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ARCELORMITTAL SOUTH AFRICA LIMITED - ACL - Consolidated financial results for the six months ended 30 June 2019

Release Date: 01/08/2019 07:05
Code(s): ACL     PDF:  
 
Wrap Text
ACL - Consolidated financial results for the six months ended 30 June 2019

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

Short-form announcement: Consolidated financial results for the six months ended 30 June 2019

Salient features
- 2% reduction in South Africa?s apparent steel consumption
- 13% lower international steel prices     
- 4% decrease in liquid steel production with a 9% reduction in 
  steel sale volumes         
- 15% increase in cost per tonne of liquid steel driven by sharp rises in the 
  iron ore price and increases in electricity, rail and transport tariffs  
- EBITDA decreased by R1 420 million to R167 million
- R4 500 million borrowing-base facility renewed      
- Aggressive focus on cash generation containing cash outflow to R1 266 million resulting 
  in higher net debt of R1 741 million 
- Successfully completed the interim stave repair at the blast furnace 
  at Vanderbijlpark Works, and restarted the Vereeniging electric arc furnace 
- Sale of business agreement concluded in relation to the acquisition by ArcelorMittal South Africa 
  of the Highveld Structural Mill
- Business Transformation Programme - to improve international cost competitiveness - 
  is gaining momentum    
- Improved health and safety record with lost time injury frequency rate (LTIFR) 
  decreasing from 0.83 to 0.38    

Overview 
After a positive 2018, the global steel industry is facing challenging market conditions in the 
current year as a result of weaker international steel prices, increases in primary raw material costs 
and lower demand. Locally, the South African steel industry continues to face significant challenges. 
The domestic economy has remained close to recessionary levels as investment and infrastructural spending 
in the country remained subdued. In the first quarter of the year, the economy contracted the most in a 
decade mainly due to the decline in activity in the mining and manufacturing sectors. Business sentiment 
remains subdued. Apparent steel consumption decreased by a further 2% for the period and is now at 70%
of the apparent steel consumption of the first half of 2008 - a 10-year low.

The group's results reflect this challenging operating environment during this period.

Total steel imports for the six months are 18% higher with flat products imports increasing by 23%. These 
increases consist mainly of hot rolled coils imported from China, Russia and Taiwan. Imports once again 
constitute 20% of South Africa's apparent steel consumption compared to 17% in the comparable period. 
In order to assist the downstream steel fabrication industry to effectively compete against the import of 
semi-finished and finished fabricated steel goods additional import tariff protection is required.

Cash preservation and generation, and cost control remain the group's primary focus areas. The group's 
strategic imperative of improving its cost competitiveness against, in particular, China-sourced steel 
and that of domestic producers, is being severely hampered by structural disadvantages associated with 
unaffordable electricity, port and rail tariffs and raw material costs.

Increases in electricity, port and rail tariffs have already made the group uncompetitive internationally. 
These unaffordable increases resulted in R168 million of additional costs against the comparable period. 
Winter tariffs add on average R110 million to the monthly electricity cost of the company.

International iron ore prices have increased sharply by 28% while steel prices have decreased by 13%. 
Higher iron ore prices have negatively impacted earnings by R700 million against the comparable period.

Export sales declined due to a decrease in international demand, and, in the case of flat products, the 
build-up of slab inventory to compensate for the planned repair outage of the blast furnace at 
Vanderbijlpark Works, enabling the uninterrupted supply of domestic customers.

The two-month unprotected labour strike had no notable impact on sales and production volumes during 
the period. Reduction of its carbon footprint is a key imperative for the group. Timing, however, of
the introduction of carbon tax effective 1 June 2019, from which imported steel is exempted, will place 
further financial pressure on the business. This necessitated the implementation of a carbon tax levy on 
certain steel products, effective 1 July 2019. 

ArcelorMittal South Africa's operating profit decreased from a profit of R1 224 million to a loss of 
R222 million, which resulted in a headline loss of R638 million compared to headline earnings of 
R54 million for the same period last year.
 
The volatility of the rand/USD exchange rate continues to impact the group's performance.

As part of its strategy, the group has embarked on several initiatives to improve efficiencies and 
address expenditure within its control. More significant measures have become necessary to return to 
profitability and generate positive cash flows.

Safety remains the group's number one priority. The group's efforts to improve its health and safety 
record resulted in no fatalities at its operations for the period. The group continues to focus on this 
critical area with LTIFR improving from 0.83 to 0.38 and total injury frequency rate (TIFR) increasing to 
7.41 from 6.33.

Outlook for the second half of 2019 
International steel prices are expected to improve while the raw material basket is likely to be lower. 
Domestic steeldemand will remain under pressure until real infrastructure spend and economic growth 
improve. Regulated tariffs will continue to impact the group's cost competitiveness. The group will 
intensify engagements with key stakeholders to reduce the electricity, rail and iron ore costs. The
completion of the restructuring (section 189) will improve the productivity. 

The volatility of rand/USD exchange rate is also likely to continue to have an impact on the group's 
results.

ArcelorMittal South Africa has implemented various initiatives to return the group to profitability 
and to generate positive cash flows. The group will continue to drive interventions to address the 
challenges it faces as part of its turn-around and strategy implementation.

On behalf of the board of directors

HJ Verster 
Chief Executive Officer

AD Maharaj
Chief Financial Officer

1 August 2019


Key statistics                                                                                   
    Six months                                                           Year ended                 
  ended 30 June                                                         31 December                
  2019      2018   % change                                                    2018    
                                Financials (Rm)                                          
21 743    22 868       (4.9)    Revenue                                      45 274    
   167     1 587      (89.5)    EBITDA                                        3 608    
  (222)    1 224          -     (Loss)/profit from operations                 2 777    
  (644)   (1 602)      59.8     Net (loss)/profit                             1 370    
  (638)       54          -     Headline (loss)/earnings                        968    
(1 741)   (1 888)      (7.8)    Net borrowing                                  (475)   
 7 443     6 717       10.8     Net asset value                               7 961    
                                Financial ratios (%)                                   
   0.8       6.9          -     EBITDA margin                                   8.0    
 (16.6)      1.4          -     Return on ordinary shareholders' equity        12.1    
 (23.4)    (28.1)         -     Net borrowing to equity                        (6.0)   
                                Share statistics (cents)                               
   (59)     (147)      59.8     (Loss)/profit per share                         125    
   (58)        5          -     Headline (loss)/earnings per share               89    
     -         -          -     Dividends per share                               -    
  6.81      6.14       10.8     Net asset value per share                      7.28    
                                Safety                                                 
  0.38      0.83       54.2     Lost time injury frequency rate                0.53    
                                Operational statistics (000 tonnes)                    
 2 460     2 559       (3.9)    Liquid steel production                       5 092    
 2 162     2 366       (8.6)    Steel sales                                   4 491    
 1 586     1 715       (7.5)    - Local                                       3 337    
   576       651      (11.5)    - Export                                      1 154    
    93       131      (29.0)    Commercial coke and tar sales                   239    
                                Segmental performance (Rm)                             
                                Flat steel products                                    
14 843    15 817       (6.2)    - Revenue                                    31 919    
    86     1 183      (92.7)    - EBITDA                                      2 670    
                                Long steel products                                    
 7 722     7 704        0.2     - Revenue                                    14 905    
   (66)      336          -     - EBITDA                                        808    
                                Coke and Chemicals                                     
   576       730      (21.1)    - Revenue                                     1 376    
   108       201      (46.3)    - EBITDA                                        370    
                                Corporate and other                                    
    39      (133)         -     - EBITDA                                      (240)    


Short-form announcement
This short-form announcement is the responsibility of the board of directors of ArcelorMittal 
South Africa and is a summarised version of the group's full announcement and as such, it does not 
contain full or complete details pertaining to the group's results. This announcement is itself not 
audited or reviewed by the group's external auditors but is an extract from the reviewed results. Any 
investment decisions by investors and or shareholders should be made after taking into consideration 
the full announcement. The full interim results announcement is available for viewing at 
https://senspdf.jse.co.za/documents/2019/JSE/ISSE/ACL/AMSAInt19.pdf and on the group's website 
(https://southafrica.arcelormittal.com/InvestorRelations/InterimResults.aspx). The full announcement is 
available for inspection, at no charge, at the registered office (ArcelorMittal South Africa Limited, 
Room N3-5, Main Building, Delfos Boulevard, Vanderbijlpark) and the offices of the sponsor (Absa Bank 
Limited (acting through its Corporate and Investment Banking division, 15 Alice Lane, Sandton)), from 
09:00 to 16:00 on business days. Copies of a full announcement can be requested from the registered 
office by contacting (016) 889 9111.

This report is available on ArcelorMittal South Africa's website at: 
https://southafrica.arcelormittal.com/InvestorRelations/InterimResults.aspx
Share queries: Please call the ArcelorMittal South Africa share care toll free line on 0800 006 960 
or +27 11 370 7850

Date: 01/08/2019 07:05:00
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