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ArcelorMittal South Africa report interim results Q2 2013

Source: Strategic Research Institute Date: 02 August 2013

ArcelorMittal South Africa reported a headline loss of ZAR 123 million compared to headline earnings of ZAR 106 million for the half year ended 30th June 2012.

However, the company recorded a strong rebound in operating and financial results in the Q2 of this half year, driven mainly by restocking activity and a return to normal operations at Vanderbijlpark after a fire caused production disruptions in February

Headline earnings in the Q2 rose to ZAR 147 million compared to an earnings loss of ZAR 270 million in the Q1. Q2 earnings before interest, tax, depreciation and amortisation of ZAR 808 million compared favourably to the preceding quarter’s ZAR 169 million and the ZAR 224 million in the corresponding period last year.

The positive net cash position of ZAR 1.1 billion at the end of June was much the same as the previous quarter, but double the ZAR 550 million reported for the corresponding period last year.

Ms Nonkululeko Nyembezi-Heita CEO of ArcelorMittal South Africa said that “We have reason to be pleased with the Q2 strong rebound in earnings, which was underpinned by a return to normal production at Vanderbijlpark coupled with stable operations at all the other mills. It is also most gratifying that the positive trend in safety performance continued with a H1 lost time injury frequency rate of 0.66 and reaching an all-time record of 23 months without a fatality.”

Steel production for the 6 months was 246 000 tonnes lower at 2.5 million tonnes, while steel sales for the period totaled 2.1 million tonnes compared to 2.5 million tonnes at the end of June 2012. Repairs to the Vanderbijlpark steel making plant were completed in record time leading to the lifting of the force majeure on 9th May 2013.

Ebitda of ZAR 977 million was down 6% from the corresponding 6 month period in 2012, but rose substantially from the ZAR 80 million achieved in the preceding 6 months.

Revenue decreased by 11% to ZAR 15.9 billion, over the half year, on the back of a 16% decline in steel shipments. Average prices increased by 6% with domestic prices up 2%, while export prices rose 17%. Prices for flat steel increased 8%, while long steel prices were up a more modest 2%.

The cash cost of hot rolled coil rose marginally while those of billets declined slightly. Capacity utilization for flat steel was 68% compared to 76% a year earlier; the equivalent figures for long steel were 82% and 74%, respectively.

QoQ, revenue rose 5% to ZAR 8.1 billion on the back of an 8% increase in average steel prices. Domestic prices were 7% higher, while exports increased by 15%. Cash costs of hot rolled coil increased by 8% with billets increasing by 4%. Steel production was 425 000 tonnes or 41% higher, resulting in a rise in capacity utilization for flat steel to 79% compared to 54% in the previous quarter. The equivalent figures for long steel were 84% and 81%, respectively.

Quarterly revenue from the Coke and Chemicals business of ZAR 448 million was 18% higher than the preceding quarter due to a 47% increase in commercial coke sales volumes, offset to some degree by a 5% drop in net realised prices.

Ms Nyembezi-Heita said that “Our business improvement efforts are beginning to yield tangible results with cost savings coming through in a number of key areas. Saldanha has made significant energy related management gains, resulting in savings of ZAR 127 million from reduced energy consumption. Performance at all plants is improving as a result of an intense focus on getting the basics right.”

MARKETS
Global steel demand remained sluggish as result of uncertainty in the euro zone. Recent data from the US indicates a strengthening in overall industrial production, a slight recovery in the housing market and automotive production, which is providing some stimulant for steel demand. Global business confidence remains low on poor economic prognosis and a lower growth rate projected in China.

The sub- Saharan African region continued to offer growth opportunities, with infrastructure related projects in energy, rail, residential developments and mining investment activities underpinning steel demand.

CARBON TAX
ArcelorMittal South Africa said that the proposed carbon tax will cost the company more than R600 million a year if implemented as currently contemplated. This is based on the Carbon Tax Discussion Paper published on 2nd May 2013 by National Treasury. There are still a number of uncertainties to be clarified by National Treasury regarding the proposed carbon tax prior to its planned implementation in January 2015.

ArcelorMittal South Africa reported a headline loss of ZAR 123 million compared to headline earnings of ZAR 106 million for the half year ended 30th June 2012.

However, the company recorded a strong rebound in operating and financial results in the Q2 of this half year, driven mainly by restocking activity and a return to normal operations at Vanderbijlpark after a fire caused production disruptions in February

Headline earnings in the Q2 rose to ZAR 147 million compared to an earnings loss of ZAR 270 million in the Q1. Q2 earnings before interest, tax, depreciation and amortisation of ZAR 808 million compared favourably to the preceding quarter’s ZAR 169 million and the ZAR 224 million in the corresponding period last year.

The positive net cash position of ZAR 1.1 billion at the end of June was much the same as the previous quarter, but double the ZAR 550 million reported for the corresponding period last year.

Ms Nonkululeko Nyembezi-Heita CEO of ArcelorMittal South Africa said that “We have reason to be pleased with the Q2 strong rebound in earnings, which was underpinned by a return to normal production at Vanderbijlpark coupled with stable operations at all the other mills. It is also most gratifying that the positive trend in safety performance continued with a H1 lost time injury frequency rate of 0.66 and reaching an all-time record of 23 months without a fatality.”

Steel production for the 6 months was 246 000 tonnes lower at 2.5 million tonnes, while steel sales for the period totaled 2.1 million tonnes compared to 2.5 million tonnes at the end of June 2012. Repairs to the Vanderbijlpark steel making plant were completed in record time leading to the lifting of the force majeure on 9th May 2013.

Ebitda of ZAR 977 million was down 6% from the corresponding 6 month period in 2012, but rose substantially from the ZAR 80 million achieved in the preceding 6 months.

Revenue decreased by 11% to ZAR 15.9 billion, over the half year, on the back of a 16% decline in steel shipments. Average prices increased by 6% with domestic prices up 2%, while export prices rose 17%. Prices for flat steel increased 8%, while long steel prices were up a more modest 2%.

The cash cost of hot rolled coil rose marginally while those of billets declined slightly. Capacity utilization for flat steel was 68% compared to 76% a year earlier; the equivalent figures for long steel were 82% and 74%, respectively.

QoQ, revenue rose 5% to ZAR 8.1 billion on the back of an 8% increase in average steel prices. Domestic prices were 7% higher, while exports increased by 15%. Cash costs of hot rolled coil increased by 8% with billets increasing by 4%. Steel production was 425 000 tonnes or 41% higher, resulting in a rise in capacity utilization for flat steel to 79% compared to 54% in the previous quarter. The equivalent figures for long steel were 84% and 81%, respectively.

Quarterly revenue from the Coke and Chemicals business of ZAR 448 million was 18% higher than the preceding quarter due to a 47% increase in commercial coke sales volumes, offset to some degree by a 5% drop in net realised prices.

Ms Nyembezi-Heita said that “Our business improvement efforts are beginning to yield tangible results with cost savings coming through in a number of key areas. Saldanha has made significant energy related management gains, resulting in savings of ZAR 127 million from reduced energy consumption. Performance at all plants is improving as a result of an intense focus on getting the basics right.”

MARKETS
Global steel demand remained sluggish as result of uncertainty in the euro zone. Recent data from the US indicates a strengthening in overall industrial production, a slight recovery in the housing market and automotive production, which is providing some stimulant for steel demand. Global business confidence remains low on poor economic prognosis and a lower growth rate projected in China.

The sub- Saharan African region continued to offer growth opportunities, with infrastructure related projects in energy, rail, residential developments and mining investment activities underpinning steel demand.

CARBON TAX
ArcelorMittal South Africa said that the proposed carbon tax will cost the company more than R600 million a year if implemented as currently contemplated. This is based on the Carbon Tax Discussion Paper published on 2nd May 2013 by National Treasury. There are still a number of uncertainties to be clarified by National Treasury regarding the proposed carbon tax prior to its planned implementation in January 2015.

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