ArcelorMittal South Africa Achieving profit in a challenging market Nonkululeko Nyembezi-Heita, CEO 31 May 2013
Disclaimer Forward-Looking Statements This presentation may contain forward-looking information and statements about ArcelorMittal South Africa and its subsidiaries. These statements include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. Forward-looking statements may be identified by the words believe, expect, anticipate, target or similar expressions. Although ArcelorMittal South Africa s management believes that the expectations reflected in such forward-looking statements are reasonable, investors and holders of ArcelorMittal South Africa s securities are cautioned that forward-looking information and statements are subject to numerous risks and uncertainties, many of which are difficult to predict and generally beyond the control of ArcelorMittal South Africa, that could cause actual results and developments to differ materially and adversely from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include those discussed or identified in the filings with the JSE made or to be made by ArcelorMittal South Africa, including ArcelorMittal South Africa s Annual Report for the year ended December 31, 2012 filed with the JSE. These forward looking statements have not been reviewed and reported on by ArcelorMittal South Africa s auditors and apply only as of the date they are made. ArcelorMittal South Africa undertakes no obligation to publicly update its forward-looking statements, whether as a result of new information, future events, or otherwise. 1
Safety - Journey to Zero Zero fatalities in 2012 vs 5 in 2011 LTIFR* 0.6 in 2012 vs 0.4 for 1Q 13 Vanderbijlpark 2012 LTIFR almost one-fifth of the previous high while its Q1 2013 result is a third of 2012 Driving adherence to fatality prevention standards Management s presence on the shopfloor is the foundation of the process Attention on right behaviour through Behaviour Based Care initiative 2.2 Lost Time Injury Frequency Rate (Employees and Contractors) 2.4 2.6 1.6 1.2 0.6 0.5 2007 2008 2009 2010 2011 2012 2013 Target * LTIFR - Lost Time Injury Frequency Rate Safety of our employees remains the No 1 priority Zero fatalities with record LTIFRs 2
Global macro-economic environment 2012 was a challenging year despite 1.2% growth due to ongoing eurozone crisis and China slowdown in 2H 12 Current US demand robust on back of strong automotive and improving construction Europe continues to show underlying demand contraction China demand improving from rebound in consumer driven sectors led by strong household incomes Solid Sub-Saharan Africa demand Global ASC expected to increase by 2.9% in 2013 and 3.2% in 2014** Global apparent steel consumption (ASC) forecast in 2013* (v 2012) Sub Saharan Africa (excl SA) Global US +2-3% EU27-0.5-1.5% China +3.5-4.5% +3.0% +6.3% * ArcelorMittal South Africa estimates ** worldsteel.org 3
USA Europe China India Africa Ethiopia DRC Uganda Tanzania Zambia Zimbabwe Angola Kenia Nigeria Botswana Malawi CAR Niger Namibia Congo Chad Gabon Sub-Saharan Africa business environment Relatively strong GDP growth forecast on the back of substantial infrastructure investments over the next 5-year period 10.0% 8.0% Expected GDP growth rates for 2013 Very low average steel use per person presents good growth prospects Significant advantage in servicing Southern and Eastern African markets with an established business model and customer base Logistics cost recovery to Africa over land markets (AOL) 6.0% 4.0% 2.0% 0.0% -2.0% Market growth expectation 2012-2018 (mt) 2012 2018 21.2 19.0 4.9 5.4 0.7 1.0 * AOL Africa over land Domestic AOL Sub-Saharan 4
Positioned for strong recovery Leading market position in Sub-Saharan Africa 62% in SA 38% in AOL Access to high growth markets Sub-Saharan Africa (excl SA) to grow > 6%pa Ability to service customers Diversified and value added product range Access to raw materials Iron ore and coal are priority Focus on generating higher and more stable returns through the cycle Production 2010-2012 (mt) 5.7 5.5 5.1 3.8 4.1 3.6 1.9 1.4 1.5 2010 2011 2012 Shipments 2010-2012 (mt) 5.0 4.7 4.6 3.3 3.4 3.1 1.7 1.3 1.5 2010 2011 2012 EBITDA 2010-2012 (Rm) 3.5 1.7 1.1 2010 2011 2012 Flat Long Flat Long Flat Long C&C Other 5
Market share evolution Primary focus on domestic market Average market share maintained - lost opportunity to capture peak levels Despite relatively stable market share over last 10 years EBITDA margins declined due to weak market conditions and higher input costs Rising imports an increasing concern increase from ~4% to 16% over last 10 years Factors influencing imports: Exchange rate Absence of trade barriers Supply disruptions Price volatility 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% South African market share vs EBITDA 66% 68% 60% 62% 50% 53% 2002 2004 2006 2008 2010 2012 Long (%) Flat (%) Total (%) AMSA Other local Imports 22.2% 36.3% 15.7% 3.7% 16 000 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0 EBITDA (Rm) 2012 2002 60.0% 62.1% Note: Market share calculated as domestic sales (excl DSP) relative to total domestic sales plus imports of primary steel products 6
Developing market share reducing import threat Target increased market share of 65% local and 40% AOL to capture new steel demand whilst countering threat of imports Public sector infrastructure e.g. Eskom generation and transmission and Transnet wagon build Renewable energy projects such as solar and wind Strategic rebates in certain industries to counter finished product imports and provide support to efforts to mount anti-dumping actions Specific fabricators with project pricing for large projects Improve customer service EBITDA maximisation remains intact Areas of development Upgrade plate mill to manufacture heavy plates for wind tower industry Conclude agreements that will foster increased localisation Continue to support downstream value added exports 7
Business improvement to profitability Five key pillars to drive business improvement and profitability Target to improve EBITDA/t to $100/t in medium term Business improvement Operational efficiencies Yield improvement Productivity Customer service Asset optimisation 8
Business improvement to profitability Raw material optimisation Current supply sufficient for requirements Resolution of Thabazimbi supply agreement and closure of Tshikondeni by end 2014 Own iron ore supply expected to come on stream in 2016 Reduce raw material costs Logistics Inventory optimisation Contract management Sustainable logistics improvement 9
Cost improvement Drive productivity enhancement to reduce fixed costs Variable cost reduction as a result of efficiency improvements such as fuel rate and yield improvements Input costs Yield and Quality Savings target by area 5% 30% Focus on own electricity generation 65% Technology fuels Savings target by business unit VRN 10% Fixed cost improvements Variable cost improvement Lower cost Newcastle 19% Saldana 4% 66% Vdbp 10
Ongoing capex commitment Priority to maintain competitive asset Continue to focus on operational issues to prevent major incidents Over 5-year period (2012-2017) - Strategic projects R475m - Energy saving R240m - Environmental compliance R2 500m Capital expenditure (Rm) 654 419 126 217 1 072 1 196 130 251 533 455 298 266 66 89 128 961 835 681 6 430 839 2013 commitment R1,275m 2007 2008 2009 2010 2011 2012 2013F Growth Enviroment Maintenance 11
Retention and attraction of skilled labour Current situation Voluntary turnover rate has reduced from 6% in 2007 to 4% in 2012 Hot market for engineering & technical skills Intensive programme of skills development to plug skills gaps Remuneration philosophy predicated on market competitive compensation Short and long term incentives to underpin performance and retention Improving levels of employee engagement Attrition rate Action plans Strong pipeline for future needs Ongoing career planning Expat sourcing from Group Leadership development a focus of the group worldwide Functional training continues to be key strength Workforce planning tool used extensively for optimal retirement planning Average pipeline size 15 10 5 0 14 Overall 9 9 9 6 8 5 7 4 6 3 3 3 4 Voluntary 2006 2007 2008 2009 2010 2011 2012 1,202 2,855 3,037 2,841 2,452 2,309 2008 2009 2010 2011 2012 1Q 2013 12
Key challenges Cost containment Electricity tariffs Carbon tax Environment Competition commission Sishen supply arbitration BEE credentials Operational stability Process and cost optimisation Operational Eskom tariffs rose 21% p.a. over past 6 years AMSA electricity costs up 18%pa Impact estimated at R600m annually based on 2012 emissions Capex budget $270m over next 5 years AQA compliance a key priority Four referrals to competition tribunal Largest exposure is long steel collusion matter AMSA s view of Sishen rights ownership upheld Timing dependent on constitutional court Objective to reach level 5 Equity ownership planned in the future 13
Key takeaways Safety of our employees remains our first priority Cost reduction plans will restore profitability Improved quality and operational reliability will help increase market share Targeted import replacement initiatives, investment in product development and enhanced service will address the import threat Ongoing investment in our assets will ensure reliability We are managing skills shortage and employee retention issues The actions we are taking will drive medium term EBITDA of $100/t 14
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