| Wed 13 Feb 2008, 9:00 | | ACL - ArcelorMittal South Africa - Reviewed Group Financial Results And |
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ACL
ACL
ACL - ArcelorMittal South Africa - Reviewed Group Financial Results And
Dividend Announcement For The Year Ended 31 December 2007
ArcelorMittal South Africa Limited
(Formerly Mittal Steel South Africa Limited)
ArcelorMittal South Africa Limited
Registration number: 1989/002164/06
Share code: ACL
ISIN: ZAE000103453
("ArcelorMittal South Africa", "the Company" or "the Group")
Reviewed Group financial results and dividend announcement for the year
ended 31 December 2007
Headline earnings increased by 21%
Operating profit increased by 27%
Domestic sales volumes increased from 71% to 76% of total sales
Financial results
Headline earnings for the year increased by 21% to R5,7 billion, driven by a
significant improvement in operating income, higher interest income and higher
equity accounted earnings from our marketing and shipping joint venture.
This was partially offset by a loss on foreign exchange compared to a
significant gain during 2006.
Headline earnings performance on a quarterly basis remained strong and stable
throughout 2007 except for quarter three which was negatively impacted by
secondary tax on companies on the capital reduction and dividends declared at
the end of quarter two.
Operating profit for the year increased by 27% to R7,7 billion, driven by a
significant increase in international steel prices, a weaker average Rand/US
Dollar exchange rate and a substantial increase in the sales volume and prices
of market coke. This was partially offset by lower steel sales volumes and an
increase in the cost of input materials.
The cash cost of hot rolled coil and billets increased by 18% and 16%
respectively, driven by an increase in the cost of coal, scrap, iron ore,
imported iron ore pellets, tin and ferro-alloys as well as lower production
volumes.
Liquid steel production for the year declined by 10% to 6,37 million tonnes
mainly due to the extended rebuild period of Blast Furnace D at Vanderbijlpark
Works as well as the cold hearth conditions experienced during August 2007 and
December 2007. These problems have subsequently been resolved and the furnace is
now back in full operation.
Market review
International
Global apparent steel consumption increased by 7,5% to 1 243 million tonnes
during 2007, driven mainly by the BRIC (Brazil, Russia, India and China)
countries where demand increased by 12,8%. China`s steel production increased by
15,7% in 2007 and now represents 36,5% of total world production. This double-
digit steel production growth was mainly due to continued rapid economic
development in China and global growth where steel consumers are increasingly
using Chinese steel. During this period, apparent crude steel consumption
increased by 12,4%. China`s net exports of finished steel in 2007 amounted to 47
million tonnes, up 103% compared to 2006.
This increase occurred notwithstanding Chinese government policies and measures
to curb production and exports. China has on two occasions announced increases
in tariffs on steel exports during 2007 and are committed to close 36,1 million
tonnes per annum of steelmaking capacity by 2010. The Chinese Iron and Steel
Association expects finished steel exports to decrease by 20 million tonnes in
2008.
Following a fairly steep decline in the latter half of 2006, international steel
prices recovered strongly in the first half of 2007 and following a brief
recess, continued their upward trend for the remainder of the year and beginning
of 2008. ArcelorMittal South Africa`s export volumes decreased by 22% during
2007 due to lower production volumes. Average export prices realised for hot
rolled coil were 22% up on last year, while low carbon wire rod prices increased
by 26%, supported by higher international prices and the opportunity created by
the lower available export volumes to withdraw from less attractive markets.
Domestic market
The generally favourable domestic market conditions resulted in a marginal 0,5%
growth in our despatches to the domestic market during 2007. Preliminary figures
issued by the South African Iron and Steel Institute ("SAISI") show that
apparent real consumption declined marginally from an all time high of 5,8
million tonnes during 2006 to 5,7 million tonnes in 2007. Preliminary numbers on
imports of primary steel products into South Africa, as reported by Customs and
Excise indicates a decline of 9,6% to 480 000 tonnes in 2007.
South African steel-consuming sectors performed well during most of 2007
however, interest rate increases had a negative impact on demand from the
durable goods, automotive and residential building industries. A relatively
strong Rand in the second half of 2007 eroded the competitiveness of
domestically manufactured exports resulting in lower growth rates in this sector
towards the end of 2007.
Civil construction, driven by public corporations and accelerated government
fixed spending aimed at alleviating infrastructural bottlenecks and the build-up
to the 2010 Soccer World Cup, is currently the main driver behind steel demand.
Contingent liabilities
The Alternative Dispute Resolution process followed with SARS regarding the tax
deductibility of the payments made in terms of the Business Assistance Agreement
is still in progress. The full amount at risk is R403 million of tax plus
interest and penalties. In terms of the settlement offer, the 20% provision
recognised for the 2006 financial year was maintained.
On 6 September 2007, the Competition Tribunal imposed a R692 million
administrative penalty and other remedies in the case brought before it by gold
miners, Harmony Gold Mining Company and DRD Gold Limited, alleging excessive
pricing. A notice of appeal has been filed by the company with the Competition
Appeals Court against both the merits and the remedies decisions. The appeal
hearing is expected during the latter part of 2008. Management have critically
assessed the facts of the case against the recognition and measurement criteria
of IAS 37, Provisions, Contingent Liabilities and Contingent Assets, and
concluded that no provision need be raised. It has been included under
contingent liabilities.
During the first quarter of 2007, a complaint was referred to the Competition
Tribunal involving accusations by Barnes Fencing Industries of price and payment
condition discrimination on domestic sales of low carbon wire rod products.
Management have concluded that no provision need be raised or contingent
liability quantified in respect of this complaint at this time.
Changes to the Board of Directors
The Board of Directors announced on 31 January 2008 the resignation of Mr EM
Reato with effect from 29 February 2008.
Ms N Nyembezi-Heita and Mr L Bonte have been appointed to the Board of Directors
as Chief Executive Officer and President respectively, with effect from 1 March
2008.
Outlook quarter one 2008
Both domestic and international demands are expected to remain strong with
further price increases. This view is supported by an expected equilibrium in
supply and demand, rising raw material prices, a slowdown of Chinese exports and
the rationalisation of Chinese production.
During the beginning of February 2008, the Corex and Midrex plants at Saldanha
Works are scheduled to be relined for a duration of approximately 10 weeks. The
negative impact on production volumes will however be limited by increasing
scrap melting through the Steel Plant.
Overall, we expect the results for the first quarter of 2008 to remain strong
with slightly lower sales volumes to be offset by further increases in steel
prices. However, the results could be negatively impacted by the extent of
electricity outages.
Dividend announcement
In line with the company`s policy, the Board of Directors declared a final cash
dividend of 196 cents, covered approximately three times by headline earnings.
Payment in South African Rand will be made to shareholders recorded in the
register at the close of business on the record date. The salient dates are:
Last date to trade shares cum dividend Friday, 7 March 2008
Shares commence trading ex-dividend Monday, 10 March 2008
Record date Friday, 14 March 2008
Payment date Monday, 17 March 2008
Share certificates may not be dematerialised or rematerialised between Monday,
10 March 2008 and Friday, 14 March 2008, both days inclusive. Dividend
entitlements of less than ten Rand will be donated to charity in terms of the
articles of association.
On behalf of the board
EM Reato HJ Verster
Chief Executive Officer Executive Director Finance
8 February 2008
Quarterly headline earnings (restated)
Quarter to US$m Rm Exchange
rate
Average 2005 200 1 273 6,35
March 2006 115 703 6,13
June 2006 193 1 247 6,45
September 2006 208 1 488 7,16
December 2006 177 1 292 7,31
Average 2006 173 1 183 6,76
March 2007 212 1 534 7,24
June 2007 229 1 623 7,10
September 2007 149 1 056 7,11
December 2007 226 1 528 6,77
Average 2007 204 1 435 7,06
Unreviewed physical information
Year ended
31 December
`000 tonnes 2007 2006
Flat Products
Liquid steel production 4 231 4 863
Sales 3 928 4 268
Long Products
Liquid steel production 2 144 2 192
Sales 1 901 1 926
Total
Liquid steel production 6 375 7 055
Sales 5 829 6 194
- local 4 421 4 400
- export 1 408 1 794
Local sales as percentage of total sales 76 71
Group income statement
Year ended
31 December
2007 2006
Reviewed Restated
Rm Rm
Revenue (Note 2) 29 333 25 350
Raw materials and consumables used (12 141) (11 071)
Employee costs (2 210) (2 243)
Energy (1 364) (1 332)
Movement in inventories of finished goods and (21) 623
work in progress
Depreciation (1 088) (1 080)
Amortisation of intangible assets (11) (16)
Other operating expenses (4 795) (4 149)
Profit from operations 7 703 6 082
Gains and losses on changes in foreign exchange (131) 301
rates and financial instruments (Note 3)
Net interest income (Note 4) 325 193
Interest income 442 362
Finance costs (117) (169)
Income from investments 4 7
Net profit from equity accounted investments 270 135
after taxation
Profit before tax (Note 5) 8 171 6 718
Income tax expense (2 455) (2 022)
Profit for the year 5 716 4 696
Attributable to:
Equity holders of the company 5 716 4 696
Attributable earnings per share (cents)
- basic 1 282 1 054
- diluted 1 279 1 052
ADDITIONAL INFORMATION
Reconciliation of earnings before interest,
taxation, depreciation and amortisation (EBITDA)
Profit from operations 7 703 6 082
Adjusted for:
- depreciation 1 088 1 080
- amortisation of intangible assets 11 16
EBITDA 8 802 7 178
Reconciliation of headline earnings
Profit for the year 5 716 4 696
Adjusted for:
- loss on disposal or scrapping of assets 31 48
- book value of assets held for sale written off 4
- tax effect (10) (14)
Headline earnings 5 741 4 730
Performance per ordinary share
Headline earnings per share (cents)
- basic 1 288 1 061
- diluted 1 284 1 059
Dividend per share (cents)
- interim 233 143
- final 196 204
Net asset value per share (cents) 4 618 5 218
Ordinary shares (thousands)
- in issue 445 752 445 752
- weighted average number of shares 445 752 445 752
- diluted weighted average number of shares 447 052 446 449
Ratios (%)
EBITDA margin 30,0 28,3
Return on ordinary shareholders` equity per
annum
- attributable earnings 26,1 22,0
- headline earnings 26,2 22,1
Net cash to equity 19,3 33,0
Market capitalisation (Rm) 60 845 43 795
Group balance sheet
As at
31 December
2007 2006
Reviewed Restated
Rm Rm
Assets
Non-current assets 16 887 16 118
Property, plant and equipment 15 525 14 973
Intangible assets 58 58
Unlisted equity accounted investments (Note 6) 1 109 953
Other financial assets 195 134
Current assets 11 318 15 057
Assets classified as held for sale 6
Inventories 4 790 4 775
Trade and other receivables 2 292 2 212
Taxation 108 179
Other financial assets 94 135
Cash and cash equivalents 4 034 7 750
Total assets 28 205 31 175
Equity and liabilities
Shareholders` equity 20 583 23 260
Stated capital 37 6 389
Non-distributable reserves 757 684
Retained income 19 789 16 187
Non-current liabilities 4 273 4 375
Borrowings and other payables 52 61
Finance lease obligations 328 502
Deferred income tax liability 2 603 2 485
Provision for post-retirement medical costs 7 8
Non-current provisions 1 283 1 319
Current liabilities 3 349 3 540
Trade and other payables 2 873 3 161
Borrowings 10 10
Finance lease obligations 88 93
Other financial liability 67 7
Current provisions 311 269
Total equity and liabilities 28 205 31 175
Condensed group cash flow statement
Year ended
31 December
2007 2006
Reviewed Restated
Rm Rm
Cash inflows from operating activities 4 619 3 463
Cash generated from operations 8 435 6 326
Net interest income 369 294
Dividend paid (1 948) (1 261)
Income tax paid (2 209) (1 660)
Realised foreign exchange movement (28) (236)
Cash outflows from investing activities (1 749) (1 263)
Investment to maintain operations (1 194) (910)
Investment to expand operations (654) (536)
Proceeds from disposals of property, plant and 8 9
equipment
Investment in associate (16)
Investment income - interest 4 7
Dividend from equity accounted investments 103 167
Net cash inflow 2 870 2 200
Cash outflows from financing activities (6 436) (89)
Capital reduction (6 352)
Repayment of borrowings and finance lease (84) (89)
obligations
(Decrease)/increase in cash and cash equivalents (3 566) 2 111
Effect of foreign exchange rate changes (150) 420
Cash and cash equivalents at beginning of year 7 750 5 219
Cash and cash equivalents at end of year 4 034 7 750
Group statement of recognised income and expense
Year ended
31 December
2007 2006
Reviewed Restated
Rm Rm
Profit for the year 5 716 4 696
Other recognised income and expenses
Exchange differences on translation of foreign (63) 102
operations
Gain on available-for-sale investment taken to 62
equity
Movement in gains and losses deferred to equity (111) 23
on cash flow hedges
Income tax on income taken directly to equity 42 (5)
Total recognised income and expense for the year 5 646 4 816
Attributable to: 5 646 4 816
Equity holders of the company
Notes to the reviewed financial statements
1. Basis of preparation
The announcement has been prepared in accordance with International
Financial Reporting Standards, IAS 34 - Interim Financial Reporting-
, Schedule 4 of the South African Companies Act, 1973, as amended
and the listing requirements of the JSE Limited.
These reviewed Group financial results for the year ended 31
December 2007 have been prepared on the historical cost basis,
except for the revaluation of financial instruments. The Group has
adopted all of the new and revised Standards and Interpretations
issued by the International Accounting Standards Board (IASB) and
the International Financial Reporting Interpretations Committee
(IFRIC) of the IASB that are relevant to its operations and
effective for accounting periods beginning on 1 January 2007.
The principal accounting policies and methods of computation are
consistent with those applied in the previous year except for the
following new Standards and Interpretations which have been early
adopted:
- IAS 23 (Revised), Borrowing Costs
- IFRIC 13, Customer Loyalty Programmes
- IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction.
The adoption of these Standards and Interpretations had no impact
on the Group`s accounting policies or financial results.
The following reclassifications have been processed:
- Reclassification of fair value gains and losses on derivative
instruments in designated hedge accounting relationships and
bifurcated embedded derivatives in terms of IAS 39 - Financial
Instruments: Measurement and Recognition. An amount of R25 million
loss (December 2006: R179 million gain) was reclassified from the
income statement category, Gains and losses on changes in foreign
exchange and financial instruments, to the categories Revenue
amounting to R3 million gain (December 2006: R13 million loss) and
Operating expenses amounting to R28 million loss (December 2006:
R193 million gain). This reclassification had no impact on
operating results.
- Reclassification of value added tax refundable amounting to R92
million (December 2006: R120 million) from trade and other payables
to trade and other receivables.
- Net profit from equity accounted investments was disclosed as
after tax, whereas previously it was disclosed as before tax. The
taxation charge for 2007 was R78 million and for 2006 was R60
million.
The following restatement has been processed:
- Following an impairment reversal in the accounts of Saldanha
Steel (Proprietary) Limited which was reversed on consolidation,
further analysis of the detail of the initial impairment
recognition in 2001 and the acquisition of the remaining 50%
shareholding from the IDC in November 2001 at fair value, the
depreciation charge at Group level had to be re-assessed and
restated. This resulted in a decrease in the depreciation charge of
R69 million (December 2006: R70 million) and an increase in
taxation expense of R20 million (December 2006: R20 million). The
carrying value of fixed assets increased by R69 million (December
2006: R447 million), deferred taxation liability increased by R20
million (December 2006: R130 million) and opening retained earnings
for 2006 increased by R267 million. The earnings for 2006 increased
by R50 million.
The prior year results have been restated for the above matters in
compliance with IAS 8, Accounting policies changes in accountings
estimates and errors.
The new standards, IFRS 8, Operating Segments, IAS 1 (Revised);
Presentation of Financial Statements, IFRS 2 (Revised), Share-based
Payment - Vesting conditions and cancellations and IAS 27
(Revised), Consolidated and Separate Financial Statements effective
for annual periods beginning on or after 1 January 2009 and IFRS 3
(Revised), Business Combinations, effective for annual periods
beginning on or after 1 July 2009 have not yet been adopted.
Adoption of these standards will have no impact on the Group`s
financial position or results.
Year ended
31 December
2007 2006
Reviewed Restated
Rm Rm
2. Revenue 29 333 25 350
Sale of goods 29 330 25 363
Gains/(losses) on derivative instruments in 3 (13)
designated cash flow hedge accounted
relationships
3. Gains and losses on changes in foreign (131) 301
exchange rates and financial instruments
Gains on changes in foreign exchange rates 38 413
Losses on changes in foreign exchange rates (188) (2)
Fair value gains transferred from equity on 3
ineffective derivative instruments
Gains/(losses) on changes in the fair value 16 (110)
of derivative instruments designated
as held for trading at fair value through
profit and loss
4. Net interest income 325 193
Interest income 442 362
Interest expense on bank overdrafts and (20) (14)
loans
Interest expense on finance lease (53) (54)
obligations
Imputed interest on non-current provisions (44) (101)
5. Profit before taxation is arrived at after
Directors emoluments
- executive 9 8
- non-executive 2 1
Auditors remuneration
- audit fees 10 9
- other services 1 1
6. Unlisted equity accounted investments
Directors` valuation of unlisted shares in 1 184 1 037
equity accounted investments
7. Capital expenditure
- incurred 1 848 1 446
- contracted 1 232 960
- authorised but not contracted 1 397 769
8. Contingent liabilities 1 109 530
- guarantees 94 115
- litigation and claims 1 015 415
9. Operating lease commitments 162 44
- less than one year 46 5
- more than one year and less than five 116 39
years
10. Related party transactions
The Group is controlled by Mittal Steel Holdings AG which owns
52,02% of the company`s shares. During the year the Company and its
subsidiaries, in the ordinary course of business, entered into
various sale and purchase transactions with associates and joint
ventures. These transactions occurred under terms that are no less
favourable than those arranged with third parties.
11. Directors` share option benefits
Rights to options and shares held by Executive Directors in terms
of the Management Share Scheme totalled 419 695 at 31 December 2007
(December 2006: 376 056), representing 0,09% (December 2006: 0,08%)
of the issued shares. During the year the directors sold a portion
of their options realising a gain of R7 million (December 2006: R3
million), which was also paid to them.
12. Corporate governance
The Group subscribes to the Code on Corporate Practices and Conduct
as contained in the second King Report on corporate governance.
13. Review by external auditors
The Group financial results have been reviewed by Deloitte & Touche
whose unmodified review opinion is available for inspection at the
company`s registered office.
Reconciliation of changes in equity
Non-distributable reserves
Stated Capital Management Share- Attributable
capital redemption share trust based reserves of
Rm reserve Rm payment equity
Rm reserve accounted
Rm investments
Rm
Balance at 6 389 23 (76) 10 686
1 January 2006
As previously 6 389 23 (76) 10 686
stated
Restatement
Changes in
equity for 2006
Total recognised
income and
expense for the
year
Management share (30)
trust loss
Share options 17
charge: IFRS 2
Dividend
Transfer of (32)
equity accounted
earnings
Balance at 6 389 23 (106) 27 654
31 December 2006
(Restated)
Total recognised
income and
expense for the
year
Management share (58)
trust loss
Share options 35
charge: IFRS 2
Dividend
Capital (6 352)
reduction
Transfer of 166
equity accounted
earnings
Balance at 37 23 (164) 62 820
31 December 2007
(Reviewed)
Reconciliation of changes in equity
Non-distributable reserves
Financial Trans- Cash flow Retained Total
assets lation hedge income Shareholders`
available of accounting Rm equity
for sale foreign Rm Rm
Rm opera-
tions
Rm
Balance at (46) 12 12 720 19 718
1 January 2006
As previously (46) 12 12 453 19 451
stated
Restatement 267 267
Changes in
equity for 2006
Total recognised 102 18 4 696 4 816
income and
expense for the
year
Management share (30)
trust loss
Share options 17
charge: IFRS 2
Dividend (1 261) (1 261)
Transfer of 32
equity accounted
earnings
Balance at 56 30 16 187 23 260
31 December 2006
(Restated)
Total recognised 62 (63) (69) 5 716 5 646
income and
expense for the
year
Management share (58)
trust loss
Share options 35
charge: IFRS 2
Dividend (1 948) (1 948)
Capital (6 352)
reduction
Transfer of (166)
equity accounted
earnings
Balance at 62 (7) (39) 19 789 20 583
31 December 2007
(Reviewed)
Segmental analysis
Year ended
31 December
2007 2006
Reviewed Restated
Rm Rm
Revenue
Flat Products 19 240 17 341
Long Products 9 238 7 687
Coke and Chemicals 2 065 1 033
Intergroup eliminations (1 210) (711)
Total 29 333 25 350
Operating profit
Flat Products 4 338 3 644
Long Products 2 661 2 111
Coke and Chemicals 727 184
Corporate and other (23) 143
Total 7 703 6 082
Forward-looking statements
Certain statements in this release that are neither reported financial results
nor other historical information, are forward-looking statements, including but
not limited to statements that are predictions of or indicate future earnings,
savings, synergies, events, trends, plans or objectives. Undue reliance should
not be placed on such statements because, by their nature, they are subject to
known and unknown risks and uncertainties and can be affected by other factors,
that could cause actual results and company plans and objectives to differ
materially from those expressed or implied in the forward-looking statements (or
from past results).
Registered Office:
ArcelorMittal South Africa Limited, Room N3-5, Main Building, Delfos Boulevard,
Vanderbijlpark 1911
Transfer Secretaries:
Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street, Johannesburg, 2001
P.O. Box 61051, Marshalltown, Johannesburg, 2107
Directors:
Non-executive: Dr KDK Mokhele (Chairman)*, DK Chugh, EK Diack*,
S Maheshwari, LP Mondi, M Mukherjee, DCG Murray*, MJN Njeke*, ND Orleyn*, M
Wurth
Executive: EM Reato (Chief Executive Officer), HJ Verster, JJA Mashaba (Resigned
2007-09-30)
Citizen of India Citizen of Luxembourg *Independent non-executive
Company Secretary: C Singh (Appointed 2007-12-01)
This report is available on the ArcelorMittal South Africa`s Web site at:
http://www.arcelormittal.com/southafrica/
Share queries: Please call the ArcelorMittal South Africa share care toll free
on 0800 006 960 or +27 11 370 7850
Vanderbijlpark
13 February 2008
Sponsor to ArcelorMittal South Africa
Deutsche Securities (SA) (Proprietary) Limited
Date: 13/02/2008 09:00:02 Produced by the JSE SENS Department.
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