ArcelorMittal — 2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing; the filing text does not provide a clear set of standalone Q4 financial results. Financial statements are audited and prepared under IFRS as issued by the IASB.
Business context and key financial metrics
ArcelorMittal is a global integrated steel and mining company, reporting five segments: NAFTA, Brazil, Europe, ACIS and Mining. It reported 89.8 million tonnes of crude steel production, 84.5 million tonnes of steel shipments, 57.1 million tonnes of iron ore production and 5.5 million tonnes of coal production in 2019.
| Metric | 2019 | 2018 |
|---|---|---|
| Sales | $70.615 billion | $76.033 billion |
| Gross margin | $1.728 billion | $9.008 billion |
| Operating income (loss) | $(627) million | $6.539 billion |
| Net income (loss), including non-controlling interests | $(2.391) billion | $5.330 billion |
| Net loss attributable to parent equity holders | $(2.454) billion | Net income of $5.149 billion |
| Basic earnings (loss) per share | $(2.42) | $5.07 |
| Net cash from operating activities | $6.017 billion | $4.196 billion |
| Capital expenditures | $3.572 billion | $3.305 billion |
| Cash and cash equivalents, including restricted cash | $4.995 billion | $2.354 billion |
| Total debt | $14.340 billion | $12.483 billion |
| Net debt | $9.345 billion | $10.129 billion |
| Total equity | $40.483 billion | $44.108 billion |
Operating cash flow benefited from a $2.2 billion operating working-capital release, compared with a $4.4 billion working-capital investment in 2018. The company had its full $5.5 billion revolving credit facility available at year-end. Gearing was 23.1%, and the company reported compliance with its 4.25-to-1 leverage covenant. The filing reports no material off-balance-sheet arrangements.
Material changes versus 2018
- Sales fell 7.1%, chiefly because average steel selling prices declined 9.6%; steel shipments rose 0.8%.
- The company swung from operating income of $6.5 billion to an operating loss of $627 million. Lower steel prices and higher raw-material costs compressed steel margins.
- Cost of sales included $1.9 billion of impairment charges and approximately $0.8 billion of inventory-related charges. The impairments included $1.3 billion for ArcelorMittal USA, $497 million related to ArcelorMittal Italia remedy-asset sales and charges in South Africa.
- Mining operating income improved to $1.215 billion from $860 million, supported by higher iron-ore prices; steel-segment results deteriorated substantially.
- Operating cash flow increased, while net debt declined by about $0.9 billion despite total debt rising. Cash and working-capital movements were important contributors.
Segment operating results were: NAFTA loss of $1.259 billion; Brazil income of $846 million; Europe loss of $1.107 billion; ACIS loss of $25 million; and Mining income of $1.215 billion.
Outlook, management commentary and risks
- Management forecast global apparent steel consumption growth of 1%–2% in 2020, with world ex-China growth of 2%–2.5%. China demand was expected to grow 0%–1%. These forecasts were expressly subject to uncertainty from the early-2020 coronavirus outbreak and could be revised downward.
- Management expected 2020 capital expenditures of about $3.2 billion, net interest expense of $0.5 billion and cash needs for specified items of $4.5 billion. It identified potential for a further $1 billion working-capital release if market conditions held, but gave no firm working-capital target.
- The company targeted $1 billion of additional cost improvements in 2020 and stated it was optimistic about reaching its revised $7 billion net-debt objective by year-end 2020. It proposed a $0.30-per-share 2020 base dividend, subject to shareholder approval.
- ArcelorMittal Italia: AM InvestCo notified the Commissioners of its intent to withdraw from or terminate the lease and purchase agreement after Italy removed legal protection relating to implementation of the environmental plan. Litigation and negotiations continued, operations remained consolidated, and management could not assure an agreement or its outcome. Losses, capital commitments and potential legal exposure remain relevant.
- AMNS India: Acquired through a 60%-owned joint venture with Nippon Steel in December 2019 and accounted for under the equity method. The turnaround and capital program are substantial; the venture had bridge financing guaranteed by ArcelorMittal. The filing reports $2.204 billion drawn under the facility at year-end and $3.046 billion outstanding as of February 10, 2020; ArcelorMittal also reported significant guarantees for joint ventures and associates.
- Other principal risks include steel and raw-material price volatility, structural industry overcapacity, trade restrictions and import competition, operational disruptions, environmental and carbon-regulation costs, litigation, currency volatility, pension obligations, and possible further impairment charges. Deferred tax assets totaled $8.680 billion and depend on future taxable profits; management estimated at least $34.8 billion of future income was needed to recover Luxembourg deferred tax assets.
- The company reported 21 workplace fatalities in 2019. It also disclosed environmental events and investigations, including a water-system failure at Burns Harbor and the precautionary evacuation of communities downstream of the Serra Azul tailings dam.
- Management reported $2.0 billion of cumulative Action 2020 improvements through 2019, while noting that lower volumes offset some cost and product-mix gains. The company sold a 50% stake in Global Chartering, reducing net debt by $0.4 billion at year-end, with a further expected $0.1 billion reduction in early 2020.
Most important facts for investors to verify
- Whether 2020 demand, price-cost spreads and the coronavirus impact supported management’s outlook and $7 billion net-debt objective.
- The status, legal outcome, operating losses and remaining investment obligations for ArcelorMittal Italia, including the Taranto emissions order and negotiations with the Commissioners.
- AMNS India’s operating turnaround, capital requirements, bridge-financing balance and the extent of ArcelorMittal’s guarantees and funding exposure.
- The assumptions underlying the $1.3 billion U.S. impairment, other impairment charges, and recoverability of goodwill and deferred tax assets.
- Cash conversion and working-capital sustainability, including reliance on receivables-sale programs; $4.436 billion of trade receivables had been sold and remained outstanding at year-end.
- Environmental, pension and contractual exposures, including $3.836 billion of guarantees for joint ventures and associates and $40.348 billion of disclosed contractual obligations.
The independent auditor issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting. The audit report highlighted valuation of goodwill and property, plant and equipment, and valuation of deferred tax assets as critical audit matters.