Published on October 4, 2007
ArcelorMittal South Africa Investors’ Day 12 September 2007
Agenda • South Africa at a glance • ArcelorMittal South Africa’s standing • ArcelorMittal’s involvement • Strategy going forward • Commitment to the economy & community – Safety, Health & Environment – Corporate Social Responsibility • Outlook 1
South Africa at a glance 2
The South African Economy Comparison between Steel Consumption, GDP & GDFI (Q2-Q4=FC) • Current six-year upswing now 180 twice the duration of the last (1993- 170 96) upswing and still going strong Index 1Q 2000 = 100 GDP 160 GDFI (GDP output growth at 4.5%). Steel Cons 150 • Real fixed investment doubled 140 during 1994-2005. 130 • Inflation way down its 1986 peak. 120 • Government spending as a share 110 of GDP increased from 22% in 100 2002 to an expected 27% in 2007. 90 2000 2001 2002 2003 2004 2005 2006 2007 At GDP growth of 3%, steel demand should be 3%; but at 6% steel demand should be 20% 3 Source: STATSSA & SARB Quarterly Bulletin
The South African Market Geographical sales distribution in 2006 Manufacturing • Although manufacturing production fell from 6.2% in Q1 , 2007 to 4.6% in Q2 2007, the overall trend for growth in Africa, 9% this sector is expected to remain on the positive side for the foreseeable future. South Africa, Europe, 4% 72% • The slowdown, especially in June to 2% was as a result Americas, 4% of the weaker competitiveness emanating from currency strength. Asia, 11% • Production of durable goods such as motor vehicles was also heavily affected by the higher interest rates and the introduction of the new credit act. Domestic market segmentation in 2006 • The recent weakening of the RAND should improve this Packaging short term situation Other 9% 3% Automotive 13% Building Building and • Non-residential building plans passed recovered construction strongly over the last couple of years. Energy, 36% mining • The relative strength of construction activity and fixed 9% investment drive not only cement sales but that of steel especially rebar. Machinery & Equipment • Prospects for construction growth remain positive given Furniture and 9% Pipes and the infrastructural investment drive which is likely to be applicances tube (welded) 3% undertaken in the run-up to the 2010 Soccer World Cup. 18% Manufacturing and Building & Construction make up almost 80% of local steel demand 4
South African Iron & Steel Sector • Employed 15 060 people (2005 = 16 476 or down 8,6 %). • Produced 8,6mt of crude steel (2005 = 8.8mt or down 1,1%). • Produced 7.7mt of finished steel products. • Sold 5,8mt finished steel products to the domestic market (incl. imports), up 28%. • Exported 2,4mt of finished steel products, down by 74%. • Iron & steel products contributed 1,7% to GDP and 7.5% to the total value of sales by the manufacturing industry. ArcelorMittal South Africa produced 82% of the country’s liquid steel 5
ArcelorMittal South Africa’s position in context Employee reduction (000) 14.5 9.8 • Turnover = R25bn (US$3.8bn). • Produces 7.1 mt of liquid steel per annum (long & flat steel). 2001 2006 • A modern, highly competitive supplier of steel products to the domestic and global markets. Liquid steel production (mt) 7.1 • ArcelorMittal South Africa is amongst the world’s lowest 6.5 quartile cash cost producers of steel. • Benefit to the country/community: • Direct taxes to the state US$660m (R4 469m). 2001 2006 • Remunerate employees US$330m (R2 243m). Finished steel products to the domestic market (mt) • Procurement from affirmative business enterprises 3.6 US$110m (R732m). 2.3 • Pay shareholders with cash dividends US$230m (R1 550m). 2001 2006 ArcelorMittal South Africa produced 82% of the country’s liquid steel output in 2006 6
ArcelorMittal South Africa’s standing 7
Evolution of ArcelorMittal South Africa 2006 2004/5 2002 2001 1997 1989 1928 Iscor Mittal Iscor Iscor Iscor enters LNM lifts Unbundling founded Steel embarks privatized into stake to of steel & merge on major and listed Strategic over 50% mining into with Restruct- on the JSE partnership and name Iscor & Arcelor uring with LNM changes to Kumba to form programme (LNM 34% Ispat Iscor ArcelorMittal share- LNM and Holding) Ispat Start of merge to BAA form Mittal Steel Company in existence for almost 80 years 8
ArcelorMittal South Africa Overview of Operations Thabazimbi • Flat Steel Products iron ore mine • Vanderbijlpark Works – 3.2 Mtpa* • Saldanha Works – 1.1 Mtpa* Johannesburg • Long Steel Products Vanderbijlpark • Newcastle Works – 1.5 Mtpa* Vereeniging • Vereeniging Works – 0.4 Mtpa* Newcastle Sishen iron ore • Iron ore supply mine Durban • 6.25 Mtpa from Sishen South • 2.5 Mtpa from Thabazimbi Africa • Coke & Chemicals • Coke - 597 000 tpa* Saldanha • Tar - 133 000 tpa* Cape Town * Based on 2006 actual final product sales Steel plants in close proximity of key markets 9
Company Structure ArcelorMittal ArcelorMittal South Africa Limited Flat steel products Long steel products Vanderbijlpark Works Saldanha Steel (Pty) Ltd Newcastle Works Vereeniging Works Hot rolled Hot rolled coil Rolled profiles Rolled profiles (Vereeniging) Heavy Plates - thin and ultra thin Special profiles (Pretoria) Cold rolled Forged products (Pretoria & Vereeniging) Coated Seamless tubes (Vereeniging) - Galvanised Directly reduced iron (Dunswart) - Painted Coke & Chemicals Joint Ventures - Tinplated Coke batteries - Pretoria Mr Eric Samson - Vanderbijlpark - Newcastle 50% - Vanderbijlpark Macsteel International 50% (Pty) Ltd Tar plant - Vanderbijlpark Export marketing Shipping Nampak Ltd Anglo American Ltd 40% 50% 50% 50% Consolidated Wire Collect a Can (Pty) Ltd Industries (Pty) Ltd Can Reclamation Wire drawing Diversified primary steel producer 10
Management Rick Reato CEO Kobus Verster Executive Director, Finance Juba Mashaba Executive Director, Human Resources Johan Fourie Chief Operating Officer Hercu Aucamp General Manager: Sales & Marketing Tami Didiza General Manager: Corporate Affairs Heyno Smith General Manager: Vanderbijlpark Works Heinrich Kriel General Manager: Saldanha Works Jaco Stapelberg General Manager: Newcastle Works Jose Gutierrez General Manager: Vereeniging Works Alph Ngapo General Manager: Coke & Chemicals Highly experienced management team with 166 years service amongst them 11
Operational improvements over time Liquid steel output since first production Operating margin since first production 40.0 7.662 8 7.055 Data n/a during WW2 33.1 35.0 7 30.0 6 25.0 5 (Mtpa) (%) 20.0 4 15.0 3 10.0 2 5.0 1 0.0 0 1935 1945 1955 1965 1975 1985 1995 2005 1934 1944 1954 1964 1974 1984 1994 2004 • Increase in operating margin since ArcelorMittal investment • Steady increase in steel output to 7.1mt. Growth potential to 9.7mt Output levels increased since ArcelorMittal investment. Margins were steadily eroded until recent actions established new trading range 12
ArcelorMittal’s involvement 13
Search for International partner • Iscor searched for international partner that could assist with: – Business issues: • Needed international exposure. • Real benchmarking. • Knowledge sharing. – Technical assistance: • R & D. • Output/throughput & yield/prime %. – Procurement: • Coal/alloys/refractories/electrodes. – Marketing: • European auto markets. • LNM approached and became the preferred partner. Stagnation of efficiencies and a decline in through yield prompted the search 14 * Through yield: Liquid steel to final product
Technical assistance • Key technical improvements resulting from the relationship with ArcelorMittal includes: 2001 2006 Liquid steel production (‘000t) 6 468 7 055 Through yield* (%) • Vanderbijlpark 82.0% 83.8% • Newcastle 88.4% 91.6% • Saldanha 94.0% 94.0% Prime output (%) • Vanderbijlpark 88.0% 87.2% • Newcastle 99.3% 99.97% • Saldanha 81.0% 97.0% Efficiency improvements realised R1 386million savings 15 * Through yield: Liquid steel to final product
Capital expenditure assistance ArcelorMittal contributed towards project management assistance on large capital projects, including: Vanderbijlpark: BOF control systems. ArcelorMittal project Blast Furnace C – throat armour repair. Blast Furnace D – rebuild. management assistance New DRI kilns. Blast Furnace D – Hot blast stoves. New galvanising line. 2 new cells on Electro galvanising line. Newcastle: Pulverised coal injection. New market coke battery. Saldanha: Coke & chemicals: Third roll Market coke expansion. grinder. Capital expenditure totalled R3.1bn over the last two years 16
Strategy going forward 17
Vision & long term objectives Vision Quantitative strategic objectives Qualitative strategic objectives • Increase liquid steel production capacity by • Improve capabilities through a dedicated 2.6mtpa from 7.1mtpa to 9.7mtpa by 2011 focus on operational excellence with efficiency improvements contributing • Industry leading value creation for our 29% shareholders • Increase hot strip mill throughput at • Positive economic value-add over steel Vanderbijlpark from 3mtpa to 3.9mtpa price cycle • Increase through yield from 87.3% to 89.3% • Improve market share in Sub-Saharan together with significant increases in value- Africa added production • Build and improve performance culture • Enhance EBITDA by US$479m by 2011 • Be a responsible corporate citizen (2006 cost & price base) • IRR of all capex projects exceeds 20% • Capture more than 50% of the target market Vision: To be a key player in the Sub-Saharan Africa steel market while also being one of the highest operating margin steel producers globally 18
Africa Map & target market Key elements of strategy Total Sub-Saharan Africa market estimated at 18.4mt by 2011, of which the target market is 14.9mt. South Africa plans to capture in excess of 50% of the latter. Sub-Saharan African Focus on products in demand in steel market this market Focus is to be a key player in the Sub-Saharan Africa steel market 19
Key elements of strategy All operations De-bottleneck & improve efficiencies Recapture production losses Operations Cost leadership Vanderbijlpark & Increase liquid steel production & add downstream Newcastle capacity from 2008 to 2011 Establish presence Re-commission existing mill and install new bar/rod mill. in Mozambique Existing mill 2008 / New mill 2009 Cost Vanderbijlpark Replace aged coke oven batteries by 2011 - more efficient design Iron ore supply Secure participation rights in new developments Sourcing Procurement Cost leadership (TCO) Public/Government/ Sustainable Improve image and relationships Environment/ Development & Address legacies & comply with new legislation Social Investment community Responsibility Securing raw materials for the expansion strategy is a crucial element Value in Flat products and Volume at long products 20
Strategy We want to be one of the highest operating To be a key player in the Sub-Saharan margin steel producers globally Africa steel market Strategic drivers for creating value for our shareholders: Strategic goals • Sales revenue: • Industry leading value-creation for our shareholders: – Africa vs Export sales. – Positive economic value add over the steel cycle. – Increase production of value added products. • Sub-Saharan market leader: • Cost reduction: – 80% sales into Africa. – Efficiency improvements & technology upgrade (PCI). – Raw materials initiatives. • Improve operating capabilities: – Iron ore expansion projects. – Value-creating throughput increases of 2.6mtpa. – Reduce dependence on imported coking coal. – Procurement initiatives. • Build on our existing performance culture: – Create an environment that generates true employee pride and attracts, develops and retains top- • Throughput expansion: performing people. – Productivity improvements. – Productivities and de-bottlenecking. • Be a responsible corporate citizen. – Capital investments. • Corporate Social Responsibility: – Investment in community, environment & human resources. To be a key player in the Sub-Saharan Africa steel market while also being one of the highest operating margin steel producers globally 21
Liquid steel development – 2006 to 2011 (Tonnes ‘000) 12 000 1 887 10 000 500 8 000 220 6 000 9 662 4 000 7 055 2 000 2006 New DRI kilns at Efficiencies Projects under 2011 Vdbp investigation Efficiency improvements play an important role in our expansion strategy 22
Commitment to the Economy & Community 23
Safety focus Lost Time Injury Frequency Rate (Employees and Contractors) The impact of the overall SHE programme is evident in our safety performance 7 Lost Time Injury frequency rate (LTIFR) indicators. The following was achieved during the first 6 months: 6 • H107 performance negatively affected by Blast Furnace rebuild. 5 • ArcelorMittal South Africa achieved 26 days without LTI (about 3.7m LTI free man hours). 4 • 172 days without an LTI at Saldanha Works - new record. 3 • 1m LTI free hours achieved: – 4x at Vanderbijlpark Works. 2 – 3x at Newcastle Works. 2002 2003 2004 2005 2006 2007 IISI ArcelorMittal South Africa (LTIFR) Blast Furnace D rebuild impacted on our most recent safety record 24
Implementing an ambitious Corporate Social Responsibility strategy Waste/By- Air Pollution Water ISO 14001 product Management Management Management • Air pollution biggest • Saldanha and • 75% of waste/by- • All production environmental risk. Vanderbijlpark have products is recycled facilities are certified zero effluent status. or sold within the besides the • Planned projects: group. Dunswart DR Kiln • Newcastle to follow - Coke gas cleaning operation in 2008 after system completion of • Target is to achieve - New dust/fume crystalliser plant. a sale/ recycling rate • Target for Dunswart extraction system at • ArcelorMittal South of above 90% by certification is end both Vereeniging Africa’s consumption 2011. 2008. and Vanderbijl plant is world class at 3.2 - EAFMeltshop at m3/ton of LS both Vereeniging produced. and Vanderbijl plant - New sinter off gas cleaning system Future focus is on air quality 25
Corporate Social Responsibility Current CSR projects • ArcelorMittal South Africa Science Centre Committed towards “making a - Partnership between Gauteng Department of Education and sustainable ArcelorMittal South Africa difference”. - 1 690 learners & teachers (Sedibeng District) receive maths & science classes from highly trained teachers - Renovations, upgrading & operations sponsored by ArcelorMittal South Africa (R8,5m in 2006). - High tech computer centre now completed (2007) Improving education. Corporate social Enhancing housing responsibility aligned • Enterprise Development Fund to assist SME’s in conditions. with government downstream steel sector (R250m) Addressing initiatives. HIV/Aids CSR • Gas cylinder project in conjunction with Department of Minerals & Energy. • HIV/AIDS program. • West Coast Business Development Centre. Forming strategic Invested R220m in alliances with Social Projects aimed at government empowering historically departments disadvantaged • Bophelong Community Project. communities. CSR focus is on Education, Housing and Job Creation 26
Thank you ArcelorMittal South Africa Investors’ Day 12 September 2007
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