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ARCELORMITTAL SOUTH AFRICA LIMITED - ACL - Short-form announcement: Consolidated Financial Results for the six months ended 30 June 2020

Release Date: 30/07/2020 07:05
Code(s): ACL     PDF:  
Wrap Text
ACL - Short-form announcement: Consolidated Financial Results for the six months ended 30 June 2020

ArcelorMittal South Africa Limited
(ArcelorMittal South Africa, the company or the group)
Registration number: 1989/002164/06 
Share code: ACL  ISIN: ZAE000134961

Short-form announcement
Condensed consolidated financial results for the six months ended 30 June 2020

Salient features 
- Extraordinary cash management and cost control measures implemented to ensure liquidity in response to disrupted 
  and seized supply chains 
- 54% lower liquid steel production at 1.1 million tonnes
- 47% lower sales volumes at 1.1 million tonnes
- Average international steel prices fell by 13%
- 45% reduction in revenue to R12 014 million
- R1 601 million (-38%) reduction in total fixed costs
- R1 256 million EBITDA loss (2019: R167 million profit)
- Headline loss of R2 613 million (2019: R638 million loss)
- Net debt of R3 702 million (December 2019: R3 370 million)
- 2020 strategic asset footprint review resulted in temporary idling of Vanderbijlpark Blast Furnace C from 
  the second quarter and Vereeniging Electric Arc Furnace from the third quarter of 2020, until demand recovers

Key statistics
      Six months                                                                 Year ended
    ended 30 June                                                               31 December
  2020         2019            %                                                       2019
           Restated       change                                                   Restated
                                       Financials (Rm)                                         
12 014       21 743        (44.7)      Revenue                                       41 353    
(1 256)         167            -       EBITDA                                          (632)   
(1 528)        (222)           -       Loss from operations                          (2 359)   
(2 304)        (644)           -       Net loss                                      (4 676)   
(2 613)        (638)           -       Headline loss                                 (3 265)   
(3 702)      (1 741)      (112.6)      Net borrowing                                 (3 370)   
 1 540        8 443        (81.8)      Net asset value                                4 477    
                                       Financial ratios (%)                                    
 (10.5)         0.8            -       EBITDA margin                                   (1.5)   
(173.7)       (14.7)           -       Return on ordinary shareholders' equity        (48.6)   
(240.4)       (20.6)           -       Net borrowing to equity                        (75.3)   
                                       Share statistics (cents)                                
  (211)         (59)      (254.2)      Loss per share                                  (428)   
  (239)         (58)      (312.1)      Headline loss per share                         (299)   
     -            -            -       Dividends per share                                -    
  1.41         7.72        (81.8)      Net asset value per share                       4.09    
  0.55         0.38        (44.7)      Lost time injury frequency rate                 0.44    
                                       Operational statistics (000 tonnes)                     
 1 123        2 460        (54.3)      Liquid steel production                        4 411    
 1 147        2 162        (46.9)      Steel sales                                    4 112    
   946        1 586        (40.4)      - Local                                        2 967    
   201          576        (65.1)      - Export                                       1 145    
   143           93         84.9       Commercial coke and tar sales                    152    
                                       Segmental performance (Rm)                              
                                       Flat steel products                                     
 8 072       14 843        (45.6)      - Revenue                                     27 709    
  (674)          86            -       - EBITDA                                        (574)   
                                       Long steel products                                     
 4 177        7 722        (45.9)      - Revenue                                     14 599    
  (717)         (66)           -       - EBITDA                                        (369)   
                                       Coke and Chemicals                                      
   788          576         36.8       - Revenue                                      1 310    
    70          108        (35.2)      - EBITDA                                         250    
                                       Corporate and other                                     
    65           39         66.7       - EBITDA                                          61    

Following an already demanding 2019, the first half of 2020 proved to be an incredibly difficult and extraordinary
period, the likes of which has never been witnessed in terms of the widespread social and business impact as wrought by 
the global COVID-19 pandemic. The impact on economic activity was abrupt and, therefore, the business response needed 
to be sharp and decisive.

The unprecedented and rapid shutdown of the company's assets tapped into the world-class skills of the local
operational team and global knowledge base of the ArcelorMittal group in order to affect the process safely and in a 
manner that would enable a swift but well-controlled restart. In addition to substantial and sustainable cost improvements
implemented to date, extraordinary cash management and cost control measures were implemented to ensure sufficient 
liquidity in response to disrupted and seized supply chains due to the pandemic.

With all but small volumes of commercial market coke sales to ferro-alloy producers possible in the first month of the
lockdown starting on 27 March 2020, reducing the fixed cost structure of the company became critical to rescale cash
outflows to dramatically reduced cash inflows. 

With the advent of lockdown level 4 on 1 May 2020 and the ability to operate at 50% of normal labour levels, the
company was able to avoid restarting its iron and steel melting operation by focusing on completing (rolling and packing) 
its work-in-process inventories and dispatching its finished inventories. 

On 1 June 2020, level 3 allowed for a return to unrestricted operations, however, the return to full operational
capacity is only expected as demand improves. Although more customers began operating, the vast majority operated on 
reduced shift patterns, impacting demand levels. 

With an anticipation that, for the foreseeable future, steel demand will remain at best between 70% to 75% of levels
prior to the lockdown, ArcelorMittal South Africa announced a large-scale labour reorganisation in terms of section
189(3) of the Labour Relations Act 66 of 1995 on 18 June 2020, in response to economic consequences of the pandemic. 

The lockdown and its consequences overpoweringly defined the first half of the year, and specifically the second
quarter, however, the following should be noted regarding the first quarter: 
- Demand remained weaker than anticipated as the bad news regarding the spread of COVID-19 and the anticipated (and
  now realised) sovereign downgrades depressed business sentiment.
- Significant production interruptions occurred due to (i) electricity load shedding, and (ii) raw material train
  cancellation and delays due to a major increase in cable theft. The combined negative impact of these uncontrollable 
  events on earnings amounts to at least R272 million. These events and the consequential stop-start shocks are beginning to
  materially affect the reliability of plant and equipment, and are consequently diluting the improved underlying performance
  of the business.

Regarding the second quarter, the following was apparent:
- Total steel sales volumes fell by 54% (425 000 tonnes) to 361 000 tonnes compared to the first quarter.
- Liquid steel production was limited to 153 000 tonnes with the blast furnaces being idle for the months of April and
  May 2020.
- Additional externally purchased energy costs of R328 million were incurred during the lockdown due to the idling of
  the blast furnaces and the hot idling of certain of the coke-making batteries. These costs were related to an increase
  in the consumption of gases which are internally produced under normal operating conditions. 
- Fixed costs reduced by 35% (R540 million) compared to the first quarter.

Positively, the Business Transformation Programme (BTP) contributed R663 million (2019: R635 million) in earnings
improvements for the first half of the year, adding to the R2,1 billion of improvements since the programme started in the
second half of 2018. This performance was achieved despite the interruptions which characterised the economic lockdown. 

Compared to the previous year, exchange rates between the ZAR and the USD weakened significantly. Ordinarily, a
weakening exchange rate has a positive impact on the financial results of the company. However, with the severe erosion of
revenue during the lockdown, and given the large foreign-denominated payables position, the company reported a net foreign
exchange rate loss of R977 million for the period (2019: R96 million profit). 

2020 remains the year of the 6Cs - cash, cost, customers, collaboration, climate, and communication. They are even
more relevant in the context of the pandemic realities. ArcelorMittal South Africa will be steadfast in making difficult
decisions to position the business for sustainability through these future-shaping events. All alternatives need to be
explored and the company continues to engage with the Competition Commission regarding the payment of the administrative

In support of the surrounding communities, the ArcelorMittal Foundation, through Thusong Projects, is providing 
800 litres of soup and 445 loaves of bread per day to local community members. ArcelorMittal South Africa provided 
600 food parcels to the vulnerable farm communities of Overvaal. The company's requirement of 15 000 face masks was 
awarded to a local B-BBEE SMME using local skills. A thousand masks were donated to NGO workers who care for vulnerable 
members of the community. 

Outlook for the second half of 2020
The health and wellbeing of employees during these unprecedented and difficult times will receive significant

Considering the high pandemic infection rates in South Africa, the company is carefully balancing the need to meet
real, demonstrable and sustainable demand levels against the need to responsibly restore production levels, while 
avoiding the risk of a major infection event in the operations.

Barring a reversion to more restrictive lockdown regulations, it is anticipated that sales volumes should improve
relative to the deeply pandemic-impacted first half. Even so, these levels will be notably below historic levels.

There will be vigorous focus on the BTP, the OneOrganisation implementation and the finalisation of the large-scale
labour reorganisaton to ensure the company's cost structures are meaningfully recalibrated to the current economic

The volatility of ZAR/USD exchange rate is also likely to continue to have an impact on the company's results.

On behalf of the board of directors

HJ Verster
Chief Executive Officer

AD Maharaj
Chief Financial Officer

30 July 2020

Short-form announcement
This short-form announcement is the responsibility of the board of directors of ArcelorMittal South Africa and 
is a summarised version of the group's full announcement and as such, it does not contain full or complete details 
pertaining to the group's results. Further the auditors conclusion in the full announcement, contains a paragraph 
on material uncertainty relating to going concern. Any investment decisions by investors and or shareholders should be 
made after taking into consideration the full announcement. The full results announcement is available for viewing at and on the group's website at The full announcement is available for 
inspection, at no charge, at the registered office of (ArcelorMittal South Africa Limited, Room N3-7, Main Building, 
Delfos Boulevard, Vanderbijlpark) and the offices of the sponsor (Absa Bank Limited (acting through its Corporate and 
Investment Banking Division), 15 Alice Lane, Sandton), from 09:00 to 16:00 on business days. Copies of a full 
announcement can be requested from the registered office by contacting (016) 889 2352.

This report is available on ArcelorMittal South Africa's website at:

Share queries: Please call the ArcelorMittal South Africa share care toll free line on 0800 006 960 or +27 11 370 7850

Date: 30-07-2020 07:05:00
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