Q3 Post Results Roadshow

Transcription

1 Q3 Post Results Roadshow October 2010 Photo: Getty Images

2 Disclaimer Forward-Looking Statements This document 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. Forwardlooking 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, 2009 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. 2

3 Today s Agenda Key themes Q&A Appendix: Market environment Q3 results and Q4 guidance Strategic priorities 3

4 Market: Conditions are challenging Regional PMI data (>50 is expansionary) Global apparent steel consumption (million tonnes per month) China US Developing ex China China Developed EU Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul Real demand continues to grow but at a slow pace; due to the uncertainty over the 2011 economic picture, apparent market conditions are tough 4

5 Market: Spot pricing Spot HRC prices (US$/t) as reported by Steel Business Briefing Northern Europe Southern Europe China US Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 US Northern Europe Southern Europe China We indicated at 2Q that we required 10% spot price increases to offset higher costs in 4Q..In reality spot steel prices have moved sideways 5

6 Market: COGS impact from iron ore Example* of the iron ore impact on costs of a non-integrated mill assuming Vale Ore Purchases from Vale are referenced to the China spot price with a 4 month lag** (i.e. in 4Q10 we pay average of June/July/Aug) Apr-09 May-09 Jun-09 Jul-09 Iron Ore Spot (CFR China, US$/t) Quarterly Qarterly average of lagged 4mth price (CFR China, US$/t) Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Impact on COGS is weighted across 4 quarters (with 75% in current and next quarter) Apr-09 May-09 Jun-09 Jul-09 Iron Ore Spot (CFR China, US$/t) Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Weighted average COGS impact Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Factoring in all raw materials and exchange rates COGS in 1Q11 should remain flat or slightly higher than 4Q10 Note: * this example is a simplification: 1) it does not include the mix impacts like CIS ores, captive ores etc. which are purchased at different pricing methodology than the Vale contract and may reflect differently in our actual costing; 2) the simplification assumes the new Vale contract regime began in 2009 (when in fact it began in 2Q10); 3) the simplification assumes that there is constant inventory rotation and consistent stock purchases; 4) does not capture the impact from FX. **the price we pay Vale is freight adjusted. 6

7 Excess capacity but not excess supply MMT China Steel products inventory in 25 cities HRC CRC Plate Rebar Wire rod %of ASC % Inv./ ASC European and US service centre inventory levels (Base 100 is average 2007) Aug Sep Differenc Growth HRC % CRC % Plate % Rebar % Wire rod % Total % Europe (EASSC) USA (MSCI) No evidence of excess material in the European/US markets - inventories in the system are low this will be positive when demand recovers 7

8 Management gains will contribute in 2011 Management gains plan (USD billion annualized) Fixed costs annualized (in billion USD) USD3.0bn of sustainable management gains USD4.4bn of temporary fixed cost saving* 0.0 2Q 10 Mgt gain Input Cost Yield & Quality Energy SG&A Fixed cost Others 2012 Target Q Q Q Q Q Q Q Q We have a strong track record of management gains During crisis plans were accelerated We achieved $3bn of gains by mid-2010; largely SG&A and fixed costs related Plans in place to achieve further gains At our investor day we outlined firm plans to achieve a further $2bn of gains by end-2012 This will take total gains to $5bn The next set of savings are largely variable cost and based on operational improvements This should impact on 2011 EBITDA We have management gains plans in place which should contribute to EBITDA in

9 We remain committed to our growth plans Our balance sheet and liquidity position is strong Net debt of $22.1bn ND/L12M EBITDA = 2.4x Liquidity of $14.9bn We are a cash generator Average of >$1.5bn per quarter since merger Significant working capital investment in 2010 ($5.1bn in 9M to Sept) will not be required in Mt of iron ore by 2015 remains Plans for brownfield and greenfield expansions in place to reach 100Mt by 2015 Liberia DSO (4Mt capacity) will start-up in 2H11 (1Mt impact in 2011) India and Brazil remain focus for steel capacity growth Our new modular strategy based around 3 projects in India is lower risk We are in a natural position to supply the growing market given our slab exports Net Debt (USD billion) and Net Debt/Average EBITDA* Ratio (x) Q Q Q 2007 Net Debt (USDbn) - LHS 3Q Q Q Q Q Q Q Q Q Q Q Q Q x 1.4x 1.5x 1.0x 0.5x 0.0x Net Debt / Average EBITDA* - RHS Our balance sheet and cash flow supports planned growth in mining and Brazil/India 9

10 Re-cap Real demand continues to grow but at a slow pace; due to the uncertainty over the 2011 economic picture, apparent market conditions are tough which makes it a challenge to raise prices despite higher costs running through the business. Our raw material costs should decline in 1Q11, but not substantially. Despite subdued demand there is no evidence of excess material in the European/US markets - inventories in the system are low this will be positive when demand does recover. Our spare capacity does not impact on our pricing power and offers the opportunity to grow our volumes as the market recovers. We are committed to improving performance that is under our control we have plans in place to take management gains from the $3bn currently achieved to our $5bn target by end-2012; this will positively impact EBITDA in Despite the weaker outlook for EBITDA, our balance sheet is strong and we are consistently FCF generative. We maintain our plans for investment in mining and for steel capacity growth in Brazil and India. 10

11 Q&A 11

12 Environment and steel market

13 Demand growth from China slowing, other emerging markets remain solid Crude steel production in China (y/y %) Chinese and Asian spot price for HRC 60% 40% % 950 0% -20% Crude steel production in emerging markets (y/y %)* % 20% 350 0% -20% -40% HRC East Asia import CFR $/t HRC China domestic Shanghai (incl. 17% vat) $/t Current destocking in China expected to be temporary as fundamentals remain solid * World steel production excluding China, US, Canada, EU-27 and Japan Source: WSA and SBB 13

14 Real demand recovery continues in developed markets at slow pace Crude steel production in the US (y/y %) 100% US and Europe spot price for HRC % 20% % -60% Crude steel production in EU-27 (y/y%) % 60% 40% % 0% -20% -40% % HRC USA mid-w est $/t HRC EU ex Works $/t Lack of confidence and visibility resulting in market weakness Source: WSA and SBB 14

15 3Q results and guidance 15

16 Introduction and overview Highlights Health & Safety frequency rate was 1.9x in Q as compared with 1.8x at Q EBITDA of USD 2.3 billion in Q Net debt increased by USD 1.8 billion to USD 22.1 billion in Q3 2010, primarily due to foreign exchange and increased working capital Performance and industrial plan Capacity utilisation decreased to 71% in Q from 78% in Q due to seasonal slowdown USD 3.0 billion of annualized sustainable cost reduction achieved by the end of Q (same level as Q2 2010); Plans confirmed to reach USD 5 billion by end of 2012 On track to reach approximately 50 million tonnes of own iron ore production by end of 2010 Guidance for Q EBITDA is expected to be between USD 1.5 billion USD 1.9 billion Average steel selling prices and EBITDA/tonne are expected to decline Capacity utilisation is expected to remain at Q levels but shipments are expected to increase Operating performance in Q310 declined, primarily driven by seasonal slowdown and weaker market conditions * Including strategic agreement and long-term supply contracts 16

17 EBITDA highlights EBITDA (USD billion) Q EBITDA per segment (USD million) * -71* 3Q Q Q Q Q * Shipments and selling price * * -61* Q Q Q Q Q 2010 Shipments (Mt) Selling price trend Flat Carbon America Flat Carbon Europe Long Carbon Asia, Africa & CIS Stainless Steel Distribution Solutions** EBITDA decreased by 24 USD/t* to 108 USD/t * Q versus Q ** Formerly known as Steel Solutions & Services 17

18 P&L highlights EBITDA to Net Income (USD million) Net Income (USD billion) Depreciation & impairment 2,265 1,208 Income from equity 108 Net Interest, FOREX & other 365 Noncontrolling interest & Tax Q Q Q Q Q 2010 Earnings per share (USD) 1,350 1, EBITDA Operating income Pre-tax Net income 3Q Q Q Q Q 2010 Net income of USD 1.4 billion 18

19 Cash flow highlights Q3 10 Free cash flow (USD million) Capex* (USD million) Change in w orking capital -1,094 Net financials, tax expenses and others Q Q Q Q Q , Capex Net acquisition spending (USD million) EBITDA Cash flow from operations Free cash flow Q Q Q Q Q 2010 USD 0.8 billion cash provided from operations * Capex includes intangibles 19

20 Fourth Quarter 2010 Guidance Volume Group shipment volumes are expected to increase from Q3 2010, despite capacity utilization at ~70% Price Average steel selling prices expected to decline from Q EBITDA expected to be between USD 1.5 USD 1.9 billion EBITDA/tonne EBITDA/tonne expected to decline from Q Q EBITDA expected to decline due to weaker market conditions and higher costs 20

21 Strategic priorities 21

22 Balance sheet strength Net Debt (US$ billion) Q Q Q 2007 Net Debt (USDbn) - LHS Credit ratings 3Q Q Q Q Q Q Q Q Q Q Q Q Q x 1.4x 1.5x 1.0x 0.5x 0.0x Net Debt / Average EBITDA* - RHS Balance sheet strengths We remain committed to a strong balance sheet with good liquidity A solid investment grade rating is important to ArcelorMittal and remains a priority While our balance sheet offers flexibility, we are comfortable with the current net debt level Credit metrics are improving with increased profitability We have significant support from a high quality bank group and proven access to debt capital markets Moody s: Baa3 Standard & Poor s: BBB Fitch: BBB Our credit metrics are strong; We are comfortable with the current net debt level * Based on yearly average EBITDA since January 1,

23 Liquidity and debt maturity profile Debt structure September 2008 Debt maturities (US$ billion) Commercial paper, 10% Bank loans and others, 75% Convertible 8% Commercial paper 10% Bond, 15% Debt structure* September 2010 Bank loans and other 28% Bonds Term Loans Convertibles Other Commercial Paper Approximately US$ 13.1 billion of successful capital markets refinancing in 2009 Successful extension of the maturity profile from 2.6 years at end Q to 5 years after recent US bond issue Bonds 54% New highly successful three-tranche dollar bond issued in the amount of US$ 2.5 billion in August further extended debt maturity profile to 5 years * After US$ 2.5 billion Yankee bond issued in August

24 Maintaining our competitive position Competitive does not just mean low-cost Regional average HRC cash cost 2009 ($/tonne) More important is being competitive in target markets Competitive on costs Competitive on quality Competitive on service CIS South America Middle East/Africa Europe USA Asia ex China China ArcelorMittal global weighted average We occupy a better-than-average cost position in the regions we are serving ArcelorMittal regional weighted average costs We have one of the largest R&D budgets in the steel industry; this supports our product quality and innovation We have a strong relationship with customers which reflects in our service quality Cumulative capacity 575Mt We have a strong competitive position today, but we can always improve Source: World Steel Dynamics (WSD) structural cost curve 24

25 Developing our competitive position We are investing to improve our assets. Projects approved/completed over past 6 months: LCA: Steelton new reheat furnace LCE: new wire rod mill at Duisburg AACIS: continuous caster for long products at Kryviy Rih FCE: upgrade of PCI facilities at Gent LCE/FCE: build PCI facility at Blast Furnace #2 of Dąbrowa Górnicza, Poland Management gains realised and 2012 target (US$bn) We achieved US$3 billion of management gains ahead of target; we aim to achieve a further US$2 billion by end Q 10 Mgt gain Input Cost Yield & Quality Energy SG&A Fixed cost Others 2012 Target We are investing to improve our assets; we target further management gains savings 25

26 Exploit our mining resources Geographical split of estimated iron ore resources* 2009 Ukraine 10% Brazil 7% USA 3% Other 5% Canada 42% Iron ore production** (Mt) Liberia 13% 2 0 Q Q Q Q Q Kazakhstan 20% ArcelorMittal has a world-class iron ore reserve and resource base Our strategy is to commercially develop this to maximise the value for our shareholders We have spent time and money proving out our resource base We are now standardising the classification of the mining asset base Coal production** (Mt) Q Q Q Q Q Estimated iron ore resources of 19 billion tonnes in 2009* * Final resource estimates expected The above preliminary estimates are based on surveys conducted to date and include inferred resources which, as of the date hereof, are still considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. The potential quantity and grade is conceptual in nature; there has been insufficient exploration to date to define a mineral resource; and it is uncertain if further exploration will result in the above targets being delineated as a mineral resource. There is no certainty that the above preliminary assessments will be realized. ** Excluding strategic agreement and long term contracts 26

27 Expanding iron ore production to 100MT 2015 iron ore growth* target (mt) Iron ore development target to 2015* (mt) Target 100mt by Own production Strategic contracts F Efficiency Brow nfield Improvements** expansion Greenfield Cleveland Cliff expansion contract 2015 plan Strategic Contracts Base Production Planned Brow nfield Expansion Planned Greenfield Expansion Potential Brow nfield Projects Potential Greenfield Projects We have plans for growth beyond the 100Mt target in 2015 * 2015 strategic contracts include Kumba supply agreement (currently under arbitration) and the Cliffs-ISG contract which expires 31 Dec 2016; it does not include the Cliffs- Ispat Inland contract which expires 31 Jan ** Includes extended life of mine projects and returning to full capacity 27

28 Execute organic growth options Market position and market share estimates by region No 1 in North America No 1 in Western Europe No 1 in Eastern Europe and CIS Emerging markets continue to offer the best organic growth potential for ArcelorMittal Superior demand growth potential We have the platform and experience: No 1 in South America No 1 in Africa ArcelorMittal Others Already the steel market leader in Latin America, CIS and Africa ArcelorMittal focus areas for growth are Brazil and India We also have JV projects in the Middle East and China Industrial and commercial network focus on market sustainability and growth opportunity Source: WSA and ArcelorMittal estimates 28

29 Brazil growth plans in place ArcelorMittal Brazil industrial network Brazilian long products capacity expansions: 2010: Monlevade project from 1200 ktpy to 2400 ktpy (US$1.2 billion capex) 2011*: AM Cariacica from 600 to 800 ktpy (under evaluation) 2013*: AM Juiz de Fora from 1000 ktpy to 2200 ktpy (under evaluation) Brazilian flat products business has excess primary capacity so the rolling mill at Tubarao will be expanded, or a new rolling mill built We expect to develop at least one vertically integrated greenfield project by 2020, utilising our iron ore resources Ecuador Venezuela Colombia Peru Chile Bolivia 2300 km Argentina Paraguay Brazil Uruguay Monlevade Juiz de Fora Cariacica Tubarao Vega Du sol We are growing our Brazilian long product capacity and plan to increase in flats * Planned project implementation dates 29

30 India our new strategy We now plan smaller steps: Mtpa modules In areas with easier access to land (Karnataka) and proximity to strong consumption centers reduced implementation risk Pakistan China Expertise of local partner is invaluable. Uttam Galva stake gives us: Access to its large downstream network (we are already largest importer of steel into India) Partner in developing service centres for auto/appliances using AM feedstock JV partner for potential greenfield in Western India 3 Jharkhand 1 2 Orissa Karnataka greenfield project: Land acquisition expected to be completed by end of this year We are also expecting to get some mining leases in Karnataka as well Western India JV potential Karnataka 4 Major steel markets Jharkhand greenfield project: land acquisition is progressing well Smaller modular sites planned between million tonnes per annum 30