To view the PDF file, sign up for a MySharenet subscription.

ARCELORMITTAL SOUTH AFRICA LIMITED - Preliminary reviewed condensed consolidated financial statements for the year ended 31 December 2018

Release Date: 07/02/2019 08:00
Code(s): ACL     PDF:  
 
Wrap Text
Preliminary reviewed condensed consolidated financial statements for the year ended 31 December 2018

ArcelorMittal South Africa Limited 
(Incorporated in the Republic of South Africa) 
Registration number: 1989/002164/06
Share code: ACL ISIN: ZAE 000134961
(ArcelorMittal South Africa, the company or the group)

Preliminary reviewed condensed consolidated financial statements for the year ended 31 December 2018


Salient features
On the back of a strong global pricing environment, the company's average realised prices rose by 12% on sales which
were 5% higher than those of the previous year while cash costs per tonne increased by an average of just 2%. EBITDA
improved to R3 608 million, from a loss of R315 million in 2017. Similarly, headline profits improved from a 
R2 518 million loss to a profit of R968 million. Net debt decreased by R2 787 million.

- Revenue increased by 16% to R45 274 million
- Liquid steel production of 5.1 million tonnes increased by 4%
- Sales volumes increased by 5% despite domestic apparent steel consumption being at a nine-year low
- Buoyant international market with exports up 21%
- Cash cost per tonne of liquid steel produced increased by 2%
- Turnaround in headline earnings from a loss of R2 518 million to a profit of R968 million
- Ebitda improved by R3 923 million from a loss of R315 million to a profit of R3 608 million
- Net borrowings decreased by R2 787 million to R475 million
- Realisation of the group's investment in Macsteel International Holdings BV for R3 221 million

The analysis that follows relates to the 12 months ended 31 December 2018 (current year) compared to the 12 months
ended 31 December 2017 (prior year).


Overview
The group's 2018 results were positively impacted by higher realised steel prices on the back of stronger international 
prices and higher sales volume despite the weakness of the South African economy. Encouragingly, the domestic economy
officially emerged from recession following a 2.2% GDP growth in the third quarter of the year. The government's drive
to attract investment should help to bolster capital expenditure, however, Eskom's financial and operational crises could
delay recovery. 

Results were negatively affected by weaker demand in the domestic steel markets in which the group principally operates, 
constrained by low levels of investment and infrastructure spending and volatility in the rand/US dollar exchange rate. 
Local apparent steel consumption decreased by 4% as a result of subdued economic growth and poor investor confidence.

South Africa and key African markets continue to face the threat of steel imports, mainly from China. Although there
was a 20% (190 000 tonnes) decrease in imports, 769 000 tonnes of primary carbon steel were still imported into South
Africa in the year, despite import duties, selective safeguarding and the designation of local steel. 

The group's profit from operations turned around from a loss of R1 220 million to a profit of R2 777 million while
headline earnings also improved, from a loss of R2 518 million in 2017 to a profit of R968 million. 

As part of its strategy, the group implemented various far-reaching initiatives to return to sustainable profitability
and generate positive cash flows. Further initiatives are being investigated and implemented to address the ongoing
sustainability of the group. 

As part of the above, the sale of the group's 50% investment in MIHBV for US$220 million (R3 221 million) was
completed on 1 November 2018.

The group acquired Thabazimbi mine from Sishen Iron Ore Company (Pty) Ltd effective from 1 November 2018. The
conclusion of the transaction allows the group to take full ownership of the mine.

Safety remains the group's number one priority. Notwithstanding the intention to achieve zero fatalities and injuries,
the group regrettably experienced one fatal incident on 3 June 2018 at Saldanha Works. The board and management extend
their deepest condolences to the family and colleagues of the deceased. Encouragingly, the lost time injury frequency
rate (LTIFR) improved from 0.66 to 0.53 while the total injury frequency rate (TIFR) also improved to 6.91 from 7.66. 

Markets
In the USA, steel prices were impacted by section 232 (tariff increases on imports) in early 2018, which drove the
price of steel imports higher. US consumers through 2018 continued to pay a higher price but were supported by strong
economic growth. 

Europe has seen good steel demand backed by positive growth in the EU area and a stronger euro against the US dollar
through most of 2018. However, the steel prices, after peaking in early 2018, have continued to decrease slightly through
the year in dollar terms.

In Africa, steel markets remained positive due to the drive towards infrastructure investments especially in rail,
roads and energy projects, notably in the West and East sub-Saharan regions. 

Domestically, after a technical recession in first half of the year the South African economy grew in the second half
of 2018. Despite GDP growth in the second half of the year, the manufacturing, mining and construction sectors, which
are the major steel consuming sectors, showed no noticeable demand improvement. This market weakness was exacerbated by
the volatility of the rand which fluctuated along with other emerging market currencies against the US dollar. The dollar
volatility was driven by the uncertainties around the established global trade system such as the US/China trade war,
Brexit and the US government shutdown.

Global steel markets continued to improve from 2017 into 2018. This can mainly be attributed to the positive macro-economic 
environment in both developed and developing countries for demand of steel, and higher steel prices in key markets
such as China, Europe and the USA. However, the global trend of stronger prices reversed with a decline in the fourth
quarter of the year, due to global trade war fears dampening the positive growth sentiment and China continuing to
produce steel at the same levels, while its domestic demand is slowing.

We produce three types of products:
- Flat steel products
- Long steel products
- Coke and Chemicals

Financial results 
Revenue
Revenue increased by 16% to R45 274 million primarily as a result of a 12% increase in average net realised steel prices, 
from R8 338 per tonne to R9 301 per tonne and higher sales volumes of 5%, with local sales and exports increasing by
1% and 21% respectively. Revenue from the Coke and Chemicals' business was marginally lower than the previous year.
Commercial coke sales volumes decreased by 23 000 tonnes or 12.7% while tar sales volumes were in line with the same 
period the previous year. Commercial coke and tar prices rose by 10.1% and 12.0%, respectively.

Operating expenses
Cash cost per tonne of liquid steel produced increased by 2% to R7 702. Consumables and auxiliaries, which represented
approximately 29% of costs, increased by 5%, and fixed costs per tonne up by 3% while raw materials - iron ore, coal
and scrap - which accounted for 48% of total costs, fell by 1%.

Profit/(loss) from operations
In 2018 the group's profit/(loss) from operations improved by R3 997 million to R2 777 million, given the higher 
international steel pricing environment, increased sales and reduced costs. Depreciation decreased following the 
impairment of the Vanderbijlpark, Saldanha and long steel products' cash-generating units in 2017. 

Profit/(loss) for the year
Profit/(loss) for the year improved by R6 498 million. This was largely attributable to an improvement of profit from
operations of R3 997 million, a profit on the disposal of the Macsteel International Holdings BV (MIHBV) investment of
R415 million, and no impairment on property, plant and equipment, compared to an impairment charge of R2 594 million in
2017.

Financing costs were R885 million higher, derived largely from exchange rate losses resulting from the weakening of
the rand against the US dollar at the end of the year. 

Income from equity accounted investments was similar from R139 million in 2017 to R138 million in the current year.
Income from equity-accounted investment in MIHBV of R123 million was recognised for the year before reclassification as 
an asset held-for-sale on 31 May 2018.

Cash position
The net borrowing position improved from R3 262 million to R475 million following the sale of MIHBV and a better
operational performance which was somewhat negated by financing costs and capital spend. 

Operational
The group's capacity utilisation improved to 84% compared to 81% the previous year. Liquid steel production for the
year was 5.1 million tonnes, an increase of 182 000 tonnes (4% higher).

Flat steel products' liquid steel production increased by 103 000 tonnes and plant utilisation rose to 85% compared to
82% in 2017. This was due to better plant performance at Vanderbijlpark Works of 134 000 tonnes. 

Long steel products' liquid steel production increased by 79 000 tonnes and plant utilisation improved to 81% compared
to 76% in 2017.

Sustainability 
Various initiatives are aimed at ensuring the group's sustainability and licences to operate. These include:
- A business transformation programme that was initiated to address cost reduction, improve efficiencies, to
  debottleneck steel production at all sites and optimise procurement contracts;
- Restarting of the electric arc furnace at Vereeniging Works during January 2019 to increase capacity;
- A planned stave repair of blast furnace D at Vanderbijlpark Works to increase the furnace life with 10 years;
- Enhancements to the conarc at Saldanha Works to increase capacity of hot rolled coil;
- Additional investments in the coke batteries to maintain production and avoid coke imports; and
- Continued focus on environmental compliance and engagement with the authorities on certain environmental matters.

Regulatory matters
- The Minister of Finance tabled the Carbon Tax Bill in Parliament on 20 November 2018, giving effect to the announcements 
  made in 2017 and 2018. The announced  implementation date is  from 1 June 2019. The group continues to engage regarding 
  the implementation of this Bill.
- The group continues to comply with the requirements of the Competition Commission settlement agreement.
- The group has been informed that there is an intention to institute criminal proceedings against the group on
  account of three alleged transgressions of its atmospheric admission licence at its Vanderbijlpark operations. The
  prosecution has agreed that the group would first be afforded an opportunity to meet and to make representations before
  proceeding with the prosecution. This process has not been concluded. In the event that the matter proceeds, and if there 
  is an adverse finding regarding all these transgressions, insofar as the financial exposure in terms of a fine is
  concerned, the maximum fine payable is up to R15 million in terms of the legislation. 
- The group remains firmly committed to minimising its impact on the environment and, to this end, has invested and
  continues to invest in various initiatives and projects to improve the group's environmental performance and standards. 

Changes to the board of directors and company secretary
- Mr HJ Verster was appointed as chief executive officer and executive director with effect from 1 February 2018;
- Mr WA de Klerk retired as chief executive officer and executive director with effect from 31 January 2018;
- Mr HMA Blaffart retired as non-executive director with effect from 31 March 2018;
- Mr BE Aranha was appointed as non-executive director with effect from 31 March 2018;
- Mr D Subramanian resigned as chief financial officer and executive director with effect from 31 July 2018;
- Mr AD Maharaj was appointed as chief financial officer and executive director with effect from 1 October 2018;
- Mr RK Kothari resigned as non-executive director with effect from 30 November 2018;
- Mr R Karol was appointed as non-executive director with effect from 1 December 2018; and
- Ms NB Bam was appointed as company secretary with effect from 1 November 2018, replacing Premium Corporate
  Consulting (Pty) Ltd that was appointed as interim company secretary on 26 January 2018.

Dividends
No dividends were declared for the year ended 31 December 2018 (2017: nil).

Outlook
ArcelorMittal South Africa has implemented various far-reaching initiatives to return the group to profitability and
to sustainably generate positive cash flows. The group will continue to drive the implementation of interventions to
address the challenges it faces. 

In the first half of the year domestic steel demand and exports are likely to remain stable with volatility in the
rand/US dollar exchange rate continuing to have an impact on the group's results. 

On behalf of the board of directors

HJ Verster                         AD Maharaj
Chief executive officer            Chief financial officer

7 February 2019


Key statistics
                                                          Year ended        Year ended     
                                                         31 December       31 December     
                                                                2018              2017    
Unreviewed/unaudited information                                                          
Operational                                                                               
Liquid steel production                                        5 092             4 910    
Total steel sales (000 tonnes)                                 4 491             4 257    
Local steel sales (000 tonnes)                                 3 337             3 302    
Export steel sales (000 tonnes)                                1 154               955    
Capacity utilisation (%)                                          84                81    
Commercial coke sales (000 tonnes)                               158               181    
Average net realised price (R/t)                               9 301             8 338    
Safety                                                                                    
Lost time injury frequency rate                                 0.53              0.66    
Reviewed/audited information                                                              
Financial                                                                                 
Revenue (R million)                                           45 274            39 022    
Profit/(loss) from operations (R million)                      2 777            (1 220)   
Net profit/(loss) (R million)                                  1 370            (5 128)   
Profit/(loss) per share (cents)                                  125              (469)   
Headline earnings/(loss) (R million)                             968            (2 518)   
Headline earnings/(loss) per share (cents)                        89              (230)   
Net borrowings (R million)                                      (475)           (3 262)   
Ratios                                                                                    
Return on ordinary shareholders' equity per annum:                                        
- Attributable earnings/(loss) (%)                              17.1             (47.5)   
- Headline earnings/(loss) (%)                                  12.1             (23.3)   
Net borrowings to equity (%)                                    (6.0)            (40.5)   
Share statistics                                                                          
Ordinary shares (thousands):                                                              
- in issue                                                 1 138 060         1 138 060    
- outstanding                                              1 093 510         1 093 510    
- weighted average number of shares                        1 093 510         1 093 510    
- diluted weighted average number of shares                1 093 510         1 093 510    
Share price (closing) (Rand)                                    3.39              3.87    
Market capitalisation (R million)                              3 858             4 404    
Net asset value per share (Rand)                                7.28              7.37    


Reconciliation of earnings before interest, taxation, depreciation and amortisation (EBITDA) 

                                                          Year ended        Year ended     
                                                         31 December       31 December     
                                                                2018              2017    
In millions of rand                                         Reviewed           Audited    
Profit/(loss) from operations                                  2 777            (1 220)   
Adjusted for:                                                                             
- Depreciation                                                   817               953    
- Amortisation of intangible assets                               14                23    
- Thabazimbi mine closure costs                                    -               (41)   
- Competition Commission settlement                                -               (30)   
EBITDA                                                         3 608              (315)   


Independent auditor's review report on condensed consolidated financial statements 

TO THE SHAREHOLDERS OF ARCELORMITTAL SOUTH AFRICA LIMITED
We have reviewed the condensed consolidated financial statements of ArcelorMittal South Africa Limited, contained in
the accompanying preliminary report, which comprise the condensed consolidated statement of financial position as at 
31 December 2018 and the condensed consolidated statements of comprehensive income and other comprehensive income, 
changes in equity and cash flows for the year then ended, and selected explanatory notes. 

Directors' Responsibility for the Condensed Consolidated Financial Statements
The directors are responsible for the preparation and presentation of these condensed consolidated financial statements 
in accordance with the requirements of the JSE Limited Listings Requirements for preliminary reports, as set out in note 
2 to the financial statements, and the requirements of the Companies Act of South Africa, and for such internal control 
as the directors determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.

The Listings Requirements require condensed consolidated financial statements contained in a preliminary report to be
prepared in accordance with the framework concepts and the measurement and recognition requirements of International
Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee
and Financial Pronouncements as issued by Financial Reporting Standards Council and to also, as a minimum, contain the
information required by International Accounting Standard (IAS) 34 Interim Financial Reporting.

Auditor's Responsibility
Our responsibility is to express a conclusion on these financial statements. We conducted our review in accordance with 
International Standard on Review Engagements (ISRE) 2410, which applies to a review of historical information performed 
by the independent auditor of the entity. ISRE 2410 requires us to conclude whether anything has come to our attention
that causes us to believe that the financial statements are not prepared in all material respects in accordance with
the applicable financial reporting framework. This standard also requires us to comply with relevant ethical requirements.

A review of financial statements in accordance with ISRE 2410 is a limited assurance engagement. We perform procedures, 
primarily consisting of making inquiries of management and others within the entity, as appropriate, and applying
analytical procedures, and evaluate the evidence obtained. 

The procedures performed in a review are substantially less than those performed in an audit conducted in accordance
with International Standards on Auditing. Accordingly we do not express an audit opinion on these financial statements.

Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated
financial statements of ArcelorMittal South Africa Limited for the year ended 31 December 2018 are not prepared, in all
material respects, in accordance with the requirements of the JSE Limited Listings Requirements for preliminary reports, 
as set out in note 2 to the financial statements, and the requirements of the Companies Act of South Africa.

Deloitte & Touche 
Registered Auditor

Per: SI Rajcoomar
Partner 

7 February 2019

Deloitte & Touche
Deloitte Place, Building 1, The Woodlands, 20 Woodlands Drive, Woodmead, 2052, South Africa
Telephone: + 27 (0) 11 806 5000  Facsimile: + 27 (0) 11 806 5118

National Executive: *LL Bam Chief Executive Officer, *TMM Jordan Deputy Chief Executive Officer: Clients & Industries,
*MJ Jarvis Chief Operating Officer, *AF Mackie Audit & Assurance, *N Sing Risk Advisory, DP Ndlovu Tax & Legal, 
TP Pillay Consulting, *JK Mazzocco Talent & Transformation, MG Dicks Risk Independence & Legal, *KL Hodson Corporate Finance,
*TJ Brown Chairman of the Board

* Partner and registered auditor

A full list of partners and directors is available on request
B-BBEE rating: Level 1 contributor in terms of DTI Generic Scorecard as per the amended Codes of Good Practice
Associate of Deloitte Africa, a Member of Deloitte Touche Tohmatsu Limited


Condensed consolidated statement of comprehensive income 
                                                                                                 Year ended        Year ended     
                                                                                                31 December       31 December     
                                                                                                       2018              2017     
In millions of rand                                                                 Notes          Reviewed           Audited    
Revenue                                                                                              45 274            39 022    
Raw materials and consumables used                                                                  (25 965)          (24 763)   
Employee costs                                                                                       (4 493)           (4 164)   
Energy                                                                                               (4 262)           (4 233)   
Movement in inventories of finished goods and work in progress                                          574               346    
Depreciation                                                                                           (817)             (953)   
Amortisation of intangible assets                                                                       (14)              (23)   
Impairment of trade and other receivables                                                               (25)                1    
Other operating expenses                                                                             (7 495)           (6 453)   
Profit/(loss) from operations                                                                         2 777            (1 220)   
Impairment of other assets                                                                              (10)              (10)   
Impairment of property, plant and equipment and intangible assets                                         -            (2 594)   
Profit on disposal of investment                                                       12               415                 -    
Fair value adjustment on investment held-for-sale                                                    (1 652)                -    
Reclassification of foreign currency differences on sale of foreign investment                        2 067                 -    
Finance and investment income                                                           5               387                74    
Finance costs                                                                           6            (2 400)           (1 515)   
Income from equity accounted investments (net of tax)                                                   138               139    
Profit/(loss) before tax                                                                              1 307            (5 126)   
Income tax credit/(expense)                                                             9                63                (2)   
Profit/(loss) for the year                                                                            1 370            (5 128)   
Other comprehensive profit/(loss)                                                                                                
Items that will not be reclassified to profit or loss:                                                                           
Equity investments at FVOCI - net change in fair value                                                   11                 -    
Items that may be reclassified subsequently to profit or loss:                                                                   
Exchange differences on translation of foreign operations                                               513              (392)   
Reclassification of foreign currency differences on sale of foreign investment                       (2 067)                -    
Cash flow hedge - effective portion of changes in fair value                                             92                 -    
Cash flow hedges - reclassified to profit or loss                                                       (49)                -    
Gains on available-for-sale investment taken to equity                                                    -               (25)   
Share of other comprehensive income of equity accounted investments                                      25                 2    
Other comprehensive loss for the year                                                                (1 475)             (415)   
Total comprehensive loss for the year                                                                  (105)           (5 543)   
Profit/(loss) attributable to:                                                                                                   
Owners of the company                                                                                 1 370            (5 128)   
Total comprehensive loss attributable to:                                                                                        
Owners of the company                                                                                  (105)           (5 543)   
Attributable profit/(loss) per share (cents)                                                                                     
- basic                                                                                                 125              (469)   
- diluted                                                                                               125              (469)   


Condensed consolidated statement of financial position
                                                                                                      As at             As at     
                                                                                                31 December       31 December     
                                                                                    Notes              2018              2017     
In millions of rand                                                                                Reviewed           Audited    
Assets                                                                                                                            
Non-current assets                                                                                    9 696            13 065    
Property, plant and equipment                                                                         8 995             8 474    
Intangible assets                                                                                        73                82    
Equity accounted investments                                                           12               220             4 424    
Investment held by environmental trust                                                 11               332                 -    
Non-current receivable                                                                                   10                30    
Other financial assets                                                                                   66                55    
Current assets                                                                                       18 864            18 131    
Inventories                                                                                          12 179            11 519    
Trade and other receivables                                                                           3 972             2 988    
Taxation asset                                                                                          132                58    
Other financial assets                                                                                   56               428    
Cash and bank balances                                                                 10             2 525             3 138    
Total assets                                                                                         28 560            31 196    
Equity and liabilities                                                                                                           
Shareholders'  equity                                                                                 7 961             8 058    
Stated capital                                                                                        4 537             4 537    
Non-distributable reserves                                                                           (3 659)              363    
Retained income                                                                                       7 083             3 158    
Non-current liabilities                                                                               5 636             5 792    
Borrowings                                                                                            2 700             2 700    
Other payables                                                                                          572               399    
Finance lease obligations                                                                                46                54    
Provisions                                                                                            1 774             1 826    
Other financial liabilities                                                                             544               813    
Current liabilities                                                                                  14 963            17 346    
Trade payables                                                                                       12 304            11 300    
Borrowings                                                                                              300             3 700    
Finance lease obligations                                                                                15                70    
Current provisions                                                                                      406               304    
Other payables                                                                                        1 475               984    
Taxation payable                                                                                         91                82    
Other financial liabilities                                                                             372               906    
Total equity and liabilities                                                                         28 560            31 196    


Condensed consolidated statement of cash flows
                                                                                                 Year ended        Year ended     
                                                                                                31 December       31 December     
                                                                                                       2018              2017     
In millions of rand                                                                 Notes          Reviewed           Audited    
Cash flows from operating activities                                                                    887            (1 518)   
Cash generated from/(utilised in) operations                                           14             2 282              (712)   
Interest income                                                                                          93                65    
Finance cost                                                                                           (574)             (741)   
Income tax (paid)/received                                                                               (2)               80    
Realised foreign exchange movement                                                                     (912)             (210)   
Cash flows from investing activities                                                                  1 984            (1 313)   
Investment to maintain and expand operations                                                         (1 256)           (1 324)   
Investment in associates and joint ventures                                                               -               (11)   
Proceeds on disposal on joint ventures                                                 12             3 221                 -    
Proceeds on disposal or scrapping of assets                                                              12                13    
Interest income from investments                                                                          -                 9    
Dividend income from investment                                                                           7                 -    
Cash flows from financing activities                                                                 (3 487)            4 310    
Borrowings (repaid)/raised                                                                           (3 400)            4 450    
Finance lease obligation repaid                                                                         (85)              (70)   
Cash settlement on management share trust                                                                (2)               (9)   
Transaction costs on borrowing base facility                                                              -               (61)   
(Decrease)/increase in cash and cash equivalents                                                       (616)            1 479    
Effect of foreign exchange rate changes on cash and cash equivalents                                      3                (1)   
Cash and cash equivalents at beginning of the year                                                    3 138             1 660    
Cash and cash equivalents at end of the year                                                          2 525             3 138    


Condensed consolidated statement of changes in equity
                                                                                      Treasury
                                                                                         share
                                                                         Stated         equity         Other      Retained
In millions of rand                                                     capital        reserve      reserves      earnings        Total
Balance as at 31 December 2016 (Audited)                                  4 537         (3 918)        4 499         8 425       13 543    
Balance as at 1 January 2017                                              4 537         (3 918)        4 499         8 425       13 543    
Total comprehensive loss                                                      -              -          (415)       (5 128)      (5 543)   
Cash settlement on management share trust/long-term incentive plan            -              -            (9)            -           (9)   
Share-based payment expense                                                   -              -            67             -           67    
Transfer between reserves                                                     -              -           139          (139)           -    
Balance as at 31 December 2017 (Audited)                                  4 537         (3 918)        4 281         3 158        8 058    
Balance as at 1 January 2018                                              4 537         (3 918)        4 281         3 158        8 058    
Total comprehensive (loss)/profit                                             -              -        (1 475)        1 370         (105)   
Cash settlement on management share trust/long-term incentive plan            -              -            (2)            -           (2)   
Share-based payment expense                                                   -              -            10             -           10    
Transfer between reserves                                                     -             (1)       (2 554)        2 555            -    
Balance as at 31 December 2018 (Reviewed)                                 4 537         (3 919)          260         7 083        7 961    


Notes to the preliminary reviewed condensed consolidated financial statements


1.  Corporate information
    ArcelorMittal South Africa Limited is a public company domiciled in the Republic of South Africa and listed on the 
    JSE Limited. These condensed consolidated financial statements for the year ended 31 December 2018 comprise the 
    company and its subsidiaries (together referred to as the group). The group is one of the largest steel producers 
    on the African continent.
    
2.  Basis of preparation
    The condensed consolidated financial statements were prepared in accordance with the requirements of the JSE Limited 
    Listings Requirements for preliminary reports as well as the requirements of the Companies Act of South Africa. The 
    condensed consolidated financial statements have been prepared in accordance with the framework concepts and the 
    measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA 
    Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by
    the Financial Reporting Standards Council. It also contains, at a minimum, the information required by IAS 34 Interim 
    Financial Reporting.
    
    The condensed consolidated financial statements were prepared under the supervision of Mr AD Maharaj CA(SA), the chief 
    financial officer.
    
3.  Accounting policies
    The accounting policies and methods of computation applied in the presentation of the condensed consolidated 
    financial statements of the group are consistent with those applied for the year ended 31 December 2017, apart from 
    IFRS 9 Financial Instruments (replaced IAS 39 Financial Instruments: Recognition and Measurement) and IFRS 15 Revenue 
    from Contracts with Customers (replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations) 
    that were initially applied from 1 January 2018. Due to the transition methods chosen by the group in applying these 
    standards, comparative information has not been restated to reflect the requirements of the new standards. The effect 
    of initially applying these standards did not have a significant impact on the group's condensed consolidated financial 
    statements.
    
4.  Segment report
    Flat steel products
                                                                                   Year ended            Year ended     
                                                                                  31 December           31 December     
                                                                                         2018                  2017    
                                                                                     Reviewed               Audited    
    Revenue (R million)                                                                31 919                27 795    
    - External                                                                         31 012                27 226    
    - Internal                                                                            907                   569    
    EBITDA (R million) (unreviewed/unaudited)                                           2 670                   264    
    EBITDA margin (%) (unreviewed/unaudited)                                              8.4                   0.9    
    Average net realised price (R/t) (unreviewed/unaudited)                             9 514                 8 581    
    Depreciation and amortisation (R million)                                            (393)                 (570)   
    Profit/(loss) from operations (R million)                                           2 277                  (211)   
    Unreviewed/unaudited information                                                                                   
    Liquid steel production (000 tonnes)                                                3 561                 3 458    
    Steel sales (000 tonnes)                                                            3 098                 2 995    
    - Local                                                                             2 242                 2 352    
    - Export                                                                              856                   643    
    Capacity utilisation (%)                                                               85                    82    
    
    Long steel products
                                                                                   Year ended            Year ended     
                                                                                  31 December           31 December     
                                                                                         2018                  2017 
                                                                                     Reviewed               Audited         
    Revenue (R million)                                                                14 905                11 791    
    - External                                                                         12 919                10 444    
    - Internal                                                                          1 986                 1 347    
    EBITDA (R million) (unreviewed/unaudited)                                             808                  (945)   
    EBITDA margin (%) (unreviewed/unaudited)                                              5.4                  (8.0)   
    Average net realised price (R/t) (unreviewed/unaudited)                             8 828                 7 760    
    Depreciation and amortisation (R million)                                            (334)                 (383)   
    Profit/(loss) from operations (R million)                                             474                (1 284)   
    Unreviewed/unaudited information                                                                                   
    Liquid steel production (000 tonnes)                                                1 531                 1 452    
    Steel sales (000 tonnes)                                                            1 393                 1 262    
    - Local                                                                             1 095                   950    
    - Export                                                                              298                   312    
    Capacity utilisation (%)                                                               81                    76    
    
    Coke and Chemicals
                                                                                   Year ended            Year ended     
                                                                                  31 December           31 December    
                                                                                         2018                  2017    
                                                                                     Reviewed               Audited    
    Revenue (R million)                                                                 1 376                 1 404    
    - External                                                                          1 343                 1 352    
    - Internal                                                                             33                    52    
    EBITDA (R million) (unreviewed/unaudited)                                             370                   365    
    EBITDA margin (%) (unreviewed/unaudited)                                             26.9                  26.0    
    Depreciation and amortisation (R million)                                             (82)                  (48)   
    Profit from operations (R million)                                                    288                   317    
    Unreviewed/unaudited information                                                                                   
    Commercial coke produced (000 tonnes)                                                 184                   190    
    Commercial coke sales (000 tonnes)                                                    158                   181    
    Tar sales (000 tonnes)                                                                 81                    82    
    
    Corporate and other (including eliminations)
                                                                                   Year ended            Year ended     
                                                                                  31 December           31 December    
                                                                                         2018                  2017    
                                                                                     Reviewed               Audited    
    EBITDA (R million) (unreviewed/unaudited)                                            (240)                    1    
    Depreciation and amortisation (R million) (expense)/credit                            (22)                   25    
    Loss from operations (R million)                                                     (262)                  (42)   
    
5.  Finance and investment income
                                                                                   Year ended            Year ended     
                                                                                  31 December           31 December     
                                                                                         2018                  2017    
    In millions of rand                                                              Reviewed               Audited    
    Finance income                                                                                                     
    Bank deposits and other interest income                                                93                    65    
    Discount rate adjustment of the provisions                                            285                     -    
    Investment income                                                                                                  
    Interest received from jointly controlled entities                                      9                     9    
    Total                                                                                 387                    74
    
6.  Finance cost
                                                                                   Year ended            Year ended     
                                                                                  31 December           31 December     
                                                                                         2018                  2017    
    In millions of rand                                                              Reviewed               Audited    
    Interest expense on loans                                                             976                   870    
    Interest expense on finance lease obligations                                          15                    24    
    Net foreign exchange losses on financing activities                                 1 112                   218    
    Discount rate adjustment of the provisions                                              -                   215    
    Unwinding of discounting effect on provisions and financial liabilities               297                   188    
    Total                                                                               2 400                 1 515
    
7.  Related party transactions
    The group is controlled by ArcelorMittal Holdings AG, which effectively owns 69% (December 2017: 69%) of the group's 
    shares. At 31 December 2018, the outstanding ArcelorMittal Holdings AG loan amounted to R2 700 million 
    (2017: R2 700 million). Interest is payable at the South African prime lending rate with an interest expense for the 
    year of R272 million (2017: R281 million).
    
    The company and its subsidiaries entered into sale and purchase transactions with joint ventures in the ordinary 
    course of business. These transactions were concluded at arm' s length.
    
8.  Fair value measurements
    Certain of the group's financial assets and financial liabilities are measured at fair value at the end of each 
    reporting period. The following table gives information about how the fair values of these financial assets and 
    financial liabilities are determined, particularly the valuation techniques and inputs used.
    
    Financial instruments                                                                       Fair values as at year ended      Fair value hierarchy    
                                                                                                  31 December       31 December    
                                          New classification         Original classification             2018              2017    
    In millions of rand                         under IFRS 9                    under IAS 39         Reviewed           Audited    
    Financial assets
    Equity securities            Equity instruments - FVTPL*          Designated as at FVTPL              332                 -          Level 1    
                                                                                                 
    Equity securities          Equity instruments - FVTOCI**              Available-for-sale               66                55          Level 1    
    
    Forward exchange                    Fair value - hedging            Fair value - hedging               53                 -          Level 2   
    contracts used for                            instrument                      instrument
    hedging

    Other forward                       Mandatorily at FVTPL         Held-for-trading assets                3                 4          Level 2    
    exchange contracts
    
    Financial liabilities
    Forward exchange                    Fair value - hedging            Fair value - hedging               10                 -          Level 2    
    contracts used for                            instrument                      instrument
    hedging
    
    Other forward                       Mandatorily at FVTPL                Held-for-trading                6               384          Level 2    
    exchange contracts                                                           liabilities

    Level 1: Fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities.
    Level 2: Fair value measurements are those derived from inputs other than quoted prices included in Level 1 that are observable for the 
             asset or liability, either directly (ie as prices) or indirectly (ie derived from prices).

    *  FVTPL - Fair value through profit or loss.
    ** FVTOCI - Fair value through other comprehensive income.
    
9.  Taxation
    Although the corporate tax rate is 28%, the actual average tax rate for the group was negative 5% (2017: 0%). The 
    negative tax rate was as a result of an income tax receivable due to a settlement with the South African Revenue 
    Services during 2018 as well as utilising previously accumulated assessed losses.

10. Restricted cash, ceded cash and security
    At 31 December 2018, the group had restricted cash of R1 485 million (2017: R1 386 million). This consists of 
    R883 million (2017: R794 million) regarding the True Sales Receivables (TSR) facility and R602 million 
    (2017: R592 million) for the environmental rehabilitation obligations.

    Eligible inventories and receivables are provided as securities for the borrowing base facility to the extent of the 
    draw down. At 31 December 2018, the balance of the borrowing based facility was R300 million (2017: R3 700 million) 
    with R4 200 million (2017: R800 million) still available.

    Bank accounts of R282 million (2017: R 715 million) were ceded in favour of the borrowing base facility and TSR 
    facilities.

11. Thabazimbi mine acquisition
    On 1 November 2018, the Thabazimbi mine was acquired from Sishen Iron Ore Company (Pty) Ltd at a price of R1, enabling 
    the group to control the environmental rehabilitation process. In terms of the sales agreement, the group is liable for 
    all environmental remediation obligations. The acquisition did not have a significant impact on the environmental 
    obligations of the group as the group has always been contractually responsible for the majority of the rehabilitation 
    cost relating to the Thabazimbi mine. As part of the acquisition the group acquired an asset in the form of an 
    environmental trust which holds investments to the value of R332 million. These investments will be used for 
    rehabilitation purposes. Other liabilities assumed by the group include employee obligations of R4 million.
    
12. Sale of Macsteel
    The group sold its 50% interest in MIHBV to Macsteel Holdings Luxembourg SARL (MacHold) for US$220 million 
    (R3 221 million).

    MIHBV was a long-standing joint venture between MacHold and ArcelorMittal South Africa which is largely focused on 
    international steel trading and shipping. While it remains an important source of steel products, ArcelorMittal South 
    Africa supplies less than 20% of the total tonnage traded and less than 2% of volumes shipped by MIHBV.

    The commercial relationship between MIHBV and ArcelorMittal South Africa will continue through a new, four-year 
    marketing agreement. The Sale of Shares and Marketing agreements were effective on 1 November 2018 when all the 
    conditions precedent were fulfilled.

    The proceeds of this sale significantly strengthened the statement of financial position and cash flow position. This 
    is an important achievement as part of the group' s strategy to improve the sustainability of the business.

    Accounting impact of this transaction
                                                                                                        Year ended    
                                                                                                       31 December     
                                                                                                              2018    
    In millions of rand                                                                                   Reviewed    
    Fair value of investment when recognised as an asset held-for-sale on 31 May 2018                        2 752    
    Equity-accounted investment                                                                             (4 404)   
    Fair value adjustment on asset held-for-sale                                                            (1 652)   
    Foreign currency translation reserve (FCTR)                                                              2 067    
    Profit on disposal of investment                                                                           415    

    On 31 May 2018, the group reclassified the investment in MIHBV as an asset held-for-sale. The group recognised a 
    fair value adjustment in profit and loss on this reclassification amounting to R1 652 million. The disposal was 
    finalised during November 2018 and FCTR of R2 067 million was released as a profit in profit or loss, resulting 
    in a net profit on disposal of R415 million.
                                                                                                        Year ended    
                                                                                                       31 December     
                                                                                                              2018    
    In millions of rand                                                                                   Reviewed    
    Fair value of investment when recognised as an asset held-for-sale on 31 May 2018#                       2 752    
    Revaluation of fair value to effective date*                                                               469    
    Proceeds on effective day                                                                                3 221    
    Derecognition of equity accounted investment#                                                           (4 404)    
    Realised foreign exchange gains on investment at 31 May 2018*                                            1 598    
    Profit on disposal of investment at effective date                                                         415
    * Total foreign exchange translation reserve of R2 067 million was released as a profit in the statement of 
      comprehensive income.                                        
    # The fair value adjustment on asset held-for-sale was R1 652 million.

13. Headline earnings/(loss)
    In millions of rand                                                                Year ended       Year ended    
                                                                                      31 December      31 December     
                                                                                             2018             2017    
                                                                                         Reviewed          Audited    
    Profit/(loss) for the year                                                              1 370           (5 128)   
    Adjusted for:                                                                                                      
    - Impairment charge                                                                        10            2 604    
    - Loss on disposal or scrapping of assets                                                   4                8    
    - Fair value adjustment on investment held-for-sale                                     1 652                -    
    - Reclassification of foreign currency differences on sale of foreign investment       (2 067)               -    
    - Tax effect                                                                               (1)              (2)   
    Headline earnings/(loss) for the year                                                     968           (2 518)   
    Headline earnings/(loss) per share (cents)                                                                        
    - basic                                                                                    89             (230)   
    - diluted                                                                                  89             (230)   

14. Cash generated from/(utilised in) operations
                                                                                       Year ended       Year ended    
                                                                                      31 December      31 December     
                                                                                             2018             2017    
    In millions of rand                                                                  Reviewed          Audited    
    Profit/(loss) from operations                                                           2 777           (1 220)   
    Adjusted for:                                                                                                     
    - Depreciation                                                                            831              976    
    - Unrealised profit on sales to joint ventures                                             (3)               -    
    - Share option and participation costs                                                     10               68    
    - Non-cash movement in provisions and financial liabilities                              (125)            (279)   
    - (Reversal of write-down)/write-down of inventory to net realisable value               (140)             108    
    - Movement in trade and other receivable allowances                                        46               (1)   
    - Reconditionable spares usage                                                              5                1    
    - Loss on disposal or scrapping of property                                                 4                8    
    - Other cash movements                                                                                            
    - Increase in inventories                                                                (520)            (353)   
    - Increase in trade and other receivables                                              (1 005)          (1 207)   
    - Increase in trade and other payables                                                    497            1 373    
    - Utilisation of provisions                                                               (35)             (54)   
    - Changes in financial liabilities or assets                                             (142)            (252)   
    - Other payables raised, released and utilised relating to employees                       82              120    
    Cash generated from/(utilised in) operations                                            2 282             (712)

15. Commitments
    In millions of rand                                                                Year ended       Year ended    
                                                                                      31 December      31 December     
                                                                                             2018             2017    
                                                                                         Reviewed          Audited    
    Capital expenditure commitments on property, plant and equipment                                                   
    Capital expenditure authorised and contracted for                                         655              754    
    Capital expenditure authorised but not contracted for                                   2 459            2 634
    
    Included in the capital expenditure above is an amount of R677 million to address emissions at Vanderbijlpark 
    operations over the next three years.

16. Going concern
    The condensed consolidated financial statements have been prepared on a going concern basis. Based on the group's 
    12-month funding plan, together with available banking facilities, the directors believe that the group will be 
    able to comply with its financial covenants and be able to meet its obligations as they fall due, and accordingly 
    have concluded that the group remains a going concern.

    The group recognised a net profit after tax of R1 370 million (2017: loss of R5 128 million) for the year ended 
    31 December 2018 and, as at that date, current assets exceed current liabilities by R3 901 million 
    (2017: R785 million).

    During 2018, the group returned to profitability on the back of higher international steel prices, lower costs and 
    higher sale volumes. The group embarked upon a business transformation programme towards the end of 2017. This 
    programme has been initiated to address cost reduction, improve efficiencies and debottleneck steel production at 
    all sites. The success of some of these initiatives is visible in the results for the year ended 31 December 2018, 
    noticeable the capacity utilisation improvement from 81% to 84% as a result of this programme. The group continues 
    to drive these initiatives to further improve on the performance of the plants in the coming year.

    As detailed in note 12, the group realised proceeds on the sale of the investment in MIHBV at R3 221 million. This 
    further strengthened the statement of financial position and cash flow of the group by reducing net debt from 
    R3 262 million to R475 million. The group generated sufficient cash from operating activities to cover capital 
    expenditure and interest during 2018.

    As previously reported (in the financial results for the six month ended 30 June 2018), the group has completed the 
    renegotiations and the resetting of the level of the tangible net worth covenant on the borrowing based facility. As 
    at 31 December 2018, the group is in compliance with all covenants. At 31 December 2018 the balance of the borrowing 
    based facility was R300 million (2017: R3 700 million) with R4 200 million (2017: R800 million) remaining undrawn. 
    The group continues to work closely with all lenders to ensure the required facilities remain in place.

    The directors are not aware of any other matters or circumstances that the group faces and concluded that there are no 
    other material matters that may impact the group' s ability to continue as a going concern.

    The financial performance of the group is dependent upon the wider economic environment in which the group operates. 
    Factors which are outside the control of management can have an impact on the business, specifically volatility in the 
    rand/US dollar exchange rate as well as commodity and steel prices. The directors and management continue to monitor, 
    develop and improve business plans and liquidity models in order to effectively deal with the effects of these factors.

17. Subsequent events
    The directors are not aware of any matter or circumstances arising since the end of December 2018 to the date of 
    this report that would significantly affect the operations, the results or financial position of the group.

    During January 2019 the group has been informed that there is an intention to institute criminal proceedings against 
    the group on account of three alleged transgressions of its atmospheric emission licence at its Vanderbijlpark operations. 
    The prosecution has agreed that the group would first be afforded an opportunity to meet and to make representations 
    before proceeding with the prosecution. This process has not been concluded. In the event that the matter proceeds, 
    and if there is an adverse finding regarding all these transgressions, insofar as the financial exposure in terms of 
    a fine is concerned, the maximum fine payable is up to R15 million in terms of the legislation. The group remains firmly 
    committed to minimising its impact on the environment and, to this end, has invested and continues to invest in various 
    initiatives and projects to improve the group's environmental performance and standards.


Forward looking statements
Statements in this announcement 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 risks and uncertainties which 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). 
Any reference to future financial performance included in this announcement has not been reviewed or reported on by the
group's auditors.


Corporate information
Registered office: ArcelorMittal South Africa Limited, Room N3-5, Main Building, Delfos Boulevard, 
Vanderbijlpark, 1911

Directors 
Non-executive directors
PM Makwana* (chairman), BE Aranha#, LC Cele*, GS Gouws, NP Gosa, R Karol+, NP Mnxasana*, JRD Modise*, KMM Musonda*^,
NF Nicolau*
#Citizen of Canada  +Citizen of India  ^Citizen of Zambia  *Independent non-executive

Executive directors
HJ Verster (chief executive officer), AD Maharaj (chief financial officer)

Company secretary 
Ms NB Bam

Sponsor 
Absa Bank Limited (acting through its corporate and investment banking division) 15 Alice Lane, Sandton, 2196. Private
Bag X10056, Sandton, 2146

Auditors  
Deloitte & Touche
Deloitte Place, Building 1, The Woodlands, 20 Woodlands Drive, Woodmead, 2052, South Africa
Telephone: + 27 (0) 11 806 5000  Facsimile: + 27 (0) 11 806 5118

Release date: 7 February 2019

www.southafrica.arcelormittal.com
Date: 07/02/2019 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Email this JSE Sens Item to a Friend.

Share This Story