Transcript Document

annual results
for the 12 months ended december 2004
(formerly Iscor Limited)
A member of Mittal Steel Company
Davinder Chugh
chief executive officer
Overview
 Record earnings of R4 541m (1 019c per share)
- International steel prices attain all time high levels
- Strong domestic demand growth
- Cost escalations successfully contained
 New business strategy gains momentum
 Member of the most global & largest steel group in the world
Created substantial shareholder value
3
Key Result Drivers
 Increase in HRC US$ price
50%
 Growth in domestic sales volume
22%
 Increase in HRC cash cost per tonne (Rand)
3%
 Strengthening of Rand (average exchange rate)
17%
 Operating margin*
32%
* Excluding BAA remuneration (1H’04)
Captured benefits of market while containing costs
4
Invoiced Export Prices
Ispat Iscor invoiced prices (c&f) US$/t
700
Hot rolled coil
Low carbon wire rod
600
500
400
300
200
100
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Source: Ispat Iscor
Paradigm shift in steel price cycle
5
2004
Global Market
Tonnes x 1 000 000
1 170
1 120
Supply
Demand
1 070
1 020
970
920
870
820
2000
2001
Source: World Steel Dynamics/CRU
Stable 2005 expected
2002
2003
2004
2005
2006
Note: Apparent Steel Demand and Supply
6
2007
Global Market Trends
 Global steel demand may continue to outstrip supply in 2005
 Chinese economy growing at slower rate
 World economic growth is expected to continue
 Consolidation amongst steel companies globally gains momentum
 Steelmakers’ input costs will remain high
2005 average prices expected to remain firm
7
Geographic Sales
South Africa
Rest of Africa
Total Africa
Far East
European Union
North America
2003
2004
Middle East
%
0%
Market optimisation
10%
20%
30%
40%
50%
60%
70%
8
80%
Domestic Market
Imports %
’000t
1 700
14%
Quarterly consumption
Steel imports
Consumption trend
1 500
12%
Consumption
8%
1 100
6%
900
4%
700
2%
500
1980
0%
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
Source: SAISI
Domestic sales up 22% in 2004
9
2004
Imports
10%
1 300
Global Input Cost
Based to 100
140
Coking coal – Contract
Iron ore fines – Contract
130
120
110
100
90
80
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Source: Coal Rush report/Tex report
Bulk commodity costs drive high steel prices
10
Global Input Cost
Based to 100
700
600
Freight rates
Coke
Scrap
500
400
300
200
100
0
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Source: Baltic Exchange/Tex report/Metal Bulletin
Other process inputs also maintaining high levels
11
Global Input Cost Trends
 Iron ore expected to increase substantially in 2005
 05/06 Metallurgical coking coal contracts settled at approx +125%
 Freight rates more stable, but at high levels
 Coke stabilising around $250/t after peaking at > $400/t in 2004
 Scrap prices expected to remain firm in 2005
 Supply chain bottle-necks addressed through various expansion
projects internationally
Source: World Steel Dynamics
High input costs likely to support firm steel prices
12
Input Cost Positioning
Domestic
supply
agreement Imported
s
Tonnes
’000
Backward
integrated
Iron ore
- DRI
9 470
1 401
91%
99%
4%
1%
5%
-
Scrap
1 818
78%
22%
-
Coke
2 184
96%
3%
1%
2 673
15%
22%
63%
1 754
-
100%
-
- Coking Coal
Other Coal
Actual 2004 data
Cost benefit from integration on most inputs
13
Key Performance Indicators
2003
316
1 053
+233
2.3
8.0
+248
12 539
4.1
1 474
1 696
11 416
3.7
2 019
1 756
-9
-10
+37
+3
226
275
+22
1 509
1 613
+7
201
253
+26
- flat
41
57
+39
- long
61
74
+21
CI savings (Rm)
- percentage
Number of full-time employees
Man hours per ton steel
Revenue per head (R000)
HRC cash cost - R/t
- US$/t
Billet cash cost - R/t
- US$/t
Percentage value-add exports
2004
%
change
Continuous productivity improvement
14
Liquid Steel Production
’000t
7 500
7 085
7 033
2003
2004
6 000
4 500
3 681
3 628
3 000
1 500
1 251
1 227
2003
2004
2 153
2 178
2003
2004
0
2003
2004
Vanderbijlpark
Saldanha
Long products
Production affected by Conarc burn-through & planned shutdowns
Total
15
Liquid Steel Production Loss
Liquid steel
(‘000t)
 Planned production stoppages
- Blast Furnace C throat armour repair at Vanderbijlpark
- Blast Furnace D interim repair at Vanderbijlpark
64
207
 Unplanned production stoppages
- Conarc burn-through at Saldanha
67
 Production recovered & other efficiency improvements
 Production not recovered
286
52
16
Sales Volumes
’000t
7 000
Export
Domestic
6 259
6 201
3 086
2 323
3 173
3 878
2003
2004
6 000
5 000
4 000
3 173
3 166
1 310
943
3 000
2 000
1 000
1 863
2003
1 187
1 141
833
637
2 224
2004
Vanderbijlpark
Strong domestic sales growth
354
503
2003
2004
Saldanha
1 899
1 894
943
743
956
1 151
2003
2004
Long products
Total
17
Environmental
 Iscor Coke & Chemical (ICC) achieved ISO 14001 in 2004
 Now all operations ISO 14001 certified
 Major environmental projects in progress:
- Vanderbijlpark
Cost
Rm
Planned
Completion
-
Cleaning of coke ovens gas
Zero effluent discharge (main treatment plant)
New sinter plant off-gas system
306
222
210
1H/06
2H/05
2H/07
-
Coke oven repair project
Reverse osmosis plant
231
50
completed
1H/06
- Newcastle
 Total planned environmental spend of R964m
Environmental improvement gains momentum
18
Other Major Projects
Cost
Rm
Planned
completion
- Pulverised coal injection (on schedule)
211
1H/05
 Vanderbijlpark
- BOF control systems
- Blast Furnace C – throat armour repair
- Blast Furnace D – interim repair
- Sinter plant repair and upgrade (Phase 1-3)
- New DRI kilns
- Blast Furnace D –stoves (2 months behind)
112
23
139
42
432
318
completed
completed
completed
completed
1H/06
2H/06
30
completed
455
2H/06
 Newcastle
 Saldanha
- Third roll grinder
 Iscor Coke & Chemicals
- Market coke expansion
* Still to be approved
Significant drive for efficiency improvements
19
Vaidya Sethuraman
executive director finance
Headline Earnings
Rm
2003
Revenue
Comparable operating profit
Financing cost - net interest expense
- long-term provision top-up
Tax
Equity earnings*
Minority interest
Comparable earnings
- in US$m
BAA remuneration*
Restructuring costs*
Power contract settlement*
Headline earnings
* After tax
2004
+25
+119
18 487
3 375
(47)
(81)
(1 100)
115
(2)
2 260
301
(429)
(116)
(110)
23 053
7 399
36
(170) #
(2 465)
258
(6)
5 052
793
(511)
+124
+163
+19
1 605
4 541
+183
# Lower discount rate accounts for R100m
Record earnings
%
change
21
-110
-124
+124
Comparable Headline Earnings Trend
Rm
1 800
1 575
1 600
1 415
1 393
1 400
1 200
1 000
800
657
596
655
669
4Q/03
1Q/04
600
352
400
200
0
1Q/03
2Q/03
3Q/03
Quantum jump in quarterly earnings
2Q/04
3Q/04
22
4Q/04
Operating Profit
%
change
Rm
2003
2004
Vanderbijlpark
Saldanha Steel
Long products
Coke & Chemicals
Other
Corporate
Comparable operating profit
BAA remuneration
Restructuring costs
Power contract settlement
Operating profit
2 179
379
777
172
10
(142)
3 375
(613)
(166)
(157)
2 439
4 129
1 147
1 769
462
42
(150)
7 399
(731)
+89
+203
+128
+169
+320
-6
+119
+19
6 668
+173
Steel prices & cost containment boost profits
23
Cash Flow
Rm
2003
2004
Cash profit from operations
4 245
8 563
Working capital
(219)
(1 410)
BAA remuneration
(613)
(731)
3 413
6 422
84
14
(1 278)
(1 254)
(43)
36
(1 135)
(886)
(892)
(339)
149
3 993
Cash from operations
Asset sales
Capex
Finance cost
Tax
Dividends
Net cash flow
Strong cash flow
24
Working Capital
Rm
2003
2004
Inventories
36
(288)
Debtors
57
(1 128)
Creditors
(312)
6
Total
(219)
(1 410)
Higher working capital driven by local volume & prices
25
Financial Ratios
2003
2004
Operating margin (%)
- on comparative basis (%) *
13
18
29
32
EBITDA margin (%)
- on comparative basis (%) *
18
23
33
36
Revenue/invested capital (times)
1.3
1.5
Return on equity (%)
- on comparative basis (%) *
13
18
31
35
Net cash/equity (%)
0.2
24.8
* Adjusted for once-off items
Continuous improvement in performance
26
Share Performance
% Movement
140
120
Iscor
All shares
Top 40
100
80
60
40
20
0
-20
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Source: Standard Bank
Outperforming the market
27
Nov
Dec
BAA Update
Rm
 Annualised cost saving for 2H/04
926
- Payments to Mittal Steel
NIL
 Cumulative realised saving 2002 to 2004
1 985
- Payments to Mittal Steel
1 344
 Management will review & recommend to the Board, a new
contract to replace expired one, which will be subject to approval
of shareholders, other than Mittal Steel
Sterling contribution to our cost reduction programme
28
Dividend
 Dividend policy
- Considering the cash position, future capital expenditure & working
capital requirements
- Distributing one third of headline earnings before once-off charges
 Dividend declared
- Interim dividend of 300 cents per share – 17 December 2004
- Final dividend of 100 cents per share – 8 February 2005
- Total dividend of 400 cents covered 3 times by adjusted EPS of 1 133
cents
29
Davinder Chugh
chief executive officer
Strategic Goals
 Industry leading value-creation for our shareholders
- Positive EVA over the cycle
 Improve operating capabilities
- Value-creating throughput increases of 2 Mtpa
- 20% reduction in HRC/billet cash cost by 2007
 Build a high performance culture
- Create an environment that generates true employee pride & attracts,
develops & retains top-performing people
 Be a responsible corporate citizen
Be among the most admired SA companies
31
Throughput Strategy
 Increase production by ~1Mtpa by end 2007 with modest capex
- 325 ktpa – 2 new DRI kilns at Vanderbijlpark by 1H/06 (R432m)
- 660 ktpa – efficiency improvements by 2H/06
 Utilise opportunities to increase throughput by further ~1Mtpa with
capital expenditure
- Expand sinter capacity at Vanderbijlpark by 2H/06 (R460m)
- 445 ktpa – Blast furnace D reline at Vanderbijlpark by 2H/06
- Additional DRI kilns at Vanderbijlpark (R600m)
- 355 ktpa – Blast furnace C reline at Vanderbijlpark by 2009
 Rationalisation of other facilities to follow
32
Operating Cost – HRC
HRC operating cost US$/t FOB – Q1/04
500
450
400
Vanderbijlpark
US$/t 256
350
300
Saldanha
US$/t 247
250
200
150
100
50
0
International HRC producers
Source: Metal Bulletin Research
33
Operating Cost – Billet
Billet operating cost US$/t FOB – Q1/04
500
450
400
350
Newcastle
US$/t 228
300
250
200
150
100
50
0
International billet producers
Source: Metal Bulletin Research
34
Cost Reduction Strategy
 To maintain our position in the lowest cost quartile
 Initiatives aimed at 43–58 US$/t HRC/billet cash cost reduction by
2007
- 23 – 31 US$/t from operating efficiency improvements
- 13 – 20 US$/t from raw materials & procurement initiatives
- 4 US$/t from increased labour productivity
- 3 US$/t from Newcastle PCI project
35
DTI & Developmental Pricing
 Progress
- All price comparison data supplied
- Cost benchmarking data analysed. Discussion with the DTI
 Developmental pricing principles
- Price rebate structure in place to support downstream industry (R450mpa)
-
Value added steel manufactured product exports
Value added steel manufactured product import replacement
- Domestic price parity to be inline with domestic prices elsewhere in world to
ensure local competitiveness on an equal base with manufacturers globally
- Base prices for all steel commodities to reflect market trends, while all other
extras in the price composition to be cost & market driven
36
Mittal Steel
 December 2004: LNM Holdings and Ispat International merge to
form “Mittal Steel Company NV”
- Listed on NYSE & Euronext Amsterdam
 Merger creates the world’s most global steel company
- 14 operations on four continents, 45 nationalities, 165 000 employees
 Forthcoming acquisition of US-based International Steel Group will
create world’s largest steel company
- 64 Mtpa capacity
“Shaping the future of steel”
37
Mittal Steel
 Renamed company has developed a new corporate identity
- Create a globally admired brand
- Single, universal identity for the group
 All subsidiary companies will be rebranded & renamed
‘Mittal Steel’, but differentiated by location
The new name for steel
38
Name Change
 Ispat Iscor to be renamed ‘Mittal Steel South Africa Limited’
subject to regulatory and shareholder approval
 Commence trade under new name before end March 2005
- New ISIN: ZAE000064044
- New JSE share code: MLA
Member of the world’s most global & largest steel company
39
Outlook for Q1 2005
 Business environment to remain optimistic
- Strong steel demand in local market to continue
- Local prices to be slightly lower due to price adjustment announced
- Strong Rand to affect export earnings
- Volumes in line with previous quarter
 Earnings
- To remain strong, in line with Q4/04, though impacted slightly by lower
domestic prices
Stable outlook
40
Facts in Summary
 Planned environmental spend of R964m
 All operations ISO 14001 certified
 Culture of cost control well entrenched in organisation
 Direct rebates of R450m for promoting secondary exports &
import substitutions
 Contribution of R45m to SAISI to promote exports
 R15m towards recycling through Collect-a-Can
 R4.5bn contribution to state treasury
 US$1.2bn gross export revenue
 ABE procurement of R1bn
41
annual results
for the 12 months ended december 2004
(formerly Iscor Limited)
A member of Mittal Steel Company