For the six months ended June 2016 - ArcelorMittal · •Supply disruptions of import coking coal...

Financial results For the six months ended June 2016

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 forward-looking 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, 2015 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.

Disclaimer

www.arcelormittalsa.com OVERVIEW

Agenda

Overview – Wim de Klerk

Steel market prognosis – Wim de Klerk

Operational performance – Dean Subramanian

Financial synopsis – Dean Subramanian

Focus areas and outlook – Wim de Klerk

Questions – Wim and team

3 Overview

Overview Wim de Klerk


Positives

Improved capacity utilisation

B-BBEE deal at an advanced stage

Key initiatives

• Competition Commission - Close to finalisation

• Import duties - 10% bound rate on all ten product ranges

• Safe guard duties - Awaiting approval and initiation

• Fair pricing for local flat steel - Close to finalisation

• Designation of local steel - Deemed local removed while inclusion of construction awaited

Cash flow positive: R595m

Net debt converted to net cash

5 Overview


Challenges

Two fatalities and LTIFR at 0.90 (H1 2015 - 0.43)

Net loss of R450m

Cheap imports still ongoing

Logistics

Subdued demand

6 Overview


Safety

Lagging indicators

• LTIFR at 0.90 (H1 2015 = 0.43)

• Management campaigns

– Raising risk awareness

– HIRA

– Identifying unacceptable behaviour

– Improving emotional connection

– Contractor management

Leading indicators

• Quality of dialogue on the shop floor remains vital

• Management completed over 42 623 shop floor audits

7

5

15

25

2011 2012 2013 2014 2015 2016

TIFR

0

1

2

2011 2012 2013 2014 2015 2016

LTIFR

LTIFR - Lost time injury rate per 1m manhours

DIFR - Disabling injury rate per 1m manhours

TIFR - Total injury rate per 1m manhours

- Fatality

Overview

-0.5

0.5

1.5

2.5

3.5

2011 2012 2013 2014 2015 2016

DIFR

Steel market prognosis Wim de Klerk

Raw material basket (RMB)

• RMB decreased by $29/t (-15%) on average during H1 2016

• Steel prices down $35/t (HRC) and $29/t (rebar) during H1 2016

• HRC spread at $168/t (H1 2015 = $174/t) and rebar at $138/t (H1

2015 = $138/t)

2016

• Continued subdued global economy and slowdown in China

Raw material environment - Global

International H1 2016 Change on H1 2015

Iron ore (CFR North China) $52/t -14%

Scrap (Asia HMS) $227/t -15%

Pellets (FOB) $79/t -14%

Hard coking coal (FOB Australia) $85/t -12%

Coke (FOB China) $112/t -32%

Tin (FOB) $16 207/t -5%

Sources: Platts, AME, AMS and TEX Report

HR

C &

Reb

ar p

rices

and

flat

ste

el R

MB

($/

t)

$0

$200

$400

$600

$800

RMB HRC price Rebar price HRC spread Rebar spread

9 Steel Market Prognosis

FOB – Free On Board

CFR – Cost and Freight

International RMB compared to HRC & rebar prices

(China prices as reference)

Raw material environment – ArcelorMittal South Africa

H1 2016

• Exchange rate weakened 30%, limiting AMSA ore price decline

• AMSA RMB declined R267/t (-10%) relative to H1 2015

• Rail performance had to be supplemented with road transport

• Supply disruptions of import coking coal from Mozambique and

Australia

• Extraordinary maintenance at Newcastle battery resulted in

limited market coke production and the importation of additional

coke

2016

• Market expectations of continued weak raw material prices

stemming from subdued steel demand as a results of slow

economic growth

10

ArcelorMittal South Africa H1 2016 Change on H1 2015

Iron ore (FOR) R680/t -2%

Scrap (delivered) R2 519/t -8%

Pellets (delivered) R1 442/t +7%

Local non met coal (delivered) R1 251/t +2%

Imported met coal (delivered) R1 943/t -2%

Local met coal (delivered) R1 061/t +7%

HRC domestic price R7 158/t +3%

- Flat steel cost/t liquid steel R6 454/t -4%

Rebar domestic price R6 767/t +3%

- Long steel cost/t liquid steel R5 938/t +5%


FOR – Free On Rail

AMSA RMB

2223

1622 2116

2020

2637 2624 2809

2652 2732

3249

2401 2281

2646

2224

2379

0

1 000

2 000

3 000

4 000

2009 2010 2011 2012 2013 2014 2015 2016

Sales environment - Global

11

Chinese steel exports into Africa

Chi

nese

ste

el e

xpor

ts to

Afr

ica

(t)

SA

Chi

nese

ste

el im

port

s as

% o

f tot

al A

fric

a im

port

s

Chi

nese

ste

el e

xces

s ou

tput

& c

onsu

mpt

ion

(kt)

Chi

nese

ste

el n

et e

xpor

ts (k

t)

Source: Morgan Stanley data were used to compile the graphs


Chinese steel industry

-

10 000

20 000

30 000

40 000

50 000

60 000

-

100 000

200 000

300 000

400 000

2009 2010 2011 2012 2013 2014 2015 2016Apparent consumption Excess output Net export

0%

4%

8%

12%

16%

0

1 000 000

2 000 000

3 000 000

4 000 000

5 000 000

6 000 000

2009 2010 2011 2012 2013 2014 2015 2016

SA Other sub-Sahara North Africa SA weight of total Africa

Global

• Crude steel output lower by 3% with similar decline from China

• China expected to reduce steel capacity by 150mt within the

next five years

China exports

• Exports of steel from China into Africa declined 9%

• China steel exported to SA shrunk 29%

• SA’s percentage of the total export from China into Africa has

diminished from 13% a year ago to 8% in H1 2016

• Chinese imports as percentage of SA steel imports at 53%

(2015 = 58%)

11.7

9.6

7.5 7.7 6.8

8.5 8.0

7.2 7.3

9.4 8.9 8.7 8.7

8.2 6.9 9.0

6.8 6.5 7.4

6.4 6.3 7.0 7.2

6.1

7.4 6.8 6.6 6.9

8.3

7.6

-

2

4

6

8

10

12

2009 2010 2011 2012 2013 2014 2015 2016

Long product inventory

Sales environment – Domestic

ASC

• Sales by local primary steel producers increased 5%

• Imports declined 21%

– Flat product imports declined 133kt

– Long product imports declined 20kt

• ASC decreased 3%

RSC

• Inventory levels declined 185kt and is at 7.2x weeks’

consumption

• RSC therefore declined 5%

• Change in demand should reflect directly on sales

12

Apparent consumption - sales plus imports

Inventory levels and weeks’ consumption

Inve

ntor

y ou

tsid

e pr

imar

y st

eel p

rodu

cers

(wee

ks o

f rea

l con

sum

ptio

n)

App

aren

t con

sum

ptio

n (t

)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

-

500 000

1 000 000

1 500 000

2 000 000

2 500 000

3 000 000

2009 2010 2011 2012 2013 2014 2015 2016

Total domestic despatches Imports as % of ASC Import volume

Flat products inventory Total inventory

12 12 Steel Market Prognosis

ASC – Apparent steel consumption (Local sales plus imports)

RSC – Real steel consumption (Local sales plus imports plus/minus movement in stock)

34 43 76 71 117 236

109 112 155 126 85 119 182

95 149

224 180 210

299 258

318

320 300

581

478

410 422

595

527 474

0

200

400

600

800

2009 2010 2011 2012 2013 2014 2015 2016Long products Flat products

Sales environment - Domestic (continued)

Industrial groups

• Steel sales by local producers to domestic end market up 3%

– Higher orders from the B&C industry countered by weaker demand

from the manufacturing and mining industries

– B&C and manufacturing industries consumes 85% of all steel sold in

SA

• Withdrawal of Chinese subsidies could level playing field

• Overall demand in the AOL region remains stable

13

Steel sales by local producers to industrial groups (t)

Primary steel imports (kt)


B&C – Building & Construction

AOL – Africa over Land (All SA neighbouring countries)

0

500 000

1 000 000

1 500 000

2 000 000

2 500 000

2009 2010 2011 2 012 2013 2014 2015 2016

Manufacturing B&C Mining Other

Sales environment – ArcelorMittal South Africa

Steel prices

• Based on fair price model for flat steel towards latter part of H1 2016

• Based on basket (EU, Asia & NAFTA)

• AMSA inline with proposed basket and international price trends


Period H1 2015 H2 2015 H1 2016

NRP flat R7 289/t R6 458/t R6 889/t

$611/t $475/t $446/t

NRP long R7 048/t R5 919/t R6 758/t

$591/t $435/t $437/t

$/R 11.92 13.60 15.45

HRC China $374/t $282/t $339/t

HRC RMB $200/t $163/t $171/t

HRC spread $174/t $119/t $168/t

100 101 97

91

83

92 94

111 115 123

119

100 98 93

88

89

89 93 104

119 121

40

60

80

100

120

140

160

180

Sep Oct Nov Dec 2016 Feb Mar Apr May Jun Jul

AMSA HRC Price Basket Price

AMSA price index

(Sep 2015 = 100)

Operating results Dean Subramanian

www.arcelormittalsa.com OPERATING RESULTS

EBITDA from segments (Rm)

H1 2015 H2 2015 H1 2016

Flat steel products

EBITDA margin

Net realised price R/t

155

1.5%

R7 289

(1 424)

(15.4%)

R6 458

(118)

(1.1%)

R6 889

Long steel products

EBITDA margin

Net realised price R/t

18

0.3%

R7 048

(366)

(7.1%)

R5 919

152

2.7%

R6 758

Coke and Chemicals EBITDA margin

229

23.1%

198

24.5%

97

12.0%

Corporate and other 239 142 151

Total EBITDA EBITDA margin

641

3.9%

(1 450)

(9.9%)

282

1.7%

16 16 Operating Results


Main steel cost drivers (R/t liquid steel produced)

Flat Long

Cost item H1 2016 Change on

H1 2015

H1 2016

Weight H1 2016

Change on

H1 2015

H1 2016

Weight

Raw materials R2 840 (9.7%) 44.0% R2 725 1.6% 45.9%

Auxiliaries & consumables R2 062 3.4% 31.9% R1 464 1.1% 24.7%

Fixed cost R1 552 (0.4%) 24.1% R1 749 14.5% 29.4%

Total

Liquid steel (000t)

Average exchange rate (ZAR)

Average net realised price (R/t)

R6 454

1 732

15.45

R6 889

(3.7%)

1.5%

29.6%

(5.5%)

100.0%

na

na

na

R5 938

788

15.45

R6 758

5.0%

(8.0%)

29.6%

(4.1%)

100.0%

na

na

na

17 17 Operating Results


ArcelorMittal South Africa - Flat steel production and shipment volumes

Production

• Liquid steel production increased 25kt

• Capacity utilisation slightly higher at 83%

Shipments

• Despatches increased 131kt (+10%) with domestic growing

163kt (+17%) and exports declining 32kt (-9%)

• Industrial sectors that predominantly consumes flat steel

products grew moderately except for automotive

• Flat product market share improved from 59% to 72% as result of

the decrease in imports and the supply limitations from other

local producers

• HRC is the largest single product of our local flat steel volume

931

1147

1310

1026

1326

1142

1198

1025

1095

908

969

982

983

932

1146

417 36

3 462

550

495

461 50

5

410

266

502 53

6

494

375

388 34

3

54%

67% 72%

62%

76% 67%

66%

62% 68%

80% 81% 88%

82%

68%

83%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

500

1000

1500

2000

2500

2009 2010 2011 2012 2013 2014 2015 2016

Flat Domestic Flat Export Flat Production Total Utilisation

Flat steel products

Production and shipments (000t)

Flat product domestic sales distribution

18 Operating Results

528

kt

184

kt

67k

t

92k

t

69k

t

41kt

502

kt

184

kt

73k

t

84k

t

62k

t

32kt

633

kt

199

kt

112

kt

105

kt

55k

t

43k

t

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

HRC Galv Plate Tinplate CRC Colour

H1 2015 H2 2015 H1 2016


ArcelorMittal South Africa - Long steel production and shipment volumes

Production

• Liquid steel production decreased 68kt following the closure of

the Vaal Meltshop

• Capacity utilisation was 83% compared to 75%

Shipments

• Despatches increased by 79kt with domestic growing 71kt and

exports adding 8kt

• Industrial sectors that are long product intensive all experienced

difficult economic times

• Long steel market share improved from 56% to 64% as result of

the decrease in imports and the supply limitations from other

local producers

• Sales mix into the domestic market contains 35% of wire rod

Long steel products

Production and shipments (000t)

Long product domestic sales distribution

458

536

595

483 59

4

445 64

0

1113

611

512

565

486 57

8

546 64

9

263 35

8 333

282 16

7

78

194

177

151

185

125

83 96

233

104

74%

89% 88%

74% 80%

41%

74%

59%

82% 80%

58%

23%

75% 73%

83%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

200

400

600

800

1 000

1 200

1 400

2009 2010 2011 2012 2013 2014 2015 2016Long Domestic Long Export Long Production Total Utilisation


228

kt

162

kt

97k

t

59k

t

6kt

26k

t

207

kt

148

kt

89k

t

71k

t

6 1

91

32k

t

238k

t

179k

t

108

kt

93k

t

5kt

26k

t

0

50 000

100 000

150 000

200 000

250 000

Wire rod Sections Bars Rebar Pipes Other

H1 2015 H2 2015 H1 2016


ArcelorMittal South Africa - Coke & Chemicals

Production and sales

• Commercial coke production declined 12% due to metallurgical

coke taking preference during a time of low overall oven

availability

• Company wide overall coke production was down and hence tar

output

Sales distribution

• Alloy industry dominate revenue of Coke & Chemicals

• Fall in sales prices cushioned by weak rand

88

345

309 321

376

255 233 227

210

335

208

258 252

199

238

50 50 62 63 60 57 56 53 52 57 54 57 47 49

37

0

100

200

300

400

500

600

0

50

100

150

200

250

300

350

400

2009 2010 2011 2012 2013 2014 2015 2016Commercial coke Speciality chemicals Coke price

Sal

es v

olum

e (0

00t)

Coke price ($/t)

79%

6% 5% 3% 3% 4%

76%

7% 5% 2% 3%

7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

FeCr Alluminium Cement Petro chemical Timber Others

H1 2015 H2 2015

Coke & Chemicals sales revenue distribution (%)

Sales volume and coke price



H1 2015 H2 2015 H1 2016

Maintenance & expansion 301 690 665

Environmental and other 91 71 61

Total expenditure 392 761 726

Main projects completed during H1 2016

• Vanderbijlpark

• BOF off-gas coolers units 1 & 2

• Conversion of capability to produce double reduce material

Main on-going projects during 2016

• Vanderbijlpark – Battery 4 bracing and end flue repair, stand

alone gas fired boiler at the DR power plant

• Saldanha – Corex campaign extension

• Coke & Chemicals – Battery N2 bracing and end flue repair, tar

plant environmental compliance

ArcelorMittal South Africa - Capital expenditure (Rm)

Operating Results 21

Financial synopsis Dean Subramanian

www.arcelormittalsa.com FINANCIAL SYNOPSIS

Headline earnings (Rm) H1 2015 H2 2015 H1 2016

Revenue 16 443 14 698 17 006

EBITDA 641 (1 450) 282

Depreciation and amortisation (688) (681) (530)

Once-off items 74 (2 632) (21)

Profit/(Loss) from operations 27 (4 763) (269)

Impairment - (4 254) (6)

Finance and investment income 66 109 86

Finance costs (418) (790) (362)

Equity earnings 160 35 108

Income tax credit/(expense) 54 1 139 (7)

Loss after tax (111) (8 524) (450)

Add back

Impairment - 4 254 6

Loss/(profit) on disposal/scrapping of assets 2 3 (17)

Tax effect - (994) 3

Headline (loss) (109) (5 261) (458)

- In US$m (9) (387) (30)

Financial Synopsis 23


Cash flow (Rm) H1 2015 H2 2015 H1 2016

Cash generated from operations before working capital 851 (2 762) 243

Working capital (1 578) 3 225 349

Capex (656) (600) (796)

Net finance cost (235) (302) (190)

Investments (306) 298 1

Tax (35) (5) (2)

Dividend received 120 (6) -

Proceeds on scrapping of assets 4 (2) 21

Realised forex (86) (172) (206)

Finance lease (52) (40) (31)

Increase / (decrease) of borrowings 1 900 2 129 (3 280)

Rights issue funds - - 4 500

Cash flow (73) 1 763 609

Effect of forex rate change on cash (3) 23 (14)

Net cash flow (76) 1 786 595

Cash in bank 378 2 164 2 759

Short term loans (2 900) (5 029) (1 749)

Net cash / (borrowings) (2 522) (2 865) 1 010



Working capital movement (Rm)

H1 2015 H2 2015 H1 2016

Inventories (971) 2 083 159

Finished products (448) 270 214

Work-in-progress (623) 971 314

Raw materials 219 762 (380)

Plant spares and stores (119) 80 11

Receivables (939) 852 (1 570)

Payables 490 662 1 977

Utilisation of provisions (158) (372) (217)

Working capital movement (1 578) 3 225 349



1 041

80

977

791 810

448

641

-1 450

282

-1500

-500

500

1500

H1 2012 H2 2012 H1 2013 H2 2013 H1 2014 H2 20914 H1 2015 H2 2015 H1 2016

Reline impact EBITDA

464

735

EBITDA history – six monthly (Rm)



Net debt evolution – six monthly (Rm)

550 884

1 106

285

-594 -546

-2 522 -2 865

1 010

-3000

-1000

1000

H1 2012 H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016



Key result drivers – EBITDA bridge (Rm)


469

263

(51)

(908)

(132) 641

282

H1

2015

Sal

es v

olum

e

Sal

es p

rices

Var

iabl

e co

sts

Cok

e &

Che

mic

als

Fix

ed c

ost &

othe

r

H1

2016

Focus areas and outlook Wim de Klerk

www.arcelormittalsa.com OTHER KEY ISSUES AND OUTLOOK

Focus areas for H2 2016

Focus areas and outlook 30

License to operate

Our people

Operational excellence

Stakeholder partnerships

Supplier of choice

www.arcelormittalsa.com OTHER KEY ISSUES AND OUTLOOK

Outlook for H2 2016

2016 GDP growth: China 6.5%, SA 0.2%

Average steel price expected to improve on H1 2016

AMSA expected to retain it's improved market share

Operational excellence initiatives to contribute positively

Profitability highly dependent on delivery of ongoing current initiatives

Focus areas and outlook 31

Questions

For the six months ended June 2016 - ArcelorMittal · •Supply disruptions of import coking coal...

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