Financial resultsfor the year ended December 2013
OVERVIEW
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Agenda
• Results overview and recent developments
• Results analysis
– Steel market overview
– Operating results
– Finance
– Other key issues and outlook
• Questions
2
OverviewCEO
OVERVIEW
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Safety - Journey to Zero
• Zero fatalities since August 2011
• Total injury frequency rate has been on a
decrease of 17%pa since 2002
• Safety Focus Areas
– Zero harm
– Visible felt leadership
– Fatality prevention standards
entrenched at all sites
– Contractor management
– Leading indicators
4
4,7
3,3
3,9
3,4
2,8
2,22,4
2,6
1,6
1,2
0,61 0,56
0
1
2
3
4
5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Lost Time Injury Frequency Rate
(Employees and Contractors)
OVERVIEW
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Overview
EBITDA increased by 58% to R1.8bn
Headline loss reduced by 57% to R224m from R518m
Production optimisation increased capacity utilisation to 76%
Steel shipments decreased 8% with domestic sales down 6%
and exports contracting 14%
Marginal increase in cash cost despite higher raw material prices
Coke & Chemicals sustain EBITDA contribution due to increased despatches
EBITDA target of $100/t by end 2015 at $43/t to date
5
OVERVIEW
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Key recent developments
• Resolution to Kumba dispute with new Sishen supply agreement (SSA)
– Became operative January 2014 for maximum of 6.25mtpa of iron ore
– Price at Sishen cost plus 20% and pre-negotiated price for Thabazimbi for
2014 & 2015
– Settle all outstanding disputes with Kumba
– Constitutional Court appeal confirmed standing of Kumba as only competent party
that can apply for the 21.4% mining right
• Impairment
– Total impairment of R1 950m
– 96% stemming from AMSA exiting its operational involvement at Thabazimbi
6
OVERVIEW
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Key result drivers
H2’13 vs H1’13 2013 vs 2012
Flat steel product prices in Rand +3% +10%
Long steel product prices in Rand +2% +5%
Liquid steel production +5% nc
Total sales volume -1% -9%
Export sales volume +64% -14%
Domestic sales volume -17% -6%
HRC Rand cash cost per tonne +10% +4%
Billet Rand cash cost per tonne +7% +1%
Labour productivity +1% +2%
ZAR movement (average rate) +9% +18%
7
Steel Market OverviewCEO
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STEEL MARKET
OVERVIEW
Global macro-economic environment
• 2014
– IMF forecasting global economic growth at 3.6%
– China to continue with reform programme and
expected economic growth rate of 7.5%
• Major PMI’s above 50 since mid-2013
– Construction dominates global steel end usage
with 48% followed by machinery (24%) and
transport (11%)
– Only Europe and Japan has a low construction
weighting of 27% and 10% respectively
9
25
30
35
40
45
50
55
60
65China Eurozone USA Japan
Country / Region 2013 economic growth 2013 apparent steel consumption
China 7.7% 6.0%
Europe -0.4% -3.7%
USA 1.6% 0.7%
Africa 4.8% 4.3%
Sub-Saharan Africa 5.0% 5.5%
Global 2.9% 3.1%
*ArcelorMittal estimates ** Worldsteel.org. IMF, AfDB
Purchasing Managers' Index
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STEEL MARKET
OVERVIEWCommodity
Price change
in USD
Price change
in ZAR
Iron ore +4% +22%
Scrap -5% +12%
Pellets n/c +17%
Hard coking coal -22% -9%
Coke -43% -33%
Local coal -14% +2%
58%
5…
31%
39%
25%
42%
34%
0%
10%
20%
30%
40%
50%
60%
$450
$550
$650
$750
2009 2010 2011 2012 2013
HRC price margin over raw material basket
% available for other costs &
margin
Global environment – raw material prices
• Exchange rate absorbed the benefit of
international raw material prices
• Chinese coke prices dropped 43%, due to the
cancellation of the 40% export tax
• Excess Chinese steel capacity and slowing
economic growth expected to pressurise raw
material prices
• Potential cost savings
– SSA effective January and benefit should start to
show during 2014
– Tshikondeni mine closure at end 2014
– Coal prices and pellets expected to remain
constant in 2014
• Raw material basket at 66% of HRC price
10
HR
C C
hina
exp
ort (
fob
Sha
ngha
i $/t
)
Sources: Platts, AME, AMS and TEX Report
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STEEL MARKET
OVERVIEW
Domestic macro-economic environment
• SA’s economic growth in 2013 estimated
at 2.1%, a decline from 2.5% in 2012
• Reduced levels of government fixed
investment spend has a disproportionate
impact on demand for steel
• Stronger order book in most construction
companies
• PMI averaged around 50 in 2013
• Improved exports anticipated if the Rand
remains at current levels
-10
-5
0
5
10
15
GDP growth rate GFCF growth rate
Sources: SARB
Economic growth (%)
11
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STEEL MARKET
OVERVIEW
12%
5%
10%
16%20%
13%
24%
21%
18%
14,0
9,0
7,6
10,4
7,5
10,4
11,5
0%
5%
10%
15%
20%
25%
30%
0
4
8
12
16
2009 2010 2011 2012 2013
Domestic market – inventory levels (000t)
• Steel demand has grown 1% pa over
past 20 years, but -5% pa since 2007
• Building & construction industry remains
dominant consumer
• Stocks increased during 2013, ending
the year at 7.8 weeks of consumption
• Imports at record level of around 1.3mt
– Market share reached above 20% in
early 2013
– BOF fire resulted in 300kt being imported
– Quick recovery from incident resulted in
high stock levels at customers
• Final product imports added to the
already weak demand for primary
steel products
12
Des
patc
hes
(mt)
Source : SAISI actuals up to 2008, thereafter AMSA estimates
Imports
Wee
ks’ d
espa
tche
s
Imports as %
of apparent consumption
3,13,4 3,5
3,3 3,1
3,94,3 4,4 4,2 4,3
0,0
1,0
2,0
3,0
4,0
5,0
2009 2010 2011 2012 2013
AMSA domestic despatches
Estimated total domestic despatches
Operating ResultsCEO
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OPERATING
RESULTS
Production and shipment volumes
• Overall steel production maintained
despite BOF fire
– Flat output down 9% with Vdbp -11%
and Saldanha -4%
– Long volumes up 22% with Newcastle
adding 24% and Vereeniging +8%
• Shipments decreased to 4.2mt
– Domestic shipments shrunk by 6% as
result of the continued weak building,
construction and mining sectors
– 2013 saw record import effort with a 20%
import penetration due to the fire
– Exports slowed by 14% to minimise the
effect of the fire on local customers
14
3 4283 813
4 060
3 5543 229
1 879 1 860
1 393 1 5361 867
0
1 000
2 000
3 000
4 000
5 000
2009 2010 2011 2012 2013
Flat Long
2 078 2 336 2 468 2 223 2 003
7801 012 956
915768
994
1 078 1 0391 113
1 123
621615
245 371336
0
1 000
2 000
3 000
4 000
5 000
6 000
2009 2010 2011 2012 2013
Flat local Flat export Long local Long export
Production (000t)
Shipments (000t)
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OPERATING
RESULTS
Coke price ($/t)
Coke and Chemicals
• Chinese producers increased their
market share from 11% in 2007 to 30%
in 2013
• Electricity shortage in South Africa
remains key limitation and resulted in
market share loss to almost 30% from
49% in 2007
• 90% domestic share of commercial coke
market and 40% speciality chemicals
• Most of AMSA’s speciality chemicals
products are consumed by electrode
manufacturers (50%) and timber (20%)
and carbon black (15%) industries
15
0%
10%
20%
30%
40%
50%
0
10
20
30
40
2009 2010 2011 2012 2013
SS production FeCr consumption
SA market share China market share
0
100
200
300
400
500
600
0
100
200
300
400
500
600
700
2009 2010 2011 2012 2013
Commercial coke Speciality chemicalsCoke price
Sal
es v
olum
es (
000t
)P
rodu
ctio
n &
con
sum
ptio
n (m
t)
Global F
eCr
production market share
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OPERATING
RESULTS
Capital expenditure (Rm)
2011 2012 2013
Maintenance 708 598 1 045
Environment 89 128 350
Other 393 149 175
Total expenditure 1190 875 1 570
16
• Main ongoing projects during 2013
– Replacements/maintenance (67% of spend)
• Newcastle: Blast furnace gas holder (R26m). Replace scrubber demister (R59m) and blast furnace reline
procurement (R157m)
• Vanderbijlpark: Basic oxygen furnaces essential repair (R158m)
– Environment (22% of spend)
• Newcastle: Zero effluent discharge project (R263m)
• Vanderbijlpark: Coal water treatment plant (R27m) and blast furnace D stockhouse bag house (R60m)
– For 2014 the focus will be on:
• Newcastle: Blast furnace reline (R1.6bn), raw material handling and sinter plant, reline window of
opportunity projects
• Vanderbijlpark: Blast furnace D stockhouse bag house, coke oven battery tightness project, start up of
waste gas channel repair, abatement of Volatile Organic Compound emissions at the speciality
chemicals plant
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OPERATING
RESULTS
Environmental investment program
17
2007 2008 2009 2010 2011 2012 2013
Environmental R121m R220m R251m R293m R89m R128m R350m
Large projects • Waste
Disposal Site
(WDS) prep
VDBP
• Dam 10
clean up
VDBP
• Upgrade of
WDS
• Ground
water study
VDBP
• Fugitive dust
suppression
• Sinter clean
gas at VDBP
• VRN EAF
gas cleaning
• Waste water
treatment at
NC
• Sinter clean
gas at VDBP
• New disposal
site VDBP
• De-sulphur
project at NC
• ZED phase 1
at NC
• EAF gas
cleaning at
VRN
• De-sulphur
project at NC
• Sinter clean
gas at VDBP
• VDBP coal
water
treatment
plant
• VDBP BFD
stock house
bag house
• Newcastle
ZED
• Saldanha by-
product
storage area
• Coke oven
battery
tightness
program
• Coal water
treatment plant
• Blast furnace D
stock house
bag house
• Newcastle ZED
FinanceCFO
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FINANCE
Headline earnings (Rm)
2012 2013
Revenue 32 291 32 421
EBITDA 1 121 1 768
(Loss) / profit from operations (477) 47
Finance and investment income 60 108
Finance costs (334) (368)
Tax credit 184 51
Equity earnings / (loss) 59 (35)
Profit on disposal / scrapping of assets* (10) (27)
Headline (loss) (518) (224)
- In US$m (63) (23)
*After tax
19
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FINANCE
2013
Thabazimbi 1 878
Other 72
Total impairment 1 950
Impairment (Rm)
• Exiting operational involvement at Thabazimbi
– Asset retirement obligations R432m
– Buildings and infrastructure R56m
– Machinery, plant and equipment R336m
– Site preparation R1 054m
– Total R1 878m
20
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FINANCE
Main steel cost drivers (R/t liquid steel)
2012 2013 % change % weight
Iron ore and pellets 1 110 1 370 24% 23%
Scrap / DRI / HBI 193 242 25% 4%
Coking coal and other fuels 1 565 1 307 -17% 22%
Electricity 413 434 5% 7%
Other energy & utilities 199 206 3% 4%
Alloys, fluxes and coating materials 513 577 13% 10%
Refractories, electrodes and consumables 332 342 3% 6%
Manpower 541 559 3% 9%
Maintenance 390 347 -11% 6%
General expenses, outside services,professional fees, IS/IT and insurance premiums
573 544 -5% 9%
TotalLiquid steel (000t)Average exchange rate (ZAR)
5 8295 0908.21
5 9295 0979.65
2%n/c
18%
21
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FINANCE
2012 2013
Flat steel products (266) 135
Long steel products 770 1 198
Coke and Chemicals 503 514
Corporate and other 114 (79)
Total EBITDA 1 121 1 768
EBITDA margin 3.5% 5.5%
EBITDA from segments (Rm)
22
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FINANCE
2012 2013
Cash generated from operations 1 309 1 831
Working capital 713 (168)
Capex (875) (1 570)
Net finance cost (157) (157)
Investments (369) (53)
Tax (52) (220)
Dividend received 87
Proceeds on scrapping of assets 29 2
Realised forex (34) (128)
Increase / (repayment) of borrowings and finance lease (231) 674
Cash flow 420 211
Effect of forex rate changes on cash 25 96
Net cash flow 445 307
Cash in bankShort term loans
884(10)
1 191(906)
Net cash 874 285
Cash flow (Rm)
23
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FINANCE
Working capital movement (Rm)
2012 2013
Inventories 1 110 (1 775)
Finished products (78) (365)
Work-in-progress 540 (1 046)
Raw materials 678 (353)
Plant spares and stores (30) (11)
Receivables 714 (541)
Payables (881) 2 239
Utilisation of provisions (230) (91)
Working capital movement 713 (168)
24
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FINANCE
Sound balance sheet with focus on working capital management
• Low financial leverage
• Intra-month borrowing (peak-demands)
with sufficient/unutilised short term lines
– Improved payment terms provide flexibility
– Turnover of working capital improved to
84 days
• Metal stocks at Newcastle should reach
a high of 507 000t in Q1 2014 in
anticipation of reline
25
-
20
40
60
80
100
120
140
0
2 000
4 000
6 000
8 000
10 000
2009 2010 2011 2012 2013
0
100
200
300
400
500
2009 2010 2011 2012 2013 2014e
New
cast
le m
etal
sto
cks
(000
t)
*Rotation days are defined as days of accounts receivable plus days of inventory minus days of accounts payable. Days of accounts payable and inventory are a function of cost of
goods sold of the quarter on an annualised basis. Days of accounts receivable are a function of sales of the quarter on an annualised basis.
Rotation days*
Wor
king
cap
ital (
Rm
)
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FINANCE
EBITDA history (Rm)
1 449
1 588
706
-221
648
987
3
82
817
224 238
-158
169
808
581
211
-R 300
R 0
R 300
R 600
R 900
R 1 200
R 1 500
R 1 800
2010 2011 2012 2013
26
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FINANCE
$100/t EBITDA target
$31
$20
$14
$6
$43
2012 EBITDA/t Improvementactions
BOF Incident Sales prices, costescalation andexchange rate
2013 EBITDA/t
27
Other Key Issues and OutlookCEO
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OTHER KEY
ISSUES AND
OUTLOOK
Well prepared for 2014
Competition matters
2014 summarised
• Impairment
• Tshikondeni provided for
• Operational stability has been demonstrated
• Operational optimisation at Vanderbijlpark in full swing
• Productivity increased
• Capacity utilisation moving up
• N5 reline fully prepared and on target
• AMSA internally strong
29
1
2
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OTHER KEY
ISSUES AND
OUTLOOK
Outlook
• Outlook for Q1 2014
– Improving environment for international steel prices
– Increased export sales at enhanced margins
– Positive headline earnings for Q1 2014
– Rand volatility remains a factor
30
Financial resultsfor the year ended December 2013Questions