Arcelormittal South Africa Limited · JSE:ACL
Arcelormittal South Africa — H1 2014 Earnings Presentation
36 slides from Arcelormittal South Africa's earnings presentation, Jul 31, 2014
Slide 1: Financial results for the six months ended June 2014
www.arcelormittalsa.com 1 Financial results for the six months ended June 2014
Slide 2: Agenda
Agenda 2 • 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 Overview www.arcelormittalsa.com
Slide 3: Overview
www.arcelormittalsa.com 3 Overview Paul O’Flaherty, CEO
Slide 4: Our Footprint
Our Footprint 4 R27 bn (0.9 %) in Economic R47 m in economic value direct GDP and R11 bn R2.0 bn in procurement contribution R1.5 bn in taxes contributed growth engine (0.4 %) in indirect spend on QSE and EME in 2013 GDP contribution R42 m invested in R25 bn spent on over 2000 Employer, job creator
Slide 5: Our value creation model
Our value creation model 5 Stakeholders Inputs Steelmaking process Value outputs impacted Input materials consumed Financial outputs H1 2013 H1 2014 % change Plate H1 2013 H1 2014 % change Iron ore 3 238kt 3 387kt +5% Revenue R15 890m R17 927m +13% Shareholder Investors Coal 2 121kt 2 356kt +11% EBI
Slide 6: Strategic imperatives and strategies
Strategic imperatives and strategies 6 • 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 efficie
Slide 7: Safety – Our Key Strategic Imperative
Safety – Our Key Strategic Imperative 7 • Two contractor fatalities in Q2 2014 (the first Lost Time Injury Frequency Rate (Employees and Contractors) in 33 months) 5 4.7 • Another fatality in July 2014 (non-reportable) 4 3.9 • Since 2002 our lost time injury frequency rate has been reduced by 30% a
Slide 8: Environmental investment program
Environmental investment program 8 • 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 electr
Slide 9: Socio Economic activities
Socio Economic activities 9 • 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 – Grant
Slide 10: Operational and Financial overview
Operational and Financial overview (for the six months to end June 2014) 10 EBITDA decreased 17% to R810m 1 Headline loss lower by 95% to R6m from R123m N5 reline on budget, but behind schedule 2 Plans in place to limit impact of delay 3 Despite the N5 furnace reline, capacity utilisation increased
Slide 11: Key result drivers
Key result drivers 11 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
Slide 12: Steel market overview
www.arcelormittalsa.com 12 Steel market overview Paul O’Flaherty, CEO
Slide 13: Sales environment
Sales environment 13 Global Apparent consumption and AMSA sales vs stocks Stocks Apparent consumption AMSA sales • Activity picked up in Q2 with USA leading the 1 400 000 1 000 000 Eurozone and China, while emerging Apparent consumption (t) Despatches (t) & stock (t) economies under pressure 1 300 0
Slide 14: Raw material price environment
Raw material price environment 14 Global International H1 2014 Change • Iron ore prices decreased from $137/t to $112/t (record low of $93/t in June 2014) Iron ore $112/t -19% Scrap $371/t -6% • Hard coking coal peaked during H1 13 ($154/t) and decreased in H1 14, while Chinese coke Pellets $128/t -
Slide 15: Potential demand from new projects in SADC region
Potential demand from new projects in SADC region 15 New projects Estimated steel consumption Estimated annual demand (SADC region) over life of total project 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 1
Slide 16: Finance
www.arcelormittalsa.com 16 Finance Matthias Wellhausen, CFO
Slide 17: Headline earnings (Rm)
Headline earnings (Rm) 17 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 / (pr
Slide 18: Main steel cost drivers (R/t liquid steel)
Main steel cost drivers (R/t liquid steel) 18 % change % change H1 2013 H2 2013 H1 2014 H1 2013 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
Slide 19: EBITDA from segments (Rm)
EBITDA from segments (Rm) 19 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% Finance www.arcelormittalsa.com
Slide 20: Cash flow (Rm)
Cash flow (Rm) 20 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 asse
Slide 21: Working capital movement (Rm)
Working capital movement (Rm) 21 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
Slide 22: EBITDA history (Rm)
EBITDA history (Rm) 22 1800 R 1 588 1500 R 1 449 1200 987 900 817 808 754 706 648 581 600 300 224 238 211 169 82 56 3 0 2010 2011 2012 2013 2014 -158 -300 -221 Finance www.arcelormittalsa.com
Slide 23: $100/t EBITDA target
$100/t EBITDA target 23 16 18 14 20 6 7 43 34 31 2012 EBITDA/t Improvement BOF Incident Sales prices, 2013 EBITDA/t Improvement BF N5 reline Sales prices, H1 2014 actions cost escalation actions cost escalation EBITDA/t and exchange and exchange rate rate Finance www.arcelormittalsa.com
Slide 24: Operating results
www.arcelormittalsa.com 24 Operating results Hans Ludwig Rosenstock, COO
Slide 25: EBITDA from segments (Rm)
EBITDA from segments (Rm) 25 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% Operating results www.arcelormittalsa.com
Slide 26: Steel Production and Shipment volumes
Steel Production and Shipment volumes 26 • Total production decreased by 4% 2500 Production (000t) 100% 80% 2000 73% 76% 66% 77% 59% 73% 74% 80% – Flat products increased 12% to 1 719kt 59% 68% 63% 1500 60% – Long products 29% lower at 667kt 2154 1000 1902 2038 1775 1906 1875 40% 1679 1535 1694 1719
Slide 27: Coke and Chemicals
Coke and Chemicals 27 SS production FeCr consumption • Stainless steel production expected to add SA market share China market share Production & consumption (mt) 50 50% 1mt in 2014 (+2.9%) emanating from growth 38.9 in the USA and to a lesser degree China 40 35.3 37.8 40% Market share (%) 33.2 31.2
Slide 28: Capital expenditure (Rm)
Capital expenditure (Rm) 28 H1 2013 H2 2013 H1 2014 Maintenance 377 730 856 Environment 184 166 51 Other 41 72 29 Total expenditure 602 968 936 • Main ongoing projects during 2014 – Energy saving and replacements/maintenance (83% of spend) • Newcastle: Blast Furnace reline (H1 spend = R625m), raw ma
Slide 29: Blast furnace N5 rebuild at Newcastle Works
Blast furnace N5 rebuild at Newcastle Works 29 • 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 abo
Slide 30: Blast furnace N5 rebuild at Newcastle Works
Blast furnace N5 rebuild at Newcastle Works 30 Input stocks Removal of the down piping Rebar inventory ready for rolling to customer specifications Looking from the bottom up into the furnace Removal of the off-gas system Operating results www.arcelormittalsa.com
Slide 31: Blast furnace N5 rebuild at Newcastle Works
Blast furnace N5 rebuild at Newcastle Works 31 New off-gas piping viewed from 93m up New staves ready for installation Monster scaffold at the stockhouse Operating results www.arcelormittalsa.com31
Slide 32: Blast furnace N5 rebuild at Newcastle Works
Blast furnace N5 rebuild at Newcastle Works 32 Removal of old hopper Lancing the bear Row 6 staves installation Arrival of a portion of the new cyclone Site at night New staves ready for installation Operating results www.arcelormittalsa.com32
Slide 33: Other key issues and outlook
www.arcelormittalsa.com 33 Other key issues and outlook Paul O’Flaherty, CEO
Slide 34: Focus going forward
Focus going forward 34 1 Key strategic objectives and focus areas Vanderbijlpark turnaround Production ramp up at Newcastle post reline Sales strategy in challenging market Competition Commission issues BBBEE compliance Transnet performance 2 Key fundamental decisions by government Confirmation of i
Slide 35: Outlook for Q3 2014
Outlook for 3Q 35 1 Outlook for Q3 2014 Reline in full swing for the quarter Electricity winter tariffs applicable this quarter Domestic economy remain subdued Seifsa strike a major concern Results expected to remain under pressure Other key issues www.arcelormittalsa.com
Slide 36: Financial results Questions
www.arcelormittalsa.com 36 Financial results Questions for the six months ended June 2014
ArcelorMittal South Africa — H1 2014 Earnings Presentation on 6ix