Wrap Text
Unaudited group earnings results and physical information for the quarter ended 31 March 2013
ArcelorMittal South Africa Limited
(ArcelorMittal South Africa, the company or the group)
Registration number: 1989/002164/06
Share code: ACL
ISIN: ZAE 000134961
Unaudited group earnings results and physical information for the quarter ended 31 March 2013
- Safety record achieved
- Positive EBITDA and strong cash position maintained
- Steel plant restored to full operation after the fire in February
- 15% drop in revenue and headline loss of 67 cents a share
OVERVIEW
There were a few positive indicators of a recovery in global steel demand in the first quarter albeit with varying
regional trends. In South Africa, demand was higher compared to the previous quarter mainly driven by re-stocking
activities and a modest rise in domestic prices. From a company perspective, the fire at the Vanderbijlpark steel plant in
February had a major impact on our results. Steelmaking operations came to a complete halt after molten steel spilled from one
of the converters and caused massive damage to the electrical installations. Fortunately no injuries occurred. The
company declared a force majeure and took urgent steps to minimise the impact on customers by using existing stocks,
re-directing material from Saldanha to the domestic market and importing slabs from sister plants in the group. The repairs
have been completed and full operations resumed during the second week of April. An estimated 361 000 tonnes of production
volumes were lost through the incident.
The positive safety trend established last year continued through the first quarter, with the lost time injury
frequency rate per million man hours worked setting a new record of 0,37 compared to 0,50 achieved in the previous quarter.
There were no fatalities.
ArcelorMittal South Africa posted a headline loss of R270 million for the quarter ended 31 March 2013 compared to a
headline loss in the preceding quarter of R456 million and a profit in the corresponding period last year of R283 million.
EBITDA declined by 79% year-on-year to R169 million. Liquid steel production was down 26% with capacity utilisation at
64% following the fire at Vanderbijlpark.
The cash improvement from R884 million at the end of fourth quarter to R1 114 million reflects the continued
management focus on strengthening the balance sheet through structural measures, as well as temporary actions to mitigate the
impact of the fire.
KEY STATISTICS
Quarter ended
31 March 31 March 31 December
2013 2012 2012
Revenue (R million) 7 766 9 142 6 885
EBITDA (R million) 169 817 (158)
EBITDA/tonne (R/t) 156 634 (160)
EBITDA margin (%) 2.2 8.9 (2.3)
(Loss)/profit from operations (R million) (208) 458 (583)
Net (loss)/profit (R million) (275) 279 (462)
Headline (loss)/earnings (R million) (270) 283 (456)
Headline(loss)/ earnings per share (cents) (67) 71 (114)
Liquid steel production (000 tonnes) 1 028 1 383 1 043
Steel sales (000 tonnes) 1 085 1 288 988
- Local 872 994 696
- Export 213 294 292
Commercial coke sales (000 tonnes) 85 143 117
Lost time injury frequency rate 0.37 0.81 0.50
MARKET REVIEW
International
The twin challenges of weak global demand and overcapacity continued to plague the steel industry. Economic recovery
remains fragile and varies across regions, but signs of a renewed growth momentum have begun to emerge in recent months.
In China, strong signs of recovery continued after a relatively weak economic performance in most of 2012, as
demonstrated by improved industrial output, retail sales and overall decline in consumer inflation, with construction activity
providing an impetus for steel demand. The eurozone, however, continues to languish with steel use at historically low
levels. With the exception of South Africa, the rest of sub-Saharan Africa continued to offer steel market growth
opportunities arising from the widely publicised infrastructure-related projects in energy and rail development, coupled with
increased mining investment activities.
Domestic
The impact of the global economic slowdown continued to affect the South African economy, with weakening demand for
manufactured exports negatively affecting the countrys trade balance. Nevertheless, there were some positive trends in
key data in recent months, mainly in the lower residential segment of the construction sector showing improving building
activity. However, the slow pace of infrastructure development continues to hamper domestic steel demand. The positive
production trends in a number of manufacturing sub-sectors such as motor vehicles, electrical appliances and machinery
were also a catalyst for steel demand as evidenced by a rise in the manufacturing purchasing index from the previous
quarter.
FINANCIAL REVIEW
Quarter ended 31 March 2013 compared with quarter ended 31 March 2012
Revenue decreased by 15% to R7.8 billion for the quarter. Total steel shipments were down 16% on the back of a 12%
drop in domestic shipments and 28% in export shipments. Flat and long steel shipments declined by 19% and 9% respectively.
There was a marginal increase in average net realised prices on the back of a 2% fall in domestic prices and 14% rise in
export prices following a weakening in the average rand/US dollar exchange rate of 15%. Prices for flat steel increased
3%, while long steel prices decreased 2%. Revenue from the Coke and Chemicals business of R380 million was 34% lower
following a 41% drop in commercial coke sales volumes and 15% drop in net realised prices.
Cash costs of hot rolled coil and billets were very well contained considering the lower output, dropping 4% amid a
47% fall in the cost of imported coal on a US dollar basis and 34% in rand terms while local coking coal decreased 15%.
Sishen iron ore prices are fixed on a dollar basis but rose 13% in rand terms. Electricity, natural gas and scrap prices
climbed 22%, 12% and 8% respectively.
Primarily due to the fire, liquid steel production was 355 000 tonnes or 26% lower. Capacity utilisation for flat
steel was 54% compared to 69% in the prior year. The equivalent figures for long steel were 81% and 70% respectively.
Operating profit declined by R666 million to a loss of R208 million. The financing cost of R70 million for the quarter
is R35 million lower than the corresponding period due to lower interest paid as a result of a better cash position and
lower net foreign exchange losses.
The companys share of the loss from equity accounted investments after taxation of R82 million compares with a profit
of R9 million a year ago due to a higher loss from Coal of Africa Limited and lower income from Macsteel International
Holdings BV.
Quarter ended 31 March 2013 compared with quarter ended 31 December 2012
Revenue increased by 13% to R7.8 billion for the quarter on the back of a 10% increase in steel shipments. Domestic
shipments were up 25%, while exports were down 27% following the diversion of Saldanha material to the local market. Flat
steel shipments remained in line with the preceding quarter, while long steel shipments rose 34%. Average net realised
prices were 4% higher with local prices up 2% and exports 7%. Flat steel prices climbed 5% and long steel 2%. Revenue
from the Coke and Chemicals business of R380 million was 21% lower following a 27% decline in commercial coke sales volumes
and 10% drop in net realised prices.
Hot rolled coil and billet cash costs were down 12% and 6% respectively, largely due to a 21% drop in hard coking coal
prices on a dollar basis and 18% on a rand basis. Sishen iron ore prices were flat. Local coking coal and scrap
increased by 6% and 4% respectively, while electricity rose marginally. Liquid steel production was 15 000 tonnes lower
following the fire, leading to a drop in capacity utilisation for flat steel to 54% compared to 61% in the previous quarter.
For long steel, utilisation rates were 81% and 56% for the two quarters respectively. The operating loss decreased by R375
million to a loss of R208 million.
Financing costs of R70 million for the quarter are R13 million lower than fourth quarter due to lower interest paid as
a result of a better cash position and lower net foreign exchange losses.
Our share of the loss from equity accounted investments after taxation of R82 million compares to a loss of R53
million in the prior quarter. This relates to a higher loss from Coal of Africa Limited and lower income from Macsteel
International Holdings BV.
ENVIRONMENT
Notwithstanding the tough economic conditions the company operates under, key environmental projects remain a focus
area in order to ensure environmental compliance. The new emission abatement system for Vanderbijlparks sinter plant
which was completed towards the end of 2012 at a cost of R250 million continues to achieve sustainable operating results.
Projections for the remainder of the year indicate that the particulate emissions from the site as a whole could reduce by
over 70% compared to a 2005 baseline.
Another important project that is in progress is the Newcastle zero effluent discharge project which entails the
improvement of effluent treatment and recovery with a planned completion date of early 2014 at an estimated cost of over R400
million.
The compliance notice issued to Vanderbijlpark Works on 22 October 2012 by the provincial environmental authority
relating to findings of non-compliance with Atmospheric Emission License conditions was withdrawn on 28 February 2013 after
demonstrating compliance with all the specified conditions.
The proposed carbon tax announced by the Minister of Finance on 27 February 2013 will have a significant impact on the
production cost of steel. The reviewed Carbon Tax Discussion Paper that will be published shortly may offer further
opportunities to engage with the National Treasury, especially in light of the limited opportunities that exist to reduce
emissions in the steel production process.
CONTINGENT LIABILITIES
The Competition Commission (the Commission) has thus far referred the following four cases against the company to
the Competition Tribunal (the Tribunal) for prosecution. The company rejects the allegations made in each of these cases
and is defending itself accordingly.
1st wire rod matter - alleged price discrimination conduct
In January 2007, the Commission referred a case against the company to the Tribunal relating to alleged price
discrimination on wire rod. The matter is yet to be set down for hearing before the Tribunal.
2nd wire rod matter - alleged price discrimination conduct
In November 2012, the Commission referred another case relating to alleged price discrimination in the wire rod market
to the Tribunal. This case is essentially the same as the case referred in January 2007. The parties and the issues are
identical save for the fact that the contravention alleged in this case, is alleged to have taken place during a later
period being 2004 to 2006. This matter is currently at the pleadings stage of the Tribunal process.
Long steel matter - alleged cartel conduct
In September 2009, the Commission referred a case against the company and three other primary steel manufacturers in
South Africa to the Tribunal for alleged price fixing and market division in respect of certain long steel products.
The Commission requested the Tribunal to find the company guilty of the contraventions as alleged and to impose on it
an administrative penalty of 10% of 2008 turnover. In December 2009, the company filed an application with the Tribunal
for access to the Commissions investigation record to enable it to answer to the case against it.
In September 2010, the Tribunal handed down judgment refusing the company access to the bulk of the documentation in
the Commissions investigation record. The Tribunal based its judgment on the fact that the documentation in question had
been claimed by one of the parties in the matter as confidential. The company subsequently appealed this judgment to
the Competition Appeal Court (the CAC). In April 2012, the CAC ruled essentially that the matter be referred back to the
Tribunal for a hearing to determine the validity of the confidentiality claims. The Commission appealed this ruling to
the Supreme Court of Appeal. The appeal is expected to be heard some time during 2013.
Flat steel matter - alleged conscious parallelism
On 30 March 2012, the Commission referred a case against the company and Evraz Highveld Steel and Vanadium Limited
(Highveld Steel) to the Tribunal for alleged price fixing and market division in respect of certain 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 Steel increasing its prices each time the company increases its prices.
The Commission requested the Tribunal to find the company guilty of the contraventions as alleged and to impose on it,
an administrative penalty of 10% of the 2008 turnover.
COMPETITION COMMISSION INVESTIGATIONS
The Commission is formally investigating two complaints against the company. The first involves alleged prohibited
vertical practices in respect of purchases of scrap steel. The second relates to alleged excessive pricing of tinplate and
flat steel in general. Joined to this investigation is an investigation into alleged excessive pricing arising from the
iron ore surcharge introduced by the company for the period May 2010 to July 2010. The company is cooperating fully with
the Commission in all these investigations and continues to deliver all information and documentation as and when
called upon to do so.
DISPUTE WITH SISHEN IRON ORE COMPANY PROPRIETARY LIMITED (SIOC)
On 28 March 2013, the Supreme Court of Appeal (SCA) delivered judgment in terms of which the SCA effectively agreed
with the trial court that SIOC was awarded 100% of the mining rights in the Sishen mine and therefore the award by the
Department of Mineral Resources (DMR) to ICT was invalid. Pursuant to this decision, the parties will start the
arbitration proceedings. However, subsequent to the quarter-end, both ICT and the DMR lodged applications for leave to appeal
to the Constitutional Court against the decision of the SCA. Shareholders will be kept informed of any material
developments.
ACQUISITIONS
The exploration phase of the Northern Cape iron ore mining operations was completed at the end of March 2013. The data
is currently being assessed prior to further work proceeding.
OUTLOOK FOR SECOND QUARTER 2013
We expect a turnaround from the net loss realised in the first quarter to positive earnings in second quarter
underpinned by stable market demand, recovery of production back to normal levels and higher sales volumes. International steel
prices are expected to remain subdued. The movement in the rand/US dollar exchange rate has an important bearing on our
earnings.
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), the AC 500 standards as issued by the Accounting
Practices Board and the South African Companies Act. These statements were compiled under the supervision of Mr MJ
Wellhausen, the Chief Financial Officer.
On behalf of the Board
N Nyembezi-Heita MJ Wellhausen
Chief Executive Officer Chief Financial Officer
2 May 2013
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
Quarter ended Year ended
31 December
31 March 31 March 31 December 2012
Rm 2013 2012 2012 Audited
Revenue 7 766 9 142 6 885 32 291
Raw materials and consumables used (4 324) (5 112) (3 754) (18 760)
Employee costs (802) (802) (814) (3 356)
Energy (663) (732) (684) (3 156)
Movement in inventories of finished
goods and work in progress (497) (459) (335) (467)
Depreciation (373) (355) (420) (1 582)
Amortisation of intangible assets (4) (4) (5) (16)
Other operating expenses (1 311) (1 220) (1 456) (5 431)
(Loss)/profit from operations (208) 458 (583) (477)
Finance and investment income 16 19 108 60
Finance costs (70) (105) (83) (334)
Income/(loss) from equity accounted
investments (net of tax) (82) 9 (53) 59
(Loss)/profit before tax (344) 381 (611) (692)
Income tax credit/(charge) 69 (102) 149 184
(Loss)/profit for the period (275) 279 (462) (508)
Other comprehensive income
Exchange differences on translation
of foreign operations 151 (94) 50 62
Losses on available-for-sale investment
taken to equity (6) (21) (32)
Share of other comprehensive income
of equity accounted investments 38 (7) 44 34
Total comprehensive (loss)/income
for the period (91) 157 (368) (444)
(Loss)/profit attributable to:
Owners of the company (275) 279 (462) (508)
Total comprehensive (loss)/income
attributable to:
Owners of the company (91) 157 (368) (444)
Attributable (loss)/earnings
per share (cents)
- basic (69) 70 (115) (127)
ADDITIONAL INFORMATION
Reconciliation of headline (loss)/earnings
(Loss)/profit for the period (275) 279 (462) (508)
Adjusted for:
- Loss/(profit) on disposal or scrapping 7 5 9 (4)
of assets
- Tax effect (2) (1) (3) (6)
Headline (loss)/earnings (270) 283 (456) (518)
Headline (loss)/earnings per share (cents) (67) 71 (114) (129)
Reconciliation of earnings before
interest, taxation, depreciation
and amortisation (EBITDA)
(Loss)/profit from operations (208) 458 (583) (477)
Adjusted for:
- Depreciation 373 355 420 1 582
- Amortisation of intangible assets 4 4 5 16
EBITDA 169 817 (158) 1 121
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
As at
As at As at 31 December
31 March 31 March 2012
Rm 2013 2012 Audited
Assets
Non-current assets 19 520 19 211 19 419
Property, plant and equipment 16 039 16 364 16 068
Intangible assets 118 123 121
Equity accounted investments 3 343 2 687 3 204
Other financial assets 20 37 26
Current assets 12 133 13 339 11 479
Inventories 8 463 9 301 8 761
Trade and other receivables 2 399 3 409 1 669
Taxation 150 154
Other financial assets 8 1 11
Cash and cash equivalents 1 114 628 884
Total assets 31 653 32 550 30 898
Equity and liabilities
Shareholders equity 22 155 22 831 22 242
Stated capital 37 37 37
Non-distributable reserves (2 072) (2 339) (2 178)
Retained income 24 191 25 133 24 383
Non-current liabilities 3 921 4 443 4 091
Borrowings and other payables 243 231 270
Finance lease obligations 453 438 426
Deferred income tax liability 1 849 2 289 2 031
Provision for post-retirement medical costs 9 8 9
Non-current provisions 1 367 1 477 1 355
Current liabilities 5 577 5 276 4 565
Trade and other payables 4 841 4 127 3 922
Borrowings and other payables 151 88 157
Finance lease obligations 63 55 77
Taxation 205 3 97
Current provisions 316 373 312
Cash and bank overdraft 630
Total equity and liabilities 31 653 32 550 30 898
CONDENSED GROUP STATEMENT OF CASH FLOWS
Quarter ended Year ended
31 December
31 March 31 March 31 December 2012
Rm 2013 2012 2012 Audited
Cash outflows from operating activities 592 (308) 1 313 1 776
Cash generated from/(utilised in) operations 594 (221) 1 379 2 022
Interest income 2 4 1 10
Finance cost (29) (50) (44) (170)
Income tax paid (1) (20) (32) (52)
Realised foreign exchange movement 26 (21) 9 (34)
Cash outflows from investing activities (271) (99) (432) (1 125)
Investment to maintain operations (221) (79) (419) (809)
Investment to expand operations (18) (15) (14) (66)
Proceeds on scrapping of assets 1 1 29
Shares acquired in associate and equity
accounted investment (34) (5) (88) (369)
Investment income - interest 1 1 3
Dividend from equity accounted investments 87 87
Cash outflows from financing activities (103) (38) (58) (231)
Repayment of borrowings, finance lease
obligations and other payables (103) (38) (58) (231)
Increase/(decrease) in cash and cash
equivalents 218 (445) 823 420
Effect of foreign exchange rate changes 12 4 25
Cash and cash equivalents at beginning
of period 884 439 61 439
Cash and cash equivalents at end of period 1 114 (2) 884 884
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Treasury
Stated share equity Other Retained
Rm capital reserve reserves earnings Total
Quarter ended 31 March 2012
Balance as at 31 December 2011 37 (3 918) 1 687 24 863 22 669
Total comprehensive income (122) 279 157
Share-based payment reserve 5 5
Transfer of equity accounted earnings 9 (9)
Balance as at 31 March 2012 37 (3 918) 1 579 25 133 22 831
Quarter ended 31 December 2012
Balance as at 30 September 2012 37 (3 918) 1 781 24 705 22 605
Total comprehensive loss 94 (462) (368)
Management share trust: net of treasury
share purchases 5 5
Transfer of equity accounted earnings (140) 140
Balance as at 31 December 2012 37 (3 918) 1 740 24 383 22 242
Quarter ended 31 March 2013
Balance as at 31 December 2012 37 (3 918) 1 740 24 383 22 242
Total comprehensive loss 183 (275) (91)
Share-based payment reserve 5 5
Transfer of equity accounted earnings (82) 82
Balance as at 31 March 2013 37 (3 918) 1 846 24 190 22 155
SEGMENT INFORMATION
Quarter ended
31 March 31 March 31 December
2013 2012 2012
Flat Steel Products
Revenue (R million) 4 929 5 670 4 708
- External 4 735 5 595 4 456
- Internal 193 75 252
EBITDA (R million) (315) 81 (306)
Depreciation and amortisation (R million) (306) (285) (346)
(Loss) from operations (R million) (621) (204) (652)
Liquid steel production (000 tonnes) 565 981 720
Steel sales (000 tonnes) 702 866 702
- Local 557 645 475
- Export 145 221 227
Capacity utilisation (%) 54 69 61
Long Steel Products
Revenue (R million) 2 885 3 274 2 343
- External 2 665 2 993 1 968
- Internal 220 281 375
EBITDA (R million) 315 521 (8)
Depreciation and amortisation (R million) (70) (72) (79)
Profit/(loss) from operations (R million) 245 449 (87)
Liquid steel production (000 tonnes) 463 402 323
Steel sales (000 tonnes) 383 422 286
- Local 315 349 221
- Export 68 73 65
Capacity utilisation (%) 81 70 56
Coke and Chemicals
Revenue (R million) 380 576 479
- External 366 554 461
- Internal 14 22 18
EBITDA (R million) 147 205 143
Depreciation and amortisation (R million) (9) (9) (4)
Profit from operations (R million) 138 196 139
Commercial coke produced (000 tonnes) 91 134 125
Commercial coke sales (000 tonnes) 85 143 117
Tar sales (000 tonnes) 28 30 29
Corporate and Other
EBITDA (R million) 22 10 13
Depreciation and amortisation (R million) 8 7 4
Profit from operations (R million) 30 17 17
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,
which could cause actual results and company plans and objectives to differ materially from those expressed or implied in
the forward-looking statements.
Registered office: ArcelorMittal South Africa Limited, Room N3-5, Main Building Delfos Boulevard, Vanderbijlpark, 1911
Directors: Non-executive: PM Makwana* (Chairman), DK Chugh, FA du Plessis*, M Macdonald*, S Maheshwari,
LP Mondi, DCG Murray*, ND Orleyn*, GI Urquijoº
Citizen of India ºCitizen of Spain *Independent non-executive
Executive: N Nyembezi-Heita (Chief Executive Officer), MJ Wellhausen (Chief Financial Officer)#
#Citizen of Germany
10 May 2013
Vanderbijlpark
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, 2107
This report is available on ArcelorMittal South Africas 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
Date: 10/05/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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