Business context and reporting period
ArcelorMittal’s Form 20-F reports the audited fiscal year ended December 31, 2018, under IFRS as issued by the IASB. Although the request identifies 2018 Q4, the supplied filing text does not provide a complete standalone fourth-quarter income statement or cash flow; the principal comparisons below are annual, with selected second-half commentary. ArcelorMittal is a global integrated steel and mining group reporting five segments: NAFTA, Brazil, Europe, ACIS and Mining.
Key financial metrics
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Sales | $76.0 billion | $68.7 billion |
| Operating income | $6.5 billion | $5.4 billion |
| Operating margin | 8.6% | 7.9% |
| Net income attributable to parent equity holders | $5.1 billion | $4.6 billion |
| Basic earnings per share | $5.07 | $4.48 |
| Net cash from operating activities | $4.2 billion | $4.6 billion |
| Capital expenditures | $3.3 billion | $2.8 billion |
| Cash and cash equivalents, including restricted cash | $2.4 billion | $2.8 billion |
| Total debt, including debt held for sale | $12.6 billion | $12.9 billion |
| Net debt | $10.2 billion | $10.1 billion |
The company also had $5.5 billion available under its revolving credit facility. Operating cash flow less capital expenditures was approximately $0.9 billion in 2018, versus $1.7 billion in 2017; this simple calculation is not a company-reported free-cash-flow measure. Net financing costs rose to $2.2 billion from $0.9 billion, including mark-to-market losses on the mandatory convertible bond call option and foreign-exchange losses. The company was in compliance with its 4.25-to-1 leverage covenant at year-end.
Material changes versus the prior comparable period
- Sales rose 10.7%, mainly reflecting a 13.5% increase in average steel selling prices; steel shipments fell 1.6% to 83.9 million tonnes.
- Operating income increased 20.3%. Higher steel prices and positive price-cost effects were partly offset by lower mining income, operational disruptions and impairment charges.
- Operating cash flow declined by $367 million, principally due to a $4.38 billion operating-working-capital investment, including higher inventory and receivables.
- Crude steel production was 92.5 million tonnes versus 93.1 million tonnes. Unplanned disruptions reduced shipments by approximately 2.5 million tonnes.
- Segment operating income increased in NAFTA, Brazil and ACIS, but declined in Europe and Mining. Europe recorded $908 million of impairment charges; Mining operating income fell to $860 million from $991 million.
Outlook, management commentary, risks and unusual items
- Outlook: Management expected global apparent steel consumption to grow 0.5%–1.0% in 2019, with China forecast to decline 0.5%–1.5%. Steel shipments were expected to increase, assuming 2018 disruptions did not recur. Market-priced iron ore shipments were expected to be broadly stable.
- Investment and working capital: 2019 capital expenditures were forecast at approximately $4.3 billion. Management expected some of the higher-than-guided 2018 working-capital investment to be released during 2019, dependent on market conditions.
- Action 2020: The plan targets a $3 billion operating-income improvement. Cumulative benefits were reported at $1.6 billion; 2018 cost and product-mix savings were substantially offset by disruptions and lost volumes.
- Transactions: Ilva was acquired on November 1, 2018. The transaction includes substantial industrial and environmental investment commitments and required divestitures; $888 million of impairment was recorded against remedy assets. Votorantim’s Brazilian long-steel business was acquired in April 2018. ArcelorMittal’s proposed ESIL acquisition in India remained subject to judicial approval; the resolution plan included approximately $6.8 billion of debt resolution and capital funding, a further $2.8 billion of planned investment, and a $567 million performance guarantee.
- Unusual items: Results included a $209 million bargain-purchase gain on Ilva, a $202 million Brazilian PIS/Cofins tax-credit benefit, a $146 million German cartel-case provision, $113 million for Florange dismantling and $60 million of U.S. labor-agreement charges. The $1.0 billion total impairment charge was primarily associated with Ilva and Votorantim remedy disposals.
- Key risks and contingencies: Steel and iron-ore price volatility, global overcapacity, trade restrictions, raw-material cost timing, foreign-exchange movements, operational interruptions and environmental regulation may affect results. The filing reports a technical default at joint venture Al Jubail after another shareholder failed to provide required funding; ArcelorMittal’s $397 million guarantee had not been called, and management expected the issue to be cured. Environmental provisions were $1.2 billion, excluding $422 million of asset-retirement obligations. In February 2019, the company evacuated 119 residents downstream from its dormant Serra Azul tailings dam as a precaution while conducting further testing. ArcelorMittal reported 10 work-related fatalities in 2018.
- Other: A proposed 2019 base dividend of $0.20 per share was subject to shareholder approval. The company expected IFRS 16 adoption to add approximately $1.1 billion of lease liabilities and right-of-use assets from January 1, 2019.
Most important facts for investors to verify
- Confirm the annual figures against the audited statements; standalone Q4 results are not clearly provided in the supplied filing text.
- Track working-capital conversion, particularly inventory levels and the expected 2019 cash release, alongside shipment recovery.
- Verify progress on Ilva’s integration, environmental remediation and capital commitments, and completion and proceeds of the required divestitures.
- Check the status and final financing and guarantee exposure of the proposed ESIL acquisition, and the resolution of Al Jubail’s technical default.
- Assess the adequacy and timing of environmental, litigation, pension and tailings-related obligations, including Serra Azul follow-up findings.
- Confirm shareholder approval of the proposed $0.20-per-share dividend and monitor the effect of IFRS 16 on reported debt and leverage.