7/27/2019 Mittal Steels a Best Practice Strategy
1/39
7/27/2019 Mittal Steels a Best Practice Strategy
2/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 2
Company overview
Global steel industry
Business strategy
Stakeholder values creation strategies
Conclusion
Index
7/27/2019 Mittal Steels a Best Practice Strategy
3/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 3
Overview
Record earnings in 2004 of R 4,5 bn
We employ 11 400 people on a full time basis at an annual cost of
R 2,2 bn and an additional 3500 full time equivalent people
indirectly
US$1.2bn gross export revenue. Making South Africa the 9th
largeststeel exporter in the world
Gross contribution to state treasury of R4.5bnpa
Direct rebates of R450m for promoting secondary exports & import
substitutions Planned environmental spend of R964m
All operations ISO 14001 certified
ABE procurement of R1bn
7/27/2019 Mittal Steels a Best Practice Strategy
4/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 4
Shareholding
In 2004 LNM Holdings increased it shareholding in Iscor Limited to +50%
In December 2004 LNM Holdings and Ispat International merged to form
Mittal Steel Company NV
Listed on NYSE & Euronext Amsterdam
Mittal Steel is acquiring the US-based International Steel Group (ISG) This imminent acquisition will make Mittal Steel the worlds largest
and most global steel company
64 Mtpa steel capacity
14 operations on four continents 45 nationalities
165 000 employees
Ispat Iscor was renamed Mittal Steel South Africa Limited on 14
March 2004
7/27/2019 Mittal Steels a Best Practice Strategy
5/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 5
Mittal Steel global presents
Mittal Steel Point Lisas
(Trinidad)
Mittal Steel Lazaro Cardenas
(Mexico)
Ispat Inland
(USA)
Mittal Canada
(Canada)
Mittal Steel Gandrange
(France)
Mittal Steel Hamburg
Mittal Steel Ruhrort
Miattal Steel Hochfeld(Germany)
Mittal Steel Temirtau(Kazakhstan)
Mittal Steel Galati
Mittal Steel Iasi
Mittal Steel HunedoaraMittal Steel Roman
(Romania)
Mittal Steel South Africa(South Africa)
Mittal Steel Ostrava
(Czech Republic)
Mittal Steel Zenica
(Bosnia)
Mittal Steel Skopje
(Macedonia)
Mittal Steel Poland
(Poland)
Mittal Steel Annaba(Algeria)
Americas 12MtpaEurope 18MtpaRest of the World 12Mtpa
7/27/2019 Mittal Steels a Best Practice Strategy
6/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 6
Vereeniging
Johannesburg
NewcastleSishen
Vanderbijlpark
Thabazimbi
Durban
SouthAfrica
Mittal Steel South Africa
Flat Steel Products
Vanderbijlpark Steel 3.4 Mtpa*
Saldanha Steel 1.3 Mtpa*
Long Steel Products
Newcastle Steel
1.6 Mtpa* Vereeniging Steel 0.4 Mtpa*
Iron ore supply at cost + 3%
6.25 Mtpa from Sishen 2.5 Mtpa from Thabazimbi
Saldanha
Cape Town
* Based on 2004 actual final product sales
7/27/2019 Mittal Steels a Best Practice Strategy
7/39Strategy presentation to GIBS Mittal Steel Company March, 2005 7
Company overview
Global steel industry
Business strategy Stakeholder values creation strategies
Conclusion
Index
7/27/2019 Mittal Steels a Best Practice Strategy
8/39Strategy presentation to GIBS Mittal Steel Company March, 2005 8
Global steel market
Consumption is highly cyclical
Annual consumption growth of 1-2% in the developed countries
Slow growth in the major markets
Construction
Automobiles
Mechanical engineering Annual consumption growth in China of >13%
Representing 25% of world market
Historical steel prices declined with 3% annually
To remain competitive due to industrys structural overcapacity
Primary advantage is steels low cost
Competition from substitute materials
Aluminium
Plastics
7/27/2019 Mittal Steels a Best Practice Strategy
9/39Strategy presentation to GIBS Mittal Steel Company March, 2005 9
Global Market
Source: World Steel Dynamics/CRU Note: Apparent Steel Demand and Supply
Tonnes x 1 000 000
820870
920970
1 020
1 0701 1201 170
2000 2001 2002 2003 2004 2005 2006 2007
Supply
Demand
7/27/2019 Mittal Steels a Best Practice Strategy
10/39Strategy presentation to GIBS Mittal Steel Company March, 2005 10
Industry challenges
Low market growth, excluding China
Burdened with constant structural overcapacity
Regionally focused producers, boosting capacity to improve
competitiveness
Highly fragmented production
Top 10 producers accounts for 25% of world production
Steelmakers often enjoy protection from their governments
Faces powerful and consolidated clients and suppliers
Industry is value destroying
Declining steel price
Increasing cost pressure
7/27/2019 Mittal Steels a Best Practice Strategy
11/39Strategy presentation to GIBS Mittal Steel Company March, 2005 11
Industry strategies
Pursuit of constant restructuring and cost-cutting
Moving away from commodity steel production
Specialisation
Higher value added production
Growth strategies are the most promising, but the most difficult to
implement
Growing market required
Sufficient cost advantage
New technologies
Changing mindsets from regional to global
Mergers resulting in major industrial rationalisation
7/27/2019 Mittal Steels a Best Practice Strategy
12/39Strategy presentation to GIBS Mittal Steel Company March, 2005 12
Company overview
Global steel industry
Business strategy Stakeholder values creation strategies
Conclusion
Index
7/27/2019 Mittal Steels a Best Practice Strategy
13/39Strategy presentation to GIBS Mittal Steel Company March, 2005 13
A remarkable strategic journey
Rationalisation
Reengineering
Restructuring
Close non-profitablebusinesses e.g.,
Pretoria, VDB A + B,HSMs etc.
Newcastle breakthrough 40% cost reduction*
across the board Continuous
improvement
established
Kumba spin-off
(retained cost + ore) Saldanha integration &
turnaround Successful rights offer BAA agreement OICP**, centres of
excellence, shared
services LNM majorityshareholding
Mid 1990s
1997-2000
2001-2004
* On compressible cost base
** Organising for Improved Corporate Performance
What next?
7/27/2019 Mittal Steels a Best Practice Strategy
14/39Strategy presentation to GIBS Mittal Steel Company March, 2005 14
Revenue, Rbn, nominal
12.117.5 18.5
23.0
2001 2002 2003 2004
23%CAGR
Strong financial results
We have delivered strong financial performance
Recent performance has been achieved with the help of
International steel prices attain all time high levels
Strong domestic demand growth
Cost escalations successfully contained
Net operating profit, Rbn, nominal
1.02.6 2.6
6.7
2001 2002 2003 2004
87%CAGR
ROIC (before tax), %
6.8%18.3% 17.8%
46.6%
2001 2002 2003 2004
7/27/2019 Mittal Steels a Best Practice Strategy
15/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 15
Total return to shareholders
A 30 percentage points increase in total return to shareholders since
unbundling Historically the global steel industry has been fundamentally value
destroying over the business cycle
The threat of reduced growth/increased production in China mayrapidly return us to a less attractive market
31%
13%17%
1%2001 2002 2003 2004
7/27/2019 Mittal Steels a Best Practice Strategy
16/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 16
International cost competitiveness
Source: Metal Bulletin Research
HRC operating cost US$/t FOB Q1/04
0
50
100
150
200
250
300
350
400
450
500
Vanderbijlpark
US$/t 256
Saldanha
US$/t 247
International HRC producers
7/27/2019 Mittal Steels a Best Practice Strategy
17/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 17
Competitiveness under pressure
Strong rand
Escalating global input costs
Iron ore increased around 70% in 2005
Metallurgical coking coal contracts settled at approx +125%
Freight rates more stable, but at high levels
Coke stabilising around $250/t after peaking at > $400/t in 2004 Scrap prices expected to remain firm in 2005
Based to 100
Coking coal Contract
Iron ore fines Contract
80
90
100
110
120
130
140
Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04
Based to 100
Coke
Freight rates
Scrap
0
100
200
300
400
500
600
700
Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04
7/27/2019 Mittal Steels a Best Practice Strategy
18/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 18
Raw material integration
Backwardintegrated Imported
Domesticsupplyagreement
s
Tonnes000
Other Coal - -100%1 754
Scrap 78% -22%1 818
Iron ore
- DRI
91%
99%
5%
-
4%
1%
9 470
1 401
Coke
- Coking Coal
96%
15%
1%
63%
3%
22%
2 184
2 673
Actual 2004
7/27/2019 Mittal Steels a Best Practice Strategy
19/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 19
Strategic Goals
Industry leading value-creation for our shareholders Positive EVA over the cycle
Improve operating capabilities
20% reduction in HRC/billet cash cost by 2007
Value-creating throughput increases of 2 Mtpa
Build a high performance culture
Create an environment that generates true employee pride &attracts, develops & retains top-performing people
Be a responsible corporate citizen
7/27/2019 Mittal Steels a Best Practice Strategy
20/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 20
Cost Reduction Strategy
To maintain our position in the lowest cost quartile Initiatives aimed at around 50 US$/t HRC/billet cash cost reduction by
2007, through
Operating efficiency improvements
Raw materials & procurement initiatives
Increased labour productivity
Newcastle PCI project
7/27/2019 Mittal Steels a Best Practice Strategy
21/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 21
Growth Strategy
Increase production by ~1Mtpa by end 2007 with modest capex
2 new DRI kilns at Vanderbijlpark by 1H/06
Efficiency improvements by 2H/06
Utilise opportunities to increase throughput by further ~1Mtpa with
capital expenditure
Expand sinter capacity at Vanderbijlpark by 2H/06
Blast furnace D reline at Vanderbijlpark by 2H/06
Additional DRI kilns at Vanderbijlpark
Blast furnace C reline at Vanderbijlpark by 2009
Rationalisation of other facilities to follow
7/27/2019 Mittal Steels a Best Practice Strategy
22/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 22
Marketing strategy
Current sales distribution 60% local and 40% export
Buoyant domestic growth expected in the next few years
Africa strategy
Total imports into Africa ~6.2 mtpa
0% 10% 20% 30% 40% 50% 60% 70% 80%
Middle East
North America
European Union
Far East
Total Africa
Rest of Africa
South Africa
%
2003
2004
Mittal Steel South Africa
Geographic sales distribution 2004
7/27/2019 Mittal Steels a Best Practice Strategy
23/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 23
Business process
We stringently follow the following business process to ensure thesuccessful implementation of our strategy
Benchmarking
Closing the gap / Strategy
Budgeting / target setting
Operational tracking / quarterly reviews
Continuous improvement
Knowledge management programme
Rewarding
7/27/2019 Mittal Steels a Best Practice Strategy
24/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 24
Company overview
Global steel industry
Business strategy Stakeholder values creation strategies
Conclusion
Index
7/27/2019 Mittal Steels a Best Practice Strategy
25/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 25
We comply with all material aspects of the Code of Corporate
Practices and Conduct as contained in the King Report on CorporateGovernance for South Africa 2002, as a minimum standard
The board, 100% Employment equity, meets regularly and retains fullcontrol over our company. It monitors management in implementingboard plans and strategies
The executive committee, 45% Employment Equity, and its membersare individually mandated, empowered and held accountable for
Implementing the strategies and key policies determined by the board
Managing and monitoring the business and affairs of the organisation in
accordance with approved business plans and budgets
Prioritising the allocation of capital and other resources
Establishing best management and operating practices
Corporate governance
7/27/2019 Mittal Steels a Best Practice Strategy
26/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 26
The board acknowledges its responsibility for ensuring the preparation
of annual financial statements in accordance with South African Statements of General Accepted Accounting Practice
(SAGAAP)
International Financial Reporting Standards (IFRS)
As a subsidiary of Mittal Steel, which is listed on the New York StockExchange, we are expected to comply with the requirements ofSerbanes-Oxley Act [SOX] 404 by the end of 2005
We compliance with JSE securities exchange regulations
Corporate governance
7/27/2019 Mittal Steels a Best Practice Strategy
27/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 27
Liquidity of our shares remains high with 67% of the total issued
shares being traded per year for the past 24 months Our average market capitalisation for 2004 was R 29.2 million
We have been ranked number 20 for total market capitalisation onthe Top 40 index*
Our share price improved by 127% during 2004 compared to the allshare index on the JSE increasing by 26%
Share performance
-20
0
20
40
60
80
100
120
140
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Mittal Steel South Africa
All shares
Top 40
% Movement
* As on 31 December 2004
7/27/2019 Mittal Steels a Best Practice Strategy
28/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 28
We employ 11 400 people on a full time basis at an annual cost of R
2,2 bn and an additional 3500 full time equivalent people indirectly
We entered into a historic three-year wage agreement with our three
recognized trade unions, guaranteeing annual increases of CPIX plus
an improvement factor (variable pay) that is linked to the value
created by the company We are committed to the principle of improving labour productivity
through voluntary separation and natural attrition
To this end, we have entered into a 2 year no forced retrenchment
agreement with our three recognized trade unions, representing 79%
of our workforce
We have adopted a one company philosophy, which aims to break
down the barriers between different parts of our business and
improve coordination and efficiency
Our employees
7/27/2019 Mittal Steels a Best Practice Strategy
29/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 29
Our employment equity ratios of 45% in top management and 41% in
the professionally qualified groups exceeds the set targets Slow progress has unfortunately been made with employment equity
ratios for the senior management of 16%, middle management of 20%and skilled/specialist groups 36%
Our semi skilled (83% equity) and unskilled groups (96% equity) far
exceeds their targets
A number of aggressive initiatives aimed at reinforcing the EE pipe-line and to open up job opportunities for the advancement of EEcandidates have been implemented to ensure positive movement
67% of the 85 graduate-in-training positions are held by EE candidates.
70% will in future be reserved for EE
67% of the 454 bursary students are EE candidates. 77% of 2005 bursary
student intake is reserved for EE
Other initiatives include fast tracking, space creation and multi-grade
positions
Employment equity
7/27/2019 Mittal Steels a Best Practice Strategy
30/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 30
We believe that promoting and supporting affirmative business
enterprises (ABE) is essential for achieving broad-based sustainableeconomic growth and job creation in South Africa
Our ABE programme is aimed at creating opportunities for access toprocurement processes, promote the development of skills levels andencourage entrepreneurial talent for historically disadvantaged South
Africans In 2004 we exceeded our ABE target by procuring services and goods
to the value of R1 024 million from affirmative business enterprises,137% of our target.
We are currently aligning our internal ABE policy to comply fully with
the draft BEE framework that is only in the proposed stage by the DTI.This includes the proposed balanced scorecard and managing suppliersto become BEE compliant.
Black economic empowerment
7/27/2019 Mittal Steels a Best Practice Strategy
31/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 31
Our sustainable development objectives are aimed at improving the
quality of life for everyone, today and for generations to come We participated in the working group of the International Iron and
Steel Institute (IISI) responsible for developing a systematic approachto sustainable development
Although we track and improve on all measures, we have identified
the following three as critical for sustainability of our business Greenhouse gas emissions, caused by direct and indirect steel
manufacturing. As identified in the Kyoto Protocol as, carbon dioxide
(CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs),
perfluorocarbons (PFCs) and sulphur hexafluoride (CF6)
Material efficiency, defined as the ratio of material waste and by
product output. Waste includes those materials that ultimately end up
in a landfill
Energy intensity, defined as the ratio of energy consumption and
production output
Sustainable development
7/27/2019 Mittal Steels a Best Practice Strategy
32/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 32
We are committed to excellent environmental performance by
implementing comprehensive environmental plans commissioned byindependent specialists. These plans are based on internationallyaccepted standards and best available technology without entailingexcessive cost (BATNEEC)
All our operations have achieved ISO 14001 environmental
management system certification. This accomplishment places usamongst the leaders but also raises our responsibility towards soundenvironmental management.
In line with the ISO 14001 certification requirements, we embraceenvironmental sustainability as a core business imperative by
continuously improving our conservation efforts in mitigating thepotential impacts of solid waste, air emissions, water consumptionand limiting the use of natural resources.
We are currently in the process of implementing environmentalprojects to the value of approximately R 960 million.
Environmental
7/27/2019 Mittal Steels a Best Practice Strategy
33/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 33
Vanderbijlpark*
Cleaning of coke ovens gas 310 2H06
Improving gas utilization thus reducing energy
consumption and emissions by more than 50%
Main water treatment plant 220 2H05 Achieving zero effluent release and reducing
water consumption by at least 30%
New sinter plant off-gas system 210 2H07
Reducing stack emissions by at least 80%
Blast Furnace D Tap floor de-dusting 40 1H05
Minimising emissions thus improving the
quality of the working environment for our
employees
Environmental capital projects
Planned
CompletionRm
* List do not represent all capital projects
7/27/2019 Mittal Steels a Best Practice Strategy
34/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 34
Newcastle*
Coke oven repair project 230 completed
Reducing emissions by lowering opacity from
50% to 20%
Reverse osmosis water treatment plant 50 1H06 Further enhancing water recycling capabilities
to achieve zero effluent
Reducing water consumption by 17%
Environmental capital projects
Planned
CompletionRm
* List do not represent all capital projects
7/27/2019 Mittal Steels a Best Practice Strategy
35/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 35
Our Safety and Occupational Health performance compares favourably
with both national and international industry peers. Occupational Health & Hygiene is closely monitored by periodical
medical surveillances and legislative surveys.
All our operations have attained NOSA 4 Star or higher safety ratings.
Saldanha Steel achieved a NOSA platinum five star rating with a scoreof 95% - the highest score ever in the steel industry in Africa.
We are well positioned for OHSAS 18001 safety and healthmanagement system certification by December 2005.
Notwithstanding our comprehensive collective effort in aspiring for
safety excellence, it is with regret that we experienced twoemployees and three contractor fatalities at our Vanderbijlpark Steeloperations during 2004.
To further improve our safety performance, all our operations are inthe process of implementing Behaviour Based Safety (BBS).
Safety and Occupational Health
7/27/2019 Mittal Steels a Best Practice Strategy
36/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 36
Our social investment programmes aim to impart sustainable
expertise among South Africans through the provision of vitaltechnical and related skills development
This approach has, since 1994, seen us donate over R 56 millionspecifically towards educational initiatives.
In addition, we have opened our own in-house, state-of-the-art
training and research facilities, worth R 98 million, located inNewcastle and Pretoria, for use by the broader community
Our single biggest social investment was a donation of R 50 million inhigh technology research instrumentation and equipment to theUniversity of Pretoria, enabling the university to establish a state-of-
the-art research institute. By creating a sophisticated researchenvironment at tertiary level Mittal Steel SA is equipping futureengineers with skills they would otherwise only become exposed tolater in their careers.
Corporate social investment
7/27/2019 Mittal Steels a Best Practice Strategy
37/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 37
We have donated R 30 million specifically towards community &
welfare support initiatives. We have already invested over R184.7 million on social development
programmes, over the past twelve years.
Our Corporate Social Investment programme continue to focus on theup-liftment of the communities in the areas in which we operate by
supporting sustainable projects, promoting education and jobcreation.
An exciting challenge for 2005 is to make a profound difference in theteaching of Maths and Science in our schools.
Corporate social investment
7/27/2019 Mittal Steels a Best Practice Strategy
38/39
Strategy presentation to GIBS Mittal Steel Company March, 2005 38
Company overview
Global steel industry
Business strategy Stakeholder values creation strategies
Conclusion
Index
7/27/2019 Mittal Steels a Best Practice Strategy
39/39
Conclusion
Our strategy is aimed at creating value through the steel cycle
Improving our operating capabilities
Improving our cost competitiveness
Growth through optimal capital expenditure
Focusing our marketing efforts on Africa
Creating an environment that builds a high performance culture
Be a responsible corporate citizen
Top Related