Arcelormittal South Africa Limited · JSE:ACL
Arcelormittal South Africa — FY2016 Earnings Presentation
35 slides from Arcelormittal South Africa's earnings presentation, February 2017
Slide 1: Financial results for the year ended 31 December 2016
Financial results for the year ended 31 December 2016
Slide 2: Disclaimer
Disclaimer 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
Slide 3: Content
Content 1 Overview 2 Steel market prognosis 3 Operating results 4 Financial synopsis 5 Other key issues & outlook 6 Questions 3
Slide 4: Overview
Overview Wim de Klerk
Slide 5: Positives
Positives Saldanha Competition campaign extension matters completed & repair program on batteries Empowerment deal concluded Headline with employees loss 4th largest Toll decreased shareholder agreement reached with Evraz Highveld Designation structural mill & localisation 5
Slide 6: Challenges
Challenges Production Transport & losses stemming logistics from once off operational Domestic events demand at seven year low due to subdued GDP & lack of Safeguards infrastructure Although spent negative cash flow, net debt Safety reduced RMB*, steel price & ZAR volatility *Raw material basket 6
Slide 7: Safety
Safety Lagging indicators LTIFR • Three fatalities 0.8 0.6 • Increase in LTIFR to 0.62 (2015 = 0.48) 0.61 0.58 0.62 0.4 0.56 0.48 • Management campaigns 0.2 – Journey to zero harm 0.0 – Employee behaviour 2012 2013 2014 2015 2016 1.5 DIFR – Emotional connection 1.2 1.33 0.9 1.18 – Build on character
Slide 8: Transformation overview
Transformation overview Ownership • 25% Black ownership contributing 25 points* to B-BBEE scorecard • 17% held by a 100% black owned entity (Likamva) • 6.6% held by employees through Ikageng & Isabelo trusts Management • 64% of total workforce are historically disadvantaged South Africans control •
Slide 9: Steel market prognosis
Steel market prognosis Wim de Klerk
Slide 10: Raw material basket (RMB*) - Global
Raw material basket (RMB*) - Global $/t • RMB increased by $35/t (+19%) 500 International RMB compared to HRC price $448 $391 • Steel prices improved $47/t (HRC**) and $32/t 400 $357 $378 $373 (rebar) $301 $299 $315 300 $263 $38 • Coking coal prices surged resulting in HRC $210 $192 $211 $185 spread
Slide 11: Raw material basket - ArcelorMittal South Africa
Raw material basket - ArcelorMittal South Africa R/t • Exchange rate weakened 15% AMSA RMB compared to AMSA HRC price 7 562 7 565 8 000 6 797 6 767 – R12.76 to R14.72 6 265 6 031 5 989 5 838 6 000 • AMSA RMB increased 6% while the domestic 4 328 3 883 3 453 3 499 HRC price improved 11% 4 000 3 081 2
Slide 12: Global market
Global market • Crude steel output decreased 1% (-13mt) Global steel industry mt 1 636 1 591 – US declining 11% (-16mt) 1 578 1 578 1 510 1 500 – India +13% (+10mt) – China unchanged 1 000 • China demolished 65mt capacity in 2016 500 reducing capability by 5% to 1 019mtpa – Utilisation at 77% (73%)
Slide 13: Chinese market
Chinese market • Steel products available for exports declined Chinese steel exports destinations 2% 5% 1% 1% 1% • Monthly average exports decreased 3% 100% 5% 3% 2% 5% 4% 10% 9% 7% 10% 10% 7% – Destination composition changed 80% 9% 8% 8% 8% 8% 8% 6% 7% 7% – Decline in volumes to North America, Lat
Slide 14: Domestic market
Domestic market kt ASC* Apparent steel consumption 6 000 30% • Steel sales by local producers increased 0.3%** 5 000 26% 25% 750 1 192 24% 959 • Imports declined 17%*** 4 000 22% 19% 1 315 1 146 20% – Flat down 234kt 3 000 15% 15% – Long increased 3kt 2 000 10% 1 000 5% • ASC decreased 3.4%** 4 309
Slide 15: Domestic market
Domestic market Flat steel sales to industrial groups 80% Industrial groups (2016 = 9 months only) (% of total flat) • Steel sales by local producers to domestic end 60% 71% 67% 67% 65% market declined by almost 1% 59% • Flat steel - manufacturing continue to lose 40% market share, now at 59% (avera
Slide 16: Operating results
Operating results Dean Subramanian
Slide 17: Flat steel production & despatches
Flat steel production & despatches kt Flat steel products - production & shipments Production 100% 4 000 • Liquid steel production increased 76kt despite 3 554 3 229 3 586 77% 80% 3 145 raw material quality problems and operational 3 000 3 221 915 1 030 60% 639 events 768 763 2 000 40% • Capacity ut
Slide 18: Long steel production & despatches
Long steel production & despatches Production Long steel products - production & shipments kt 100% • Liquid steel production decreased 144kt 2 000 81% 371 1 867 following the closure of the Vaal Meltshop 1 536 1 694 1 550 80% • Capacity utilisation slightly higher at 81% (80%) 173 60% 329 336 208 ba
Slide 19: Coke & Chemicals
Coke & Chemicals kt Coke & Chemicals - sales volume & coke price $/t Production and sales 140 $200 • Commercial coke production in H2 declined by 120 $184 $177 $183 50% due to reduced coke oven capacity as a 100 $173 $150 $152 result of battery repairs at Newcastle 80 $130 $122 $112 $100 • Company w
Slide 20: Capital expenditure (Rm)
Capital expenditure (Rm) 2016 2015 Maintenance & expansion 1 853 991 Environmental 38 65 Other 127 97 Total expenditure 2 018 1 153 Main projects completed during 2016 • Vanderbijlpark – Stand alone gas fired boiler (R138m), Battery waste gas channels repair (R54m), basic oxygen furnace off-gas cool
Slide 21: Financial synopsis
Financial synopsis Dean Subramanian
Slide 22: Headline earnings (Rm)
Headline earnings (Rm) 2016 2015 Revenue 32 737 31 141 EBITDA 190 (809) Depreciation and amortisation (1 055) (1 369) Once-off items (227) (2 558) Loss from operations (1 092) (4 736) B-BBEE charges (870) Impairment (2 154) (4 254) Finance and investment income 176 175 Finance costs (876) (1 208) Eq
Slide 23: EBITDA from segments
EBITDA from segments 2016 2015 Flat steel products (Rm) (392) (1 269) EBITDA margin (1.8%) (6.4%) Net realised price R/t R7 344 R6 891 Long steel products (Rm) 286 (348) EBITDA margin 2.7% (3.2%) Net realised price R/t R7 154 R6 423 Coke and Chemicals (Rm) 172 427 EBITDA margin 12.5% 23.7% Corporate
Slide 24: Main steel cost drivers
Main steel cost drivers Flat Long Chng on 2016 Chng on 2016 Cost item 2016 2016 2015 Wght 2015 Wght Raw materials R2 779 (1.4%) 41.9% R3 002 15.2% 47.5% Auxiliaries & consumables R2 221 10.3% 33.5% R1 563 3.5% 24.7% Fixed cost R1 628 (2.0%) 24.6% R1 754 13.0% 27.8% Total R6 628 2.1% 100.0% R6 319 11
Slide 25: Cash flow (Rm)
Cash flow (Rm) 2016 2015 Cash generated from operations before working capital 215 (1 911) Working capital 658 1 647 Capex (2 008) (1 256) Net finance cost (451) (537) Investments (11) (8) Tax (2) (40) Dividend received 114 Proceeds on scrapping of assets 67 2 B-BBEE transaction costs (55) Realised
Slide 26: Cash flow analysis (Rm)
Cash 2015 2 164 Cash from 215 Operations Working Capital 658 Capex (2 008) Net financing (451) cost Cash flow analysis (Rm) Forex (276) Rights Issue 4 500 Borrowings (3 141) 1 Other Cash 2016 26 1 660
Slide 27: Working capital movement (Rm)
Working capital movement (Rm) 2016 2015 Inventories (1 830) 1 112 Finished products (300) (178) Work-in-progress (533) 348 Raw materials (904) 981 Plant spares and stores (93) (39) Receivables (164) (87) Payables 2 958 1 152 Utilisation of provisions (306) (530) Working capital movement 658 1 647 27
Slide 28: EBITDA history (Rm)
EBITDA history (Rm) 2000 1 768 1 258 1000 1 121 190 0 2012 2013 2014 2015 2016 -809 -1000 28
Slide 29: EBITDA bridge (Rm)
EBITDA 2015 (809) Sales volume 234 Sales price & mix 2 036 Efficiencies 251 Other purchase (200) price variance EBITDA bridge (Rm) Labour cost (284) Maintenance cost ( 224) Environmental ( 184) provision movements Fixed cost of ( 267) stock movement Other (108) Sub Total 445 Coke & Chemicals (255) c
Slide 30: Balance sheet (Rm)
Balance sheet (Rm) 2016 2015 Assets 30 646 30 962 Non-current assets 15 834 17 634 Property, plant & equipment 10 670 11 859 Equity accounted investments 4 667 5 090 Other 497 685 Current assets 14 812 13 328 Inventories 11 274 9 385 Trade & other receivables 1 774 1 666 Cash 1 660 2 164 Other 104 1
Slide 31: Net debt evolution (Rm)
Net debt evolution (Rm) 1000 874 285 (290) (546) -1000 (2 865) -3000 2012 2013 2014 2015 2016 31
Slide 32: Other key issues and outlook
Other key issues and outlook Wim de Klerk
Slide 33: Focus areas for 2017
Focus areas for 2017 Area of focus 2016 2017 People • 4th largest shareholder • Renewed safety emphasis • TIFR on the decline • Retention strategy • Training spent • Values & motivation Operational • Campaign extension at • Raw material excellence Saldanha • Restore battery capacity • Battery repair
Slide 34: Outlook for H1 2017
Outlook for H1 2017 Steel markets • Global conditions to remain restrained although fundamentally in better shape • Domestic demand expected to remain subdued - lack of infrastructure spent & imports of semi finished products • Export markets likely to be flat Prices • Scrap prices to reduce, potent
Slide 35: Questions
Questions
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