| Wed 29 Apr 2009, 8:00 | | ACL - ArcelorMittal South Africa - Unaudited Group Earnings and Physical |
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ACL
ACL
ACL - ArcelorMittal South Africa - Unaudited Group Earnings and Physical
Information for the Quarter Ended 31 March 2009
ArcelorMittal South Africa Limited
(Incorporated in the Republic of South Africa)
Registration number: 1989/002164/06
Share code: ACL & ISIN: ZAE000103453
("ArcelorMittal South Africa", "the company" or "Group")
Unaudited Group earnings and physical information for the quarter ended 31 March
2009
The lifeblood of a developing nation
Group income statement
Quarter ended Year ended
Rm 31 March 09 31 March 08 31 December 08 31 December 08
Revenue 6 177 8 088 8 162 39 914
Flat Carbon Steel 4 149 4 959 5 023 25 513
Products
Long Carbon Steel 1 988 2 739 3 075 12 950
Products
Coke and 150 834 705 3 563
Chemicals
Intergroup (110) (444) (641) (2 112)
eliminations
(Loss)/profit (145) 2 050 1 614 12 159
from operations
Flat Carbon Steel (276) 745 851 7 007
Products
Long Carbon Steel (8) 884 622 3 672
Products
Coke and 15 381 291 1 743
Chemicals
Corporate and 124 40 (150) (263)
Other
(Losses)/gains on (14) 464 149 637
changes in
foreign exchange
rates and
financial
instruments
Net interest 21 52 82 80
income
Income from 1 1 3
investments
Income/(loss) 40 175 (249) 331
from equity
accounted
investments (net
of tax)
Impairment 36 36
reversal
Income tax (142) (742) (576) (3 865)
expense
(Loss)/profit (239) 2 000 1 056 9 381
from ordinary
activities
(Loss)/profit
attributable to:
* Ordinary (239) 2 000 1 056 9 381
shareholders
ADDITIONAL
INFORMATION
Attributable (54) 449 237 2 105
(loss)/earnings
per share (cents)
Reconciliation of
headline
(loss)/earnings
(Loss)/profit for (239) 2 000 1 056 9 381
the period
Adjusted for:
- loss on 3 4 7 39
disposal or
scrapping of
assets
- impairment 121 121
charge
- impairment (36) (36)
reversal
- tax effect (1) (1) (11) (21)
Headline (237) 2 003 1 137 9 484
(loss)/earnings
Headline (53) 449 255 2 128
(loss)/earnings
per share (cents)
Physical information
Quarter ended Year ended
31 March 09 31 March 08 31 December 08 31 December 08
`000 tonnes `000 tonnes `000 tonnes `000 tonnes
Flat Carbon
Steel
Products
Liquid steel 753 1 038 551 4 084
production
Sales 704 906 616 3 412
Long Carbon
Steel
Products
Liquid steel 405 525 291 1 690
production
Sales 316 497 299 1 677
Total
Liquid steel 1 158 1 563 842 5 774
production
Sales 1 020 1 403 915 5 089
- Local 686 1 195 716 4 375
- Export 334 208 199 714
- Local sales 67 85 78 86
as percentage
of total
sales
Financial review
Amid few signs of an improvement in global steel demand and prices,
ArcelorMittal South Africa has reported a headline loss of R237 million for the
first quarter of 2009. This compares with a profit of R2 billion during the
corresponding period last year and a R1.1 billion profit for the fourth quarter
of 2008.
The first quarter loss can be attributed to the sudden and sharp collapse in
international demand and prices for steel. On average, realised steel prices
were 50% below those reported as recently as six months ago. Costs on the other
hand remained high as coking coal supply contracts were concluded at high prices
last year and will only lapse during the second quarter. The decline in earnings
was further aggravated by lower income from the Coke and Chemicals business amid
a slump in demand for market coke from the ferro-alloy industry. The company
also made losses on foreign currency transactions, as the Rand strengthened
against the US Dollar during the first quarter of this year, whereas it had
weakened in both the corresponding period of last year and the fourth quarter of
2008.
Market review
International
The global steel industry has been particularly hard hit by the severity of the
economic downturn, with steel export prices falling below the operating cost
level of many steel mills and, in some cases, even below their marginal costs.
When measured against the peak in the second quarter of 2008, World Steel
Dynamics expects apparent demand for steel in 2009 to drop by 29% globally,
comprising a decline of 40% in advanced countries, 30% in the developing world
(excluding China) and 17% in China. Global crude steel production in the first
quarter this year was 23% lower than in the corresponding period last year.
All major markets for steel have been affected by the severe economic recession,
which was sparked by the banking crisis and subsequent tightening credit
conditions. Furthermore weaker currencies in many eastern European countries are
enabling producers from these countries to offer steel at significantly reduced
prices in US Dollar terms and contributing to fierce price competition.
Internationally there are early signs that the slump in steel demand is
flattening out. However, we only expect a measure of stability to return to the
market by the middle of this year and a marginal up-turn in underlying demand by
the end of this year. This will be boosted by the initiative of many companies
to downsize their operations so that it matches the more subdued demand outlook.
Domestic market
The company`s domestic steel sales for the quarter were 686 000 tonnes, 4% down
on the previous quarter and 43% lower than the corresponding period last year.
This was mainly due to a 22% quarter-on-quarter decline in manufacturing
activities, the negative impact of tight credit conditions on demand, especially
from the building and construction industry, and de-stocking by steel merchants
concerned about the uncertain outlook for steel demand and prices. On the
positive side, the public sector`s infrastructure programme continues to
underpin domestic demand, with steel sales to Eskom`s new power stations
starting to take off.
Operational reviews
Liquid steel production for the first quarter of this year was raised by 38%
compared to the fourth quarter, though this is still 26% lower than output in
the first quarter of 2008. Production levels last year fell from around 80% of
capacity to below 50% in the fourth quarter as we aligned the supply of steel to
reduced demand levels. Production has picked up to levels of around 60% of
capacity in the first quarter of this year as the loss in sales on the domestic
market was shifted to financially viable export orders.
Contingent liabilities
In the case brought before the Competition Tribunal by gold miners Harmony Gold
Mining Company Limited and DRD Gold Limited alleging excessive pricing, a ruling
is still pending on the appeal hearing that took place before the Competition
Appeal Court during October 2008. The administrative penalty imposed by the
Competition Tribunal of R692 million remains disclosed as a contingent liability
and no provision has been made.
In another case brought before the Competition Tribunal by Barnes Fencing
Industries Limited, relating to alleged price and payment discrimination on the
sale of low carbon wire rod products, a date for the plea hearing and the
beginning of the initial proceedings is awaited.
Safety, health and environment
Health and safety remains a key priority. Significant progress has been made in
implementing the "Journey to Zero" initiative aimed at achieving zero fatalities
and injuries. Achievements during the reporting period include 1.6 million man
hours without a lost time injury at Vanderbijlpark Works and 1 million lost time
injury free man hours at Vereeniging Works. The lost time injury frequency rate
- the key industry safety performance indicator - stood at 2.6 (injuries per 1
million man hours worked) at the end of the first quarter, above the target of
2.0.
Environmental matters feature prominently in the company`s priority list and
management actions. The severe impact of the global economic crisis has
necessitated a reprioritisation and reschedule of capital expenditure on some of
these projects. Spending on two crucial environmental projects will continue:
* The installation of a dust extraction system at the steelmaking facilities of
the Vereeniging operation is progressing well and scheduled for completion in
early 2010.
* The Coke Gas and Water Cleaning Project at Vanderbijlpark has experienced
commissioning delays and will be operational during the second quarter of 2009.
This project will achieve a cut in SO2 emission of about 40% at the plant.
The company is also co-operating fully with the Green Scorpions, which have made
a number of inspections at our operations over the past two years, the most
recent of which was conducted in March 2009 at the Saldanha plant.
Capital projects and investments
The first of the two new direct reduction kilns at the Vanderbijlpark plant went
into production in early April with the second scheduled for June. These kilns
will enable the operation to become less reliant on scrap as feedstock to the
electric arc furnaces, while at the same time adding 220 000 tonnes of liquid
steel to its manufacturing capacity.
As announced on 7 April 2009, ArcelorMittal South Africa acquired a 16.31%
shareholding in Coal of Africa Limited ("CoAL") from its holding company for an
amount of R405 million. The purchase consideration was based on the 15-day
volume weighted average price at which the CoAL shares traded on the stock
exchange operated by the JSE Limited ("the JSE") to the close of business on 31
March 2009. The transaction will secure part of the company`s future coal needs,
thus mitigating one of the key input costs. As part of the transaction, the
company has an option to enter into an off-take agreement for the supply of 2.5
million tonnes of metallurgical coking coal annually.
Outlook quarter two 2009
Results for the second quarter are expected to improve marginally as the cost of
raw materials, particularly coking coal, comes down. While prices for steel
products are expected to remain weak, domestic sales volumes should increase
slightly during the second quarter as the de-stocking process nears its end. A
decline in inflation, further likely interest rate cuts and Government`s
commitment to continue with its infrastructure programme, should also improve
consumer and investment spending as the year progresses.
Announcement of pro-rata share buy-back
ArcelorMittal South Africa currently has excess free cash of more than R5
billion above its operational requirements. The company has resolved to return
part of the excess free cash to ArcelorMittal South Africa shareholders through
a scheme of arrangement in terms of section 311 of the Companies Act, 1973 (Act
61 of 1973), as amended ("the Act") ("the scheme"). The company proposes to buy,
through a wholly owned subsidiary, approximately 10% of ArcelorMittal South
Africa shares in issue from ArcelorMittal South Africa shareholders on a pro-
rata basis.
The cash consideration of the proposed share buy-back will be based on the 5-day
volume weighted average traded price of R87.64 per share at the close of
business on 20 April 2009, being the last practicable date prior to the
finalisation of the scheme circular. Assuming that the company repurchases
approximately 10% of its issued share capital, being 44 575 213 shares, the
total scheme consideration will be R3.9 billion. The distribution will be funded
out of existing free cash resources available to ArcelorMittal South Africa at
the time of the proposed scheme.
One of the primary objectives of the company is to ensure that all shareholders
are treated equally. After implementation of the scheme, an ArcelorMittal South
Africa shareholder`s effective percentage holding in ArcelorMittal South Africa
will not be diluted, as the scheme will be implemented on a pro rata basis,
based on the number of ArcelorMittal South Africa shares held by each
ArcelorMittal South Africa shareholder.
Given the current share price levels, a buy-back in terms of section 89 of the
Act is believed to be an appropriate mechanism to return the excess equity to
shareholders without diluting the interests of any individual shareholder.
Moreover, given the reduction of the number of consolidated ArcelorMittal South
Africa shares in issue, it is anticipated that the transaction will be earnings
per share enhancing.
It is anticipated that, subject to receiving approval from the JSE, an
announcement containing the details of the proposed scheme, including the
salient dates, will be released on the Securities Exchange News Service of the
JSE on 5 May 2009 and published in the South African press on 6 May 2009. The
scheme circular will be posted to shareholders on or about 8 May 2009. Subject
to receiving leave from the High Court to convene a scheme meeting, it is
anticipated that the meeting to approve the scheme will be held on 1 June 2009.
Forward-looking statements
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
risks and uncertainties whose impact 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).
Directors:
Non-executive: Dr KDK Mokhele (Chairman)*, DK Chugh^, CPD Cornier#,
EK Diack*, S Maheshwari^, LP Mondi, DCG Murray*, MJN Njeke*, ND Orleyn*, AMHO
Poupart-Lafarge#
Executive: N Nyembezi-Heita (Chief Executive Officer), Dr LGJJ Bonte+
(President), HJ Verster (Executive Director Finance)
^ Citizen of India
+ Citizen of Belgium
# Citizen of France
* Independent non-executive
Company Secretary:
C Singh
Registered Office:
ArcelorMittal South Africa Limited
Room N3-5, Main Building
Delfos Boulevard, Vanderbijlpark, 1911
Transfer Secretaries:
Computershare Investor Services (Proprietary) Limited
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Sponsor:
Deutsche Securities (South Africa) (Proprietary) Limited
87 Maude Street, Sandton, 2146
Private Bag X9933, Sandton, 2143
This report is available on the ArcelorMittal South Africa`s website 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
29 April 2009
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 29/04/2009 08:00:01 Produced by the JSE SENS Department.
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