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ACL - ArcelorMittal South Africa Limited - Unaudited group earnings results and
physical information for the quarter ended 31 March 2012
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
31 March 2012
- Record safety achievement
- Headline earnings rise to R283 million from a loss in Q4 2011
- Steel shipments up 30% to 1,3 million tonnes from 1 million tonnes in Q4 2011
- Revenue up 26% to R9,1 billion from R7,3 billion in the previous quarter
Condensed group statement of comprehensive income
Quarter ended Year ended
31 December
Rm 31 March 31 March 31 December 2011
2012 2011 2011 Audited
Revenue 9 142 7 777 7 258 31 453
Raw materials and (5 112) (4 374) (5 672) (19 886)
consumables used
Employee costs (802) (781) (758) (3 164)
Energy (732) (632) (653) (3 177)
Movement in (459) (15) 932 1 733
inventories of
finished goods and
work in progress
Depreciation (355) (347) (363) (1 409)
Amortisation of (4) (3) (4) (14)
intangible assets
Other operating (1 220) (1 327) (1 025) (5 239)
expenses
Profit/(loss) from 458 298 (285) 297
operations
Finance and 5 6 5 31
investment income
Finance costs (74) (60) (106) (292)
Net foreign (17) 97 124
exchange
(losses)/gains
Income/(loss) from 9 (62) 120 (34)
equity accounted
investments
(net of tax)
Profit/(loss) 381 279 (266) 126
before tax
Income tax (102) (95) 82 (118)
(charge)/credit
Profit/(loss) for 279 184 (184) 8
the period
Other comprehensive
income
Exchange (94) 45 14 315
differences on
translation of
foreign operations
(Losses)/gains on (21) 4 (10) (12)
available-for-sale
investment taken to
equity
Share of other (7) (149) 7
comprehensive
income of equity
accounted
investments
Total comprehensive 157 84 (180) 318
income/(loss) for
the period
Profit/(loss)
attributable to:
Owners of the 279 184 (184) 8
company
Total comprehensive
income/(loss)
attributable to:
Owners of the 157 84 (180) 318
company
Attributable
earnings/(loss) per
share (cents)
- basic 70 46 (46) 2
Additional information
Quarter ended Year ended
31 December
Rm 31 March 31 March 31 December 2011
2012 2011 2011 Audited
Audited
Reconciliation of
headline
earnings/(loss)
Profit/(loss) for 279 184 (184) 8
the period
Adjusted for:
- Loss/(profit) on 5 15 (104) (82)
disposal or
scrapping of assets
- Tax effect (1) (4) 28 22
Headline 283 195 (260) (52)
earnings/(loss)
Headline 71 49 (65) (13)
earnings/(loss) per
share (cents)
Reconciliation of
earnings before
interest, taxation,
depreciation and
amortisation
(EBITDA)
Profit/(loss) from 458 298 (285) 297
operations
Adjusted for:
- Depreciation 355 347 363 1 409
- Amortisation of 4 3 4 14
intangible assets
EBITDA 817 648 82 1 720
Condensed group statement of financial position
Rm As at As at As at
31 March 31 March 31 December
2012 2011 2011
Audited
Assets
Non-current assets 19 211 18 717 19 573
Property, plant and equipment 16 364 16 259 16 618
Intangible assets 123 80 126
Equity accounted investments 2 687 2 197 2 772
Other financial assets 37 181 57
Current assets 13 339 12 622 12 849
Inventories 9 301 7 380 9 935
Trade and other receivables 3 409 2 634 2 374
Taxation 100
Other financial assets 1 105 1
Cash and cash equivalents 628 2 503 439
Total assets 32 550 31 339 32 422
Equity and liabilities
Shareholders` equity 22 831 22 643 22 669
Stated capital 37 37 37
Non-distributable reserves (2 339) (2 641) (2 231)
Retained income 25 133 25 247 24 863
Non-current liabilities 4 443 4 546 4 474
Borrowings and other payables 231 217 241
Finance lease obligations 438 495 451
Deferred income tax liability 2 289 2 314 2 310
Provision for post-retirement 8 9 7
medical costs
Non-current provisions 1 477 1 511 1 465
Current liabilities 5 276 4 150 5 279
Trade and other payables 4 127 3 575 4 644
Borrowings and other payables 88 83 107
Finance lease obligations 55 58 57
Taxation 3 112
Current provisions 373 322 471
Cash and bank overdraft 630
Total equity and liabilities 32 550 31 339 32 422
Condensed group statement of cash flows
Quarter ended Year ended
Rm 31 March 31 March 31 December 31 December
2012 2011 2011 2011
Audited
Cash outflows from operating (308) (861) (61) (1 412)
activities
Cash (utilised in)/generated (221) (902) 73 (879)
from operations
Interest income 4 6 4 29
Finance cost (50) (19) (41) (103)
Dividend paid (221)
Income tax paid (20) (81) (243)
Realised foreign exchange (21) 54 (16) 5
movement
Cash outflows from investing (99) (149) (513) (1 212)
activities
Investment to maintain (79) (109) (450) (924)
operations
Investment to expand (15) (46) (75) (266)
operations
Proceeds on scrapping of 106 106
assets
Investment in associate and (5) (2) (144) (180)
equity accounted investment
Investment income - interest 1 2
Dividend from equity 7 50 50
accounted investments
Cash outflows from financing (38) (58) (267) (616)
activities
Repayment of borrowings, (38) (58) (267) (616)
finance lease obligations
and other payables
Decrease in cash and cash (445) (1 068) (841) (3 240)
equivalents
Effect of foreign exchange 4 65 4 173
rate changes
Cash and cash equivalents at 439 3 506 1 276 3 506
beginning of period
Cash and cash equivalents at (2) 2 503 439 439
end of period
Condensed group statement of changes in equity
Rm Stated Treasury Other Retained Total
capital share equity reserves earnings
reserve
Quarter ended 31 March
2011
Balance as at 37 (3 918) 1 443 24 994 22 556
31 December 2010
Total comprehensive (100) 184 84
income
Management share trust: (3) (3)
net of treasury share
purchases
Share-based payment 6 6
reserve
Transfer of equity (69) 69
accounted earnings
Balance as at 31 March 37 (3 918) 1 277 25 247 22 643
2011
Quarter ended
31 December 2011
Balance as at 37 (3 918) 1 596 25 127 22 842
30 September 2011
Total comprehensive 4 (184) (180)
income
Management share trust: (5) (5)
net of treasury share
purchases
Share-based payment 12 12
reserve
Transfer of equity 80 (80)
accounted earnings
Balance as at 37 (3 918) 1 687 24 863 22 669
31 December 2011
Quarter ended 31 March
2012
Balance as at 37 (3 918) 1 687 24 863 22 669
31 December 2011
Total comprehensive (122) 279 157
income
Share-based payment 5 5
reserve
Transfer of equity 9 (9)
accounted earnings
Balance as at 31 March 37 (3 918) 1 579 25 133 22 831
2012
Segmental information
Quarter ended
31 March 31 March 31 December
2012 2011 2011
Flat Steel Products
Revenue (R million) 5 670 5 562 5 549
- External 5 595 5 486 5 284
- Internal 75 76 265
EBITDA (R million) 81 459 (152)
Depreciation and amortisation (285) (282) (292)
(R million)
(Loss)/profit from operations (204) 177 (444)
(R million)
Liquid steel production 981 1 052 989
(`000 tonnes)
Steel sales (`000 tonnes) 866 991 806
- Local 645 683 554
- Export 221 308 252
Capacity utilisation (%) 69 75 70
Long Steel Products
Revenue (R million) 3 274 1 945 2 216
- External 2 993 1 625 1 384
- Internal 281 320 832
EBITDA (R million) 521 (15) 74
Depreciation and amortisation (72) (66) (67)
(R million)
Profit/(loss) from operations 449 (81) 7
(R million)
Liquid steel production 402 385 209
(`000 tonnes)
Steel sales (`000 tonnes) 422 302 187
- Local 349 213 171
- Export 73 89 16
Capacity utilisation (%) 70 68 36
Coke and Chemicals
Revenue (R million) 576 687 604
- External 554 666 590
- Internal 22 21 14
EBITDA (R million) 205 222 225
Depreciation and amortisation (9) (10) (15)
(R million)
Profit from operations (R million) 196 212 210
Commercial coke produced 134 177 154
(`000 tonnes)
Commercial coke sales 143 196 163
(`000 tonnes)
Tar sales (`000 tonnes) 30 33 30
Corporate and Other
EBITDA (R million) 10 (18) (65)
Depreciation and amortisation 7 8 7
(R million)
Profit/(loss) from operations 17 (10) (58)
(R million)
Overview
After the major production outages experienced in the previous two quarters, the
company enjoyed a measure of operational stability over the first three months
of the year. Steel market demand improved significantly on the back of
restocking whilst prices remained relatively stable. In contrast, the commercial
coke market was quite challenging due to a dramatic decline in production in the
ferrochrome industry.
Headline earnings increased to R283 million for the quarter from a loss of R260
million reported in the preceding quarter and a profit of R195 million reported
in the corresponding quarter of last year. Dispatches were strong and in line
with the same time last year but up 30% quarter-on-quarter, driven primarily by
restocking. Average net realised sales prices were stable at similar levels to
the previous quarter, but 23% higher on average compared to first quarter 2011.
The production cash cost of hot rolled coil and billets decreased by 3% compared
to the previous quarter but increased by 15% when compared to this time last
year.
Improved operational performance led to a 15% increase in liquid steel output
compared to the previous quarter with capacity utilisation at Newcastle rising
to 74% from 26% in the fourth quarter, reflecting the recovery after the
structural collapse of the dust catcher in the third quarter. A second insurance
payment of R245 million was received during March relating to this incident
which is approximately R80 million more than the opportunity loss for the
quarter.
A significant drop in market demand for commercial coke resulted in a 9% fall in
EBITDA at Coke and Chemicals business to a total of R205 million. The business
unit was negatively affected by the unexpected shutdown of a number of smelters
in the ferrochrome industry during the period, following an agreement with Eskom
to reduce electricity offtake.
The lost time injury frequency rate per million man-hours worked improved to an
all time record of 0,81 from 0,88 and 0,99 reported in the preceding and
corresponding quarter, respectively. Our journey to zero fatalities and zero
injuries in the workplace is on course.
Key statistics
Quarter ended
31 March 31 March 31 December
2012 2011 2011
Revenue (R million) 9 142 7 777 7 258
EBITDA (R million) 817 648 82
EBITDA/tonne (R/t) 634 501 83
EBITDA margin (%) 8,9 8,3 1,1
Profit/(loss) from operations 458 298 (285)
(R million)
Net profit/(loss) (R million) 279 184 (184)
Headline earnings/(loss) (R million) 283 195 (260)
Headline earnings/(loss) per share 71 49 (65)
(cents)
Liquid steel production 1 383 1 437 1 198
(`000 tonnes)
Steel sales (`000 tonnes) 1 288 1 293 993
-'Local 994 896 725
-'Export 294 397 268
Lost time injury frequency rate 0,81 0,99 0,88
Market review
Global steel consumption remained moderate during the period. China remains the
dominant steel consumer despite a slowdown in consumption caused by a decline in
industrial production and slower GDP growth. With improved economic activity in
the US, demand and pricing have been relatively firm in that market over the
quarter. While we did see some restocking in Europe, the real demand outlook for
the rest of the year remains sluggish.
On the domestic front, 2012 GDP growth is estimated at 2,9%, mainly attributed
to an improvement in manufacturing. The construction sector, the primary driver
of domestic steel demand, continues to be slow with revival only expected in the
latter part of the year. Of concern also is the performance of the mining sector
which continues to register a slow-down in fixed asset investment and production
levels. There are no clear signs yet of recovery in underlying demand.
Financial review
Quarter ended 31 March 2012 compared with quarter ended 31 March 2011
Revenue of R9,1 billion was 18% higher than the same period last year whilst
steel shipments were flat. Domestic steel shipments increased by 11% but were
offset by a 26% decrease in export shipments. Shipments for flat steel products
declined by 13% while long steel products rose by 40% following the blast
furnace conditions experienced in Newcastle during the early part of 2011.
Average net realised prices for flat steel were 19% up, while long steel rose by
32%. Revenue from the Coke and Chemicals business was down 16% following a 27%
drop in sales volumes, offset by a 7% increase in prices.
Production cash costs continued to rise. Costs for hot rolled coil and billets
increased by 16% and 13% respectively, largely due to an increase in the prices
of imported hard coking coal (31%), local coking coal (30%), iron ore (12%) and
electricity (23%).
Total liquid steel production was 4% down of which flat steel decreased by 7%
and long steel increased by 4%. Flat steel products achieved capacity
utilisation of 69% compared to 75% a year ago. The equivalent figures for long
steel products were 70% and 68% respectively.
Finance costs increased by R14 million to R74 million for the quarter due to
overdraft facilities utilised to fund working capital requirements.
Net foreign exchange losses of R17 million were reported as a result of a 6%
strengthening of the rand against the US dollar over the quarter. This compares
to a R97 million foreign exchange profit for the corresponding quarter following
a 3% weakening of the rand/US dollar exchange rate during that period together
with higher foreign currency denominated cash balances.
Income from equity accounted investments after taxation was R9 million compared
with a loss of R62 million in the previous reporting period. The latter relates
mainly to the company`s share of the loss recognised by Coal of Africa.
Quarter ended 31 March 2012 compared with quarter ended 31 December 2011
Revenue of R9,1 billion was 26% higher quarter-on-quarter driven by a 295 000
tonne increase in total steel shipments, with domestic steel shipments
increasing by 37% and export shipments increasing by 10%. Shipments for flat
steel products increased by 7%, while long steel products increased by 126%
following the dust catcher failure that affected the previous quarter`s sales.
Average net realised prices for flat steel products remained unchanged, while
long steel products declined marginally. Revenue from the Coke and Chemicals
business decreased by 5% following a 12% decline in commercial coke volumes off-
set by a marginal increase in net realised prices of 2%.
The production cash cost of hot rolled coil decreased by 4% whilst that of
billets increased by 4% due to a combination of input price movements consisting
mainly of imported pellets (25% lower), scrap (5% lower), iron ore (5% higher)
and local coking coal (8% higher).
Total liquid steel production was 15% higher than the previous quarter of which
flat steel remained unchanged and long steel increased by 92%. Over the same
period, flat steel products achieved capacity utilisation of 69% compared to 70%
whereas long steel products achieved capacity utilisation of 70% compared to
36%.
Finance costs dropped from R106 million to R74 million as a consequence of a
higher discount rate used to determine the present value of long-term
liabilities such as environmental obligations and onerous contract provisions.
Income from equity accounted investments after taxation was R9 million compared
with R120 million in the previous quarter. The latter relates mainly to a
partial reversal of the group`s share of the impairment loss in Coal of Africa
that was recognised in the third quarter of 2011.
Contingent liabilities
Wire rod matter - alleged exclusionary conduct
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.
Long steel matter - alleged cartel conduct
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 as a result of which a notice
of appeal has been filed with the Competition Appeal Court (CAC) to review the
Tribunal`s decision. The appeal was heard on 2 December 2011 and judgment was
handed down on 2 April 2012. The matter was referred back to the Tribunal for a
hearing to determine the validity of the confidentiality claims placed on the
documents in respect of which the company is seeking access. 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 for the hearing of this
application.
Flat steel matter - alleged conscious parallelism
On 30 March 2012 the Commission referred a case of restrictive horizontal
practice case against ArcelorMittal South Africa and Highveld Steel and Vanadium
Corporation Limited (Highveld) to the Tribunal for adjudication. This relates to
alleged price fixing and market allocation in respect of flat steel products.
The form of price fixing alleged by the Commission in this instance is one based
on the "conscious parallelism" phenomenon. This mainly relates to Highveld
increasing its prices each time ArcelorMittal South Africa increases its prices.
ArcelorMittal South Africa strongly rejects the allegations by the Commission
and will defend itself. The Commission has recommended to the Tribunal to impose
a penalty of 10% of the company`s 2008 annual turnover. No amount has been
recognised as a liability.
Competition Commission investigations
The Commission is formally investigating four (previously five) complaints
against ArcelorMittal South Africa. The first involves alleged excessive pricing
of tinplate. The second investigation involves alleged prohibited vertical
practices in respect of purchases of scrap steel. The third investigation
appears to involve an extension of the Barnes Fencing Industries Limited case
described under contingent liabilities, into a later period. The fourth
investigation relates to excessive pricing in the flat steel market and the iron
ore surcharge introduced, and later cancelled by the company in 2010. The
company is co-operating fully with the Commission in these investigations and
continues to deliver all information and documentation to the competition
authorities as and when called upon to do so.
Dispute with Sishen Iron Ore Company (Proprietary) Limited (SIOC)
Judgment in the High Court application to review the award of the rights to
Imperial Crown Trading 289 (Pty) Limited (ICT) by the Department of Mineral
Resources (DMR) was delivered in December 2011. The judge found, as argued by
ArcelorMittal South Africa, that SIOC was awarded 100% of the mining rights in
the Sishen mine and therefore the award to ICT was invalid. ICT and DMR have
applied for leave to appeal this judgment. The application will be heard on 11
May 2012. The arbitration proceedings between ArcelorMittal and SIOC have been
postponed pending the finalisation of the High Court Application.
Acquisitions
In April 2012, ArcelorMittal South Africa acquired an interest of just less than
20% in an iron ore exploration project in the Northern Cape area. The settlement
of the purchase price is structured over a period subject to certain conditions
precedent. The acquisition of this tranche of shares is not dependent on
Ministerial approval in terms of the Minerals and Petroleum Resources
Development Act, No 28 of 2002, though subsequent purchases are subject to such
approval. Early-stage exploration activities, which are fully funded by the
company, commenced in February this year and are expected to extend into early
2013.
Other developments
The matter between the company and the South African Revenue Services relating
to the erroneous claiming of customs value added tax previously reported as a
contingent liability for the year ended 31 December 2011 has been resolved and
settled.
In his budget speech in February 2012, the Minister of Finance outlined further
detail regarding the proposed carbon tax. As currently contemplated, this will
have a significant financial impact on the company and further engagement will
take place with National Treasury to reach a sustainable taxation structure that
makes provision for the limitations the steel industry faces due to a lack of
alternative technologies.
Dividend policy
The board of directors of ArcelorMittal South Africa ("the Board") approved a
revision of the current dividend policy whereby the declaration and payment of
any dividend will now be subject to the discretion of the Board. The timing and
amount of dividend payments will be dependent upon ArcelorMittal South Africa`s
earnings, financial condition, cash availability and capital requirements to
sustain the business and support future growth. These factors will be considered
at the end of the half year and the year end of the calendar year in determining
whether or not a dividend should be declared.
Outlook for second quarter 2012
Earnings for the second quarter are expected to be substantially lower than the
previous quarter due to a decline in domestic demand, softer steel prices,
higher costs such as electricity and transport and a drop in sales of commercial
coke due to the usual shutdown by the ferrochrome industry during the winter
months.
Basis of preparation
The condensed reviewed consolidated financial statements have been prepared in
compliance with the Listings Requirements of the JSE Limited, the recognition
and measurement requirements of International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB) and the
AC500 standards as issued by the Accounting Practices Board. These statements
were 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
2 May 2012
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, FA du Plessis*, M Macdonald*,
S Maheshwarin, LP Mondi, DCG Murray*, ND Orleyn*, G Urquijo
Citizen of India' 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
10 May 2012
Vanderbijlpark
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 10/05/2012 07:05:06 Supplied by www.sharenet.co.za
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