ArcelorMittal 20-F Filing Summary: Fiscal Year Ended December 31, 2010
Business Context and Reporting Period
This Form 20-F is the annual report for ArcelorMittal, the world's largest steel producer, for the fiscal year ended December 31, 2010. The company is incorporated in Luxembourg and reports under International Financial Reporting Standards (IFRS). The filing covers operations across five reportable segments: Flat Carbon Americas, Flat Carbon Europe, Long Carbon Americas and Europe, Asia, Africa and CIS (AACIS), and Distribution Solutions. Notably, the stainless steel operations were spun off into a separate entity, Aperam, in January 2011 and are presented as discontinued operations in this report.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Sales (Continuing Operations) | $78,025 million | $61,021 million |
| Operating Income | $3,605 million | ($1,470 million) |
| Net Income (Attributable to Parent) | $2,916 million | $157 million |
| Net Cash from Operating Activities | $4,015 million | $7,278 million |
| Total Debt | $26.0 billion | $24.8 billion |
| Cash and Cash Equivalents | $6.3 billion | $6.0 billion |
| Crude Steel Production | 90.6 million tonnes | 71.6 million tonnes |
| Steel Shipments | 85.0 million tonnes | 69.6 million tonnes |
Margins: Operating margin for continuing operations improved to 4.62% in 2010 from a negative 2.41% in 2009. Earnings per share (basic) for continuing operations were $2.15 in 2010 compared to $0.15 in 2009.
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 28% year-over-year, driven by a 22% increase in steel shipments and a 9% increase in average selling prices, reflecting a global economic recovery.
- Profitability Turnaround: The company returned to profitability with $3.6 billion in operating income, reversing a $1.5 billion operating loss in 2009. This was aided by higher volumes and prices, though margins were pressured in the second half of 2010 by a "price-cost squeeze" as raw material costs rose faster than steel prices.
- Impairments: The company recorded $525 million in impairment charges in 2010, primarily related to coal mines in Russia ($305 million) and Distribution Solutions assets ($113 million), compared to $552 million in 2009.
- Financing Costs: Net financing costs decreased 23% to $2.2 billion, largely due to lower average net debt, despite higher interest rates.
Guidance, Outlook, and Risks
Outlook: Management expects global apparent steel consumption to grow by approximately 6.5% to 7% in 2011. Steel production is expected to be higher in 2011, particularly in the first half, as idled blast furnaces restart. However, global consumption is not expected to recover to 2008 peak levels until 2015.
Management Commentary: The recovery in 2010 was characterized by a strong first half followed by a price-cost squeeze in the second half due to high-cost raw material inventories. The shift from annual to quarterly benchmark pricing for iron ore and coal has increased cost volatility.
Key Risks:
- Debt Levels: Total debt stands at $26.0 billion with significant maturities in 2011 ($6.7 billion). The company maintains a leverage ratio of approximately 2.2 to 1, well below its 3.5 to 1 covenant limit.
- Raw Material Volatility: Exposure to fluctuating prices of iron ore, coal, and scrap, particularly given the shift to quarterly pricing mechanisms.
- Global Economic Conditions: Dependence on a slow and uncertain recovery in key markets like the U.S. and Europe.
- Environmental and Regulatory: Significant costs associated with compliance with environmental laws (e.g., EU Emissions Trading Scheme) and potential liabilities from remediation.
- Pension Obligations: Substantial underfunded pension liabilities, particularly in the U.S., Canada, and Europe, totaling a deficit of approximately $6.2 billion for post-employment benefits.
Investor Verification Checklist
- Debt Maturity Profile: Verify the company's ability to refinance $6.7 billion of debt maturing in 2011 given current credit market conditions.
- Raw Material Cost Pass-Through: Monitor the lag between rising raw material costs (iron ore/coal) and steel selling prices to assess margin sustainability.
- Pension Funding Requirements: Review Note 23 for specific cash contribution requirements for underfunded pension plans in the U.S., Canada, and Europe.
- Impairment Triggers: Assess the sensitivity of goodwill ($12.6 billion) and other intangible assets to further declines in steel prices or economic downturns.
- Discontinued Operations: Confirm the final financial impact of the stainless steel spin-off (Aperam) and any retained liabilities or assets.