Newly appointed ArcelorMittal South Africa (AMSA) CEO Paul O’Flaherty delivered an unambiguous ‘production first’ message in his inaugural interaction with the investment community on Friday, saying his management team was committed to “fill the mills, produce to capacity, reduce costs and sell aggressively”.
The former Eskom finance director, who took over as the head of the country’s largest steel group on July 1, confirmed that the remainder of the year would be difficult for the company, which reported a second-quarter loss of R6-million and a delay to, and $20-million cost overrun at, its key Newcastle mill reline project.
But he stressed that the JSE-listed group was now prioritising production as the main component to meeting its $100/t earnings before interest, tax, depreciation, and amortisation (Ebitda) target by the end of 2015 – the group was currently achieving an Ebitda of $34/t.
“We need to move away from identifying problems as to why we can’t, and move into the reality of production,” he said, adding that this message was being shared with all 14 800 of AMSA’s employees.
Efforts to improve the performance of the giant Vanderbijlpark operation, in Gauteng, which was afflicted by a serious fire in 2013, where said to be yielding results, with the mill targeting capacity utilisation of 90% in the current quarter to September.
However, O’Flaherty said it also needed to get the Newcastle reline project back on track and ensure that production resumed by mid-October, as the mill remained its “cash cow”.
In light of soft international prices and weak domestic market conditions – which had worsened in recent months as a result of protracted mining and manufacturing strikes – the group’s sales strategy would be revamped to ensure that new markets were found for the envisaged higher output. “We need to target our customers, we need to be aggressive and we need to take on imports head-on.”
Greater emphasis would also be given to tapping infrastructure opportunities emerging in South Africa and the rest of the region – a market that AMSA estimated to be a 10-million-ton-of-steel prospect.
In some cases, this would require investment, as was being made to ensure that its plate mill was in a position to supply the heavy plates required for use in the manufacture of steel towers for wind turbines. However, the group believes it is well positioned for a number of the energy, gas, and transport and water projects being proposed.
GOVERNMENT RELATIONS & EMPOWERMENT
In parallel with the production push, O’Flaherty said attention would also be given to mending relations with government, improving the group’s environmental performance and raising its empowerment credentials.
Relations with government have been strained for many years, primarily owing to disagreements over the way the group prices its steel, with government continually calling for a “developmental” steel price.
In the coming six months, O’Flaherty planned to have meetings with Trade and Industry Minister Dr Rob Davies and Economic Development Minister Ebrahim Patel on the matter in an effort to understand what they meant by developmental pricing. “We have to engage and we are actively reaching out to start having these discussions,” O’Flaherty said.
Equally, efforts would be made to improve AMSA’s Level 7 broad-based black economic-empowerment (BBBEE) rating, which was seen as too low for a group contributing 1% to gross domestic product and keen to be part of the implementation of the National Development Plan.
The initial focus would be on the non-equity elements of the BBBEE scorecard, such as supplier and enterprise development, training and procurement, which were all elements within “management’s control”.
“We need to get our house in order on this things we can control as management. Once we have sorted that out and once we believe we are at the best level, then we can start talking ownership deals. For now, that’s not on the table.”