Financial results For the six months ended 30 June 2018 Disclaimer - - PowerPoint PPT Presentation

Financial results

For the six months ended 30 June 2018

Disclaimer

Forward looking statements

This presentation includes forward-looking information and statements about ArcelorMittal South Africa (“AMSA”) and its subsidiaries that express or imply expectations of future events or results. Forward-looking statements are statements that are not historical facts. These statements include, without limitation, financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future production,

• perations, costs, products and services, and statements regarding future performance. Forward-looking statements

may, without limitation, be identified by words such as ‘believe,’ ‘expect,’ ‘anticipate,’ ‘target,’ ‘plan,’ and other similar

• expressions. All forward-looking statements involve a number of risks, uncertainties and other factors not within AMSA’s

control or knowledge. Although AMSA’s management believes that the expectations reflected in such forward-looking statements are reasonable, investors and holders of AMSA’s securities are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of AMSA, that could cause actual results and developments to differ materially and adversely from those expressed in, or implied or projected by, the forward-looking information and statements contained in this presentation. The risks and uncertainties include those discussed or identified in the filings with the Johannesburg Stock Exchange (the “JSE”) made or to be made by AMSA, including AMSA’s Annual Report of the year ended December 31, 2017 filed with the JSE. Factors that could cause or contribute to differences between the actual results, performance and achievements of AMSA include, but are not limited to, political, economic and business conditions, industry trends, competition, commodity prices, changes in regulation and currency fluctuations. Accordingly, investors should not place reliance on forward looking statements contained in this presentation. The forward-looking statements in this presentation reflect information available at the time of preparing this presentation and have not been reviewed and reported on by AMSA’s auditors and apply only as of the date they are made. Subject to the requirements of the applicable law, AMSA shall have no obligation and makes no undertaking to publicly update any forward-looking statements in this presentation, whether as a result of new information, future events or otherwise or to publicly release the result of any revisions to any forward-looking statements in this presentation that may occur due to any change in AMSA’s expectations or to reflect events or circumstances after the date of this presentation. No statements made in this presentation regarding expectations of future profits are profit forecasts or estimates.

2 Financial results for the six months ended 30 June 2018

Contents

Overview Steel market Operational review Financial review Outlook Questions CEO CEO CEO Acting CFO CEO CEO

Financial results for the six months ended 30 June 2018 3

Overview

Kobus Verster

Safety

LTIFR – Lost Time Injury Frequency Rate TIFR – Total Injury Frequency Rate

Safety improvements

• Proactive approach through more focused

“safety by choice” programme

• Safety retraining of employees and

contractors

• Intensified management visibility on shop

floor

• Improvement in TIFR encouraging

Fatalities 1 (3) TIFR 6.33 (7.49) LTIFR 0.83 (0.62)

Financial results for the six months ended 30 June 2018 5

Salient features

Costs

• 6%

Total volumes 10%

Long 17% EBITDA 397% (R2 121m) Flat 7%

Revenue 19%

Variable cost

• 5%

Fixed cost

• 8%

HEPS 103%

Landscape

• International steel prices remain strong
• Strong ZAR limits increase in realised local

prices (+8%)

• Weak domestic market - ASC lowest in nine

years (2.5mt)

• Sales volumes up 10%
• Liquid steel production up 8%
• Total cost of production declined 6%
• R1.6bn EBITDA aided by cost reductions
• All operating units EBITDA positive
• Net debt decreased by R1.4bn
• Sale of Macsteel International to strengthen

balance sheet

AOL 39% 6 Financial results for the six months ended 30 June 2018

Steel Market

Kobus Verster

The industry - global

• Global steel production increased by 4.3% to

874mt

• Asia market share remained at 69% growing

25mt despite plant closures and environmental shutdowns in China

• Africa output increased by 500kt

Global steel output (mt)

Source: WorldSteel

73 71 76 69 75 66 71 67 86 82 88 54 54 54 51 51 51 51 51 49 52 51 59 60 60 61 56 55 56 55 58 58 59 544 546 563 559 552 539 551 558 579 587 605 100 200 300 400 500 600 700 800 900 2013 2014 2015 2016 2017 2018

European Union (15) Other Europe C.I.S. North America South America Africa Middle East Asia 8 Financial results for the six months ended 30 June 2018

Macro backdrop

Source: StatsSA * Q1 2017 vs. Q1 2018

South African GDP* growth

22.2% 12.8%

• 0.1%
• 0.6%
• 1.2%
• 1.3%
• 1.6%
• 3.7%
• 4.8%
• 5.9%
• 24.2%
• 9.9%

1.2% 1.8% 1.1%

• 1.9%

0.9%

• 6.4%
• 0.5%
• 3.1%
• 30.0%
• 20.0%
• 10.0%

0.0% 10.0% 20.0% 30.0%

Agriculture Mining Personal Services Government Finances Construction Transport Manufacturing Electricity Trade

Q1 2018 Q1 2017

• SA economy remains weak with

GDP growth negative in Q1 18

• Major steel consuming sectors in

negative growth

• Manufacturing -6.4%
• Construction -1.9%
• Mining -9%

Financial results for the six months ended 30 June 2018 9

The industry – raw materials

Note: The Raw Material Basket (RMB) represents the costs of the raw materials in a tonne of finished steel

Commodity International AMSA ($/t) AMSA (R/t)

% change % change % change Iron ore

• 6%
• 1%
• 8%

Hard coking coal +17%

• 14%
• 20%

Scrap +32% +24% +15% RMB total +10% +5%

• 3%

HRC China +26% +18% +9%

International raw material basket (Weight in % and spread in $/t)

20% 19% 20% 14% 15% 18% 19% 31% 31% 32% 47% 41% 43% 43% 50% 51% 48% 39% 43% 39% 38%

100 200 300 400 0% 20% 40% 60% 80% 100%

2015 2016 2017 2018 Scrap Coking coal Iron ore Spread

• Both coking coal and scrap prices increased over the review period
• Scrap increased its weight in the RMB to 19% (H1 2017 = 15%) while coking coal now constitutes

43%

• Thanks to a reduction of 6% in iron ore values, its weight has reduced to 38%
• Raw materials now make up 48% of the total production costs compared to 49% in H1 2017

10 Financial results for the six months ended 30 June 2018

The industry - domestic

Financial results for the six months ended 30 June 2018 11

Primary carbon steel sales into the South African domestic market

Source: SAISI

1 694 1 414 1 528 1 485 1 553 1 472 1 789 1 474 1 621 1 664 1 704 576 477 547 493 382 276 295 393 410 395 434 672 569 480 513 751 590 587 571 569 390 392

• 500

1 000 1 500 2 000 2 500 3 000 2013 2014 2015 2016 2017 2018

AMSA Competitors Imports

Total steel sales

600 505 558 494 571 540 643 523 455 478 544 407 378 404 382 295 266 295 393 410 395 434 134 91 72 96 161 65 145 126 129 65 57

• 500

1 000 2013 2014 2015 2016 2017 2018

Long AMSA (kt) Long competitors (kt) Imports (kt)

Long product sales

1 094 909 970 991 982 932 1 146 951 1 166 1 186 1 160 169 99 143 111 87 10 538 478 408 417 590 524 442 445 440 325 335

(200) 300 800 1 300 1 800 2013 2014 2015 2016 2017 2018

Flat AMSA (kt) Flat competitors (kt) Imports (kt)

Flat product sales

The industry - domestic

12 Financial results for the six months ended 30 June 2018

Primary carbon steel imports into the South African domestic market

Source: SAISI

134 91 72 96 161 65 145 126 129 65 57 538 478 408 417 590 524 442 445 440 325 335 11% 9% 7% 10% 15% 13% 12% 13% 6% 6% 28% 31% 26% 27% 35% 35% 27% 32% 27% 22% 22%

0% 5% 10% 15% 20% 25% 30% 35% 40%

• 100

200 300 400 500 600

2013 2014 2015 2016 2017 2018 Long Imports (kt) Flat imports (kt) Long imports % of long ASC 672 569 480 513 751 590 587 571 569 390 392 324 341 272 267 290 286 248 253 263 232 262 22% 22% 18% 20% 27% 25% 21% 23% 22% 16% 15%

0% 5% 10% 15% 20% 25% 30%

• 100

200 300 400 500 600 700 800

2013 2014 2015 2016 2017 2018 Imports of primary steel (kt) Imports of products containing steel (kt) % of ASC

The industry - domestic

Financial results for the six months ended 30 June 2018 13

Primary carbon steel inventory levels in South Africa outside the primary steel producers

Source: SAISI

836 806 781 741 866 681 751 654 709 660 640 7.4 8.5 7.9 7.7 8.4 7.6 7.3 7.0 7.1 7.0 6.6

1 2 3 4 5 6 7 8 9

• 100

200 300 400 500 600 700 800 900 2013 2014 2015 2016 2017 2018

Inventory (kt) Weeks' consumption 277 277 267 237 287 272 297 280 310 296 286 558 528 513 503 578 408 453 373 398 363 353 6.3 7.4 6.7 6.3 7.3 7.1 7.0 8.1 8.2 7.2 8.1 9.2 8.8 8.6 9.1 7.2 7.4 6.9 6.4 6.2 6.1

1 2 3 4 5 6 7 8 9 10

• 100

200 300 400 500 600 2013 2014 2015 2016 2017 2018

Long Inventory (kt) Flat Inventory (kt) Long Weeks' consumption Flat Weeks' Consumption

Operational review

Kobus Verster

Flat steel division

Liquid steel output (kt) Product sales distribution (%)

65% 65% 66% 65% 63% 60% 62% 60% 67% 68% 69% 11% 11% 9% 11% 13% 14% 13% 14% 9% 9% 9% 9% 8% 8% 7% 8% 7% 8% 8% 7% 6% 6% 4% 4% 4% 5% 5% 6% 7% 7% 6% 6% 6% 5% 6% 6% 6% 5% 5% 4% 4% 4% 4% 3% 5% 5% 6% 6% 7% 8% 6% 7% 6% 7% 9%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2013 2014 2015 2016 2017 2018 HRC HDG CRC Plate Tin Other

1535 1694 1719 1867 1707 1438 1732 1489 1649 1809 1814

200 400 600 800 1000 1200 1400 1600 1800 2000 2013 2014 2015 2016 2017 2018

Financial results for the six months ended 30 June 2018 15

Long steel division

Liquid steel output (kt) Product sales distribution (%)

36% 41% 36% 35% 36% 37% 35% 34% 41% 36% 36% 14% 12% 13% 13% 15% 13% 15% 18% 13% 15% 14% 24% 21% 22% 19% 20% 17% 20% 16% 15% 21% 22% 14% 14% 14% 17% 15% 18% 19% 20% 16% 14% 13% 2% 2% 3% 3% 3% 2% 2% 3% 2% 2% 2% 11% 11% 12% 13% 11% 14% 9% 9% 13% 11% 13% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2013 2014 2015 2016 2017 2018

Wire Rod Bars Sections Rebar Fencing Other

946 921 667 265 856 838 788 762 725 727 745 200 400

600 800 1000 2013 2014 2015 2016 2017 2018

16 Financial results for the six months ended 30 June 2018

Coke & Chemicals division

Commercial coke (kt) Coke & Chemicals source of revenue %

66% 13% 7% 4% 3% 3% 3% 1%

FeCr Alloy Aluminium Other Timber Cement Plasticiser Petro Chemicals Financial results for the six months ended 30 June 2018 17

211 181 217 294 228 178 157 94 100 90 94 210 336 200 242 256 196 255 86 92 89 88

50 100 150 200 250 300 350 400

2013 2014 2015 2016 2017 2018

Commercial Coke production Commercial Coke sales 2016 2017 2018 2015 2014 2013

Capital expenditure

H1 2018 H1 2017 Maintenance 213 402 Expansion 61 127 Environmental 74 11 Other 24 32

Total expenditure

371

572

AMSA R371m Vdbp R200m LSP R110m C&C R11m Saldanha R50m

Main projects completed in H1 2018

• Long steel products

– Refurbishment of boiler 4 – Replacement of basic oxygen furnace and secondary metallurgy level automation – Battery N2 dedusting refurbishment

• Saldanha

– New gear assembly for compressor gearbox

• Vanderbijlpark

– Through wall rebuild of oven walls at battery 9 – Civil repair of cooling towers

18 Financial results for the six months ended 30 June 2018

Financial review

Gerhard van Zyl

Headline earnings (Rm)

H1 2018 H1 2017

Revenue 22 868 19 151 EBITDA 1 587 (534) Depreciation and amortisation (363) (449) Profit/(loss) from operations 1 224 (983) Impairment (5) (604) Net finance costs (1 306) (622) Equity earnings 137 (14) Fair value adjustment on asset held for sale (1 652)

• Loss for the period

(1 602) (2 223) Add back impairment 5 604 Add back profit on disposal of assets (1)

• Add back fair value adjustment on asset held

for sale 1 652

• Headline profit/(loss)

54 (1 619) US$m 4 (122)

20 Financial results for the six months ended 30 June 2018

Sale of non-core asset

21

Macsteel International Holdings (Rm) H1 2018

Fair value (USD 220million x R12.52*) 2 752 Equity accounted investment (4 404) Fair value adjustment on asset held for sale recognised for the period (1 652) Foreign currency translation reserve (FCTR) 1 862

* Exchange rate as at 31 May 2018, when investment was classified as asset held for sale

Financial results for the six months ended 30 June 2018

Divisional EBITDA

H1 2018 H1 2017

Flat steel products (Rm) 1 183 (69) EBITDA margin 7.5% (0.5%) Net realised price R/t 8 995 8 413 Long steel products (Rm) 336 (706) EBITDA margin 4.4% (13.0%) Net realised price R/t 8 465 7 492 Coke and Chemicals (Rm) 201 191 EBITDA margin 27.5% 26.0% Corporate and other (Rm) (133) 50 Total EBITDA (Rm) 1 587 (534) EBITDA margin 6.9% (2.8%)

22 Financial results for the six months ended 30 June 2018

23 Financial results for the six months ended 30 June 2018

Cost dynamics and breakdown

Weight

H1 2018 H1 2017

Change

48%

Raw materials 3 600

3 849 (7%)

F

31%

Auxiliaries & consumables 2 325

2 409 (4%)

l

21%

Fixed costs 1 607

1 776 (8%)

a

100%

Total 7 532

8 034 (6%)

t Liquid steel (kt) 1 814

1 649 +10%

Average ZAR rate 12.29

13.23 (7%)

Average NRP (R/t) 8 995

8 413 +7% 50%

Raw materials 3 600

3 857 (7%)

L

23%

Auxiliaries & consumables 1 591

1 643 (3%)

• 27%

Fixed costs 1 861

1 950 (5%)

n

100%

Total 7 052

7 449 (5%)

g Liquid steel (kt) 745

725 +3%

Average ZAR rate 12.29

13.23 (7%)

Average NRP (R/t) 8 465

7 492 +13%

Financial results for the six months ended 30 June 2018 24

Cash flow and analysis (Rm)

H1 2018 H1 2017

Cash generated/(utilised) from operations before working capital 1 881 (502) Working capital 671 (615) Capital expenditure (600) (601) Net finance costs (330) (353) Investment in associates and joint ventures (2) (4) Income tax paid (1) (7) Interest income from investment 5

• Proceeds on scrapping of assets

10 6 Realised foreign exchange movements (223) (119) Finance lease obligations repaid (44) (35) Borrowings repaid (850) (4 298) Cash settlement on management share trust (2)

• Increase in cash

515 2 059 Effect of forex rate change on cash 9 4 Net increase in cash and cash equivalents 524 2 063 Cash and bank balances 3 662 3 723 Borrowings (current and non current) (5 550) (6 300) Net borrowings (1 888) (2 577)

Working capital movement and analysis (Rm)

H1 2018 H1 2017

Inventories 1 306 (562) Finished products 251 201 Work-in-progress 720 (677) Raw materials 370 (126) Plant spares and stores (35) 40 Receivables (1 524) (1 535) Payables 889 1 482 Working capital movement 671 (615)

25 Financial results for the six months ended 30 June 2018

Consolidated statement of financial position (Rm)

H1 2018 H2 2017 H1 2017

Current assets 21 907 18 131 18 837 Cash and bank balances 3 662 3 138 3 723 Inventories 10 449 11 519 11 694 Trade & other receivables 4 522 2 988 3 342 Asset held for sale 3 018

• Other current assets

256 486 78 Non-current assets 8 840 13 065 15 192 Property, plant & equipment 8 480 8 474 10 196 Equity accounted investments 227 4 424 4 447 Other non-current assets 133 167 549 Total assets 30 747 31 196 34 029 Liabilities 24 030 23 138 22 931 Current liabilities 15 242 13 646 13 164 Non-current liabilities 3 238 3 092 3 467 Current borrowings 2 850 3 700 2 700 Non-current borrowings 2 700 2 700 3 600 Shareholders equity 6 717 8 058 11 098 Total liabilities & equity 30 747 31 196 34 029

26 Financial results for the six months ended 30 June 2018

(3 262) 1881 671 (330) (600) (223) (25) (1 888)

Net borrowings bridge (Rm)

Net borrowings June 2018 Other Forex Capex Finance cost Working capital Cash from

• perations

Net borrowings Dec 2017 27 Financial results for the six months ended 30 June 2018

Outlook

Kobus Verster

Short term Commercial

Organisational & industrial footprint

Procurement

• Productivity

improvements

• Cost reduction
• Operational stability
• Balance sheet
• ptimisation
• Overall cost controls
• Improve raw material mix
• Close productivity gap
• A leaner organisation
• Improve technical skills
• Improve cost

competitiveness

• Increase local market

share

• Improve AOL & rest of

Africa

• Optimise pricing strategy

while ensuring compliance with fair pricing principles

• Higher crude steel production
• Increased PCI injections rate in blast

furnaces

• Improved energy usage at long steel

products and Saldanha

• Increased met coke production to

reduce our reliance on more expensive import coke for Vanderbijlpark Works

• Section 189 concluded
• Implemented focus on high value

speciality products (round edge flat bar, hollow drill steel, fishplates)

• Improved production volumes and

yields on all KZN downstream mills

• Reduced non-prime ratio
• Increased 1mm production at

Saldanha (+38%)

• Improved on time delivery levels

H1 2018 initiatives

29

Progress What we set out to do

Financial results for the six months ended 30 June 2018

Transforming for sustainability and growth

• Resolve Newcastle’s structural competitive position
• Feasibility study for a new large EAF at Vanderbijlpark
• Focus on environmental management
• Further strengthen the balance sheet

30 Financial results for the six months ended 30 June 2018

• Restart Vereeniging electric arc furnace
• Increase volume through debottlenecking of current steel

assets

• Improve commercial performance especially on on-time

delivery and quality to grow market share

• Implement a structured business transformation project:
• Global cost benchmarking identified $50/t cost

reduction through

• Stretched variable cost and efficiency savings
• Fixed costs procurement and business footprint

savings

Outlook H2 2018

• Various initiatives will be implemented to ensure profitability and positive cash flow
• Domestic and export steel sales likely to remain stable in Q3
• Sales prices expected to remain strong
• Volatility in the ZAR/USD exchange rate will continue to have a material impact on the financial

results

Financial results for the six months ended 30 June 2018 31

Questions