Arcelormittal South Africa Limited · JSE:ACL
Arcelormittal South Africa — Mittal Steel South Africa — FY2005 Earnings Presentation
34 slides from Arcelormittal South Africa's earnings presentation, February 2006
Slide 1: Mittal Steel South Africa Limited
Mittal Steel South Africa Limited Annual Financial Results for the 12 months ended December 2005
Slide 2: Market & operations
market & Davinder Chugh operations
Slide 3: Overview
Overview Record full year earnings of R5 079m • Earnings per share of 1 139c up 12% • Operating margin of 29% unchanged on 2004 • Return on equity of 29% down from 32% • Higher average international steel prices • Cost increases contained • Liquid steel production up 3% Safety remains priority • 13%
Slide 4: Key Result Drivers
Key Result Drivers 2005 vs 2004 Increase in HRC US$ export price 4% Increase in HRC Rand domestic price 4% Total sales volume unchanged Export sales volume up 17% Slowdown in domestic sales volume (10%) Increase in HRC Rand cash cost per tonne 11% Labour productivity up 11% Strengthening of ZAR 1% S
Slide 5: Export Prices
Export Prices 700 Mittal Steel South Africa invoice prices (c&f) US$/t 600 500 400 300 200 100 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 HRC Low carbon wire rod Prices remained above historical trends, though off peak 5
Slide 6: Global Market Trends
Global Market Trends • Global steel supply outstripped demand in 2005 • Slackening demand in 2005 caused steel prices to fall • World economic growth is expected to remain positive at 4.3% according to the IMF • Global consolidation amongst steel companies continues • Steelmakers’ input costs remain
Slide 7: Chinese Market Trends
Chinese Market Trends • China a 3 million tonne net exporter of finished steel products in 2005 • This trend is likely to continue in 2006 • A small imbalance in the Chinese market can impact world markets Chinese import/export tonnes 1998 - 2005 40 Million tonnes 30 20 10 0 1998 1999 2000 2001 2002
Slide 8: Chinese Market Trends
Chinese Market Trends Chinese market saw substantial price reduction in Q2 and Q3 of 2005 Strong recovery late in 2005 recouped a third of the loss Price recovery expected • Prices dipped to below marginal cost • Inventory levels are low • Seasonal factors turn positive in the USA & EU • Chinese gov
Slide 9: Chinese Cost Trends
Chinese Cost Trends China’s advantage of low labour cost is mitigated by: • Dependence on imported raw material • Inadequate iron ore reserves • Require imported good quality coking coal • Future capacity growth moderated by government policy & water shortage • Logistics constraints of port & rail c
Slide 10: Global Benchmark Price
Global Benchmark Price 350 300 250 Based to 100 200 150 100 50 Dec 01 Jun 02 Dec 02 Jun 03 Dec 03 Jun 04 Dec 04 Jun 05 Dec 05 Coking coal - Contract Iron ore fines - Contract Margins under pressure due to increased input costs 10
Slide 11: Global Input Cost Trends
Global Input Cost Trends • BF iron ore fines price for 2005 increased by 72% (higher increases for lump & pellets) • Metallurgical coking coal contracts for 2005/2006 settled at +120% • Scrap prices & freight rates stabilised during 2005, but still above historical trend • Diverging price trends for
Slide 12: Input Cost Positioning
Input Cost Positioning Domestic Backward supply Tonnes ‘000 integrated agreements Imported Iron ore 7 981 94% - 6% - DRI 1 155 100% - - Scrap (Purchase & Internal) 1 858 60% 40% - Coke (Metallurgical) 2 157 99% - 1% Coking coal (Metallurgical) 2 866 12% 22% 66% Coking coal (Market) 709 - 100% - Othe
Slide 13: Input Cost Developments
Input Cost Developments 2004 2005 5% 7% 12% 17% 6% 8% 56% 8% 66% 3% 9% 3% Iron ore Coal Scrap/DRI Alloys/Coating Refractories Other Raw materials now constitute 44% of cash cost 13
Slide 14: Key Performance Indicators
Key Performance Indicators 2004 2005 CI savings (Rm) 1 053 105 Employees per mt produced 1 698 1 487 Revenue per head (R000) 2 019 2 302 HRC cash cost - R/t 1 756 1 949 - US$/t 273 307 Percentage value-add exports - flat 83% 94% - long 87% 79% Continued efficiency & productivity improvement 14
Slide 15: Liquid Steel Production
Liquid Steel Production 8000 7261 7033 7000 6000 5000 ‘000 tonnes 4000 3628 3823 3000 2178 2194 2000 1227 1244 1000 0 Vanderbijlpark Saldanha Long Products Total 2004 2005 Several production records at all plants 15
Slide 16: Sales Volumes
Sales Volumes 7000 6223 6230 6000 5000 2344 2745 4000 ‘000 tonnes 3166 3123 3000 942 1106 2000 1894 1947 3879 3485 1163 1160 743 864 1000 2224 2017 659 775 1151 1083 504 385 0 2004 2005 2004 2005 2004 2005 2004 2005 Vanderbijlpark Saldanha Long Products Total Domestic Export Inventory adjustment imp
Slide 17: Geographic Sales
Mittal Steel South Africa - Geographic Sales South Africa Rest of Africa Total Africa Americas Asia Europe Oceania 0% 10% 20% 30% 40% 50% 60% 70% 80% 2004 2005 Focus will remain on Africa 17
Slide 18: Revenue Drivers in Relation to the Economy
Revenue Drivers in Relation to the Economy Manufacturing Construction Wholesale & Retail Transport/Storage & Communication Electricity/Gas & Water Government Mining Agricultural Financial Services 0% 5% 10% 15% 20% 25% 30% Steel sector demand Sector contribution to RSA Economic Growth (GDP) Three se
Slide 19: Safety Remains our Priority
Safety Remains our Priority Disabling injuries per million man hours worked (employees & contractors) 6.0 Disabling injury frequency rate (DIFR) • Du Pont safety evaluation 5.5 completed & safety improvement in progress 5.0 • Four major units certified under OHSAS 18001 health & safety 4.5 managemen
Slide 20: Vanderbijlpark now a Zero Effluent Discharge Facility
Vanderbijlpark now a Zero Effluent Discharge Facility Water treatment plant commissioned in December 2005 R222m 20
Slide 21: Investment Programme
Investment Programme Rm Relines 1 600 Maintain capability 930 Galvanising line #5 100 Automotive galv. line & other downstream projects 1 200 Coke strategy related 620 Other value adding 937 Completed in 2005 1 100 Expansion plans on track 21
Slide 22: Finance
finance
Slide 23: Headline Earnings
Headline Earnings Rm 2004 2005 Revenue 23 053 24 032 Comparable operating profit 7 458 6 855 Gains & losses on foreign exchange rate & financial instruments (52) 246 Financing cost - net interest income 31 169 - imputed interest on non-current provisions (170) (140) Income from investments 5 5 Tax (
Slide 24: Comparable Headline Earnings Trend
Comparable Headline Earnings Trend 1800 1643 1575 1578 1600 1393 1422 1400 1200 987 1000 871 Rm 800 657 655 669 596 600 400 352 200 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2003 2004 2005 Earnings remain healthy, though off previous highs 24
Slide 25: Operating Profit
Operating Profit Rm 2004 2005 Vanderbijlpark 4 137 3 688 Saldanha Steel 1 173 785 Long products 1 783 2 100 Coke & Chemicals 462 301 Other 43 56 Corporate (140) (75) Comparable operating profit 7 458 6 855 BAA remuneration (731) Total 6 727 6 855 Long products increased it’s contribution 25
Slide 26: Cash Flow
Cash Flow Rm 2004 2005 Cash profits from operations 8 572 8 402 Working capital (1 410) 20 BAA remuneration (731) Capex (1 254) (1 568) Net interest income 31 168 Investment income 11 43 Tax (886) (2 977) Dividends (339) (2 853) Net cash flow 3 994 1 235 Net cash 3 973 5 160 Strong cash flow before
Slide 27: Financial Ratios
Financial Ratios 2004 2005 Operating margin 29 29 - on comparative basis (%)* 32 29 EBITDA margin (%) 33 33 - on comparative basis (%)* 37 33 Revenue/invested capital (times) 1.5 1.5 Return on equity (%) 32 29 - on comparative basis (%)* 35 29 Net cash/equity (%) 25.0 26.4 * Adjusted for once-off it
Slide 28: Share Performance
Share Performance 300 250 Based to 100 200 150 100 50 2002 2003 2004 2005 Top 40 All Share Mittal Steel South Africa Source: McGregor BFA Excellent medium term share performance 28
Slide 29: Dividend
Dividend • Dividend policy - Distributing one third of headline earnings • Dividend declared - Interim dividend of 240 cents per share - 12 September 2005 - Final dividend of 140 cents per share - 20 March 2006 - Total dividend of 380 cents covered 3 times by EPS of 1 139 cents Dividend yield of 5.8
Slide 30: Outlook
outlook
Slide 31: Outlook for Q1'06
Outlook for Q1’06 Business environment • Local demand expected to improve • Stable international steel prices • Off-take to improve as inventory cycle completed • Higher input prices will influence production costs • Exchange rate will have an important influence Earnings • Earnings to remain robust
Slide 32: Mittal Steel Company NV
Mittal Steel Company NV
Slide 33: Mittal Steel Company NV
Mittal Steel Company NV Continue to reshape the global steel industry through consolidation • Revenues of almost US$30bn - Net profit US$3.4bn • #1 steel producer - Output at 69mtpa • Strong & strategic vertical integration • Potentially the first 100mtpa steel producer if Mittal & Arcelor combine:
Slide 34: Mittal Steel South Africa Limited
Mittal Steel South Africa Limited Annual Financial Results for the 12 months ended December 2005
Mittal Steel South Africa — FY2005 Earnings Presentation on 6ix