Investor Day 2013: Backing our franchises Enhancing our competitive position

Transcription

1 Investor Day 2013: Backing our franchises Enhancing our competitive position Louis Schorsch, GMB 15 March 2013

2 Disclaimer Forward-Looking Statements This presentation may contain forward-looking information and statements about ArcelorMittal and its subsidiaries. These statements include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. Forward-looking statements may be identified by the words believe, expect, anticipate, target or similar expressions. Although ArcelorMittal s management believes that the expectations reflected in such forward-looking statements are reasonable, investors and holders of ArcelorMittal s securities are cautioned that forward-looking information and statements are subject to numerous risks and uncertainties, many of which are difficult to predict and generally beyond the control of ArcelorMittal, that could cause actual results and developments to differ materially and adversely from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include those discussed or identified in the filings with the Luxembourg Stock Market Authority for the Financial Markets (Commission de Surveillance du Secteur Financier) and the United States Securities and Exchange Commission (the SEC ) made or to be made by ArcelorMittal, including ArcelorMittal s Annual Report on Form 20-F for the year ended December 31, 2012 filed with the SEC. ArcelorMittal undertakes no obligation to publicly update its forward-looking statements, whether as a result of new information, future events, or otherwise. Non-GAAP Financial Measures This presentation may contain supplemental financial measures that are or may be non- GAAP financial measures. Definitions of such supplemental financial measures and a discussion of the most directly comparable IFRS financial measures can be found on ArcelorMittal's website at 1

3 Overview 13:30 / Focussing on value creation Lakshmi Mittal 14:00 / Balance sheet and capital allocation Aditya Mittal 14:30 / Q&A 15:15 / 11:15 - Break for 15 mins - 15:30 / 11:30 Creating value from our Mining franchise Peter Kukielski 16:00 / 12:00 Protecting and growing our Automotive franchise Brian Aranha 16:30 / 12:30 - Break for 15 mins - 16:45 / 12:45 AACIS Focussing on improvement Gonzalo Urquijo 17:15 / 13:15 Enhancing our competitive position Lou Schorsch 17:45 / 13:45 - Close - 2

4 Agenda Our approach and results Corporate initiatives Examples: Top Ten improvements and energy efficiency Segment initiatives Examples: Comprehensive programs in Canada and Brazil 3

5 Systems in place to drive improvement through unmatched scale and experience Transversal activities Supply Chain Efficiencies Fixed Cost Reductions Benchmarking analysis Knowledge Management Program Knowledge sharing and institutional learning Sustainable Management Gains Global Technical Data Base Variable cost reduction Global Quality Data Base Continuous Improvement SG&A Savings Global Cost Data Base Internal benchmarking data bases Continuous Improvement ingrained in the culture Abundance of knowledge within the group, more sharing and learning Best of best internal competition to raise bar regularly Systems are in place to indentify and capture gain World-class manufacturing initiatives to sustain improvement momentum R&D tools, process expertise, and modeling to optimize performance across the Group Cost benchmarks developed to track and compare results across the Group Technical and quality data bases to compare KPIs across huge pool (50 BFs, 21 HSM, etc.) Potential gains identified on plant-by-plant basis Unrivalled knowledge base Central technology organization of 25 engineers providing world class expertise and process tools Further potential to improve Sustainable management gains realized through benchmark-driven continuous improvement and comprehensive change programs 4

6 2012 Management Gains: delivery on end 2008 commitment Sustainable management gains savings ($bn)* Variable cost savings area Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q Other 35% Energy 9% 37% 19% Productivity Yield * Management gains are annualized run rate at end of period $4.8bn Management gains target set in 2008 achieved in 3Q 12 ahead of schedule 5

7 New $3bn Management Gains plan Gap Analysis for Cost Savings by Process Cold rolling mill & HDG Hot strip mill 10% 20% Others 11% Sinter & BF 25% 34% Steel shop Gap Analysis for Cost Savings per Main Drivers Others 28% Energy 21% 29% 22% Yield Productivity Blast furnaces Reliability (avoiding chilled hearths) Management at end of campaign Fuel rate Productivity Raw materials flexibility Steel shops Yield TCO for EAF Hot strip mills Yield Reliability Energy Productivity Long rolling mills Yield Productivity Cold rolling mills and coatings Quality Productivity A gap analysis done in 2012 defined the priorities for our plan 6

8 2012: Accelerated program put in place to steer improvement at our Top 10 plants Design Principles Go where the money is Top 10 plants identified offering highest opportunities Focus on upstream processes, energy (incl. coke), reliability, yield Increase the rate of improvement at the Top 10 target plants through: Targeted plant support by corporate CTO Application of expertise of other plants for targeted missions to TOP 10 Review and redesign of plant management systems Dedicated reporting of results to the GMB Early 2012 objective: double pace of Top 10 Management Gains vs achievement: $528 million captured at those 10 plants Management gains had a significantly higher contribution to EBITDA in

9 Example: Taking advantage of DRI in South Africa Progressive increase of DRI quantities within BF over 2012 Equivalent coke rate (Vanderbijlpark blast furnace), kg/t Better set point leading to lower coke rate and higher productivity: $14M captured over H H Progressive increase of DRI in BF at Vanderbijlpark reduced the coke rate 8

10 Example: Improving cost at Cleveland iron making Reduction of Si in hot metal Si in hot metal at Cleveland Stakes for our TOP 10 estimated at $66M Run-rate savings of more than $4M Progressive decrease of Si in hot metal new group best practice 9

11 Example: Focusing on development and deployment of Energy Best Practices Energy Management Best Practices identified through systematic benchmarking and knowledge sharing across the Group and communicated as a set of must-do standards covering both hard and soft performance aspects Weighted deployment rate of Energy Best Practices (%) 76% 51% Technical Behavioural Organizational Related savings vs base ~ $50M 10

12 Example: Energy efficiency achievements and targets at Flat Carbon Europe (FCE) 210 Flat Carbon Europe potential savings (Million ) Identified efficiency Implemented 31 FCE At this stage: 207 M potential savings 30.6 M implemented Examples of energy efficiency actions to date: Improvement in steam recovery at Aviles steel shop potential M at Dabrowa Gornicza potential 1.25 M Better O 2 forecasting versus take-orpay contract at steel shop in Eisenhuttenstadt potential 0.8 M Inject steam at Benzol installation at Aviles coke plant 0.55 M Mobilization around energy savings across all of FCE 11

13 Example: Energy management in US ArcelorMittal USA was awarded the 2013 USA Energy Star Award for Sustained Excellence by the Environmental Protection Agency (EPA) and the US Department of Energy (DOE), representing the sixth consecutive year we have won this award In 2012, ArcelorMittal USA completed several notable energy projects, including four capital projects that will produce more than $20.4 million of ongoing annual savings One of these projects the boiler project at IH was a $63M joint ArcelorMittal-DOE project, the highest-valued project awarded by DOE in the $155mm it provided for such projects as part of the 2009 ARRA stimulus program * In 2012, the energy intensity per liquid steel ton was reduced by 1.87% when compared to 2011 Since 2006, ArcelorMittal USA has reduced its annual energy costs by more than $163 million through focused improvements and energy management ArcelorMittal USA only US steel company awarded the 2013 USA Energy Star * American Recovery and Reinvestment Act (ARRA) 12

14 Energy example: Leveraging the shale gale in NAFTA ArcelorMittal response Source: Bloomberg Identify and capture opportunities to substitute natural gas for higher-cost fuels in all current operations Pursue opportunities to exploit ultralow gas prices to utilize DRI Maximize DRI production in Lazaro Cardenas, optimizing application between slabs and billets based on real-time profit opportunities Restart smaller (600KT) module in Contrecoeur, Quebec, optimizing local application between slabs, billets and/or utilizing at other ArcelorMittal sites based on real-time profit opportunities Significant cost-reduction opportunities emerging in low-gas-cost environment 13

15 Rapid shift to low-cost gas in existing operations BF coal injection rate in North America Kg/ton BF natural gas injection in North America Kg/ton $57M savings at AMUSA in 2012 v Switching from PCI to natural gas injection in blast furnaces 14

16 ArcelorMittal: Unmatched understanding of DRI process and economics ArcelorMittal DRI learnings and perspective ArcelorMittal DRI capacity (Million MT) DRI is most economical in low-gas-price regions and when utilized on-site, since it is pyrophoric and thus difficult to transport Under normal price relationships, DRI incurs a valuein-use penalty of roughly $40/T vs. pig iron and $30/T vs. high-grade scrap. This is due to low metallization rates for DRI, entailing: a 3-4% yield disadvantage increased costs for melting (electricity, refractories, flux, etc.) per unit of usable iron the need for higher-purity (and thus $7-10/T higher cost) pellets than those used in blast furnaces Greenfield investment in DRI facilities is problematic in developed countries (typically scrap-rich but not gasrich) unless as a make versus buy decision about substituting DRI for purchased virgin-ore materials like pig iron 4.1 Mexico 1.6 Canada 3.2 Trinidad 1.3 Argentina ~15% of total global installed capacity 1.8 South Africa Total Design Capacity 12.6 MT 0.7 Europe DRI not a revolutionary game-changer 15

17 Shale-gale optimization of DRI: Lazaro Cardenas and Contrecoeur examples Lazaro Cardenas DRI assets: 2 DRI complexes, 1 HYL (2.4MT capacity) and 1 Midrex megamod (1.7MT capacity) Operating model: optimize near-term margins by flexing across three businesses (ore, slabs, long products) and between the DRI/EAF (slab) route and the BF/BOF (billet) route depending on for long products; shale-gale priority: maximize DRI production to take advantage of low gas prices and minimize coke purchases Results: in 4Q 12, transfer of 120KT DRI-based EAF steel to billet casters; 4Q 12 benefit $13 million Contrecoeur DRI assets: 2 Midrex DRI modules (1000KT operating and 600KT idled), utilizing AMMC DRI pellets Operating model: operate lowest cost (scrap vs. DRI) mix in EAFs, respecting metallurgical constraints; shale-gale priority: recommission 600KT DRI module with $20M capex to maximize DRI capacity (restart expected summer 2013) Projected results: additional DRI output to be utilized flexibly across three potential applications: (200KT increase in slab production for rolling at AM Dofasco or AMUSA; scrap substitution in Contrecoeur; or DRI shipment as iron input for FCA blast furnaces or LCA electric furnaces) Annual benefit $15-20million ArcelorMittal aggressively pursuing optimization of NA DRI assets 16

18 Program example: ArcelorMittal Dofasco continuous improvement (CI) history Volatile market conditions, exchange rate risks, and the price-cost squeeze prompted ArcelorMittal Dofasco (AMD) to undertake a CI-based value plan program in the mid-2000 s. Since 2007, the appreciation of the Canadian dollar has raised $C-denominated costs by ~$300 million AMD has evolved its CI efforts with a comprehensive workforce and productivity program ( TCOE ) and continuing with initiatives of increasing scope and comprehensiveness: Blue Sky : efficiency related programs focused on energy and yield Dofasco 500 : a leaner manufacturing footprint with enhancements in operational excellence TOP : a bottom-up program to boost efficiencies at the operating assets and within departments AMD100 : a program combining supply chain and transversal cost reduction with top-line growth WCM : a program now being planned to build a behaviour-based management system that engages all 5K employees eliminating process losses and improving ArcelorMittal best practices ArcelorMittal Dofasco, metric tons shipped per FTE * Total AMD Value Plan for is $248M AMD100 targeting $200M Continued monetization of efforts in TCOE, Dofasco 500, and TOP The program and culture have been evolving to capture improvement opportunities across the entire enterprise using the entire workforce * FTE = full-time equivalents = own employees, overtime, contractors 17

19 AMD100: The latest stage in Dofasco s continuous improvement journey Initial concept Business requires a breakthrough: AMD100 = $100/T EBITDA Sustain 2011 EBITDA Anticipate continued market recovery Gain $50/T from AMD100 Fully utilize workforce creativity (over 500 individual projects in current AMD100 portfolio) Focus on six comprehensive themes Overall structure Specific process AMD100 teams, including shop floor Executive engagement/ governance Well defined program structure, systems, and processes (including project leader, resourcing, and schedule) Shop-floor and leadership training Clear business case for change Business and market intelligence Goal setting Ideation Research (eg. GTB) & observation Risk assessment Implementation Measurement, feedback, and CI Redo process with new ideas if shortfalls vs. target emerge AMD100 has an outstanding level of employee engagement and represents an ArcelorMittal best practice in terms of identifying and capturing improvements 18

20 ArcelorMittal Dofasco: AMD100 benefits to date $300 $250 $200 $150 $100 AMD 100: Total $248 Annual Project Value $200 Annual EBITDA Value $80.8 AMD100 completed 302 improvement projects in 2012 for a run-rate realization of $157 million in management gains as at December 31, 2012 The program contributed approx. $81 million to 2012 EBITDA $50 $0 J F M A M J J A S O N D J F M A M J J A S O N D 2014 The cumulative goal for 2014 continues to be $200 million of EBITDA improvement $81 million captured end

21 AMD experience being leveraged for breakthrough program at AM Tubarao Comparable starting points 1.Solid technical and operational foundation: performance at or near benchmark levels for several KPIs and proven track record of continuous improvement indicated by AMT mgt. gains: No of project Actual US$m Intensified external pressure on results: Brazilian Real (BR) surge from over 2.00/$ in 1Q 09 to 1.6/$ in mid-2011 Custo Brasil challenge: wage inflation of 7-8%pa with productivity below developed-world standards (wage bill ~$60k/per person pa at peak of BR) Much greater global competition for AMT in both domestic market and export markets 30 in 3 a Brazilian AMD in 3 reflecting Tubarao s 30 years of operation (achieved in 2013) refined by a 3YR cost reduction program Trainers from AMD as well as visits by AMT project leaders to Hamilton ~70 project coordinators involved, covering the same comprehensive themes as for AMD100 Over 260 initiatives identified to date, targeting both cost reduction and sustainable improvements in management processes and KPIs (labor productivity, raw materials efficiencies, yield increases, improvements in product mix, etc.) Strong alignment around need for breakthrough initiative at AM Tubarao 20

22 Examples of other improvement programs at different segments Flat Carbon Europe CORE program completed in 2012 aiming at raw material flexibility to capture price opportunities; Energize, a new program launched in 2012 targeting lower energy consumption (and supported by results achieved in first waves) ArcelorMittal Saldanha (South Africa) World-class manufacturing (WCM) initiative completed in 2012, moving this plant from second-highest cost in the Group to second-lowest Long Carbon Europe. Launch of a Lean Manufacturing Model program with reinforced focus on continuous improvement via PDCA (Plan-Do-Check-Act), and focus on yield improvement, metallics optimization, lower energy usage, and improved equipment reliability Comprehensive performance-improvement programs widespread at ArcelorMittal 21

23 Recapping ArcelorMittal has a proven track record of delivering substantial performance improvements to outpace persistent market pressure on profitability ArcelorMittal has the culture, the experience, and the tools to enforce a strong improvement dynamic through internal benchmarking and corporate initiatives ArcelorMittal is increasingly able to achieve breakthrough improvements through comprehensive, bottom-up programs and institutional learning Our management gains momentum will continue! 22