Mittal Steel South Africa Limited Business Strategy

Presentation to GIBS Forum 30 March 2005

Strategy presentation to GIBS Mittal Steel Company March, 2005

Index

Company overview Global steel industry Business strategy

Stakeholder values creation strategies

Conclusion

Strategy presentation to GIBS Mittal Steel Company March, 2005

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 largest

steel 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
Strategy presentation to GIBS Mittal Steel Company March, 2005
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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
Strategy presentation to GIBS Mittal Steel Company March, 2005
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Mittal Steel global presents

Mittal Steel Gandrange (France) Mittal Steel Hamburg Mittal Steel Ruhrort Miattal Steel Hochfeld (Germany) Mittal Steel Poland (Poland) Mittal Steel Ostrava (Czech Republic) Mittal Steel Galati Mittal Steel Iasi Mittal Steel Hunedoara Mittal Steel Roman (Romania) Mittal Steel Zenica (Bosnia) Mittal Canada (Canada) Ispat Inland (USA) Mittal Steel Lazaro Cardenas (Mexico) Mittal Steel Point Lisas (Trinidad) Mittal Steel Skopje (Macedonia)

Americas 12Mtpa Europe 18Mtpa Rest of the World 12Mtpa

Mittal Steel Annaba (Algeria) Mittal Steel South Africa (South Africa) Mittal Steel Temirtau (Kazakhstan)
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Strategy presentation to GIBS Mittal Steel Company March, 2005

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
Sishen Thabazimbi

Johannesburg Vanderbijlpark Vereeniging Newcastle Durban

South Africa
Saldanha Cape Town

* Based on 2004 actual final product sales

Strategy presentation to GIBS Mittal Steel Company March, 2005
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Index

Company overview Global steel industry Business strategy

Stakeholder values creation strategies

Conclusion

Strategy presentation to GIBS Mittal Steel Company March, 2005

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
Strategy presentation to GIBS Mittal Steel Company March, 2005
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Global Market
Tonnes x 1 000 000
1 170 1 120 1 070 1 020 970 920 870 820
2000 2001 2002 2003 2004 2005 2006 2007

Supply Demand

Source: World Steel Dynamics/CRU

Strategy presentation to GIBS Mittal Steel Company March, 2005

Note: Apparent Steel Demand and Supply

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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
Strategy presentation to GIBS Mittal Steel Company March, 2005
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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
Strategy presentation to GIBS Mittal Steel Company March, 2005
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Index

Company overview Global steel industry Business strategy

Stakeholder values creation strategies

Conclusion

Strategy presentation to GIBS Mittal Steel Company March, 2005

12

A remarkable strategic journey

2001-2004 1997-2000
Mid 1990s Reengineering Rationalisation
Close non-profitable businesses e.g., Pretoria, VDB A + B, HSMs etc. Newcastle breakthrough 40% cost reduction* across the board Continuous improvement established

What next?

Restructuring
Kumba spin-off (retained cost + ore) Saldanha integration & turnaround Successful rights offer BAA agreement OICP**, centres of excellence, shared services LNM majority shareholding

* On compressible cost base ** Organising for Improved Corporate Performance

Strategy presentation to GIBS Mittal Steel Company March, 2005
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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

Revenue, Rbn, nominal

Net operating profit, Rbn, nominal

ROIC (before tax), %

23% CAGR

87% CAGR
46.6%

23.0 17.5 12.1 1.0 2001 2002 2003 2004 2001 2002 2003 18.5 2.6 2.6

6.7

18.3% 6.8%

17.8%

2004

2001

2002

2003

2004

Strategy presentation to GIBS Mittal Steel Company March, 2005

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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 may rapidly return us to a less attractive market
31%

17% 13%

1%

2001

2002

2003

2004
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Strategy presentation to GIBS Mittal Steel Company March, 2005

International cost competitiveness

HRC operating cost US$/t FOB Q1/04
500 450 400 350 300 250 200 150
Saldanha US$/t 247 Vanderbijlpark US$/t 256

100
50 0

International HRC producers

Source: Metal Bulletin Research
Strategy presentation to GIBS Mittal Steel Company March, 2005
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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
140 Coking coal Contract Iron ore fines Contract

Based to 100
700 600 500 Freight rates Coke Scrap

130

120 400 110 300 100 200 90 100 0

Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04

80
Jul-01

Strategy presentation to GIBS Mittal Steel Company March, 2005

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Raw material integration

Tonnes 000 Iron ore - DRI Scrap Coke - Coking Coal 9 470 1 401 1 818 2 184 2 673 1 754 Backward integrated 91% 99% 78% 96% 15% Domestic supply agreement s 4% 1% 22% 3% 22% Imported 5% 1% 63%

Other Coal
Actual 2004

100%

Strategy presentation to GIBS Mittal Steel Company March, 2005

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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
Strategy presentation to GIBS Mittal Steel Company March, 2005
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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

Strategy presentation to GIBS Mittal Steel Company March, 2005

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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
Strategy presentation to GIBS Mittal Steel Company March, 2005
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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
Mittal Steel South Africa Geographic sales distribution 2004
South Africa Rest of Africa Total Africa Far East European Union North America Middle East
% 0% 10% 20% 30% 40% 50% 60% 70%

2003 2004
80%
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Strategy presentation to GIBS Mittal Steel Company March, 2005

Business process
We stringently follow the following business process to ensure the successful implementation of our strategy Benchmarking Closing the gap / Strategy

Budgeting / target setting

Operational tracking / quarterly reviews Continuous improvement Knowledge management programme Rewarding
Strategy presentation to GIBS Mittal Steel Company March, 2005
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Index

Company overview Global steel industry Business strategy

Stakeholder values creation strategies

Conclusion

Strategy presentation to GIBS Mittal Steel Company March, 2005

24

Corporate governance
We comply with all material aspects of the Code of Corporate Practices and Conduct as contained in the King Report on Corporate Governance for South Africa 2002, as a minimum standard The board, 100% Employment equity, meets regularly and retains full control over our company. It monitors management in implementing board plans and strategies The executive committee, 45% Employment Equity, and its members are 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

Strategy presentation to GIBS Mittal Steel Company March, 2005

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Corporate governance
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 Stock Exchange, we are expected to comply with the requirements of Serbanes-Oxley Act [SOX] 404 by the end of 2005 We compliance with JSE securities exchange regulations

Strategy presentation to GIBS Mittal Steel Company March, 2005

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Share performance
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 on the Top 40 index* Our share price improved by 127% during 2004 compared to the all share index on the JSE increasing by 26%
% Movement 140 120 Mittal Steel South Africa All shares Top 40

100
80 60 40 20 0

Jan Feb -20 * As on 31 December 2004

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec
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Strategy presentation to GIBS Mittal Steel Company March, 2005

Our employees
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
Strategy presentation to GIBS Mittal Steel Company March, 2005
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Employment equity
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 pipeline and to open up job opportunities for the advancement of EE candidates 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
Strategy presentation to GIBS Mittal Steel Company March, 2005
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Black economic empowerment

We believe that promoting and supporting affirmative business enterprises (ABE) is essential for achieving broad-based sustainable economic growth and job creation in South Africa Our ABE programme is aimed at creating opportunities for access to procurement processes, promote the development of skills levels and encourage 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 suppliers to become BEE compliant.

Strategy presentation to GIBS Mittal Steel Company March, 2005

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Sustainable development
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 approach to 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
Strategy presentation to GIBS Mittal Steel Company March, 2005
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Environmental
We are committed to excellent environmental performance by implementing comprehensive environmental plans commissioned by independent specialists. These plans are based on internationally accepted standards and best available technology without entailing excessive cost (BATNEEC) All our operations have achieved ISO 14001 environmental management system certification. This accomplishment places us amongst the leaders but also raises our responsibility towards sound environmental management. In line with the ISO 14001 certification requirements, we embrace environmental sustainability as a core business imperative by continuously improving our conservation efforts in mitigating the potential impacts of solid waste, air emissions, water consumption and limiting the use of natural resources. We are currently in the process of implementing environmental projects to the value of approximately R 960 million.
Strategy presentation to GIBS Mittal Steel Company March, 2005
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Environmental capital projects

Vanderbijlpark*
Rm Planned Completion

Cleaning of coke ovens gas

Improving gas utilization thus reducing energy consumption and emissions by more than 50%

310

2H06

Main water treatment plant

Achieving zero effluent release and reducing
water consumption by at least 30%

220

2H05

New sinter plant off-gas system

Reducing stack emissions by at least 80%

210

2H07

Blast Furnace D Tap floor de-dusting

Minimising emissions thus improving the quality of the working environment for our employees
* List do not represent all capital projects
Strategy presentation to GIBS Mittal Steel Company March, 2005

40

1H05

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Environmental capital projects

Newcastle*
Rm Planned Completion

Coke oven repair project

Reducing emissions by lowering opacity from 50% to 20%

230

completed

Reverse osmosis water treatment plant

Further enhancing water recycling capabilities
to achieve zero effluent Reducing water consumption by 17%

50

1H06

* List do not represent all capital projects

Strategy presentation to GIBS Mittal Steel Company March, 2005
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Safety and Occupational Health

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 score of 95% - the highest score ever in the steel industry in Africa. We are well positioned for OHSAS 18001 safety and health management system certification by December 2005. Notwithstanding our comprehensive collective effort in aspiring for safety excellence, it is with regret that we experienced two employees and three contractor fatalities at our Vanderbijlpark Steel operations during 2004. To further improve our safety performance, all our operations are in the process of implementing Behaviour Based Safety (BBS).
Strategy presentation to GIBS Mittal Steel Company March, 2005
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Corporate social investment

Our social investment programmes aim to impart sustainable expertise among South Africans through the provision of vital technical and related skills development This approach has, since 1994, seen us donate over R 56 million specifically 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 in Newcastle and Pretoria, for use by the broader community Our single biggest social investment was a donation of R 50 million in high technology research instrumentation and equipment to the University of Pretoria, enabling the university to establish a state-ofthe-art research institute. By creating a sophisticated research environment at tertiary level Mittal Steel SA is equipping future engineers with skills they would otherwise only become exposed to later in their careers.
Strategy presentation to GIBS Mittal Steel Company March, 2005
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Corporate social investment

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 the up-liftment of the communities in the areas in which we operate by supporting sustainable projects, promoting education and job creation. An exciting challenge for 2005 is to make a profound difference in the teaching of Maths and Science in our schools.

Strategy presentation to GIBS Mittal Steel Company March, 2005

37

Index

Company overview Global steel industry Business strategy

Stakeholder values creation strategies

Conclusion

Strategy presentation to GIBS Mittal Steel Company March, 2005

38

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
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Strategy presentation to GIBS Mittal Steel Company March, 2005