ArcelorMittal Form 6-K Summary: Interim Results for Six Months Ended June 30, 2020
Business Context and Reporting Period
This Form 6-K reports ArcelorMittal's interim management report and unaudited condensed consolidated financial statements for the six months ended June 30, 2020. ArcelorMittal is the world's leading integrated steel and mining company, operating in over 60 countries. The reporting period was significantly impacted by the global COVID-19 pandemic, which caused widespread lockdowns, a sharp decline in economic activity, and a collapse in steel demand, particularly in the Company's core markets of Europe and North America.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 |
|---|---|---|
| Sales | $25.8 billion | $38.5 billion |
| Operating Income (Loss) | ($606) million | $611 million |
| Net Loss Attributable to Equity Holders | ($1,679) million | ($33) million |
| Basic Loss Per Share | ($1.57) | ($0.03) |
| Net Cash Provided by Operating Activities | $896 million | $2,757 million |
| Capital Expenditures | $1.3 billion | $1.8 billion |
| Total Debt | $13.5 billion | $14.3 billion (Dec 31, 2019) |
| Net Debt | $7.8 billion | $9.3 billion (Dec 31, 2019) |
| Cash and Cash Equivalents | $5.7 billion | $5.0 billion (Dec 31, 2019) |
| Steel Shipments | 34.3 million tonnes | 44.6 million tonnes |
| Average Steel Selling Price | Down 14.7% vs. prior year | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Sales decreased 33% year-over-year, driven by a 23% drop in steel shipments and a 14.7% decline in average selling prices due to pandemic-induced demand destruction.
- Profitability Reversal: The Company swung from an operating income of $611 million in 2019 to an operating loss of $606 million in 2020. This was primarily caused by lower volumes, negative price-cost spreads, and inventory write-downs of $678 million (notably $462 million in NAFTA and $191 million in Europe).
- Segment Performance:
- NAFTA: Operating loss of $447 million (vs. $323 million loss in 2019), impacted by weak automotive and energy demand.
- Europe: Operating loss of $655 million (vs. $290 million loss in 2019), driven by lockdowns and a negative sales mix.
- Brazil: Operating income of $267 million (down from $473 million), though it remained profitable.
- Mining: Operating income of $450 million (down from $770 million), affected by lower market-priced iron ore shipments and lower coal prices.
- Balance Sheet: Net debt decreased to $7.8 billion from $9.3 billion at year-end 2019, aided by a $2 billion capital raise (equity and mandatorily convertible notes) in May 2020.
Guidance, Outlook, and Risks
- Outlook: Management expects demand to remain significantly below normal levels with an uncertain recovery pace. The Company is adapting production to market demand and maintaining flexibility to restart idled capacity. Fixed costs per tonne are not expected to increase as volumes recover.
- Cash Needs: The Company expects total cash needs (capex, interest, taxes, pensions) for 2020 to be $3.5 billion. First-half cash needs were $1.5 billion; second-half needs are projected at $2.0 billion.
- Dividends: The Board suspended dividend payments until the operating environment normalizes.
- Key Risks:
- Potential second wave of COVID-19 and renewed lockdowns.
- Volatility in raw material prices (iron ore, coal) versus steel selling prices.
- Legal proceedings, including the ArcelorMittal Italia (Ilva) acquisition conditions and antitrust investigations in Spain.
- Foreign exchange fluctuations impacting results.
Investor Verification Checklist
- Inventory Valuation: Verify the $678 million in inventory write-downs and the assumptions used for net realizable value given the volatile steel price environment.
- Liquidity Position: Confirm the availability of the $5.5 billion revolving credit facility and compliance with the 4.25x leverage ratio covenant.
- Capital Raise Terms: Review the terms of the $2 billion equity and mandatorily convertible notes (MCNs) offering, including conversion prices and dilution impact.
- Ilva Acquisition Status: Monitor the progress of the investment agreement with Italian state-sponsored entities, which is a condition precedent for the purchase of the former Ilva business units by November 30, 2020.
- Impairment Testing: Assess the sensitivity of goodwill and property, plant, and equipment valuations to further declines in steel prices or volumes beyond 2020.