R67 million. The low 17% effective tax rate for the quarter was due to lower
predicted income for the year taking into account the production losses.
Quarter ended 30 September 2011 compared with quarter ended 30 June 2011
Revenue dropped 13% to R7.6 billion for the quarter. Total steel shipments were
12% lower, with domestic steel shipments decreasing by 16% and export steel
shipments up 2%. Shipments for flat and long steel products were down 4% and 27%
respectively while average net realised prices for flat steel products remained
flat, but long steel products were 7% higher. Revenue from the Coke and
Chemicals business decreased by 42% due to a 49% decline in commercial coke
sales and a 5% drop in average net realised prices.
Cash costs of hot rolled coil increased by 15% and billets by 8%. This was due
to price increases of 12% and 18% in coking coal and electricity respectively.
The cost of production of commercial coke was 13.8% lower.
Liquid steel production was 28% lower. Flat and long steel products declined by
17% and 51% respectively. The 17% decrease at flat steel products relates to the
tap-hole repair at Saldanha Works and chilled hearth conditions experienced on
blast furnace D in Vanderbijlpark Works during August. The drop in long steel
products is the consequence of the structural failure at Newcastle Works.
Vereeniging Works delivered a stable performance. Capacity utilisation declined
from 77% to 64% at flat steel products and 93% to 46% at long steel products.
The effect of the decline in revenue, production losses and the increase in
production costs was an overall loss from operations of R347 million for the
quarter compared to a profit of R631 million reported in the previous quarter.
Finance costs increased from R27 million to R97 million for the quarter mainly
due to a decrease in the discount rate used to determine the present value of
long-term liabilities such as environmental obligations and onerous contract
provisions.
Our share of the loss from equity accounted investments after taxation of R145
million compares with a profit of R52 million in the previous quarter. This
quarter`s loss relates mainly to the group`s 16% share in the loss recognised by
CoAl of Africa.
The income tax credit for the quarter of R97 million translates into an
effective tax rate of 17% for the quarter compared to 30% for the previous
quarter. The R97 million includes STC and non-deductible expenses.
Cash holdings decreased by R1.4 billion to R1.3 billion over the quarter as a
result of R627 million being utilised in operations, a dividend payment of R221
million, capital expenditure of R350 million and the repayment of obligations of
R100 million.
Contingent liabilities
The case brought before the Competition Tribunal ("Tribunal") by Barnes Fencing
Industries Limited relating to alleged price and exclusionary conduct on the
sale of wire rod is continuing in accordance with Tribunal procedures. A date
for the hearing has not been set.
The Competition Commission ("Commission") has referred the company 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 refused access
to the bulk of the documentation requested by the company, the company then
filed a notice of appeal with the Competition Appeal Court ("CAC") to review the
Tribunal`s decision. The company also requested the CAC to suspend the
Tribunal`s order that the company should file its answering affidavit, pending
the outcome of the appeal. An appeal and review hearing date has been set for 2
December 2011. ArcelorMittal South Africa has also filed an application
challenging the validity of the referral of this matter to the Tribunal. No date
has been set as yet for the hearing of this application.
Dispute with Sishen Iron Ore Company (Proprietary) Limited ("SIOC")
The company was joined as a co-applicant in the review application between SIOC,
Imperial Crown Trading 289 (Proprietary) Limited ("ICT") and the Department of
Mineral Resources ("DMR") on the issue of the prospecting right granted to ICT
by the DMR. The outcome of the hearing that was held in August is still
outstanding.
The arbitration hearing on the validity of the supply agreement between SIOC and
the company has been set for May 2012.
Competition Commission investigations
The Commission is formally investigating five complaints (previously four
complaints) against ArcelorMittal South Africa. The first involves alleged price
fixing in the flat steel market and the second, alleged excessive pricing of
tinplate. 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
under contingent liabilities, into a later period. The fifth investigation
relates to excessive pricing in the flat steel market and the Sishen surcharge
introduced, and later cancelled by the company in 2010. The company is co-
operating fully with the Commission in these investigations and delivered all
the requested documentation to the authorities. None of these have been referred
by the Commission to the Tribunal.
Acquisitions
The due diligence on the Northern Cape Iron Ore mining project is continuing;
however, the renewal of the prospecting rights remains outstanding.
Outlook for fourth quarter 2011
Earnings for the fourth quarter are expected to improve from the previous
quarter due to a modest rise in prices on the back of the weaker exchange rate
supported by higher production volumes.
Basis of accounting
The condensed consolidated financial information has been prepared in accordance
with IAS 34, Interim Financial Reporting and the AC500 standards as issued by
the Accounting Practices Board or its successor. This information was compiled
under the supervision of Mr RH Torlage, the Chief Financial Officer.
On behalf of the board
N Nyembezi-Heita RH Torlage
Chief Executive Officer Chief Financial Officer
26 October 2011
Condensed group statement of comprehensive income
Quarter ended Nine months Year
In millions of rand ended ended
30 Sept 30 June 30 Sept 30 Sept 31 Dec
2011 2011 2010 2011 2010
Audited
Revenue 7 620 8 799 7 227 24 195 30 224
Raw materials and (4 453) (5 387) (4 660) (14 214) (17
consumables used 027)
Employee costs (813) (811) (755) (2 406) (2 951)
Energy (856) (1 036) (696) (2 524) (2 419)
Movement in inventories (85) 902 827 801 744
of
finished goods and work
in progress
Depreciation (346) (353) (338) (1 046) (1 360)
Amortisation of (4) (3) (3) (10) (11)
intangible assets
Other operating (1 410) (1 480) (1 237) (4 214) (5 049)
expenses
(Loss)/profit from (347) 631 365 582 2 151
operations
Finance and investment 7 13 27 26 71
income
Finance costs (97) (27) (99) (186) (357)
Net foreign exchange 23 3 (188) 124 (150)
gains/(losses)
(Loss)/income from (145) 52 40 (154) 122
equity accounted
investments (net of
tax)
(Loss)/profit before (559) 672 145 392 1 837
tax
Income tax 97 (202) (81) (200) (492)
credit/(charge)
(Loss)/profit for the (462) 470 64 192 1 345
period
Other comprehensive
income
Exchange differences on 268 (1) (164) 295 (200)
translation of foreign
operations
(Losses)/gains on (2) (4) (2) 29
available-for-sale
investment taken to
equity
Movement in gains 8
deferred to equity on
cash flow hedges
Share of other 154 2 (17) 7 75
comprehensive income of
equity accounted
investments
Tax effect on amounts (2)
taken
directly to equity
Total comprehensive (42) 467 (117) 492 1 255
(loss)/income for the
period
(Loss)/profit
attributable to:
Owners of the company (462) 470 64 192 1 345
Total comprehensive
(loss)/income
attributable to:
Owners of the company (42) 467 (117) 492 1 255
Attributable
(loss)/earnings
per share (cents)
- basic (115) 117 16 48 335
Reconciliation of
headline(loss)/
earnings
(Loss)/profit for the (462) 470 64 192 1 345
period
Adjusted for:
Loss on disposal or 3 4 5 22 44
scrapping of assets
Tax effect (1) (1) (1) (6) (12)
Headline (460) 473 68 208 1 377
(loss)/earnings
Headline (115) 118 17 52 343
(loss)/earnings per
'share (cents)
Reconciliation of
earnings before
interest, taxation,
depreciation
and amortisation
(EBITDA)
(Loss)/profit from (347) 631 365 582 2 151
operations
Adjusted for:
Depreciation 346 353 338 1 046 1 360
Amortisation of 4 3 3 10 11
intangible assets
EBITDA 3 987 706 1 638 3 522
Condensed group statement of financial position
In millions of rand As at As at As at As at
30 Sept 30 June 30 Sept 31 Dec
2011 2011 2010 2010
Reviewed Audited
Assets
Non-current assets 18 998 18 574 18 566 19 110
Property, plant and 16 304 16 159 15 706 16 432
equipment
Intangible assets 81 83 72 84
Equity accounted 2 546 2 262 2 574 2 386
investments
Other financial assets 67 70 214 208
Current assets 12 920 13 865 13 693 12 608
Inventories 9 232 8 175 7 234 7 156
Trade and other 2 392 3 065 2 625 1 816
receivables
Taxation 18
Other financial assets 20 2 120 112
Cash and cash 1 276 2 623 3 714 3 506
equivalents
Total assets 31 918 32 439 32 259 31 718
Equity and liabilities
Shareholders` equity 22 842 23 101 23 152 22 556
Stated capital 37 37 37 37
Non-distributable (2 322) (2 601) (2 239) (2 475)
reserves
Retained income 25 127 25 665 25 354 24 994
Non-current liabilities 4 458 4 484 4 632 4 592
Borrowings and other 227 222 226 224
payables
Finance lease 471 483 547 515
obligations
Deferred income tax 2 246 2 287 2 331 2 354
liability
Provision for post- 7 7 8 8
retirement medical costs
Non-current provisions 1 507 1 485 1 520 1 491
Current liabilities 4 618 4 854 4 475 4 570
Trade and other payables 3 957 4 127 3 467 4 020
Borrowings and other 104 102 93 88
payables
Finance lease 52 55 40 59
obligations
Taxation 124 180 481
Current provisions 381 390 394 403
Total equity and 31 918 32 439 32 259 31 718
liabilities
Condensed group statement of cash flows
Quarter ended
In millions of rand 30 Sept 30 June 30 Sept Nine months Year
2011 2011 2010 ended ended
30 Sept 31 Dec
2011 2010
Audite
d
Cash (out)/inflows from (909) 419 (959) (1 351) 1 462
operating activities
Cash (utilised) (627) 577 (229) (952) 2 791
in/generated from
operations
Interest income 7 13 27 25 69
Finance cost (23) (19) (20) (61) (85)
Dividend paid (221) (602) (221) (602)
Income tax paid (162) (162) (653)
Realised foreign exchange (45) 10 (135) 20 (58)
movement
Cash outflows from (350) (202) (341) (699) (1
investing activities 706)
Investment to maintain (244) (120) (359) (474) (1
operations 259)
Investment to expand (85) (61) (39) (191) (455)
operations
Shares acquired in (21) (22) (36) (120)
associate and equity
accounted investment
Investment income -interest 1 2 2
Dividend from equity 57 126
accounted investments
Net cash (out)/inflow (1 259) 217 (1 300) (2 050) (244)
Cash outflows from (189) (99) (93) (349) (499)
financing activities
Repayment of borrowings, (189) (99) (93) (349) (499)
finance
lease obligations and other
payables
(Decrease)/increase in cash (1 448) 118 (1 393) (2 399) (743)
and cash equivalents
Effect of foreign exchange 101 2 (71) 169 (99)
rate changes
Cash and cash equivalents 2 623 2 503 5 178 3 506 4 348
at beginning of period
Cash and cash equivalents 1 276 2 623 3 714 1 276 3 506
at end of period
Condensed group statement of changes in equity
In millions of rand Stated Treasury Other Retained Total
capital share reserves earnings
equity
reserve
Quarter ended
30 September 2010
Balance as at 37 (3 918) 1 867 25 874 23 860
30 June 2010
Total comprehensive income (181) 64 (117)
Management share trust: net
of treasury share purchases
Share-based payment reserve 11 11
Transfer of equity accounted (18) 18
earnings
Dividend paid (602) (602)
Balance as at 30 September 37 (3 918) 1 679 25 354 23 152
2010
Quarter ended
30 June 2011
Balance as at 37 (3 918) 1 266 25 247 22 632
31 March 2011
Total comprehensive income (3) 470 467
Management share trust: net (3) (3)
of treasury share purchases
Share-based payment reserve 5 5
Transfer of equity accounted 52 (52)
earnings
Balance as at 37 (3 918) 1 317 25 665 23 101
30 June 2011
Quarter ended
30 September 2011
Balance as at 37 (3 918) 1 317 25 665 23 101
30 June 2011
Total comprehensive income 420 (462) (42)
Management share trust: net (1) (1)
of treasury share purchases
Share-based payment reserve 5 5
Transfer of equity accounted (145) 145
earnings
Dividend paid (221) (221)
Balance as at 37 (3 918) 1 596 25 127 22 842
30 September 2011
Segment information
Quarter ended
30 Sept 30 June 30 Sept
2011 2011 2010
Flat Steel Products
Revenue (R million)* 5 281 5 403 4 574
Operating (loss)/profit before depreciation and (232) 548 136
amortisation (R million)
Depreciation and amortisation (R million) 276 283 273
(Loss)/profit from operations (R million) (508) 265 (137)
Liquid steel production (`000 tonnes) 918 1 102 910
Steel sales (`000 tonnes) 798 829 768
- Local 588 642 563
- Export 210 187 205
Capacity utilisation (%) 64 77 64
Long Steel Products
Revenue (R million)* 2 322 3 031 2 389
Operating profit before depreciation and 65 384 281
amortisation (R million)
Depreciation and amortisation (R million) 66 71 66
(Loss)/profit from operations (R million) (1) 313 215
Liquid steel production (`000 tonnes) 262 537 518
Steel sales (`000 tonnes) 335 460 374
- Local 274 382 285
- Export 61 78 89
Capacity utilisation (%) 46 93 90
Coke and Chemicals
Revenue (R million)* 400 686 641
Operating profit before depreciation and 160 264 262
amortisation (R million)
Depreciation and amortisation (R million) 14 12 10
Profit from operations (R million) 146 252 252
Commercial coke produced (`000 tonnes) 162 139 200
Commercial coke sales (`000 tonnes) 92 180 153
Tar sales (`000 tonnes) 27 28 29
*Revenue includes inter-segmental 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
Directors:
Non-executive: MJN Njeke* (Chairman), DK Chugh, CPD Cornier#,
FA du Plessis*, M Macdonald*, S Maheshwari, LP Mondi, DCG Murray*,
ND Orleyn*, G Urquijo
Citizen of India # Citizen of France Citizen of Spain
*Independent non-executive
Executive: N Nyembezi-Heita (Chief Executive Officer),
RH Torlage (Chief Financial Officer)
Company Secretary: Premium Corporate Consulting Services (Proprietary) Limited
Sponsor: Deutsche Securities (SA) (Proprietary) Limited,
87 Maude Street, Sandton, 2146. Private Bag X9933, Sandton, 2146
Transfer secretaries: Computershare Investor Services (Proprietary) Limited, 70
Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, Johannesburg, 2107
This report is available on 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
3 November 2011
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 03/11/2011 08:00:08 Supplied by www.sharenet.co.za
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