Financial results For the year ended 31 December 2017
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 facts. These statements include, without limitation, financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future production, operations, costs, products and services, and statements regarding future performance. Forward-looking statements may, without limitation, be identified by words such as believe, expect, anticipate, target, plan, and other similar expressions. All forward-looking statements involve a number of risks, uncertainties and other factors not within AMSA s control or knowledge. Although AMSA s management believes that the expectations reflected in such forward-looking statements are reasonable, investors and holders of AMSA s securities are cautioned that forwardlooking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of AMSA, 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 contained in this presentation. The risks and uncertainties include those discussed or identified in the filings with the Johannesburg Stock Exchange (the JSE ) made or to be made by AMSA, including AMSA s Annual Report of the year ended December 31, 2016 filed with the JSE. Factors that could cause or contribute to differences between the actual results, performance and achievements of AMSA include, but are not limited to, political, economic and business conditions, industry trends, competition, commodity prices, changes in regulation and currency fluctuations. Accordingly, investors should not place reliance on forward looking statements contained in this presentation. The forward-looking statements in this presentation reflect information available at the time of preparing this presentation and have not been reviewed and reported on by AMSA s auditors and apply only as of the date they are made. Subject to the requirements of the applicable law, AMSA shall have no obligation and makes no undertaking to publicly update any forward-looking statements in this presentation, whether as a result of new information, future events or otherwise or to publicly release the result of any revisions to any forward-looking statements in this presentation that may occur due to any change in AMSA s expectations or to reflect events or circumstances after the date of this presentation. No statements made in this presentation regarding expectations of future profits are profit forecasts or estimates. 2 Financial results for the year ended 31 December 2017
Contents page Overview Steel market Operational review Financial review Outlook Questions Wim de Klerk Wim de Klerk Dean Subramanian Dean Subramanian Kobus Verster The team Financial results for the year ended 31 December 2017 3
Overview Wim de Klerk
Safety TIFR 7.66 (9.50) DIFR TIFR 0.87 (0.89) 7.66 (9.50) Zero fatalities in H2 LTIFR Lost Time Injury Frequency Rate DIFR Disabling Injury Frequency Rate TIFR Total Injury Frequency Rate LTIFR 0.66 (0.62) Three fatalities in H1 Three fatalities in H1 Lagging indicators 6% increase in LTIFR Improvement in plant and shop floor audits 53 serious potential incidents Leading indicators 19% improvement in TIFR Increase hazard awareness Decrease risk tolerance Visible felt leadership Financial results for the year ended 31 December 2017 5
Salient features Revenue 19% Production 3% Cost of sales 21% Item H1 2017 H2 2017 Change H1 to H2 EBITDA (315) Flat 237kt (+7%) Raw materials +27% EBITDA (R534m) +R219m +R753m HEPS (148cps) (82cps) +66cps HEPS (230cps) % Long 98kt (-6%) Energy +6% Employee 0% Avg NRP/t R8 138 R8 540 +R402 Level 3 B-BBEE rating 6 19 % Financial results for the year ended 31 December 2017
Commercial Footprint Procurement Short term Initiatives What we set out to do Productivity improvements Asset disposal Excess material What we achieved Steel produced per employee up almost 2% No substantial disposals Fixed product stock declined by 36kt Cost control over contracts Liquid steel cost of production +16% Conclude lower electricity/rail tariffs Still in negotiations Raw material analysis Coal blend under investigation Benchmark initiatives Production lines Structural changes Done Coating strategy on the go Section 189 in progress Industry protection measures Improve market share & volume Focus on AoL Import tariffs, safeguard duties & designation Market share up to 73% in H2 (66% in H1) AoL sales volumes up by 7% Financial results for the year ended 31 December 2017 7
Steel Market Wim de Klerk
The industry - global Global steel output (mt) 900 800 806 807 830 818 814 782 798 805 837 853 Global crude steel production increased by 87mt (+5.4%) 700 600 500 400 300 200 544 546 563 559 555 577 588 538 548 557 59 60 60 61 56 55 56 55 58 59 Asia retained its market share at 69% and grew by 60mt of which 40mt came from China, despite the latter announcing plant closures and environmental shutdowns African output was stable 100 0 73 71 76 69 88 78 83 80 86 84 2013 2014 2015 2016 2017 European Union Other Europe C.I.S. North America South America Africa Middle East Asia Oceania Source: WorldSteel Financial results for the year ended 31 December 2017 9
The industry raw materials International raw material basket ($/t) AMSA raw material basket (R/t) 100% 600 100% 10 000 20.0% 18.5% 19.6% 13.8% 15.3% 17.7% 9% 8% RMB 12% 14% 14% 14% 80% 500 2016 2017 2016 2017 weight 80% 8 000 30.5% 30.5% 32.1% 47.0% 41.3% 400 42% 43% 43.4% International AMSA 41% 60% 44% 60% 49% 49% 6 000 300 Iron ore 43% 41% 45% 37% 40% 40% 4 000 200 Coking 41% 43% 42% 49% coal 20% 20% 2 000 100 Scrap 16% 16% 13% 14% 49% 49% 48% 42% 37% 38% 50% 51% 48% 39% 43% 39% 0% - 0% 0 2015 2016 2017 2015 2016 2017 Iron ore Coking coal Scrap Coking coal Iron ore AMSA domestic HRC Scrap China HRC price AMSA RMB RMB Commodity International AMSA ($/t) AMSA (R/t) FY2017 % change FY2017 % change FY2017 % change Iron ore $71/t (CFR North China) +23% $52/t (FOR) +16% R690/t (FOR) +4% Hard coking coal $188/t (FOB) +33% $280/t (delivered) +86% R3 720/t (delivered) +70% Scrap $307/t (Asia HMS) +31% $240/t (delivered) +29% R3 185/t (delivered) +19% RMB total $277/t +28% $324/t +42% R4 315/t +32% HRC $505/t +35% $639/t +36% R8 509/t +23% Note: The Raw Material Basket (RMB) represents the costs of the raw materials in a tonne of finished steel 10 Financial results for the year ended 31 December 2017
Macro backdrop 4% 3% 2% 1% 0% -1% -2% South African GDP growth 2.8% 2.0% -0.6% 2014 2015 2016 2017 South African Q3 2017 GDP growth -10% 10% 30% 50% 44.2% Agriculture 6.6% 4.3% 1.2% 0.9% 0.6% Mining Manufacturing Finance Personal Services Transport -0.4% -0.7% -1.1% -5.5% Trade Government Construction Electricity SA economy remains weak with GDP growth mainly in low steel consuming sectors Agriculture accounts for 4% of steel demand while building & construction(b&c) is at >30%. Although GDP grew by 2.0% in Q3 2017, B&C contracted by 1% while agriculture expanded 44% 2017 GDP expected at <1% and 2018 >1% neither of which will drive steel demand growth Source: StatsSA Financial results for the year ended 31 December 2017 11
The industry - domestic South African apparent steel consumption (ASC kt) and market share (%) 3 500 3 000 2 500 2 000 1 500 1 000 500 0 15% 7% 20% 11% 11% 9% 11% 15% 14% 8% 11% 17% 10% 8% 12% 11% 9% 9% 9% 15% 7% 14% 21% 20% 14% 11% 12% 19% 12% 11% 58% 70% 57% 60% 60% 58% 63% 64% 66% 72% 2013 2014 2015 2016 2017 Other Imports Chinese Imports Domestic Competitors Amsa Imports as a % of App Consumption 30% 25% 20% 15% 10% 5% 0% Domestic ASC has been declining steadily since 2013 Imports (including Chinese steel imports) peaked in 2015 at almost 30% of market share but started to decline and assisted in taking AMSA s market share back above 70% in H2 2017 However, even though Chinese imports have reduced, imports from other destinations are still relatively high giving total imports a market share greater than 20% 12 Financial results for the year ended 31 December 2017
The industry - domestic 100% 80% 60% SA flat steel ASC market share 21% 21% 16% 13% 16% 15% 13% 15% 16% 11% 9% 11% 11% 14% 20% 20% 15% 11% 17% 11% 9% 7% 9% 7% 1% 5% 100% 80% 60% SA long steel ASC market share 8% 6% 4% 4% 4% 4% 3% 6% 4% 6% 4% 9% 6% 4% 11% 3% 10% 6% 8% 4% 36% 39% 39% 31% 19% 33% 39% 29% 28% 32% 40% 20% 61% 61% 64% 65% 59% 64% 72% 68% 73% 78% 40% 20% 53% 52% 54% 51% 56% 62% 66% 58% 53% 60% 0% 2013 2014 2015 2016 2017 AMSA Evraz Highveld Chinese Imports Other Imports Imports reduced to 25% in 2017 from 30% in 2016 AMSA local market share at 75% in 2017 (70% in 2016) Finished product/downstream protection outstanding 0% 2013 2014 2015 2016 2017 AMSA Competitors Chinese Imports Other Imports AMSA regained lost market share in H2 2017 Highveld restart mitigated heavy section imports Finished product imports remain a concern Financial results for the year ended 31 December 2017 13
Operational review Dean Subramanian
Flat steel division 2000 1800 1600 1400 1200 1535 Liquid steel output (kt) Product sales distribution (%) 1694 1719 1867 1707 1438 1732 1489 1649 1809 100% 80% 60% 7% 8% 6% 6% 6% 7% 7% 6% 6% 5% 6% 6% 8% 8% 5% 4% 5% 6% 4% 5% 7% 7% 10% 10% 6% 10% 10% 8% 7% 8% 9% 9% 10% 8% 9% 8% 8% 8% 10% 10% 15% 16% 14% 14% 11% 9% 17% 16% 15% 15% 1000 800 600 400 40% 20% 65% 65% 56% 51% 55% 52% 57% 59% 54% 52% 200 0 2013 2014 2015 2016 2017 0% 2015 2016 2017 HRC HDG CRC Plate Tin Other 16 Financial results for the year ended 31 December 2017
Long steel division 1000 800 946 921 Liquid steel output (kt) Product sales distribution (%) 100% 8% 10% 9% 12% 8% 7% 6% 7% 7% 7% 856 4% 838 4% 3% 3% 3% 3% 3% 3% 3% 3% 788 10% 762 11% 13% 16% 12% 13% 11% 12% 80% 18% 725 727 14% 600 667 60% 23% 18% 17% 21% 21% 22% 19% 18% 16% 16% 15% 19% 17% 16% 15% 18% 20% 18% 19% 19% 400 40% 200 265 20% 40% 39% 41% 34% 36% 37% 39% 43% 42% 38% 0 2013 2014 2015 2016 2017 0% 2015 2016 2017 Wire Rod Bars Sections Rebar Fencing Other Financial results for the year ended 31 December 2017 17
Coke & Chemicals division 350 300 250 200 150 100 Commercial coke (kt) Commercial coke source of revenue % 336 294 210 242 256 238 211 217 228 200 196 181 178 157 94 100 92 90 86 89 3% 3% 2% 1% 9% 9% 9% 63% 50 0 2013 2014 2015 2016 2017 Production Sales Although ferro alloy industry has been further consolidated, completion of battery repairs at Newcastle Works should allow higher availability of ovens and hence increase in output Tar production remains sluggish stemming from low overall coke production 18 Financial results for the year ended 31 December 2017 FeCr Alloy Aluminium Other Timber Cement Plasticiser Petro Chemicals
Capital expenditure FY2017 FY2016 Maintenance 1 098 1 518 Expansion 151 335 Environmental 41 38 Other 92 127 Total expenditure 1 382 2 018 Vdbp R720m Saldanha R97m AMSA R1 382m C&C R281m Long products R283m Financial results for the year ended 31 December 2017 19
Financial review Dean Subramanian
Headline earnings FY 2017 FY 2016 Revenue 39 022 32 737 EBITDA (315) 190 Depreciation and amortisation (976) (1055) Once-off items 71 (227) Loss from operations (1 220) (1 092) B-BBEE cost (870) Impairment (2 604) (2 154) Net finance costs (1 441) (700) Equity earnings 139 129 Income tax expense (2) (19) Loss after tax (5 128) (4 706) Add back impairment 2 604 2 154 Add back disposal/scrapping of assets 8 (51) Add back tax effect (2) 14 Headline loss (2 518) (2 589) US$m (189) (176) Financial results for the year ended 31 December 2017 21
Once-off items and impairments Once-off items FY 2017 FY 2016 Competition Commission 30 30 Thabazimbi Mine closure costs 41 (275) Unclaimed dividends 37 Derecognised payment in advance (19) Total 71 (227) Impairments FY 2017 FY 2016 Long steel products 1 007 Equity steel investments 10 11 Flat steel products 1 587 2 143 Total 2 604 2 154 22 Financial results for the year ended 31 December 2017
Divisional EBITDA FY2017 FY2016 H2 2017 H1 2017 Flat steel products (Rm) 264 (392) 333 (69) EBITDA margin 0.9% (1.8%) 2.3% (0.5%) Net realised price R/t 8 581 7 344 8 746 8 413 Long steel products (Rm) (945) 286 (239) (706) EBITDA margin (8.0%) 2.7% (3.8%) (13.0%) Net realised price R/t 7 760 7 154 8 046 7 492 Coke and Chemicals (Rm) 365 172 174 191 EBITDA margin 26.0% 12.5% 26.0% 26.0% Corporate and other (Rm) 1 124 (49) 50 Total EBITDA (Rm) (315) 190 219 (534) EBITDA margin (0.8%) 0.6% 1.1% (2.8%) Q1 Q2 Q3 Q4 Financial results for the year ended 31 December 2017 23
2016 Exchange rate impact Sales volume Sales price & mix Raw material prices Efficiencies & other variable cost NRV provision Other 2017 EBITDA bridge (Rm) 7 606 190 158 5 318 667 168 90 315 2 026 24 Financial results for the year ended 31 December 2017
Cost dynamics and breakdown Weight FY 2017 (R/t) FY 2016 (R/t) 49.1% Raw materials 3 818 2 779 F 29.5% Auxiliaries & consumables 2 289 2 221 l 21.4% Fixed costs 1 663 1 628 a 100.0% Total 7 770 6 628 t Liquid steel (kt) 3 459 3 221 Average ZAR rate 13.32 14.72 Average NRP 8 581 7 344 51.5% Raw materials 3 671 3 002 L 22.7% Auxiliaries & consumables 1 619 1 563 o 25.8% Fixed costs 1 836 1 754 n 100.0% Total 7 126 6 319 g Liquid steel (kt) 1 452 1 550 Average ZAR rate 13.32 14.72 Average NRP 7 760 7 154 Financial results for the year ended 31 December 2017 25
Cash flow and analysis (Rm) 26 Financial results for the year ended 31 December 2017 FY 2017 FY 2016 Cash (utilised)/generated before WC (613) 215 Working capital (99) 658 Capital expenditure (1 324) (2 008) Net finance costs (667) (451) Investments (11) (11) Tax 80 (2) B-BBEE Cost (55) Transaction cost on BBF (61) Proceeds on scrapping of assets 13 67 Realised forex (210) (268) Finance lease (70) (62) Cash settlement on management shares (9) Increase/(decrease) of borrowings 4 450 (3 079) Rights issue funds 4 500 Cash flow 1 479 (496) Effect of forex rate change on cash (1) (8) Net cash flow 1 478 (504) Cash in bank 3 138 1 660 Short term loans (6 400) (1 950) Net (borrowings)/cash (3 262) (290)
Working capital movement and analysis (Rm) FY 2017 FY 2016 Inventories (353) (1 830) Finished products 198 (300) Work-in-progress (397) (533) Raw materials (134) (904) Plant spares and stores (20) (93) Receivables (1 207) (164) Payables 1 538 2 958 Utilisation of provisions (77) (306) Working capital movement (99) 658 Financial results for the year ended 31 December 2017 27
Consolidated statement of financial position (Rm) FY 2017 FY 2016 Current assets 18 131 14 812 Cash balance 3 138 1 660 Inventories 11 519 11 274 Trade & other receivables 2 988 1 774 Other current assets 486 104 Non-current assets 13 065 15 834 Property, plant & equipment 8 474 10 670 Equity accounted investments 4 424 4 667 Other non-current assets 167 497 Total assets 31 196 30 646 Liabilities 23 138 17 103 Current liabilities 13 646 11 823 Non-current liabilities 3 092 3 330 Borrowings 6 400 1 950 Shareholders equity 8 058 13 543 Total liabilities & equity 31 196 30 646 28 Financial results for the year ended 31 December 2017
Net debt and liquidity (Rm) 5000 Cash flow and net debt/(cash) per half year Liquidity (undrawn facilities plus cash) per half year 5000-10% -6% 4000 2% 0% 2000 1010 3000 12% 10% -1000-290 2015 2016 2017 2000 21% 23% 20% -4000-2522 -2865 Operating activities Capex/Investments Net debt/(cash) -2577-3262 Working capital Rights Issue 1000 0 33% 4065 2164 4660 3660 4873 3938 2015 2016 2017 Liquidity (Rm) Net debt to equity (%) 30% 40% Financial results for the year ended 31 December 2017 29
Outlook Kobus Verster, Chief Executive Officer designate
Commercial Footprint Procurement Short term 2018 initiatives 2018 Operational stability Productivity improvements Cost reduction Balance sheet optimisation What is to be done Improve reliability and liquid steel output Target Group benchmark on key KPI s Reduce fuel rates, optimise coal blends and minimize non-prime output Stock reduction and asset disposal Improve raw material mix Targeted cost savings Rail and electricity costs Close productivity gap Improve technical skills Improve cost competitiveness Briquetting of fine DRI Increase scrap consumption Internal coke transfers to avoid imports Continue to convert road to rail transport Develop rail dispatches to AOL customers Closure of batch annealing Debottleneck pickling line and temper mill Implement coating strategy Increase local market share Improve AoL & rest of Africa Optimise pricing strategy; ensure compliance with fair pricing principles Volumetric discounts, item extras, payment terms and apply contract and project pricing Implement larger coil sizes Pursue value added products (heavy section, rail) Financial results for the year ended 31 December 2017 31
Outlook H1 2018 Steel markets International steel demand expected to remain strong Domestic steel demand is likely to remain subdued due to low economic growth and a lack of infrastructure spend However, local sales volume are expected to increase replacing gap created by lower imports Export sales anticipated to increase as a result of higher prices and demand Expect improvement in long steel volumes Volatility in the rand/us dollar exchange rate will continue to have a material impact on the financial results 32 Financial results for the year ended 31 December 2017
Questions