ARCELORMITTAL SOUTH AFRICA LIMITED
ACL 201707270002A
ACL: Condensed Consolidated Financial Statements For The Six Months Ended 30 June 2017.
ArcelorMittal South Africa Limited
(ArcelorMittal South Africa, the company or the group)
Registration number: 1989/002164/06
Share code: ACL
ISIN: ZAE 000134961
Condensed consolidated financial statements for the six months ended 30 June 2017
Salient features
- Safeguard duties on hot rolled products have been approved and await implementation
- Imports have continued despite duties and designation of steel
- Additional sales of 6 000 tonnes of heavy sections and rails due to manufacturing agreement with Highveld Steel
- Borrowing base facility of R4 500 million was concluded
- ArcelorMittal South Africa improved on B-BBEE status to level 3
- Domestic steel demand at a seven-year low
- Coal prices spike at USD300 per tonne in quarter 2
- Higher iron ore prices
- Impacted negatively by exchange rate volatility
The analysis on the following pages relates to the six months ended 30 June 2017 (current year) compared to the
six months ended 30 June 2016 (prior year) except where otherwise indicated.
Overview
The companyÆs results were negatively impacted in the first half of the year by the weakening South African economy.
Business confidence in South Africa declined further as a result of the recession; with a 0.7% decrease in GDP during
the first quarter of 2017; the downgrade to sub-investment grade and the highest unemployment rate since 2004.
The domestic and export steel markets in which the company operates are extremely constrained because of minimal local
investment and infrastructure spend, high raw material costs and the volatility of the exchange rate. Local apparent
steel consumption decreased by 3.8% as a result of subdued economic growth. In addition, South Africa and key African
markets continue to import large quantities of steel, especially from China. Despite the import duties and designation of
steel, half a million tonnes of steel were still imported into South Africa. To address the surge in imports, safeguards
on hot rolled products have been approved by government and the implementation is pending.
ArcelorMittal South AfricaÆs operating and headline losses increased by R714 million and R1 161 million respectively
in the first half of the year compared to the same period last year. This is due to the higher imported coking coal and
iron ore costs, relatively strong rand/US dollar exchange rate and continued weakening of the South African economy.
The company paid a premium for coke that was imported due to the refurbishment of the coke batteries at Newcastle Works.
The company has restructured its balance sheet by replacing overnight facilities with a three-year borrowing base
facility of R4 500 million.
Safety remains our number one priority and it is with great regret that we report three fatalities at our plants this
year, all contractor employees. This is completely unacceptable and we remain committed to achieving zero harm.
The lost time injury frequency rate improved from 0.90 to 0.62.
Despite the positive progress on safeguards on flat products, import duties and the designation of local steel for
government infrastructure projects, the group and the local steel industry continue to be threatened by imports entering
the market, primarily from China. ArcelorMittal South Africa has implemented various initiatives to return the group to
profitability and to generate positive cash flows. In order to address the current challenges, the group is in the
process of exploring several additional initiatives, including additional cost-saving interventions, assessing the
profitability of various product lines and the implementation of structural changes (restructuring) in the next
six months. Further information will be provided as soon as the necessary investigations and decisions have been
finalised.
Markets
The global steel demand has shown some improvement in H1 2017, mainly attributed to the positive market environment of
developed countries. However, ChinaÆs steel demand has been relatively flat compared to the last half of 2016. Demand
improved due to the improvement in finished steel prices in key markets such as China, Europe and particularly in the
USA, where imports of steel have increased in recent months after declining in H2 2016. Hot rolled coil (HRC) and rebar
prices gained 14% and 18% respectively compared to H2 2016. The cost of iron ore and coking coal increased on average
by US$22 (42%) and US$95 (112%) per tonne respectively compared to H1 2016. Due to the lag in the impact of prices,
as a result of stockholding, coking coal prices are expected to remain high in Q3 2017.
The overall African markets have remained positive due to the drive towards infrastructure investments in the rail,
roads and energy projects, specifically in the west and east sub-Saharan regions. In the southern African region, fiscal
concerns and weak commodity prices have hampered investment progress. South African producers lost sales in African
markets due to cheap imports into Africa.
Despite the improvements in global steel demand and steel prices, domestically the economy continues to struggle due
to a lack of investments, particularly in the construction and manufacturing sectors, and as cheap imports of primary
and finished products continue to flood the local steel market.
Financial results
Revenue
Revenue increased by 12.6% to R19 151 million mainly due to an 18.9% increase in average net realised steel prices,
from R6 845 per tonne to R8 138 per tonne. This was partly offset by lower sales volumes. In line with expectations,
revenue from the Coke and Chemicals business decreased by 9.4% to R735 million due to scheduled but lengthy repairs to
coke batteries at Vanderbijlpark and Newcastle Works. This resulted in a decrease in the quantity of coke available to
sell and coke had to be imported at higher prices. Commercial coke and tar prices increased by 117.9% and 5.5%
respectively.
Total steel sales volumes decreased by 95 000 tonnes. Local sales declined by 9.2% due to the difficult trading
conditions. This was partially offset by export sales which improved by 15.9%. The pending implementation of
safeguards is expected to improve flat product sales volumes.
Operating expenses
Cash cost per tonne of liquid steel produced increased by 27% to R8 063, raw materials, namely iron ore, coal and
scrap, which accounted for 50% of total costs, increased by 43%. Consumables and auxiliaries, which represented
approximately 27% of costs, increased by 15%, and fixed costs per tonne increased by 13%.
The high international coal and iron ore prices are the main contributor to the increase in raw material costs.
Electricity costs also increased due to annual electricity price increases.
Loss from operations
The loss from operations increased by R714 million to R983 million, primarily due to the higher coal and iron ore
prices. Depreciation decreased due to the substantial impairment of the Vanderbijlpark and Saldanha WorksÆ
cash-generating units in 2016.
Loss for the period
The loss for the period increased by R1 773 million. This was largely attributable to the loss from operations which
increased by R714 million. Financing costs were R284 million higher, mainly due to the higher debt position, facility
cost and exchange rate losses resulting from the volatility of the rand against foreign currencies and discounting rate
adjustment on non-current provisions.
An impairment of R600 million was recognised against property, plant and equipment for the long products unit. This
was primarily as a result of the strengthening of the rand against the US dollar and loss of volumes due to higher coal
prices compared to scrap-based local competitors.
Income from equity-accounted investments decreased by R122 million as a result of reduced profits from joint ventures
primarily due to poor economic conditions.
Cash position
The cash position deteriorated from a net cash position of R1 010 million to net borrowing position of R2 577 million,
mainly due to lower operating results, higher financing costs and capex spending on the refurbishment of the coke
batteries.
Operational
The companyÆs capacity utilisation was 79% compared to 83% the previous year. Liquid steel production for the year was
2.4 million tonnes, a decrease of 146 000 tonnes (5.8%). Production at our long products business was cut back due to
the increase in coking coal prices and decrease in scrap prices, making our long products more expensive due to the use
of coking coal in the manufacturing process. The long products business was negatively impacted even further by the
deteriorating market conditions and higher raw material prices. The restart of the Highveld Steel heavy structural mill
contributed 22 000 production tonnes and 6 000 more sales tonnes of heavy sections and rails in Q2.
Flat productsÆ liquid steel production decreased by 83 000 tonnes and plant utilisation decreased to 79% compared to
83% in 2016. This was due to a rupture of the stove at blast furnace C at Vanderbijlpark Works in Q4 2016, and the blast
furnace D incident which resulted in a decrease in production of 80 000 tonnes.
The company initiated several initiatives to improve operational efficiencies, increase volumes and/or reduce costs.
These initiatives include:
- The N2 battery refurbishment at Newcastle Works will be completed in Q3 2017. It is expected that the refurbishment
will improve the sustainability of the coke batteries and that the batteriesÆ coke-making capability (traditionally
a significant EBITDA contributor) will be restored to 381 000 tonnes per year;
- The boiler project completed at Vanderbijlpark Works in June 2017 will enable optimal use of the power station in
generating approximately 10MW additional power per annum - a R60 million annual benefit;
- Further restructuring, cost-cutting and efficiency measures have been implemented and additional measures will be
considered in the next quarter; and
- The company intends to aggressively pursue the Africa Overland (AOL) market.
Sustainability
A number of steps were taken, all of them likely to have an impact on the companyÆs sustainability and licence to
operate. These included:
- Safeguard duties on hot rolled products have been approved by government and we await implementation;
- Air emissions are currently a key focus area and significant challenges regarding sinter emissions at Vanderbijlpark
and blast furnace emissions at Newcastle Works are being addressed. Our newly installed water treatment facilities at
Newcastle Works are performing as per our expectations;
- ArcelorMittal South Africa is a level 3 B-BBEE contributor compared to level 4 in 2016;
- Fair pricing model for flat steel products has been approved by government and continues to be monitored; and
- The company has restructured its balance sheet by replacing overnight facilities with a three-year borrowing base
facility of R4 500 million. Eligible inventories and receivables are provided as security for the borrowing base
facility to the extent of the draw down.
Changes to the board of directors
Mr LP Mondi resigned as non-executive director with effect from 24 May 2017.
Ms KM Musonda appointed as independent non-executive director with effect from 12 June 2017.
Dividends
No dividends declared for the six months ended 30 June 2017.
Outlook for H2 2017
Volatility in the rand/US dollar exchange rate will continue to have a material impact on our financial results.
ArcelorMittal South Africa has implemented various initiatives to return the group to profitability and to generate
positive cash flows. As already indicated, the company will also be looking to implement a number of interventions
to address the challenges that it faces.
In the second half of the year, domestic steel demand is expected to remain subdued due to low economic growth and
lack of infrastructure spend. The flat steel business will benefit from the implementation of safeguard duties in the
second half of the year. The long products business could improve depending on coal and scrap prices and as the full
benefit of the heavy sections and rail volumes is realised. Export markets are likely to be more resilient; however,
projections are that Africa will experience a growth in demand in the order of 2.3%.
On behalf of the board of directors
WA de Klerk D Subramanian
Chief executive officer Chief financial officer
25 July 2017
Key statistics
Six months ended
30 June 2017 30 June 2016
Unreviewed information
Operational
Liquid steel production 2 374 2 520
Total steel sales (000 tonnes) 2 147 2 242
Local steel sales (000 tonnes) 1 629 1 795
Export steel sales (000 tonnes) 518 447
Capacity utilisation (%) 79 83
Commercial coke sales (000 tonnes) 92 238
Average net realised price (R/t) 8 138 6 845
Safety
Lost time injury frequency rate 0.62 0.90
Reviewed information
Financial
Revenue (R million) 19 151 17 006
Loss from operations (R million) (983) (269)
Net loss (R million) (2 223) (450)
Loss per share (cents) (203) (44)
Headline loss (R million) (1 619) (458)
Headline loss per share (cents) (148) (45)
Net cash/(borrowings) (R million) (2 577) 1 010
Ratios
Return on ordinary shareholdersÆ equity per annum:
- Attributable earnings (%) (36.1) (5.8)
- Headline earnings (%) (26.3) (5.9)
- Net cash (%) (23.2) 5.8
Share statistics
Ordinary shares (thousands):
- in issue 1 138 060 1 138 060
- outstanding 1 093 510 1 093 510
- weighted average number of shares 1 093 510 1 025 040
- diluted weighted average number of shares 1 093 510 1 025 040
Share price (closing) (Rand) 5.30 8.39
Market capitalisation (R million) 5 796 9 175
Net asset value per share (Rand) 10.15 15.30
Reconciliation of earnings before interest, taxation, depreciation and amortisation (EBITDA)
Six months ended
30 June 2017 30 June 2016
In millions of rand Reviewed Reviewed
Loss from operations (983) (269)
Adjusted for:
- Depreciation 437 518
- Amortisation of intangible assets 12 12
- Thabazimbi mine closure costs - (75)
- Competition Commission settlement - 114
- Unclaimed dividends - (37)
- Derecognised payment in advance - 19
EBITDA (534) 282
Independent auditorÆs review report on interim financial statements
TO THE SHAREHOLDERS OF ARCELORMITTAL SOUTH AFRICA LIMITED
We have reviewed the condensed consolidated financial statements of ArcelorMittal South Africa Limited, contained in
the accompanying interim report, which comprise the condensed consolidated statement of financial position as at
30 June 2017 and the condensed consolidated statement of comprehensive income, changes in equity and cash flows for
the six months then ended, and selected explanatory notes.
DirectorsÆ responsibility for the interim financial statements
The directors are responsible for the preparation and presentation of these interim financial statements in accordance
with International Financial Reporting Standard (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting
Guides, as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting
Standards Council and the requirements of the Companies Act of South Africa, and for such internal control as the
directors determine is necessary to enable the preparation of interim financial statements that are free from material
misstatement, whether due to fraud or error.
AuditorÆs responsibility
Our responsibility is to express a conclusion on these interim financial statements. We conducted our review in
accordance with International Standard on Review Engagements (ISRE) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity. ISRE 2410 requires us to conclude whether anything has come to our
attention that causes us to believe that the interim financial statements are not prepared in all material respects in
accordance with the applicable financial reporting framework. This standard also requires us to comply with relevant
ethical requirements.
A review of interim financial statements in accordance with ISRE 2410 is a limited assurance engagement. We perform
procedures, primarily consisting of making inquiries of management and others within the entity, as appropriate, and
applying analytical procedures, and evaluate the evidence obtained. The procedures performed in a review are substantially
less than and differ in nature from those performed in an audit conducted in accordance with International Standards on
Auditing. Accordingly, we do not express an audit opinion on these financial statements.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed
consolidated financial statements of ArcelorMittal South Africa Limited for the six months ended 30 June 2017 are not
prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting, the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting
Standards Council and the requirements of the Companies Act of South Africa.
Emphasis of matter
We draw attention to note 10 of the condensed consolidated financial statements which sets out directorsÆ plans and
initiatives which, should they not materialise, indicates the existence of a material uncertainty which may cast
significant doubt on the group and companyÆs ability to continue as a going concern. Our conclusion is not qualified
in respect of this matter.
Deloitte & Touche
Registered Auditor
Per: M Mantyi
Partner
27 July 2017
Buildings 1 & 2
Deloitte Place
The Woodlands
Woodlands Drive
Woodmead Sandton
2052
Condensed consolidated statement of comprehensive income
Six months ended
30 June 2017 30 June 2016
In millions of rand Note Reviewed Reviewed
Revenue 19 151 17 006
Raw materials and consumables used (13 322) (9 519)
Employee costs (2 080) (1 993)
Energy (2 052) (1 965)
Movement in inventories of finished goods and work
in progress 1 012 (405)
Depreciation (437) (518)
Amortisation of intangible assets (12) (12)
Other operating expenses (3 243) (2 863)
Loss from operations (983) (269)
Impairment of property, plant and equipment 9 (600) -
Impairment of other assets (4) (6)
Finance and investment income 24 86
Finance costs (646) (362)
(Loss)/income from equity-accounted investments
(net of tax) (14) 108
Loss before tax (2 223) (443)
Income tax (expense) 7 - (7)
Loss for the period (2 223) (450)
Other comprehensive income/(loss)
Items that may be reclassified subsequently to
profit or loss:
Exchange differences on translation of
foreign operations (194) (209)
Gains on available-for-sale investment taken to equity (18) 43
Share of other comprehensive income of equity-accounted
investments (26) 39
Total comprehensive loss for the period (2 461) (577)
Loss attributable to:
Owners of the company (2 223) (450)
Total comprehensive loss attributable to:
Owners of the company (2 461) (577)
Attributable loss per share (cents)
- basic (203) (44)
- diluted (203) (44)
Condensed consolidated statement of financial position
As at
30 June 2017 30 June 2016
In millions of rand Notes Reviewed Reviewed
Assets
Non-current assets 15 192 17 567
Property, plant and equipment 9 10 196 12 046
Intangible assets 91 115
Equity-accounted investments 4 447 5 037
Non-current receivable 40 -
Other financial assets 418 369
Current assets 18 837 15 426
Inventories 11 694 9 436
Trade and other receivables 3 342 3 133
Taxation 65 74
Other financial assets 13 24
Cash and bank balances 8 3 723 2 759
Total assets 34 029 32 993
Equity and Liabilities
ShareholdersÆ equity 11 098 17 416
Stated capital 4 537 4 537
Non-distributable reserves 345 177
Retained income 6 216 12 702
Non-current liabilities 6 167 3 463
Borrowings 2 700 -
Other payables 317 336
Finance lease obligations 88 159
Deferred income tax liability - 4
Non-current provisions 1 970 2 964
Other financial liabilities 1 092 -
Current liabilities 16 764 12 114
Trade payables 11 382 9 134
Borrowings 3 600 1 749
Finance lease obligations 70 66
Current provisions 269 249
Other payables 1 025 835
Other financial liabilities 418 81
Total equity and liabilities 34 029 32 993
Condensed consolidated statement of cash flows
Six months ended
30 June 2017 30 June 2016
In millions of rand Reviewed Reviewed
Cash (outflow)/inflow from operating activities (1 596) 191
Cash (utilised in)/generated from operations (1 117) 592
Interest income 20 33
Finance cost (373) (226)
Income tax paid (7) (2)
Realised foreign exchange movement (119) (206)
Cash outflows from investing activities (599) (771)
Investment to maintain operations (474) (754)
Investment to expand operations (127) (42)
Investment in associates and joint ventures (4) 1
Proceeds on disposal or scrapping of assets 6 21
Interest income from investments - 3
Cash inflows from financing activities 4 254 1 189
Borrowings raised 6 300 -
Borrowings (repaid) (2 011) (3 280)
Finance lease obligation repaid (35) (31)
Proceeds from rights issue/issue of share capital - 4 500
Increase in cash and cash equivalents 2 059 609
Effect of foreign exchange rate changes on cash and
cash equivalents 4 (14)
Cash and cash equivalents at the beginning of the year 1 660 2 164
Cash and cash equivalents at the end of the year 3 723 2 759
Condensed consolidated statement of changes in equity
Stated Treasury share Other Retained
In millions of rand capital equity reserve reserves earnings Total
Six months ended 30 June 2016 (Reviewed)
Balance as at 31 December 2015 37 (3 918) 4 093 13 260 13 472
Total comprehensive loss - - (127) (450) (577)
Rights issue 4 500 - - - 4 500
Share-based payment reserve - - 21 - 21
Transfer of equity-accounted earnings - - 108 (108) -
Balance as at 30 June 2016 (Reviewed) 4 537 (3 918) 4 095 12 702 17 416
Six months ended 31 December 2016
Balance as at 30 June 2016 4 537 (3 918) 4 095 12 702 17 416
Total comprehensive loss - - (427) (4 256) (4 683)
Cash settlement on management share trust - - (32) - (32)
Share-based payment expense - - 42 - 42
B-BBEE charge - - 800 - 800
Transfer of equity-accounted earnings - - 21 (21) -
Balance as at 31 December 2016 (Audited) 4 537 (3 918) 4 499 8 425 13 543
Six months ended 30 June 2017 (Reviewed)
Balance as at 31 December 2016 4 537 (3 918) 4 499 8 425 13 543
Total comprehensive loss - - (238) (2 223) (2 461)
Share-based payment expense - - 16 - 16
Transfer of equity-accounted earnings - - (14) 14 -
Balance as at 30 June 2017 (Reviewed) 4 537 ( 3 918) 4 263 6 216 11 098
Notes to the condensed consolidated financial statements
1. Corporate information
ArcelorMittal South Africa Limited is a public company domiciled in the Republic of South Africa and listed on
the JSE Limited. These condensed consolidated financial statements for the six months ended 30 June 2017 comprise
the company and its subsidiaries (together referred to as the group). The group is one of the largest steel
producers on the African continent.
2. Basis of preparation
The condensed consolidated financial statements were prepared in accordance with the requirements of the
JSE Limited Listings Requirements for interim reports as well as the requirements of the Companies Act of South Africa.
The condensed consolidated financial statements have been prepared in accordance with the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting
Standards Council. It also contains, at a minimum, the information required by IAS 34 Interim Financial Reporting.
The accounting policies applied in the preparation of the condensed consolidated financial statements are in terms
of IFRS and are consistent with those applied in the previous consolidated annual financial statements.
The condensed consolidated financial statements were prepared under the supervision of Mr D Subramanian CA(SA),
the chief financial officer.
3. Accounting policies
There were no new or revised accounting standards adopted that could have a material impact on the condensed
consolidated financial statements.
4. Segment report
Flat Steel Products
Six months ended
30 June 2017 30 June 2016
Reviewed Reviewed
Revenue (R million) 13 422 11 127
- External 13 321 10 797
- Internal 101 330
Ebitda (R million) (unreviewed) (69) (118)
EBITDA margin (%) (unreviewed) (0.5) (1.1)
Average net realised price (R/t) (unreviewed) 8 413 6 889
Depreciation and amortisation (R million) (253) (339)
Loss from operations (R million) (322) (406)
Unreviewed information
Liquid steel production (000 tonnes) 1 649 1 732
Steel sales (000 tonnes) 1 506 1 489
- Local 1 167 1 146
- Export 339 343
Capacity utilisation (%) 79 83
Long Steel Products
Six months ended
30 June 2017 30 June 2016
Reviewed Reviewed
Revenue (R million) 5 420 5 593
- External 5 130 5 425
- Internal 290 168
EBITDA (R million) (unreviewed) (706) 152
EBITDA margin (%) (unreviewed) (13.0) 2.7
Average net realised price (R/t) (unreviewed) 7 492 6 758
Depreciation and amortisation (R million) (191) (188)
Loss from operations (R million) (897) (12)
Unreviewed information
Liquid steel production (000 tonnes) 725 788
Steel sales (000 tonnes) 641 753
- Local 462 649
- Export 179 104
Capacity utilisation (%) 77 83
Coke and Chemicals
Six months ended
30 June 2017 30 June 2016
Reviewed Reviewed
Revenue (R million) 735 811
- External 700 784
- Internal 35 27
EBITDA (R million) (unreviewed) 191 97
EBITDA margin (%) (unreviewed) 26.0 12.0
Depreciation and amortisation (R million) (18) (16)
Profit from operations (R million) 173 81
Unreviewed information
Commercial coke produced (000 tonnes) 100 157
Commercial coke sales (000 tonnes) 92 238
Tar sales (000 tonnes) 39 37
Corporate and other
Six months ended
30 June 2017 30 June 2016
Reviewed Reviewed
EBITDA (R million) (unreviewed) 50 151
Depreciation and amortisation credit (R million) 13 13
Profit from operations (R million) 63 68
5. Related party transactions
The group is controlled by ArcelorMittal Holdings AG, which effectively owns 69% (June 2016: 69%) of the
groupÆs shares. At 30 June 2017, the outstanding ArcelorMittal Holdings AG subordinated loan amounted to
R2 700 million (2016: Rnil). Interest is payable at the prime lending rate (2016: three months Jibar
plus 2.125%) and an amount of R139 million (2016: R37 million) was incurred for the six months ended
30 June 2017.
During the year, the company and its subsidiaries entered into sale and purchase transactions with joint
ventures in the ordinary course of business at an armÆs length.
6. Fair value measurements
Certain of the groupÆs financial assets and financial liabilities are measured at fair value at the end
of each reporting period. The following table gives information about how the fair values of these financial
assets and financial liabilities are determined, particularly the valuation techniques and inputs used.
Financial assets Fair values as at period ended
In millions of rand 30 June 2017 30 June 2016 Fair value
Reviewed Reviewed hierarchy Valuation techniques and key inputs
Available-for-sale 61 120 Level 1 Quoted prices in an active market
Held-for-trading assets - 24 Level 1 Quoted prices in an active market
Held-for-trading liabilities 105 81 Level 1 Quoted prices is an active market
Level 1: Fair value measurements are those derived from unadjusted quoted prices in active markets for
identical assets or liabilities.
7. Taxation
The effective tax rate of 0% (compared to the statutory tax rate of 28%) for the six months ended 30 June 2017
is primarily as a result of not recognising the deferred tax asset on the available income tax losses.
Management believes that the turnaround initiatives will result in the group returning to profitability at
some point in the future. However, based on considerations presented, management believes it is premature
to conclude at this stage that it is more likely than not for sufficient future taxable profits to be available
against which the full proposed deferred tax asset can be utilised.
8. Restricted cash and securities
At 30 June 2017, ArcelorMittal South Africa has restricted cash of R1 583 million (30 June 2016: Rnil). This
consists of R998 million regarding the True Sales Receivables (TSR) facility and R585 million for the
environmental rehabilitation obligations.
Eligible inventories and receivables are provided as securities for the borrowing base facility to the extent
of the draw down. At 30 June, 2017 R3 350 million was drawn down on the borrowing base facility and
R1 150 million was still available.
Bank accounts of R1 021 million were ceded in favour of the borrowing base and TSR facilities.
9. Property, plant and equipment
An impairment indicator assessment was performed on all cash-generating units of the group. Following this
assessment, an impairment test was performed on the long steel unit.
In accordance with IAS 36 Impairment of Assets, an asset is impaired if the carrying amount of the asset is
greater than the recoverable amount of the asset.
The result of the impairment test was that the long steel unit was impaired by R600 million (30 June 2016: Rnil)
and was recognised against property, plant and equipment. This was primarily as a result of the strengthening
of the rand against the US dollar and loss of volumes due to higher coal prices compared to competitors who
do not use coal in their production process.
Basis of the impairment model
The recoverable amount of the unit was determined using a discounted cash flow model and an explicit forecast
period for five years. These cash flows are US dollar based. Cash flows has not taken the proposed carbon tax
into account when determining the recoverable amount. To determine the terminal value, the Gordon growth model
was used, year five was taken into perpetuity. The outcome of the impairment test was that the long products
cash-generating unit was impaired by 9%.
The other major assumptions in arriving at present value of future cash flows are as follows:
Long products
30 June 2017
Major assumptions Reviewed
WACC (%) (US$ denominated) 12.86
Growth rate (%)(US$ denominated) 2.0
Exchange rate (R/US$) 13.06 - 14.74
Iron ore prices (US$/ton) 41 - 47
Steel sales prices (US$/ton) 533 - 593
Sales volumes (tonnes) 1 322 - 1 649
Capex (US$) (over five years) 186
10. Going concern
The group would like to re-emphasise that, despite the positive progress on safeguards on flat products,
import duties and the designation of local steel for government infrastructure projects, the local steel
industry continue to be threatened by imports entering the market, primarily from China. Higher steel
prices did not fully compensate for higher raw material costs, namely coal and iron ore, resulting in lower
margins. Poor market conditions, operational incidents, impairments and the strengthening of the rand against
the US dollar also negatively impacted the groupÆs results.
ArcelorMittal South Africa has implemented various initiatives to return the group to profitability and to
generate positive cash flows. In order to address the current challenges, the group is in the process of
exploring several additional initiatives, including additional cost-saving interventions, assessing the
profitability of various product lines and the implementation of structural changes (restructuring) in the
next six months. Further information will be provided as soon as the necessary investigations and decisions
have been finalised.
Through the realisation of these initiatives, the board believes that the group will have sufficient funds to
pay its debts as they become due over the next 12 months, and will therefore remain a going concern. The
reasonableness of the initiatives and the likelihood of the initiatives being achieved have and will continue
to be assessed as final decisions are made in this regard. However, should these initiatives not materialise,
it could result in material uncertainty regarding the ability of the group to continue as a going concern.
Processes will be established to ensure the effective and frequent monitoring of the implementation of the
necessary initiatives so that appropriate and timeous action can be taken should the implementation not
materialise.
11. Headline losses
Six months ended
30 June 2017 30 June 2016
In millions of rand Reviewed Reviewed
Loss for the period (2 223) (450)
Adjusted for:
- Impairment charge 604 6
- (Profit) on disposal or scrapping of assets - (17)
- Tax effect - 3
Headline loss for the period ( 1 619) (458)
Headline loss per share (cents)
- basic (148) (45)
- diluted (148) (45)
12. Commitments
Commitments 4 076 1 162
13. Subsequent events
The directors are not aware of any matter or circumstances arising since the end of June 2017 to the date of
this report that would significantly affect the operations, the results or financial position of the group.
Other information
Registered office
ArcelorMittal South Africa Limited, Room N3-5, Main Building, Delfos Boulevard, Vanderbijlpark, 1911
Directors
Non-executive:
PM Makwana* (chairman), H Blaffart¦, L Cele*, D Clarke#, NP Gosa, RK Kothari+, NP Mnxasana*, JRD Modise*,
KM Musonda*^, N Nicolau*
#Citizen of Australia ¦Citizen of Belgium ^ Citizen of Zambia +Citizen of India *Independent non-executive
Executive:
WA de Klerk (chief executive officer)
D Subramanian (chief financial officer)
Company secretary
Nomonde Bam
Sponsor
Absa Bank Limited (acting through its Corporate and Investment Banking division)
15 Alice Lane, Sandton, 2196
Private Bag x10056, Sandton, 2146
Transfer secretaries
Computershare Investor Services (Pty) Ltd
Rosebank Towers, 15 Biermann Avenue
Rosebank, 2196, South Africa
PO Box 61051, Marshalltown, 2107
Release date
27 July 2017
Forward looking statement
Statements in this announcement that are neither reported financial results nor other historical information, are
forward looking statements, including but not limited to statements that are predictions of or indicate future
earnings, savings, synergies, events, trends, plans or objectives. Undue reliance should not be placed on such
statements because, by their nature, they are subject to risks and uncertainties whose impact could cause actual
results and company plans and objectives to differ materially from those expressed or implied in the forward looking
statements (or from past results). Any reference to future financial performance included in this announcement has
not been reviewed or reported on by the groupÆs auditors.
This report is available on ArcelorMittal South AfricaÆs website at: www.arcelormittal.com/southafrica/
Share queries: Please call the ArcelorMittal South Africa share care toll free line on 0800 006 960 or +27 11 370 7850.
Disclaimer
This document may contain forward looking information and statements about ArcelorMittal South Africa and its
subsidiaries. These statements include financial projections and estimates and their underlying assumptions, statements
regarding plans, objectives and expectations with respect to future operations, products and services, and statements
regarding future performance.
Forward looking statements may be identified by the words ôbelieveö, ôexpectö, ôanticipateö, ôtargetö or similar
expressions. Although ArcelorMittal South AfricaÆs management believes that the expectations reflected in such forward
looking statements are reasonable, investors and holders of ArcelorMittal South AfricaÆs securities are cautioned that
forward looking information and statements are subject to numerous risks and uncertainties, many of which are difficult
to predict and generally beyond the control of ArcelorMittal South Africa, 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.
ArcelorMittal South Africa undertakes no obligation to publicly update its forward looking statements, whether as a
result of new information, future events, or otherwise.
Date: 27/07/2017 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
ArcelorMittal South Africa Limited published this content on 27 July 2017 and is solely responsible for the information contained herein.
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