Integrated Annual Report 2014
Message from the chairman
Key to this report.

Message from the chairman

mpho_makwana

Our country needs a primary steel producer that is sustainable and strong, one that has a far-reaching multiplier effect on the creation of opportunities and jobs for downstream manufacturers.

Dear Stakeholders

Anyone who is in any doubt about what exactly the International Integrated Reporting Council meant when it referred to how an organisation “. . . interacts with the external environment and the capitals to create value over the short, medium and long term” would be well advised to consider the situation of ArcelorMittal South Africa in 2014.

This report spells out the extent to which our operations and strategy are inextricably integrated with our country’s social, human, environmental and financial capitals. It is, I believe, a measure of our growing maturity in terms of integrated reporting (<IR>), and of our growing confidence in the processes to determine materiality that, this year, we are bold to give practical expression to a guiding principle of <IR>: conciseness.

The fact that this year’s printed report is shorter than those of previous years does not reflect less disclosure. On the contrary, users of our electronic (online) integrated report will experience an even greater depth of disclosure on areas of our business that are of particular interest to them.

LINKFor more on our report, click here.

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A proudly South African business

In 2014 we released our first ArcelorMittal South Africa Factor Report, a detailed, independently compiled analysis of our social, environmental and economic impacts on South African society. Although not written with reference to the newly released <IR>: Framework, the factor report was, in a very real sense, a measure of how embedded our company is in the fabric of South African society and how profoundly symbiotic are the fortunes of ArcelorMittal South Africa, those of our many stakeholders and of the country as a whole.

In this report we integrate information from the factor report that pertains specifically to how our activities support the goals of the National Development Plan (NDP).

If South Africa is to become the kind of prosperous, peaceful society that the NDP envisages us becoming by 2030, our country needs a primary steel producer that is sustainable and strong, one that has a far-reaching multiplier effect on the creation of opportunities and jobs for downstream manufacturers; a primary steel producer that works to underpin the industrialisation goals of the NDP. We are committed to being that primary steel producer, a proudly South African company and a company of which South Africa can be proud.

If, however, we are to be a primary steel producer that is seen to be creating real social, human and financial value, we acknowledge that there is much about ArcelorMittal South Africa that has to change. We acknowledge that we need to engage more openly, more honestly with stakeholders and to always do so in a spirit of partnership.

Transforming our company

We embrace the need to change not only our ways of interacting with communities, civil society and various levels of government but the need to transform ourselves.

This year, the leadership of ArcelorMittal South Africa set this company on an irrevocable process of change; a process that will make our company one that not only subscribes to the principles and spirit of economic and social transformation but that actively embraces and even leads the realisation of these ideals.

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While we work to grow and sustain thriving small, medium and expanding enterprises by selling quality, affordable steel, we are committed to rapidly raising our procurement from small, black suppliers to the tune of some R7.2 billion in 2015. We intend doing so not only to improve our B-BBEE compliance but to demonstrate to all stakeholders our more strident commitment to transformation.

We are not seeking a new equity partner at present; instead we will focus on the various pillars of empowerment with priority being given to procurement, enterprise and supplier development, employment equity and skills development. The priority we attach to transformation is born out by the board’s appointment this year of a special ad hoc committee focusing on our B-BBEE performance.

At year-end, just 59% of our employees were black with low representation at management levels. Clearly we need to change this to more accurately reflect the national working demographic. We will do so affirmatively and rapidly as is exemplified by the proposals and targets contained in our new Employment Equity Plan but without undermining the employment values that we believe define working at ArcelorMittal South Africa, that enable us to recruit, develop and retain scarce skills: a caring environment that values, rewards and empowers high-performance employees. As we change who we are and how we work, we urge our suppliers and partners to accelerate their own transformation so that, together, our already considerable footprint, as detailed in the factor report, might become a powerful engine not only for growth but for change.

The year in context

It will not have escaped the notice of even the most casual observer of our business that 2014 was an extremely challenging year for ArcelorMittal South Africa.

Minimal economic growth and an influx into our main, domestic, market of subsidised product severely limited our ability to grow revenue while cost pressures continued to mount. The Newcastle blast furnace reline/rebuild was always going to be our single biggest operational challenge of the year and, while project execution disappointed in some respects, at the end of the year we could reflect with great satisfaction on the ultimately successful completion of a difficult but vital undertaking. (Here I must pause to briefly thank those involved, including colleagues, suppliers and contractors as well as the people of Newcastle, for the parts they played in making possible this most important investment in our production capacity.)

Charting a new course

The board and I enthusiastically endorse the turnaround strategy initiated this year by our new chief executive officer, Paul O’Flaherty. We have every confidence that the fundamental changes – in thinking, strategy and culture – that Paul has initiated will transform our company and restore an appreciation of its value in the eyes of all stakeholders.

In creating a high-performance culture, in filling our mills and restoring profitability and, most importantly, in reinstating and then jealously defending our once-proud safety record, Paul will enjoy the unstinting support of your board.

Paul’s message in this report makes clear his intention, and that of his management team, to seek partnerships with all levels of civil society and government, to close old chapters and to begin writing new ones.

We are working hard to turn this company around but if our new direction is to create meaningful value it has to be sustainable. And such sustainability means that, after half a decade of losses, we urgently need to return ArcelorMittal South Africa to profitability.

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Profitability, the bedrock of our sustainable creation of value, will require state-owned entities to be become facilitators of growth, not obstacles to its achievement. Our sustainability requires an enabling environment in which we are able to get on with the business of growing our business and the economy.

We are seeking to be good, trustworthy partners with all levels of government; with the premiers and provincial governments of the three provinces, Gauteng, KwaZuluNatal and Western Cape, in which we have such a strong physical and economic footprint, our local governments and those at the helm of our national ship.

Seeking understanding and setting common goals

As much as we commit ourselves to the hard work that will go into creating a more equitable, more prosperous South Africa, we seek a similar willingness from government to actively engage with us on addressing the difficulties that currently hamper our ability to drive manufacturing, infrastructural development and growth. As is well known, we face particular challenges in terms of competition legislation. These challenges, which have hung over ArcelorMittal South Africa for far too long, relate to legacy issues on which we are today engaging more intensively than before with the authorities to effect resolution. Similarly, we are engaging, with growing frankness and confidence, with the Department of Trade and Industry on fundamental issues and policies affecting the South African steel industry.

This year we and others formally applied for tariff protection against a flood of imported flat steel products produced at prices that are sustained by Chinese government subsidy and are undertaken to utilise capacity in that country’s enormous primary steel industry. A separate application was also lodged with the authorities for tariff protection against subsidised wire rod and rebar imports. We took these steps in the firm belief that such protection would be in the best interests not only of our company and the more than 35 000 people who work for us and our direct suppliers but also in the best long-term interests of our country.

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Achieving profitability will enable us to make the investments necessary to modernise and improve our production processes, to build better communities and contribute towards education and skills development. And it will enable us to invest the hundreds of millions needed to mitigate our environmental impacts while empowering our workforce to keep creating the world-class steel that our country needs to thrive and grow. This year we demonstrated, in no uncertain terms, our confidence in South Africa’s future by investing R1.8 billion in the Newcastle reline.

We live in a land of astonishing resources, goodwill and opportunity. Together we can accomplish so much more.

Acknowledgements and appointments

Mr S Maheshwari resigned as a nonexecutive director effective 31 March 2015 and Mr MJ Wellhausen resigned as chief financial officer on 15 March 2015. Ms N Nyembezi-Heita resigned as director and chief executive officer (CEO) on 18 February 2014. Dr HL Rosenstock, who had been appointed as interim CEO on 19 February 2014, stepped down on 1 July 2014 when Mr PS O’Flaherty was appointed CEO. We thank Mr Maheshwari (who served on our board since November 2005), Dr Rosenstock and Mr Wellhausen for their commitment and service to the company.

Mr G van Zyl was appointed acting CFO following Mr MJ Wellhausen’s resignation as chief financial officer.

LINK For more on company leadership, click here.

Invitation to attend the annual general meeting

I hereby extend an invitation to all shareholders to attend the twenty-seventh ArcelorMittal South Africa annual general meeting, to be held at Hyatt Regency Johannesburg Hotel, Nina 2 Room, 191 Oxford Road, Rosebank, South Africa on 27 May 2015 at 09:00.

Mpho Makwana
Chairman