ArcelorMittal back in the black with $52 mn Q2 net income

ArcelorMittal, the world's leading integrated steel and mining company, has reported a net income of $52 million (or $0.03 per share) for the second quarter of 2014, compared to a net loss of $0.2 billion (or $0.12 per share) for Q1 of 2014, and a net loss of $0.8 billion, or $0.44 loss per share for Q2 of 2013.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) for the April-June 2014 quarter stood at $1.8 billion (including a $0.1 billion US litigation charge), a 9 per cent improvement compared to the second quarter of 2013 on an underlying basis.

Luxembourg-based ArcelorMittal reported notable improvements in North America where sales of steel jumped 13.1 per cent compared with a year earlier to $5.4 billion. In Europe, sales declined slightly, but earnings increased by more than 40 per cent to $689 million.

Steel shipments for the quarter rose 2.5 per cent to 21.5 million tonnes compared to Q2 of 2013 while iron ore production rose to 16.6 million tonnes compared to 15.0 million tonnes in Q2 of 2013.

The company also shipped 10.5 million tonnes of iron ore at market prices during the quarter, compared to 8.2 million tonnes shipped in Q2 of 2013.

ArcelorMittal pared its net debt by $1.1 billion to $17.4 billion as of 30 June 2014 during the quarter due mainly to release of $0.9 billion in working capital and M&A proceeds of $0.2 billion.

For the six months ended 30 June 2014, ArcelorMittal, however, reported a net loss of $200 million (or $0.09 loss per share), compared to net loss for $1.1 billion (or $0.65 loss per share) for the first half of 2013.

Total steel shipments for first half of 2014 were 2.5 per cent higher at 42.4 million tonnes compared with 41.4 million tonnes for H1 of 2013. Sales for H1 2014 increased by 1.4 per cent to $40.5 billion compared with $39.9 billion for H1 of 2013, primarily due to higher steel shipments (+2.5 per cent) and marketable iron ore shipments (+28.4 per cent), offset in part by lower average steel selling prices (-1.6 per cent) and lower seaborne iron ore prices (-19 per cent).

ArcelorMittal said it has improved its maintenance practices of late, which has enabled the company increase the useful lives of plant and equipment. As a result of this development, the company has determined that it is appropriate to extend the useful lives resulting in a lower charge to the income statement. The full detailed review of useful lives of the assets was largely completed during Q2 of 2014. 

Accordingly, depreciation of $2.0 billion for H1 of 2014 was lower compared to $2.3 billion for H1 of 2013. The company expects the full year 2014 depreciation charge to be approximately $3.8-4.0 billion as compared to $4.7 billion in both 2012 and 2013.

Impairment charges for H1 of 2014 were nil. Impairment charges for H1 of 2013 were $39 million, primarily relating to the closure of the organic coating and tin plate lines in Florange in Europe.

Restructuring charges for H1 of 2014 were nil. Restructuring charges for the first half of 2013 were $173 million, including $137 million of cost incurred for the long term idling of the Florange liquid phase (including voluntary separation scheme costs, site rehabilitation/safeguarding costs, and take or pay obligations).

Operating income for H1 of 2014 was $1.5 billion as compared with operating income of $756 million for H1 of 2013. Operating results for H1 of 2014 were negatively impacted by a $90 million charge following the settlement of US antitrust litigation. Operating results for H1 of 2013 were positively impacted by a $47 million fair valuation gain relating to the acquisition of an additional ownership interest in DJ Galvanizing in Canada and $92 million related to `Dynamic Delta Hedge' (DDH) income.

The DDH income recorded in Q1 of 2013 was the final installment of such income. This gain on the unwinding of a currency hedge related to raw materials purchases was initially recorded in equity in fourth quarter of 2008, and as of Q1 of 2013 was fully recorded in the income statement.

Income from investments, associates, joint ventures and other investments in H1 2014 was $154 million, compared to a loss of $42 million in H1 of 2013. Income in H1 of 2014 includes the annual dividend received from Erdemir, improved performance of Spanish investees as well as the share of profits of Calvert operations. 

Losses incurred during H1 of 2013 related primarily to the payment of contingent consideration related to the Gonvarri Brasil acquisition in 2008 and weaker performance of European associates during the year.

Net interest expense (including interest expense and interest income) was lower at $809 million for H1 of 2014, compared to $949 million for H1 of 2013, on account of savings incurred following repayment of the Euro and dollar bonds in June 2013 and the Euro and dollar convertibles issued in April and May of 2014. The company expects full year 2014 net interest expense of approximately $1.6 billion.

Foreign exchange and other net financing costs were $707 million for H1 of 2014 compared to costs of $685 million for H1 of 2013. Foreign exchange and other net financing costs for H1 of 2014 include a payment following the termination of the Senegal greenfield project and non-cash gains and losses on convertible bonds, and hedging instruments, which matured during the quarter. Foreign exchange and other net financing costs for H1 of 2013 were negatively affected by an 8 per cent devaluation of Brazilian Real against the US dollar, which impacted loans and payables denominated in foreign currency.

Commenting on the results, Lakshmi N Mittal, ArcelorMittal chairman and CEO, said: ''The second quarter and first half results reflect the anticipated improvement in steel shipments and margins, supporting an underlying EBITDA improvement compared with last year. The expansion of our iron ore business is also on track, although increased iron ore shipments were offset by the lower than anticipated iron ore price, which has led us to revise our EBITDA guidance for the full year.

''Looking ahead, indicators in both Europe and the US, which together account for two thirds of our shipments, continue to be positive and we have increased our steel demand forecasts for both markets. ArcelorMittal continues to focus on delivering on its strategy of reducing costs, investing in our franchise businesses and reducing net debt.''

ArcelorMittal paid recorded income tax of $217 million for H1 of 2014, compared to an income tax expense of $196 million for 1H 2013.

Non-controlling interests for H1 of 2014 were a charge of $80 million, compared to a charge of $9 million for H1 of 2013. Non-controlling interests charges for H1 of 2014 primarily relate to minority shareholders' share of net income recorded in ArcelorMittal mines Canada.

The company said its previously announced 2014 guidance framework remains valid. The iron ore price has, however, been lower than anticipated and this underlying assumption has been adjusted to $105/t for the full year 2014 (from $120/t previously) implying a second-half average of $100/t. All other components of the framework remain unchanged, it said.

ArcelorMittal now expects 2014 EBITDA in excess of $7.0 billion, assuming a 3 per cent increase in steel shipments in 2014, a 15 per cent increase in iron ore shipments and an average iron ore price of approximately $105/t (for 62 per cent Fe CFR China) during 2014.

The company forecast steel demand would grow more swiftly, by between 5 per cent and 6 per cent in North America, than in China, where demand for the metal is expected to grow between 3 per cent and 3.5 per cent. In Europe, it is expected to grow 3 per cent to 4 per cent.