Annual Financial Results

Transcription

1 Mittal Steel South Africa Limited Annual Financial Results for the 12 months ended December 2006

2 market & operations Rick Reato

3 Introduction and Overview Earnings remain strong at R4.6bn - Earnings per share of 1 042c down 8% - Operating margin of 23% Domestic markets remained buoyant - Demand at record levels - Domestic sales constitute 71% of total sales Cost pressures continue - Raw material cost increased by 19% - Cost of steel sales increased 15% Operations - Liquid steel production down 3% - Several production records in downstream plants - Sales down only 1% Earnings remain strong 3

4 Key Result Drivers 2006 vs 2005 HRC US$ export price LCWR US$ export price Total sales volume Export sales volume Domestic sales volume HRC Rand cash cost per tonne Billet Rand cash cost per tonne Labour productivity ZAR movement -5% +4% -1% -35% +26% +10% +9% +12% -6% Strong local market impacted on export volumes 4

5 Global Environment General Market Trends Prices improved in H2 06 and expected to increase further in Q2 07 World economic growth in 2006 increased from 3.8% to 3.9% Global consolidation received new impetus with Arcelor Mittal merger Consolidation continues with Tata taking over Corus Steelmakers input costs remain high & will continue to support prices World consumption and production of steel increased by 9% in 2006 Chinese economy continues to grow at high rate (10%) Lower price volatility expected to continue Global consolidation supports a more stable market environment 5

6 Global Environment - Export Prices 700 Export prices (c&f) US$/t HRC Low carbon wire rod Steel prices established new trading range 6

7 Global Environment - Chinese Market Trends China net exporter of finished steel products in 2006 China accounted for 34% of world steel production & 33% of consumption Chinese import/export tonnes ktonnes Source: TEX Report Net Import Export China expected to retain its status of a responsible net exporter 7

8 Global Environment Benchmark Prices 350 Global input cost 300 Based to Dec 01 Jun 02 Dec 02 Jun 03 Dec 03 Jun 04 Dec 04 Jun 05 Dec 05 Jun 06 Dec 06 Coking coal Iron ore fines Input costs remain high 8

9 Global Environment Input Cost Trends Scrap prices & freight rates moved higher during 2006 Diverging price trends for base metals & alloys - Tin +19% - Nickel +65% - Aluminium +35% - Ferro Alloys -20% Zinc price increased by 131% in 2006 after increasing by 32% in 2005 Price trends for BF iron ore increased by 9.5% - Pellets increased by 5.3% - Metallurgical coking coal decreased by 15.5% - Upward price trend of base metals softer but volatile, most notably nickel Raw materials continue to exert upward pressure on cost 9

10 Input Cost Positioning 12 months to December 2006 Iron ore (Lump, Fine & DRI) Scrap (Purchase & internal) Coke (Metallurgical) Coking coal (Metallurgical) Coking coal (Market) Other coal & anthracite ktonnes Backward integrated 97% 58% 94% 12% 9% Domestic supply agreements 3% 42% 24% 91% 100% Imported Pellets* 485 0% 0% 100% 0% 0% 0% 0% 6% 64% 0% 0% * Imported for Saldanha Steel Coal remains the biggest exposure 10

11 Domestic Environment Shipments ktonnes Source: SAISI Long Flat Both flat and long steel local despatches achieved record levels 11

12 Domestic Environment Inventory Levels ktonnes Source: SAISI Stocks Week s despatches Industry inventory levels below recent averages 12

13 Domestic Environment Imports % ktonnes % 14% 10% 6% % Source: SAISI Imports % of consumption Increase in imports prompted by strong local demand 13

14 Key Performance Indicators CI savings (Rm) Employees per million tonnes produced Revenue per head (R000) HRC cash cost - R/t - US$/t Billet cash cost - R/t - US$/t Percentage value-add exports - flat - long % 79% % 94% Cost increases influenced by production interruptions 14

15 Liquid Steel Production ktonnes Flat Products Long Products Total Production interruptions reduced output volumes 15

16 Key Result Drivers ktonne 2005 liquid steel output Skip hoist failure at BFD Power outages at Saldanha Cable burn at EAF Air separation unit failure at Saldanha Hearth conditions at Newcastle Iron ore shortage Fire at slab casters Efficiency improvements 2006 liquid steel output

17 Shipment Volumes ktonnes Flat Products Long Products Total Domestic Export Substantial shift to meet local demand 17

18 Geographic Shipments South Africa Rest of Africa Total Africa Americas Asia Europe Oceania 0% 20% 40% 60% 80% 100% Maintain Africa focus 18

19 Major Investments Rm Relines Maintain capability Steel capacity increase Downstream value adding projects Environmental investments Completed in

20 Safety Remains our Priority Lost Time Injury Frequency Rate (LTIFR*) Significant progress in safety performance All Business Units certified under OHSAS m DI free hours achieved - 7x at Vanderbijlpark - 2x at Newcastle * Includes contractors Mittal Steel South Africa IISI Our safety record compares well with global standards 20

21 finance Kobus Verster

22 Headline Earnings Rm Revenue Operating profit Gains & losses on foreign exchange rate & financial instruments Financing cost - net interest income - imputed interest on non-current provisions Income from investments Tax Equity earnings* Goodwill impairment added back for headline earnings Headline earnings - in US$m (140) 5 (2 327) (101) 7 (2 002) * After tax Earnings remain strong 22

23 Comparable Headline Earnings Trend Rm Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Earnings off previous lows 23

24 Operating Profit Rm Flat products Long products Coke & Chemicals Corporate & other Operating profit (34) (1) Long products maintained its contribution 24

25 Cash Flow Rm Cash profits from operations Working capital Capex Net interest income Investment income Tax Dividends Net cash flow Cash (1 608) (2 977) (2 853) (1 033) (1 446) (1 660) (1 261) Strong cash flow 25

26 Financial Ratios Operating margin EBITDA margin Revenue/invested capital (times) Return on equity Net cash/equity % 34% % 23% % 28% % 31% Ratios still support good investment case 26

27 Share Performance Mittal Steel South Africa ALSI Top 40 Excellent medium to long term share performance 27

28 Dividend Dividend policy - Distributing one third of headline earnings Dividend declared - Interim dividend of 143 cents per share - 4 September Final dividend of 204 cents per share - 26 March Total dividend of 347 cents covered 3 times by EPS of cents Dividend yield of 2.9% 28

29 other developments Rick Reato

30 Meeting Local Demand Channels for capturing strong local demand - Focus on production stability - Divert exports - Import from group companies - Investing in additional capacity Capacity to meet local demand through global network 30

31 Competition Tribunal, SARS and Pricing Policy Competition Tribunal - Final arguments were heard in November Decision expected this quarter SARS BAA dispute - Alternative dispute resolution hearing was held in December Process still in progress Pricing structure - Interaction with DTI continues 31

32 Operational Developments Blast furnace D reline - Reline forms part of capital expenditure programme - Improved efficiencies will enable higher output Expansion plans - New galvanising line (commissioned Dec 2006) - New shot blast & prime facility (commissioned Oct 2006) - Acquired Mozambique mills - Plan for installing more straightening capacity at Newcastle - Increasing barmill capacity at Newcastle - Additional iron making capacity - Additional downstream capacity at flat & long facilities under investigation Iron ore supply - Thabazimbi - Spoornet 32

33 Other Developments Industrial relations - Extended long term wage agreement to Signed no-force retrenchment agreement for another year Corporate Social Investment - Mittal Steel South Africa Science and Educational Centre - Science Unlimited exhibition - Mittal Steel Science Olympiad - Sport Development Fund Technical skills development - Additional apprentices - Technical conversion programme 33

34 Outlook Rick Reato

35 Outlook for Q1 07 Business environment - Domestic demand expected to further improve - Lower price volatility expected to continue - Higher input prices will influence production costs Earnings - Earnings to improve compared to Q Exchange rate may have an influence Earnings expected to improve on Q

36 Mittal Steel South Africa Limited Annual Financial Results for the 12 months ended December 2006