ArcelorMittal reports third quarter 2019 and nine months 2019 results

08.11.2019

(USDm) unless otherwise shown

3Q 19

2Q 19

3Q 18

9M 19

9M 18

Sales

16,634

 

19,279

 

18,522

 

55,101

 

57,706

 

Operating income/(loss)

297

 

(158

)

1,567

 

908

 

5,497

 

Net (loss)/income attributable to equity holders of the parent

(539

)

(447

)

899

 

(572

)

3,956

 

Basic (loss)/earnings per common share (US$)

(0.53

)

(0.44

)

0.89

 

(0.56

)

3.89

 

 

 

 

 

 

 

Operating income/(loss) / tonne (US$/t)

15

 

(7

)

76

 

14

 

86

 

EBITDA

1,063

 

1,555

 

2,729

 

4,270

 

8,314

 

EBITDA/ tonne (US$/t)

53

 

68

 

133

 

66

 

131

 

Steel-only EBITDA/ tonne (US$/t)

34

 

43

 

119

 

45

 

116

 

 

 

 

 

 

 

Crude steel production (Mt)

22.2

23.8

23.3

70.1

69.8

Steel shipments (Mt)

20.2

22.8

20.5

64.8

63.6

Own iron ore production (Mt)

13.6

14.6

14.5

42.3

43.5

Iron ore shipped at market price (Mt)

8.4

9.9

8.5

27.5

27.7

ArcelorMittal, the world’s leading integrated steel and mining company, today announced results1 for the three-month and nine-month periods ended September 30, 2019.

Commenting, Mr. Lakshmi N. Mittal, ArcelorMittal Chairman and CEO, said: "As anticipated, we continued to face tough market conditions in the third quarter, characterized by low steel prices coupled with high raw material costs. In these markets, we remain focused on our own initiatives to improve performance and our priority is to reduce costs, adapt production and focus on ensuring the business remains cash flow positive. We continue to expect a substantial working capital release in the fourth quarter which should enable us to further reduce net debt year on year.”

Health and safety performance2 (inclusive of ArcelorMittal Italia (previously known as Ilva)), based on own personnel figures and contractors lost time injury frequency (LTIF) rate was 1.36x in third quarter of 2019 ("3Q 2019") as compared to 1.26x in the second quarter of 2019 (“2Q 2019”). Health and safety performance (inclusive of ArcelorMittal Italia) in the first nine months of 2019 (“9M 2019”) was 1.24x. Excluding the impact of ArcelorMittal Italia, the LTIF was 0.82x for 3Q 2019 as compared to 0.68x for 2Q 2019 and 0.62x for the third quarter of 2018 (“3Q 2018”). Health and safety performance (excluding the impact of ArcelorMittal Italia) for 9M 2019 was 0.71x as compared to 0.66x for first nine months of 2018 (9M 2018).

The Company’s efforts to improve its Health and Safety record remain focused on both further reducing the rate of severe injuries and preventing fatalities.

Total steel shipments for 9M 2019 were 64.8 million metric tonnes representing an increase of 1.8% as compared to 63.6 million metric tonnes in 9M 2018, primarily due to higher steel shipments in Europe (+6.9%) due to the impact of the consolidation of ArcelorMittal Italia as from November 1, 2018, offset in part by the scope effect of the remedy asset sales related to the ArcelorMittal Italia acquisition and in Brazil (+0.8%) due primarily to the acquisition of Votorantim (consolidated as from April 2018), offset in part by lower shipments in ACIS (-5.6%) and NAFTA (-5.8%). Excluding the impact of ArcelorMittal Italia, Votorantim, and remedy assets sales steel shipments in 9M 2019 were 1.8% lower as compared to 9M 2018.

Sales for 9M 2019 decreased by 4.5% to $55.1 billion as compared with $57.7 billion for 9M 2018, primarily due to lower average steel selling prices reflecting continued supply chain destocking (-7.6%) offset in part by higher steel shipments (+1.8%).

Depreciation of $2.3 billion for 9M 2019 was higher as compared with $2.1 billion in 9M 2018. Depreciation charges for 2019 include the depreciation of right-of-use assets recognized in property, plant and equipment under IFRS 16 "Leases"4, which were previously recorded as lease expenses in cost of sales and selling, general and administrative expenses. FY 2019 depreciation is expected to be approximately $3.1 billion (based on current exchange rates).

Impairment charges for 9M 2019 were $1.1 billion3 related to the remedy asset sales for the ArcelorMittal Italia acquisition ($0.5 billion) and impairment of the fixed assets of ArcelorMittal USA ($0.6 billion). Impairment charges for 9M 2018 were $595 million primarily related to the remedy asset sales for the ArcelorMittal Italia acquisition and $86 million related to the agreed remedy package in connection with the Votorantim acquisition5.

Exceptional items for 9M 2019 were nil. Exceptional charges for 9M 2018 were $146 million related to a provision taken in 1Q 2018 in respect of a litigation case that was settled in 3Q 20186.

Operating income for 9M 2019 was lower at $908 million as compared to $5.5 billion in 9M 2018 primarily impacted by weaker operating conditions (negative price-cost effect in steel segments) reflecting both the impact of the decline in steel prices since 4Q 2018 and higher raw material costs (reflecting in particular supply-side developments in Brazil) and impairments as discussed above, offset in part by improved mining segment performance (driven by higher seaborne iron ore reference prices +37.9%). The raw material pricing environment increased during 9M 2019 and remains dislocated from steel fundamentals, compressing steel spreads to unsustainably low levels.

Income from associates, joint ventures and other investments for 9M 2019 was lower at $327 million as compared to $425 million for 9M 2018 driven by lower profitability of investees, whilst 9M 2018 was negatively impacted by $132 million in impairment of ArcelorMittal’s investment in Macsteel (South Africa) following the announced sale of its 50% stake in May 2018. Income from investments in associates, joint ventures and other investments in 9M 2019 and 9M 2018 include the annual dividend income from Erdemir of $93 million and $87 million, respectively.

Net interest expense was lower at $467 million for 9M 2019, as compared to $475 million in 9M 2018. The Company expects full year 2019 net interest expense to be approximately $0.6 billion.

Foreign exchange and other net financing losses were $928 million for 9M 2019 as compared to losses of $1.0 billion for 9M 2018. Foreign exchange losses for 9M 2019 were $126 million as compared to $227 million in 9M 2018. 9M 2019 includes non-cash mark-to-market losses related to the mandatory convertible bond call option following the market price decrease of the underlying shares totalling $0.3 billion as compared to a loss of $0.1 billion in 9M 2018. 9M 2018 included $0.1 billion premium expense on the early redemption of bonds.

ArcelorMittal recorded an income tax expense of $334 million for 9M 2019 as compared to $362 million for 9M 2018. The tax expense of $362 million in 9M 2018 included recognition of a deferred tax asset primarily due to the expectation of higher future profits mainly in Luxembourg.

ArcelorMittal’s net loss for 9M 2019 was $0.6 billion (or $0.56 basic loss per common share), as compared to a net income in 9M 2018 of $4.0 billion (or $3.89 basic earnings per common share).

Total steel shipments in 3Q 2019 were 11.4% lower at 20.2Mt as compared with 22.8Mt for 2Q 2019. Excluding the impact of the remedy assets sales, steel shipments were 7.3% lower as compared to 2Q 2019, primarily due to lower steel shipments in Europe (-10.4%, due largely to seasonality and weaker demand), ACIS (-14.6%, across Ukraine, Kazakhstan and South Africa) and NAFTA (-5.6%) offset in part by a slight improvement in Brazil (+0.9%).

Total steel shipments in 3Q 2019 were 1.7% lower as compared with 20.5Mt for 3Q 2018. Excluding the impact of the ArcelorMittal Italia acquisition net of the remedy asset sales, steel shipments were 1.6% lower as compared to 3Q 2018.

Sales in 3Q 2019 were $16.6 billion as compared to $19.3 billion for 2Q 2019 and $18.5 billion for 3Q 2018. Sales in 3Q 2019 were 13.7% lower as compared to 2Q 2019 primarily due to lower steel shipments (-11.4%), lower average steel selling prices (-3.1%), lower market-priced iron ore shipments (-14.7%) and lower realized iron ore pricing reflecting reduced premia for high grade product including pellet11. Sales in 3Q 2019 were 10.2% lower as compared to 3Q 2018 primarily due to lower average steel selling prices (-11.1%), lower steel shipments (-1.7%) and lower market-priced iron ore shipments (-1.5%) offset in part by higher seaborne iron ore reference prices (+52.6%).

Depreciation for 3Q 2019 was stable at $766 million as compared 2Q 2019. Depreciation for 3Q 2019 was higher than $653 million in 3Q 2018 primarily due to the impact of IFRS 16.

Impairment charges for 3Q 2019 were nil. Impairment charges for 2Q 2019 were $947 million related to the remedy asset sales for the ArcelorMittal Italia acquisition ($347 million) and impairment of the fixed assets of ArcelorMittal USA ($600 million)3. Impairment charges for 3Q 2018 were $509 million primarily related to remedy asset sales for the ArcelorMittal Italia acquisition.

Operating income for 3Q 2019 was $297 million as compared to an operating loss for 2Q 2019 of $158 million and an operating income of $1.6 billion in 3Q 2018. Operating income for 3Q 2019 was impacted by lower shipment volumes and negative price-cost effect in the steel segments and lower market price iron ore shipments and lower iron ore premia in the mining segment. Operating loss in 2Q 2019 was primarily driven by impairments as discussed above, as well as weaker operating conditions (negative price-cost effect in the steel segments). Operating result for 3Q 2018 was impacted by impairment charges as discussed above.

Due to the lower profitability of investees, income from associates, joint ventures and other investments for 3Q 2019 was $25 million as compared to $94 million for 2Q 2019 and $183 million for 3Q 2018.

Net interest expense in 3Q 2019 was $152 million as compared to $154 million in 2Q 2019 and $152 million in 3Q 2018.

Foreign exchange and other net financing losses in 3Q 2019 were $524 million as compared to $173 million for 2Q 2019 and $475 million in 3Q 2018. Foreign exchange loss for 3Q 2019 was $112 million as compared to foreign exchange gains of $34 million and $9 million, in 2Q 2019 and 3Q 2018, respectively. 3Q 2019 includes non-cash mark-to-market losses of $243 million related to the mandatory convertible bonds call option following the market price decrease of the underlying shares; such losses amounted to $55 million in 2Q 2019 and $114 million in 3Q 2018. 3Q 2018 also include premium expenses on the early redemption of bonds of $0.1 billion.

ArcelorMittal recorded an income tax expense of $185 million in 3Q 2019 as compared to an income tax expense of $14 million for 2Q 2019 and $178 million for 3Q 2018. The difference is primarily driven by 2Q 2019 recognition of deferred tax asset in Luxembourg due to the expectation of higher future profits.

ArcelorMittal recorded a net loss for 3Q 2019 of $0.5 billion (or $0.53 basic loss per common share), as compared to net loss for 2Q 2019 of $0.4 billion, (or $0.44 basic loss per common share), and a net income for 3Q 2018 of $0.9 billion, (or $0.89 basic earnings per common share).

Own iron ore production in 3Q 2019 decreased by 7.4% to 13.6Mt as compared to 14.6Mt in 2Q 2019, primarily due to lower production at ArcelorMittal Mines Canada7 (AMMC) following an electrical failure which led to a temporary stoppage of the concentrator and seasonally lower production (rainy season) at ArcelorMittal Liberia. Own iron ore production in 3Q 2019 decreased by 6.2% as compared to 3Q 2018 primarily due to lower AMMC and ArcelorMittal Volcan mine production offset in part by higher production in Kazakhstan.

Market-priced iron ore shipments in 3Q 2019 decreased by 14.7% to 8.4Mt as compared to 9.9Mt in 2Q 2019, primarily driven by lower shipments in AMMC due to production constraints following the temporary stoppage of the concentrator and seasonally lower market-priced iron ore shipments in Liberia. Market-priced iron ore shipments in 3Q 2019 were 1.5% lower as compared to 3Q 2018 driven by lower shipments in AMMC and at the Volcan mine, offset by higher shipments in Serra Azul and Liberia. Market-priced iron ore shipments for FY 2019 are expected to be stable as compared to FY 2018 with an increase in Liberia to be offset by lower volume at AMMC and Volcan mine.

Own coal production in 3Q 2019 of 1.4Mt was relatively stable as compared to 1.5Mt in 2Q 2019 primarily due to lower production at Princeton (US) offset in part by higher production in Temirtau (Kazakhstan). Own coal production in 3Q 2019 decreased by 2.1% as compared to 1.5Mt in 3Q 2018 due to lower production at Temirtau (Kazakhstan).

Market-priced coal shipments in 3Q 2019 increased by 4.9% to 0.7Mt as compared to 2Q 2019 and 4.7% as compared to 3Q 2018.

Operating income in 3Q 2019 decreased by 43.2% to $260 million as compared to $457 million in 2Q 2019 and increased by 45% as compared to $179 million in 3Q 2018.

EBITDA in 3Q 2019 decreased by 34.8% to $372 million as compared to $570 million in 2Q 2019, primarily due to the impact of lower market-priced iron ore shipments (-14.7%), lower iron ore quality premia, higher freight costs as well as the impact of lower seaborne marketable coking coal prices (-20.6%). EBITDA in 3Q 2019 was 32.5% higher as compared to $281 million in 3Q 2018, primarily due to higher seaborne iron ore reference prices (+52.6%) offset in part by lower market-priced iron ore shipments (-1.5%) and lower iron ore quality premia, as well as the impact of lower seaborne marketable coking coal prices (-14.4%).

For 3Q 2019 net cash provided by operating activities was $328 million as compared to $1,786 million in 2Q 2019 and $634 million in 3Q 2018. Net cash provided by operating activities in 3Q 2019 includes in part a working capital investment of $203 million as compared to a working capital release of $353 million in 2Q 2019 and a working capital investment of $1,713 million in 3Q 2018.

The Group invested more in working capital than expected in FY 2018 ($4.4 billion versus guidance of $3.0-3.5 billion) and continues to expect this additional investment of approximately $1 billion to be released in full in 2019. As a result, given the 9M 2019 investment of $0.4 billion, the Company expects at least a $1.4 billion release in the final quarter of 2019. The actual extent of any further changes in working capital in 2019, will however be dictated by market conditions, particularly the price and volume environment in the final weeks of the year.

Net cash used in investing activities during 3Q 2019 was $816 million as compared to $564 million during 2Q 2019 and $601 million in 3Q 2018. Capex increased to $941 million in 3Q 2019 as compared to $869 million in 2Q 2019 and $781 million in 3Q 2018. The Company continues to adapt its capex plans to the operating environment and now expects FY 2019 capex to be less than $3.5 billion (lower versus mid-year guidance of $3.8 billion).

Net cash provided by other investing activities in 3Q 2019 of $125 million primarily includes net proceeds from the sale of our remaining 2.6% stake in Gerdau ($116 million cash received following sale of 30 million shares) and final installment of disposal proceeds from ArcelorMittal USA's 21% stake in the Empire Iron Mine Partnership ($44 million), offset by the quarterly lease payment for ArcelorMittal Italia. Net cash provided by other investing activities in 2Q 2019 of $305 million primarily includes net proceeds from remedy asset sales for the ArcelorMittal Italia acquisition of $0.5 billion, offset by $0.1 billion partial reversal of the Indian rupee rolling hedge entered into in connection with the proposed acquisition of Essar10 and by the quarterly lease payment for the ArcelorMittal Italia acquisition.

Net cash provided by financing activities in 3Q 2019 was $659 million as compared to $180 million in 2Q 2019 and net cash used in financing activities in 3Q 2018 of $597 million. In 3Q 2019, net cash provided by financing activities includes a net inflow of $804 million primarily related to the net issuance and early redemption of bonds (see recent developments below). In 2Q 2019, net cash provided by financing activities included a net inflow of $0.5 billion for new bank financing. Net cash used in financing activities in 3Q 2018 of $597 million primarily includes payments relating to bond repurchases pursuant to cash tender offers ($0.6 billion).

During 3Q 2019, the Company paid dividends of $61 million mainly to minority shareholders in ArcelorMittal Mines Canada. During 2Q 2019, the Company paid dividends of $204 million mainly to ArcelorMittal shareholders. During 3Q 2018, the Company paid dividends of $37 million to minority shareholders in ArcelorMittal Mines Canada.

Outflows from lease principal payments and other financing activities (net) were $84 million for 3Q 2019 and 2Q 2019 respectively, as compared to $17 million in 3Q 2018. The increase year-on-year is as a result of the first-time application of IFRS 16 effective from January 1, 2019, as the repayments of the principal portion of the operating leases are presented under financing activities (previously reported under operating activities).

As of September 30, 2019, the Company’s cash and cash equivalents amounted to $3.6 billion as compared to $3.7 billion at June 30, 2019 and $2.4 billion at December 31, 2018.

Gross debt increased to $14.3 billion as of September 30, 2019, as compared to $13.8 billion at June 30, 2019 and $12.6 billion in December 31, 2018. As of September 30, 2019, net debt increased by $0.5 billion to $10.7 billion as compared to $10.2 billion as of June 30, 2019. Net debt was higher as of September 30, 2019 as compared to June 30, 2019 primary due to negative free cash flow (including a temporary working capital investment of $0.2 billion).

As of September 30, 2019, the Company had liquidity of $9.1 billion, consisting of cash and cash equivalents of $3.6 billion and $5.5 billion of available credit lines8. The $5.5 billion credit facility contains a financial covenant not to exceed 4.25x Net debt / LTM EBITDA (as defined in the facility). As of September 30, 2019, the average debt maturity was 5.1 years.

Posted by Oil & Gas 360