Integrated Annual Report 2016
Together
creating value for all
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Message from the chairman

ArcelorMittal South Africa fully appreciates the extent to which its future and its interests are bound up with those of the society in which it operates. We have reached important new accords with stakeholders, are rapidly optimising our industrial footprint and are entrenching cultures of safety and high performance.

Mpho Makwana Chairman


Dear stakeholders

This year we report against the theme, “together creating value for all”.

We undertake this report believing that, after a year of tremendous change and considerable progress, we are indeed now equipped to confidently speak of a near future in which we will be able to play our part in creating sustainable value for all stakeholders.

Earning our place at the table

In recent integrated annual reports I have consistently written about how ArcelorMittal South Africa fully appreciates the extent to which its future and its interests are bound up with those of the society in which it operates, with those who provide us with capital, labour, revenue and our licence to operate. For some time, however, we as a company have been considered something less of an equal partner by many; for some years we have been regarded in some quarters with suspicion and even disdain. We have had to work hard to earn our full and equal place at the table securing the future of the primary and downstream steel sectors and their places in building a new, inclusive, more prosperous, more equal South Africa.

In 2016, I believe, we finally began to prove our worth and our sincere commitment to creating value for all. But while we strive to create social value, we destroy value of the most precious kind every time someone is injured, or worse, killed while working at ArcelorMittal South Africa.

Safety seeping into our DNA

We pause to remember the three contractor employees who tragically died on our watch in 2016.

In visits to our various business units this year, the board and I observed – on shop floors, in offices and in canteens – tangible signs that a deep-rooted safety culture is finally seeping into the DNA of our organisation. Whereas in the past, improved safety indicators have lulled us into complacency (this year the indicators were decidedly mixed, click here), we will not allow the same to happen again. There is only one thing that matters more to us than our reputation as an ethical value-creating good corporate citizen: our reputation as a company that strives to do zero harm.

Competition Commission settlement and tariff protection
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We thank the Competition authorities for the positive spirit they displayed in engagements over legacy issues relating to past pricing-collusion practices, issues that have now been put to bed. The settlement reached with the authorities, entailing an administrative fine of R1.5 billion, frees the company to now focus more meaningfully on the critical issues that will secure a sustainable primary steel sector in South Africa. This matter is of the utmost priority to the board, as well as to the ArcelorMittal group, especially as we look to ensure that such practices never become part of the sales culture at ArcelorMittal South Africa again.

The agreements reached with the Competition Commission also foresee a cap on the prices we will charge for some products and commit the company to invest R4.6 billion in our plants and the broader steelmaking value chain.

These agreements represent a bold new multi-stakeholder compact to direct (to borrow from the nomenclature of integrated reporting) the value our company will create for itself and for others over time.

Stakeholder engagement and support

We wish to thank our stakeholders: organised labour, our partner trade unions Numsa and Solidarity; the economic-cluster ministries within government; the regulatory agencies and our shareholders, for the instrumental roles each played in getting us this far. In the recent past, these key stakeholders have all demonstrated a keen appreciation of the fact that the sustainability of the steel industry is crucial to the growth of the economy and the creation of jobs. Managing a business sustainably is impossible without meaningful support from, and partnership with, organised labour. In 2016 we reached another significant milestone with our B-BBEE initiatives deepening our commitment to our employees when, through an employee share trust, the people who work on our shop floors secured an additional 5.1% shareholding in ArcelorMittal South Africa. We hope that this will infuse an employee-owner mindset among all of our 9 000 people throughout our mills, plants and corporate offices.

Towards outstanding corporate citizenship

We are committed to deepening both our licence to operate and meaningful corporate citizenship. To this end, in September 2016 we welcomed our strategic B-BBEE partners, Likamva Resources, who joined the ArcelorMittal South Africa family through the acquisition of a 17% shareholding. With this groundbreaking transaction, after more than a century of steelmaking in South Africa, we marked one of the most important milestones in the year that the ArcelorMittal group celebrated its 10th anniversary.

As we welcome Likamva as active partners in our drive to create value for all, we also look ahead with confidence towards unlocking further value for the communities around our plants who will, within two years of the transaction date, participate in a 5% stake in the company at which so many of their sons, daughters, mothers and fathers work.

Our communities are at the heart of our operations and their members are among our most important stakeholders. This year (click here) we sought to align our corporate social investments with our value chain by creating real economic opportunities for local emerging businesses. But, as with the science centres which we sponsor, we can achieve only so much on our own. Therefore, as we report here, it was extremely gratifying that, in November, government, through the Department of Trade and Industry, committed R14 million to our new incubation hub in Vanderbijlpark. Only together can we create real value for all.



This year we report lower direct capital expenditure (R38 million) on mitigating our environmental impacts than the amount spent in the previous year. In fact, over and above the amount of R38 million, in 2016 we also spent R138 million on capturing off-gases with which to self-generate electricity. This expenditure will enable us to preserve financial capital while reducing our environmental impact by lowering our Scope 2 CO2 emissions.

Leadership

ArcelorMittal South Africa is committed to best practice in governance. We welcome the King IV Report on Corporate Governance and look forward to reporting to stakeholders in our 2017 integrated annual report in terms of the new code. We congratulate the distinguished members of the King Committee, whose number included our own general counsel Mohamed Adam, on their excellent work.

This year the board took leave of non-executive directors Mr Marc Vereecke and Mr Davinder Chugh while, subsequent to year-end, Mr Lumkile Mondi will leave the board he has served since 2007. I thank these gentlemen for their outstanding contributions to the ethical and effective leadership of ArcelorMittal South Africa. This year we welcomed Mr David Clarke and Mr Henri Blaffart while, following our successful B-BBEE transaction, Ms Noluthando Gosa joined the board, also as a non-executive director.

Outlook

ArcelorMittal South Africa ended 2016 better equipped to deal with complex and very material risks as well as various challenges from the macro-economic environment.

We enter 2017 with renewed hope, a hope informed by experience, that in the second half of the year our stakeholders, especially our shareholders, will begin to experience the effects of the many hard-won victories recorded in 2016. The new year will, we believe, represent an opportunity for us all to work together, to work harder than ever and to get back to the business of growing our economy.

Invitation to attend the annual general meeting

I hereby extend an invitation to all shareholders to attend the 29th ArcelorMittal South Africa annual general meeting, to be held at the Hyatt Regency Hotel, Rosebank, Johannesburg, on 24 May 2017 at 09:00.

Mpho Makwana
Chairman


© ArcelorMittal 2017