ArcelorMittal reports results for the first quarter 2016

ArcelorMittal (referred to as “ArcelorMittal” or the “Company”) (MT (New York, Amsterdam, Paris, Luxembourg), MTS (Madrid)), the world’s leading integrated steel and mining company, today announced results[1] for the three month period ended March 31, 2016.

Highlights:

• Health and safety: LTIF rate of 0.72x in 1Q 2016, lower as compared to 0.83x in 4Q 2015 and 0.88x in 1Q 2015
• EBITDA of $0.9 billion in 1Q 2016; 15.9% lower as compared to 4Q 2015 primarily reflecting the lagged effect of weak steel pricing, offset in part by higher steel shipments
• Net loss of $0.4 billion in 1Q 2016 as compared to net loss of $6.7 billion in 4Q 2015. Excluding exceptional and non-cash items[2], adjusted net loss was $0.2 billion in 1Q 2016 as compared to adjusted net loss of $0.4 billion in 4Q 2015
• Steel shipments of 21.5 Mt in 1Q 2016, an increase of 8.8% compared to 4Q 2015, and stable as compared 1Q 2015
• 1Q 2016 iron ore shipments of 13.1 Mt (-2.2% YoY), of which 7.8 Mt shipped at market prices (-16.8% YoY, reflecting revised focus on more cost-competitive operations)
• 1Q 2016 iron ore production of 14.1 Mt (-9.1% YoY); AMMC production of 6Mt (+7.2% YoY) and on track for FY’16 iron ore shipped at market prices >26Mt
• Net debt higher at $17.3 billion as of March 31, 2016, as compared to $15.7 billion as of December 31, 2015, due largely to seasonal working capital investment ($1.2 billion) and forex ($0.5 billion). Giving effect to the sale of ArcelorMittal’s stake in Gestamp[3], and the proceeds from the successful rights issue, pro-forma net debt as of March 31, 2016 was $13.3 billion[4]

Strategic update:

• Rights issue complete: On April 8, 2016, ArcelorMittal closed its rights issue raising €2.8 billion[5] ($3.2 billion)
• Calvert: Ramp up progressing well with automotive certifications ongoing and increased capacity utilization; slab yard expansion of Bay 4 and minor installations for Bay 5 complete
• Action 2020 plan underway: In the US we are moving forward with plans to streamline and optimize our US operations, building on the core strengths of each facility. In Europe we are progressing with the Transformation plan, and having established the Cluster Leading Plants we are in the process of moving processes and resources away from the satellite finishing sites. At the 2016 AGM, shareholders approved a new long-term incentive plan tied to the achievement of Action 2020 improvement targets
• Portfolio Optimization: The Company agreed to the sale of its LaPlace and Vinton Long Carbon facilities in the US during 1Q 2016; partial closure of Zumarraga (Spain)

Outlook and guidance:

• The Company expects FY 2016 EBITDA to be in excess of $4.5 billion
• The impact of the improving steel spread environment is expected to be fully reflected in the results of the second half of the year
• Improving market conditions are likely to consume working capital in 2016 (current estimate of ~$0.5 billion); the Company nevertheless, expects to be free cash flow positive in 2016

Financial highlights (on the basis of IFRS[1]):

Commenting, Mr. Lakshmi N. Mittal, ArcelorMittal chairman and CEO, said:

“Our results for the first quarter reflect the very tough operating conditions in the second half of 2015. Since that time we have seen a recovery in spreads in our core markets to more sustainable levels, which is expected to result in improved results in the coming quarters. This is a welcome development, although given the levels of excess capacity in China the market remains fragile and we must continue to be vigilant and active against the threat of unfair trade.

Following the successful completion of the $3.2 billion rights issue, the Company has a sector-leading balance sheet. Our priority now is to improve the structural earnings capability of the group through our five year strategic plan, Action 2020, which will drive significant improvements in both EBITDA and cash-flow over the longer-term.”

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[1]The financial information in this press release has been prepared consistently with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The interim financial information included in this announcement has been also prepared in accordance with IFRS applicable to interim periods, however this announcement does not contain sufficient information to constitute an interim financial report as defined in International Accounting Standards 34, “Interim Financial Reporting”. The numbers in this press release have not been audited. The financial information and certain other information presented in a number of tables in this press release have been rounded to the nearest whole number or the nearest decimal. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in this press release reflect calculations based upon the underlying information prior to rounding and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers. This press release also includes certain non-GAAP financial measures.
[2]See appendix 5: Reconciliation of net loss to adjusted net (loss)/ income for details of exceptional items and impairments.
[3]On February 5, 2016 ArcelorMittal announced it had sold its 35% stake in Gestamp Automoción (“Gestamp”) to the majority shareholder, the Riberas family, for a total cash consideration of €875 million. The transaction is unconditional and payment is expected to be made to ArcelorMittal within six months. In addition to the cash consideration, ArcelorMittal is expected to receive in 2Q 2016 a payment of $11 million as a 2015 dividend. ArcelorMittal will continue its supply relationship with Gestamp through its 35% shareholding in Gonvarri, a sister company of Gestamp. ArcelorMittal sells coils to Gonvarri for processing before they pass to Gestamp and other customers. Further, ArcelorMittal will continue to have a board presence in Gestamp, collaborate in automotive R&D and remain its major steel supplier.
[4]Includes proceeds from Gestamp sale $1.0 billion; Rights issue $3.2 billion and premium paid on early repayment of debt subsequent to rights issue of $0.1 billion.
[5]Based on exchange rate (€/$ 1.1250).
[6]Impairment charges for 4Q 2015 were $4.7 billion including $3.4 billion within the Mining segment consisting of: $0.9 billion with respect to goodwill and $2.5 billion primarily related to fixed assets mainly due to a downward revision of cash flow projections relating to the expected persistence of a lower raw material price outlook at: ArcelorMittal Liberia ($1.4 billion); Las Truchas in Mexico ($0.2 billion); ArcelorMittal Serra Azul in Brazil ($0.2 billion); ArcelorMittal Princeton coal mining operations in the United States ($0.7 billion); and $1.4 billion within the Steel segments consisting of: fixed asset impairment charges of $0.2 billion related to the intended sale of the Long Carbon facilities in the US (ArcelorMittal LaPlace, Steelton and Vinton within the NAFTA segment), $0.4 billion primarily in connection with the idling for an indefinite time of the ArcelorMittal Sestao plant in Spain (Europe segment), and $0.8 billion related to: NAFTA: Deployment of asset optimization programs at Indiana Harbor East and West in the United States ($0.3 billion); Brazil: ArcelorMittal Point Lisas in Trinidad and Tobago ($0.2 billion) which had been indefinitely idled; and ACIS: Saldanha plant in South Africa as a result of its revised competitive outlook ($0.3 billion).
[7]Effective January 1, 2016, the Company discontinued the use of the SICAD rate (13.5VEF/$ as of December 31, 2015), which was eliminated by the Venezuelan government, and applied the DICOM rate (previously known as SIMADI) which was 273 VEF/$ at March 31, 2016 to translate the financial statements of its Venezuelan operations from VEF to USD.
[8]Under the amended agreement, between Sishen Iron Ore Company Pty) Ltd and ArcelorMittal South Africa the latter will pay market price (EPP) for iron ore and will therefore no longer contribute towards stripping costs. Accordingly at December 31, 2015, the “deferred stripping pre-payment asset” was derecognised and written off through profit and loss.
[9]As reported in prior periods, and dating back to 2007, the Competition Commission (“the Commission”) has referred five cases to the Competition Tribunal and is formally investigating one further complaint against ArcelorMittal South Africa. The Company has since engaged with the Commission and has made significant progress regarding a possible overall settlement and is in the process of finalizing a detailed settlement agreement. Whilst the draft settlement agreement is still subject to final approval by the Commission and the Competition Tribunal, a provision of R1,245 million representing the present value of a proposed administrative penalty of R1,500 million has been recognized. The Company has, subject to certain conditions being agreed upon with the Commission, proposed to pay the administrative penalty over a period of 5 years subject to appropriate interest.
[10]Following the sale of a 5% stake to Valin Group as a result of the exercise of the third put option on February 8, 2014, the Company’s interest in Hunan Valin decreased from 20% to 15%. On August 6, 2014, the Company exercised the fourth and final instalment, which subsequently led to the decrease in its stake in Hunan Valin from 15% to 10%. The Company received cash from the third and fourth instalment of $108 million both in the fourth quarter of 2014 and first quarter of 2015, respectively.
[11]On December 9, 2013, ArcelorMittal signed an agreement with Kiswire Ltd. for the sale of its 50% stake in the joint venture Kiswire ArcelorMittal Ltd in South Korea and certain other entities of its steel cord business in the US, Europe and Asia for a total consideration of $169 million. The net proceeds received in 2Q 2014 were $39 million being $55 million received in cash during the quarter minus cash held by steel cord business. Additionally, $28 million of gross debt held by the steel cord business had been transferred. During 1Q 2015, the Company received $45 million and the final instalment of $47 million received in 2Q 2015.
[12]On January 15, 2016, ArcelorMittal South Africa completed a rights offer for ZAR 4.5 billion fully underwritten by ArcelorMittal followed by an issuance of new shares on January 18, 2016. Out of the 692,307,693 rights offer shares which were offered to shareholders, a total of 471,604,240 new ArcelorMittal shares, being 68.1% of the rights offer, were applied for in terms of the rights offer. ArcelorMittal subscribed for its proportional entitlement of the rights offer of 342,133,922 shares amounting to ZAR 2,223,870,495 and, pursuant to its underwriting obligation, subscribed for a further 220,655,076 new ArcelorMittal South Africa shares, amounting to ZAR 1,434,257,994. As a result of this transaction, the shareholding interest of ArcelorMittal in ArcelorMittal South Africa increased from 52.02% to 70.55%.
[13]Assets and liabilities held for sale, as of March 31, 2016 and as of December 31, 2015, include the carrying value of ArcelorMittal Algeria (investment stake of 49%), ArcelorMittal Tebessa (investment stake of 49%), ArcelorMittal Pipes and Tubes Algeria (70% control), the USA long product facilities at Steelton, Vinton and ArcelorMittal LaPlace and some activities of ArcelorMittal downstream solutions in the Europe segment.
[14]Exceptional charges for 4Q 2015, primarily included $0.8 billion inventory related charges following the rapid decline of international steel prices and $0.1 billion of litigation and other costs in South Africa.
[15]Effective 1Q 2016, changes in operating working capital in the cashflow statement includes certain other amounts payable that were previously classified as part of the other operating activities line. Prior period figures have been recasted accordingly.