ArcelorMittal Reports Flat Quarterly Results
ArcelorMittal (NYSE:MT) reported its first quarter results and conducted a conference call with analysts on May 9. Quarterly revenues were more or less flat sequentially and year-over-year at $19.8 billion. Steel shipments rose 2.4% sequentially and year-over-year to 21 million tonnes. The company reported a net loss of $0.2 billion in Q1 2014 against a net loss of $0.3 billion in Q1 2013 and a net loss of $1.2 billion in Q4 2013. EBITDA for Q1 2014 stood at $1.8 billion, 23% higher than the reported figure for Q1 2013 on an underlying basis. The significant improvement in EBITDA despite flat sales reflects the success of the company’s cost optimization efforts. [1]
The company maintained its previous guidance on EBITDA, steel shipment volumes, iron ore shipment volumes and iron ore prices for 2014. The company also maintained its previous guidance on capital expenditure.
ArcelorMittal continued its policy of divesting non-core assets with the divestment of its stake in logistics company ATIC Services in April. The policy of divesting non-core assets is part of the company’s efforts to manage its net debt. The company reaffirmed its commitment to its medium term net debt target of $15 billion. ((ArcelorMittal Signs Sale And Purchase Agrement For Sale Of ATIC Stake, ArcelorMittal Press Release))
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Performance Across Segments
ArcelorMittal has changed its organizational structure with effect from January 1, 2014. Its reportable segments now have a greater geographical focus. The new reportable segments are North American Free Trade Agreement (NAFTA), Brazil, Europe, Africa & Commonwealth of Independent States (ACIS) and Mining. The NAFTA segment includes the Flat, Long and Tubular operations of the U.S., Canada and Mexico. The Brazil segment includes the Flat operations of Brazil, and the Long and Tubular operations of Brazil and its neighboring countries including Argentina, Costa Rica, Trinidad and Tobago and Venezuela. The Europe segment includes the Flat, Long and Tubular operations of the European business, as well as the Distribution Solutions (AMDS) business. The ACIS division is largely unchanged, barring the addition of some Tubular operations. The Mining segment remains unchanged.
The NAFTA segment contributed around 25% of the company’s revenues in Q1 2014. Steel shipments stood at 5.6 million tonnes, a decline of 2% as compared to Q4 2013 primarily due to weather related issues. Sales in the NAFTA segment stood at $4.9 billion, 1.3% lower than in Q4 2013. The effect of lower steel shipments was partially offset by a higher average steel selling price of $840 per tonne, which was 1.8% higher than in Q4 2013.
The Brazil segment contributed around 12% of the company’s revenues in Q1 2014. Steel shipments stood at 5.6 million tonnes, a decline of 0.8% as compared to Q4 2013. This was primarily because of lower flat shipment volumes due to operational issues in the hot strip mill in Tubarao, offset by seasonally stronger long products shipment volumes. Sales in the Brazil segment stood at $2.4 billion, 7.1% lower than in Q4 2013. This was primarily due to a 9.3% decline in average steel prices, caused mainly due to lower tubular steel prices as a result of currency devaluation.
The Europe segment contributed around 52% of the company’s revenues in Q1 2014. Steel shipments stood at 10 million tonnes, an increase of 5.6% as compared to Q4 2013 primarily due to seasonality and improved underlying demand. Sales in the Europe segment stood at $10.3 billion, 2.9% higher than in Q4 2013. This was primarily due to higher shipments, with average steel prices remaining stable at $808 per tonne.
The ACIS segment contributed around 10% of the company’s revenues in Q1 2014. Steel shipments stood at 3.2 million tonnes, an increase of 5.9%. This was primarily due to a seasonal pick-up in demand in South Africa and higher shipment volumes in Kazakhstan, offset by lower volumes in Ukraine. Sales in the ACIS segment stood at $2 billion, 1.6% higher than in Q4 2013. The effect of higher steel shipments was partially offset by a lower average steel selling price of $567 per tonne, which was 4.4% lower than in Q4 2013.
In the mining segment the company’s own iron ore production was 14.8 million tonnes, 3.6% lower than in Q4 2013. Shipments at market price stood at 9.3 million tonnes, 9% lower than in Q4 2013. Lower production and shipments at market price were primarily due to severe winter conditions affecting the company’s Canadian operations. The company’s own coal production stood at 1.8 million tonnes, 10.5% lower than in Q4 2013, primarily due to adverse weather conditions affecting the U.S. operations and operational issues at the company’s Russian mines. [2]
Cost Savings And Net Debt
The company’s cost optimization efforts yielded savings of $1.1 billion in 2013. The company is set to continue with its emphasis on reducing costs with $2 billion and $3 billion in savings targeted in 2014 and 2015 respectively.
Post the downgrade of ArcelorMittal’s debt to junk status by major rating agencies, the company has been concentrating on reducing its debt, selling off non-core assets, idling excess production capacity and cutting costs across divisions. Net debt at the end of Q1 2014 rose to $18.5 billion from $16.1 billion at the end of Q4 2013. This was primarily due to investments in working capital, early redemption of perpetual securities and the acquisition of ThyssenKrupp’s steel operations in Alabama. The company is focused on achieving its net debt target of $15 billion in the medium term. The announcement of Arcelor Mittal’s plan to divest its stake in ATIC Services, a European port handling and logistics company, is consistent with the company’s stated objective of achieving its net debt target. [3]
Outlook
The company maintained its previous guidance of a 3% rise in steel shipments and a 15% rise in marketable iron ore shipments in 2014. It expects a moderate improvement in steel margins primarily due to its cost optimization program. The company increased its iron ore production capacity target from 84 million tonnes to 95 million tonnes by 2015 due to an additional 5 million tonnes per annum and 6 million tonnes per annum potential identified at its operations in Liberia and Canada respectively. It maintained its capital expenditure target of $3.8-4 billion for 2014. The company also maintained its EBITDA target of $8 billion for 2014. This figure is based upon an average iron ore price of $120 per tonne (for 62% Fe CFR China). We expect iron ore prices to remain under pressure due to rising iron ore inventories at ports and weak end demand in China and an oversupply situation at a global level. Iron ore prices recently plummeted to their lowest levels since September 2012 at $103.70 per tonne. The realization of the company’s targets will depend upon how iron ore prices pan out during the rest of the year. [4]
Notes:
- ArcelorMittal’s Q1 2014 Earnings Conference Call Transcript, Seeking Alpha [↩]
- ArcelorMittal’s Q1 2014 6-K, SEC [↩]
- ArcelorMittal’s Q1 2014 Earnings Presentation, Arcelor Mittal Website [↩]
- Iron Ore Price Crashes To Lowest Since September 2012, Mining.com [↩]