The woes of SA’s primary steel producer, ArcelorMittal SA (Amsa), deepened on Thursday as it posted an interim loss of R448m in the six months to end-June, a reversal of the R3.1bn profit it reported in the previous matching period.
The company’s performance was affected by weak demand, higher input costs, lower international prices, disruptions to Transnet’s rail network and persistent load-shedding.
The steel giant has now turned its attention to reducing its R2.9bn debt. This is almost equivalent to its market capitalisation of R3.1bn with the stock losing 41% in value year to date.
CEO Kobus Verster said that from a net debt perspective, the first order of business will be to operate at lower working capital levels. “That is something that can release cash quite quickly,” he said.
The group has certain excess material and plans to accelerate its use over the long term.
“We will reduce some of the capital expenditure that can be prolonged and that will give us a R300m reprieve, and then we are disposing of some of our noncore properties.”
Amsa flagged its high wage bill of R3.5bn, and said it needs to be dealt with responsibly to achieve debt neutrality.
“We want to be net debt neutral, so we actually don’t want debt at all, especially given the fact that we have very attractive investment opportunities, especially around Newcastle from a cost perspective, so we want to get to the level that we have the flexibility to take those investment decisions much more easily,” said Verster.
Transnet challenges
Amsa, like many companies, has had to deal with rail challenges and copper theft, which Transnet is struggling to control. It is spending more on security as criminals prey on Transnet and Eskom infrastructure.
“We’ve spent about R200m a year on security, it used to be R50m. We have had attacks on our premises from a cable theft perspective on a daily basis.
“Then in addition to that, we spent quite a big amount on drones for Transnet on our routes to support them there with cable theft.
“We have had to put in additional effort for trucks carrying coal from Richards Bay to Gauteng so that they don’t disappear or we lose some of the loads somewhere,” Verster said.
This was all necessary as rampant cable theft and truck burning seemed to have overwhelmed the SA Police Service, with few arrests made.
Moreover, said Verster, Amsa experienced more load curtailment challenges in the past six months than in the whole of 2022 as Eskom struggles to supply enough energy.
Apart from the rising costs of operating, the company is battling to restructure its balance sheet.
“It should be firmly stressed that reducing net borrowings to a more comfortable level in this tough economic environment is a priority for this company,” said acting CFO Gavin Griffiths.
Griffiths assumed the acting role in mid-July after Siphamandla Mthethwa resigned after only 16 days in the position.
Verster was at pains to explain that Mthethwa started in the role a few weeks before the Sens communicated his start date, and that he quit after six weeks for personal reasons.
“I just think the pace and intensity that we apply in Amsa is something a bit different. We will start the process [to find a CFO] soon,” the CEO said. “We are not in an exceptional hurry.”
Global crude steel production was down slightly in the first half of 2023, according to the World Steel Association, reflecting less demand. But international trading benefited from destocking and lower energy prices.
“However, locally the trading environment caught no such tailwinds, as the burden of load-shedding, high inflation, high-interest rates and mixed growth in key steel-consuming sectors such as manufacturing, machinery and equipment, mining and construction, pummelled already fragile consumer confidence,” said Amsa.
Back home, demand for steel is expected to improve as the economy might find some reprieve with consumer inflation returning to within the Reserve Bank’s target band of 3%-6% in June. This should ease pressure on interest rates and improve consumer confidence.
Renewables and infrastructure projects are expected to support steel demand.
Core earnings (ebitda) plunged more than four-fifths to R499m and operating profit, generated from core operations, was effectively wiped out as it fell 97.1% to R94m.
Revenue was down 5.1% to R21bn despite sales volumes improving 3% to 1.2-million tonnes. Realised steel prices declined 8% in rand terms and more than one-fifth in dollars.
No dividend was declared.
Amsa’s share price slipped 0.72% to R2.75 on Thursday, having plunged more than 55% in the past year. With Denene Erasmus
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