ArcelorMittal profit surges to R1.22bn

ARCELORMITTAL’S shares yesterday leapt 14.38 percent on the JSE to R3.66 as Africa’s largest steel producer saw its operating profit surge to R1.22 billion during the six months to end June on the back of rising global demand for steel.

ArcelorMittal said it expected the global demand to increase by as much as 3 percent this year from earlier predictions of 2.5 percent. The group recorded an operating loss of R883 million last year.

Chief executive Kobus Verster said that the turnaround came as a result of favourable international steel pricing together with higher steel sales volumes, despite a weakening economy and a stronger average rand/dollar exchange rate.

Verster said the rising demand maintained the momentum from 2017 into the first half of 2018, attributable to broad-based economic expansion.

“The positive market sentiment in most African markets flowed from 2017 into 2018, driven primarily by ongoing investment in infrastructure development in certain regions,” Verster said. “However, South Africa was an exception to this growth story, with first half of 2018 showing weaker demand when compared to the second half of 2017, especially in mining, construction and manufacturing.”

ArcelorMittal said its earnings before interest, tax, depreciation and amortisation also recovered from a loss of R534m last year to R1.59bn during the period, while headline loss improved by R1.67bn to a profit of R54m.

Diluted headline earnings per share rose to 5 cents from a loss of 148c.

Revenue increased by 19.4 percent to R22.87bn, with the group attributing it primarily as a result of an 8.5 percent increase in average net realised steel prices, from R8 138 a ton to R8 827 a ton and higher sales volumes of 10.2 percent, with local sales and exports increasing by 5 percent and 26 percent, respectively. The group did not declare a dividend.

The board also approved the sale of ArcelorMittal South Africa’s 50 percent investment in Macsteel International Holdings BV (MIHBV) for $220m (R2.89bn), which will strengthen the company’s balance sheet.

Strong focus

Jordan Weir, an equity trader at Citadel Investment Services, said ArcelorMittal followed through on its strategic plan with a strong focus on deleveraging their balance sheet by means of enhanced digitalisation of operations and targeting areas that improved.

Weir said internal tweaks and the positive outlook on steel demand mentioned in 2017 also saw the group resizing its European footprint to reap dividends.

“Their intention to sell 50 percent of their investment in MIHBV in the coming year could also assist their balance sheet in reaching a healthier and more liquid position,” he said.