ArcelorMittal Form 6-K Summary: Six Months Ended June 30, 2018
Business Context and Reporting Period
This report covers the unaudited condensed consolidated financial statements and management discussion for ArcelorMittal, the world's leading integrated steel and mining company, for the six months ended June 30, 2018. The Company operates in over 60 countries with steel-making facilities in 18 nations. The reporting period reflects a global economic environment characterized by accelerating growth, rising steel demand, and significant trade policy shifts, including the implementation of Section 232 tariffs in the United States.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 |
|---|---|---|
| Sales | $39.2 billion | $33.3 billion |
| Operating Income | $3.93 billion | $2.97 billion |
| Net Income (Parent Equity Holders) | $3.06 billion | $2.32 billion |
| Earnings Per Share (Basic) | $3.01 | $2.28 |
| Operating Margin | 10.0% | 8.9% |
| Steel Shipments | 43.1 million tonnes | 42.5 million tonnes |
| Crude Steel Production | 46.5 million tonnes | 46.8 million tonnes |
| Net Debt | $10.5 billion | $10.1 billion (Dec 31, 2017) |
| Cash and Cash Equivalents | $3.1 billion | $2.8 billion (Dec 31, 2017) |
| Operating Cash Flow | $1.39 billion | $0.92 billion |
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 17.6% year-over-year, driven primarily by a 16.7% increase in average steel selling prices and a 1.3% increase in steel shipments.
- Profitability: Operating income rose 32.5% to $3.93 billion. The operating margin expanded to 10.0% from 8.9% due to favorable price-cost spreads, particularly in the NAFTA and Europe segments.
- Segment Performance:
- NAFTA: Sales up 11.5% and operating income up 25.1%, supported by Section 232 tariffs and strong U.S. demand.
- Brazil: Sales up 21.3% and operating income up 92.6%, aided by the integration of Votorantim Siderurgia and higher prices.
- Europe: Sales up 21.6% and operating income up 11.2%, despite a $146 million provision for a German Cartel Office settlement.
- ACIS: Sales up 15.6% and operating income up 260.5%, driven by higher prices offsetting lower shipments.
- Mining: Operating income declined 25.9% to $440 million due to lower market-priced coal shipments and higher input costs.
- Unusual Items: Operating income was negatively impacted by an $86 million impairment related to the Votorantim acquisition remedy package and a $146 million provision for the German Cartel Office settlement. Conversely, a $603 million deferred tax income in Luxembourg (due to share capital currency change) reduced the consolidated income tax expense.
Guidance, Outlook, and Risks
- Outlook: ArcelorMittal expects global apparent steel consumption (ASC) to grow between 2.0% and 3.0% in 2018. Regional forecasts include 2.0-3.0% growth for the U.S. and Europe, and 1.0-2.0% for China.
- Cash Needs: Total cash needs for 2018 are estimated at $5.8 billion, comprising $3.7 billion in capital expenditures, $0.6 billion in net interest, and $1.5 billion in other cash needs (primarily taxes).
- Deleveraging: The Company maintains a net debt target of $6 billion. Progress is expected to accelerate absent further working capital investment.
- Shareholder Returns: The Company resumed dividends ($0.10 per share) and completed a $226 million share buyback in March 2018.
- Risks and Contingencies:
- Trade Policy: Risks associated with widening tariffs and potential retaliation impacting global trade and demand.
- Ilva Acquisition: The acquisition of Ilva (Italy) is subject to divestment commitments and closing conditions, with a target closing in Q3 2018.
- Legal Proceedings: Significant ongoing litigation includes tax disputes in Brazil and Argentina, and the German antitrust settlement.
- Raw Material Volatility: Continued exposure to fluctuations in iron ore, coking coal, and energy prices.
Key Facts for Investor Verification
- Ilva Transaction Status: Verify the timeline for the closing of the Ilva acquisition and the execution of required asset divestments (e.g., Piombino, Galati, Ostrava).
- Working Capital Trends: Monitor the $3.1 billion increase in operating working capital, driven by seasonal inventory and receivables, to assess future cash flow pressure.
- Section 232 Tariff Impact: Assess the sustainability of the margin expansion in the NAFTA segment as tariff exemptions expire and trade dynamics evolve.
- Debt Maturity Profile: Review the repayment schedule, noting $3.3 billion in debt due in 2018 and the impact of recent credit rating upgrades (S&P, Moody's, Fitch) on borrowing costs.
- Argentina Hyperinflation: Confirm the financial impact of applying hyperinflationary accounting to Argentinian operations, effective July 1, 2018.