financial results - arcelormittal
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Financial resultsFor the six months ended 30 June 2017
2
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, operations, 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, 2016 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.
Disclaimer
3
Content
Overview
The industry
Operational information
Financial outcomes
Outlook and focus areas
Questions
OverviewWim de Klerk
5
Salient features
Safety
3 fatalities
LTIFR
Down to 0.62
Revenue
Up 13%
EBITDA
R816m lower
HEPS*
Down 229%
Production
down 6%
Flat
Down 5%
Long
Down 8%
Sales
Down 4%
Domestic
Down 9%
Flat +1%
Long -15%
Export
Up 16%
• Business confidence in SA declined
• Recession looming with static GDP
• Downgrade to sub-investment grade
• Minimal local infrastructure spend
• ASC** decreased 3.8% (-97kt)
• Despite import duties and designation
imports decreased only 5% (29kt)
• Safeguards on flat products have been
approved by government
• Improved B-BBEE status to level 3
• Spike in coal prices (+$168/t or +131%)
• Although realised prices increased by
19%, sales declined 4%, RMB increased
by 37% and hence profits down by 253%
* Headline earnings per share
**Apparent steel consumption
6
Safety, key to a sustainable business
Safety performance• Improved LTIFR, DIFR and TIFR frequency
rates
• Reduction in number of injuries sustained
• AMCC and Pretoria Works achieved 414
and 371 days without LTI’s respectively
• Smoking areas halved as part of smoke free
drive
LTIFR – Lost Time Injury Frequency Rate; DIFR – Disabling Injury Frequency Rate; TIFR – Total Injury Frequency Rate
The industryWim de Klerk
8
The industry - global
44 44 39 39 41 42 39 41 43 44
28 28 29 26 27 29 28 27 29 29
271 280270 267 266
285 280 279 280297
399410
394 385 388
413404 405 408
0
50
100
150
200
250
300
350
400
2015 2016 2017EU (27) Other Europe CISNorth America South America AfricaMiddle East Asia Oceania
428
AsiaDespite reported
plant closures,
Chinese steel
output has not
been affected as
utilisation
improves
AfricaSA output
increased
marginally but
was negated by
increased
imports from
China
Global steel output (mt crude steel)
197 207 197 194 192 210 204 202 201 218
74 73 72 72 7475 77 77 79
79
271 280 270 267 266 285 280 279 280 297
0
100
200
300
2015 2016 2017China Rest of Asia
Asia steel output (mt crude steel)
Source: Deutsche Bank quoting World Steel Association as source Source: Deutsche Bank quoting World Steel Association as source
1.71.3 1.3 1.2 1.2 1.1 1.4 1.4 1.5 1.6
1.8
1.7 1.5 1.4 1.5 1.7 1.5 1.51.6 1.6
0.2
0.30.1
0.20.3 0.3 0.2 0.3
0.2 0.3
3.83.3
2.9 2.83.0 3.0 3.0 3.1
3.4 3.4
0
1
2
3
4
2015 2016 2017Egypt South Africa Other Africa
Africa steel output (mt crude steel)
9
The industry – raw materials
Note: RMB - (iron ore * 1.6) + (coking coal * 0.6) + (scrap * 0.15); CFR – Cost and freight; FOB – Free on board; HMS Heavy Metal Scrap
19% 21% 19% 18% 19% 21% 17% 12% 15% 16%
32% 29% 29% 32% 31%30% 38% 51%
36%45%
49% 50% 51% 51% 51% 49% 45% 36% 49% 39%
0%
20%
40%
60%
80%
100%
0
100
200
300
400
500
600
2015 2016 2017Scrap (%) Coking coal (%)
Iron ore (%) Raw material basket
China HRC price
Commodity International AMSA ($/t) AMSA (R/t)
H1 2017 % change H1 2017 % change H1 2017 % change
Iron ore $74/t (CFR North China) +43% $76/t (delivered) +22% R1 001/t (delivered) +5%
Hard coking coal $182/t (FOB) +114% $297/t (imported & delivered) +131% R3 936/t (delivered) +103%
Scrap $281/t (Asia HMS) +25% $235/t (delivered) +41% R3 110/t (delivered) +23%
Pellets $113/t (FOB) +44% $126/t (delivered) +34% R1 665/t (delivered) +15%
Coke $301/t (FOB) +147% $386/t (delivered) +143% R5 099/t (delivered) +110%
RMB total $261/t (FOB) +59% $336/t (delivered) +60% R4 432/t (delivered) +37%
HRC China $465/t (FOB) +37% $654/t (base price) +42% R8 652/t (base price) +23%
International raw material basket ($/t) AMSA raw material basket (R/t)
RMB cost
RMB
weight
H1
2016
H1
2017
H1
2016
H1
2017
International AMSA
Iron
ore50% 44% 47% 37%
Coking
coal30% 40% 41% 50%
Scrap 20% 16% 12% 14%
10% 8% 8% 8% 12% 12% 13% 14% 14% 14%
41% 44% 44% 42% 41% 40%42%
45%48% 51%
50% 48% 48% 50% 47% 48% 45% 40%
38% 35%
0%
20%
40%
60%
80%
100%
0
3000
6000
9000
2015 2016 2017Iron ore Coking coalScrap AMSA domestic HRC price (R/t)
AMSA RMB (R/t)
10
The industry – domestic (total)
SA apparent steel consumption (kt)
58%
58%63%
62%
70% 70%63%
66%
68%65%
12%
17%
14%
10%
6%9%
10%
11%
11%11%
19%
14%
13%
17%
13%11%
16%
11%
8%8%
11%
12%
9%
11%
12%10% 11%
12%
12%16%
29%
25%
23%
28%
24%
21%
27%
23%
20%
24%
0%
10%
20%
30%
0
200
400
600
800
1 000
1 200
1 400
2015 2016 2017Other Imports Chinese ImportsDomestic Competitors AMSAImports as a % of App Consumption
• AMSA’s market share declined with the
contraction in ASC stemming from the
lower long product market share over
the review period – AMSA reduced
from 70% to 67%
• Total imports remained static at almost
20% although Chinese imports has
declined to 8% from 12% market share
• Other competitors has increased their
market share by almost 50%
1501 1185 1252 1086 1263 1298 1285 1007 1244 1219ASC (kt)
11
The industry – domestic (flat and long)
SA flat apparent steel consumption
59% 60%65%
62%70%
75%67% 70%
77%70%
5% 5%1%
0%
0%
0%
0%0%
0%
0%21% 18%
19%23%
17%13%
19% 13%
9%
10%
15% 17% 15% 16% 13% 12% 14% 17% 14%19%
0%
20%
40%
60%
80%
100%
2015 2016 2017
AMSA Competitors Chinese Imports Other Imports
• AMSA gains market
share in flat from 73%
to 74% while long
declined to 53% from
67%
• Flat imports market
share declined to 26%
from 28% of ASC
while long imports
decreased marginally
to below 15% of ASC
• Highveld toll
agreement should
reduce imports further
SA long apparent steel consumption
56% 55%60%
64%70%
63%58% 59%
52% 54%
25%33%
34% 27% 15%22%
26%30%
32%33%
12%7%
3%5%
5% 6% 9%5%
5% 2%
6% 6% 3% 4%10% 9% 7% 7%
11% 11%
0%
20%
40%
60%
80%
100%
2015 2016 2017AMSA Competitors Chinese Imports Other Imports
972 687 768 699 801 786 778 619 801 794 529 498 483 388 461 512 507 389 443 425ASC (kt) ASC (kt)
12
The industry – domestic (inventories)
663
578
508
408 408453
418373 388 388
7.8
6.6
0
2
4
6
8
10
12
0
100
200
300
400
500
600
700
2015 2016 2017Flat inventory Total weeks' consumption
Flat weeks' consumption
307 287 262 272 287 297 280 280 290 310
7.8
9.9
0
2
4
6
8
10
12
0
50
100
150
200
250
300
2015 2016 2017Long inventory Total weeks' consumptionLong weeks' consumption
Flat steel inventories (kt) Long steel inventories (kt)
AMSA’s
estimated end-
user inventory
levels indicate
fairly constant flat
product levels
while long
product stock
volumes are
increasing
Operational informationDean Subramanian
14
571 412 503 429 560 586 518 433 620 547
0
200
400
600
2015 2016 2017
34 31 29 24 18 21 27 43 25 22
0
10
20
30
40
2015 2016 2017
Flat steel divisionDomestic sales (kt)
Africa over Land (kt incl in export sales)
Export sales (kt)
Liquid steel output (kt)
896
811772
666
827
905
712
777813
836
0
200
400
600
800
1000
2015 2016 2017
157 218 245 143 166 177 105 191 168 171
0
50
100
150
200
250
2015 2016 2017
Flat
utilisation
slowly rising
at 79%Flat exports
at 65% of
total exports
Flat AoL
sales 14%
of total flat
exports
Flat domestic 80%
Flat sub-Sahara 5%
Total flat sub-Sahara incl SA 85%
1 732 1 649
15
HRC growth stemming
from re-roller activity
Plate demand
generated by structural industry
Consistent orders for galv from
automotive
Flat steel division
0
50
100
150
200
2015 2016 2017
Structural metal (95%*)
0
50
100
2015 2016 2017
0
50
100
2015 2016 2017
Automotive (93%*)
Engineering (56%*)
*Industry reliance on flat products
Source: AMSA estimates
Product sales
56%51% 55% 52% 57% 54% 52%
59%65% 65%
15%17%
16%16%
14% 15% 15%
14%11% 9%
9%9%
10%8%
9% 10% 10%8%
8% 8%
7%6%
7%10%
10% 10% 10% 8% 7% 8%6% 8%
6% 8% 5% 4% 5% 6% 4% 5%7% 8% 6% 6% 6% 7% 7% 6% 6% 5%
0%
20%
40%
60%
80%
100%
2015 2016 2017HRC HDG CRC Plate Tin Other
• Main product is HRC
• Increased HRC of late due
to import replacement
571 412 503 429 560 585 518 433 620 547Total (kt)
16
49 47
141
92
6143
31 38
80
99
0
50
100
150
2015 2016 2017
Long steel division
Export sales (kt)
Domestic sales (kt)
453
403 410428
400388
403
359
386
339
0
100
200
300
400
500
2015 2016 2017
302276
294
252
325 324296
233 235 227
0
100
200
300
2015 2016 2017
3224
31 29 27 2823 25 22 20
0
10
20
30
2015 2016 2017
Africa over Land (kt incl in export sales)
Liquid steel output (kt)Long
utilisation on
downward
trend to 77%Long
exports at
35% of total
exports
Long AoL
sales 23%
of total long
exports
Long domestic 72%
Long sub-Sahara 18%
Total long sub-Sahara incl SA 90%
Due to lack of demand and loss of
market share, exports moved up
788 725
17
Wire rod growth stems
from cable and wire business
Section sales
dictated by B&C industry
Rebar and wire rod also
reliant on B&C industry
Long steel division
0
50
100
150
200
2015 2016 2017
0
10
20
30
40
2015 2016 2017
0
40
80
120
2015 2016 2017
Building & Construction (70%*)
Fasteners (100%*)
Cables & Wire products (99%*)
*Industry reliance on long products
Source: AMSA estimates
Product sales
40% 39% 41%34% 36% 37% 39% 38%
43% 42%
15% 19% 17%
16% 15%18%
20% 19%
18% 19%
23% 18% 17%
21% 21%22%
19%16%
18% 16%
10%11% 13%
14%16%
12% 13%18%
11% 12%
4%4% 3%
3%3% 3% 3% 3% 3% 3%
8% 10% 9% 12%8% 7% 6% 7% 7% 7%
0%
20%
40%
60%
80%
100%
2015 2016 2017Wire Rod Bars Sections Rebar Fencing Other
• Main product is wire rod
• H117 lower sections and
rebar due to lower
construction activity
Total (kt) 302 276 294 252 325 324 296 233 235 227
18
Coke & Chemicals division
Commercial coke (kt)
Tar (kt)
Commercial coke source of revenue
Tar source of revenue
• Battery repairs at
Newcastle completed in Q2
2017 – the higher
availability of ovens should
increase output
• Tar output remains
sluggish stemming from
low overall coke production
• Ferro alloy industry has
been consolidated with
older excess capacity
closed
36%
25%
13%11%
8% 8%
35%
28%
14% 13%
7%
3%
0%
10%
20%
30%
40%
Alloy Alluminium Timber Carbonblack
Plasticizers Others
H1 2016 H1 2017
72%
6%3% 4% 3%
12%
65%
3%7%
1% 3%
21%
0%
20%
40%
60%
80%
FeCr Cement Alluminium Petrochemicals
Timber Others
H1 2016 H1 2017
22 2224 23 24 23
18 18
15
21
24 23 24 25 24 25
20
17
20 19
0
5
10
15
20
25
30
2015 2016 2017Tar production Tar sales
108120
85
100
8593
86
71
49 52
104
135
76
9989
107
135
120
46 46
0
50
100
150
2015 2016 2017
Commercial coke production Commercial coke sales
19
Capital expenditure
H1 2017 H1 2016
Maintenance & expansion 558 665
Environmental 13 61
Total expenditure 572 726
Main projects completed during H1 2017• Long products
• Emergency repair of the bar mill control room
• Battery N2 bracing and end flue repair
• Saldanha
• Back up internal components for hot strip mill
gearboxes
• Vanderbijlpark
• Replace basic oxygen furnace off-gas gas cooler
AMSA R572m
VdbpR280m
Long productsR125m
C&C R102m
SaldanhaR65m
Financial outcomesDean Subramanian
21
Headline earnings
H1 2017 H1 2016
Revenue 19 151 17 006
EBITDA (534) 282
Depreciation and amortisation (449) (530)
Once-off items (21)
Loss from operations (983) (269)
Impairment (604) (6)
Net finance costs (622) (276)
Equity earnings (14) 108
Income tax (expense) (7)
Loss after tax (2 223) (450)
Add back impairment 604 6
Add back disposal/scrapping of assets (17)
Add back tax effect 3
Headline loss (1 619) (458)
US$m (122) (30)
Revenue +13%
Price +19%
Volume (4%)
Flat +R49m
Long (R858m)
MCC +R94m
Other (R101m)
Interest (overdraft and loans) (R131m)
Interest expense on finance lease +R4m
Forex (R138m)
Unwinding and rate adjustment on current
provisions (R70m)
Interest received (R11m)
Lower income from joint ventures due
to poor economic activity
22
H1 2017 H1 2016
Flat steel products (Rm) (69) (118)
EBITDA margin (0.5%) (1.1%)
Net realised price R/t 8 413 6 889
Long steel products (Rm) (706) 152
EBITDA margin (13.0%) +2.7%
Net realised price R/t 7 492 6 758
Coke and Chemicals (Rm) 191 97
EBITDA margin +26.0% +12.0%
Corporate and other (Rm) 50 151
Total EBITDA (Rm) (534) +282
EBITDA margin (2.8%) +1.7%
Divisional EBITDA
Higher sales volume (+17kt or
+1%) with better prices in ZAR
(+22%) offset by higher cost of raw
materials
Lower sales volume (-112kt
or -15%) combined with
higher cost of raw materials
Better prices on commercial
coke partly countered by lower
volumes
H1 2016 include Afrox onerous
contract settlement
23
EBITDA bridge (Rm)
• Results positively impacted
• Average domestic sales price increased
with 23% and export values by 8%
• Efficiencies improved
• Increased prices doubled C&C profits
• Results negatively impacted
• Continued weak SA economy
• Exchange rate strengthened from R15.45
in H116 to R13.23 in H117
• Higher costs due to coking coal & iron ore
• Fixed costs were higher than previous
year (mainly labour and maintenance)
• Once off items (total = R805m)• Lower long product sales R251m
• Less own coke available R194m
• Vdbp stove incident R79m
• Other R281m
4 999
162
21
1 534
258
351182 56
3 617
282
(534)
H1
2016
Exc
hang
e ra
te im
pact
Sal
es v
olum
e
Sal
es p
rice
& m
ix
Raw
mat
eria
l pric
es
Effi
cien
cies
& o
ther
var
iabl
e co
st
NR
V p
rovi
sion
Fix
ed c
ost
Fix
ed c
ost o
f s
tock
mov
emen
t
Oth
er
H1
2017
24
Cost dynamics and breakdown
Weight H1 2017 H1 2016 change
50% Raw materials R/t 4 143 2 840 +46%
F 29% Auxiliaries & consumables R/t 2 409 2 062 +17%
l 21% Fixed costs R/t 1 776 1 552 +14%
a 100% Total R/t 8 328 6 454 +29%
t Liquid steel kt 1 649 1 732 (5%)
Average ZAR rate 13.23 15.45 (14%)
Average NRP R/t 8 413 6 889 +22%
52% Raw materials R/t 3 857 2 725 +42%
L 22% Auxiliaries & consumables R/t 1 643 1 464 +12%
o 26% Fixed costs R/t 1 950 1 749 +12%
n 100% Total R/t 7 449 5 938 +25%
g Liquid steel kt 725 788 (8%)
Average ZAR rate 13.23 15.45 (14%)
Average NRP R/t 7 492 6 758 +11%
Main increases are:
• Iron ore 1%
• Pellets price 15%
• Coal/Coke price 74%
• Alloys & Fluxes 21%
• Manpower 7%
Main increases are:
• Iron ore 10%
• Coal/Coke price 72%
• Alloys & Fluxes 23%
• Manpower 5%
25
Cash flow and analysis (Rm)
Inventories (R562m)
Receivables (R1 535m)
Payables R1 482m
Provisions (R30m)
Lower spending due to
savings initiatives
Group loan and BBF
H1 2017 H1 2016
Cash generated before WC (472) 243
Working capital (645) 349
Capital expenditure (601) (796)
Net finance costs (353) (190)
Investments (4) 1
Tax (7) (2)
Proceeds on scrapping of assets 6 21
Realised forex (119) (206)
Finance lease (35) (31)
Increase/(decrease) of borrowings 4 298 (3 280)
Rights issue funds 4 500
Cash flow 2 059 609
Effect of forex rate change on cash 4 (14)
Net cash flow 2 063 595
Cash in bank 3 723 2 759
Short term loans (6 300) (1 749)
Net (borrowings)/cash (2 577) 1 010
Higher interest resulting
from higher debt
26
Working capital movement and analysis (Rm)
H1 2017 H1 2016
Inventories (562) 159
Finished products 201 214
Work-in-progress (677) 314
Raw materials (126) (380)
Plant spares and stores 40 11
Receivables (1 535) (1 570)
Payables 1 482 1 977
Utilisation of provisions (30) (217)
Working capital movement (645) 349
The cash being utilised mainly for
environmental R29m
Receivables increased following higher
shipments and prices:
• Volume impact on debtors R1 039m
• Price impact on debtors R362m
• Coke and Chemicals R37m
• Payment terms R88m
Inventory increased by R562m
• Finished metal stocks down 45kt
• Work in progress metal stock down
by 39kt, however coke 50kt, sinter
51kt and scrap 44kt stocks
increased
• Imported coke stock up by 26kt
27
Consolidated statement of financial position (Rm)
H1 2017 H1 2016
Current assets 18 837 15 426
Cash balance 3 723 2 759
Inventories 11 694 9 436
Trade & other receivables 3 342 3 133
Other current assets 78 98
Non-current assets 15 192 17 567
Property, plant & equipment 10 196 12 046
Equity accounted investments 4 447 5 037
Other non-current assets 549 484
Total assets 34 029 32 993
Liabilities 22 931 15 577
Current liabilities 13 164 10 365
Non-current liabilities 3 467 3 463
Borrowings 6 300 1 749
Shareholders equity 11 098 17 416
Total liabilities & equity 34 029 32 993
Raw materials +R676m and steel
stock +R1 582m due to higher prices
Lower due to the impairment of Vanderbijlpark
and Saldanha at end 2016 and long products
in 2017
USD entity Macsteel lower due to
movement in exchange rate
Trade payables +R2 248m mainly AMS for
imported coal at higher prices
Borrowing based facility +R3 600m
Group loan long term +R2 700m
Higher due to restricted cash
28
Net debt and liquidity (Rm)
Liquidity (undrawn facilities plus cash)Cash flow and net debt/(cash)
4065
2164
4660
3660
4873
-12.0%
-21.3%
5.8%
-2.1%
-23.2%
-30%
-20%
-10%
0%
10%0
1000
2000
3000
4000
5000
2015 2016 2017Liquidity (Rm) Net debt to equity (%)
Average net debt of
large listed European
steel producers is at
59% compared to
AMSA’s 23%
Source: Deutsche Bank
492
-3246
-158 -410-951
-1578
3225
349309
-645-890
-322
-816
-1199
-691
4500
-2 522-2 865
1 010
-290
-2 577
-4000
-2000
0
2000
4000
2015 2016 2017
Operating activities Working capital
Capex/Investments Rights issue
Net debt/(cash)
Outlook and focus areasWim de Klerk
30
Group outlook
• Domestic steel demand expected to remain subdued - low economic growth/lack of infrastructure spend
• Flat business should benefit when the safeguards are implemented
• Long business should improve pending coal and scrap prices plus the full benefit of heavy sections/rail
• Export markets likely to be more resilient - Africa should experience growth in demand of about 2% to 3%
• Volatility in the rand/US dollar exchange rate will continue to have a material impact on financial results
31
Action plan
Procurement initiatives
Utmost cost control over contracts
Conclude lower electricity and rail tariffs
Raw material analysis
Organisational and industrial
footprint
Benchmark initiatives
Production lines
Capex requirements
Structural changes
Commercial initiatives
Improve market share/increase volumes
Focus on AoL
Product range
Short term initiatives
Productivity improvements
Asset disposal
Excess material
Questions
top related