ArcelorMittal reports second quarter 2022 and half year 2022 results
*Luxembourg, July 28, 2022 *- ArcelorMittal (referred to as “ArcelorMittal” or the “Company”) (MT (New York, Amsterdam, Paris, Luxembourg), MTS (Madrid)), the world’s leading integrated steel and mining company, today announced results^1,2 for the three-month and six-month periods ended June 30, 2022.
*Key highlights:*
· *Health and safety performance: *Protecting the health and wellbeing of employees is the Company’s overarching priority; LTIF rate of 0.67x in 2Q 2022^3 and 0.68x in 1H 2022
· *Steel spreads offsetting lower shipments in 2Q 2022*: positive price-cost effect offset a -6.3% sequential decrease in steel shipments to 14.4Mt primarily due to the lower shipments in ACIS and Europe
· *Operating income:* 2Q 2022 operating income of $4.5bn (vs. $4.4bn in 1Q 2022); 1H 2022 operating income of $8.9bn (vs. $7.1bn in 1H 2021)
· *EBITDA increased to $5.2bn in 2Q 2022*, the fifth successive quarter above the $5bn level; 1H 2022 EBITDA of $10.2bn is +23.5% higher than the same period of 2021
· *Strong net income:* $3.9bn in 2Q 2022 (vs. $4.1bn in 1Q 2022) includes share of JV and associates net income of $0.6bn (vs. $0.6bn in 1Q 2022); 1H 2022 net income of $8.0bn (vs. $6.3bn in 1H 2021)
· *Enhanced share value:* 2Q 2022 basic EPS of $4.25/sh; last 12 months ROE^16 of 34%; book value per share^13 increased to $60/sh following the repurchase of 46.8m shares during the quarter (65.1m in 1H’22)
· *Financial strength:* Net debt $4.2bn and gross debt of $8.8bn at the end of June 2022
· *Continued strong FCF generation:* The Company generated $1.7bn of free cash flow (FCF) in 2Q 2022 ($2.6bn net cash provided by operating activities less capex of $0.7bn and dividends paid to minorities) despite a $1.0bn investment in working capital on account of higher prices
*Strategic update and outlook:*
• *Proposed acquisition of CSP in Brazil for $2.2bn, presents opportunity for new low carbon steelmaking hub:*
· Well invested, world-class assets, access to large-scale deep water port
· Highest quality and low cost 3Mt slab producer in Northeast Brazil
· Attractive synergies and optionality, including the potential for highly competitive low-CO2 steel
· Normalized EBITDA per year of $330 million
• *Texas HBI plant: a key element of ArcelorMittal’s 12Mt, low CO2 steel, unmatched high quality NAFTA franchise including automotive capabilities:*
· Acquisition of voestalpine’s world-class Hot Briquetted Iron (‘HBI’) plant located in Texas now completed; potential to generate > $130 million EBITDA per year
· A key to decarbonizing NAFTA franchise: will supply high quality metallics to EAF - Calvert (a cornerstone of ArcelorMittal NAFTA franchise). Dofasco is transforming to fully DRI-EAF; Mexico Flat is already DRI-EAF
• *Balanced capital allocation:*
· The Company generated $3.2bn of FCF in 1H 2022; $2.3bn was returned to shareholders (via share buybacks and base dividends) and $1.0bn was committed to M&A (primarily the Texas HBI facility)
· Net debt at the end of June 2022 of $4.2bn remained essentially stable compared to 2021 year end at $4.0bn
• *New buyback:*
· The Company announces a new buyback program of 60m shares (~$1.4bn at current share price23) to be completed by the end of May 2023
*Financial highlights (on the basis of IFRS^1,2):*
*(USDm) unless otherwise shown* *2Q 22* *1Q 22* *2Q 21* *1H 22* *1H 21*
Sales 22,142 21,836 19,343 43,978 35,536
Operating income 4,494 4,433 4,432 8,927 7,073
Net income attributable to equity holders of the parent 3,923 4,125 4,005 8,048 6,290
Basic earnings per common share (US$) 4.25 4.28 3.47 8.53 5.40
Operating income/ tonne (US$/t) 313 289 276 300 217
EBITDA 5,163 5,080 5,052 10,243 8,294
EBITDA/ tonne (US$/t) 359 331 314 345 255
Crude steel production (Mt) 14.6 16.3 17.8 30.9 35.4
Steel shipments (Mt) 14.4 15.3 16.1 29.7 32.6
Total group iron ore production (Mt) 12.0 12.0 11.2 24.0 24.5
Iron ore production (Mt) (AMMC and Liberia only) 7.3 6.9 4.9 14.2 12.2
Iron ore shipment (Mt) (AMMC and Liberia only) 7.5 6.7 4.6 14.2 12.0
Number of shares outstanding (issued shares less treasury shares) (millions)^22 847 893 1,019 847 1,019
*Commenting, Aditya Mittal, ArcelorMittal Chief Executive Officer, said:*
"The Company had a strong first half with market conditions supporting a fifth consecutive quarter of EBITDA of over $5 billion. This enabled us to progress against our strategic objectives and continue to transform our business for the net zero economy. We have completed a number of targeted acquisitions reflecting the changing energy and metallic inputs required for low-carbon emissions steelmaking and are also seeking to strengthen our presence in regions that have the ability to produce low-cost green hydrogen such as Brazil where we have today announced the proposed acquisition of one of the country’s lowest-cost slab producers.
The period, however, was overshadowed by the outbreak of war in Ukraine, where we have steel and mining operations, bringing instability and suffering to the country and our 26,000 employees. Globally the conflict is impacting growth and adding further inflationary pressure, which is spilling over into weakening of demand. Despite the more uncertain global macro outlook, our business is well positioned to effectively manage through the cycle. The long-term outlook for steel demand also remains positive, underpinned by the scale of opportunity related to the energy transition and the continuing growth of developing economies."
*Sustainable development and safety performance*
*Health and safety - Own personnel and contractors lost time injury frequency rate*
Protecting the health and wellbeing of employees is the Company’s overarching priority with ongoing strict adherence to World Health Organization guidelines (in respect of COVID-19), and specific government guidelines have been followed and implemented.
Health and safety performance based on own personnel and contractors lost time injury frequency ("LTIF") rate was 0.67x in the second quarter of 2022 ("2Q 2022") as compared to 0.69x in the first quarter of 2022 ("1Q 2022) and 0.89x in the second quarter of 2021^3 ("2Q 2021"). Health and safety performance in the first six months of 2022 (“1H 2022”) was 0.68x as compared to 0.83x in the first six months of 2021 (“1H 2021”).
A concerted effort is underway to improve health and safety across the group and strengthen our safety culture. We have completed a comprehensive review of our efforts to eradicate accidents and fatalities, and have started 2022 with a refreshed company-wide commitment to put this fully into action.
Corporate oversight of safety has been strengthened, our Global Health & Safety Council is sharing and promoting best practice, peer-to-peer mentoring between sites has been introduced, training (which was reduced as a necessary precaution during COVID-19) has been strengthened and we are prioritizing support for underperforming units.
The Company is also tightening guidelines for mandatory leadership shop floor presence (which similar to training was reduced as a necessary precaution during COVID-19). All leaders must now spend a certain minimum time on the shop floor every week – when they must carry out a safety layered evaluation. While the Company policy has always specified leaders to regularly spend time on the shop floor, setting out a higher minimum accepted level for senior leaders will help reinforce the culture of visible felt leadership which we know has weakened in some regions as a result of COVID-19.
Furthermore reporting of proactive KPIs such as potential serious injury frequency (PSIF) will also be strengthened. Every segment is required to put in place a quality assessment process for PSIFs. Understanding clearly why PSIFs happen is vitally important to tightening processes, improving behaviours and preventing fatalities. Widespread use of what we call ‘quarantining’ is now in place across all operations where plants are put into ‘quarantine’ if a seriously unsafe incident takes place or the plant is deemed to be at risk of a serious incident or fatality.
A change to the Company’s executive remuneration policy has been made to reflect this focus^21.
*Own personnel and contractors - Frequency rate*
*Lost time injury frequency rate* *2Q 22* *1Q 22* *2Q 21* *1H 22* *1H 21*
NAFTA 0.28 0.19 0.17 0.28 0.43
Brazil 0.14 0.10 0.26 0.12 0.22
Europe 0.99 1.13 1.41 1.07 1.16
ACIS 0.81 0.61 1.03 0.71 1.02
Mining 0.30 2.19 0.71 1.23 0.68
*Total* * 0.67 * * 0.69 * * 0.89 * * 0.68 * * 0.83 *
*Sustainable development highlights – leading the decarbonization of the steel industry:*
*Developing standards that will support the decarbonization of our industry:*
· On June 14, 2022, ArcelorMittal published a concept for a low-carbon emissions steel standard to help incentivize the decarbonization of steelmaking globally and support the creation of market demand for physical steel products which would be classified as lower, and ultimately near-zero, carbon emissions steel.
· Dual scoring system which provides customers with a life cycle assessment (LCA) value alongside a rating system which measures progress towards near-zero
· Designed to incentivize the decarbonization of both primary and secondary steelmaking
· Provides transparency and consistency across steel products for customers
· Supports the development of markets for low-carbon emissions steel
The creation of clear definitions for low-carbon emissions physical steel is an important component of ‘demand pull’ and ‘supply push’ mechanisms that are required to support the steel industry in its transition to net zero by 2050. Clear definitions will also help inform targeted policy to support the scale-up and commercialization of these near-zero technologies.
At the heart of the concept are three core principles:
· It must include a dual score system comprising a LCA value for finished products (EPD for construction products) alongside a decarbonisation rating system which categorizes low and near-zero carbon emissions per tonne of hot rolled steel and rewards producers as they decarbonize from their starting point.
· It must be designed in such a way that incentivizes the decarbonisation of all methods of steel production through technology shifts, rather than simply through increasing scrap rates using existing technology. This can be done by using a sliding scale based on the percentage of scrap used in production, a system which is also at the heart of the ResponsibleSteel™ and International Energy Agency (‘IEA’) low-carbon emissions steel models.
· It must include a clearly defined boundary from which carbon emissions are counted for the decarbonization rating system.
The concept is designed to be complementary to methods for rewarding virtual low-carbon steel, at least until significant amounts of physical low-carbon steel are available.
*Analysis of results for the six months ended June 30, 2022 versus results for the six months ended June 30, 2021*
Total steel shipments for 1H 2022 were 29.7 million metric tonnes (Mt), a decrease of -8.7% as compared to 32.6Mt in 1H 2021. Steel shipments on a scope adjusted basis (i.e. excluding the shipments of ArcelorMittal Italia^12,17, deconsolidated as from April 14, 2021), decreased by -5.8%. Year on year shipment declines: ACIS -39.0% (primarily due to Russia/Ukraine conflict) and NAFTA -3.7%, offset in part by increased shipments in Brazil +3.6% while Europe remained stable on a scope adjusted basis.
Sales for 1H 2022 increased by 23.8% to $44.0 billion as compared with $35.5 billion for 1H 2021, primarily due to higher average steel selling prices (+37.7%), partly offset by lower steel shipments.
Depreciation of $1.3 billion for 1H 2022 as compared with $1.2 billion in 1H 2021 was broadly stable.
Operating income for 1H 2022 of $8.9 billion was higher as compared to 1H 2021 of $7.1 billion primarily driven by positive price-cost effect offset in part by lower iron ore reference prices (-24.0%).
Income from associates, joint ventures and other investments^9 for 1H 2022 was $1.1 billion as compared to $1.0 billion for 1H 2021. 1H 2022 includes higher contribution from European investees (including $0.1 billion income for Acciaierie d'Italia arising from recognition of a deferred tax asset in 2Q 2022) offset in part by lower contributions from AMNS India^4 and AMNS Calvert^5.1H 2022 includes the annual dividend from Erdemir of $117 million (vs. $89 million received in 1H 2021).
Net interest expense in 1H 2022 of $104 million was lower as compared to $167 million in 1H 2021 following debt repayments and liability management.
Foreign exchange and other net financing losses were $323 million for 1H 2022 as compared to losses of $427 million for 1H 2021. Foreign exchange loss for 1H 2022 was $198 million as compared to a loss of $147 million in 1H 2021. 1H 2021 includes early bond redemption premium expenses of $130 million.
ArcelorMittal recorded an income tax expense of $1,381 million for 1H 2022 (including $214 million deferred tax benefit) as compared to $946 million for 1H 2021 (which included $391 million deferred tax benefit).
ArcelorMittal’s net income for 1H 2022 was $8,048 million as compared to $6,290 million for 1H 2021.
ArcelorMittal’s basic earnings per common share for 1H 2022 was $8.53 basic earnings per common share, as compared to $5.40 basic earnings per common share for 1H 2021.
*Analysis of results for 2Q 2022 versus 1Q 2022 and 2Q 2021*
Total steel shipments in 2Q 2022 were 14.4Mt, -6.3% lower as compared with 15.3Mt in 1Q 2022, largely reflecting the impact of the conflict in Ukraine (ACIS down -41.2%) and weaker shipments in Europe (-4.4%). Comparing to 2Q 2021, and adjusting for the change in scope (i.e. excluding the shipments of ArcelorMittal Italia^12,17 deconsolidated as from April 14, 2021), steel shipments in 2Q 2022 decreased by -9.9%: primarily due to ACIS -56.5%, Europe -2.6% (scope adjusted), and NAFTA -5.3% offset in part by Brazil +1.3%.
Sales in 2Q 2022 were $22.1 billion as compared to $21.8 billion for 1Q 2022 and $19.3 billion for 2Q 2021. As compared to 1Q 2022, the +1.4% increase in sales was primarily due to higher average steel selling prices (+7.7%), offset in part by lower steel shipment volumes. Sales in 2Q 2022 were +14.5% higher as compared to 2Q 2021 primarily due to higher average steel selling prices (+30.8%) offset in part by lower iron ore reference prices (-31.2%).
Depreciation for 2Q 2022 was $669 million as compared to $647 million for 1Q 2022 and higher than $620 million in 2Q 2021. Depreciation was higher than 2Q 2021 due to changes in the useful lives estimates for certain assets in Europe and Canada due to decarbonization projects, partially offset by foreign exchange benefit.
Operating income for 2Q 2022 was $4.5 billion as compared to $4.4 billion in 1Q 2022 and 2Q 2021, respectively.
Income from associates, joint ventures and other investments^9 for 2Q 2022 was $578 million as compared to $559 million for 1Q 2022 and $590 million in 2Q 2021. 2Q 2022 includes improved contribution from European investees (including $0.1 billion income for Acciaierie d'Italia arising from recognition of a deferred tax asset) offset by a lower contribution from AMNS Calvert^5 and AMNS India^4 .1Q 2022 also included the annual dividend from Erdemir in the amount of $117 million.
Net interest expense in 2Q 2022 was $53 million as compared to $51 million in 1Q 2022 and lower than $76 million in 2Q 2021, reflecting savings following the repayment of bonds and liability management.
Foreign exchange and other net financing losses in 2Q 2022 were $183 million as compared to losses of $140 million in 1Q 2022 and $233 million in 2Q 2021. 2Q 2022 includes foreign exchange loss of $152 million compared to $46 million in 1Q 2022 and $29 million in 2Q 2021. 2Q 2021 included $130 million related to premium paid for early redemption of bonds.
ArcelorMittal recorded an income tax expense of $826 million (including deferred tax benefit of $74 million) in 2Q 2022 as compared to an income tax expense of $555 million (including deferred tax benefit of $140 million) in 1Q 2022. Income tax expense was higher in 2Q 2022 as compared to 1Q 2022 due to different geographical mix of income, with higher profitability in Brazil and NAFTA regions where tax rates are high. Income tax expense in 2Q 2021 was $542 million (including deferred tax benefit of $226 million).
ArcelorMittal recorded net income for 2Q 2022 of $3,923 million as compared to net income for 1Q 2022 of $4,125 million, as compared to net income of $4,005 million for 2Q 2021. ArcelorMittal's basic earnings per common share for 2Q 2022 was stable at $4.25 as compared to $4.28 in 1Q 2022 and +22.3% higher than $3.47 in 2Q 2021 due to ongoing share buyback programs.
*Analysis of segment operations^2, 11*
*NAFTA*
(USDm) unless otherwise shown *2Q 22* *1Q 22* *2Q 21* *1H 22* *1H 21*
Sales 3,653 3,760 3,242 7,413 5,778
Operating income 817 1,054 675 1,871 936
Depreciation (93) (93) (71) (186) (142)
EBITDA 910 1,147 746 2,057 1,078
Crude steel production (kt) 2,043 2,077 2,272 4,120 4,447
Steel shipments * (kt) 2,453 2,456 2,590 4,909 5,101
Average steel selling price (US$/t) 1,317 1,322 1,062 1,319 957
* NAFTA steel shipments reported figures include shipments sourced by NAFTA from Group subsidiaries and sold to the Calvert JV that are eliminated on consolidation.
NAFTA segment crude steel production decreased by -1.6% to 2.0Mt in 2Q 2022, as compared to 2.1Mt in 1Q 2022. As compared to 2Q 2021, crude steel production in 2Q 2022 declined -10.1% due to the impact from labour actions in Mexico and maintenance in Canada.
Steel shipments in 2Q 2022 were stable at 2.5Mt, as compared 1Q 2022, and declined by -5.3% as compared to 2Q 2021.
Sales in 2Q 2022 decreased by -2.8% to $3.7 billion, as compared to $3.8 billion in 1Q 2022. Sales increased by +12.7% in 2Q 2022 as compared to $3.2 billion in 2Q 2021 primarily on account of higher average steel selling prices (+24.1%) offset in part by lower steel shipment volumes.
Operating income in 2Q 2022 declined -22.5% to $817 million as compared to $1,054 million in 1Q 2022 and +20.9% higher as compared to $675 million in 2Q 2021.
EBITDA in 2Q 2022 of $910 million was -20.7% lower as compared to $1,147 million in 1Q 2022, primarily due to a negative price-cost effect and impact from the labour action in Mexico ($0.1 billion). EBITDA in 2Q 2022 was higher as compared to $746 million in 2Q 2021 mainly due to a positive price-cost effect offset in part by lower steel shipments.
*Brazil^18*
*(USDm) unless otherwise shown* *2Q 22* *1Q 22* *2Q 21* *1H 22* *1H 21*
Sales 3,986 3,366 3,263 7,352 5,798
Operating income 1,201 674 1,028 1,875 1,742
Depreciation (71) (58) (56) (129) (109)
EBITDA 1,272 732 1,084 2,004 1,851
Crude steel production (kt) 3,085 3,040 3,150 6,125 6,184
Steel shipments (kt) 3,003 3,037 2,964 6,040 5,832
Average steel selling price (US$/t) 1,234 1,039 1,038 1,136 939
Brazil segment crude steel production increased by +1.5% to 3.1Mt in 2Q 2022 as compared to 3.0Mt in 1Q 2022 and 3.2Mt in 2Q 2021.
Steel shipments of 3.0Mt in 2Q 2022 were broadly stable as compared to 1Q 2022, but with higher domestic mix, and +1.3% higher as compared to 2Q 2021.
Sales in 2Q 2022 increased by +18.4% to $4.0 billion as compared to $3.4 billion in 1Q 2022, primarily due to +18.7% increase in average steel selling prices, with prices higher in both domestic and export markets. Sales in 2Q 2022 were 22.1% higher than $3.3 billion at 2Q 2021 primarily on account of higher average steel selling prices (+18.9%).
Operating income in 2Q 2022 of $1,201 million was higher as compared to $674 million in 1Q 2022 and $1,028 million in 2Q 2021.
EBITDA in 2Q 2022 increased by +73.8% to $1,272 million as compared to $732 million in 1Q 2022, primarily due to a positive price-cost effect as well as a gain of $0.2 billion related to Pis/Cofins tax credits from prior years for scrap purchases^20. EBITDA in 2Q 2022 was higher than $1,084 million in 2Q 2021.
*Europe*
*(USDm) unless otherwise shown* *2Q 22* *1Q 22* *2Q 21* *1H 22* *1H 21*
Sales 13,449 13,043 10,672 26,492 20,027
Operating income 2,063 2,081 1,262 4,144 1,861
Depreciation (326) (326) (316) (652) (615)
EBITDA 2,389 2,407 1,578 4,796 2,476
Crude steel production (kt) 8,261 8,689 9,386 16,950 19,083
Steel shipments (kt) 7,967 8,334 8,293 16,301 17,306
Average steel selling price (US$/t) 1,292 1,218 948 1,254 878
Europe segment crude steel production declined by -4.9% to 8.3Mt in 2Q 2022 as compared to 8.7Mt in 1Q 2022 and -12.0% lower as compared to 2Q 2021. Production was down 2Q 2022 as compared to 1Q 2022 on account of a planned reline in Eisenhüttenstadt and an adjustment of production to lower demand. These same factors and the additional impact of responses to higher energy prices led to a -10.6% decline in 2Q 2022 as compared to 2Q 2021 on a scope adjusted basis^17.
Steel shipments declined by -4.4% to 8.0Mt in 2Q 2022 as compared to 8.3Mt in 1Q 2022 and was -3.9% lower as compared to 8.3Mt in 2Q 2021 primarily due to a slowdown in demand. Adjusted for the ArcelorMittal Italia deconsolidation, shipments in 2Q 2022 were -2.6% lower as compared to 2Q 2021.
Sales in 2Q 2022 increased by +3.1% to $13.4 billion, as compared to $13.0 billion in 1Q 2022, primarily due to +6.1% higher average selling prices. Sales were significantly higher than 2Q 2021, and includes the positive impact of automotive contract price resets.
Operating income in 2Q 2022 was $2,063 million as compared to $2,081 million in 1Q 2022 and higher than $1,262 million in 2Q 2021.
EBITDA in 2Q 2022 of $2,389 million decreased by -0.8%, as compared to $2,407 million in 1Q 2022, with the impacts of lower steel shipments and a negative translation effect due to USD appreciation largely being offset by a positive price-cost effect. EBITDA in 2Q 2022 increased significantly as compared to $1,578 million in 2Q 2021 primarily due to a positive price-cost effect, including the impact of contract pricing resets, offset in part by lower steel shipment volumes and a negative translation effect, as above.
*ACIS*
*(USDm) unless otherwise shown* *2Q 22* *1Q 22* *2Q 21* *1H 22* *1H 21*
Sales 1,484 2,086 2,768 3,570 4,896
Operating income 43 280 923 323 1,458
Depreciation (106) (105) (110) (211) (220)
EBITDA 149 385 1,033 534 1,678
Crude steel production (kt) 1,261 2,452 2,975 3,713 5,658
Steel shipments (kt) 1,218 2,071 2,801 3,289 5,396
Average steel selling price (US$/t) 925 855 806 881 729
ACIS segment crude steel production in 2Q 2022 was -48.6% lower at 1.3Mt as compared to 2.5Mt in 1Q 2022 primarily due to the ongoing reduction of production in Ukraine^15 and the impacts from a 2-week labour action and logistic issues in South Africa.
One of the three blast furnaces in Ukraine, blast furnace No.6 which is approximately 20% of Kryvyi Rih capacity, was restarted on April 11, 2022. Iron ore production has been steadily increased to ~55% capacity in 2Q 2022.
Steel shipments in 2Q 2022 decreased by -41.2% to 1.2Mt as compared to 2.1Mt in 1Q 2022 and were lower by -56.5% as compared to 2Q 2021, mainly due to lower production as discussed above.
Sales in 2Q 2022 decreased by -28.9% to $1.5 billion as compared to $2.1 billion in 1Q 2022, primarily due to lower steel shipments offset in part by +8.2% higher average steel selling prices.
Operating income in 2Q 2022 was significantly lower at $43 million (impacts discussed above) as compared to $280 million in 1Q 2022 and $923 million in 2Q 2021.
EBITDA of $149 million in 2Q 2022 was -61.3% lower as compared to $385 million in 1Q 2022, primarily due to lower steel shipments and higher costs including labour action and logistic issues in ArcelorMittal South Africa ($0.1 billion). EBITDA in 2Q 2022 was lower as compared to $1,033 million in 2Q 2021 due to lower steel shipments (down 1.6Mt).
*Mining *
*(USDm) unless otherwise shown* *2Q 22* *1Q 22* *2Q 21* *1H 22* *1H 21*
Sales 1,005 933 889 1,938 2,068
Operating income 463 511 508 974 1,287
Depreciation (64) (56) (56) (120) (115)
EBITDA 527 567 564 1,094 1,402
Iron ore production (Mt) 7.3 6.9 4.9 14.2 12.2
Iron ore shipment (Mt) 7.5 6.7 4.6 14.2 12.0
Note: Mining segment comprises iron ore operations of ArcelorMittal Mines Canada and ArcelorMittal Liberia.
Iron ore production increased in 2Q 2022 by +5.2% to 7.3Mt as compared to 6.9Mt in 1Q 2022 and was +49.3% higher as compared to 2Q 2021. Higher production in 2Q 2022 was primarily due to recovery of production in AMMC following seasonally lower production driven by severe weather conditions in the prior quarter. 2Q 2021 production was significantly lower primarily due to the impact of a 4-week labour action at AMMC^6.
Iron ore shipments increased in 2Q 2022 by +12.5% to 7.5Mt as compared to 6.7Mt in 1Q 2022, primarily driven by improved shipments at AMMC (following seasonality and associated logistics issues in 1Q 2022). 2Q 2022 iron ore shipments increased by +66.3% as compared to 2Q 2021 for the reasons discussed above.
Operating income in 2Q 2022 was $463 million as compared to $511 million in 1Q 2022 and $508 million in 2Q 2021.
EBITDA in 2Q 2022 decreased by -7.0% to $527 million as compared to $567 million in 1Q 2022, largely reflecting the effect of lower iron ore reference prices (-2.7%), lower market premia for higher quality products, and higher freight costs offset in part by higher shipments (+12.5%). EBITDA in 2Q 2022 was lower as compared to $564 million in 2Q 2021, primarily due to lower iron ore reference prices (-31.2%), and higher freight costs offset in part by higher shipments (+66.3%).
*Joint ventures*
ArcelorMittal has investments in various joint ventures and associate entities globally. The Company considers the Calvert (50% equity interest) and AMNS India (60% equity interest) joint ventures to be of particular strategic importance, warranting more detailed disclosures to improve the understanding of their operational performance and value to the Company.
*Calvert^5*
*(USDm) unless otherwise shown* *2Q 22* *1Q 22* *2Q 21* *1H 22* *1H 21*
Production (100% basis) (kt)* 1,127 1,124 1,234 2,251 2,495
Steel shipments (100% basis) (kt)** 1,123 1,171 1,155 2,294 2,292
EBITDA (100% basis)*** 261 327 270 588 424
* Production: all production of the hot strip mill including processing of slabs on a hire work basis for ArcelorMittal group entities and third parties, including stainless steel slabs.
** Shipments: including shipments of finished products processed on a hire work basis for ArcelorMittal group entities and third parties, including stainless steel products.
*** EBITDA of Calvert presented here on a 100% basis as a stand-alone business and in accordance with the Company's policy, applying the weighted average method of accounting for inventory.
Calvert’s hot strip mill ("HSM") production during 2Q 2022 totaled 1.1Mt, stable as compared to 1.1Mt in 1Q 2022 and -8.7% lower than 1.2Mt in 2Q 2021.
Steel shipments in 2Q 2022 were -4.1% below 1Q 2022 due to weaker demand.
EBITDA*** during 2Q 2022 of $261 million was -20.2% lower than $327 million in 1Q 2022 primarily on account of lower pricing with the falling CRU index prices in February and March 2022 impacting non-contract volumes of 2Q 2022.
*AMNS India^4*
*(USDm) unless otherwise shown* *2Q 22* *1Q 22* *2Q 21* *1H 22* *1H 21*
Crude steel production (100% basis) (kt) 1,668 1,730 1,831 3,398 3,655
Steel shipments (100% basis) (kt) 1,511 1,732 1,718 3,243 3,418
EBITDA (100% basis) 365 470 607 835 1,010
Crude steel production in 2Q 2022 decreased by -3.6% to 1.7Mt as compared to 1Q 2022. Crude steel production in 2Q 2022 decreased by -8.9% as compared to 1.8Mt in 2Q 2021 on account of maintenance.
Steel shipments in 2Q 2022 declined by -12.8% to 1.5Mt as compared to 1.7Mt in 1Q 2022 and 2Q 2021 on account of lower production as well as lower demand.
EBITDA during 2Q 2022 of $365 million was -22.3% lower compared to $470 million in 1Q 2022, due to lower shipments and lower pellet contribution following the introduction of the export duty during the quarter.
*Liquidity and Capital Resources*
Net cash provided by operating activities for 2Q 2022 was $2,554 million as compared to $2,034 million in 1Q 2022 and $2,312 million in 2Q 2021. Net cash provided by operating activities in 2Q 2022 includes a working capital investment of $1,008 million as compared to investments of $2,047 million in 1Q 2022 and $1,901 million in 2Q 2021. 2Q 2022 working capital requirements were driven by relatively robust finished steel prices and elevated raw material prices. Based on current market conditions, the Company expects a working capital release in 2H 2022.
Capex in 2Q 2022 of $655 million compared with $529 million in 1Q 2022 and $569 million in 2Q 2021. FY 2022 capex guidance has been reduced by $0.3 billion to $4.2 billion (from $4.5 billion previous guidance) implying 2H 2022 capex of ~$3.0 billion. The reduction in capex guidance reflects timing of cash capex, with slightly delayed capex on strategic projects^14 in Brazil and lower activity including Ukraine.
Net cash used in other investing activities in 2Q 2022 was $886 million (primarily related to the acquisition of an 80% shareholding in voestalpine’s world-class Hot Briquetted Iron (‘HBI’) plant located in Corpus Christi, Texas), as compared to $77 million in 1Q 2022 and compared to net cash provided by other investing activities of $687 million in 2Q 2021 primarily related to $0.7 billion cash received from the sale of 38.2 million Cleveland Cliffs shares.
Net cash used in financing activities in 2Q 2022 was $1,651 million as compared to $185 million in 1Q 2022 and $3,780 million in 2Q 2021. In 2Q 2022, ArcelorMittal signed a Schuldschein loan agreement for a total amount of €725 million, which was more than offset by a reduction in commercial paper outstanding, the repurchase of 46.8 million shares for a total value of $1.5 billion and total dividends of $498 million ($332 million paid to ArcelorMittal shareholders and $166 million primarily paid to minority shareholders of AMMC). In 1Q 2022, net cash used in financing activities included an inflow from commercial paper portfolio offset by the reimbursement of an outstanding bond paid at maturity and repurchase of 18.3 million shares for a total value of $569 million (of which $65 million was settled in early April 2022). In 2Q 2021, net cash used in financing activities included an outflow of $2.2 billion primarily related to various bond repurchases, share buybacks and dividends.
Gross debt increased to $8.8 billion as of June 30, 2022, as compared to $8.7 billion as of March 31, 2022 and $8.4 billion as of December 31, 2021. Net debt increased by $1.0 billion to $4.2 billion as of June 30, 2022 as compared to $3.2 billion as of March 31, 2022 and increased by $0.2 billion from $4.0 billion as of December 31, 2021.
As of June 30, 2022, and March 31, 2022, the Company had liquidity of $10.1 billion and $11.1 billion, respectively. June 30, 2022 liquidity consisted of cash and cash equivalents of $4.6 billion (March 31, 2022 cash and cash equivalents of $5.6 billion) and $5.5 billion of available credit lines^7. As of June 30, 2022, the average debt maturity was 5.8 years.
*Key recent developments*
• On July 28, 2022, ArcelorMittal announced it has signed an agreement with the shareholders of Companhia Siderúrgica do Pecém (‘CSP’) to acquire CSP for an enterprise value of approximately $2.2 billion. Transaction closing is subject to certain corporate and regulatory approvals, including CADE (Brazilian antitrust) approval which is expected by late 2022.
CSP is a world-class operation, producing high-quality slab at a globally competitive cost. CSP’s state-of-the-art steel facility in the state of Ceará in northeast Brazil was commissioned in 2016 and produced its first slabs in June of that year. It operates a three million tonne capacity blast furnace and has access via conveyors to the Port of Pecém, a large scale, deep water port located 10 kilometers from the plant. CSP operates within Brazil’s first Export Processing Zone, and benefits from various tax incentives including a low corporate income tax rate.
The acquisition brings several strategic benefits to ArcelorMittal, including the potential to:
· Expand the Company’s position in the high-growth Brazilian steel industry.
· Capitalise on the significant planned third-party investment to form a clean electricity and green hydrogen hub in Pecém.
· Add 3 million tonnes of high-quality and cost-competitive slab capacity, with the potential to supply slab intra-group or to sell into North and South America.
· Allow for further expansions by the Company, such as the option to add primary steelmaking capacity (including direct reduced iron) and rolling and finishing capacity.
· Capture over $50 million of identified synergies, including SG&A, procurement and process optimization.
The state of Ceará has ambitions to develop a low-cost green hydrogen hub. The Pecém Green Hydrogen Hub, a partnership between the Pecém Complex and Linde, a leading global industrial gases and engineering company, is a large-scale green hydrogen project at the Port of Pecém which is targeting to produce up to 5GW of renewable energy and 900 kt/y of green hydrogen in a series of phases. The first phase, which the partnership currently expects to be completed over the course of the next five years, targets the construction of 100-150MW of renewable energy capacity.
· On July 21, 2022, ArcelorMittal and automotive supplier Gestamp announced that they have successfully trialed the use of low-carbon emissions steel for use in car parts that will ultimately be used in the production of vehicles in Europe. The two companies have signed an agreement to strengthen cooperation on sustainability, specifically in the production of low-carbon emissions steel parts and are working closely to ensure that ArcelorMittal’s steel meets all Gestamp’s technical requirements. Using Usibor^® 1500 made with XCarb^® recycled and renewably produced substrate, Gestamp has successfully trialed the first parts (such as a car’s tunnel, and seat reinforcements) in press-hardenable steel, which is ultra high-strength and therefore enables car manufacturers to achieve excellent weight reductions across the vehicle. XCarb^® recycled and renewably produced is a decarbonized product made with a very high proportion of recycled steel in an EAF and 100% renewable electricity. The steel used by Gestamp has a carbon footprint that is almost 70% lower than the same product made without XCarb^® recycled and renewable steel.
· On July 1, 2022, ArcelorMittal announced that following receipt of customary regulatory approvals, it had completed the acquisition of an 80% shareholding in voestalpine’s Hot Briquetted Iron (‘HBI’) plant located near Corpus Christi, Texas on June 30, 2022. The acquisition, announced in April 2022, values the Corpus Christi operations at $1 billion. The state-of-the-art plant is one of the largest of its kind in the world. It has an annual capacity of two million tonnes of HBI, which is a premium, compacted form of Direct Reduced Iron (‘DRI’) developed to overcome issues associated with shipping and handling DRI. The transaction enhances ArcelorMittal’s ability to produce the high-quality input materials required for low-carbon emissions steelmaking, and reinforces the Company’s position as a world leader in DRI production. In parallel with the transaction, ArcelorMittal signed a long-term offtake agreement with voestalpine to supply an annual volume of HBI commensurate to voestalpine’s equity stake. Any future development of the site will be 100% owned by ArcelorMittal. The remaining balance of production will be delivered to third parties, and to ArcelorMittal facilities, including to AM/NS Calvert in Alabama, upon the commissioning of its 1.5 million tonne EAF.
· On June 9, 2022, ArcelorMittal announced that it had completed the US$1 billion share buyback program it had announced on May 5, 2022 under the authorization given by the annual general meeting of shareholders of May 4, 2022. By market close on 8 June 2022, ArcelorMittal had repurchased 33,349,597 shares for a total value of €942,577,580.32 (equivalent to $1 billion at an approximate average price per share of €28.26. All details are available on the Company’s website at: https://corporate.arcelormittal.com/investors/equity-investors/share-buyback-program.
· On June 1, 2022, ArcelorMittal and the government of Spain signed an agreement in which the government has pledged its financial support for the decarbonization of the company’s steelmaking sites in Asturias and in Sestao, in the Basque Country. The funding, which is part of the government’s Recovery and Resilience Plan, will support the construction of an electric arc furnace and DRI plant in Gijón, which are crucial to the cmpany’s CO2 emissions reduction goals in Europe. The implementation of this project represents the first step of the company’s decarbonization journey in Asturias. In order to implement the described transformation of the site in Asturias, an application has been submitted under the EU’s CEEAG framework, and is awaiting approval from the European Commission before the project can proceed.
· On May 25, 2022, ArcelorMittal launched the XCarb™ Accelerator Programme to support breakthrough technology start-up and drive decarbonization. Breakthrough technology start-ups worldwide have been invited to submit applications to compete for investment from ArcelorMittal’s XCarb™ Innovation Fund, which aims to invest up to $100 million annually in such transformative technologies, and access to ArcelorMittal’s advice and expertise in innovation, research and development, technology commercialization and business mentorship.
· On May 24, 2022, ArcelorMittal announced that it had achieved ResponsibleSteel™ certification for its Asturias Cluster in Spain and ArcelorMittal Méditerranée in France – the company’s first sites to be certified in both France and Spain.
· On May 18, 2022, ArcelorMittal announced that 60 million treasury shares had been cancelled to keep the number of treasury shares the Company holds within appropriate levels. As a result of this cancellation, ArcelorMittal has 877,809,772 shares in issue (compared to 937,809,772 before the cancellation).
*Cost improvement plan *
In February 2022, the Company had announced a new 3-year $1.5 billion value plan focused on creating value through well-defined commercial and operational initiatives (excluding the impact of strategic projects which are followed separately). The plan includes commercial initiatives, including volume/mix improvements and operational improvements (primarily in variable costs). The plan is of strategic importance and aims at protecting the EBITDA potential of the business from the rising inflationary pressures that are being faced by the Company. The Company believes that improving its relative competitive position vis-a-vis its peers can support sustainably higher profits.
*Capital return *
Following the completion of its previously announced buyback plans, the Company announces a new buyback program to purchase a further 60 million shares (~$1.4 billion at current share price) to be completed by the end of May 2023. This is the maximum shares purchasable under current shareholder authorization.
*Outlook*
Inflationary pressures have escalated during 1H 2022 presenting significant headwinds to economic activity. The impacts on consumer and business confidence are leading to a slowdown in real demand, which has been exacerbated by destocking activity, resulting in apparent demand below real demand levels and a normalization of steel spreads.
The potential for energy supply restrictions presents a clear but, as yet, uncertain risk to economic activity in Europe.
The Company highlights the potential downside risks to the demand forecasts presented at 1Q 2022 results, particularly to the forecast demand for Europe, given gas supply risks, and China given the impact of COVID-related lockdowns. ArcelorMittal is well positioned to navigate the uncertainties around European gas supply given its predominantly blast furnace based capacity across multiple sites in 9 EU countries.
The longer-term fundamental outlook for steel is positive. China’s focus on decarbonization and removal of VAT-rebates on steel exports are encouraging; so too are the actions taken by governments to protect against the threats of unfair trade. And we know that steel will play a critical and vital role in the transition to a decarbonized and circular economy – there is no substitute.
*ArcelorMittal Condensed Consolidated Statement of Financial Position^1 *
*In millions of U.S. dollars* *Jun 30,*
*2022* *Mar 31,*
*2022* *Dec 31,*
*2021*
*ASSETS*
Cash and cash equivalents 4,565 5,570 4,371
Trade accounts receivable and other 5,931 6,353 5,143
Inventories 23,303 22,171 19,858
Prepaid expenses and other current assets 7,189 6,487 5,567
*Total Current Assets* * 40,988 * * 40,581 * * 34,939 *
Goodwill and intangible assets 4,307 4,564 4,425
Property, plant and equipment 29,542 30,161 30,075
Investments in associates and joint ventures 10,992 10,888 10,319
Deferred tax assets 7,974 8,018 8,147
Other assets^10 3,223 3,287 2,607
*Total Assets* * 97,026 * * 97,499 * * 90,512 *
*LIABILITIES AND SHAREHOLDERS’ EQUITY*
Short-term debt and current portion of long-term debt 2,719 2,413 1,913
Trade accounts payable and other 16,736 16,200 15,093
Accrued expenses and other current liabilities 6,514 7,491 7,161
*Total Current Liabilities* * 25,969 * * 26,104 * * 24,167 *
Long-term debt, net of current portion 6,069 6,309 6,488
Deferred tax liabilities 2,489 2,494 2,369
Other long-term liabilities 6,053 6,397 6,144
*Total Liabilities* * 40,580 * * 41,304 * * 39,168 *
Equity attributable to the equity holders of the parent 53,992 53,798 49,106
Non-controlling interests 2,454 2,397 2,238
*Total Equity* * 56,446 * * 56,195 * * 51,344 *
*Total Liabilities and Shareholders’ Equity* * 97,026 * * 97,499 * * 90,512 *
*ArcelorMittal Condensed Consolidated Statement of Operations^1*
*Three months ended* *Six months ended*
*In millions of U.S. dollars unless otherwise shown* *Jun 30, *
*2022* *Mar 31, *
*2022* *Jun 30, *
*2021* *Jun 30, *
*2022* *Jun 30, *
*2021*
*Sales* * 22,142 * * 21,836 * * 19,343 * * 43,978 * * 35,536 *
Depreciation (B) (669) (647) (620) (1,316) (1,221)
*Operating income (A)* * 4,494 * * 4,433 * * 4,432 * * 8,927 * * 7,073 *
Operating margin % 20.3 % 20.3 % 22.9 % 20.3 % 19.9 %
Income from associates, joint ventures and other investments 578 559 590 1,137 1,043
Net interest expense (53) (51) (76) (104) (167)
Foreign exchange and other net financing (loss) (183) (140) (233) (323) (427)
*Income before taxes and non-controlling interests* * 4,836 * * 4,801 * * 4,713 * * 9,637 * * 7,522 *Current tax expense (900) (695) (768) (1,595) (1,337) Deferred tax benefit 74 140 226 214 391
Income tax expense (net) (826) (555) (542) (1,381) (946)
*Income including non-controlling interests* * 4,010 * * 4,246 * * 4,171 * * 8,256 * * 6,576 *
Non-controlling interests income (87) (121) (166) (208) (286)
*Net income attributable to equity holders of the parent* * 3,923 * * 4,125 * * 4,005 * * 8,048 * * 6,290 *
Basic earnings per common share ($) 4.25 4.28 3.47 8.53 5.40
Diluted earnings per common share ($) 4.24 4.27 3.46 8.51 5.39
Weighted average common shares outstanding (in millions) 924 964 1,154 944 1,165
Diluted weighted average common shares outstanding (in millions) 926 966 1,157 946 1,168
*OTHER INFORMATION*
*EBITDA (C = A-B)* * 5,163 * * 5,080 * * 5,052 * * 10,243 * * 8,294 *
EBITDA Margin % 23.3 % 23.3 % 26.1 % 23.3 % 23.3 %
Total group iron ore production (Mt) 12.0 12.0 11.2 24.0 24.5
Crude steel production (Mt) 14.6 16.3 17.8 30.9 35.4
Steel shipments (Mt) 14.4 15.3 16.1 29.7 32.6
*ArcelorMittal Condensed Consolidated Statement of Cash flows^1 *
*Three months ended* *Six Months ended*
In millions of U.S. dollars *Jun 30, *
*2022* *Mar 31, *
*2022* *Jun 30, *
*2021* *Jun 30, *
*2022* *Jun 30, *
*2021*
*Operating activities:*
*Income attributable to equity holders of the parent* * 3,923 * * 4,125 * * 4,005 * * 8,048 * * 6,290 *
Adjustments to reconcile net income to net cash provided by operations:
Non-controlling interests income 87 121 166 208 286
Depreciation 669 647 620 1,316 1,221
Income from associates, joint ventures and other investments (578) (559) (590) (1,137) (1,043)
Deferred tax benefit (74) (140) (226) (214) (391)
Change in working capital (1,008) (2,047) (1,901) (3,055) (3,535)
Other operating activities (net) (465) (113) 238 (578) 481
*Net cash provided by operating activities (A)* * 2,554 * * 2,034 * * 2,312 * * 4,588 * * 3,309 *
*Investing activities: *
Purchase of property, plant and equipment and intangibles (B) (655) (529) (569) (1,184) (1,188)
Other investing activities (net) (886) (77) 687 (963) 1,574
*Net cash (used in) / provided by investing activities* * (1,541)* * (606)* * 118 * * (2,147)* * 386 *
*Financing activities:*
Net proceeds / (payments) relating to payable to banks and long-term debt 389 379 (2,232) 768 (2,856)
Dividends paid to ArcelorMittal shareholders (332) — (284) (332) (284)
Dividends paid to minorities (C) (166) (12) (17) (178) (82)
Share buyback (1,496) (504) (997) (2,000) (1,647)
Lease payments and other financing activities (net) (46) (48) (250) (94) (299)
*Net cash used in financing activities* * (1,651)* * (185)* * (3,780)* * (1,836)* * (5,168)*
Net (decrease) / increase in cash and cash equivalents (638) 1,243 (1,350) 605 (1,473)
Cash and cash equivalents transferred from assets held for sale — — 10 — 3
Effect of exchange rate changes on cash (367) 4 47 (363) (59)
*Change in cash and cash equivalents* * (1,005)* * 1,247 * * (1,293)* * 242 * * (1,529)*
*Free cash flow (D=A+B+C)* * 1,733 * * 1,493 * * 1,726 * * 3,226 * * 2,039 *
*Appendix 1: Product shipments by region^1*
*(000'kt)* *2Q 22* *1Q 22* *2Q 21* *1H 22* *1H 21*
Flat 1,800 1,811 1,896 3,611 3,718
Long 748 657 794 1,405 1,579
*NAFTA * * 2,453 * * 2,456 * * 2,590 * * �