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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