financial results - arcelormittal - 31... · • imports from russia and taiwan have grown...

For the year ended 31 December 2019

6 February 2020

Financial Results

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 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 31 December 2019 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.

DisclaimerForward looking statements

Financial results for the year ended 31 December 2019

Contents

Kobus

Verster

Kobus

Verster

Desmond

Maharaj

Kobus

Verster

Kobus

Verster

Outlook

Questions

Financial review

Capital

allocation

Sustainability

Key messages

and salient

features

Market and

operational

review


Kobus Verster

Key messages and salient features

Key Messages and Salient Features

• Best annual injury frequency safety metrics ever reported

• Average international steel prices fell by 15%

• Business Transformation Programme (BTP) delivered EBITDA improvements of

R1 450 million ($24 per tonne) (cumulatively R2 130 million or $36 per tonne)

• R999 million (12%) reduction in total fixed costs (including R458 million of BTP

initiatives)

• R632 million EBITDA loss (2018: R3 608 million profit)

• Exceptional items and net impairment charge of R2 298 million

• Headline loss of R3 265 million (2018: R968 million profit)

• Strategic asset footprint review

• Phase 1: Saldanha Works:

❑ orderly and commercial wind-down of Saldanha Works progressing

according to plan

❑ largely completed by end of the Q1-2020

• Phase 2: Long steel products:

❑ plants to remain operational - targeting mainly domestic and Africa

Overland markets

❑ re-configuration of company-wide operating model

❑ strengthening the balance sheet through corporate actions


13%lower

4.4 million

tonnes

Liquid steel

production

Sales

volumes

8%lower

4.1 million

tonnes

Revenue

9%reduction

R41 353

million

12%reduction

R999

million

Fixed costs

Company’s

Raw Material

Basket

12%increase

Raw Materials Basket

(RMB) prices

Safety

Lost Time Injury Frequency Rate

0.620.66

0.53

0.44

20172016 2018 2019

17%

Total Injury Frequency Rate

9.50

7.66

6.916.57

201920182016 2017

5%

• Safety remains the number one priority

• Despite the firm intention to achieve zero fatalities and injuries, regrettably one fatal incident at Newcastle Works on 27 October 2019

• Critical to create a consistent safety culture with clear accountability

• Injury frequency rates’ are the best annual metrics ever reported by the Company


Kobus Verster

Market and Operational review

Steel Environment - Global

Sourc

e:

World

Ste

el

PRODUCTION

• Global crude steel production increased to 1,8 billion tonnes, 3%

higher than 2018

• China constitutes 54% of global steel production (2018: 51%)

• China exports increased 7% to 991 million tonnes

SALES PRICES

• Benchmark China hot rolled coil (HRC)(FOB) prices declined by

13% (-$73/t)

• Benchmark China rebar (FOB) prices declined by 10% (-$56/t)

• Average international steel prices fell by 15%

• Increased protection of steel markets globally as countries and

regions implemented tariff barriers and quota systems, e.g. USA

and Europe

INPUT COST

• International raw material basket (RMB) cost increased by 5%

• Iron ore prices rose 34% with a weighting of 49% within the RMB*

(2018: 38%)

100 98 106 103 102 96 98 91

51 51 49 52 50 50 51 49

56 55 58 58 60 61 61 59

23 24

2527

2828

2928

580 596

2017

H2

2019

H2

613

2023

903

2018

H1

662663

19

875

922

2017

H1

21

2018

H2

858839

2016

H1

2019

H1

21

557

801

22

645

552

910

805

2016

H2

22 22

Africa, Middle East & Oceania

Asia CIS

South America

North America

Europe

Global crude steel output (mt)


* RMB is composed of iron ore, coking coal and scrap

Steel Environment - South Africa

601 603 577 389 420 377 490 4280

5

10

15

20

25

30

0

500

1 000

1 500

2 000

2 500

3 000

2 018 1 7162 024

2016

H2

2 586

2017

H1

1 984 1 734

2016

H1

1 991

2017

H2

2018

H1

1 987

2018

H2

1 908

2019

H1

2019

H2

2 3982 3372 568

2 408 2 443 2 3642 144

Import % of ASC ImportDomestic

VOLUMES – South Africa

• 6% reduction in apparent steel consumption to 4,5 million tonnes

• 27% reduction in apparent steel consumption since 2008, just before

the global financial crisis (6,3 million tonnes)

• 15% increase in steel imports to 918 000 tonnes**

• Imports constitute 20% of apparent steel consumption compared to

16% in 2018

• Major source countries for imports are China, Europe, Japan, Russia

and Taiwan

• Imports from Russia and Taiwan have grown substantially due to their

exemption from safeguards

• Removal of Russia import exemption on hot rolled coil still awaits

gazetting

VOLUMES – ArcelorMittal South Africa

• 13% reduction in liquid steel production to 4,4 million tonnes

• 8% reduction in sales volumes to 4,1 million tonnes

• 11% reduction in domestic sales volumes to 3,0 million tonnes

• 1% decrease in export sales* volumes to 1,1 million tonnes

ArcelorMittal South Africa’s volumes (‘000 tonnes)

447 365 518 437 651 503 576 5690

500

1 000

1 500

2 000

2 500

3 000

2017

H2

1 6731 6291 795

2016

H2

2 162

2016

H1

1 3811 622

2017

H1

1 480

1 715

2018

H1

2018

H2

2019

H2

1 586

2019

H1

2 242

1 845

2 147 2 1102 366

2 1251 950

Liquid steel Local sales Export sales

Total Apparent Steel Consumption (ASC) (‘000 tonnes)

Sourc

e:

SA

ISI


* Export sales volumes = Bluewater and Africa Overland volumes

* * Source: SARS. November 2019 import statistics, December estimates

Steel Environment - ArcelorMittal South Africa

SALES PRICE

• 9% reduction in overall realised dollar steel price

• Average USD/ZAR exchange rate weakened by 9%

• Weaker USD/ZAR exchange rate aided in absorbing the 9% drop in

realised dollar prices

INPUT COSTS

• Raw material basket (RMB) constitutes 51% (2018: 50%) of total

production costs per tonne

• 12% (3% in USD) increase in the raw material basket (RMB)

❑ Iron ore prices up 22% (+12% in USD)

❑ Coking coal prices up 5% (-3% in USD)

❑ Scrap prices down 1% (-9% in USD)

• Unaffordable increases in electricity, port and rail tariffs resulted in

R439 million additional costs against 2018


97

107

98

97

90

81

75

80

85

90

95

100

105

110

2018 H1 2018 H2 2019 H22019 H1

International RMB

ArcelorMittal South Africa

steel basket price

ArcelorMittal South Africa

Steel basket prices compared to an international RMB

Sourc

es: P

latt

s, A

ME

, A

MS

and T

EX

report

Ind

ex (

20

18

H1 =

10

0)

Operating Environment - Flat Steel Flat steel product sales and production volumes (‘000 tonnes)

• Production volumes adjusted to align with market conditions

• 19% lower liquid steel production to 2,9 million tonnes

• Lower plant utilisation of 69% (2018: 85%)

• Successful interim repair of blast furnace D at Vanderbijlpark Works

extending the life of the furnace by 10 years

• 8% reduction in local sales volumes to 2,1 million tonnes

• 31% reduction in export sales volumes to 594 000 tonnes

• Significant efficiency improvements included

❑ Pulverised coal injection (PCI) and fuel rate improvement at blast

furnaces

❑ Unplanned downtime reduced at steel plant, hot strip mill and plate mill

(improved reliability)

• Product development

❑ Improved coating thickness control and rolled thinner galvanising

products

❑ Increased production of <1mm hot rolled material

343 296 339 304 456 400 302 292

951 957

0

500

1 000

1 500

2 000

2016

H1

1 1601 146

1 489

2018

H2

2016

H2

1 167

2017

H2

2017

H1

1 185

2018

H1

1 082 1 108

2019

H1

2019

H2

1 4101 489

1 247

1 5061 616

1 482

1 249

Liquid steel Local sales Export sales


272159

221167

255 261 221 173

164

151

283330

241 199 267

183

0

100

200

300

400

500

600

2017

H1

2016

H1

496

2016

H2

2017

H2

2018

H1

2018

H2

2019

H1

2019

H2

436

310

504 497460

488

356

Saldanha Works’ sales and production volumes (‘000 tonnes)

Operating Environment - Long Steel

Long steel product sales and production volumes (‘000 tonnes)• Vereeniging Works’ electric arc furnace restarted in January 2019

• 1% lower liquid steel production to 1,5 million tonnes

• Lower plant utilisation of 66% (2018: 81%)

• 18% reduction in local sales volumes to 902 000 tonnes

• 85% increase in export sales volumes to 551 000 tonnes

• Breakthrough in operating plants at reduced production levels not

previously deemed possible

• Significant efficiencies improvements included

• Pulverised coal injection (PCI) and fuel rate improvement at

blast furnace coal blend optimisation

• Unplanned downtime reduced at coke making and steel

plant (improved reliability)

• On-time delivery improved by 14,5% through a focused effort on

out-bound logistics

• Newcastle Works’ severely impacted by unaffordable, high

logistics costs

104 69179 133

195103

274 277

649

529

462488

555

540

478 424

0

100

200

300

400

500

600

700

800

900

2018

H1

2017

H1

2016

H1

2019

H1

752

2016

H2

2017

H2

2018

H2

2019

H2

753

598641 621

750

643701

Liquid steel Export salesLocal sales


Operating Environment - Coke & Chemicals

Coke & Chemical sales and production volumes (‘000 tonnes)• 4% increase in commercial market coke production to

191 000 tonnes (2018: 184 000 tonnes)

• 4% reduction in sales volumes to 152 000 tonnes

(2018: 158 000 tonnes)

• Electricity load-shedding had a serious impact on SA

ferrochrome producers, resulting in lower sales of

commercial market coke

• Weak steel market conditions allowed for the redirection of

metallurgical coke making capacity at Newcastle Works

• Tar operations were stable, although less tar available in

H1-2019 due to reduction in overall coke production

• Renewed future focus on by-product monetisation

93

6054

98

3943 43

3843

34

0

20

40

60

80

100

120

140

2019

H2

2017

H2

2017

H1

2018

H1

2019

H1

88

2018

H2

89

Market coke production

Market coke sales

Tar production

Tar Sales


Desmond Maharaj

Financial review

Capital allocation

Financial Results - Financial performance

3 608

-632

1 9791 282

3 430

EBITDA

2018

Exchange

rate

Sales

volume

RM prices

& other

factor

cost*

Sales price

& mix

747

Inventory

variance

2 026

Other cost

1 450

BTP*

savings

184

EBITDA

2019

Divisional EBITDA (Rm)

-574

-369

250

61

808

370

-240

Corporate &

other

Flat steel

Long steel

2 670

Coke &

Chemicals

2019 2018

• Revenue decreased by 9%

• EBITDA decreased to a loss of R632 million


ArcelorMittal South Africa – EBITDA bridge (Rm)

592

-757

396 386

EBITDA

2018

Sales

volume

Exchange

rate

RM prices

& other

factor

cost*

711

614

Sales price

& mix

159

Other cost

202

BTP*

savings

77

Inventory

variance

EBITDA

2019

Saldanha Works – EBITDA bridge (Rm)

• RM: Raw Material; Factor cost: Electricity, rail and port cost;

BTP: Business Transformation Programme

Financial Results - Reconciliation of Loss from operations to Earnings

before interest, tax, depreciation, amortisation and exceptional items


2019 2018

(Loss)/profit from operations (2 359) 2 777

Adjusted for:

Depreciation 819 817

Amortisation of intangible assets 11 14

Exceptional items:

Saldanha Works wind-down cost 396

Restructuring cost 234

Inventory adjusted to net realisable value 267

Earnings before interest, tax, depreciation, amortisation and

exceptional items

(632) 3 608

Financial Results - Net Borrowings

• R1 940 million of cash was released by the reduction in working capital levels

• Inventories decreased by R3,4 billion


Net borrowings bridge 2018 to 2019 (Rm)

-475

-3 370

180

Net borrowings

2018

1 4911 9401 517

Capitalisation of

Group payables

Net finance costsCash utilised in

operations before

working capital

244

Working capital Capital

expenditure

OtherRealised foreign

exchange

movements

105

1 508

Net borrowings

2019

Financial Results - Capital Allocation

150

153

19

23

281

162

37

53

Vereeniging

Vanderbijlpark

Total

Newcastle

Saldanha

AMCC, Corporate

& other

859833

1 3661 204

2019 2018

Capital allocation per division (Rm) Capital allocation per category 2019 (Rm)

Environmental

56

Maintenance

215

Coke Oven

V4 Bracing

Blast Furnace D

Interim repair

Expansion

462

116151

111

Mill Rolls

93Other


Kobus Verster

Transform for sustainability and Growth

Strategic Asset

Footprint Review

Raw Material Cost Base

Corporate Actions

STRATEGIC ASSET FOOTPRINT REVIEW

Phase 1: Saldanha Works

• Orderly and commercial wind-down

progressing according to plan

• Process largely completed by end of Q1-2020

• Investigating relocating steelmaking meltshop

and rolling mills to Vanderbijlpark Works

• All serious and viable commercial

opportunities for future of the plant will be

considered

• Should market conditions change and/or

structural cost disadvantages be solved, a

restart would be considered

STRATEGIC ASSET FOOTPRINT REVIEW

Phase 2: Long Steel Products

• Continue to engage key stakeholders to

address structural disadvantages of

unaffordable regulated tariffs for electricity,

port and rail services, and the lack of

developmentally priced raw materials

• Benefit of a more concentrated operating

footprint remains fundamentally important for

the longer term

• Plants to remain operational - targeting

mainly domestic and Africa Overland market

• Review prioritised for the shorter term the

reconfiguration of the company-wide

operating model

• ‘One Organisation’ operating model initiative

has commenced with envisaged

implementation in 2020

• Strengthening the balance sheet through

corporate actions


Sustainability - Strategic Asset Footprint Review

RAW MATERIAL COST BASE

Cost-linked raw material supply

• Pockets of opportunity in the pursuit of cost

linked raw material supply

• These continue to be progressed

Thabazimbi iron ore

• Small-scale stockpile recoveries began in

Q4-2019

• Anticipated annual volumes of

360 000 tonnes for the next 4 years.

• Will also aid with mining area rehabilitation

CORPORATE ACTIONS

Commercial market coke co-investment

• Structured process to identify co-investors

began in quarter four of 2019

• Short-listing of interest parties in Q1-2020

Sustainability - Raw Material Cost Base and Corporate Actions


CORPORATE ACTIONS

By-product monetisation

• Cap and reduce by-product generation and

disposal footprint

• Explore joint venture opportunities to

monetising by-products such as granulated

blast furnace, and steel slag, amongst others

• Disruptive and transformative transactions

are possible in this sector

Disposal of non-core properties

• Allied to asset footprint review

• Improved management of core properties

• Structured disposal process of the non-core

properties commenced in 2020

Highveld Structural Mill

• Good progress made on addressing the

condition precedents

• Discussions commenced with stakeholders

on mainline rail localisation but too early to

assess the prospects of success

Strategic Asset

Footprint Review

Raw Material Cost Base

Corporate Actions


COST

Achieving the Business Transformation

Programme (BTP), EBITDA improvement

target, implementing the ‘One Organisation’

initiative, progress on securing cost-linked and

developmentally-priced raw material, engaging

with key stakeholders on regulated prices

underpin the focus on cost

CUSTOMERS

Service, quality and differentiation

from the competition characterise

the focus on customers

COLLABORATION

Strategic alliances, product

development, platforming and

knowledge sharing underpin

collaboration initiatives

COMMUNICATION

Straightforward, mature and regular

communication with stakeholders, including

employees, is core to creating an engaging work

climate which both reassures employees and

drives performance

CLIMATE

Reducing emissions in a well-considered,

structured yet affordable manner requires a clear

roadmap

Responsible steel manufacturing that supports

sustainable development is central to the by-

products recycling programme

CASH

Disposal of non-core properties

Conclusion of the commercial market coke co-

investment transaction

Monetising by-products through joint venture

arrangements

Sustainability – Enabling ‘Transformation through Sustainability and Growth’

THE 6Cs

Kobus Verster

Conclusion

Outlook - First Half 2020

• Internationally margins have been tightly squeezed though elements of normalisation are becoming evident

• Expected low domestic growth will require immediate interventions

• Continued focus on:

❑ Business Transformation Programme

❑ ‘One Organisation’ implementation and other strategic cost reduction initiatives

❑ Unaffordable regulated tariffs and developmentally-priced raw materials

• Company better prepared for any upturn

• Volatility of ZAR/USD exchange rate will continue to have an impact on the Company’s results


ArcelorMittal South Africa Limited

Room N3-7

Main Building

Delfos Boulevard

Vanderbijlpark, 1911

South Africa

www.arcelormittal.com/southafrica/

Thank you

financial results - arcelormittal - 31... · • imports from russia and taiwan have grown...

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