Financial results for the six months ended June 2014 Agenda 2 - - PowerPoint PPT Presentation

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Financial results for the six months ended June 2014 Agenda 2 - - PowerPoint PPT Presentation

May 08, 2023 414 likes •784 views

www.arcelormittalsa.com 1 Financial results for the six months ended June 2014 Agenda 2 Overview CEO, Paul OFlaherty Steel market overview CEO, Paul OFlaherty Finance CFO, Matthias Wellhausen Operating results COO, Hans

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www.arcelormittalsa.com

Financial results

for the six months ended June 2014

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www.arcelormittalsa.com

Overview

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Agenda

  • Overview

CEO, Paul O’Flaherty

  • Steel market overview

CEO, Paul O’Flaherty

  • Finance

CFO, Matthias Wellhausen

  • Operating results

COO, Hans Ludwig Rosenstock

  • Other key issues and outlook

CEO, Paul O’Flaherty

  • Questions
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www.arcelormittalsa.com

Overview

Paul O’Flaherty, CEO

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Overview

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70 % of new recruits employed locally; 16 m tonnes of material transported on local road and rail R40 m invested in local communities in 2013 40 local community org. engaged in 2013, with

  • utcomes documented

24 % spend (R5.9 bn) on local suppliers of which R1.0 bn on QSE & EME 5 m tonnes of steel produced with ~60% of South African steel supplied by AMSA supporting key domestic industries 3.5 formal jobs created economy- wide for every R1 m spent by AMSA Developed local steel processing industries through joint ventures. Export rebates of R213 m paid out to local companies in 2013

Our Footprint

Note: All figures as of 2013 Source: AMSA, internal data, BCG analysis

Employer, job creator and skills developer Impact on local communities Environmental footprint Enabler of S.A. development through supply of steel Catalyst for change in South Africa Economic growth engine

R27 bn (0.9 %) in direct GDP and R11 bn (0.4 %) in indirect GDP contribution R1.5 bn in taxes contributed R42 m invested in technical training; Multiple global steel innovations introduced to South Africa Over 14 800 people in direct employment due to AMSA Over 120,000 training seats provided with R138 m invested in training Economic Social Environmental

Mostly positive Positive and negative

Mostly negative R2.0 bn in procurement spend on QSE and EME R47 m in economic value contribution in 2013 15.2 m tonnes Scope 1 and 2 CO2 emitted 1.65 m tonnes by-products disposed of ; 290 ha of land under restoration 48 % improvement in water abstraction since

  • 2005. Continuously

improving effluents management 125 PJ of energy 17.5 bn litres of water abstracted and 13.4 m tonnes of raw material consumed 2.5 kt of dust and 23.5 kt of SO2 emissions per annum 11 % female employ- ment, 57 % HDSA employment and 75 % unionisation 8 819 received health & safety and 1 667 received anti- corruption training Open disclosure of financial, env. and social indicators AMSA at B-BBEE Level 7 Voluntary participant in several debates at national level R25 bn spent on over 2000 suppliers, but more emphasis on supplier devt. required

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www.arcelormittalsa.com

Overview

Our value creation model

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Key: t = Tonnes kt = Kilotonnes TWh = Terrawatt hour kL = Kilolitres

Inputs

Input materials consumed

H1 2013 H1 2014 % change Iron ore 3 238kt 3 387kt +5% Coal 2 121kt 2 356kt +11% Scrap 100kt 202kt +102% Fluxes (dolomite & lime) 790kt 868kt +10%

Energy

H1 2013 H1 2014 % change Electricity purchased (TWh) 1.87 1.85

  • 1%

Water intake

H1 2013 H1 2014 % change Water intake (kl) 8 535 661 9 207 418 +8%

Human resources

H1 2013 H1 2014 % change Employees 9 126 8 885

  • 3%

Hired labour 1 616 2 064 +28% Service contractors 3 895 3 344

  • 14%

Training spend R69.1m R69.5m +1%

Investments

H1 2013 H1 2014 % change Capex R377m R856m +127%

Financial outputs

H1 2013 H1 2014 % change Revenue R15 890m R17 927m +13% EBITDA R976m R810m

  • 17%

Profit from operations R233m R159m

  • 32%

EBITDA margin 6.1% 4.5%

  • 26%

Stakeholders impacted

Shareholder Investors Employees Customers

Automotive Building and construction Beverage Infrastructure

Employee Contractors Local communities Suppliers local business

Product outputs

H1 2013 H1 2014 % change Flat steel 1 361kt 1 505kt +11% Domestic market 1 095kt 969kt

  • 12%

Export market 266kt 536kt +102% Long steel 762kt 690kt

  • 9%

Domestic market 611kt 565kt

  • 8%

Export market 151kt 125kt

  • 17%

Coke & chemicals Mkt coke 210kt 208kt

  • 1%

Tar 52kt 53kt +2% Other 488kt 660kt +35%

Safety

H1 2013 H1 2014 % change LTIFR 0.66 0.54

  • 18%

Fatalities 2 n/a

Value outputs

Socio economic outputs

H1 2013 H1 2014 % change Socio economic dev R19.8m R8.2m

  • 59%

Procurement spend R12 188m R13 486m +11%

Steelmaking process

Plate Hot strip mill Caster Blast furnace Electric arc furnace Billet mill Raw materials

Coiled rounds Flats, rails, joists, rounds, angles, billets and channels Flats, reinforced bar, rounds, angles and blooms

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Overview

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Strategic imperatives and strategies

  • Protecting the health and safety of our employees
  • Driving profitability

– Customer focus – Eliminate excessive raw material costs – Improve operational efficiencies – Improve supplier efficiencies – Optimise our industrial footprint – Improve energy efficiencies

  • Government relations
  • Managing our people
  • Environmental responsibility
  • Engaging with local communities
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Overview

Safety – Our Key Strategic Imperative

  • Two contractor fatalities in Q2 2014 (the first

in 33 months)

  • Another fatality in July 2014 (non-reportable)
  • Since 2002 our lost time injury frequency

rate has been reduced by 30% a year from 4.7 in H1 2002 to 0.54 in H1 2014

  • Safety Focus Areas

– Hazard Identification and Risk Management entrenchment being introduced at all sites – Leadership and awareness – Zero harm / Zero fatalities – Minimum Level 3 Compliance with Fatality Prevention Standards

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4.7 3.3 3.9 3.4 2.8 2.2 2.4 2.6 1.6 1.2 0.66 0.56 0.54 1 2 3 4 5 2002 2004 2006 2008 2010 2012 H1'14

Lost Time Injury Frequency Rate (Employees and Contractors)

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Overview

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Environmental investment program

  • R1 452m spent on environmental capital since 2007

– Air emission compliance (44%) – Water management (47%) – Others such as waste management (9%)

  • Rehabilitation of legacy sites remains important
  • Energy efficiency

– Investigate alternative suppliers for electricity and gas – Mitigating options to replace natural gas and/or generate own electricity

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Overview

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Socio Economic activities

  • R8.2m (R19.8m) spent

– 100 houses re-roofed in Boipatong bringing the total to 3 000 since 2010 – 10 new homes in Blaaubosch near Newcastle were built by employees bringing the total of new homes built near our plants to 54 since our volunteering program in 2009 – Grants for NGO’ s mostly involved in health and education related activities and up-skilling at the North West University around the Vaal area – Science centers

  • 1 500 pupils attend science centers in the Vaal Triangle, Saldanha and Newcastle
  • Vanderbijlpark Works recruits graduates from the program with 34 learners already on the

workforce pipeline for various engineering fields

  • 500 local communities benefited from computer lessons offered by the centers
  • Early childhood development programs offered by the centers
  • Signed an MOU for the Newcastle Science Center to assist the Department of Education

with teacher development training

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Overview

Operational and Financial overview

(for the six months to end June 2014)

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1 2 3 4 6 5

EBITDA decreased 17% to R810m Headline loss lower by 95% to R6m from R123m N5 reline on budget, but behind schedule Plans in place to limit impact of delay Despite the N5 furnace reline, capacity utilisation increased to 74% Steel shipments increased 3% Domestic sales down 10% and exports higher by 59% Cash cost increased 12% Exchange rate eroded impact of lower raw material prices EBITDA target of $100/t by end 2015 at $34/t to date Target remains achievable

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Overview

Key result drivers

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H1 2013 H1 2014 Flat steel product prices in rand R6 676/t R7 170/t +7% Long steel product prices in rand R6 818/t R7 382/t +8% Liquid steel production 2 481kt 2 386kt

  • 4%

Total sales volume 2 123kt 2 195kt +3% Export sales volume 417kt 661kt +59% Domestic sales volume 1 706kt 1 534kt

  • 10%

Cash cost per ton liquid steel (Total) R5 983 R6 710 +12%

Fixed R1 377 R1 559 +13% Variable R4 607 R5 151 +12%

ZAR movement (average rate) R9.22 R10.71

  • 16%
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www.arcelormittalsa.com

Steel market overview

Paul O’Flaherty, CEO

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Steel market overview

Sales environment

Global

  • Activity picked up in Q2 with USA leading the

Eurozone and China, while emerging economies under pressure Domestic

  • Prolonged mining strike impacted steel

demand and investment climate

  • Apparent steel consumption down 16%
  • Major steel consuming sectors performed

poorly: steel stocks reduced (8 weeks)

  • Marked reduction in steel imports by 28%
  • ArcelorMittal South Africa increased market

share from 58% to 62%

  • Imports of finished products containing steel

losing momentum

  • Sub-Saharan African market is still an

important growth market for steel

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6 7 8 9 10 100000 200000 300000 400000 500000

2009 2010 2011 2012 2013 2014

Primary long Primary flat Finished steel products

Imports

Source : SAISI actuals up to 2008, thereafter AMSA estimates

Weeks’ despatches Imports (t)

600 000 700 000 800 000 900 000 1 000 000 1 000 000 1 100 000 1 200 000 1 300 000 1 400 000

2009 2010 2011 2012 2013 2014

Stocks Apparent consumption AMSA sales

Apparent consumption and AMSA sales vs stocks Despatches (t) & stock (t) Apparent consumption (t)

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www.arcelormittalsa.com

Steel market overview

Raw material price environment

Global

  • Iron ore prices decreased from $137/t to $112/t

(record low of $93/t in June 2014)

  • Hard coking coal peaked during H1 13 ($154/t) and

decreased in H1 14, while Chinese coke decreased by 23%

  • Excess Chinese capacity and slowing economic

growth to add price pressure

ArcelorMittal South Africa

  • Exchange rate absorbed most of the price

weakness

  • Iron ore prices exceeded expectations
  • Other local price increases continue at above

inflation rates

  • Tshikondeni closure at end 2014
  • Rail performance improving marginally

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International H1 2014 Change

Iron ore $112/t

  • 19%

Scrap $371/t

  • 6%

Pellets $128/t

  • 15%

Hard coking coal $117/t

  • 24%

Coke $219/t

  • 23%

Tin $22 915/t +2%

Sources: Platts, AME, AMS and TEX Report

ArcelorMittal South Africa H1 2014 Change

Iron ore R759/t +14% Scrap R3 276/t +11% Pellets R1 510/t +11% Local coal (AP14) R818/t +8% Coke R2 655/t +7% Local met coal R1 423/t

  • 4%
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Steel market overview

Potential demand from new projects in SADC region

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New projects (SADC region) Estimated steel consumption

  • ver life of total project

Estimated annual demand 2014 2015 2016

Energy 3 800 000t 200 000t 250 000t 220 000t

% 40% 50% 30% 28% Wind 140 000t 45 000t 45 000t 25 000t Solar 310 000t 100 000t 100 000t 40 000t Transmission 990 000t 40 000t 100 000t 145 000t Power generation 250 000t 15 000t Nuclear 2 000 000t ICT 110 000t 5 000t 5 000t 5 000t

Mining 100 000t 5 000t 10 000t

% 1% 0% 0% 1%

Water 600 000t 70 000t 110 000t 70 000t

% 6% 16% 13% 9%

Transport 1 800 000t 130 000t 190 000t 200 000t

% 19% 32% 24% 26%

Oil & gas 3 200 000t 10 000t 270 000t 280 000t

% 34% 2% 33% 36%

GRAND TOTAL 9 500 000t 410 000t 825 000t 780 000t

% 100% 100% 100% 100%

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Finance

Matthias Wellhausen, CFO

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www.arcelormittalsa.com

Finance

Headline earnings (Rm)

H1 2013 H2 2013 H1 2014

Revenue 15 890 16 531 17 927 EBITDA 977 791 810 Profit / (Loss) from operations 233 (186) 159 Finance and investment income 16 92 45 Finance costs (212) (156) (252) Tax (expense) / credit (29) 80 (69) Equity (loss) / earnings (148) 113 102 Loss / (profit) on disposal / scrapping of assets* 17 (44) 9 Headline (loss) (123) (101) (6)

  • In US$m

(13) (10) (1)

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*After tax

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Finance

Main steel cost drivers (R/t liquid steel)

H1 2013 H2 2013 H1 2014 % change H1 2013 % change H2 2013

Iron ore and pellets 1 384 1 358 1 413 2.1% 4.0% Scrap / DRI / HBI 234 249 301 28.5% 20.7% Coking coal and other fuels 1 388 1 230 1 578 13.6% 28.3% Electricity 426 442 457 7.3% 3.4% Other energy & utilities 208 203 232 11.3% 14.1% Alloys, fluxes and coating materials 548 605 660 20.5% 9.0% Refractories, electrodes and consumables 333 351 400 20.0% 14.0% Manpower 564 554 667 18.2% 20.3% Maintenance 320 373 380 18.5% 1.8% General expenses, outside services, expert fees, IS/IT & insurance premiums 578 511 624 7.9% 22.0% Total Liquid steel (000t) Average exchange rate (ZAR) 5 983 2 481 9.22 5 877 2 615 10.08 6 710 2 385 10.70 12.1%

  • 3.9%

9.2% 14.2%

  • 8.8%

6.2%

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Finance

EBITDA from segments (Rm)

H1 2013 H2 2013 H1 2014

Flat steel products (25) 160 184 Long steel products 694 504 178 Coke and Chemicals 267 247 205 Corporate and other 41 (120) 243 Total EBITDA 977 791 810 EBITDA margin 6.1% 4.8% 4.5%

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Finance

Cash flow (Rm)

H1 2013 H2 2013 H1 2014

Cash generated from operations before working capital 1 016 717 733 Working capital 269 (407) (624) Capex (602) (967) (866) Net finance cost (57) (100) (151) Investments (38) (15) (5) Tax (148) (73) (31) Dividend received

  • 53

Proceeds on scrapping of assets 1 71

  • Realised forex

(50) (78) (25) Increase of borrowings and finance lease 536 138 91 Cash inflows / (outflows) 927 (714) (825) Effect of forex rate changes on cash 54 40 40 Net cash inflows / (outflows) 981 (674) (785) Net cash / (borrowings) 1 106 285 (594)

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Finance

Working capital movement (Rm)

H1 2013 H2 2013 H1 2014

Inventories (789) (986) 181 Finished products (318) (47) 325 Work-in-progress (476) (570) (443) Raw materials 23 (376) 361 Plant spares and stores (18) 7 (62) Receivables (1 641) 1 065 (585) Payables 2 731 (427) (140) Utilisation of provisions (32) (59) (80) Working capital movement 269 (407) (624)

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Finance

R 1 449 R 1 588 706

  • 221

648 987 3 82 817 224 238

  • 158

169 808 581 211 754 56

  • 300

300 600 900 1200 1500 1800

2010 2011 2012 2014 2013

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EBITDA history (Rm)

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Finance

$100/t EBITDA target

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31 20 14 6 43 16 18 7 34

2012 EBITDA/t Improvement actions BOF Incident Sales prices, cost escalation and exchange rate 2013 EBITDA/t Improvement actions BF N5 reline Sales prices, cost escalation and exchange rate H1 2014 EBITDA/t

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Operating results

Hans Ludwig Rosenstock, COO

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Operating results

EBITDA from segments (Rm)

H1 2013 H2 2013 H1 2014

Flat steel products (25) 160 184 Long steel products 694 504 178 Coke and Chemicals 267 247 205 Corporate and other 41 (120) 243 Total EBITDA 977 791 810 EBITDA margin 6.1% 4.8% 4.5%

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Operating results

Steel Production and Shipment volumes

  • Total production decreased by 4%

– Flat products increased 12% to 1 719kt – Long products 29% lower at 667kt

  • Capacity utilisation at 74% (excluding

Newcastle – 82%)

  • Overall shipments rose over the period

– Flat products sales to the domestic market declined while despatches to the export market increased – Long products shipments where lower in both markets

  • Local sales now constitute 70% of total steel

shipments

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931 1147 1310 1026 1326 1142 1198 1025 1095 908 969 417 363 462 550 495 461 505 410 266 502 536 458 536 595 483 594 445 640 1113 611 512 565 263 358 333 282 167 78 194 177 151 185 125 67% 70% 71% 64% 74% 75% 72% 72% 80% 67% 70% 0% 20% 40% 60% 80% 100% 500 1000 1500 2000 2500 3000

2009 2010 2011 2012 2013 2014

Flat Domestic Flat Export Long Domestic Long Export Domestic Percentage

1526 1902 2038 1775 2154 1906 1875 1679 1535 1694 1719 851 1028 1008 852 922 471 852 684 946 921 667

59% 73% 76% 66% 77% 59% 68% 63% 73% 80% 74% 0% 20% 40% 60% 80% 100% 500 1000 1500 2000 2500

2009 2010 2011 2012 2013 2014

Flat Production Long Production Total Utilisation

Production (000t) Shipments (000t)

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Operating results

88 345 309 321 376 255 233 227 210 335 273

50 50 62 63 60 57 56 53 52 57 54 100 200 300 400 500 600 50 100 150 200 250 300 350 400

2009 2010 2011 2012 2013 2014

Commercial coke Speciality chemicals Coke price

Coke and Chemicals

  • Stainless steel production expected to add

1mt in 2014 (+2.9%) emanating from growth in the USA and to a lesser degree China

  • South African FeCr producers expected to

rescue the downward trend and are now competing with Kazakhstan in terms of cost

  • Commercial coke demand expected to

remain strong in 2014 due to strong demand from FeCr producers

  • FOB China coke price has reduced to below

$200/t in Q2 2014 driven by lower demand by steel mills as a result of BF closures

  • Speciality chemicals’ business remains

stable with six monthly sales of 55kt

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24.9 31.2 33.2 35.3 37.8 38.9 5.5 6.9 7.6 7.7 9.1 9.4 0% 10% 20% 30% 40% 50% 10 20 30 40 50

2009 2010 2011 2012 2013 2014(f)

SS production FeCr consumption SA market share China market share

Production & consumption (mt) Despatch volumes (000t) Coke price (US$/t fob China) Market share (%)

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www.arcelormittalsa.com

Operating results

H1 2013 H2 2013 H1 2014

Maintenance 377 730 856 Environment 184 166 51 Other 41 72 29 Total expenditure 602 968 936

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  • Main ongoing projects during 2014

– Energy saving and replacements/maintenance (83% of spend)

  • Newcastle: Blast Furnace reline (H1 spend = R625m), raw materials handling and sinter plant (H1 spend = R78m), hot blast stoves

interim repairs (H1 spend = R10m)

  • Vanderbijlpark: Waste gas channel repair (H1 spend = R19m), plate mill wind farm project (H1 spend = R0m), battery tightness project

(H1 spend = R17m), BOF gas cooler replacement (H1 spend = R12m)

– Environment (3% of spend)

  • Newcastle: Zero effluent discharge project (H1 spend = R12m)
  • Vanderbijlpark: Blast Furnace D stockhouse bag house (H1 spend = R15m)

– For H2 2014 the focus will be on:

  • Newcastle: Blast Furnace reline (H2 = R734m), raw materials handling and sinter plant refurbishment (H2 = R80m), hot blast stoves

interim repairs (H2 = R47m) and reline window of opportunity projects

  • Vanderbijlpark: Blast Furnace D stockhouse bag house (H2 = R8m), coke oven battery tightness project (H2 = R2m), waste gas channel

repair (H2 = R34m), plate mill wind farm project (H2 = R24m)

Capital expenditure (Rm)

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Operating results

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Blast furnace N5 rebuild at Newcastle Works

  • Project commenced on 12 May 2014

– On target in terms of budget

  • Safety - injuries to date: 72
  • 2 400 people on site (50% of these are local)
  • Overall programme is 64% complete (vs target of 83%)

– Non performance of contractors responsible for about 70% of delay – Additional work created 25% of the delay – Industrial action responsible for 5% of the delay

  • Actions being implemented to minimise impact

– Reallocation of work packages, appointment of additional supervisors and additional contractors – Additional billet imports

  • Planned completion date is mid-October 2014

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Operating results

Blast furnace N5 rebuild at Newcastle Works

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Input stocks Rebar inventory ready for rolling to customer specifications Looking from the bottom up into the furnace Removal of the down piping Removal of the off-gas system

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Operating results

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Blast furnace N5 rebuild at Newcastle Works

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New off-gas piping viewed from 93m up New staves ready for installation Monster scaffold at the stockhouse

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Operating results

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Blast furnace N5 rebuild at Newcastle Works

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Removal of old hopper New staves ready for installation Arrival of a portion of the new cyclone Row 6 staves installation Lancing the bear Site at night

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Other key issues and outlook

Paul O’Flaherty, CEO

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Other key issues

Focus going forward

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1

Key strategic objectives and focus areas

Production ramp up at Newcastle post reline Competition Commission issues BBBEE compliance Vanderbijlpark turnaround Transnet performance Sales strategy in challenging market

2

Key fundamental decisions by government

Inclusion of steel in localisation - steel now included as designated product Confirmation of infrastructure as key for future development Challenge is to align and fulfil BBBEE objectives

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Other key issues

Outlook for 3Q

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1

Outlook for Q3 2014

Electricity winter tariffs applicable this quarter Domestic economy remain subdued Seifsa strike a major concern Reline in full swing for the quarter Results expected to remain under pressure

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Financial results

for the six months ended June 2014

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Questions