ArcelorMittal SA (MT) 2015 Q4 法說會逐字稿

Okay. Daniel, you can start now.

Thank you very much. Good morning and good afternoon everybody. This is Daniel Fairclough again from the ArcelorMittal Investor Relations team. Thank you very much for joining us today for this dedicated conference call to cover the fourth quarter and 2015 results.

This morning, we announced that we are planning a rights offering. And we've just discussed that on an earlier call today. So for legal reasons, we will not be discussing the proposed offering on this call and I would refer you to the press release for specific details.

This call will be solely focused on discussing our fourth quarter and 2015 results. There has been a presentation available since this morning with the prepared remarks of Mr. Mittal and Aditya. So we won't be going through that again. But, I will hand over the call at this stage to Mr. Mittal.

Thank you, Daniel. And welcome once again, those who have joined to this call, for the fourth quarter 2015 and full year results. As Daniel said that we had pre-recorded our messages for the fourth quarter and 2015 results this morning. And most of you had chance to listen to it, and we are not going to repeat that same presentation. And Adit will go through performance and financial highlights for 2015 and also give you guidance for 2016.

Just to remind you that I'm also joined in this call apart from Adit, with Lou, Simon, Davinder Chugh and Genuino Christino. So, all of us are here in the room to answer your questions. Thank you. Adit?

Thank you. In terms of 2015, EBITDA came in at $5.2 billion and Q4 was at $1.1 billion. The primary driver, reduction year-on-year, was clearly lower iron ore prices, lower steel prices. Q4 especially was also impacted by lower shipment volumes. If there's any more detail you want on those results, we will be happy to address it in the Q&A session.

I will just turn to guidance now. That has not been addressed yet. So, in terms of guidance, I guess, starting with what we indicated at the third quarter results, the combination of our own actions and known developments are expected to support our EBITDA in 2016 by $1 billion relative to the fourth quarter 2015 annual run rate level.

Due to order book and the time lag required for lower raw material costs to positively impact cost of sales, EBITDA is actually expected to sequentially decline in Q1 2016. Based on the assumption of prevailing raw material costs and spot steel spreads, the Company expects 2016 EBITDA to be in excess of $4.5 billion. This guidance does not capture any upside to current market conditions. In addition, given the reduced cash requirements of the business, the Company continues to expect to make deleveraging progress during the year.

We expect lower CapEx spend in 2016 of approximately $2.4 billion versus $2.7 billion in 2015. Interest expenses are also expected to be lower in 2016 to be approximately $1.1 billion versus $1.3 billion in 2015. Together, with no dividend in respect to the 2015 financial year and lower pension and taxes, these actions will reduce the cash requirements of the business in 2016 in excess of $1 billion as compared to 2015.

In summary, these actions reduced the level of free cash flow breakeven to $4.5 billion and is expected to ensure that the Company continues to generate positive free cash flow, reduced net debt and maintain strong liquidity.

With those brief remarks, we are happy to answer your questions.

Thank you Aditya sir. (Operator Instructions). Alan Spence, Jefferies.

Okay. Mr. Alan Spence, may we have your question, please?

Rosenfeld at Jefferies. Just a couple of questions. Starting out on the mining side, mining cost cutting has come in stronger than expected in the last year. But can you just comment on how this is distributed by region? I know [you've flied] in the past success of AMMC, in particular. I like to better understand what's happening at your vertically integrated operations in NAFTA and in ACIS? Are you seeing probably stable cost there or is that moving in line with the broader group?

Then secondly, on the Gestamp sale valuation, EUR875 million sales price seems admittedly quite high in light of only about EUR50 million of attributable JV income you've seen in the past. Can you just confirm if there is any change in your fuel supply agreement with Gestamp that came along with the sale? If bluntly put, are you giving up anything in your long-term arrangements in order to secure this high sales price?

And then lastly, if any of you can comment a bit on the outlook for your automotive steel contract negotiations either in the US or in Europe, commentary from some of your US peers to earning season, was that [price coming down] significantly, but better than the spot market. Can you just provide a little bit of guidance [on which will be a] modeling for you?

You've seen already that we had a promise, I guess, for the year of 15% year-on-year improvement in costs and mining reported 20% for 2015. It's been a systematic approach to debottlenecking. It's not about short-term, it's about sustainable cost reduction and categorically that exists across all mines. The Kuzbass mines are as equally important as you referred to as AMMC. That's why the value driver is downstream into steel business type for ArcelorMittal.

So, the same actions are underway in all mines, that's right from productivity, efficiency, as I mentioned, debottlenecking and also looking at products and product types, product mix, as we've been doing in Canada, looking at reducing the number of pellet grades and also how do we act more efficiently through continuous improvement on operations.

The continuous improvement drivers coming from Canada, we're now winding out those learnings around the next level of taking high hanging fruit through to the assets through to the ACIS. So it's a very broad-based program. We've indicated a 10% promise for 2016. We have every challenge ahead of us to aggressively try and break that marker.

On the auto contracts, obviously, it's inappropriate for us to be too specific about this, but I will say that currently we have about a little over 60% of our auto volumes for 2016 are under contract. So we renegotiate contracts really throughout the year. I think traditionally that's been beneficial to both sides if you will. I'll just put that up.

And other than that, I would concur what you've heard, what you indicated you heard on other calls, which is clearly these move with the market to some degree, but I think particularly in an environment like the US, where we have seen such a sharp drop in spot prices. Certainly, the contract prices in all segments, including automotive, are stickier than what you see in the spot market.

So, maybe very quickly, [auto EU] and then Gestamp. So auto EU, I think what we need to do is focus on the spread because clearly in Europe, cost come down with raw materials coming down, iron ore and coal and others. And so there is some compression in spreads. But clearly, as mentioned earlier, the overall market in terms of HAV products remains very attractive.

In terms of Gestamp, the good news is there is actually no change in our supply agreements, supply relationships and there is no other value transfer, which is occurring. We actually do not have any other contract with Gestamp directly. The contract is actually with its sister company called Gonvarri which is a service center which supplies service steel into the Gestamp hot stamping network.

In terms of valuation, I would -- I agree with you that from an equity income perspective, it looks very attractive, but Gestamp is a very fast growing company as well, and it's been very impressive to see its growth. It's a global company, it's not just a Spanish company, it has facilities on a global basis. So, the sales price reflects its growth, reflects the fact that it is a high technology organization. So we'll not just look at the equity income and make just that deduction. But I do agree with you that it is an excellent result for ArcelorMittal shareholders.

Stephen, Goldman Sachs.

I just had a question related to the guidance. I think you said in the past, Aditya, that in a normal year, the first half in terms of EBITDA is about 5% to 10% stronger than the second half. And given that, we're going from $1.1 billion in the fourth quarter into a lower Q1. How is the split going to look this year? It feels like we are heading towards a backend-loaded 2016 again and why is that the case?

Yes. So, you are right. Normally that is how the steel industry works, and this year should be no different. The first half will be stronger in terms of volumes and second half will be weaker. We see that in the European results. The thing that will be different though this year will be some of the inventory lag that we have and the order book effects that we have. So Q1, we see that the -- in Q1, we're actually shipping steel at prices for Q4 and our inventory costs are reflecting higher cost of raw materials as that is still sitting in inventory and as that eases, you will see improved results going forward post Q1.

The second impact is also some of the self-help measures that we are doing in terms of -- for example, in South Africa, the plan is underway. We just restarted the furnace in December. We will get the full benefits of that towards the latter part of this year. Same in Kazakhstan, some of the initiatives that we have in our facilities are coming later. So those are the reasons. From a pure volume perspective, unless markets are much stronger in the second half, it would follow the seasonal pattern.

And what's the CapEx guidance now? It's below depreciation. I don't know if you've given a specific guidance on depreciation for this year, but how sustainable is that? How long can you keep running CapEx below depreciation for, or is this just a one or two year plan whilst the market is quite depressed?

So, historically, we have always run CapEx below depreciation. And so we did a review to understand the useful life of our assets. We have extended that useful life. Depreciation has come, our guidance for 2016 is $3 billion, CapEx is $2.4 billion. So we're still under depreciation. Maintenance CapEx is actually $2.1 billion, so there is still a delta.

When we look at some of our steel peers, maybe the accounting rules in terms of what can be capitalized is different than what is OpExed, what is in operational expenses, perhaps, you're a bit more conservative, but we don't believe that at the levels of $2.1 billion, we see any difference in terms of the ability for us to maintain our asset base. Also the impact of exchange rates is not as immediate on depreciation schedules as it in terms of CapEx.

Carsten, UBS.

I have just one question because you mentioned the idling of the Spanish plant in Sestao. It's not the first time that this plant gets idled, but now it looks like it's at least for the time being idled. The question I have is, is there any impact on the Asturias plants and if so, what are those? In my view, there might be some from the pre-material deliveries. Could you actually comment on that, please?

So, Sestao is a electric arc furnace producer, which basically produces hot band, losing money. So clearly by indefinitely idling it, we save money. Super point.

Second point is that some of the production of Sestao is going to get transferred to our other facilities. More of that effect will actually be seen in our Fos-sur-Mer facility in France, which caters to the same commodity segment and you will see a healthier and better order book in Fos, which will help Fos' profitability.

Okay, but you don't intend to actually close that for good, the Sestao?

At this point in time, we have announced an indefinite idling of Sestao.

Alain, SocGen.

I would have two questions, please. The first, I was just wondering if you are done with the asset disposal program or you're going to contemplate further potential asset sales if you are able to get a better value?

And then the second question would be for Mr. Mittal. I was just wondering if you could share with us your updated view on sector consolidation in the world, ex-China. It didn't take place as you were expecting at the time of the merger with Arcelor. And so, would you expect it to happen now?

So let me quickly address asset sales. So in terms of asset sales, we continue to look at opportunities to optimize our portfolio. But clearly from a balance sheet perspective, there is no need or urgency to do any of that. So any such transaction would be contemplated only if it created value for our shareholders like what we did this morning with Gestamp.

I think, excluding China, consolidation discussion is very small, because the most important consolidation needed is China for the steel industry. If you look around the world, Japan has already done the consolidation with Nippon Steel. And then moving on to Europe, basically, the opportunities are very limited and we have to see how this rolls out and the [silver] discussion is going on, then Tata has done some sale of their assets. We don't know what is their future plan, which we read in the media. Then in the US, basically, industry is consolidated. We have -- and Brazil, I do not see any further consolidation opportunities. But what I can say from ArcelorMittal point of view that as far as we are concerned, we have already completed our AOP that brings us in a very strong position.

Similarly, in the US, as Lou was saying, that though we are not discussing much on AOP, we have already shut down two blast furnaces in 2014, 2015, which means that part is already done. We have already idled and that is already done. Now, what is left is the downstream optimization.

So basically, lot of action has already been taken ex-China and we may see something developing in Europe. I really cannot make any comment at this time, but you read a lot in media. But most important for me still is China, how this consolidation plays out for the steel industry.

Philip, ABN AMRO.

Just one question left. I was wondering if you could give some details about your receivables program, the sales receivables? Have you increased [earnings], have you done any other additional sales of receivables during the year and what's the outstanding amount at year-end 2015?

Sure. So, our TSR program went down in 2015 by about $0.5 billion and approximately the outstanding amount is $4.5 billion.

And will you be looking to increase it again, going forward or what's the reason that it went down?

We don't provide guidance on TSR. I won't change that practice today.

There being no other question, we like to conclude this call, and thank you very much for participating in both the calls and look forward talking to you soon. Thank you. Have a good day.