ArcelorMittal Atlantique & Lorraine has locations in Dunkirk, Mardyck, Montataire, Desvres, Florange, Mouzon and Basse-Indre. ArcelorMittal Atlantique & Lorraine produces and markets a large range of products, including slabs, hot-rolled, pickled, galvanized, color-coated and tin-plated coils. ArcelorMittal Atlantique & Lorraine’s products are sold principally in the regional market in France and Western Europe, particularly in the automotive and packaging market. The Dunkirk site has primary facilities and produces slabs for other ArcelorMittal Atlantique & Lorraine sites as well as supplies hot rolled coils to the sites of Desvres, Mardyck and Liège. The Mardyck site has finishing facilities and supplies the coating lines of Desvres, Mardyck and Montataire.
The Florange site has primary and finishing facilities that are located mainly along the Fensch River in Lorraine. The liquid phase of Florange has been idled since October 2011. Florange is being supplied with slabs from2011 and the Dunkirk site.Company began its definitive closure and dismantling of this facility in 2018. The finishing plant of Florange has idled one continuous annealing line since September 2013, a tinplate mill
since January 2012 and an organic coating line which was idled on a long-term basis since June 2011.
The site of Basse-Indre is specialized in packaging activities. Its pickling line and cold-rolling mill are both idled since April 2014.
The sites of ArcelorMittal Atlantique & Lorraine produce and deliver a range of flat steel high-value finished products to customers, including cold-rolled, hot dip galvanized, electro-galvanized, aluminized and organic-coated material, tinplate, draw wall ironed tin plate (DWI) and tin free steel. Certain of its products are designed for the automotive market, such as Ultragal®, Extragal®, galfan, Usibor® (hot dip), while others are designed for the appliances market, such as Solfer® (cold-rolled) for enameling applications. In the fourth quarter of 2019, ArcelorMittal Atlantique & Lorraine reduced primary steel production at its Dunkirk site in line with the May 2019 announcement. Subsequent to year-end output has been brought back to normal levels.
significant part of the production is coated, either by hot dip galvanizing, electro galvanizing or organic coating. ArcelorMittal Gent also includes one organic coating line located in Geel and one electro galvanizing line located in Genk. ArcelorMittal Gent’s products are mainly used in the automotive industry and in household appliances, tubes, containers, radiators and construction. In 2018, ArcelorMittal Gent invested €65 million in a new furnace at Sidgal 3 line to produce Fortiform ® grades for automotives.
ArcelorMittal Bremen is situated on the bank of the Weser River north of Bremen, Germany. ArcelorMittal Bremen produces and sells a wide range of products including slab, hot-rolled, pickled, cold-rolled and hot dip galvanized rolls to the automotive and primary transformation sectors. In the fourth quarter of 2019, the planned stoppage for repair works of a blast furnace #3 was extended in line with the Group's announcement in the first half of 2019 of temporary reductions in steel production levels in Europe. Subsequent to year-end output has been brought back to normal levels.
ArcelorMittal Méditerranée operates a flat carbon steel plant in Fos-sur-Mer. It also operates a finishing facility for electrical steel located in Saint-Chély, 300 kilometers northwest of Fos-sur-Mer. The Fos-sur-Mer plant is located 50 kilometers west of Marseille on the Mediterranean Sea.
ArcelorMittal Méditerranée’s products include coils to be made into wheels, pipes for energy transport and coils for finishing facilities for exposed and non-exposed parts of car bodies, as well as for the construction, home appliance, packaging, pipe and tube, engine and office material industries. The Saint-Chély plant produces electrical steel (with up to 3.2% silicon content), mainly for electrical motors. About 60% of its products are shipped from a private wharf, in part through a shuttle system. 30% of its products are shipped by rail, with the remaining amount transported by truck.
ArcelorMittal España’s Avilés and Gijón facilities, which are by far the largest of its facilities, are connected by ArcelorMittal España’s own railway system. These two facilities operate as a single integrated steel plant. The product range of ArcelorMittal España includes rail, wire rod, heavy plates and hot-rolled coil, as well as more highly processed products such as galvanized sheet, tinplate and organic-coated sheet. The facilities are also connected by rail to the region’s two main ports, Avilés and Gijón. Raw materials are received at the port of Gijón, where they are unloaded at ArcelorMittal España’s own dry-bulk terminal, which is linked to steel-making facilities by conveyor belt. A variety of products are shipped through the Avilés port facilities to other units of the Group and to ArcelorMittal España’s customers. In the fourth quarter of 2019, the planned stoppage for repair works of a blast furnace B was extended in line with the Group's announcement in the first half of 2019 of temporary reductions in steel production levels in Europe. Subsequent to year-end output has been brought back to normal levels.
ArcelorMittal España is connected to the other ArcelorMittal facilities in Spain by the wide-gauge and narrow-gauge rail networks. Shuttle trains link the ArcelorMittal España facilities directly to the ArcelorMittal Sagunto plant, which it supplies with hot-rolled coils for subsequent processing into cold-rolled, galvanized and electro galvanized sheet.
ArcelorMittal España production is primarily sold to the railway, automotive and construction industries.
ArcelorMittal España’s Gijón coke plant is idled. On September 23, 2015, ArcelorMittal announced thean investment of over €100 million in the refurbishment of the coke oven batteries in Gijón. The main part of the approved investment focuses on the re-construction of two 45-oven batteries at ArcelorMittal Asturias’ coke plant in Gijón, installation of a state-of-the-art emission collection and scrubbing system, and implementation of efficient by-product management systems. The refurbishment work started in 2016 and the coke oven batteries are expected to reach full capacity in 2020. In October 2019, the coke oven batteries of Aviles were decommissioned with the aim to be demolished and to be replaced with the Gijón coke batteries.
In Taranto, a new research and development center is being built; its objective is to develop strategic and high value-added products and to make provisions for new and ad hoc technical solutions designed to improve the environmental impact of the steel production processes. See "Item 4.A—Information on the Company—History and development of the Company—Key transactions and events in 2018" and note 2.2.4 to ArcelorMittal’s consolidated financial statements for further details.
ArcelorMittal Poland is the largest steel producer in Poland. ArcelorMittal Poland’s Zdzieszowice coke plant produces and supplies coke to ArcelorMittal subsidiaries and third parties.
ArcelorMittal Poland produces coke and a wide range of steel products, including both long and flat products such as slabs, billets, blooms, sections, sheet piles, rails up to 120 meters long, railway accessories, mining supports sections, hot-rolled coils, sheets and strips, cold-rolled coils, sheets and strips, galvanized coils and sheets, wire-rods and coated sheets and coils. Products are mainly sold in the domestic Polish market, while the remainder is exported, primarily to customers located in other EU member states. ArcelorMittal Poland’s principal customers are in the construction, engineering, transport, mining and automotive industries.
ArcelorMittal Eisenhüttenstadt is situated on the Oder river near the German-Polish border, 110 kilometers southeast of Berlin. ArcelorMittal Eisenhüttenstadt is a fully integrated and highly-automated flat steel producing plant. The facility is run with one medium-sized blast furnace. In the third quarter of 2019, primary steel production was reduced at ArcelorMittal Eisenhüttenstadt in line with the May 2019 announcement, and was subsequently brought back to normal levels towards end of 2019.
ArcelorMittal Eisenhüttenstadt produces and sells a wide range of flat steel products, including hot-rolled, cold-rolled, electrical and hot dip galvanized and organic-coated coils to automotive, distribution, metal processing, construction and appliances industry customers in Germany, Central and Eastern Europe.
ArcelorMittal Belval & Differdange produces a wide range of sections and sheets piles which are sold to the local European construction market as well as for export. With its Rodange facilities, it also produces a wide range of rails, special sections and heavy angles.
ArcelorMittal Hamburg produces billet and high quality wire rod and its production is mainly sold in the European market, primarily to automotive and engineering customers.
ArcelorMittal Duisburg produces blooms, billets, bars and high quality wire rod and its production is mainly sold in the European market primarily to automotive, railway and engineering customers.
The Europe segment also includes ArcelorMittal Downstream Solutions (“AMDS”), which primarily covers the downstream activities of ArcelorMittal in Europe. It provides distribution of long and flat products as well as value-added and customized steel solutions through further processing to meet specific customer requirements. In addition, specific solutions are dispatched through other business lines, primarily ArcelorMittal Construction, ArcelorMittal Projects, ArcelorMittal Tubular Products, ArcelorMittal Wire Solutions and ArcelorMittal International.
AMDS also includes Industeel, with facilities in Belgium and in France. Industeel Belgium and Industeel Creusot are designed to produce special steel plates, ranging from 5 to 180 millimeters in thickness, including stainless steel products, while
Industeel Loire is dedicated to extra heavy gauge products of alloyed carbon steel. Euroform operates hot forming facilities, mainly to transform extra heavy gauge products received from Industeel Loire. The R&D center in Le Creusot, France is fully dedicated to special plate products development.
ArcelorMittal South Africa is the largest steel producer in Africa and its common shares are listed on the JSE Limited in South Africa under the symbol “ACL”. ArcelorMittal South Africa has threefour main steel production facilities of which Vanderbijlpark, Newcastle and NewcastleVereeniging (melt shop restarted in January 2019) are located inland, while Saldanha is close to a deep waterdeep-water port, which is supported by a metallurgical by-products division (Coke and Chemicals). ArcelorMittal South Africa has a diversified range of products and includes hot-rolled plates and sheet in coil form, cold-rolled sheet, coated sheet, wire-rod and sections, as well as forgings. Approximately 80%70% of its products are sold in the South African domestic market, while Africa is its largest export market. It also sells into Asia and has minor tonnages into Europe and the Americas.
ArcelorMittal Temirtau’s product range of flat and long steel products includes pig iron, continuous caster slabs, continuous caster billets, hot- and cold-rolled coils and sheets, black plates, covers, tin plates, hot dipped galvanized products, color coated products, welded pipes and rebars. ArcelorMittal Temirtau also has iron ore mines and coal mines (see “—Mining” below for further information).
ArcelorMittal Temirtau sells steel products to a range of industries, including the tube- and pipe-making sectors, as well as manufacturers of consumer goods and appliances. The markets for its products include Kazakhstan, CIS, Russia and Russia, Middle East and China.South-East Asia.
ArcelorMittal Kryvyi Rih’s product range includes billets, rebars and wire rods, light sections (angles) and merchant bars (rounds, squares and strips). ArcelorMittal Kryvyi Rih also has iron ore mines (see “—Mining” below for further information). Its products are sold to a range of industries such as hardware, construction, rerollingre-rolling and fabrication. The markets for its products include Ukraine, CIS and Russia, North West and East Africa, Middle East and Gulf countries, Europe and Latin America.
In addition, ArcelorMittal Kryvyi Rih includes an export sales network which supplies a complete range of steel products not only from Kryvyi Rih but also from other plants of the Group to customers outside of their respective home markets.
The El Volcan mine concession was bought from the Sonora provincial government in 2004, followed by exploration of the property in 2005. The development of the mine started in 2007. Mining operations were halted during the 2008-2009 global economic crisis and on several occasions due to structural problems in the crushing facilities. Operations resumed without interruption from 2010 until October 2015. In the fourth quarter of 2015, the El Volcan operations were temporarily suspended due to weak market conditions. The El Volcan operations resumed in the first quarter of 2017 as a result of revised mine plan in light of improved price conditions.
ArcelorMittal Temirtau has four iron ore mining operations in Kazakhstan. The mines are Lisakovsk, Kentobe, Atasu and Atansore. DispatchTransport of ore from these mines to the ArcelorMittal steel plant is by railway. ArcelorMittal Termitau’s operations control all of the mineral rights and surface rights needed to mine and process its estimated 20182019 iron ore reserves.
Lisakovsk is an open pit operation located in northwest Kazakhstan about 1,100 kilometers from Temirtau, with production of 0.7 million0.9million tonnes of concentrate in 2018.2019. The mine was initially commissioned in 1969 and was acquired in 2000. The existing subsoil agreement expires in 2020.2020 and the process to renew the agreement is ongoing. The production process comprises crushing, screening, grinding, wet jigging and wet magnetic separation. The iron mineralization at Lisakovsk occurs as oolite containing mainly hygogoethite and goethite. The phosphorous content in the mineralization limits its utilization in the steel-making process. At Lisakovsk, natural gas is supplied by KazTransGazAimak JSC and transmitted through the local grid. Electric power for the other facilities is supplied by Promsnab Astana LLP.
ArcelorMittal Liberia Holdings Limited (“AMLH”), through its agent (and subsidiary) ArcelorMittal Liberia Limited (“AML”), has been mining ‘direct shipping ore, or DSO’ from the Mt. Tokadeh and Mt. Gangra deposits in northern Nimba, Liberia since June 2011. AML signed a Mineral Development Agreement (“MDA”) in 2005 with the Government of Liberia (“GOL”) that is valid for 25 years and renewable for an additional 25-year period. The MDA covers 51,651.5 hectares, and is located approximately 300 kilometers northeast of Monrovia, Liberia .Liberia. Three deposits within the MDA are grouped under the name “Western Range Project”, which includes the Mt. Tokadeh, Mt. Gangra and Mt Yuelliton deposits. In addition to the rights to explore and mine iron ore, the GOL has granted the right to develop, use, operate and maintain the Buchanan to Yekepa railroad and the Buchanan port. A phased approach has been taken to establish the final project configuration. Currently only high grade ore reserves of oxidized iron ore (DSO) are mined. This ore only requires crushing and screening to make it suitable
for export. The materials-handling operation consists of stockyards at both the mine and port areas, linked by a 250-kilometer single track railway running from Tokadeh to the port of Buchanan. Production in 20182019 was at 4.64.4 million tonnes, focused on the Atlantic markets. The power for the current Liberia DSO operations iswas previously obtained from on-site diesel based power generation. TheIn 2019, the Company expectsfinished constructing a powerline in order to switch to a cleaner grid supply (mix of hydropower and gas). From early 2019, the mine has commenced partial reliance on the grid power supply in 2019.but continues to use partial diesel gensets to prevent disruption to production.
There are three active leases across the AMP operations which cover approximately 50% of the annual production. One of these expires in 2025 and can be renewed at the sole option of ArcelorMittal. The other two expire in 2027.2027 and can continue to
The
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| | As of December 31, 2019 | | As of December 31, 2018 |
| | Proven Coal Reserves | | Probable Coal Reserves | | Total Coal Reserves | | Total Coal Reserves |
ROM Millions of Tonnes | | Wet Recoverable Million Tonnes | | ROM Millions of Tonnes | | Wet Recoverable Million Tonnes | | ROM Millions of Tonnes | | Wet Recoverable Million Tonnes | | Ash (%) | | Sulfur (%) | | Volatile (%) | | Millions of Tonnes | | Wet Recoverable Million Tonnes |
Princeton - USA | | 66 | | 42 | | 24 | | 10 | | 90 | | 52 | | 5 | | 0.7 | | 18 | | 94 | | 56 |
Karaganda - Kazakhstan | | 9 | | 4 | | 101 | | 46 | | 110 | | 50 | | 35 | | 0.6 | | 29 | | 110 | | 54 |
Total | | | | | | | | | | 200 | | 102 | | 19 | | 0.6 | | 23 | | 204 | | 110 |
Note: Ash (%), Sulfur (%) and Volatile (%) for Princeton - USA shown in the table above are the in-situ coal qualities, whereas the Ash (%), Sulfur (%) and Volatile (%) for Karaganda - Kazakhstan are Run of Mine coal qualities.
A new reserve estimation for the Kazakhstan coal operations was completed in 2018, based on a preliminary 10 year mine plan, remodeled from first principle, as recommended in the 2016 SRK Consulting (UK) Limited independent audit report.
The table below provides supplemental information on the producing mines.
| | Operations/Projects | | % Ownership | | In Operation Since | | 2018 Run of Mine Production (Million Tonnes) | | 2018 Wet Recoverable production (Million Tonnes) | | Estimated Mine Life (Years)1 | | % Ownership | | In Operation Since | | 2019 Run of Mine Production (Million Tonnes) | | 2019 Wet Recoverable production (Million Tonnes) | | Estimated Mine Life (Years)1 |
Princeton - USA | | 100 | | 1995 | | 3.4 | | 2.1 | | 35 | | 100 | | 1995 | | 3.6 | | 2.0 | | 33 |
Karaganda - Kazakhstan | | 100 | | 1934 | | 10.0 | | 3.8 | | 10 | | 100 | | 1934 | | 9.6 | | 3.5 | | 10 |
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11. | The estimated mine life reported in this table corresponds to the duration of the production schedule of each operation based on the 20182019 year-end metallurgical coal reserve estimates only. The production varies for each operation during the mine life and as a result the mine life is not the total reserve tonnage divided by the 20182019 production. ArcelorMittal believes that the life of these operations will be significantly expanded as exploration and engineering studies confirm the economic potential of the additional mineralization already known to exist in the vicinity of these estimated coal reserves. |
Changes in Metallurgical Coal Reserve Estimates: 20182019 versus 20172018
The Company’s metallurgical coal reserve estimates had a net decrease of 204 million tonnes of Run of Mine coal and a decrease of 4 million tonnes of recoverable coal between December 31, 20172018 and 2018.2019. This decrease includes the annual mining depletion of 1314 million tonnes Run of Mine and 16 million tonnes Run of Mine, at the Kazakhstan coal operations, primarily due to the new reserve estimation.tonnes. However, this was offset by an increase of 910 million tonnes of Run of Mine coal atin Princeton - USA, primarily due to a reinterpretation of modifying factors. The additional recoverablefactors and extension of life of mine by one year at Karaganda - Kazakhstan coal at Princeton was due to infill drilling and improved modeling.operations. The reporting of recoverable coal reserves from Kazakhstan excludes the recoverable coal which in theory could be used for metallurgical applications, but which in practice is sold and used as thermal coal by ArcelorMittal at its steel plant facilities.
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ITEM 4A. | UNRESOLVED STAFF COMMENTS |
There are no unresolved comments received from the staff of the Securities and Exchange Commission regarding ArcelorMittal’s periodic reports under the United States Securities Exchange Act of 1934, as amended.
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ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
Overview
ArcelorMittal is the world’s largest and most global steel producer and a significant producer of iron ore and coal, with production of 89.8 million tonnes of crude steel and, from own mines, 57.1 million tonnes of iron ore and 5.5 million tonnes of coal in 2019, as compared to production of 92.5 million tonnes of crude steel and, from own mines, 58.5 million tonnes of iron ore and 5.9 million tonnes of coal in 2018,2018. ArcelorMittal had sales of $70.6 billion and steel shipments of 84.5 million tonnes for the year ended December 31, 2019 as compared to production of 93.1 million tonnes of crude steel and, from own mines, 57.4 million tonnes of iron ore and 6.3 million tonnes of coal in 2017. ArcelorMittal had sales of $76.0 billion and steel shipments of 83.9 million tonnes for the year ended December 31, 2018 as compared to sales of $68.7 billion and steel shipments of 85.2 million tonnes for the year ended December 31, 2017.2018. ArcelorMittal is the largest steel producer in North and South America, Europe and Africa, a significant steel producer in the CIS and has a smaller but growing presence in Asia. As of December 31, 2018,2019, ArcelorMittal had approximately 209,000191,000 employees.
ArcelorMittal produces a broad range of high-quality finished and semi-finished steel products. Specifically, ArcelorMittal produces flat products, including sheet and plate, and long products, including bars, rods and structural shapes. It also produces pipes and tubes for various applications. ArcelorMittal sells its products primarily in local markets and to a diverse range of customers in approximately 160 countries, including the automotive, appliance, engineering, construction and machinery
industries. ArcelorMittal’s mining operations produce iron ore and coal for consumption at its steel-making facilities and also for sale commercially outside of the Group.
Key factors affecting results of operations
The steel industry, and the iron ore and coal mining industries, which provide its principal raw materials, have historically been highly cyclical. They are significantly affected by general economic conditions, consumption trends as well as by worldwide production capacity and fluctuations in international steel trade and tariffs. In particular, thisThis is due to the cyclical nature of the automotive, construction, machinery and equipment and transportation industries that are the principal consumers of steel. A telling example of the industry cyclicality was the sharp downturn in 2008/2009 after several strong years, which was a result of the global economic crisis. Such cyclicality, though to a lesser degree than in 2008/2009, was seen again in the downturns experienced in 2015 and 2019.
Weakness in North American and European markets hashave a significant impact on ArcelorMittal’s results, with these markets together accounting for over 60% of ArcelorMittal's deliveries in 2018. Historically,2019, despite demand declining in both markets. In the European Union (“EU”), 2019 was the first year to show a decline in demand since 2012, when the onset of the eurozone crisis caused underlying European apparent steel demand to weaken and, coupled with significant destocking, apparent steel demand fell bydecline over 10%. Since then, deliveries have increased in each of the past six years, rising almost 3% per annum,EU steel demand rebounded by 18% until 2018, returning to the average demand levels seen during the period between 2000 to 2005. However, deliveries remain approximately 18%2005 but remaining almost 20% below the 2007 peak. Imports into the European Union (“EU”) havepeak levels. During this same period, import competition also risen more strongly than demand,increased, with imports more than doubling since 2012 to over 31 million tonnes in 2018, meaning domestic European deliveries have lost market share, impacting the ability of ArcelorMittal to serve one of its largest markets.market. Steel demand fell by around 4% in the EU in 2019 as underlying real demand declined by approximately 2.5%, driven by macroeconomic headwinds including declining automobile production, coupled with significant destocking, which negatively impacted apparent steel demand by a further 2%. Underlying steel demand in North Americathe United States increased strongly post-crisis,following the 2008/2009 financial crisis, but apparent demand has been impactedaffected by inventory movements, withsince demand peaked in 2014. Although the decline in apparent demand for flat products in 2019 at around -4.7% was less severe than the decline in 2015 (-8.6%) and both of these declines were exacerbated by significant destocking. This was due to underlying real steel demand weakening more than was anticipated at the start of the year, coupled by steel prices falling from high inventory levels, resulting in stockists purchasing over six million fewer tonnes in 2015, as compared to 2014, as they sought to reduceand later end-users, reducing inventory levels, as steel prices declined. This caused a 10% decline in apparent steel demand in 2015, which negatively impacted the Company’s deliveries and profitability. Apparent demandAlthough the Company does not anticipate an economic recession in the United States declined furtherover the next twelve months, as the country is in 2016 as inventories continued to decrease and demand for Oil and Country Tubular Goods (“OCTG”) was still very weak. The situation has since improved, with apparent steel demand growing over 6% year-on-year in 2017, due mainly to growth in pipes and tubes, demand for which was up around 85% year-on-year compared to only 2% growth in flat and a slight decline in longs. Apparent steel demand grew again in 2018 by an estimated 2% and 3% for flat and long products respectively, while demand for pipes and tubes declined slightly. Steel prices also recovered significantly in the United States in 2018, due to the imposition of 25% Section 232 tariffs in the United States, coupled with improving capacity utilization. With the United States expected to be enjoying the longest economic expansion on record by the middle of 2019, and given the frailty of the current global economic outlook, any new economic downturn especially one having a major negative impact on developed markets, could significantly impact ArcelorMittal’s deliveries and profitability. See “Item 3.D—Key information—Risk factors—Risks related to the global economy and the mining and steel industry.”
Demand dynamics in China have also substantially affected the global steel business. Historically, after growing strongly since 2000, Chinese steel demand started to decline in 2015 because of weaker real estate sector construction and machinery production. This decline in domestic demand led to a surge in Chinese steel exports, which more than doubled between 2012 and 2015, increasing by over 56 million tonnes to 112 million tonnes in 2015. This increase in Chinese exports was greater than the growth in world ex-China steel demand over the same period, and had the effect of curtailing domestic production in countries outside of China. A rebound in domestic demand and the beginning of a capacity reduction plan in China in the second half of 2016 led to a decline in exports, by 14% year-on-year in the second half of 2016 and by 3% for the year as whole. While most exports were directed to Asia, and exports to the U.S. were reducedlimited due to the impact of anti-dumping trade cases, a declining but still significant proportion were being directed toward ArcelorMittal’s core European markets in 2016. In particular,Indeed, Chinese exports in 2015 were being sold at prices below cost (China Iron and Steel Association (CISA) reported CISA mills losing an accumulated RMB 65 billion ($10 billion) in 2015), negatively impacting prices and therefore margins in many regions. Chinese producers continued to accumulate losses until April 2016 when domestic and export prices rose sharply as domestic demand surprised producers on the upside, increasing capacity utilization. Since the second half ofBetween mid 2016 not only has demand continued to grow butand early 2018, significant capacity hashad been closed, consisting of over 150 million tonnes of legal blast furnace capacity and an estimated 120 million tonnes of illegal induction furnaces. This has led to a significantly higher capacity utilization rate, despite a 40 million tonnes reduction in exports over the past few years, translating into a muchan improved domestic spread of steel prices over raw material costs, and therefore higher export prices. Starting in October 2017, this situation, combined with environmental policies which led to temporary capacity restrictions over the winter period, and caused even higher utilization rates in China and an even higher spread of steel prices over raw materials. Although pricesPrices have since fallen back as these temporary capacity restrictions werehave been less strictly enforced in October 2018, utilization rates remain high and the risk of continued capacity increases remains. The Company expects Chinese steel demand to grow in 2020 within a renewed floodrange of +0.0% to +1.0% (versus estimated growth of +3.2% in 2019) driven by robust real estate activity and given the Company’s current view on the Coronavirus. This may be revised downward due to the impact of the
Coronavirus on Chinese exportsdemand and the knock-on impact elsewhere. However, demand is eventually expected to decline as infrastructure spending has been reduced; it currently appears likelyfront-loaded and real estate demand structurally weakens due to occur again only if Chineselower levels of rural-urban migration. If this does not coincide with renewed capacity wereclosures, this is expected to increase and/or if Chinese demand were to weaken significantly.have a negative impact on steel prices and spreads. See “Item 3.D—Key information—Risk factors—Risks related to the global economy and the mining and steel industry—Excess capacity and oversupply in the steel industry and in the iron ore mining industry have in the past and may continue in the future to weigh on the profitability of steel producers, including ArcelorMittal.”
Unlike many commodities, steel is not completely fungible due to wide differences in its shape, chemical composition, quality, specifications and application, all of which affect sales prices. Accordingly, there is still limited exchange trading and uniform pricing of steel, whereas there is increasing trading of steel raw materials, particularly iron ore. Commodity spot prices can vary, which causes sale prices from exports to fluctuate as a function of the worldwide balance of supply and demand at the time sales are made.
ArcelorMittal’s sales are made based on shorter-term purchase orders as well as some longer-term contracts to certain industrial customers, particularly in the automotive industry. Steel price surcharges are often implemented on steel sold pursuant to long-term contracts to recover increases in input costs. However,costs; however longer term contracts with low steel prices will not reflect increases in spot steel prices that occur after contract negotiation. Spot market steel, iron ore and coal prices and short-term contracts are more driven by market conditions.
One of the principal factors affecting the Company’s operating profitability is the relationship between raw material prices and steel selling prices. Profitability depends in part on the extent to which steel selling prices exceed raw material prices, and specifically the extent to which changes in raw material prices are passed through to customers in steel selling prices. Complicating factors include the extent of the time lag between (a) the raw material price change and the steel selling price change and (b) the date of the raw material purchase and of the actual sale of the steel product in which the raw material was used (average cost basis). In recent periods, steel selling prices have tended to react quickly tonot always been correlated with changes in raw material prices, although steel selling prices may also be impacted quickly due in part to the tendency of distributors to increase purchases of steel products early in a rising cycle of raw material prices and to hold back from purchasing as raw material prices decline. With respect to (b), as average cost basis is used to determine the cost of the raw materials incorporated, inventories must first be worked through before a decrease in raw material prices translates into decreased operating costs. In some of ArcelorMittal’s segments, in particular Europe and NAFTA, there are several months between raw material purchases and sales of steel products incorporating those materials. Although this lag has been reduced recently by changes to the timing of pricing adjustments in iron ore contracts, it cannot be eliminated and exposes these segments’ margins to changes in steel selling prices in the interim (known as a “price-cost squeeze”). This lag can result in inventory write-downs, as occurred in 2015 and 2019 due to sharp declines in steel prices. In addition, decreases in steel prices may outstrip decreases in raw material costs in absolute terms, as has occurred numerous times over the past few years, for example inthroughout 2019 as well as the second quarter of 2013 and fourth quarters of 2015, 2016 and 2018.
The Company’s operating profitability has been particularly sensitive to fluctuations in raw material prices, which have become more volatile since the iron ore industry moved away from annual benchmark pricing to quarterly pricing in 2010. Volatility on steel margins aside, the results of the Company’s mining segment (which sells externally as well as internally) are also directly impacted by iron ore prices, which decreased significantly in 2015, ending the year at $40 per tonne ("/t") and averaging only $56/t. Iron ore (62% Fe) prices rebounded from $40/t during December 2015 to an average of $52/t in the first half of 2016, increasing to an average of $64/$58/t during 2016, and the second half of the year for a yearly average of $58/t. The upward trend continued into the first quarter of 2017 with an average of $86/t, and then fluctuated between $60-75/t during most of the following two years, leading to an annual average of $71/t in 2017 and $69/t in 2018. Despite recent ironVale’s Brumadinho dam disaster at the end of January 2019, coupled with strong steel production in China during the first half of 2019, pushed the price up to highs above $120/t in July. Vale managed to bring back 35 million tonnes of supply by the end of 2019, allowing the price to decline to an average of $92/t during December 2019 as supply better matched levels of demand. Iron ore price weakness,prices have so far remained slightly above these levels during January 2020 but should iron ore prices in January 2019 averaged $76/t, at the top of the trading range for the last two years due to the strength of Chinese steel production. If iron ore prices were to decline significantly from these levels due (among other things) to weaker global,as further supply is brought online and especially if Chinese demand weakens, this would negatively impact ArcelorMittal’s revenues and profitability. See “Item 3.D—Key information—Risk factors—Risks related to the global economy and the mining and steel industry—Protracted low steel and iron ore prices would likely have an adverse effect on ArcelorMittal’s results of operations.”
Economic environment[1]
Global GDP growth peaked at 3% in both 2017 and 2018, and is now beginning to moderate as the recovery in trade and manufacturing activity loses steam. Despite ongoing negotiations, trade tensions among major economies remain elevated. These tensions, combined with concerns about softening global growth prospects, have weighed on investor sentiment and contributed to declines in global equity prices. Borrowing costs for emerging market and developing economies ("EMDEs") have increased, in part as major advanced-economy central banks continue to withdraw policy accommodations in varying degrees. A strengthening U.S. dollar, heightened financial market volatility, and rising risk premiums have intensified capital outflow and currency pressures in some large EMDEs, with some vulnerable countries experiencing substantial financial stress. Energy prices have fluctuated markedly, mainly due to supply factors, with sharp falls experienced towards the end of 2018.
U.S. growth in 20182019 is estimated to have pickedbeen 2.6% - its lowest level since the global financial crisis ("GFC") in 2008/09. This subdued growth is a consequence of rising trade barriers, elevated uncertainty surrounding trade and geopolitical issues and the impact of prior U.S. interest rate increases which had a tightening effect on financing conditions in emerging economies ("EM"s). A notable feature of the sluggish growth in 2019 was the sharp and geographically broad-based slowdown in manufacturing and global trade. A few factors drove this slowdown, including higher tariffs and prolonged uncertainty surrounding trade policy which dented investment and demand for capital goods that are heavily traded. The automobile industry is continuing to contract due to distinct reasons, including lower demand and disruptions from new emission standards in Europe and China. Consequently, global import volume growth in 2019 declined to less than 1%, the weakest level since 2015. In contrast to weak manufacturing and trade, the services sector across much of the globe continues to hold up, which has kept labor markets buoyant and wage growth healthy in advanced economies.
U.S. GDP growth decelerated to 2.4% in 2019 from 2.9% in 2018, amid slowing investment and exports as the heightened uncertainty due to trade policy and increasing perceived risk of recession caused businesses to scale back investment. Escalation of the U.S.-China trade conflict led to increased U.S. tariffs of 25% (from 10%) on $250 billion of Chinese imports, and imposed 15% tariffs on an additional $160 billion. While the recent “Phase-One” trade deal with China rolled back some of the tariffs (15% tariff halved to 7.5%), rising tariffs increased trade costs in 2019, while policy uncertainty weighed on investment and confidence. As in many other advanced economies, the U.S. manufacturing sector has been weak, while support from 2.2%tax cuts and changes in 2017, mostly reflecting stronger than-expected domestic demand. Activity was bolstered by pro-cyclical fiscal stimulusgovernment spending faded and still-accommodative monetary policy. Thebecame a drag on growth. Despite these headwinds, the labor market remainshas remained robust with theand benefited from a rising participation rate. The unemployment rate of 3.5% which was reached at certain points of 2019 was near a 50-yeardecade low which bolsteredand wage growth has been solid, fueling resilient private consumption. Labor productivity is showing signs of picking up. Nominal wage gainsHowever, concerns about the global outlook and persistent below-target inflation have been outpacing inflation, resultingresulted in modest real wage growth. Long-term inflation expectations have edged up but remain stable. During 2018, the U.S. administration raised tariffs on about $300 billion worth of imports, mostly from China. As a result, other countries have retaliated with tariffs on about $150 billion worth of U.S. exports. In all, new tariffs have been imposed on about 12% of U.S. goods imports and may expand further, resulting in higher prices and elevatedFederal Reserve cutting its policy uncertainty.rates by 75 basis points since mid-2019. See “Item 4.B—Information on the Company—Business overview—Government regulations—Foreign trade” and “Item 3.D—Key information—Risk factors—Risks related to the global economy and the mining and steel industry—Unfair trade practices, in ArcelorMittal’s home marketsimport tariffs and/or barriers to free trade could negatively affect steel prices and reduce ArcelorMittal’s profitability, while trade sanctions and barriers may have an adverse effect on ArcelorMittal’sresults of operations in various markets.”
After reaching a cyclical peak of 2.7% in 2017, EU GDP growth slowed notably from 2.6%to 2.0% in 2017 to 2%2018 and 1.4% in 2018. Exports have softened, reflecting the earlier appreciation2019. The main source of the euroslowdown has been weaker external demand, including from Turkey and slowingAsia, especially China. External trade drove most of the volatility in eurozone growth in recent years, with exports contracting during 2019. While the U.S.-China trade war was partly responsible, exports to Asia have fallen, other impacts include Brexit-related uncertainty and especially Turkey’s recession reducing external demand. Inflation remains low despite declines in unemployment. The European Central Bank has stopped adding todemand from the automotive sector, which was exacerbated by the disruption caused by emission standards. Several economies were on the verge of recession at some point during 2019, particularly Germany as its balance sheet, although it is expected to maintain its negative interest rate policy until at least mid-2019. Financial system lending and profitability have continued to increase, though some EU banks may beindustrial sector was exposed to financial stressweakness in some EMDEs. Acrossexternal trade and disruptions to car production. By contrast, domestic fundamentals in Europe remain strong, with unemployment having fallen to 6.3% in 2019 the euro area, fiscal policy is expected to be mildly expansionary. Increased German expenditures are expected to lead to smaller surpluses, while deficitslowest level since the GFC and increasing real wages supporting household consumption. As a result, the European economy remains dominated by the wide divergence between resilient activity in Franceservices and Italy are likely to rise amid public pressures for additional spending and tax relief. Italy’s borrowing costs have increased and remain volatile, reflecting uncertainties about the outlook of the country’s debt load.a struggling manufacturing sector.
Growth in China slowed from 6.6% in 2018 to a still robust 6.2% in 2019, supported by resilient consumption. Growth has decelerated amid cooling domestic demand and heightened trade tensions, with trade policy uncertainty weighing on sentiment for most of 2019. Industrial production growth has reached multi-year lows (5.5% in 2019) and trade flows have weakened substantially. Imports, especially those of intermediate goods, have declined, falling more than exports, partly reflecting a deceleration in domestic demand. The contraction in exports to the U.S. deepened due to the escalation in trade tensions resulting in new tariffs imposed on Chinese exports to the U.S. (although some tariffs have been reduced since the "Phase-One" trade deal discussed above was reached), though shipments to the rest of the world were somewhat more resilient. In response to the deceleration in activity, monetary policy has become more accommodative, but regulatory tightening to reduce non-bank lending has continued. The government has also stepped up some fiscal measures, including tax cuts and increased bond issuances by the central government to support local governments’ public infrastructure investment spending. As a result, total debt has surpassed 260% of GDP, but the share of non-bank lending has continued to decline.
GDP growth in Brazil slowed slightly to 1.2% in 2019 (compared to 1.3% in 2018), largely due to weak growth in the first half of 2019, reflecting the impact of the iron ore dam disaster (Brumadinho) which caused a contraction in mining output and the recession in Argentina - Brazil’s largest trading partner - leading to weaker export growth. In Russia, growth weakened to 1.3% (compared to 2.3% in 2018) due to slower investment growth as high funding costs due to the risk of further sanctions dampened private investment, while slow implementation of the infrastructure-related national projects impacted public investment. Exports have also fallen, due to lower oil prices, while an increase in VAT negatively impacted private
consumption. Following the sharp lira depreciation and associated recession in late-2018, Turkey’s economy recovered during the second half of 2019, with 2019 growth averaging 0.3%, supported by expansionary fiscal policy and rapid credit expansion by state-owned banks. In South Africa, growth remained subdued at 0.3% in 2019 (down from 0.8% in 2018) due to infrastructure bottlenecks - especially in electricity supply - and weakening external demand, particularly from the eurozone and China. Slowing global trade, a weakness in global automotive sales and destocking, have negatively impacted global manufacturing, with output growth slowing in 2019 to an estimated 1.9% (down from 3.8% in 2018). While growth in manufacturing output in China weakened to 5.7% (down from 6.3% in 2018), world-ex China manufacturing output declined by approximately 0.4%. The main impacts came from developed markets, where manufacturing output is estimated to have slowedcontracted by approximately 0.9% in 2019, offsetting an estimated 0.8% growth in output from 6.9%developing markets ex-China. European manufacturing has been impacted by weakness in 2017automotive production which has impacted Europe more than the U.S., with output estimated to a still robust 6.6% in 2018, supportedhave declined by resilient consumption, although the trend0.8% while output in the fourth quarter of 2018U.S. was down further. A reboundbroadly stable in private fixed investment helped offset a decline in public infrastructure and other state spending. However, industrial production and export growth have decelerated, reflecting easing global manufacturing activity. Import growth continued to outpace export growth, contributing to a shrinking current account surplus. Net capital outflows have resumed, and international reserves have been edging down. Stock prices and the Renminbi have experienced continued downward pressures, and sovereign bond spreads have risen amid ongoing trade tensions and concerns about the growth outlook. New regulations on commercial bank exposures to shadow financing, together with stricter provisions for off-budget borrowing by local governments, have slowed credit growth to the non-financial sector. However, in mid- and late 2018, the Chinese authorities reiterated their intention to pursue looser macroeconomic policies to counter the potential economic impact of trade disputes with the United States. Prices of newly constructed residential buildings have rebounded, including in Tier 1 cities, following several years of correction. Consumer price inflation has generally moved up since mid-2018, partly reflecting currency depreciation and higher energy and food prices in most of last year, but it remains below target. 2019.
Global apparent steel consumption (“ASC”) is estimated to have grown by 1.1% in 2019 following strong growth of 2.4% in 2018. ASC growth in China remained resilient at 3%, primarily driven by construction, supporting robust machinery output, offsetting declining automotive output and slower growth in infrastructure. World-ex China ASC is down by around 0.8% year-on-year. Demand in developing ex-China is estimated to have declined by an estimated 1.2% year-on-year, due to domestic crises in some large emerging markets causing steel demand to decline sharply in Turkey (-10% year-on-year), Iran (-7% year-on-year) and Argentina (-14% year-on-year). This more than offset growth in India (+4% year-on-year), ASEAN (+3% year-on-year) and Russia (+4% year-on-year). In EU28, underlying demand for steel was impacted by weak manufacturing, particularly automotive and machinery, due to weaker external demand and heightened uncertainty related to both the U.S.-China trade conflict and Brexit. Weakness in real demand led to inventory destocking, causing ASC to decline by over 4% in 2019. While underlying demand for steel in the US performed better than EU28, U.S. ASC is estimated to have declined by around 2% year-on-year, with construction performing better than manufacturing. Indeed, due to weaker than expected manufacturing output, and prices declining from elevated levels, stockists reduced inventory levels causing demand for flat products to decline over 4% year-on-year, more than offsetting continued growth in longs.
[1]Sources: GDP and industrial production data and estimates sourced from Oxford Economics January 10, 2019.
Growth in Brazil was lackluster in 2018 at 1.2%, reflecting the country's emergence from a severe recession, a truckers’ strike mid-year and continued policy uncertainty. In Russia, growth was resilient at 1.6% in 2018, supported by private consumption and exports; however, momentum has slowed, reflecting policy uncertainty, recent oil price declines, and renewed pressures on currency and asset prices. In Turkey, growth slowed down to 2.9% (from 7.4% in 2017) due in part to substantial deterioration in foreign investor confidence. Growth in Argentina plummeted to 2.1% in 2018 (from 2.9% in 2017) following acute financial market stress that resulted in sharp currency depreciation and monetary policy tightening, which have led to Argentina being designated a hyper-inflationary economy. In South Africa, activity contracted in the first half of 2018 and, despite a recovery in the second half, growth remained subdued at 0.7% in 2018 (from 1.3% in 2017), reflecting challenges in mining production, low business confidence, and policy uncertainty.
Global apparent steel consumption (“ASC”) grew further in 2018 after a robust growth in 2017, compared to growth of just over 1% in 2016. Growth in 2018 reflected increases in demand in most markets with the notable exceptions of Mexico, South Africa, South Korea, Turkey and Venezuela. Overall, 2018 global ASC is estimated to have grown over 2.8% as Chinese demand was stronger than anticipated, growing approximately 3.5%, supported by the strength of machinery output and a better than expected real estate market. Elsewhere, world-ex-China ASC grew around 2.1% year-on-year, supported by strong growth in Indian sub-continent (7.5%), Latin America (4%), ASEAN (4%), Africa (3.5%) and EU28 (3%). Further regions grew more slowly including CIS (2%) and NAFTA (1%) where growth in the U.S. of almost 2% was offset by declining demand in Mexico. Demand growth in world ex-China was impacted by a sharp decline in Turkish steel demand (a 10% decrease) due to the crisis that hit the economy during the second half of 2018 and a slight decline in developed Asia (a 0.5% decrease).17, 2020.
Steel production[2]
After growing strongly in 2017 (+6.3%) and 2018 (+4.7%), reaching a peak of over 1.671.79 billion tonnes in 2014,2018, world crude steel production declined by 3% in 20152019 is estimated to 1.62have increased 3.5% year-on-year to 1.85 billion tonnes, as output fellprimarily driven by increased production in every major steel producing market, except India.China. In 2016 global output grew marginally as Chinese output increased by under 4 million tonnes and World ex-China growth, which had fallen by 3.6% year-on-year in 2015, rising by 0.4% in 2016 due to higher output from developing countries such as India (+7.2%), Ukraine (+5.4%) and Turkey (+5.2%), although this was partially offset by lower output from South America (-8.4%), EU28 (-2.5%) and developed Asia (-0.6%).
However, over the past two years global steel production grew strongly rising 6.3% in 2017 to 1.73 billion tonnes in line with a strengthening global economy. In 2018, despite concerns about trade protectionism, global production grew a further 4.6% to a new peak of 1.81 billion tonnes. In 2018,2019, China accounted for 52% of global steel production, East Asia 11%12%, EU28 9%, NAFTA 7%, India 6%, CIS 5%6% and the rest of the world 9%8%. World ex-China production declined by 1.6% (down 14 million tonnes) as the higher output in the U.S. (+1.5%), India (+1.8%) and Middle East (+20%) was not enough to offset lower output in other developed markets, particularly in the EU (-4.9%) and Developed Asia (-3.6%), and in some emerging markets, including Turkey (-9.6%) and South America (-8.4%).
Chinese steel production data over the past few years has been subject to increased uncertainty due to under-reporting, and the closure ofparticularly at illegal induction furnaces (IF) around mid-2017.("IF"s) after most were closed during 2017. Since IF production was mostly unrecorded in the official figures aspreviously, and this production ishas moved to mills whose production is recorded officially, it led to official estimates of production estimates are likely strongergrowing more strongly than the actual production output as estimated by ArcelorMittal. Although the Company believes that the 2018 official steelmost recent production in China of 928 million tonnesdata is broadly accurate, ArcelorMittal believesit estimates that the growth rates recorded byproduction was under-recorded until mid-2018, meaning that the World Steel AssociationAssociation's growth rate of 7.8%8.3% in 2019 is overstated (as are growth rates in 2017 and to a lesser extent the 6.6% growth recorded in 2018,2018). ArcelorMittal's crude steel production estimates are higher than what occurredconsistent with its belief that Chinese steel demand grew just over this period.
[2]Annual Global production data is for all 95 countries for which production data is published3%, supported by the World Steel AssociationCompany's proprietary bottom-up steel demand modeling, as well as China’s production and trade in raw materials and metallics.
World ex-China steel production has risen strongly since 2016 rising 4.8%declined in 2017 to 8592019 as production in all major regions either fell or stagnated, except for the Middle East, where output rose by 7.3 million tonnes, and a further 2.5% inlargely due to Iran, where output grew more than 30% year-on-year.In 2018, to 880 million tonnes. In 2017, production was supported by double-digit growth of over 10% year-on-year in Brazil, Egypt, Turkey and Vietnam. By major regions, 2017 production grew by 1.6% year-on-year in East Asia, 3.9% in EU28, 4.6% in North America, 6.3% in India, decreased by 1.2% in CIS and increased by 13.1% in the rest of the world. In contrast, production in 2018 increased by 1.0% in East Asia, decreased 0.3% in EU28 and increased 4.1% in North America, 4.9% in India, 0.3% in CIS and 5.7% in the rest of the world. Production in East Asia has returned to historic highs as intense competition from excess capacity in China has eased, supported by steady growth in global steel demand. Production growth in EU28 has been(168 million tonnes) was curtailed by increased import penetration despite continued demand growth and due to weakness in German steel production. StrongerIn 2019, while a sharp fall in domestic European steel prices led to lower import penetration, steel production in EU28 declined by approximately 9 million tonnes to 159 million tonnes as the weakness in industrial output, particularly automotive production, led to much weaker steel demand. In North America, strong production growth in North America has been2018 (4.4% year-on-year) was driven by USU.S. fiscal stimulus and supported by increasing trade protectionism, initially focusedSection 232 applied tariffs and quotas on steel imports likeimports. As the Section 232 tariffs. Continuedimpact of the U.S. fiscal stimulus faded and North America steel demand fell, steel production in 2019 declined slightly (-0.8% year-on-year) due to weaker manufacturing with lower production in Mexico (-8.0%) and Canada (-4.9%) more than offsetting growth in Indianthe U.S. (+1.5%). The decline in steel output in South America was mainly caused by a 9% decline in Brazil production reflects continued industrialization supporting strong domestic steel consumption growth.(down 3.2 million tonnes). Production in Developed Asia fell by 3.6% year-on-year (down 7 million tonnes), particularly Japan (-4.8%) and South Korea (-1.5%). Weakness in CIS steel production is due to persistent weakness in Ukrainian steel production (the 2018(2019 production of 21 million tonnes is aone third below the 2011 peak of 35 million tonnes), despitewhile Russian production declined slightly to 71.2 million tonnes from its historically high Russian production of nearlyin 2018 (approximately 72 million tonnes in 2018.tonnes). After risingincreasing 13.1% year-on-year to a record 37.5 million tonnes in 2017, Turkish steel production fell slightlysignificantly to 33.4 million tonnes in 2019 as the economy suffered from a domestic recession triggered by 0.6%a lira crisis in late 2018 duewhich led to a balance of payment crisis causedcollapse in domestic demand, especially in the construction sector.
Annual Global production data above is estimated using the 63 countries for which monthly production data is published by excessive economic policy stimulus in 2017 and triggered by diplomatic tensions with the United States.World Steel Association.
Steel prices
Flat products
Steel prices for flat products in Europe improved during the first quarter of 2016 compared to December 2015 levels. In Northern Europe, the price for hot rolled coil ("HRC") improved in the first quarter of 2016, with a similar trend in Southern Europe. The second quarter of 2016 saw a sharp increase in international steel prices, led by China, driving an average increase of approximately €84/t quarter-on-quarter in the North and €97/t in the South. The average HRC prices for the first half of 2016 were at €371/t in Northern Europe and €351/t in Southern Europe compared to the first half of 2015, in which average HRC prices were €405/t in the North and €394/t in the South. Steel prices continued to increase in the third quarter and fourth quarter of 2016.
Steel prices for flat products in Europe were stable in Southern Europe and on a slight upward trend in Northern Europe during the first quarter of 2017 compared to December 2016. Prices of HRChot rolled coil (“HRC”) increased in Northern Europe by €69/t quarter-on-quarter and in Southern Europe by €63/t quarter-on-quarter. Prices weakened in the second quarter of 2017 with an average price decline of €47/t in Europe. The average HRC prices for the first half of 2017 were at €545/t in Northern Europe and €513/t in Southern Europe compared to the first half of 2016 as described above.2016. Prices bottomed out in July 2017, thus the downtrend reversed during August and September 2017. In the third quarter of 2017, spot HRC prices in Northern Europe remained €5/t below the second quarter 2017 average, and in Southern Europe there was an average increase of €9/t quarter-on-quarter. There was little fluctuation in prices in the fourth quarter of 2017, with a quarter-on-quarter improvement of €22/t in Northern Europe and €11/t in Southern Europe. HRC prices during the second half of 2017 increased €65/t in Northern Europe and €67/t in Southern Europe compared to the second half of 2016.
In the first quarter of 2018, steel prices for flat products in Europe continued their steady upward trend which started in November 2017. HRC prices peaked towards the end of March at €574/t in Northern Europe. In Southern Europe, HRC prices increased from €519/t in January to €558/t at the beginning of March. In the second quarter of 2018, prices decreased sharply in USD terms following the international market trend. However, the depreciation of the euro against the USD helped to sustain domestic HRC prices in euro terms, with a low of €561/t in Northern Europe at the beginning of June 2018, €14€13 below its peak in April 2018. In Southern Europe, HRC prices bottomed out at €514/t by mid-June 2018 from a peak of €544/t in April 2018. Average HRC prices were €564/t in Northern Europe and €538/t in Southern Europe for the first half of 2018, compared to €545/t in Northern Europe and €513/t in Southern Europe for the first half of 2017. The provisional safeguard measures and tariff rate quotas implemented in July 2018 did not create a tangible effect on market protection in Europe and there was very limited improvement in flat products prices during the third quarter of 2018. In Northern Europe HRC prices increased slightly in euro terms compared to the June level but only to reach a quarterly average of €566/t representing a €1/t decrease quarter-on-quarter, while in Southern Europe the price improvement averaged at €537/t representing a €7/t increase over the second quarter level. In USD terms, however, prices declined across the regions due to further euro depreciation against USD. Market seasonality, high inventory levels and imports pressured prices during the fourth quarter of 2018 and HRC prices declined in euro and USD terms both in Northern Europe by €18/t to €548/t and in Southern Europe by €38/t to €499/t compared to the third quarter of 2018 average levels. Overall, the second half 2018 HRC prices averaged at €557/t in Northern Europe and at €518/t in Southern Europe, corresponding to a €30/t and €13/t year-on-year increase, respectively.
In the first quarter of 2019, steel prices for flat products in Europe continued their steady downward trend which started in September 2018. The prices of HRC in Northern Europe reached €517/t in January 2019, finishing the quarter €8/t lower, at €509/t. The decrease was attributable to weak domestic demand in the beginning of the year, high levels of inventories and the influence of declining international steel prices. In Southern Europe, HRC prices followed an inversed trend starting at €470/t
in January and closing the quarter at €486/t, €16/t higher. This inversed trend was partially driven by a stronger demand in Southern Europe and partially by the Turkish imports that were entering the Italian market with higher price ranges between €495/t-€500/t Cost, Insurance and Freight Free Out (“CIFFO”) effective. Domestic mills followed the Turkish import prices.
In the second quarter of 2019, prices in Northern Europe continued to decrease and ended the quarter at €487/t, which was €11/t lower compared to April 2019. HRC prices in the Southern regions followed the same trend from the previous quarter peaking in June at €472/t, from €469/t in April. Turkish suppliers continued with their export offers of €470/t-€480/t CIFFO effective into Italy and Iberia, providing room for further increases in Southern European domestic prices, given there was no import price pressure. The average HRC prices for the first half of 2019 were €499/t in Northern Europe and €472/t in Southern Europe, which were accordingly €65 and €66/t lower than in the first half of 2018.
Flat products prices continued to slide down in the third quarter of 2019, impacted by soft demand and weakening international raw material prices. HRC in Northern Europe had several trenches of price drops, ending the quarter at €469/t, which was €18/t lower versus the previous quarter. In Southern Europe the price of HRC averaged €453/t, which was €19/t lower compared to the second quarter of 2019. Market seasonality, high inventory levels and import pressure during the fourth quarter of 2019 pushed the HRC prices on a downward spiral. Several attempts of price increases were rejected by the market, as real demand in Europe was weak. In Northern Europe, HRC prices ended the fourth quarter at €431/t, which was €38 lower quarter-on-quarter and in Southern Europe, HRC averaged €413/t in the fourth quarter of 2019, €40/t lower than the previous quarter. In the second half of 2019, HRC prices averaged €450/t in Northern Europe and €433/t in Southern Europe respectively €107/t and €85/t lower than the second half of 2018.
In the United States, spot HRC prices increased during the first quarter of 2016. The second quarter of 2016 had a strong start and continued to strengthen for a quarter-on-quarter improvement of approximately $184/t. The average HRC price for the first half of 2016 in the United States was $547/t as compared to an average of $541/t in the first half of 2015. The spot HRC prices in the United States started to decrease in July 2016 and continued this downward trend until October 2016. During the third quarter of 2016, the HRC price increased an average of $11/t quarter-on-quarter. The spot HRC prices in the United States reached a low at an average range of $526-552/t in October 2016, but then sharply increased toward the end of the year. In the fourth quarter of 2016, the spot HRC price in the United States decreased approximately $64/t quarter-on-quarter. The average spot HRC price in the second half of 2016 in the United States was $618/t compared to an average of $467/t in the second half of 2015.
In the United States, spot HRC prices increased during the first quarter of 2017 by an average of $106/t quarter-on-quarter. Price levels improved sharply during January, had stability during February and peaked at $725/t by end of March 2017, to reach their highest average level since September 2014. During the second quarter of 2017, HRC spot prices decreased $11/t quarter-on-quarter, with progressive declines until the first week of June 2017, but were followed by a price pickup, sustained by declining inventories and improved international market sentiment. The average HRC price in the United States during the first half of 2017 was $688/t compared to the first half of 2016 at $547/t. The HRC spot price slightly improved in July and August, and stabilized towards the end of the third quarter of 2017, increasing $4/t quarter-on-quarter. Slight declines were recorded during October, but prices picked up during November and December to reach $704/t by the end of 2017. The average prices during the fourth quarter of 2017 decreased $2/t quarter-on-quarter. Overall, in the second half of 2017 prices averaged at $686/t, representing a $68/t increase compared to the second half of 2016.
In the United States, as a consequence of the then-ongoing Section 232 national security investigation which started in April 2017 and the expectation of the imminent implementation of import tariffs on steel, spot HRC prices increased sharply during the first quarter of 2018. Before the release of the investigation report by the Department of Commerce on February 16, 2018, HRC prices reached $830/t from $723/t at the beginning of January 2018. After the release of the report that recommended tariffs in the range of 24 to 53%, prices spiked further to $936/t at the beginning of March 2018. The increase slowed down as 25% tariffs and exceptions went into effect during March 2018, closing the month at a high of $960/t. In the second quarter of 2018, HRC prices surpassed the $1,000/t level in the United States, peaking at $1,012/t by the end of June. The average HRC prices were $907/t for the first half of 2018 in the United States, as compared to $688/t for the first half of 2017, corresponding to a $219/t increase year-on-year. HRC prices hit a 10 year high of $1,014/t at the beginning of July 2018 in the United States. However, market seasonality and weakening of the international prices in the second part of the year coupled with an increase in the domestic capacity utilization rate (thus an increase in domestic supply), resulted in consistent price deterioration, with HRC prices falling to $799/t by the end of the year. Third quarter HRC prices averaged $982/t, still $2/t above the second quarter level, while average prices declined in the fourth quarter by $99/t quarter-on-quarter to $883/t. Overall, average HRC prices for the second half of 2018 were $932/t as compared to $686/t for the second half of 2017 corresponding to a $246/t increase year-on-year.
In the United States, domestic HRC prices in the first half of 2019 continued the downward trend that began in July 2018. The first quarter of 2019 started with prices at $776/t in January and in March reached $767/t ($9/t lower). Prices in the second quarter of 2019 plunged even deeper - from $749/t in April to $598/t in June (a drop of $151/t), well below import parity levels. This descent represents the market’s search for an equilibrium point after additional local capacity came on-stream in the second half of 2018. This additional supply availability added pressure on domestic prices at the same time as domestic mills were fighting imports. U.S. suppliers' short lead time combined with comfortable inventory levels at customers contributed to the downward trend in domestic prices.
The average HRC price for the first half of 2019 in the United States was $723/t, as compared to $907/t for the first half of 2018 (a drop of $184/t). The anticipated decline in imports, as an outcome of the implementation of the Section 232 import tariffs was not as strong as expected. Therefore, import prices continued to add pressure on the domestic pricing. The HRC import Houston DDP index continued to decline over the first half of 2019, from $746/t in the first quarter to $685/t in the second quarter.
In the second half of 2019, the average HRC price in the United States was $603/t, $330/t below the second half of 2018. The dramatic decrease is due to 2018 having been a record year in which prices were inflated by Section 232 import tariffs on steel. In 2019, prices fell due to weak real demand and decreasing scrap prices. The average HRC price for the third quarter was $627/t, a drop of $52/t versus the previous quarter which was mainly due to the scrap USA #1 Busheling price dropping by $33/t, to $290/t and pressure from destocking at both Steel Service Centers (“SSCs”) and Original Equipment Manufacturers (“OEMs”).
Prices in the fourth quarter of 2019 averaged at $579/t, which is $48/t lower versus the third quarter. The situation further deteriorated in October due to the strike at General Motors that added to the market's negative sentiment. From November onwards, some relief came as scrap started an upward trend and international prices began to show signs of recovery. As a result, the fourth quarter ended in December at $623/t from the yearly low of $545/t, recorded in October.
In China, spot HRC prices increased during the first quarter of 2017, compared to the average levels of the fourth quarter of 2016, fluctuating on an upward trend until the first part of February 2017, but deteriorated afterwards, in line with raw material basket cost decline. Domestic HRC prices increased during the first quarter of 2017 by an average of $35/t quarter-on-quarter. Prices then continued to slide, hitting a bottom level of $374/t, VAT excluded by mid-May, followed however by a rapid recovery to a $439/t, VAT excluded average in June, supported by a new upward trend in raw materials cost, positive market sentiment and local mill interest to ramp up production and maximize profits. HRC spot prices decreased in the second quarter of 2017 on average by $62/t quarter-on-quarter. In the first half of 2017, HRC domestic prices in China averaged $427/t, VAT excluded, compared to $317/t, VAT excluded, during the first half of 2016. HRC spot prices in China continued their steady increase in the beginning of September and increased for the third quarter of 2017 by $113/t quarter-on-quarter. The price increases slowed down during the fourth quarter of 2017 with an increase of $29/t quarter-on-quarter. HRC spot prices in China averaged $523/t, VAT excluded in the second half of 2017, an increase of $138/t, VAT excluded from the second half of 2016.
In China, spot HRC prices fluctuated during the first quarter of 2018, peaking at $562/t VAT excluded at the end of February, followed by a sharp decline due to weak demand and high inventories. HRC prices bottomed out at the end of March at $507/t VAT excluded. Production cuts in several regions and mill inspections to ensure compliance with pollution emission standards impacted supply during the second quarter of 2018. These measures supported HRC prices in China, which increased from $524/t VAT excluded at the beginning of April to a high of $581/t VAT excluded by mid-June. However, due to improvements in production levels and seasonal weak demand, HRC prices declined at the end of the month. In China, HRC domestic prices averaged $555/t VAT excluded for the first half of 2018, in China, as compared to $427/t VAT excluded for the first half of 2017.
Despite the implementation of tough environmental controls and positive fiscal policies to expand domestic demand, production continued to increase, sustained by attractive margins, while consumption remained flat during the second half of 2018. This
resulted in further pressure on HRC prices in China, which declined by $15/t (during the third quarter of 2018) as compared to the second quarter average level to $546/t VAT excluded and by an additional $58/t to $488/t VAT excluded during the fourth quarter of 2018.
HRC domestic prices averaged $517/t VAT excluded in China for the second half of 2018, representing a $7/t decline as compared to $524/t VAT excluded for the second half of 2017.
In China, spot HRC prices averaged at $482/t VAT excluded in the first quarter of 2019. The year started in January with prices at $467/t, strengthening to $494/t by March, as a result of the market’s resumed activity following the Chinese New Year. In the second quarter of 2019, due to Brazil's major accident at one of its largest iron ore mining facilities, as well as due to the market seasonality, the peak prices were reached in April at $523/t VAT excluded. The second quarter of 2019 closed in at an average of $512/t VAT excluded. Despite the governmental measures targeting production cuts due to overcapacity and environmental issues, domestic mills have reacted slowly to the indications, driving the domestic price by end of June 2019 to $493/t VAT excluded, i.e. on a downward trajectory. The HRC domestic price in China averaged $497/t VAT excluded for the first half of 2019, compared to $557/t VAT excluded for the first half of 2018.
The downward spiral of the Chinese HRC price continued in the third quarter of 2019 reaching $474/t, which was $38/t lower versus the previous quarter, with increased inventory levels of both raw materials and finished products. Domestic demand was
impacted by seasonality. The fourth quarter of 2019 began with further weakening of Chinese HRC prices, with October being the weakest month at an average of $441/t. The Purchasing Managers’ Index (“PMI”) dropped to its lowest point in four years, with the rate of new order intake dropping by over 5% for both domestic and exports. However, the market started to improve from November onwards when the 7-month downward spiral reversed. Better domestic demand and a decrease in finished product inventory (-10% month-on-month) helped improve the prices in November. In December, international steel prices started to improve, which also supported a positive price environment in China. The fourth quarter of 2019 ended at $462/t, $12/t lower than in the third quarter. HRC spot prices in China averaged $468/t, VAT excluded in the second half of 2019, a decrease of $50/t, VAT excluded from the second half of 2018.
The following table presents the spot HRC average price range per tonne in Northern and Southern Europe, the United States and China on a quarterly basis from 20162017 to 2018.2019.
| | Flat products | | |
Source: Steel Business Briefing (SBB) | Northern Europe | Southern Europe | United States | China | Northern Europe | Southern Europe | United States | China |
Spot HRC average price per tonne | Spot HRC average price per tonne, VAT excluded | Spot HRC average price per tonne | Spot HRC average price per tonne, VAT excluded |
Q1 2016 | €329 | €303 | $456 | $282 | |
Q2 2016 | €413 | €400 | $639 | $353 | |
Q3 2016 | €426 | €402 | $650 | $348 | |
Q4 2016 | €498 | €474 | $586 | $423 | |
| | |
Q1 2017 | €569 | €537 | $694 | $458 | €569 | €537 | $694 | $458 |
Q2 2017 | €521 | €491 | $682 | $396 | €521 | €491 | $682 | $396 |
Q3 2017 | €517 | €500 | $687 | $509 | €517 | €500 | $687 | $509 |
Q4 2017 | €538 | €510 | $685 | $538 | €538 | €510 | $685 | $538 |
| | |
Q1 2018 | €561 | €545 | $834 | $549 | €561 | €545 | $834 | $549 |
Q2 2018 | €567 | €530 | $980 | $561 | €567 | €530 | $980 | $565 |
Q3 2018 | €566 | €537 | $982 | $546 | €566 | €537 | $982 | $546 |
Q4 2018 | €548 | €499 | $883 | $488 | €548 | €499 | $883 | $489 |
| | |
Q1 2019 | | €510 | €477 | $766 | $482 |
Q2 2019 | | €487 | €467 | $679 | $512 |
Q3 2019 | | €469 | €453 | $627 | $474 |
Q4 2019 | | €431 | €413 | $579 | $462 |
Long products
During the first quarter of 2016, long steel products saw a quarter-on-quarter price decline in Europe for both medium sections and rebar. This downward trend reversed during the second quarter of 2016. The average medium sections price for the first half of 2016 in Europe was €481/t compared to €521/t for the first half of 2015. The average rebar price in Europe for the first half of 2016 was €404/t compared to €420/t for the first half of 2015. Long steel product prices weakened again during the third quarter of 2016 for both medium sections and rebar. Prices reached a low in October 2016, and started recovering through year end, reaching an average of €511/t and €454/t in December 2016 for medium sections and rebar, respectively, although the quarterly average prices remained down quarter-on-quarter. The average medium sections price in Europe for the second half of 2016 was €499/t as compared to €498/t for the second half of 2015. The average rebar price in Europe for the second half of 2016 was €432/t as compared to €389/t for the second half of 2015.
Long steel product prices increased in Europe in the beginning of the first quarter of 2017, followed by a decline in mid-February, but with a recovery by the end of March. Prices then weakened during the second quarter of 2017 for both medium sections and rebars, but seemed to bottom out by the end of June with a quarter on quarter decline of €15/t and €22/t, respectively. The average price for medium sections in Europe during the first half of 2017 was €508/t compared to €481/t in the first half of 2016. The average rebar price in Europe during the first half of 2017 was €452/t compared to €404/t in the first half of 2016. Prices for long steel products were on a steady upward trend toward the end of the year. Medium sections prices increased €29/t quarter-on-quarter, while rebar prices increased €28/t quarter-on-quarter. During the fourth quarter of 2017, medium sections prices further increased €58/t quarter-on-quarter, while rebar prices increased €84/t quarter-on-quarter. The average medium sections price in Europe for the second half of 2017 was €557/t as compared to €499/t for the second half of 2016. The average rebar price in Europe for the second half of 2017 was €517/t as compared to €432/t for the second half of 2016.
Long steel product prices remained relatively stable in Europe in euro terms at the beginning of 2018 compared to the peak level in December 2017, but continued their upward trend in USD terms as the euro strengthened. Prices weakened from mid-February and towards the end of the first quarter of 2018 with inventories reaching comfortable levels and a cautious market following the volatility in raw material costs. Medium sections prices declined from €625/t in January to €600/t by the end of March. Similarly, rebar prices declined from €568/t in January to €553/t in March. Prices remained stable again during April 2018 but followed a downward trend until mid-June when medium sections bottomed out at €585/t and rebar at €528/t. Average
medium sections prices were €603/t in Europe for the first half of 2018 as compared to an average of €508/t for the first half of 2017. Average rebar prices were €552/t in Europe for the first half of 2018 as compared to €452/t for the first half of 2017. Good market sentiment and strong demand supported an improvement of long product prices during the third quarter of 2018, with medium sections reaching €620/t and rebars €560/t by September corresponding to a €35/t and €32/t increase, respectively, as compared to the bottom level in June, and representing a quarter-on-quarter average improvement of €20/t for medium
sections and €6 for rebars. Prices remained relatively stable during the fourth quarter of 2018 as compared to the levels at the end of September despite some weakening in rebars with a quarterly average of €538/t representing a €13/t decrease quarter-on-quarter. The average medium sections prices were €618/t in Europe for the second half of 2018 as compared to €557/t for the second half of 2017. The average rebar prices were €545/t in Europe for the second half of 2018 as compared to €517/t for the second half of 2017.
With respectPrices of long steel products in Europe continued their steady downward trend in 2019. In January 2019, rebar price and medium sections price reached €528/t and €624/t, respectively. The rebar price decline started in August 2018, while the medium sections price decline started in January 2019. By the end of March 2019, the rebar price and the medium section price dropped to €526/t and €588/t, respectively, reaching a quarterly average of €526/t and €605/t, respectively. In June 2019, prices bottomed further to €501/t for rebar and €579/t for medium sections. The falling domestic pricing environment followed the trend of weakening world scrap prices in Turkey, even thoughon international markets.
In Europe, the average first quarter 2016medium sections price of imported scrap HMS 1&2 at $194/t CFR showed a small improvement of about $6/t against the average of the fourth quarter 2015, the average price of March 2016 at $218/t CFR represented a month-on-month increase of about $40/t. The Turkish rebar export price followed a similar trend. The March 2016 export price of Turkish rebar increased $44/t month-on-month. This upward trend continued during the first two months of the second quarter of 2016 with the export rebar price from Turkey reaching an average range of $451-457/t FOB in April, and $472-479/t FOB in May. In June 2016, rebar prices reduced to an average range of $395-403/t FOB Turkey. The average rebar export price from Turkey infor the first half of 20162019 was $388/€595/t FOBas compared to an average of €603/t for the first half of 2015, which was at $451/t FOB. The third quarter of 2016 average export price for Turkish rebar decreased followed by improvements in the fourth quarter.2018. The average rebar export price for the first half of 2019 was €521/t as compared to €552/t for the first half of 2018.
Prices for long steel products in Europe continued their steady downward trend in the second half of 2019. The prices reached a floor in November 2019 at €452/t for rebar and €521/t for medium sections, the lowest over the last two years. The average medium sections price in Europe for the second half of 2016 from Turkey2019 was $394/€548/t FOB as compared to $361/€619/t FOB for the second half of 2015.2018, representing a drop of €71/t year-on-year. The average rebar price in Europe for the second half of 2019 was €476/t as compared to €545/t for the second half of 2018, a decrease of €69/t year-on-year.
In the first quarter of 2017, imported scrap HMS 1&2 in Turkey improved by $18/t compared to the fourth quarter of 2016 average of $275/t CFR. Rebar export prices closely followed closely the evolution of Turkey imported Scrap HMS 1&2, declining in the beginning of 2017 from $430/t FOB in December 2016 to close to an average of $390/t FOB by the end of January 2017, and continued fluctuating towards the end of March 2017. However, Turkish rebar export prices increased during the first quarter of 2017 by $14/t quarter-on quarter. The price fluctuation continued during the second quarter of 2017, but with an uptick towards the end of June with an overall increase of $4/t over the previous quarter. The average price in the first half of 2017 for rebar exported from Turkey was $425/t FOB compared to $388/t FOB in the first half of 2016. From July through the end of 2017, the Turkey rebar FOB price has been fluctuating on an upward trend, closely following HMS 1&2 Turkey CFR price evolution. After hitting a three-year high of $550/t FOB in the beginning of September 2017, rebar prices declined to $508/t FOB by October. This drove an increase in the average price range during the third quarter of 2017 by $80/t quarter-on-quarter. Toward the end of 2017, the Turkey rebar FOB export price reached $570/t, and further improved the quarterly average price by $20/t for the fourth quarter of 2017. The average Turkey rebar export price was $517/t FOB in the second half of 2017, an increase of $123/t compared to $394/t FOB for the second half of 2016.
In the first quarter of 2018, the price of imported scrap HMS 1&2 in Turkey improved by $40/t to an average level of $363/t CFR as compared to the fourth quarter of 2017. Rebar export prices closely followed closely the evolution of Turkey imported scrap HMS 1&2, declining from $573/t FOB at the beginning of January to $555/t FOB by the end of the month. Rebar export prices then increased to a peak of $590/t FOB by the end of February followed by a downward trend reaching $568/t FOB at the end of March. During the second quarter of 2018, the Turkish export rebar price continued to follow a downward trend alongside the scrap HMS 1&2 index, ranging between $565/t FOB at the beginning of April to $540/t FOB at the end of May. The average Turkish export rebar price for the first half of 2018 was $562/t FOB, as compared to $425/t FOB for the first half of 2017. With US and European markets blocked for Turkish exporters due to EU safeguard measures and doubling of the Section 232 import tariffs into the U.S., Turkish producers faced increased competition on alternative markets resulting in further pressure on export rebar prices during the first part of the third quarter. Prices seemed to bottom out mid-August at $523/t; however they continued to deteriorate during October to a $500/t level. After a small uptick in November supported by an improvement in scrap prices as well as a strengthening of the Turkish Lira, Turkish export rebar prices dropped by the end of the fourth quarter of 2018 to $455/t, the lowest level since July 2017. The average Turkish export rebar price for the second half of 2018 was $507/t FOB, as compared to $518/t FOB for the second half of 2017.
In Turkey, rebar export prices continue to align closely with the evolution of world scrap prices. The first quarter of 2019 started for Turkish rebar at one of the lowest points compared to the previous six quarters, being at $466/t FOB, which is in line with the bottomed HMS 1&2 index at $310/t CFR. However, the March 2019 rebar export price was $482/t FOB, higher by $36/t compared to January at $446/t. During the second quarter of 2019, the Turkish export rebar price followed a month over month
downward trend alongside scrap HMS 1&2 index, from a high of $480/t FOB at beginning of April down to $468/t FOB at the end of June. Nevertheless, the average for the second quarter, at $473/t, was higher than the average for the previous quarter at $466/t. In the first half of 2019, the Turkish export rebar price averaged $470/t FOB compared to $562/t FOB average during the first half of 2018.
In the third quarter of 2019, the price of Turkish rebar continued the downward trend from the previous quarter, reaching $441/t FOB, which is a $32/t decrease quarter-on-quarter. July opened the quarter at $461/t, while September closed at $413/t, representing a drop of $48/t driven by the seasonally limited demand. In October, prices reached a floor for the year at $405/t, which was also the lowest point over the last three years. The prices subsequently increased with the overall fourth quarter of 2019 averaging at $421/t. The year closed in December with a price of $442/t, $37/t higher versus the low reached in October. The increase in prices was driven by the U.S. scrap price improvement from early November, which recovered the $40/t lost in September/October and ended the year in December at $290/t, although not enough to surpass the level from the first half of the year at $348/t. The average Turkish rebar export price for the second half of 2019 was $431/t FOB as compared to $508/t FOB for the second half of 2018.
|
| | | |
Long products | | | |
Source: Steel Business Briefing (SBB) | Europe medium sections | Europe rebar | Turkish rebar |
Spot average price per tonne | Spot average price per tonne | Spot FOB average price per tonne |
Q1 2016 | €454 | €355 | $335 |
Q2 2016 | €509 | €453 | $442 |
Q3 2016 | €511 | €440 | $379 |
Q4 2016 | €488 | €424 | $409 |
| | | |
Q1 2017 | €515 | €463 | $424 |
Q2 2017 | €501 | €441 | $427 |
Q3 2017 | €530 | €469 | $507 |
Q4 2017 | €587 | €553 | $527 |
| | | |
Q1 2018 | €614 | €558 | $572 |
Q2 2018 | €591592 | €545 | $552 |
Q3 2018 | €611 | €551 | $524525 |
Q4 2018 | €626 | €538 | $490 |
| | | |
Q1 2019 | €605 | €526 | $466 |
Q2 2019 | €583 | €515 | $473 |
Q3 2019 | €567 | €490 | $441 |
Q4 2019 | €529 | €461 | $421 |
Current and anticipated trends in steel production and prices
The global economy clearly slowed in 2019, particularly in Europe, and the lower global automotive production weighed on steel demand. This impact was exacerbated by supply chain destocking in all the major markets, particularly in the Company’s core markets of NAFTA, Europe and Brazil.
In China, in 2018,2019, ArcelorMittal believes steel production grew approximately 2.5%almost 3% (despite the 6.6%8.3% increase in official figures - see discussion in "—Steel"-Steel production" above) as demand grew over 3%, yetwhile net exports declined by 8%. However,6 million tonnes. Before the onset of the coronavirus, the Company expectsexpected production to be stable to slightly downgrow in 2019 as domestic demand contractsincreased by around 1% offset1 to 2%, coupled by marginally higher exports.exports as world ex-China demand grows. This may be revised downward due to the impact of the Coronavirus on Chinese demand and the knock-on impact elsewhere, particularly the rest of Asia. The Chinese HRC spread (difference between raw material costs and finished steel prices) in 2017 increased from approximately $150/t in the first half of 2017 to $250/t in the second half supported by an elevated crude steel utilization rate mainly due to a structural steel capacity cut and the winter heating season policy, which temporarily restricted steel supply. Since then, Chinese spreads have seen a sharp correction, declining from $280/t in the third quarter of 2018 to approximately $160/t in the third quarter of 2019. This was largely impacted by the Chinese government lowering the focus on reducing emissions and deleveraging and increasing the focus on sustaining the economy. This led to both stronger demand in 2019 (largely due to the stimulus plan targeting infrastructure), and to more capacity (due to less effective winter capacity constraints and some capacity creep). The highU.S.-China “phase one” trade deal led to improved market sentiment, which resulted in industrial restocking. The Chinese government also continued to ease liquidity conditions moderately, as a tool to simulate the economy supporting an improved HRC spread, wasreaching $190-200 by the end of 2019 and sustained into January 2020. The precise impact of the Coronavirus is unknown but has had a negative impact on Chinese prices and spreads, and could continue to have a negative impact if
inventories continue to rise at around $255/tmills in China, putting downward pressure on pricing. While the Company expects a significant negative impact on industrial output and steel demand during the first quarter of 20182020, assuming the disruption fades soon, employment and increasedincomes are expected to approximately $280/t by the middlebe relatively unaffected, with most of the yearlost output expected to be recouped during the remainder of 2020, supported by an elevated crudefiscal and monetary easing. However, in 2020 both GDP and steel utilization rate as demand growth are still likely to be weaker than what was strong but capacity constrained. The spread fell from October until the end of the yearexpected prior to the level of $190-$195/t due to a lower winter capacity constraint compared to last year and negative sentiment on demand. The low spread has continued into the beginning of 2019, but isoutbreak (Steel demand now expected to pick upgrow only 0 to 1% in 2020, down from March/April when the demand as well as positive sentiment comes back1 to the market.2% previously expected).
LedU.S. ASC decreased by aalmost -2% in 2019, as significant increase indestocking and declining auto output led flat products to decline -4.7%, coupled with reduced pipe and tube demand, U.S. ASC increased around 6%deliveries, this more than offset growth in 2017,long products. Imports, however, continued to decline in 2019 (-18% year-on-year) due to Section 232 25% tariffs on most non-NAFTA countries, which combined with imports relatively stable at a high level, allowed domestic production to increase as some capacity came back online. ASC increased again in 2018 by almost 2%, and with imports falling by around 10% due to the impact of the 25% Section 232 tariffs, production increased by 6.2%(+1.5% year-on-year). The Company anticipates a small (1(0 to 2%1%) further increase in steel demand in 2019,2020, but with imports continuingexpected to be capped by tariffs,broadly stable, steel production is expected to grow at a slightly strongersimilar rate thanto demand. In the EU, steel demand continues to grow slowly but imports have taken a larger share ofdeclined by over 4%, driven by weaker real demand overand exacerbated by destocking, which accounted for almost half the past couple of years. While European mills output improveddecline in 2017, crudeapparent steel outputconsumption. Brazilian flat products demand was at best only stablealso negatively impacted by destocking in 2018 (decreasing by 0.4% year-on-year) despite a 3%2019 and alongside continuing growth in ASC, as imports (especially longs) continued to take market share, growing over 10% year-on-year. In 2019,real demand, the Company expects much slower growth in apparent steel consumption of almost 5% in 2020. Despite imports declining too, steel production in the EU still declined by 4.9% in 2019. While real steel demand is expected to remain weak in 2020, an end to destocking is expected to support mild growth (around +1.5%) in ASC. In 2020, the Company expects continued pressure from imports, which is why the safeguardsappropriate safeguard measures on steel trade are important to enable European mills to benefit from any improvement in demand.
Overall, ArcelorMittal expects world ex-China ASC to grow again in 20192020 due to relatively strong demand growth in South American and developing Asian markets and the waning negative impact of declininga rebound from significant declines in Turkish steel demand, despite slightly slowercoupled by slow growth in developed markets. Continued capacity restraint and relatively stable production in China, together with continued growth in demand in world ex-China shouldis expected to lead to a gradual improvement in utilization and support the spread of steel prices over raw material costs. However, the Coronavirus is having a significant impact on Chinese demand during the first quarter of 2020 and is likely to have a negative impact elsewhere, mainly Asia, through reduced goods exports to China, fewer tourists from China and supply-chain disruptions due to shortages of Chinese produced intermediate goods. Although the impact on the Company's core markets is expected to be smaller, until the virus is under control, these cannot be quantified and our current forecasts for steel demand assume that the situation in China does not deteriorate materially. However, the recent increase in cases outside China is worrying and increases the risk of a global pandemic and a much larger negative impact on global GDP. The Company is monitoring the situation closely and in particular in Italy, as should the virus spread more widely through Europe this will likely have a material impact on the Company’s sales and profitability in 2020.
Raw materials
The primary raw material inputs for a steelmaker are iron ore, coking coal, solid fuels, metallics (e.g., scrap), alloys, electricity, natural gas and base metals. ArcelorMittal is exposed to price volatility in each of these raw materials with respect to its purchases in the spot market and under its long-term supply contracts. In the longer term, demand for raw materials is expected to continue to correlate closely with the steel market, with prices fluctuating according to supply and demand dynamics. Since most of the minerals used in the steel-making process are finite resources, theytheir prices may also rise in response to
any perceived scarcity of remaining accessible supplies, combined with the evolution of the pipeline of new exploration projects to replace depleted resources.
Throughout 2016, raw material prices became increasingly volatile and impacted by short-term changes in sentiment, mainly related to Chinese market demand sentiment for crude steel and how In 2017, the government might deal with excess steelmaking capacity. Iron ore and coking coal prices increased by 5.1% and 58.2% year-on-year respectively in 2016 (Metal Bulletin 2016 vs. 2015). The increase in the average reference iron ore and hard coking coal price continuedthat occurred in 20172016 continued due to the impact of closures of induction furnaces capacities closurescapacity since 2016. In 2017, iron ore and coking coal prices increased by 22.3% and 31.5% year-on-year respectively (Metal Bulletin 2017 vs. 2016). In the first quarter of 2018, iron ore market reference prices increased following a decrease in the fourth quarter of 2017, averaging $74.39/t, up 13.6% compared to the fourth quarter of 2017 (Metal Bulletin 2018 vs. 2017), supported by robust crude steel production in China. For the full year 2018, the strong steel production in China amid its fight against air pollution and overcapacity kept iron ore and coking coal prices at elevated levels and boosted prices for high-grade qualities as steel mills chased productivity. Though prices for the most common qualities of iron ore decreased 2.2% year-on-year in 2018, the high-grade qualities of iron ore posted a price increase on an annual basis. Coking coal prices increased 10.3% compared to 2017 (Metal Bulletin 2018 vs. 2017).
In 2019, iron ore market reference prices increased following a supply disruption caused by the collapse of the Brumadinho dam owned by Vale in Brazil on January 25, 2019 and the cyclone in Australia mining region (end of March 2019), averaging $93.63/t, up 34% compared to 2018 (Metal Bulletin 2019 vs. 2018).
Coking coal prices in 2018 averaged $206.58/t (compared to $187.31/t in 2017) and were supported by robust crude steel production in China as well as bullish market sentiment from risk of lower Australian supply due to the announcement of changes in the maintenance schedule by the main local rail network operator. Coking coal prices in 2019 averaged $177.36/t (compared to $206.58/t in 2018) and were initially supported by incidents in Australia (heavy rains, accident at Anglo’s Moranbah mine) and the local Australian rail network operator trade union’s industrial action and maintenance works, however, in the second half of 2019, the prices decreased, driven by coking coal import restrictions at key Chinese ports and a weak demand from India amid domestic slowdown.
As for pricing mechanisms, since 2012, quarterly and monthly pricing systems have been the main type of contract pricing mechanisms, but spot purchases also appear to have gained a greater share as steelmakers have developed strategies to benefit from increasing spot market liquidity and volatility. In 2016, 2017, 2018 and 2018,2019, the trend for using shorter-term pricing cycles continued. Pricing is generally linked to market price indexes and uses a variety of mechanisms, including current spot prices and average prices over specified periods. Therefore, there may not be a direct correlation between market reference prices and actual selling prices in various regions at a given time.
Iron ore
After reaching $39.50/t (delivered to China Metal Bulletin Index 62% Fe) on January 13, 2016 and averaging $48.70/t for first quarter of 2016, iron ore market reference prices reached a low during the first quarter of 2016. During the second quarter of 2016, the average price was $55.50/t and the period was marked by high volatility, with a peak at $70.50/t on April 21, 2016 and a low of $48.18/t on June 2, 2016. For the third quarter of 2016, the average was $58.40/t with a slight downward trend throughout September. During the fourth quarter of 2016, it increased from a minimum of $55.86/t on October 4, 2016 and reached a maximum of $83.58/t on December 12, 2016, the average for the fourth quarter was of $70.50/t and was marked by high volatility and bullish market sentiment driven by higher steel prices as well as closure announcements by the Chinese authorities in steelmaking based on obsolete induction furnaces using mostly scrap as raw materials.
Iron ore prices recovered to $85.60/t in the first quarter of 2017 following strong demand for steel after the Chinese New Year. The average price for the second quarter of 2017 decreased to $62.90/t; this downward trend was influenced by increased inventory levels at Chinese ports. In the third quarter of 2017, the average price increased to $71.20/t driven by bullish sentiment in the steel market reflected in strong steel PMIs (Purchasing Manager Index) for China. During the fourth quarter of 2017, the price varied from a minimum of $58.52/t on October 31, 2017 and a maximum of $76.36/t on December 22, 2017, with the average for the fourth quarter at $65.50/t. The quarter was marked by high volatility driven by environmental regulation announcements by the Chinese authorities to constrain emissions and steel production during the 2017-2018 winter period.
In the first quarter of 2018 iron ore prices recovered at $74.39/t, up 13.6% compared to the fourth quarter of 2017. However, great price disparities were observed. Seaborne iron ore demand was hit by a persistent weakness in downstream steel demand, the trade war developing between China and the U.S. and the extension of winter restrictions in China beyond March 15, 2018 all of which had a significant impact. In March, prices plummeted from the highest quarter price of $79.39/t in the beginning of the month to $64.99/t at the end of the month (Metal Bulletin 2017 & 2018). In the second quarter of 2018, prices decreased and remained stable at an average $65.30/t despite strong steel demand over the period. China iron ore port stocks remained high and concentrate production sharply decreased year-over-year as a result of mine inspections. However, steel PMI remained in expansion at 51.6 points in June. In the third quarter, prices were fairly stable, averaging $66.8/t. Low prices on the seaborne market found support in the fear of an intensification of the trade war between China and the U.S., depreciation of the Chinese currency, low future prices and environmental restriction in China. The last quarter of 2018 saw the iron ore price jumping and averaging $71.6/t. It reached $76.75/t on November 12, 2018 amid strong steel margins depleting stocks at Chinese ports and restocking demand in China before the start of the winter period. Also, the derailment of a BHP train carrying iron ore in Australia in the beginning of November provided some short-term support to the iron ore price that boosted the November average. However, prices dropped at the end of November, and in the beginning of December, mills corrected for weak off-season demand and reduced steel margins due to less stringent winter restrictions, which led to prices at the end of 2018 at $72.70/t.
In the first quarter of 2019, following the Vale owned Brumadinho dam disaster in Brazil, the seaborne iron ore market surged to $82.41/t on average, up 15% compared to the last quarter of 2018. The supply shock was aggravated by the cyclone season in Australia with some Australian iron ore producers lowering their output guidance for the year, which contributed to reaching $100.92/t on average in the second quarter of 2019 with a peak of $125.77/t observed on July 2 (Metal Bulletin) also supported by lower inventories at Chinese ports. Prices remained elevated in July at $119.93/t in average and sharply decreased in August to $90.69/t following expectations of weaker demand as well as the impact of currency risks which were exacerbated by the decision of China’s central bank to depreciate the yuan in response to decision of the U.S. government to extend punitive tariffs, both of which cast uncertainty on the iron ore future market, along with supply recovery. In September 2019, iron ore prices rose again on the back of a supportive paper market and expectations of increased end-user restocking activity. The average price for the third quarter of 2019 was $102.03/t. October 2019 was bearish with continued lack of end-user demand for iron ore fines ahead of announcements for winter production cuts. However, prices recovered sharply in November amid higher end-user demand for high-grade materials and supportive futures market for steel. The fourth quarter of 2019 average price was $88.97/t and the average price for 2019 was $93.63/t (Metal Bulletin).
Coking coal
In 2016, the spot price (Metal Bulletin Premium Hard Coking Coal FOB Australia index) traded on average at $78.90/t in the first quarter with the market contract price (price settled between major steel producers and suppliers) settling at $81/t for the same quarter; then the second quarter of 2016 had a contract settlement fixed at $84/t with the spot average for that quarter at $90.40/t while the third quarter had a market contract price settled at $92.50/t and the spot index traded between $90.20/t and $94.80/t for the first 15 days but averaged $131.50/t for the third quarter. During the fourth quarter of 2016, the spot price reached a maximum of $308.80/t on November 11, 2016 and decreased through the closing of the year to $231/t on December 30, 2016. The average spot price for the fourth quarter of 2016 was $265.80/t with quarterly market contract prices settled at $200/t. The highly volatile spot index over the second half of 2016 was influenced by the Chinese domestic supply reduction (originating from weather/logistic issues combined with regulations issued by the Chinese government on lower mining working days, from an annual rate of 330 days per year to a lower rate at 276 days, with temporary relief as described above) as well as several maintenance and mining operational issues in Australian coking coal mines during that period. Consequently, the premium HCC FOB Australia quarterly market contract price was settled at $200/t for the fourth quarter of 2016 and at $285/t for the first quarter of 2017.
In the first quarter of 2017, the spot prices (Metal Bulletin Premium Hard Coking Coal FOB Australia index)index "HCC FOB") sharply dropped from $266.50/t in December 2016 (monthly average) to $155.20/t in March 2017 (monthly average) with the average spot price for the first quarter at $166.80/t. The temporary relief of the Chinese working days restriction and fully recovered supply from Australia, as well as expected additional seaborne supply from North America allowed such a sharp drop in prices by the end of the first quarter of 2017. At the beginning of the second quarter of 2017, the cyclone Debbie that unexpectedly hit Australia caused supply disruptions and spot prices spiked. The upward trend of April up to $300/t on April 18, 2017 and a monthly average of $257.80/t was followed by the downward trend in May and June as the Australia mining-rail-port system recovered earlier than expected from the cyclone disruption. The spot price decreased through the second quarter to $175/t in May (monthly average) and $145/t in June 2017 (monthly average), leading to an average spot price for the second quarter of 2017 of $190.60/t.
For the second quarter of 2017, a new index-based methodology was adopted for the premium HCC FOB Australia quarterly contract price between some Japanese steel makers and Australian HCC suppliers. In the third quarter of 2017, the average spot price (Metal Bulletin Premium Hard Coking CoalHCC FOB Australia index) increased to $188.30/t driven by bullish sentiment in the steel market and strong steel PMIs for China. In the fourth quarter, supported by the port congestion in Australia, the price further increased to $203.50/t.
Coking coal prices entered 2018 as a bullish market with record high vessel queues at a key port in Queensland, Australia and Chinese restocking demand high ahead of the Chinese New Year holiday. The spot prices (Metal Bulletin Premium Hard Coking CoalHCC FOB Australia index) averaged $228/$228.48/t in the first quarter of 2018 increasing 36.8% year-on-year and 12.2% as compared to the fourth quarter of 2017. The elevated prices were then corrected in the second quarter and reached $189/$188.89/t (quarterly average) due to the extension of Chinese winter restrictions until April and delayed increase of steel demand in China. However, the downward movement was limited by a continued threat of supply disruptions due to Aurizon’s announced change in the maintenance plan at its rail system in Australia, and safety check at Chinese mines. The price also found support from Chinese coke prices as domestic coke producers faced environmental crackdowns. In the third quarter, coking coal prices averaged $184/t and $183/t in July and August respectively with no major supply disruption and less demand during Indian monsoon season. The prices rose again in September to $198/t with demand from strong steel production in China amid healthy margins and tight supply of low-Sulphur coking coal in the Chinese domestic market. Prices kept on increasing in the last quarter on the back of strong steel production and threat of supply issues from scheduled maintenance at key Australian ports which increased port queues again to the record levels seen at the end of 2017. The bullish sentiment found support from the breakout of a fire at one Australian mine, rendering it idle for at least six months. The coking coal spot prices increased to a quarterly average of $221/$220.79/t in the fourth quarter of 2018.
In the first quarter of 2019, coking coal prices were volatile ranging from $190/t to $217/t. The volatility was supported by incidents in Australia, including heavy rains, an accident at Anglo’s Moranbah mine and a trade union's industrial action at a local rail network operator. The average spot price in the first quarter of 2019 was $206.33/t (Metal Bulletin Premium HCC FOB Australia index). In the second quarter of 2019, prices first increased to the quarter’s high of $213.16/t on May 13, 2019 fueled by the increased sentiment of potential less availability of metallurgical coal railroad capacity in Australia due to maintenance at a local rail network operator in April. Prices then decreased to $191.61/t on June 28, 2019 due to reduced steel margins putting pressure on coke prices. The average spot price in the second quarter of 2019 was $202.85/t. In the third quarter of 2019, tightening of coking coal import restrictions at key Chinese ports and weak demand from India during the monsoon season led to a decrease in prices with the average spot price at $161.03/t (Metal Bulletin Premium HCC FOB Australia index). In the fourth quarter of 2019, the bearish trend in the coking coal market continued driven by a slowdown in Chinese imports including a ban on imports at China’s largest coking coal handling port in Jingtang effective from October 1, 2019. Weak demand from India post the monsoon season amid domestic slowdown contributed to this bearish trend. The average coking coal spot price decreased to $139.27/t in the fourth quarter of 2019.
ArcelorMittal has continued to leverage its iron ore and coking coal supply chain and diversified supply portfolio as well as the flexibility provided by contractual terms to mitigate regional supply disruptions and also mitigate part of the market price volatility.
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| Iron ore | Coking coal | Iron ore | Coking coal |
Source: Metal Bulletin | average price per tonne (Delivered to China, Metal Bulletin index, 62% Fe) | average price per tonne (Premium Hard Coking Coal FOB Australia index) | average price per tonne (Delivered to China, Metal Bulletin index, 62% Fe) | average price per tonne (Premium Hard Coking Coal FOB Australia index) |
Q1 2016 | 48.6 | 79 | |
Q2 2016 | 55.5 | 90 | |
Q3 2016 | 58.3 | 131 | |
Q4 2016 | 70.5 | 266 | |
|
| |
Q1 2017 | 85.6 | 167 | 85.63 | 166.82 |
Q2 2017 | 62.9 | 191 | 62.90 | 190.58 |
Q3 2017 | 71.2 | 188 | 71.24 | 188.34 |
Q4 2017 | 65.5 | 203 | 65.50 | 203.5 |
|
| |
Q1 2018 | 74.4 | 228 | 74.39 | 228.48 |
Q2 2018 | 65.5 | 189 | 65.97 | 188.89 |
Q3 2018 | 66.9 | 188 | 66.86 | 188.17 |
Q4 2018 | 71.5 | 221 | 71.56 | 220.79 |
| | |
Q1 2019 | | 82.41 | 206.33 |
Q2 2019 | | 100.92 | 202.85 |
Q3 2019 | | 102.03 | 161.03 |
Q4 2019 | | 88.97 | 139.27 |
Scrap
Both Eurofer and German Wirtschaftsvereinigung (“WV”) indexes were discontinued as of January 1, 2016. The Company considers the German suppliers’ index (“BDSV”) is now used and converted into Delivered at Place (“DAP”), in order to be comparable with historical figures. as market reference.
During 2018,2019, the German suppliers' index “BDSV”BDSV for reference grade E3 was quite stable startingstarted in January 2018 at €290.58/€262/t and reached a yearly maximum for the period of €293.98/€278/t in March 2018.March. From April on it decreased month by month until reaching the bottom in October at €196/t € followed by two consecutive increases in November and December to €244/t. The average index dropped continuously until December 2018 down to €279.99/for 2019 was €252/t as compared to €285/t for 2018 and €259/t for 2017, a decrease of €33 or 12% less than 2018.
Turkey’s requirements for EU scrap decreased at the end of 2018. HMS 1&2 North Europe followed a similar trend starting in January 2018 at €294/t and reached a yearly high of €297/t in March 2018. Unlike the German BDSV index, there were up and down movements from April throughout the rest of the year but the general trend remained down and the HMS 1&2 North Europe ended the year at €238/t in December 2018. European scrap price parity with exports continues. The European E3 price moved following HMS and exchange rate fluctuation. The European E3 price was $4/t below, $4/t above, $8/t above and $8/t below HMSimports declined by 11% in the first second, third and fourth quarternine months of 2019 compared to the same period of 2018, respectively, but the European E3 price and HMS were at the same average levels in 2018.
Turkey remainednevertheless it remains by far the main scrap buying country in the international marketmarket. Turkish Electric Arc Furnace steel production share dropped from 69% in 2018 with approximately 69%to 68% in the first 9 months of its2019 and total crude steel production based onwas down by 10.1% in the EAF process,same period. The Scrap Index HMS 1&2 CFR Turkey, North Europe origin, started January 2019 at $280/t reaching a maximum for the year in March at $317/t and then dropped during the second quarter to $286/t in June. It then reached a peak in July at $288/t followed by a continuous decrease until October to $233/t and then increasing again to reach $290/t in December. The average yearly prices were $294/t in 2017, $334/t in 2018 and $281/t in 2019. The average European scrap prices were consistent with the other 31% through the blast furnace route, similar to its production in 2017. In 2016, the percentage of Turkey’s steel production through the EAF process and blast furnaces was 66% and 34% respectively. Steel production inexports HMS 1&2 CFR Turkey, stagnated in 2018 at the same level as 2017 after a 15% increase in 2017 as compared to 2016 and a 5.2% increase in 2016 as compared to 2015. There was a significant reduction of imported billets, which dropped by 46% in 2018 as compared to 2017, following a 50.1% decrease in 2017 as compared to 2016 and a 1.4% increase in 2016 as compared to 2015. As Turkish scrap import volumes increased in 2018 as compared to 2017 at 21 million tonnes, the decrease in billet imports was compensated by local scrap which increased by 7% year-on-year. In 2017, scrap imports into Turkey increased by 19% compared to 2016, with scrap imports totaling 17.7 million tonnes representing an 8.6% increase as compared to the same period in 2015.North Europe reference for 2019.
In the domestic USU.S. market, average scrap prices increased by 20% or $53/HMS 1 delivered Midwest index was $75/t lower in 2018 as compared to a $61/t increase in 2017, which represented a 29% increase as compared to 2016.2019 than 2018. The Midwest Index for HMS 1 increaseddecreased from an average of 208$/t in 2016 to $269/t in 2017 and $322/t in 2018.for 2018 to $247/t for 2019. On the export market, East CoastHMS export FOB New York average prices increasedof 2019 were at $266/t, a decrease by $40/$54/t from $280/compared to 2018 ($280/t in 2017 to $320/t in 2018. 2017).
Ferro alloys and base metals
Ferro alloys
The underlying price driver for manganese alloys is the price of manganese ore which was at the level of $7.16$5.63 per dry metric tonne unit (“dmt”) (for 44% lump ore) on Cost, Insurance and Freight (“CIF”) China for 2018,2019, representing a 20% increase21% decrease from $5.97/$7.16/dmt in 20172018 ($4.30/5.97/dmt in 2016)2017) mainly due to sustained demandoverstocking of material at Chinese ports reflecting low appetite from manganese ore from China, reflecting appetite showed by manganese alloys producers.alloy producers as a result of low steel demand.
TheManganese alloys prices ofalso followed a downward trend where high carbon ferro manganese decreased by 7%10% from $1,428/t in 2017 to $1,330/t in 2018 ($960/to $1,203/t in 2016). Prices of2019 ($1,428/t in 2017), silicon manganese decreased by 7% from $1,325/t in 2018 to $1,234/t in 2019 ($1,343/t in 2017) and medium carbon ferro manganese decreased by 8% from $1,343/t in 2017 to $1,235/$1,930/t in 2018 ($992/t for 2016). Finally, prices for medium carbon ferro manganese stagnated (+1%) in 2018 at $1,930/t as compared to $1,910/$1,780/t in 20172019 ($1,376/1,910/t for 2016)in 2017).
Base metals
Base metals used by ArcelorMittal are zinc, tin and aluminum for coating, aluminum for deoxidization of liquid steel and nickel for producing stainless or special steels. ArcelorMittal partially hedges its exposure to its base metal inputs in accordance with its risk management policies.
The average price of zinc for 20182019 was $2,926/$2,549/t, representing a 1% increase13% decrease as compared to the 2018 average of $2,926/t (the 2017 average ofwas $2,896/t (the 2016 average was $2,095/t). Stocks registered at the London Metal Exchange (“LME”) warehouses stood at 129,32551,225 tonnes as of December 31, 2018,2019, representing a 29%60% decrease compared to December 31, 20172018 when registered stocks stood at 182,050129,325 tonnes (427,850(182,050 tonnes in 2016)2017).
The average price of tin for 2019 was $18,671/t, 7% lower than the 2018 wasaverage of $20,167/t slightly above the 2017 average of $20,098/t (the 2016(2017 average was $18,006/$20,098/t).
The average price of aluminum for 20182019 was $2,110/$1,792/t, representing a 7% increase15% decrease compared to the 2018 average of $2,110/t (the 2017 average ofwas $1,968/t (the 2016 average was $1,605/t).
The average price of nickel for 20182019 was $13,118/$13,936/t, representing an 26%a 6% increase compared to the 2018 average of $13,118/t (the 2017 average ofwas $10,407/t (the 2016 average was $9,609/t).
Energy market
Solid fuels, electricity and natural gas are some of the primary raw material inputs for a steelmaker. ArcelorMittal is exposed to price volatility in each of these raw materials with respect to its purchases in the spot market and under its long-term supply contracts. Since most of the minerals used in the steel-making process are finite resources, they may also rise in response to any perceived scarcity of remaining accessible supplies, combined with the evolution of the pipeline of new exploration projects to replace depleted resources.
Oil
In a year which was defined by political turmoil, the global oil market went from a tightening of the supply/demand balance to the prospect of a supply surplus. This came amid the general fear of an economic slowdown beyond 2018 as an intensifying tariff war between the world’s biggest economies could dent global demand growth combined with record high shale oil output from the U.S.
In the first quarter of 2016, after tumblingdecreasing for six quarters in a row, the Brent crude oil price came to a haltleveled at just south ofbelow $30/barrel (“bbl”). In the following six months,To boost prices, climbed back up to levels around $50/bbl. Aa group of producers led by OPEC (the Organization"Organization of the Petroleum Exporting Countries)Countries") and Russia agreed at the end of 2016 to cut production and cap output atby 1.8 million barrels per day (“bpd”). Initially, the cuts were expected to last for only six months but got extendedmonths. However, an extension in May 2017 and again in November 2017.the same year launched an era in which production cuts became a popular tool among producers to support global oil prices. As a result,consequence, prices increased starting in the summer of 2017 the momentum shifted andwhen prices gained 75% year-on-year from $45/bbl in May 2017 to $80/bbl in May 2018, with prices continuing to steadily increase throughout the first three quarters of 2018. In JuneThe Brent crude oil front month contract started 2018 OPECat $66/bbl and its allies decided to increase production by 1 million bpd. This camepeaked at a time when$86/bbl (a 4-year high) in October 2018. During the same period, the U.S. had just pulled out of the Iran nuclear deal, and was threatening sanctions against any country which further imported Iranian oil. The market reacted with a delayed price hike withIn the following months, Brent crude oil front month contract peaking at $86/bbl (a 4-year high) in October 2018, only to fallfell more than 30% inand finished the following month.year at $53.80/bbl, a 15-month low. The drop was backed by growing concerns of a global economic slowdown as a tariff war between the world's biggest economies (namely, the U.S. and China) intensified. To stop plummeting prices, a lastfinal effort from OPEC and its allies was made in early December 2018, when they jointly decided to cut output by 1.2 million bpd throughout the first half of 2019. Immediately, the oil market started tightening throughout the first quarter of 2019, finishing the first half of the year just higher than $65/bbl. The driving forces of 2019 proved to be the same as in 2018. While tensions grew in the Middle East fueled by renewed sanctions on Iran, the U.S. continued to pump oil at record high levels. The U.S. and China continued its trade war and the UK continued to postpone Brexit. At the start of the third quarter of 2019, OPEC and Russia confirmed that they would continue their efforts to balance the global market by extending the 1.2 million bpd cut by another nine months and into the first quarter of 2020. In December 2019, a decision was made to increase the level of cuts in the first quarter of 2020 but not to extend these cuts beyond March 2020. In the meantime, Iran's retaliation threats kept the oil markets on alert. Throughout 2019, Brent crude oil moved between $55/bbl and $75/bbl, not exposing a clear trend, not even after supply shocks like the bombing of a Saudi facility in September. Brent crude oil finished the year in the middle of the range at $53.8/bbl, a 15-month low.
$66/bbl.
The following table shows certain quarterly average prices of oil, thermal coal and CO2 for the past three years:
| | Commodities | | |
Source: Thomson Reuters | Brent crude oil spot average price $ per barrel | West Texas intermediate spot average price $ per barrel | European thermal coal import (API2) spot average price $ per ton | European Union allowance spot average price € per ton of CO2 equivalent | Brent crude oil spot average price $ per barrel | West Texas intermediate spot average price $ per barrel | European thermal coal import (API2) spot average price $ per ton | European Union allowance spot average price € per ton of CO2 equivalent |
| | | |
Q1 2016 | 35.21 | 33.63 | 44.84 | 5.64 | |
Q2 2016 | 47.03 | 45.64 | 49.09 | 5.77 | |
Q3 2016 | 46.99 | 44.94 | 61.84 | 4.55 | |
Q4 2016 | 51.06 | 49.29 | 81.09 | 5.52 | |
| | | | | |
Q1 2017 | 54.57 | 51.78 | 77.86 | 5.17 | 54.57 | 51.78 | 77.86 | 5.17 |
Q2 2017 | 50.79 | 48.15 | 75.71 | 4.81 | 50.79 | 48.15 | 75.71 | 4.81 |
Q3 2017 | 52.17 | 48.20 | 86.11 | 5.91 | 52.17 | 48.20 | 86.11 | 5.91 |
Q4 2017 | 61.46 | 55.30 | 92.68 | 7.47 | 61.46 | 55.30 | 92.68 | 7.47 |
| | |
Q1 2018 | 67.23 | 62.89 | 86.09 | 9.80 | 67.23 | 62.89 | 86.09 | 9.80 |
Q2 2018 | 74.97 | 67.91 | 89.97 | 14.49 | 74.97 | 67.91 | 89.97 | 14.49 |
Q3 2018 | 75.84 | 69.43 | 98.66 | 18.85 | 75.84 | 69.43 | 98.66 | 18.85 |
Q4 2018 | 68.60 | 59.34 | 92.45 | 20.47 | 68.60 | 59.34 | 92.45 | 20.47 |
| | |
Q1 2019 | | 63.83 | 54.90 | 75.38 | 22.24 |
Q2 2019 | | 68.47 | 59.91 | 57.13 | 25.55 |
Q3 2019 | | 62.03 | 56.44 | 58.75 | 26.93 |
Q4 2019 | | 62.42 | 56.87 | 58.24 | 24.88 |
CO2
The integrated steel process involves carbon and CO2, which distinguishes integrated steel producers from mini-mills and many other industries where CO2 generation is primarily linked to energy use. Launched in 2005, the European Union Emission Trading System (“EU-ETS”) is currently in its third phase, stretching from 2013 to 2020. AfterDecember 2020 thisand the trading system for the period after 2020 has been revised in a manner that may require ArcelorMittal to incur additional costs to acquire emissions allowances. The EU-ETS is based on a cap-and-trade principle; it sets a cap on greenhouse gas emissions (“GHG”) from covered installations, which is then reduced year after year. Since 2009, a surplus of emission allowances has built up in the EU-ETS, keptkeeping prices below €10 per ton of CO2CO2 equivalent (“€/tCO2e”) until 2018. In 2016 and 2017, the price for a European Union Allowance (“EUA”) - which gives the holder the right to emit one ton of carbon dioxide (“CO2”CO2”) - ranged between €4/tCO2e and €6/tCO2e.
To boost the EUA price and to provide an incentive to the industry and the power sector to alter their behavior in terms of CO2CO2 emissions, in July 2015 the European Commission proposed a reform of the EU-ETS for the period 2021-2030 (phase 4). More than 2 years later, inter-institutional negotiations were concluded presenting solutions to reduce the current surplus. Consequently, in November 2017 the EUA price crossed the €8/tCO2e mark for the first time since January 2016. With the EU Council’s final approval in February 2018, the ETS reform became law (directive(Directive (EU) 2018/410). As a result, the EUA price surged up further and only came to a haltleveled after surpassing the historical high of €25/tCO2e in September 2018. This marked a 360% price increase in only nine months. TheAt the end of 2018, the price reached an all-time high of €25.3/tCO2e amid thin trading activity during the holiday period. Throughout the first half of 2019 the EUA price has been subsequently trading aroundincreased by 15% and finished the €20/tCO2e marksecond quarter of 2019 at €26.5/tCO2e. Not only did the EUA price increase but the market also witnessed great volatility mainly driven by uncertainties around Brexit, the end of the compliance period in April and the looming market stability reserve (“MSR”) which started operating in January 2019, reducing auction supplies since the second week of January. A new historical high was reached in July 2019, when the price for a EUA touched €30/tCO2e. However, more generally, during the first quarter of 2019, prices remained around €22/tCO2e while prices remained around €25/tCO2e for the rest of 2019.
For further information on the Company's CO2CO2 emissions and related risks see "Item 4.B—Business overview—Sustainable development-Outcome 6: Responsible energy user that helps create a lower carbon future"development—Management Theme #2: Climate change" and "Item 3.D—Key information—Risk factors—Risks related to the global economy and the mining and steel industry—Laws and regulations restricting emissions of greenhouse gases could force ArcelorMittal to incur increased capital and operating costs and could have a material adverse effect on ArcelorMittal's results of operations and financial condition."
Thermal coal
Thermal coal prices have followed the same commodity super-cycle as crude oil and reached the low levels of $45/t at the beginning of 2016. Throughout 2016, prices had been on the rise and by the end of the year had almost doubled. After a sharp drop during the first two quarters of 2017 prices rebounded and finished the year strong. This came on the back of intensified demand from Asia which was witnessing one of the coldest winters ever recorded. The 2017/2018 winter began with a Chinese campaign aimed at switching millions of households from using coal to natural gas for heating purposes. At the same time, the country tightened imports by banning small ports from receiving foreign coal cargoes. The campaign unexpectedly boosted demand from coal-fired power plants as it created a shortage of natural gas. The tightening of the Asian market had some severe spill-overs to the European market and pushed the spot price for the all publications index number 2 (“API2”) - which reflects the price for imports into ARA (Amsterdam-Rotterdam-Antwerp) - above $90/t, a level not seen since the end of 2012. Throughout the first quarter of 2018, the API2 shed almost 20% as the global supply demand balance softened amid the Chinese New Year holiday. After increasing throughout the second quarter of 2018, the API2 reached a new 6-year high when it surpassed the $100/t mark in the third quarter. This was triggered by utilities replenishing stocks and strong demand from power stations due to a hot and dry summer. In the fourth quarter of 2018, prices remained volatile but decreased almost 20% amid China's imposition of new import restrictions, and Europe benefiting from a mild start to the winter. During the first half of 2019, the downward trend continued and the spot contract for API2 lost more than 40%, finishing the second quarter of 2019 at a 3 year low of just below $50/t. This sharp price decrease was driven by coal-to-gas switching across the European power sector and an abundance of supply, since Australia had to redirect its cargoes due to Chinese import restrictions. During the third quarter of 2019, short term prices rebounded amid higher spot demand and stock replenishing activity ahead of the winter. However, a milder than average winter led to a price decrease of almost 20% during the fourth quarter of 2019, from around $64/t in September to $52/t end of December.
Natural gas - Europe
Year after year, the natural gas market is turning more intomoves toward becoming a global commodity due to the continuous development of liquefied natural gas (“LNG”), driven by the construction of new liquefaction units (called trains) in Russia, Australia and in the U.S. The worldwide LNG exports reached 430485 billion cubic meters (“bcm”) in 2018,2019, an increase of 8.2%11.5% compared to 2017. Consequently, natural gas is increasingly exposed to the same commodity super-cycles that also affect thermal coal and crude oil, for example. Unlike thermal coal and crude oil, the European natural gas market is showing stronger seasonal patterns.
Despite starting the year2018 at the same price level as 2017, the 2018 TTF Spot Price (the price for natural gas to be delivered the next day, which is traded on a virtual trading platform located in the Netherlands) averaged €22.85 per Megawatt hour (“€/MWh”), which is more than 30% higher than the 2017 average (€17.32/MWh) and far above 2016 when prices settled at €14.03/MWh on average. Several events affected the transportation of natural gas in 2017 (an explosion at the Gas Connect Austria's Baumgarten site in eastern Austria and the shut-down of the Forties pipeline system, both of which happened at the end of year). The year 2018 started with milder than normal weather but a late cold snap at the end of February brought freezing temperatures from Siberia to Europe. Combined with limited storage flexibility and supply problems across Europe, spot prices at major European hubs skyrocketed to multi-year highs. In the aftermath, northwest European natural gas storage levels dropped well below the 5-year average. Efforts to refill storages, together with strong summer demand from natural gas fired power plants, exceptionalexceptionally high LNG prices and an overall rising energy complex kept supporting European natural gas prices up until the start of the fourth quarter of 2018 (an increase of 50% throughout the first nine months of the year). During the last quarter of the year,2018, the TTF spot price tumbled from €29.5/€29.50/MWh down to €22.0/€22.00/MWh. This trend continued into 2019, and the TTF spot price plummeted below the €10.00/MWh mark by end of June. This sharp decrease of 55% from the beginning of first quarter to the end of second quarter happened on the back of milder than normal seasonal temperatures, significantly improvedrapidly improving storage levels, stronghistorical high LNG arrivals and pipeline importsa continuous strong import of Norwegian and Russian piped gas. Even high levels of coal-to-gas switching across the European power sector could not prevent prices from Norway and Russia operatingdropping to historical lows by the end of June. Throughout the third quarter of 2019, TTF spot prices traded in average at €10.2/MWh (year-on-year decrease of 58%), with a low in September close to their maximum capacity.€7/MWh. In November, TTF spot prices traded up and reached levels of around €16.6/MWh. This price increase was supported by colder temperatures and the fear that Russia and Ukraine would not be able to sign a new multi-year transit contract. It was only in the very last days of December that the two countries agreed on a deal leading to a price collapse during the second half of December, and the front month delivery finished the year at €11.7/MWh.
Natural gas - United States
In 2018,2019, natural gas production in the U.S. remained strong at a level of 102reached another record. Total production grew by 8.3 billion cubic feet per day (“("bcf/d”d"). in 2019 year-over-year, with associated gas contributing to more than half (4.5 bcf/d) of the increase. Gas markets across the U.S. remain oversupplied and continuously pressured Henry Hub gas prices lower in search of a new floor. Consequently, low gas prices in 2019 led to another record year for gas-for-power demand at 31 bcf/d, growing 2 bcf/d from the previous year. Furthermore, 2019 was also a record year for LNG development in the number of final investment decisions reached ("FIDs") and LNG train start-ups. More than 30 Million Metric Tonnes per Annum ("mmpta") of capacity became available following the FIDs reached in 2019, the single largest year in U.S. LNG history. In 2019, the U.S. exported a total of 37.6 mmpta of LNG, which marks an increase of 66% year-on-year.
In North America, natural gas prices trade independently of oil prices and are set by spot and future contracts, traded on the NYMEX exchange or over-the-counter. U.S. thermal coal continues to be challenged as a power producing fuel. Gas power plantsIn the first took the lead in the generation mix in 2016, which continued in 2017 with around 32%nine months of electricity produced from burning natural gas. This trend accelerated in 2018, with just over 30GW of new capacity entering commercial service.
U.S. LNG export capacity stands at 4.9 bcf/d, almost 2.4 bcf/d added in 2018 compared to 2016 (1.38 bcf/d), the year the U.S. entered the LNG exporting business. Projections show that U.S. LNG export capacity will reach 8.9 billion bcf/d by the end of 2019, making it the third largest in the world behind Australia and Qatar. The rise of U.S. LNG is driven by the strong development of U.S. shale gas. The number of rigs increased significantly compared to 2017 levels, with the Permian basin marking the biggest increase of close to 100 additional rigs compared to 2017.
In 2017, the Henry Hub front month price (the price for gas traded on a U.S. virtual trading platform, for delivery in the next calendar month) increased by 27% as compared to an average of $3.08averaged $2.85 per million British Thermal Units (“$("/MMBtu”MMBtu") in 2016. In the first nine months of 2018, month ahead prices averaged $2.85/MMBtu,, a 6.5% decrease compared to the first nine months of 2017. The recession in natural gas prices that held from the beginning of 2015 until September 2018 changed in the first two weeks of November 2018, as weather-related natural gas demand increased sharply, and the relatively low levels of natural gas in storage could not provide the needed flexibility leading to a 60% price hikeincrease in only 10 days. In mid-November 2018, the front-month Henry Hub natural gas futures hit a price of $4.8/MMBtu, the highest price since the second quarter of 2014. Consequently, at the end of November, natural gas inventories stood 19% lower than the previous five-year average forcing the Henry Hub Month Ahead price to average $4.0/MMBtu throughout November and December 2018. Henry Hub natural gas futures lost more than 20% throughout the first half of 2019 and at the end of June stood more than 50% lower than the winter peak in the fourth quarter of 2018. U.S. dry gas production during the first quarter of 2019 was almost 13% higher than in the same period a year earlier. This led to a faster than normal rise of working stocks in underground storage, resulting in downward pressure of the natural gas market. This downward pressure persisted throughout the second half of 2019, with only occasional spikes up to $2.7/MMBtu in September and $2.9/MMBtu in November. Nevertheless, the fourth quarter of 2019 averaged $2.4/MMBtu (down 35% from the fourth quarter of 2018).
Natural gas - Asia
TheThroughout the first quarter of 2018, the Platts Japan Korea Marker (JKM)("JKM") - the LNG benchmark price assessment for spot physical cargoes delivered ex-ship into Japan, South Korea, China and Taiwan - front month contract finished the year 2017 at the highest levels since the first quarter of 2015 ($11.2/MMBtu). Throughout the first quarter of 2018 prices dropped 35% (equivalent to $4/MMBtu) and bottomed at $7.2/MMBtu before entering a period of increasing prices. While prices normally would have relaxed on the back of muted demand from Asian consumers at the end of June 2018, the front month contract price again surpassed the 11 USD/$11/MMBtu level ($6/MMBtu higher year-on-year). However, in 2018 strong Asian restocking demand ahead of the winter met strong cooling needs. At the end of the first quarter of 2018, the price spread between the Pacific and the Atlantic basin dropped below $1/MMBtu erasing the arbitrage window and allowing LNG cargoes to sail to Europe. This spread quickly increased to $3.7/MMBtu dragging cargoes away from Europe. After a period of high volatility, the spread stabilized around $2.0/MMBtu by the end of the third quarter and into the fourth quarter of 2018, fueled by lackluster Asian demand. At the same time, charter rates for LNG vessels exploded and moved north of $160,000/day (a long way from the lows of 2016 and 2017 when spot rates were hovering at $25,000/day). This led to trapped LNG supply in the Atlantic basin leading to sharply dropping European natural gas prices. During the first half of 2019, European importers saw record high levels of LNG arrivals, reflecting the abundant supply across Asia amid healthy storage levels in key importing countries as a result of a mild winter. Furthermore, a significant ramp-up of new liquefaction capacity across Australia, the U.S. and Russia meant more supply to an already oversupplied market. Consequently, the JKM front month contract lost 47% from the start of the year until the end of June 2019. With muted demand and more global supply, the low prices persisted until the end of the second quarter of 2019. In the fourth quarter of 2019, amid the start of the winter, the JKM rose and averaged $5.9/MMBtu (42% lower than 2018).
The following table shows quarterly average spot prices of natural gas for the past three years:
| | Natural gas | | |
Source: Thomson Reuters | TTF Spot average price € per MWh | Henry Hub Spot average price $ per MMBtu | JKM Spot average price $ per MMBtu | TTF Spot average price € per MWh | Henry Hub Spot average price $ per MMBtu | JKM Spot average price $ per MMBtu |
| | | |
Q1 2016 | 12.86 | 1.98 | 5.05 | |
Q2 2016 | 13.21 | 2.25 | 4.66 | |
Q3 2016 | 12.80 | 2.79 | 5.62 | |
Q4 2016 | 17.28 | 3.18 | 7.25 | |
| | | | |
Q1 2017 | 18.42 | 3.06 | 7.35 | 18.42 | 3.06 | 7.35 |
Q2 2017 | 15.61 | 3.14 | 5.85 | 15.61 | 3.14 | 5.85 |
Q3 2017 | 16.13 | 2.95 | 6.19 | 16.13 | 2.95 | 6.19 |
Q4 2017 | 19.13 | 2.92 | 9.45 | 19.13 | 2.92 | 9.45 |
| | |
Q1 2018 | 21.25 | 2.85 | 9.35 | 21.25 | 2.85 | 9.35 |
Q2 2018 | 21.06 | 2.83 | 8.71 | 21.06 | 2.83 | 8.71 |
Q3 2018 | 24.56 | 2.86 | 10.71 | 24.56 | 2.86 | 10.71 |
Q4 2018 | 24.65 | 3.72 | 10.24 | 24.65 | 3.72 | 10.24 |
| | |
Q1 2019 | | 18.47 | 2.87 | 6.86 |
Q2 2019 | | 13.02 | 2.51 | 4.94 |
Q3 2019 | | 10.20 | 2.33 | 4.74 |
Q4 2019 | | 12.66 | 2.41 | 5.91 |
Electricity - Europe
Unlike the natural gas market, electricity prices are only indirectly influenced by commodity super-cycles. Due to the regional nature of electricity markets, prices follow mainly local drivers (i.e. energy mix of the respective country, power generation from renewables, country specific energy policies, etc.). However, unlike previous years, 2018 marked a structural change with the emergence of the carbonCO2 price as one of the major price drivers. The forward baseload power contract for the front calendar year (delivery 2019) strongly increased in all European market places throughout the year (e.g. from €40.5 to €59.1/MWh in Belgium (an increase of 46% year-to-date), from €41.75 to €58.45/MWh in France (an increase of 40% year-to-date) and from €36.7 to €52.7/MWh in Germany (an increase of 44% year-to-date)). The 2018 price increase was mainly due to the overall fuel price increases, the unreliability of an aging French and Belgian nuclear fleet and a weak year in terms of renewable output. output, a trend which reversed in the first half of 2019. Tumbling fuel prices, combined with healthy renewable power generation and strong nuclear output helped to pressure spot prices across North West Europe in the first half of 2019. The lack of a severe summer heatwave helped to pressure the third quarter of 2019 prices. Wet early winter months, mild temperatures and good renewable power output contributed to a significant reduction in France and Belgium the fourth quarter of 2019 compared to 2018. This decrease occurred despite the fact that French nuclear availability was at a multi-year low for that time of the year, which is normally a strong support for prices.
The following table shows quarterly average spot prices of electricity in Germany, France and Belgium for the past three years:
|
| | | |
Electricity | | | |
Source: Thomson Reuters | Germany Baseload spot average price € per MWh | France Baseload spot average price € per MWh | Belgium Baseload spot average price € per MWh |
| | |
Q1 2016 | 25.20 | 28.89 | 28.51 |
Q2 2016 | 24.79 | 25.89 | 27.15 |
Q3 2016 | 28.33 | 32.37 | 32.64 |
Q4 2016 | 37.56 | 59.92 | 58.18 |
| | | |
Q1 2017 | 41.32 | 54.77 | 51.58 |
Q2 2017 | 29.76 | 33.90 | 35.74 |
Q3 2017 | 32.73 | 34.56 | 34.17 |
Q4 2017 | 32.49 | 56.19 | 56.47 |
| | | |
Q1 2018 | 36.05 | 44.09 | 45.17 |
Q2 2018 | 36.03 | 36.78 | 44.10 |
Q3 2018 | 53.86 | 57.58 | 61.08 |
Q4 2018 | 51.89 | 62.47 | 71.01 |
|
| | | |
Electricity | | | |
Source: Thomson Reuters | Germany Baseload spot average price € per MWh | France Baseload spot average price € per MWh | Belgium Baseload spot average price € per MWh |
| | |
Q1 2017 | 41.32 | 54.77 | 51.58 |
Q2 2017 | 29.76 | 33.90 | 35.74 |
Q3 2017 | 32.73 | 34.56 | 34.17 |
Q4 2017 | 32.49 | 56.19 | 56.47 |
| | | |
Q1 2018 | 36.05 | 44.09 | 45.17 |
Q2 2018 | 36.03 | 36.78 | 44.10 |
Q3 2018 | 53.86 | 57.58 | 61.08 |
Q4 2018 | 51.89 | 62.47 | 71.01 |
| | | |
Q1 2019 | 41.35 | 47.18 | 48.34 |
Q2 2019 | 35.74 | 34.81 | 34.44 |
Q3 2019 | 37.55 | 35.64 | 35.11 |
Q4 2019 | 36.51 | 40.23 | 39.37 |
Ocean freight[3]
Ocean freight prices increased(average for all sizes) remained at the same level in 20182019 compared to 2017 primarily2018 due to a lack of dry bulk net fleet growththe increase on cape size offset by the decrease on Panamax, Supramax and a flat demand trend, after increasing in 2017 as well.Handymax segments. The Baltic Dry Index (“BDI”) averagedmaintained the same average at 1,352 points against 1,145in 2019 compared to 2018 (1,145 points in 2017, an 18% increase year-on-year.2017). The Capesize index increased by 9% year-on-year to average 16,529$/$18,025/day against 15,129$/$16,529/day in 2017 (7,388$/2018 ($15,129/day in 2016)2017). Meanwhile the Panamax index increased by 19%9% to an average 11,654$/of $11,112/day against 9,766$/as compared to $11,654/day in 2017 (5,562$/2018 ($9,766/day in 2016)2017). Dry bulk fleet growth has been slow becauseIn 2019, on the cape size a total of a lack79 vessels or 18.8 million deadweight was delivered, the most since 2016 and up from 52 vessels or 14.4 million deadweight in 2018. Panamax in 2019 was heavy in terms of deliveries which was duewith 134 vessels or 11.1 million deadweight delivered, the most since 2014 and up from 67 units or 5.5 million deadweight in 2018.
Fleet growth remained moderate but picked up slightly by 4.1% in deadweight terms in 2019 (2.6% increase compared to vessels not being contracted in2018) following increased deliveries and limited demolition activity. Deliveries up 22% y-o-y to 98.4 million deadweight, scrapping down 45% year-over-year to 17.0 million deadweight. Part of the low marketimpact of 2016. In 2018, new build deliveries reached the lowest rate of deliveries in the last 10 years, which helped to restrict supply. Due to the market being stronger than in previous years, demolition of ships reduced. Netthis fleet growth was 2.8%offset by scrubber retrofitting activity (at year end, 35 million deadweight was in 2018 comparedrepair yards undergoing a retrofit) and slower speeds. The high fleet growth in 2019 (4.1%) is expected to 2.9%continue in 2017. Demand2020 when the fleet is also expected to grow more than demand. The
cumulative impact of dry cargo was flat in 2018 affected by global political instabilitythese growth rates means that the gap between demand for shipping and disruptions. The U.S.-China trade tensions created uncertainty in the market while logistical disruptions (like BHP’s train derailment in Australia and leaks in Anglo American’s Minas Rio pipeline) constricted the supply of cargo in the second half of the year. Chinese imports were down year-on-year for the first time in 7 years. Chinese coal imports were positive in the first half of 2018 but saw a downturn in the second half as the Chinese government's policy preferred domestic production over imports. Year-on-year dry bulk trade growth was 2.3% in 2018 as compared to 4.1% in 2017.
The industryships is preparing for the new sulphur cap on marine fuels set by the International Maritime Organization that will apply from 2020 onwards. Ship owners need to decide whether to install air pollution control devices known as scrubbers which will allow ownersexpected to continue using dirty marine fuel or waiveto put downward pressure on freight rates throughout the installation and use the more expensive cleaner marine fuel oil. This will have an impact on supply and potentially pricing (as shipowners attempt to pass on the increased costs) dynamics from 2019 onwards.year.
Sources: Baltic Index, Fearnleys, Clarksons Platou, BIMCO, CTM
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[3] Sources: ACM Braemar, Baltic Index, Clarksons Platou
Impact of Exchange Rate Movementsexchange rate movements
Because a substantial portion of ArcelorMittal’s assets, liabilities, sales and earnings are denominated in currencies other than the U.S. dollar (its reporting currency), ArcelorMittal has exposure to fluctuations in the values of these currencies relative to the U.S. dollar. These currency fluctuations, especially the fluctuation of the U.S. dollar relative to the euro, as well as fluctuations in the currencies of the other countries in which ArcelorMittal has significant operations and sales, can have a material impact on its results of operations. For example, ArcelorMittal’s non-U.S. subsidiaries may purchase raw materials, including iron ore and coking coal, in U.S. dollars, but may sell finished steel products in other currencies. Consequently, an appreciation of the U.S. dollar will increase the cost of raw materials; thereby having a negative impact on the Company’s operating margins, unless the Company is able to pass along the higher cost in the form of higher selling prices. In order to minimize its currency exposure, ArcelorMittal enters into hedging transactions to lock-in a set exchange rate, as per its risk management policies.
In 2016, the outcome of the Brexit referendum triggered a move toward safety trades that prompted U.S. dollar strength, supporting the trend towards lower interest rates in the G10 countries. This climate was confirmed later with the U.S. presidential campaign; however, a sharp reversal of market sentiment followed Donald Trump’s election, triggered by the expectation of an ambitious fiscal and investment program. As a consequence, the euro depreciated against the U.S. dollar to 1.0541 at the end of 2016 from 1.0898 at the start of the year, further driven by the reduction of the monthly asset purchase program from the European Central Bank.
In 2017, the fluctuations on the foreign exchange markets were broadly driven by the activity of central banks that started to reduce their accommodative monetary policies, including the U.S. Federal Reserve (the "Federal Reserve"), which increased rates three times during the year. The less accommodative policies adopted by the European Central Bank (“ECB”), Bank of Canada (“BoC”) and Bank of England (“BoE”) were already anticipated by the markets and their respective currencies strengthened even before the banks' monetary decisions. The euro strengthened significantly against the U.S. dollar, from 1.0541 at the beginning of 2017 to 1.1993 at the end of the year.
InSince April 1, 2018, the Company has designated a portfolio of euro denominated debt (€5.26.9 billion as of December 31, 2018)2019) as a hedge of certain euro denominated investments (€7.88.1 billion as of December 31, 2018)2019) in order to mitigate the foreign currency risk arising from certain euro denominated subsidiaries net assets. The risk arises from the fluctuation in spot exchange rates between EUR/USD, which causes the amount of the net investments to vary. See also note 6.3 to the consolidated financial statements. As a result of the hedge designation, foreign exchange gains and losses related to the portfolio of euro denominated debt are recognized in other comprehensive income.
As of December 31, 2018,2019, the Company is mainly subject to foreign exchange exposure relating to the euro, Brazilian real, Canadian dollar, Indian rupee, Kazakhstani tenge, South African rand, Mexican peso, Polish zloty, Argentine peso and Ukrainian hryvnia against the U.S. dollar resulting from its trade payables and receivables.
In 2019, the euro decreased from 1.1450 at December 31, 2018 the protectionismto 1.0889 at end of the third quarter, before gradually increasing back to 1.1234 on December 31, 2019 against the U.S. administration in itsdollar as a result of a global context driven by the U.S. administration's protectionism on trade policies and the monetary policy divergence between the United Statesprogressive narrowing of U.S. dollar and G10 countries led to the global appreciation ofeuro rate differentials as the U.S. dollar. While the Federal Reserve increased("FED") delivered three rates cuts in the second half of 2019 thus lowering FED Funds target rate to 1.55%.
The Polish zloty marginally decreased against the U.S. dollar throughout 2019 from 2.25% to 3.00% in 2018, the ECB announced the end of its quantitative easing program and kept rates3.7567 on hold. Therefore, the euro depreciated from 1.19 at the start ofDecember 31, 2018 to 1.143.7892 on December 31, 2019 after reaching 4.0208 at the end of the year.third quarter. Although Polish economic performance remained strong for the period, the zloty’s behavior for the period mainly resulted from the persistently accommodative stance from the Polish Central Bank even with local inflation finally beating the 2.5% official target on the second semester.
Elsewhere in Europe, the Czech central bank’s rate increase failed to support the Czech koruna in 2018. The Czech central bank was forced to tighten its policy at a faster pace to offset the loosening effect stemming from the Czech koruna's weakness. The Czech koruna weakened from 21.29Ukrainian hryvinia increased gradually against the U.S. dollar in 2019 starting from 27.6886 on December 31, 20172018 to 22.4723.6860 on December 31, 2018. In Poland,2019 reflecting the national central bank maintainedpositive news around the reference rate unchanged at a record-low level of 1.50%, even though some memberslocal economic potential following the election of the current monetary policy council voted for a rate increasenew president Volodymyr Zelensky and benefiting from improvements in the country’s relations with Russia as well as optimistic view on key structural reforms.
The Kazakh tenge was stable at the November meeting for the first time since 2015. The Polish zloty weakened384.17 against the U.S. dollar at the end of 2018 to 3.76 compared to 3.48 at the beginning of the year. year, depreciated to 390.39 on October 9, 2019 and then appreciated to 381.24 as of December 31, 2019. This fluctuation was due to the National Bank raising its base rate in order to contain rising inflationary pressures from the ongoing recovery of consumer demand and a 4.2% stronger than expected economic growth.
In Ukraine, contrary to most other emerging markets currencies, the Ukrainian hryvnia appreciated by 6%The Indian rupee decreased against the U.S. dollar during the first half of 2018. As the economy did not show any signs of real improvement, this appreciation was probably the result of certain speculative flows. The second half of the year was marked by a tense geopolitical environment and domestic politics. As a consequence, the hryvnia erased the appreciation of the first half of the year and ended 2018 at 27.69 against the U.S. dollar.
In Kazakhstan, after a strong start of the year due to an increase in oil output with the launch of the Kashagan field, the expansion lost steam on slowing growth and trade disputes with Russia.The tenge came under renewed depreciation pressure, preventing inflation2019 from slowing and prompting the national central bank to keep interest rates on hold. The tenge depreciated against the U.S. dollar and reached its weakest level in December 2018 at 384.17.
In India, the balance of payments deficit weighed on the Indian rupee, which depreciated by 15% versus the U.S. dollar from January 2018 to October 2018. However, the decrease in oil prices since October 2018 was particularly beneficial for India's external finances. The Indian rupee weakened against the U.S. dollar from 63.8769.6330 at the startbeginning of the year to 69.6371.3776 on December 31, 2019 resulting mainly from extremely accommodative monetary measures taken by the National Bank of India in December 2018.its attempt to support India's slowing economy notably affected by the deteriorating trade context globally as well as through weak household demand locally, slower credit disbursements by banks and non-bank financial companies, policy disruptions, a sluggish investment cycle and structural issues. In October 2018, the Company entered into hedging programs including non deliverablenon-deliverable forwards and non deliverablenon-deliverable options for a total nominal amount of $5.9 billion in order to hedge the volatility between the Indian Rupee and U.S. dollar in relation to the proposed acquisition of ESIL.SeeAMNS India. In 2019, $5.1 billion of the hedging program settled generating a gain of $360 million. As of December 31, 2019, the total amount of the hedging program remained at $0.8 billion. See note 6.3 to the consolidated financial statements for further information.
South Africa exited its first half 2018 recession in the third quarter, expanding at an annualized pace of 2.2% quarter on quarter. Strong improvements in manufacturing, agriculture and services were partly offset by weakness in mining. In response to flagging growth, the government announced an economic recovery and stimulus plan in September 2018. Key proposals included visa reform to boost tourism and high-skilled immigration, implementing the mining charter, a new infrastructure fund, telecoms reform, and reviewing administered prices. The South African rand depreciated from 12.40concluded 2019 slightly appreciating against the U.S. dollar atafter having decreased from 14.4306 on December 31, 2018 to 15.4190 in August 2019 and finally appreciating to 14.1183 on December 31, 2019 and thus not reflecting significantly the fact that signs of improvement from the South African economy remain quite weak.
The Canadian dollar appreciated against the U.S. dollar in 2019 from 1.3629 to 1.3248 between the beginning of the year to 14.43 in December 2018.
In North America, another trade battle took place as the United States, Canada and Mexico tried to reshape the North American Free Trade Agreement. The Canadian dollar and the end of the third quarter, before finishing the year stronger at 1.2994, due to commodity prices weighing on the currency followed by a solid increase in domestic demand, government spending and a strong job market supporting the Canadian dollar.
The Mexican peso were first weighed down by negative headlines regardingdecreased in 2019 from 19.6437 on December 31, 2018 to 20.0767 at the negotiations and then supported by news suggesting that an agreement could be achieved. The U.S.-Mexico-Canada trade agreement (“USMCA”) was announced on October 1, 2018. Despitebeginning of September 2019 before finishing the announcement of this trade agreement, the Canadian dollar finally weakenedyear stronger at 18.8893 against the U.S. dollar, as 2019 growth was lower than expected, followed by low interest rates in U.S. dollar supporting the context of lower oil prices and risk aversionimprovement.
The Brazilian real decreased in 2019 from 1.2540 in3.8748 on December 201731, 2018 to 1.36294.2304 at the end of 2018. In Mexico,November 2019 before finishing the appreciation of the Mexican peso following the announcement of the USMCA was softened by the new government's decision to cancel the Mexico City airport projectyear stronger at Texcoco. The Mexican peso ended 2018 at 19.644.0307 against the U.S. dollar, only 0.6% below its level at the beginning of the year.
In Brazil, the real depreciated from 3.31 to 4.17 against the U.S dollar between January and August 2018, in line with fluctuations of other emerging markets currencies.Optimism rose following the election of Jair Bolsonaro. The new president organized an economic cabinet with the nomination of Finance Minister Paulo Guedes. The Brazilian real strengthened and reached 3.87 in December 2018.as a social security reform was approved.
In Argentina, the ArgentinianThe Argentine peso was subjectdecreased in 2019 from 37.7003 on December 31, 2018 to a very strong depreciation during the third quarter of 2018 versus the U.S dollar. When President Macri asked the IMF to speed up payments, the Argentinian peso lost more than 36% of its value. In a chain reaction, inflation has increased significantly since early 2018 and the three-year cumulative inflation rate has exceeded 100%. Argentina is now considered as a hyperinflationary economy. Inflation slowly decreased at the end of 2018; however, the current situation in addition to the59.8910 on December 31, 2019 general election have led to high volatility of the Argentinian currency. Starting at 18.65 against the U.S. dollar, atas poor economy and debt issues weighed on the beginning of 2018, the Argentinian peso finished the year at 37.70. See note 2.2.2 to the consolidated financial statements for further information.
On February 17, 2016, the Venezuelan government devalued its currency by changing the official rate of the bolivar fuerte from 6.3 to 10 per U.S. dollar. It also announced the elimination of the SICAD rate and starting February 18, 2016, the SIMADI rate (renamed DICOM) was allowed to float freely at a rate of approximately 203 bolivar fuerte per U.S. dollar. The DICOM rate was originally set at 206 bolivars per U.S. dollar on March 10, 2016, before falling to 674 bolivars per U.S. dollar at December 31, 2016. The DICOM rate continued to weaken during 2017 to 3,345 bolivars per U.S. dollar on August 31, 2017, when the Venezuelan government temporarily suspended the sale of U.S. dollars through its DICOM auction system. Effective January 30, 2018, the Venezuelan government eliminated the DIPRO rate and reopened the DICOM auction system auction on February 5, 2018 at the new DICOM rate of 30,987 bolivars per euro (25,000 bolivars per U.S. dollar). DICOM is now the country’s only official exchange rate. On August 20, 2018, the bolivar soberano ("VES") replaced the bolivar fuerte ("VEF") at
a rate of 1 VES to 100,000 VEF. The VES continued to weaken and reached 638.16 against the U.S. dollar on December 31, 2018. See note 2.2.2 to the consolidated financial statements for further information.local economy.
Trade and Import Competitionimport competition
Europe[4]
There has been a trend of imports growing more strongly than domestic demand in Europe since 2012. ASC increased approximately 14% between 2012 and 2019, while finished steel imports increased by approximately 80%, taking market share from domestic producers. Over this period total finished imports have risen from just over 15 million tonnes in 2012 to around 28 million tonnes in 2019, causing import penetration to rise to 18% in 2019 from 11% in 2012. A slowdown in global steel consumption coupled with excess capacity in China led to increased finished steel shipments into Europe in 2015, with import penetration risingincreasing to over 16% in 2018.. Since then, Chinese imports into Europe have fallen back from a peak of 7 million tonnes in 2015 to around 32.5 million tonnes in 2018.2019. However, this has been more than offset by an increase in imports from Turkey (up from 2 million tonnes in 2015 to 7 million tonnes in 2018)2019) and Developeddeveloped Asia (2 million tonnes in 2014 to 54 million tonnes in 2018)2019). Meanwhile, CIS imports have remained the largest share but have been(approximately 25%) remaining relatively stable betweenat an average of 7 and 8 million tonnes since 2014. Overall, this continuedannually between 2014 and 2019. While there has been a trend of imports growing more strongly than domestic demand. Betweendemand since 2012, in 2019, due to weakness in industrial output, particularly European automotive production, ASC decreased by 4%. As domestic European steel prices fell sharply, imports followed suit decreasing approximately 10% year-on-year, particularly from CIS (down 12%), developed Asia (down 14%), China (down 14%) and 2018, Apparent Steel Consumption (“ASC”India (down 20%) increased by. As a result, import penetration declined to 18% while over the same period, finished steel imports increased by over 100%, taking market sharein 2019 from domestic producers. Over this period total finished imports have risen from just over 15 million tonnes in 2012 to over 31 million tonnes19.5% in 2018, causing import penetrationwith flat product imports declining to rise to a record high of almost 20%. Import penetration in flats rose strongly from 2012 (13%) to 2015 (20%). While import penetration in flats has risen slowly since 2015 (up to (from 22% in 2018), the significant increase recently has been in and long products, where import penetration roseproduct imports declining to 11% (from 13% in 2018 up from only 10% the previous year.2018). See “Item 4.B—Information on the Company—Business overview—Government regulations—Foreign trade” and “Item 3.D—Key information—Risk factors—Risks related to the global economy and the mining and steel industry—Unfair trade practices, in ArcelorMittal’s home marketsimport tariffs and/or barriers to free trade could negatively affect steel prices and reduce ArcelorMittal’s profitability, while trade sanctions and barriers may have an adverse effect on ArcelorMittal’sresults of operations in various markets.”
Source: Eurostat trade data to November 2019, Company estimates for December 2019.
United States[5]
Finished steel imports peaked in 2014 at almost 30 million tonnes, declining to below 23approximately 25.7 million tonnes in 20162017 (or an import penetration of 25%over 26%). ImportsIn 2019, with section 232 (implemented in 2017 rose 12% year-on-year to around 25.52018) adding a 25% tariff on most imports outside NAFTA, finished steel imports decreased by approximately 7 million tonnes or anfrom the levels of 2017, despite the level of apparent steel consumption in 2019 being similar to 2017 levels. As a result, import penetration of over 26%. However, finished steel import penetration fellhas continued to fall, from 23% in 2018 to 23%19% 2019, as finished imports fell by 12% compared to a 2% year-on-year increase in ASC. Imports of semi-finisheddeclined (-18% year-on-year) more sharply than apparent steel products continued to rise strongly, up by 11% year-on-year in 2018 after an increase of 28% during 2017.
Steel importconsumption (-2% year-on-year). Import penetration in 2018 fell back to 23%2019 was at 19%, close to the average level between 2007 and 2013, andbut much lower than the 28%27% average import penetration between 2014 and 2016. The decrease in finished steel imports was due to increasing U.S. trade protection measures, despite attractive prices in the U.S. relative to international markets.2017.
In 2018Relative to other regions, imports from NAFTA decreased by only approximately 15% year-on-year as section 232 tariffs only applied until May 2019. As a result, over a third of imports came from the NAFTA region, of which 27% came from Canada (25%) and 9% from Mexico, (9%)up slightly from the two countries' 34% combined share in 2018. Other countries such as Brazil, Ukraine, Australia and South Korea, though not subject to 25% tariffs, are subject to quotas. Imports decreased further from Turkey (down approximately 70% year-on-year), upwhere its share of imports declined from around 29%5% in 2017. Imports2018 to approximately 1% in 2019. Though declining year-on-year, the breakdown of imports from the rest of the world took a declining share,remained stable, with 20% of U.S. steel imports coming from developedboth Developed Asia (down 17%(with the total down 14% year-on-year), 18% and from EU28 (up 1%(total down 16% year-on-year), 5%with a 6% share from Turkey (down 43%ASEAN (total down 19% year-on-year), 3% from CIS (down 25%(total down 13% year-on-year) and 3%approximately 2% from China (down 10%(total down 21% year-on-year). In 2018, imports only significantly increased from ASEAN (up 13% year-on-year) taking a 5% share, mainly from Vietnam. See “Item 4.B—Information on the Company-BusinessCompany—Business overview—Government regulations—Foreign trade” and “Item 3.D—Key information-Riskinformation—Risk factors—Risks related to the global economy and the mining and steel industry—Unfair trade practices, in ArcelorMittal’s home marketsimport tariffs and/or barriers to free trade could negatively affect steel prices and reduce ArcelorMittal’s profitability, while trade sanctions and barriers may have an adverse effect on ArcelorMittal’sresults of operations in various markets.”
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[4] Source: Eurostat trade data to November 2018, Company estimates for December 2018.
[5] Source:Sources: American Iron and Steel Association data to October 2018,November 2019, Company estimates for November and December 2018.2019.
Consolidation in the steel and mining industries
Prior to 2017, consolidation transactions had decreased significantly in terms of number and value in the context of economic uncertainties in developed economies combined with a slowdown in emerging markets.
However, in an effort to reduce the worldwide structural overcapacity, some key consolidation steps were undertaken in 20182019 and 2017,2018, specifically in China and in Europe.
Steel industry consolidation in China has remained slow since 2012. As a key initiative of the Chinese central government’s five-year plan issued in March 2011, the concentration process of the steel industry was expected to reduceaims at enhancing international competitiveness, reducing overcapacity, rationalizerationalizing steel production based on obsolete technology, improveimproving energy efficiency, achieveachieving environmental targets and strengthenstrengthening the bargaining position of Chinese steel companies in price negotiations for iron ore. However,The Chinese government set a target that initiative is yet60 to produce significant tangible results. In 2015, China dropped its target objective for70 percent of steel should be produced by the top ten Chinese steel producersgroups by 2025. China will soon release guidelines to accountfoster mergers and restructuring plans for 60%the steel industry to facilitate the creation of national productionlarger and for at least two producers to reach 100 million tonne capacitystronger groups that can compete in the next few years. A new industryglobal market. The guidelines, aiming to clear obstacles in steel consolidation, plan publishedwill encourage cross-region and cross-ownership mergers and restructuring by qualified enterprises. Examples of recent merger activity in China aims at simplifying approval procedures and facilitating acquisition financing for firms in sectors like steel. In late 2016,include the Baosteel Group and Wuhan Iron and Steel Group merger that was completed their merger,in late 2016, creating Baowu Steel Group ("Baowu") with an annual production capacity of around 60 million tonnes. Further, in September 2019, Baowu and Magang (Group) Holding Co., Ltd ("Magang") signed a partnership agreement where Baowu secured a 51% stake in Magang, increasing Baowu's steel production capacity to approximately 90 million tonnes also making itand representing a big step in the world's second largest steelmaker.ongoing consolidation of the Chinese steel industry.
In Europe, 2018 was a landmark year for the consolidation of the steel industry with two major transactions. Following an announcement made in September 2017,proposed joint venture between Thyssenkrupp and Tata Steel, and Thyssenkrupp signed a final agreement at the end of June 2018 to consolidate their European steel mills and create the joint venture Thyssenkrupp Tata Steel,which would have created Europe's second-largest steel company after ArcelorMittal. The transaction is subject to merger control clearanceArcelorMittal, was canceled in several jurisdictions, includingMay 2019 as the joint venture partners considered that the concessions required by the European Union.Commission to overcome its concerns over higher prices for electrical steel, automotive steel and packaging, among others, in the event of the merger, would adversely affect the intended synergies of the merger. On October 29, 2019, Liberty House Group announced a merger with GFG Alliance's steel businesses to create Liberty Steel Group with a capacity of 18 million tonnes and a plan to be carbon neutral by 2030. According to the announcement, Liberty Steel Group will be the eighth largest steel producer outside China, with operations stretching from Australia to continental Europe, the United Kingdom and the United States.
In another step towards consolidation in the U.S., United States Steel Corp announced on October 1, 2019 that it reached an agreement to purchase a minority stake in Big River Steel with an option to take complete control of the company over the next four years. On December 3, 2019, AK Steel and Cleveland Cliffs announced an all stock merger which is expected to close in the first half of 2020.
In addition, on November 1, 2018, ArcelorMittal completed the acquisition (via a long-term lease) of Ilva,ArcelorMittal Italia, Europe’s largest single steel site and only integrated steelmaker in Italy with its main production facility based in Taranto. IlvaArcelorMittal Italia also has significant steel finishing capacity in Taranto, Novi Ligure and Genova. The transaction was approved by the European Commission on May 7, 2018 subject to the disposal of certain assets in Italy, Romania, North Macedonia, the Czech Republic, Luxembourg and Belgium, for which were completed in June 2019. ArcelorMittal submitted sales offers currently reviewed byis engaged in ongoing negotiations with the European Commission.Italian government regarding ArcelorMittal Italia. See “Item 4.A—Information on the Company— History and development of the Company—Key transactions and events in 2018.2019.”
In the first quarter of 2018, ArcelorMittal signed a joint venture formation agreement with NSSMC in relation toNSC and submitted its offerResolution Plan for a competitive resolution plan for ESIL inthe acquisition of AMNS India, setting out a positive future for the bankrupt company, an integrated flat steel producer and the largest steel company in western India. The updated plan wouldacquisition was completed in December 2019, and ArcelorMittal announced the creation of its joint venture with NSC. The Company’s Resolution Plan for AMNS India should enable ESILit to participate in anticipated steel demand growth in India. Further to ArcelorMittal being named the preferred bidder in October 2018, ESIL's committee of creditors announced in October that the Company has been identified as the successful applicant. ArcelorMittal's resolution plan remains subject to the approval of India's NCLT. See “Item 4.A—Information on the Company—History and development of the Company—Key transactions and events in 2018.2019.”
Further future consolidation should allow the steel industry to perform more consistently through industry cycles by achieving greater efficiencies and economies of scale, and improve bargaining power with customers and, crucially, suppliers, who tend to have higher levels of consolidation.scale.
Critical accounting policies and use of judgments and estimates
Management’s discussion and analysis of ArcelorMittal’s operational results and financial condition is based on ArcelorMittal’s consolidated financial statements, which have been prepared in accordance with IFRS. The preparation of financial statements in conformity with IFRS recognition and measurement principles and, in particular, making the critical accounting judgments highlighted below require the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management reviews its estimates on an ongoing basis using currently available information. Changes in facts and circumstances or obtaining new information or more experience may result in revised estimates, and actual results could differ from those estimates.
An overview of ArcelorMittal's critical accounting policies under which significant judgments, estimates and assumptions are made may be found in note 1.2 to the consolidated financial statements.
A. Operating results
The following discussion and analysis should be read in conjunction with ArcelorMittal’s consolidated financial statements included in this annual report.
ArcelorMittal reports its operations in five reportable segments: NAFTA, Brazil, Europe, ACIS and Mining. The key performance indicators that ArcelorMittal’s management uses to analyze operations are sales, average steel selling prices, crude steel production, steel shipments, iron ore and coal production and operating income. Management’s analysis of liquidity and capital resources is driven by net cash provided by operating activities.activities less capital expenditures.
Years ended December 31, 2019, 2018 2017 and 20162017
Sales, operating income, crude steel production, steel shipments, average steel selling prices and mining production
The following tables provide a summary of ArcelorMittal’s performance by reportable segment for the year ended December 31, 2019, 2018 2017 and 2016:2017:
| | | Sales for the year ended December 31,1 | | Operating income (loss) for the year ended December 31,2 | Sales for the year ended December 31,1 | | Operating (loss) income for the year ended December 31,2 |
| 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
Segment | (in $ millions) | | (in $ millions) | | (in $ millions) | | (in $ millions) | | (in $ millions) | | (in $ millions) | (in $ millions) | | (in $ millions) | | (in $ millions) | | (in $ millions) | | (in $ millions) | | (in $ millions) |
NAFTA | 20,332 | | 17,997 | | 15,806 | | 1,889 | | 1,185 | | 2,002 | 18,555 | | 20,332 | | 17,997 | | (1,259) | | 1,889 | | 1,185 |
Brazil | 8,711 | | 7,755 | | 6,223 | | 1,356 | | 697 | | 614 | 8,113 | | 8,711 | | 7,755 | | 846 | | 1,356 | | 697 |
Europe | 40,488 | | 36,208 | | 29,272 | | 1,632 | | 2,359 | | 1,270 | 37,721 | | 40,488 | | 36,208 | | (1,107) | | 1,632 | | 2,359 |
ACIS | 7,961 | | 7,621 | | 5,885 | | 1,094 | | 508 | | 211 | 6,837 | | 7,961 | | 7,621 | | (25) | | 1,094 | | 508 |
Mining | 4,211 | | 4,033 | | 3,114 | | 860 | | 991 | | 366 | 4,837 | | 4,211 | | 4,033 | | 1,215 | | 860 | | 991 |
Others and eliminations | (5,670) | | (4,935) | | (3,509) | | (292) | | (306) | | (302) | (5,448) | | (5,670) | | (4,935) | | (297) | | (292) | | (306) |
Total | 76,033 | | 68,679 | | 56,791 | | 6,539 | | 5,434 | | 4,161 | 70,615 | | 76,033 | | 68,679 | | (627) | | 6,539 | | 5,434 |
| |
1. | Amounts are prior to inter-segment eliminations (except for total) and sales include non-steel sales. |
| |
2. | Others and eliminations to segment operating income reflects certain adjustments made to operating income of the segments to reflect corporate costs, income from non-steel operations (e.g. energy, logistics and shipping services) and the elimination of stock margins between segments. See table below. |
| | Adjustments to segment operating income and other | Year ended December 31, | |
Others and eliminations operating (loss) income | | Year ended December 31, |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| (in $ millions) | | (in $ millions) | | (in $ millions) | (in $ millions) | | (in $ millions) | | (in $ millions) |
Corporate and shared services 1 | (170) | | (199) | | (71) | (144) | | (170) | | (199) |
Financial activities | (23) | | (23) | | (17) | 8 | | (23) | | (23) |
Shipping and logistics | 1 | | (16) | | (97) | (19) | | 1 | | (16) |
Intragroup stock margin eliminations 2 | (45) | | (41) | | (94) | |
Depreciation and impairment | (55) | | (27) | | (23) | |
Intragroup stock margin eliminations | | 13 | | (45) | | (41) |
Depreciation and impairment 2 | | (155) | | (55) | | (27) |
Total adjustments to segment operating income and other | (292) | | (306) | | (302) | (297) | | (292) | | (306) |
| |
1. | Includes primarily staff and other holding costs and results from shared service activities. |
| |
2. | In 2017, fourth quarter iron ore prices decreasedDepreciation charges for 2019 include 94 of depreciation of right-of-use assets recognized in property, plant and equipment following the adoption of IFRS 16 "Leases" as comparedof January 1, 2019 with respect to the fourth quarterCompany’s shipping business Global Chartering, of 2016 leading to lower stock margin eliminations.which ArcelorMittal sold a 50% controlling interest on December 31, 2019.
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Sales
ArcelorMittal had sales of $70.6 billion for the year ended December 31, 2019, representing a 7.1% decrease from sales of $76.0 billion for the year ended December 31, 2018, primarily due to a 9.6% decrease in average steel selling prices, partially offset by a 0.8% increase in steel shipments and higher marketable iron ore selling prices. In the first half of 2019, sales were $38.5 billion decreasing 1.8% from sales of $39.2 billion in the first half of 2018, primarily due to 6.1% lower average steel selling prices, partially offset by 3.5% higher steel shipments. In the second half of 2019, sales of $32.1 billion represented a 12.8% decrease as compared to sales of $36.8 billion in the second half of 2018, primarily driven by a 13.7% decrease in average steel selling prices and a 2.1% decrease in steel shipments.
ArcelorMittal had sales of $76.0 billion for the year ended December 31, 2018, representing a 10.7% increase from sales of $68.7 billion for the year ended December 31, 2017, primarily due to a 13.5% increase in the average steel selling prices, partially offset by a 1.6% decrease in steel shipments. In the first half of 2018, sales were $39.2 billion increasing from sales of $33.3 billion in the first half of 2017, primarily due to 16.7% higher average steel selling prices. In the second half of 2018, sales of $36.8 billion represented a 4.2% increase as compared to sales of $35.3 billion in the second half of 2017, primarily driven by a 10.6% increase in average steel selling prices, partially offset by a 4.5% decrease in steel shipments.
ArcelorMittal had sales of $68.7 billion for the year ended December 31, 2017, representing a 20.9% increase from sales of $56.8 billion for the year ended December 31, 2016, primarily due to a 20.4% increase in the average steel selling prices, a 1.6% increase in steel shipments, 22.3% higher seaborne iron ore reference prices and 6.1% higher marketable iron ore shipments. In the first half of 2017, sales were $33.3 billion increasing from sales of $28.1 billion in the first half of 2016, primarily due to 23% higher average steel selling prices and 43% higher seaborne iron ore reference prices. In the second half of 2017, sales of $35.3 billion represented a 23.4% increase as compared to sales of $28.7 billion in the second half of 2016, primarily driven by a 17.5% increase in average steel selling prices, a 5.8% increase in steel shipments and a 6% increase in seaborne iron ore reference prices.
Cost of sales
Cost of sales consists primarily of purchases of raw materials necessary for steel-making (iron ore, coke and coking coal, scrap and alloys), electricity, repair and maintenance costs, as well as direct labor costs, depreciation and impairment. Cost of sales for the year ended December 31, 2019 was $68.9 billion as compared to $67.0 billion for the year ended December 31, 2018, due to an increase in shipments (primarily due to the inclusion of ArcelorMittal Italia from November 1, 2018, partially offset by the sale of remedy asset as of June 30, 2019), an increase in raw material costs, impairment charges of $1.9 billion related to impairment of the fixed assets of ArcelorMittal USA ($1.3 billion - see NAFTA below), remedy asset sales in
connection with the ArcelorMittal Italia acquisition ($0.5 billion) and impairment charges in South Africa ($0.1 billion) as well as $0.8 billion primarily for inventory related charges in NAFTA and Europe following a period of exceptionally weak steel pricing. Selling, general and administrative expenses (“SG&A”) were $2.4 billion for the year ended December 31, 2019 compared to $2.5 billion for the year ended December 31, 2018. SG&A as a percentage of sales increased marginally for the year ended December 31, 2019 (3.3%) as compared to 2018 (3.2%).
Cost of sales for the year ended December 31, 2018 was $67.0 billion as compared to $60.9 billion for the year ended December 31, 2017, primarily due to a 9.4% increase in raw material costs (consistent with the increase in sales) and impairment charges of $1.0 billion primarily related to the remedy asset sales in connection with the IlvaArcelorMittal Italia acquisition and the agreed remedy package required for the approval of the VotorantimAMSF acquisition, partially offset by the $0.2 billion in gain from a bargain purchase recognized with respect to the acquisition of Ilva.ArcelorMittal Italia. Selling, general and administrative expenses (“SG&A”) were $2.5 billion for the year ended December 31, 2018 compared to $2.4 billion for the year ended December 31, 2017. SG&A as a percentage of sales decreased for the year ended December 31, 2018 (3.2%) as compared to 2017 (3.4%).
Cost of salesOperating (loss) income
ArcelorMittal’s operating loss for the year ended December 31, 20172019 was $60.9$0.6 billion as compared to $50.4with an operating income of $6.5 billion for the year ended December 31, 2016,2018 and was primarily dueimpacted by weaker operating conditions (negative price-cost effect in steel segments) reflecting both the decline in steel prices and higher raw material costs (due in particular to a 22.3% increasesupply-side developments in Brazil), impairments and inventory related charges described above, offset in part by improved mining segment performance driven by higher seaborne iron ore reference prices a 31.5% increase in coal reference(which were up 34.3%). The raw material prices increased during 2019 and impairment charges of $206 million related to a downward revision of cash flow projections across all steel facilities in South Africa partially offset by cost optimization efforts as partfor most of the Action 2020 plan. SG&A were $2.4 billion for the year ended December 31, 2017 comparedremained disconnected from steel fundamentals, compressing steel spreads to $2.2 billion for the year ended December 31, 2016. SG&A as a percentage of sales decreased for the year ended December 31, 2017 (3.4%) as compared to 2016 (3.9%).unsustainably low levels.
Operating income
ArcelorMittal’sArcelorMittal's operating income for the year ended December 31, 2018 was $6.5 billion as compared with an operating income of $5.4 billion for the year ended December 31, 2017 and was primarily driven by improved operating conditions (positive price-cost effect in the steel segments), offset in part by the impact of lower iron ore reference prices and impairment charges of $1.0 billion primarily related to the remedy asset sales in connection with the IlvaArcelorMittal Italia acquisition and the agreed remedy package required for the approval of the VotorantimAMSF acquisition, partially offset by a $0.2 billion bargain purchase gain relating to the acquisition of Ilva.ArcelorMittal Italia. Operating income for the year ended December 31, 2018 was also impacted by $113 million in charges related to a blast furnace dismantling in Florange (France), $60 million in charges related to the new collective labor agreement in the United States (including a signing bonus), a $146 million provision taken in the first quarter of 2018 in respect of a litigation case that was paid in the third quarter of 2018, offset in part by the recognition in Brazil of $202 million in PIS/Cofins tax credits related to prior periods.
ArcelorMittal's operating income for the year ended December 31, 2017 was $5.4 billion as compared with an operating income of $4.2 billion for the year ended December 31, 2016 and was impacted by an impairment charge of $206 million related to a downward revision of cash flow projections in South Africa. Operating income in 2016 was positively affected by a one-time gain of $832 million on employee benefits following the signing of the new U.S. labor contract and partially offset by an impairment charge of $49 million related to the held for sale classification of the ArcelorMittal Zaragoza facility in Spain and an impairment charge of $156 million mainly related to the Vanderbijlpark plant in South Africa.
Shipments and average steel selling price
ArcelorMittal had steel shipments of 84.5 million tonnes for the year ended December 31, 2019 as compared to steel shipments of 83.9 million tonnes for the year ended December 31, 2018, representing an increase of 0.8%, primarily due to higher steel shipments in Europe by 3.2% due to the impact of the consolidation of ArcelorMittal Italia as from November 1, 2018, offset in part by the remedy asset sales related to the ArcelorMittal Italia acquisition (completed on June 30, 2019) and ongoing weak demand driven by macro headwinds including declines in automobile production. Weaker domestic apparent demand conditions led to lower shipments in NAFTA (5.1%), while weaker export markets led to lower shipments in ACIS (1.7%) and Brazil (2.4%).
Steel shipments increased 3.5% to 44.6 million tonnes in the first half of 2019 compared to 43.1 million tonnes for the first half of 2018 while steel shipments decreased 2.1% to 39.9 million tonnes in the second half of 2019 compared to 40.8 million tonnes in the second half of 2018.
ArcelorMittal had steel shipments of 83.9 million tonnes for the year ended December 31, 2018 as compared to steel shipments of 85.2 million tonnes for the year ended December 31, 2017, representing a decrease of 1.6%, primarily due to a 10.3% decline in shipments in ACIS (including unplanned maintenance in Ukraine and operational issues in Kazakhstan/Ukraine) offset in part by increases in Brazil (5.8%, including the impact of the Votorantim acquisition), NAFTA (1.0%, including the impact of a slower restart post blast furnace maintenance in Mexico) and Europe (0.2%, including the impact from the Ilva acquisition offset by the effect of a flood in Asturias (Spain), power outage in Fos (France) and slower ramp-up after the blast furnace reline in Poland).
Steel shipments increased 1.3% to 43.1 million tonnes in the first half of 2018
compared to 42.5 million tonnes for the first half of 2017 while steel shipments decreased 4.5% to 40.8 million tonnes in the second half of 2018 compared to 42.7 million tonnes in the second half of 2017.
ArcelorMittal hadAverage steel shipments of 85.2 million tonnesselling price decreased by 9.6% for the year ended December 31, 20172019 as compared to steel shipments of 83.9 million tonnes for the year ended December 31, 2016, representing an increase of 1.6% primarily due to increase in NAFTA (2.6%), Brazil (0.8%) and Europe (1.7%) offset in part by decline in ACIS (1.3%). Steel shipments declined 2.4% to 42.5 million tonnes2018. Average steel selling price in the first half of 20172019 decreased by 6.1% as compared to 43.6 million tonnes for the first half of 2016 while steel shipments increased 5.8% to 42.7 million tonnes2018 and decreased by 13.7% in the second half of 20172019 as compared to 40.4 million tonnes for the second half of 2016. 2018.
Average steel selling price increased by 13.5% for the year ended December 31, 2018 as compared to the year ended December 31, 2017. Average steel selling price in the first half of 2018 increased by 16.7% as compared to the first half of 2017 and increased by 10.5% in the second half of 2018 as compared to the second half of 2017.
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| | | | | |
NAFTA | | | | | |
| Performance for the year ended December 31, |
(in millions of USD unless otherwise shown) | 2019 | | 2018 | | 2017 |
Sales | 18,555 | | 20,332 | | 17,997 |
Depreciation | 570 | | 522 | | 518 |
Impairments | (1,300) | | — | | — |
Operating (loss) income | (1,259) | | 1,889 | | 1,185 |
Crude steel production (thousand tonnes) | 21,897 | | 22,559 | | 23,480 |
Steel shipments (thousand tonnes) | 20,921 | | 22,047 | | 21,834 |
Average steel selling price (USD/tonne) | 810 | | 852 | | 742 |
Average steel selling price increased by 20.4%Sales
Sales in the NAFTA segment were $18.6 billion for the year ended December 31, 20172019, representing a 8.7% decrease as compared to the year ended December 31, 2016. Average2018. Sales decreased primarily as a result of a decrease in average steel selling priceprices by 4.9% and a decrease in the first half of 2017 increasedsteel shipments by 23.1% as compared to the first half of 2016 and increased by 17.5% in the second half of 2017 as compared to the second half of 2016.5.1%.
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| | | | | |
NAFTA | | | | | |
| Performance for the year ended December 31, |
(in millions of USD unless otherwise shown) | 2018 | | 2017 | | 2016 |
Sales | 20,332 | | 17,997 | | 15,806 |
Depreciation | 522 | | 518 | | 549 |
Operating income | 1,889 | | 1,185 | | 2,002 |
Crude steel production (thousand tonnes) | 22,559 | | 23,480 | | 22,208 |
Steel shipments (thousand tonnes) | 22,047 | | 21,834 | | 21,281 |
Average steel selling price (USD/tonne) | 852 | | 742 | | 672 |
Sales
Sales in the NAFTA segment were $20.3 billion for the year ended December 31, 2018, representing a 13.0% increase as compared to the year ended December 31, 2017. Sales increased primarily as a result of the increase in average steel selling prices by 14.8% and a 1.0% increase in steel shipments.
Operating (loss) income
Sales inOperating loss for the NAFTA segment were $18.0was $1.3 billion for the year ended December 31, 2017, representing a 13.9% increase2019 as compared to 2016. Sales increasedoperating income of $1.9 billion for the year ended December 31, 2018, primarily asdriven by a result of the increase5.1% decline in steel shipments and a negative price cost effect due to a 4.9% decrease in average steel selling prices, reflecting weaker demand exacerbated by 10.3%prolonged customer destocking and increased domestic supply with prices well below import parity, and an increase in raw material prices. Operating income for the year ended December 31, 2019 was negatively impacted by an impairment in the second quarter of 2019 of property, plant and equipment of ArcelorMittal USA for $0.6 billion and a 2.6% increasefurther impairment in the fourth quarter of 2019 of the property, plant and equipment of ArcelorMittal USA for $0.7 billion following downward revisions of future cash flow projections reflecting lower near term average steel shipments.
selling price assumptions. Operating incomeloss for the year ended December 31, 2019 also included $0.2 billion in charges related to inventory following a period of exceptionally weak steel pricing.
Operating income for the NAFTA segment was $1.9 billion for the year ended December 31, 2018 as compared to operating income of $1.2 billion for the year ended December 31, 2017, primarily driven by a 14.8% increase in average steel selling prices. Operating income for the year ended December 31, 2018 included $60 million in charges related to the new collective labor agreement in the United States (which included a signing bonus).
Operating income for the NAFTA segment was $1.2 billion for the year ended December 31, 2017 as compared to operating income of $2.0 billion for the year ended December 31, 2016, affected by a negative price-cost effect for long products partially offset by a positive price-cost effect for flat products and gains from the Action 2020 program. Additionally, operating income for the year ended December 31, 2016 was positively affected by a one-time $832 million gain on employee benefits following the signing of the new U.S. labor contract.
Crude steel production, steel shipments and average steel selling price
Crude steel production decreased 2.9% to 21.9 million tonnes for the year ended December 31, 2019 as compared to 22.6 million tonnes for the year ended December 31, 2018. Crude steel production declined in the first half of 2019 primarily due to the restart of a blast furnace in Mexico which was only fully operational in the second quarter of 2019 after scheduled
maintenance in the third quarter of 2018, loss due to power outage in Burns Harbour in the first quarter of 2019 and a slowdown following weaker market demand in the first half while production in the second half of 2019 was 1.6% higher than the second half of 2018 mainly due to the impact of the scheduled maintenance of a blast furnace in Mexico from third quarter of 2018, partly offset by planned outages both in flat and long product operations in the fourth quarter of 2019.
Crude steel production decreased 3.9% to 22.6 million tonnes for the year ended December 31, 2018 as compared to 23.5 million tonnes for the year ended December 31, 2017. Crude steel production declined in particular in the second half of 2018, primarily due to market slowdown and blast furnace reline delay in Mexico.
Crude steel production increased 5.7%Steel shipments decreased 5.1% for the year ended December 31, 20172019 as compared to the year ended December 31, 2016 driven by improved operational performance.2018 reflecting the decreased production and market demand during the year (including pronounced supply chain destocking).
Steel shipments increased 1.0% for the year ended December 31, 2018 as compared to the year ended December 31, 2017 reflecting improved demand in the first half and a slowdown and the impact of the blast furnace delay in the second half. Shipments were 11.4 million tonnes for the first half of 2018, an increase of 3% from 11 million tonnes in the first half of 2017, in line with available inventory. Shipments decreased 1.1% to 10.7 million tonnes in the second half of 2018 as compared to 10.8 million tonnes in the second half of 2017.
Steel shipments increased 2.6%Average steel selling prices decreased 4.9% for the year ended December 31, 20172019 as compared to the year ended December 31, 2016 in line with improved demand. Shipments were 11 million tonnes for the first half of 2017, an increase of 1.1% from 10.9 million tonnes2018. Average steel selling prices increased 4.7% to $855/t in the first half of 2016 which included shipments2019 from LaPlace$817/t in the first half of 2018. In the first quarter of 2019, average steel selling prices were 12.1% higher than the first quarter of 2018 while in the second quarter of 2019, average steel selling prices were 1.9% and Vinton which were sold in April 2016. Shipments increased 4.1% to 10.8 million tonnes4.3% lower than the second quarter of 2018 and first quarter of 2019, respectively. This decline continued in the second half of 2017 as2019 with average steel selling prices decreasing by 14.3% compared to 10.4 million tonnesthe second half of 2018, reflecting the ongoing supply chain destock. The average steel selling prices in the second half of 2016.2018 were higher following the imposition of import tariffs on steel in the second quarter of 2018.
Average steel selling prices increased 14.8% for the year ended December 31, 2018 as compared to the year ended December 31, 2017 in particular as a result of importsimport tariffs on steel implemented in the United States. Average steel selling prices increased 10.5% for the first half of 2018 as compared to the first half of 2017 and 19.4% for the second half of 2018 as compared to the second half of 2017.
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Brazil | | | | | |
| Performance for the year ended December 31, |
(in millions of USD unless otherwise shown) | 2019 | | 2018 | | 2017 |
Sales | 8,113 | | 8,711 | | 7,755 |
Depreciation | 274 | | 298 | | 293 |
Impairments | — | | 86 | | — |
Operating income | 846 | | 1,356 | | 697 |
Crude steel production (thousand tonnes) | 11,001 | | 12,264 | | 11,210 |
Steel shipments (thousand tonnes) | 11,192 | | 11,464 | | 10,840 |
Average steel selling price (USD/tonne) | 679 | | 719 | | 667 |
Sales
Average steel selling prices increased 10.3%In the Brazil segment, sales decreased 6.9% to $8.1 billion for the year ended December 31, 20172019 as compared to the year ended December 31, 20162018, primarily due to a 5.5% decrease in line with international prices. Averageaverage steel selling priceprices and a 2.4% decrease in shipments. In the first half of 2019, sales increased 14%2.5% to 4.3 billion as compared to $4.2 billion for the first half of 2017 as compared2018 primarily due to the first half of 2016 and 6.4% for6.6% higher steel shipments partially offset by 4.7% lower average steel selling prices while in the second half of 2017 as2019, sales decreased 15.5% compared to the second half of 2016.2018 driven by a 10.1% decrease in shipments and a 7.0% decrease in average steel selling prices.
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| | | | | |
Brazil | | | | | |
| Performance for the year ended December 31, |
(in millions of USD unless otherwise shown) | 2018 | | 2017 | | 2016 |
Sales | 8,711 | | 7,755 | | 6,223 |
Depreciation | 298 | | 293 | | 258 |
Impairments | 86 | | — | | — |
Operating income | 1,356 | | 697 | | 614 |
Crude steel production (thousand tonnes) | 12,264 | | 11,210 | | 11,133 |
Steel shipments (thousand tonnes) | 11,464 | | 10,840 | | 10,753 |
Average steel selling price (USD/tonne) | 719 | | 667 | | 536 |
Sales
In the Brazil segment, sales increased 12.3% to $8.7 billion for the year ended December 31, 2018 as compared to the year ended December 31, 2017, primarily due to a 7.7% increase in average steel selling prices and a 5.8% increase in shipments. Sales for the year ended December 31, 2018 were also negatively impacted by hyperinflation accounting in Argentina.
Operating income
InOperating income for the Brazil segment sales increased 24.6% to $7.8was $0.8 billion for the year ended December 31, 20172019, representing a decrease of 37.6% as compared to the year ended December 31, 2016,2018, driven primarily by a negative price-cost effect reflecting in part the increasing price of iron ore due to 24.5% higher averagesupply-side developments in Brazil, foreign exchange translation impact and lower steel selling prices.
Operating incomeshipments in the second half of 2019.
Operating income for the Brazil segment was $1.4 billion for the year ended December 31, 2018, representing an increase of 94.6% as compared to the year ended December 31, 2017, primarily driven by increased shipments and higher average steel selling prices. Operating income for the year ended December 31, 2018 was negatively affected by foreign exchange translation impact, hyperinflation in Argentina and $86 million impairment related to the agreed remedy package required for the approval of the VotorantimAMSF acquisition. It was positively affected by the recognition of $202 million additional PIS/Cofins tax credits in See note 8.3 to the consolidated finthe period of 2005 to 2013. See note 8
the fourth quarter of 2018 relating to favorable judgments obtained in cases filed by ArcelorMittal Brasil concerning the period of 2005 to 2013. See note 8.39.3 to the consolidated financial statements for further information on pending cases related to the PIS/Cofins topic. ancial statements for further information on pending cases related to the PIS/Cofins topic. .3 to the consolidated financial statements for further information on pending cases related to the PIS/Cofins topic.
Operating income for the Brazil segment for the year ended December 31, 2017 was $697 million, an increase of 13.5% as compared to the year ended December 31, 2016, primarily driven by positive price-cost effect and gains from the Action 2020 program.
Crude steel production, steel shipments and average steel selling price
Crude steel production decreased 10.3% to 11.0 million tonnes for the year ended December 31, 2019 as compared to 12.3 million tonnes for the year ended December 31, 2018 mainly due to lower flat production following the stoppage of ArcelorMittal Tubarão's blast furnace #2 in response to deteriorating export market conditions and lower long product production.
Crude steel production increased 9.4% to 12.3 million tonnes for the year ended December 31, 2018 as compared to 11.2 million tonnes for the year ended December 31, 2017 mainly due to an increase in long products following the integration of Votorantim.AMSF. Excluding Votorantim,AMSF, crude steel production increased 4.9%.
Crude steel production increased marginallySteel shipments decreased to 11.2 million tonnes for the year ended December 31, 20172019 as compared to 11.5 million tonnes for the year ended December 31, 20162018. Steel shipments in the first half of 2019 increased 6.6% to 5.7 million tonnes as compared to 5.3 million tonnes in the first half of 2018 due to an increasehigher sales of flat products in flat production offset by long productionboth domestic and export markets, while shipments for the second half of 2019 decreased 10.1% to 5.5 million tonnes compared to 6.2 million tonnes for the second half of 2018 due to a scheduled reline at Monlevade.deteriorating export market conditions.
Steel shipments increased to 11.5 million tonnes for the year ended December 31, 2018 as compared to 10.8 million tonnes for the year ended December 31, 2017, reflecting the contribution from the acquisition of Votorantim.AMSF. Excluding Votorantim,AMSF, steel shipments increased 0.5%.
Total steel shipments in the Brazil segment increased 9.6% to 5.3 million tonnes for the first half of 2018 as compared to 4.8 million tonnes for the first half of 2017, driven by improved demand in long products and the integration of Votorantim,AMSF, partially offset by a nationwide truck strike. Total steel shipments in the Brazil segment increased 2.6% to 6.2 million tonnes in the second half of 2018 as compared to 6.0 million tonnes for the second half of 2017.
Steel shipments remained stableAverage steel selling prices decreased 5.5% for the year ended December 31, 20172019 as compared to the year ended December 31, 2018 in line with domestic and 2016 at 10.8 million tonnes.export prices. Average steel selling prices declined 4.7% in the first half of 2019 compared to first half of 2018 and 7.0% in the second half of 2019 compared to the second half of 2018.
Average steel selling prices increased 7.7% for the year ended December 31, 2018 as compared to the year ended December 31, 2017 in line with international prices. Average steel selling prices in the Brazil segment increased 11.0% for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017, in line with domestic and export prices, and 4.9% during the second half of 2018 as compared to the second half of 2017.
|
| | | | | |
Europe | | | | | |
| Performance for the year ended December 31, |
(in millions of USD unless otherwise shown) | 2019 | | 2018 | | 2017 |
Sales | 37,721 | | 40,488 | | 36,208 |
Depreciation | 1,256 | | 1,195 | | 1,201 |
Impairments | 525 | | 908 | | — |
Operating (loss) income | (1,107) | | 1,632 | | 2,359 |
Crude steel production (thousand tonnes) | 43,913 | | 44,693 | | 43,768 |
Steel shipments (thousand tonnes) | 42,352 | | 41,020 | | 40,941 |
Average steel selling price (USD/tonne) | 696 | | 787 | | 702 |
Average steel selling prices increased 24.5%Sales
Sales in the Europe segment were $37.7 billion for the year ended December 31, 20172019, representing an 6.8% decrease as compared to sales of $40.5 billion for the year ended December 31, 20162018, primarily due to a 11.7% decrease in line with international prices. Averageaverage steel selling prices increased 34.4% duringoffset in part by a 3.2% increase in steel shipments. Sales decreased by 1.3% and 12.9% in the first and second half of 20172019 as compared to the first half of 2016 and 16.6% during the second half of 2017 as compared to the second half of 2016.2018, respectively.
|
| | | | | |
Europe | | | | | |
| Performance for the year ended December 31, |
(in millions of USD unless otherwise shown) | 2018 | | 2017 | | 2016 |
Sales | 40,488 | | 36,208 | | 29,272 |
Depreciation | 1,195 | | 1,201 | | 1,184 |
Impairments | 908 | | — | | 49 |
Operating income | 1,632 | | 2,359 | | 1,270 |
Crude steel production (thousand tonnes) | 44,693 | | 43,768 | | 42,635 |
Steel shipments (thousand tonnes) | 41,020 | | 40,941 | | 40,247 |
Average steel selling price (USD/tonne) | 787 | | 702 | | 568 |
Sales
Sales in the Europe segment were $40.5 billion for the year ended December 31, 2018, representing an 11.8% increase as compared to sales of $36.2 billion for the year ended December 31, 2017, primarily due to a 12.2% increase in average steel selling prices, a 0.2% increase in steel shipments and the depreciation of the U.S. dollar against the euro.
Operating (loss) income
Sales inOperating loss for the Europe segment were $36.2for the year ended December 31, 2019 was $1.1 billion as compared to an income of $1.6 billion for the year ended December 31, 2017, representing2018. The operating loss was impacted by a 23.7% increasenegative price-cost effect (with lower steel pricing due to weaker economic activity and continued high level of imports, as well as higher raw material costs), continued losses at ArcelorMittal Italia, foreign exchange impact, an impairment of $0.5 billion in the first half of 2019 related to the remedy asset sales for the ArcelorMittal Italia acquisition and inventory related charges of $0.5 billion in the fourth quarter of 2019 following a period of exceptionally weak steel pricing. For the purposes of comparison with the prior year, the operating loss contribution (excluding purchase price allocation impact in 2018 and full year depreciation effect in 2019) of ArcelorMittal Italia for 2019 deteriorated by $0.6 billion compared to sales of $29.3 billion for the year ended December 31, 2016, primarily due to a 23.5% increase in average steel selling prices and a 1.7% increase in steel shipments. Spot prices began improving in the second quarter of 2016 which positively impacted sales in the second half of 2016 due to lead times and lagged pricing.
Operating income2018 as it was consolidated from November 1, 2018.
Operating income for the Europe segment for the year ended December 31, 2018 decreased to $1.6 billion as compared to $2.4 billion for the year ended December 31, 2017, primarily due to the impairment charges of $908 million mainly related to the remedy asset sales for the acquisition of IlvaArcelorMittal Italia (reflecting the adjustment to the carrying amount of the disposal group to the expected sale proceeds based on the offers received) as well as charges of $113 million related to blast furnace dismantling in Florange (France) and a charge of $146 million taken for the German Cartel case which settled in July 2018. Operating income for the Europe segment for the year ended December 31, 2018 was positively impacted by $209 million of bargain purchase gain recognized with respect to the acquisition of Ilva.
Operating income for the Europe segment for the year ended December 31, 2017 increased to $2.4 billion as compared to $1.3 billion for the year ended December 31, 2016, primarily due to higher steel shipments in the flat business, positive price-cost effect in the flat business and gains from the Action 2020 program, partially offset by lower steel shipments and negative price-cost effect in the long business.ArcelorMittal Italia.
Crude steel production, steel shipments and average steel selling price
Crude steel production for the Europe segment decreased 1.7% to 43.9 million tonnes for the year ended December 31, 2019 as compared to 44.7 million tonnes for the year ended December 31, 2018. In the first half of 2019, crude steel production increased 9.8% to 24.5 million tonnes from 22.3 million tonnes in the first half of 2018, primarily due to the impact of ArcelorMittal Italia (subsequent to its acquisition on November 1, 2018). The Company announced production cuts in May 2019 for approximately 4.2 million tonnes of annualized production to bring supply in line with addressable demand. The production cuts were implemented in the second half of 2019, with a portion taking effect in the third quarter of 2019 and the remainder completed as scheduled in the fourth quarter of 2019. Crude steel production decreased 13.2% in the second half of 2019 compared to the second half of 2018, including the impact of the remedy asset sales for the ArcelorMittal Italia acquisition with effect from June 30, 2019 and production cuts mentioned above.
Crude steel production for the Europe segment increased 2.1% to 44.7 million tonnes for the year ended December 31, 2018 as compared to 43.8 million tonnes for the year ended December 31, 2017, due primarily to the consolidation of Ilva
ArcelorMittal Italia as from November 1, 2018, partially offset by production issues including floods in Asturias (Spain) and blast furnace reline in ArcelorMittal Zenica (Bosnia) in the second quarter and a power outage in ArcelorMittal Méditerranée (Fos-sur-Mer, France) and a slower ramp up following a blast furnace repair in Poland in the third quarter of 2018.
Crude steel production for the Europe segment increased 2.7% to 43.8Steel shipments were 42.4 million tonnes for the year ended December 31, 2017 as compared to 42.62019, a 3.2% increase from steel shipments of 41.0 million tonnes for the year ended December 31, 2016, reflecting better operational performance.2018. Steel shipments increased 10.1% to 23.4 million tonnes in the first half of 2019, from 21.2 million tonnes in the first half of 2018, primarily due to the impact of ArcelorMittal Italia as mentioned above, partially offset by lower long product shipments, while shipments in the first half of 2018 were impacted by floods in Asturias, Spain and rail strikes in France. Steel shipments decreased 4.13% in the second half of 2019 compared to the second half of 2018, due to the impact of the remedy asset sales for the ArcelorMittal Italia acquisition and the impact of ongoing weak demand, in particular macroeconomic headwinds including declines in automobile production.
Steel shipments were 41.0 million tonnes for the year ended December 31, 2018, a 0.2% increase from steel shipments of 40.9 million for the year ended December 31, 2017. In the first half of 2018, steel shipments increased 2.6% to 21.2 million tonnes, from 20.7 million tonnes in the first half of 2017, both for flat and long products partially offset by the operational issues described above, while steel shipments in the second half of 2018 decreased 2.3% to 19.8 million tonnes from 20.3 million tonnes in the second half of 2017 due to weak market conditions in the fourth quarter of 2018, particularly in long products, and the operational issues described above, partially offset by the consolidation of Ilva as from November 1, 2018.
Steel shipments were 40.9 million tonnesAverage steel selling prices decreased 11.7% for the year ended December 31, 2017, a 1.7% increase from steel shipments for2019 as compared to the year ended December 31, 2016. In2018 in line with market prices and the appreciation of the U.S. dollar against the euro in 2019. Average steel selling prices decreased 10.5% during the first half of 2017, steel shipments decreased 3.1%2019 as compared to 20.7 million tonnes, from 21.3 million tonnes in the first half of 2016, due to weaknesses2018 in longline with market demand while steel shipments inprices and 13.3% during the second half of 2017 increased 7.1%2019 as compared to the second half of 2016. The decrease in shipments in the first half of 2017 includes the effect of the disposal of ArcelorMittal Zaragoza and the idling of Zumarraga.2018.
Average steel selling prices increased 12.2% for the year ended December 31, 2018 as compared to the year ended December 31, 2017 in line with higher international prices. Average steel selling prices increased 18.8% during the first half of 2018 as compared to the first half of 2017 in line with higher international prices and the depreciation of the U.S. dollar against the euro and 6.0% during the second half of 2018 as compared to the second half of 2017.
|
| | | | | |
ACIS | | | | | |
| Performance for the year ended December 31, |
(in millions of USD unless otherwise shown) | 2019 | | 2018 | | 2017 |
Sales | 6,837 | | 7,961 | | 7,621 |
Depreciation | 364 | | 311 | | 313 |
Impairments | 102 | | — | | 206 |
Operating (loss) income | (25) | | 1,094 | | 508 |
Crude steel production (thousand tonnes) | 12,998 | | 13,022 | | 14,678 |
Steel shipments (thousand tonnes) | 11,547 | | 11,741 | | 13,094 |
Average steel selling price (USD/tonne) | 517 | | 598 | | 515 |
Sales
Average steel selling prices increased 23.5%Sales in the ACIS segment were $6.8 billion for the year ended December 31, 20172019, representing a decrease of 14.1% as compared to the year ended December 31, 20162018, primarily due to a 13.6% decrease in line with higher international prices. Averageaverage steel selling prices increased 23.0% both during the first half of 2017 as compared to the first half of 2016 and during the second half of 2017 as compared to the second half of 2016.
a 1.7% decrease in steel shipments.
|
| | | | | |
ACIS | | | | | |
| Performance for the year ended December 31, |
(in millions of USD unless otherwise shown) | 2018 | | 2017 | | 2016 |
Sales | 7,961 | | 7,621 | | 5,885 |
Depreciation | 311 | | 313 | | 311 |
Impairments | — | | 206 | | 156 |
Operating income | 1,094 | | 508 | | 211 |
Crude steel production (thousand tonnes) | 13,022 | | 14,678 | | 14,792 |
Steel shipments (thousand tonnes) | 11,741 | | 13,094 | | 13,271 |
Average steel selling price (USD/tonne) | 598 | | 515 | | 395 |
Sales
Sales in the ACIS segment were $8.0 billion for the year ended December 31, 2018, representing an increase of 4.5% as compared to the year ended December 31, 2017, primarily due to a 16.1% increase in average steel selling prices, partially offset by a 10.3% decrease in steel shipments.
Sales in
Operating (loss) income
Operating loss for the ACIS segment were $7.6for the year ended December 31, 2019 was $25 million as compared to an income of $1.1 billion for the year ended December 31, 2017, representing an increase of 29.5% as compared to the year ended December 31, 2016,2018, primarily due to a 30.5% increasenegative price-cost effect, lower shipments, impairments of $0.1 billion related to ArcelorMittal South Africa (of which $75 million related to the fixed assets of the Newcastle facility as a result of lower domestic volume forecasts and $20 million related to the closure of the Saldanha facility) and $0.1 billion of closure and retrenchment costs related to the Saldanha facility in average steel selling prices, partially offset by a 1.3% decrease in steel shipments.relation to the announced Section 189 process.
Operating income
Operating income for the ACIS segment for the year ended December 31, 2018 was $1.1 billion as compared to $508 million for the year ended December 31, 2017, increasing primarily due to a positive price-cost effect and partially offset by the decrease in shipments in 2018.
Operating income for the ACIS segment for the year ended December 31, 2017 was $508 million as compared to $211 million for the year ended December 31, 2016, the increase is primarily driven by a positive price-cost effect in the CIS business including gains from the Action 2020 program, partially offset by negative price-cost effect in ArcelorMittal South Africa and impairment charges of $206 million related to a downward revision of cash flow projections across all steel facilities in ArcelorMittal South Africa.
Crude steel production, steel shipments and average steel selling price
Crude steel production for the ACIS segment decreased marginally by 0.2% remaining at 13.0 million tonnes for the year ended December 31, 2019 and 2018.
Crude steel production for the ACIS segment decreased by 11.3% to 13.0 million tonnes for the year ended December 31, 2018, from 14.7 million tonnes for the year ended December 31, 2017, primarily due to planned (blast furnace #9) and unplanned maintenance in Ukraine in the first half of 2018 and an explosion at a gas pipeline at Temirtau (Kazakhstan) in the fourth quarter of 2018.
Crude steel productionSteel shipments for the ACIS segmentyear ended December 31, 2019 decreased marginally by 0.8%1.7% to 14.711.5 million tonnes as compared to 11.7 million tonnes for the year ended December 31, 2017, from 14.8 million tonnes for2018 primarily due to lower shipments in South Africa impacted by weaker demand, offset in part by the year ended December 31, 2016.normalization of production in the second quarter of 2019 at Temirtau following the explosion described above.
Steel shipments for the year ended December 31, 2018 decreased by 10.3% to 11.7 million tonnes as compared to 13.1 million tonnes for the year ended December 31, 2017 reflecting the operational issues mentioned above. In the first half of 2018, steel shipments decreased 6.1% to 6.1 million tonnes from 6.5 million tonnes in the first half of 2017 due to lower CIS shipments partially offset by higher steel shipments in South Africa, while steel shipments in the second half of 2018 decreased 14.5% to 5.7 million as compared to 6.6 million in the second half of 2017, primarily due to lower steel shipments in CIS following the incidents mentioned above.
Steel shipmentsAverage steel selling prices decreased 13.6% for the year ended December 31, 2017 decreased by 1.3% to 13.1 million tonnes2019 as compared to 13.3 million tonnes for the year ended December 31, 2016. Steel shipments2018 in line with market prices. Average steel selling prices decreased 4.3%12.6% and 14.7% in the first half of 2017 to 6.5 million tonnes as compared to 6.8 million tonnes for the first half of 2016. In theand second half of 2017, steel shipments increased 1.7% to 6.6 million as2019, respectively compared to 6.5 millionthe same periods in the second half of 2016.2018.
Average steel selling prices increased 16.1% for the year ended December 31, 2018 as compared to the year ended December 31, 2017 in line with international prices. Average steel selling prices increased 23.1% and 9.4% in the first and second half of 2018, respectively, as compared to the same periods in 2017.
Average steel selling prices increased 30.5% for the year ended December 31, 2017 as compared to the year ended December 31, 2016 in line with international prices. Average steel selling prices increased 36.9% and 24.7% in the first and second half of 2017, respectively as compared to the same periods in 2016.
| | Mining | | |
| | Performance for the year ended December 31, | | Performance for the year ended December 31, |
(in millions of USD unless otherwise shown) | Note | | 2018 | | 2017 | | 2016 | Note | | 2019 | | 2018 | | 2017 |
Sales | | | 4,211 | | 4,033 | | 3,114 | | | 4,837 | | 4,211 | | 4,033 |
Depreciation | | | 418 | | 416 | | 396 | | | 448 | | 418 | | 416 |
Operating income | | | 860 | | 991 | | 366 | | | 1,215 | | 860 | | 991 |
| | |
Own iron ore production (million tonnes) | | | 58.5 | | 57.4 | | 55.2 | | | 57.1 | | 58.5 | | 57.4 |
Iron ore shipped externally and internally at market price (million tonnes) | 1,2 | | 37.6 | | 35.7 | | 33.6 | 1,2 | | 37.1 | | 37.6 | | 35.7 |
Iron ore shipment - cost plus basis (million tonnes) | 1 | | 20.6 | | 22.2 | | 22.3 | 1 | | 22.2 | | 20.6 | | 22.2 |
| | |
Own coal production (million tonnes) | | | 5.9 | | 6.3 | | 6.3 | | | 5.5 | | 5.9 | | 6.3 |
Coal shipped externally and internally at market price (million tonnes) | 1,2 | | 2.5 | | 2.8 | | 3.4 | 1,2 | | 2.8 | | 2.5 | | 2.8 |
Coal shipment - cost plus basis (million tonnes) | 1 | | 3.3 | | 3.5 | | 3.4 | 1 | | 2.9 | | 3.3 | | 3.5 |
| |
1. | There are three categories of sales: (1) “External sales”: mined product sold to third parties at market price; (2) “Market-priced tonnes”: internal sales of mined product to ArcelorMittal facilities reported at prevailing market prices; (3) “Cost-plus tonnes”: internal sales of mined product to ArcelorMittal facilities on a cost-plus basis. The determinant of whether internal sales are reported at market price or reported at cost-plus is whether or not the raw material could practically be sold to third parties (i.e., there is a potential market for the product and logistics exist to access that market). |
| |
2. | Market-priced tonnes represent amounts of iron ore and coal from ArcelorMittal mines that could practically be sold to third parties. Market-priced tonnes that are transferred from the Mining segment to the Company’s steel producing segments are reported at the prevailing market price. Shipments of raw materials that do not constitute market-priced tonnes are transferred internally on a cost-plus basis. |
|
| | | | | | | | | | | |
| Note | | | | | | Year ended December 31, |
Iron ore production (million metric tonnes) | 1 | | Type | | Product | | 2018 | | 2017 | | 2016 |
Own mines | | | | | | | | | | | |
North America | 2 | | Open pit | | Concentrate, lump, fines and pellets | | 36.9 | | 38.1 | | 35.9 |
South America | | | Open pit | | Lump and fines | | 2.8 | | 3.2 | | 3.1 |
Europe | | | Open pit | | Concentrate and lump | | 1.4 | | 1.6 | | 1.8 |
Africa | | | Open pit / Underground | | Fines | | 4.6 | | 2.0 | | 2.1 |
Asia, CIS & Other | | | Open pit / Underground | | Concentrate, lump, fines and sinter feed | | 12.8 | | 12.5 | | 12.3 |
Total own iron ore production | | | | | | | 58.5 | | 57.4 | | 55.2 |
Strategic long-term contracts - iron ore | | | | | | | | | | | |
North America | 3 | | Open pit | | Pellets | | — | | 0.9 | | 6.1 |
Africa |
| | Open pit | | Lump and fines | |
| | — | | 0.8 |
Total strategic long-term contracts - iron ore | | | | | | | — | | 0.9 | | 6.9 |
| | | | | | | | | | | |
Total | | | | | | | 58.5 | | 58.3 | | 62.1 |
|
| | | | | | | | | | | |
| Note | | | | | | Year ended December 31, |
Iron ore production (million metric tonnes) | 1 | | Type | | Product | | 2019 | | 2018 | | 2017 |
Own mines | | | | | | | | | | | |
North America | 2 | | Open pit | | Concentrate, lump, fines and pellets | | 35.4 | | 36.9 | | 38.1 |
South America | | | Open pit | | Lump and fines | | 2.3 | | 2.8 | | 3.2 |
Europe | | | Open pit | | Concentrate and lump | | 1.5 | | 1.4 | | 1.6 |
Africa | | | Open pit / Underground | | Fines | | 4.4 | | 4.6 | | 2.0 |
Asia, CIS & Other | | | Open pit / Underground | | Concentrate, lump, fines and sinter feed | | 13.5 | | 12.8 | | 12.5 |
Total own iron ore production | | | | | | | 57.1 | | 58.5 | | 57.4 |
Strategic long-term contracts - iron ore | | | | | | | | | | | |
North America | 3 | | Open pit | | Pellets | | — | | — | | 0.9 |
Africa |
| | Open pit | | Lump and fines | | — | | — | | — |
Total strategic long-term contracts - iron ore | | | | | | | — | | — | | 0.9 |
| | | | | | | | | | | |
Total | | | | | | | 57.1 | | 58.5 | | 58.3 |
| |
1. | Total of all finished production of fines, concentrate, pellets and lumps. |
| |
2. | Includes own mines and share of production from Hibbing (United States, 62.30%) and Peña (Mexico, 50%). |
| |
3. | Consists of a long-term supply contract with Cleveland-Cliffs Inc. which expired in the first quarter of 2017. |
| | | Note | | Year ended December 31, | Note | | Year ended December 31, |
Coal production (million metric tonnes) | Coal production (million metric tonnes) | | 2018 | | 2017 | | 2016 | Coal production (million metric tonnes) | | 2019 | | 2018 | | 2017 |
Own mines | | |
North America | | 2.09 | | 2.06 | | 1.80 | | 1.96 | | 2.09 | | 2.06 |
Asia, CIS & Other | | 3.82 | | 4.25 | | 4.45 | | 3.53 | | 3.82 | | 4.25 |
Total own coal production | | 5.91 | | 6.31 | | 6.25 | |
Total coal production | | | 5.49 | | 5.91 | | 6.31 |
Sales
Sales in the Mining segment were $4.8 billion for the year ended December 31, 2019, representing an increase of 14.9% as compared to the year ended December 31, 2018. Sales were 22.1% higher at $2.6 billion and 7.8% higher at $2.2 billion for the first and second half of 2019, respectively as compared to the same periods in 2018.
Sales in the Mining segment were $4.2 billion for the year ended December 31, 2018, representing an increase of 4.4% as compared to the year ended December 31, 2017. Sales were 2.2% higher at $2.1 billion and 6.7% higher at $2.1 billion for the first and second half of 2018, respectively as compared to the same periods in 2017.
Sales in the Mining segmentto external customers were $4.0 billion$1,165 million for the year ended December 31, 2017,2019, representing an increase of 29.5%15.5% as compared to the year ended December 31, 2016. Sales2018 mainly due to the increase in seaborne iron ore reference prices. Iron ore shipments were 45.1% higher at $2.0 billion and 16.6% higher at $2.0 billion59.3 million tonnes for the first and second half of 2017, respectivelyyear ended December 31, 2019, representing a 1.8% increase as compared to 58.3 million tonnes for the same periods in 2016.year ended December 31, 2018. Iron ore shipments to external parties were 12.0 million tonnes for the year ended December 31, 2019 as compared to 12.7 million tonnes for the year ended December 31, 2018, primarily due to lower production at AMMC described below. Coal shipments were 5.7 million tonnes for the year ended December 31, 2019 as compared with 5.8 million tonnes for the year ended December 31, 2018.
Sales to external customers were $1,009million for the year ended December 31, 2018, representing an increase of 2.4% as compared to the year ended December 31, 2017, primarily due to the increase in prices. Iron ore shipments were 58.3 million tonnes for the year ended December 31, 2018, representing a marginal 0.7% increase as compared to 57.9 million for the year ended December 31, 2017. Iron ore shipments to external parties were 12.7 million tonnes for the year ended December 31, 2018 as compared to 11.8 million tonnes for the year ended December 31, 2017. Coal shipments were 5.8 million tonnes for the year ended December 31, 2018 as compared with 6.3 million tonnes for the year ended December 31, 2017.
Sales to external customers were $985 million for the year ended December 31, 2017, representing a 26.1% increase as compared to the year ended December 31, 2016, primarily due to the increase in prices. Iron ore shipments were 57.9 million tonnes for the year ended December 31, 2017, representing an increase of 3.5% as compared to the year ended December 31, 2016, primarily due to the restart of Volcan in Mexico that delivered 1.7 million tonnes in 2017. Iron ore shipments to external parties were 11.8 million tonnes for the year ended December 31, 2017 as compared to 12.3 million tonnes for the year ended December 31, 2016. Coal shipments were 6.3 million tonnes for the year ended December 31, 2017 as compared with 6.8 million tonnes for the year ended December 31, 2016. Shipments in 2016 were higher from Princeton in the U.S. from liquidation of inventory.
The average reference iron ore price was $69.7per$93.63 per tonne in 2019, $69.70 per tonne in 2018 and $71.39 per tonne in 2017 and $58.36 per tonne in 2016 (delivered to China, normalized to Qingdao and 62% Fe US $ per tonne, Metal Bulletin) and the average reference price for hard coking coal increased towas $176.71 per tonne in 2019, $206.62 per tonne in 2018 and $187.28 per tonne in 2017 and $142.44 per tonne in 2016 (Premium HCC FOB Aus, Metal Bulletin). The increase in the average reference hard coking coal price, accelerated in the second half of 2016 and continued significant increases in 2017 and 2018. However, there may not be a direct correlation between reference prices and actual selling prices in various regions at a given time.
Operating income
Operating income for the Mining segment was $1,215 million for the year ended December 31, 2019 as compared to $860 million for the year ended December 31, 2018, primarily driven by the increase in the iron ore reference prices offset in part by the reduction in market-priced iron ore shipments and lower coking coal reference prices and lower iron ore quality premia.
Operating income for the Mining segment was $860 million for the year ended December 31, 2018 as compared to $991 million for the year ended December 31, 2017, primarily driven by the decrease in the iron ore reference prices and lower coal volumes.
Production
Operating income for the Mining segment was $991ArcelorMittal had iron ore production of 57.1 million tonnes for the year ended December 31, 2017 as2019, a decrease of 2.3% compared to $366 million for the year ended December 31, 2016,2018. Iron ore production decreased 1.3% for the first half of 2019 compared to the first half of 2018 primarily drivendue to lower production in Brazil due to the temporary suspension of Serra Azul in Brazil (following evacuation on February 8, 2019) which restarted on March 18, 2019, Liberia, Temirtau and Mexico (Volcan mine reached end of life in May 2019), partially offset by higher shipmentsproduction in Canada and Ukraine. Iron ore production decreased 3.4% for the second half of 2019 compared to the second half of 2018 primarily due to lower production in AMMC (following an electrical failure in the third quarter of 2019 which led to a temporary stoppage of the concentrator followed by a slow ramp-up in the fourth quarter of 2019) and the increasesVolcan mine end of life in the iron ore and coal reference prices.
Production
Mexico, offset in part by higher production in Kazakhstan.
ArcelorMittal had own iron ore production of 58.5 million tonnes for the year ended December 31, 2018, an increase of 1.9% compared to the year ended December 31, 2017, primarily due to Liberia (production of 4.6 million tonnes in 2018 which, although above the 2017 level, was slightly below the 5 million tonne full year capacity, due to handling/logistical issues at the new Gangra deposit during the wet season in the second half of 2018), offset in part by lower production in Canada (lower yield
from a new mix of ore bodies following a pit wall instability issue which first occurred in the fourth quarter of 2017) and Mexico.
ArcelorMittal had own iron orecoking coal production of 57.45.5 million tonnes for the year ended December 31, 2017, an increase2019, a decrease of 4.0%7.1% compared to the year ended December 31, 2016, primarily attributed2018 mainly due to an increase inlower production in Mexico (following the restart of the Volcan mine in 2017)both Kazakhstan and Canada. Liberia production was 2 million tonnes for the year ended December 31, 2017.Princeton.
ArcelorMittal had own coking coal production of 5.9 million tonnes for the year ended December 31, 2018, a decrease of 6.3% compared to the year ended December 31, 2017 mainly due to lower production in the Kazakhstan mines following operational and geological issues..
ArcelorMittal had own coking coal production of 6.3 million tonnes for the year ended December 31, 2017, an increase of 0.9% compared to the year ended December 31, 2016.issues.
Income or loss from investments in associates, joint ventures and other investments
ArcelorMittal recorded income of $347 million from investments in associates, joint ventures and other investments for the year ended December 31, 2019, as compared to $652 million for the year ended December 31, 2018 driven by lower profitability of Calvert and Chinese investee and includes a dividend income from Erdemir of $93 million as compared to $87 million in 2018.
ArcelorMittal recorded income of $652 million from investments in associates, joint ventures and other investments for the year ended December 31, 2018, as compared to $448 million for the year ended December 31, 2017 and includes a dividend income from Erdemir of $87 million as compared to $45 million in 2017.
ArcelorMittal recorded income of $448 million from investments in associates, joint ventures and other investments for the year ended December 31, 2017, as compared to $615 million for the year ended December 31, 2016 and includes a $133 million gain from disposal of ArcelorMittal USA's 21% stake in the Empire Iron Mining Partnership and improved performance of Calvert and Chinese investees, offset in part by a loss on dilution of the Company's stake in China Oriental and the recycling of cumulative foreign exchange translation losses to the consolidated statement of operations following the disposal of the Company's 50% stake in Kalagadi ($187 million).
Financing costs-net
Financing costs-net include net interest expense, revaluation of financial instruments, net foreign exchange income/expense (i.e., the net effects of transactions in a foreign currency other than the functional currency of a subsidiary) and other net financing costs (which mainly include bank fees, accretion of defined benefit obligations and other long-term liabilities).
Net financing costs were lower at $1.7 billion for the year ended December 31, 2019 as compared to $2.2 billion for the year ended December 31, 2018. Net interest expense (interest expense less interest income) was lower at $607 million for the year ended December 31, 2019 as compared to $615 million for the year ended December 31, 2018.
Foreign exchange gains were $4.0 million as compared to a loss of $235 million for the years ended December 31, 2019 and 2018, respectively. The 2018 loss was primarily due to the first quarter of 2018 as described below.
Other net financing costs (including expenses related to true sale of receivables, bank fees, interest on pensions and fair value adjustments of the call option of the mandatorily convertible bond and derivative instruments) were $1.0 billion for the year ended December 31, 2019 compared to $1.4 billion for the year ended December 31, 2018, and included mark-to-market losses related to the mandatory convertible bond call option totaling $356 million as compared to $501 million for the year ended December 31, 2018.
Net financing costs were higher at $2.2 billion for the year ended December 31, 2018 as compared to $0.9 billion for the year ended December 31, 2017. Net interest expense (interest expense less interest income) was lower at $0.6 billion for the year ended December 31, 2018 as compared to $0.8 billion for the year ended December 31, 2017, driven by debt reduction including early bond repayments and lower cost of debt.
Foreign exchange losses were $235 million as compared to a gain of $546 million for the years ended December 31, 2018 and 2017, respectively. The foreign exchange losses were primarily due to the effect of the depreciation of the U.S. dollar against the euro on the Company's euro denominated debt in the first quarter of 2018. As of April 1, 2018, the Company designated a portfolio of euro denominated debt (€5,169 million as of December 31, 2018) as a hedge of certain euro denominated investments (€7,804 million as of December 31, 2018) in order to mitigate the foreign currency risk arising from certain euro denominated subsidiaries' net assets. The risk arises from the fluctuation in spot exchange rates between the U.S. dollar and euro, which causes the amount of the net investments to vary. The hedged risk in the hedge of net investments is a risk of a weakening euro against the U.S. dollar that will result in a reduction in the carrying amount of the Company's net investments in the subsidiaries subject to the hedge. The euro denominated debt is designated as a hedging instrument for the change in the value of the net investments that is attributable to changes in the euro/U.S. dollar spot rate. As a result, the Company's statement of operations no longer includes foreign exchange exposure on such euro denominated debt .debt.
Other net financing costs (including expenses related to true sale of receivables, bank fees, interest on pensions and fair value adjustments of the call option of the mandatorily convertible bond and derivative instruments) were $1.4 billion for the
year ended December 31, 2018 compared to $0.6 billion for the year ended December 31, 2017, and included mark-to-market losses related to the mandatory convertible bond call option totaling $0.5 billion as compared to gains of $0.8 billion for the year ended December 31, 2017. Other net financing costs for the year ended December 31, 2018 also included $0.1 billion premium expense on the early redemption of bonds as compared to $0.4 billion for the year ended December 31, 2017. Other net financing costs in 2017 were negatively affected by mark-to-market losses relating to a derivative embedded in a pellet supply agreement in the United States (due to a payment based on the evolution of the price of steel in the United States domestic steel market) of $0.3 billion.
Income tax expense (benefit)
Net financing costs were lower at $0.9ArcelorMittal recorded an income tax expense of $0.5 billion for the year ended December 31, 20172019 as compared to $2.1income tax benefit of $0.3 billion for the year ended December 31, 2016. Net interest2018. The current income tax expense (interest expense less interest income) was lower at $0.8 billionof $786 million for the year ended December 31, 20172019 as compared to $1.1 billion$928 million for the year ended December 31, 2016,2018 was primarily driven by debt reduction including early bond repayments.
Foreign exchange gains were $546 million as compared tolower results in a lossnumber of $3 million for the years ended December 31, 2017 and 2016, respectively.countries. The foreign exchange gains were primarily due to the impact of the U.S. dollar depreciation on euro denominated deferred tax assets, partially offset by foreign exchange losses on euro denominated debt. The U.S. dollar depreciated 13.8% against the euro in 2017.
Other net financing costs (including expenses related to true salebenefit of receivables, bank fees, interest on pensions and fair value adjustments of the call option of the mandatorily convertible bond and derivative instruments) was $0.6 billion$327 million for the year ended December 31, 2017 compared to $0.9 billion for the year ended December 31, 2016, and included $0.8 billion mark-to-market gains on derivatives (primarily the call option of the mandatory convertible bond following the market price increase in the underlying shares), mark-to-market losses relating to2019 includes a derivative embedded in a pellet supply agreement in the United States (due to a payment based on the evolution of the price of steel in the United States domestic steel market) of $0.3 billion $0.4reduction of deferred tax assets following tax rate decrease in Luxembourg and a $0.6 billion for premium expense on the early redemption of bonds and an expense of $92 million relatingdeferred tax benefit recorded in Luxembourg, due to the extensionexpectation of the mandatory convertible bond. Other net financing costs in 2016 were negatively affected by premiums and fees of $0.4 billion relating to early redeemed bonds in 2016 and $0.1 billion non-cash expense in connection with the issuance of shares in the context of a B-BBEE transaction in South Africa, partially offset by the fair value adjustment for the mandatory convertible bonds for $0.2 billion.
higher future profits.
Income tax expense (benefit)
ArcelorMittal recorded an income tax benefit of $0.3 billion for the year ended December 31, 2018 as compared to income tax expense of $0.4 billion for the year ended December 31, 2017. The current income tax expense of $928 million for the year ended December 31, 2018 as compared to $583 million for the year ended December 31, 2017 was primarily driven by improved results in a number of countries. The deferred tax benefit of $1,277 million for the year ended December 31, 2018 as compared with a deferred tax benefit of $151 million for the year ended December 31, 2017 included a $1.4 billion deferred tax benefit recorded mainly in Luxembourg, due to the expectation of higher future profits. This benefit included a $0.6 billion deferred tax income in the context of the change in the currency denomination of the Company's tax losses in Luxembourg as the revised taxable income projections in U.S. dollar terms reflect a change in the foreign currency exposure of the different income streams. Following the May 16, 2018 approval of the extraordinary general meeting ("EGM") to change the share capital of the ArcelorMittal parent company from euro to U.S. dollar, the parent company will file consolidated tax returns in U.S. dollar for the main Luxembourg tax integration going forward. The euro denominated tax losses and the related deferred tax asset held by the ArcelorMittal parent company in Luxembourg were translated into U.S. dollar effective as of January 1, 2018.
ArcelorMittal recorded an income tax expense of $0.4 billion for the year ended December 31, 2017 as compared to $1.0 billion for the year ended December 31, 2016. The tax expense for the year ended December 31, 2016 included a derecognition of deferred tax assets for $0.7 billion in Luxembourg largely due to the change in tax rate, while in 2017 a deferred tax asset of $0.3 billion was recorded in Luxembourg following increased expectation of future profits.
ArcelorMittal’s consolidated income tax expense (benefit) is affected by the income tax laws and regulations in effect in the various countries in which it operates and the pre-tax results of its subsidiaries in each of these countries, which can change from year to year. ArcelorMittal operates in jurisdictions, mainly in Eastern Europe and Asia, which have a structurally lower corporate income tax rate than the statutory tax rate as enacted in Luxembourg (26.01%(24.94%), as well as in jurisdictions, mainly in Brazil and Mexico, which have a structurally higher corporate income tax rate.
The statutory income tax expense (benefit) and the statutory income tax rates of the countries that most significantly resulted in the tax expense (benefit) at statutory rate for each of the years ended December 31, 2019, 2018 2017 and 20162017 are as set forth below:
| | | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Statutory income tax | | Statutory income tax rate | | Statutory income tax | | Statutory income tax rate | | Statutory income tax | | Statutory income tax rate | Statutory income tax | | Statutory income tax rate | | Statutory income tax | | Statutory income tax rate | | Statutory income tax | | Statutory income tax rate |
United States | 44 | | 21.00% | | (98) | | 21.00% | | 224 | | 35.00% | (382) | | 21.00% | | 44 | | 21.00% | | (98) | | 21.00% |
Argentina | 6 | | 25.00% | | 15 | | 25.00% | | 22 | | 35.00% | 3 | | 25.00% | | 6 | | 25.00% | | 15 | | 25.00% |
France | 48 | | 25.82% | | 112 | | 25.82% | | 17 | | 28.92% | (164) | | 25.82% | | 48 | | 25.82% | | 112 | | 25.82% |
Brazil | 271 | | 34.00% | | 69 | | 34.00% | | 86 | | 34.00% | 84 | | 34.00% | | 271 | | 34.00% | | 69 | | 34.00% |
Belgium | 55 | | 25.00% | | 105 | | 25.00% | | 71 | | 33.99% | (37) | | 25.00% | | 55 | | 25.00% | | 105 | | 25.00% |
Germany | (22) | | 30.30% | | 7 | | 30.30% | | (37) | | 30.30% | (124) | | 30.30% | | (22) | | 30.30% | | 7 | | 30.30% |
Spain | 18 | | 25.00% | | (4) | | 25.00% | | (47) | | 25.00% | (73) | | 25.00% | | 18 | | 25.00% | | (4) | | 25.00% |
Italy | | (254) | | 24.00% | | 2 | | 24.00% | | (6) | | 24.00% |
Luxembourg | 123 | | 26.01% | | 1,139 | | 26.01% | | 196 | | 26.01% | 407 | | 24.94% | | 123 | | 26.01% | | 1,139 | | 26.01% |
Mexico | 73 | | 30.00% | | (18) | | 30.00% | | 53 | | 30.00% | (105) | | 30.00% | | 73 | | 30.00% | | (18) | | 30.00% |
South Africa | 19 | | 28.00% | | (115) | | 28.00% | | (96) | | 28.00% | (92) | | 28.00% | | 19 | | 28.00% | | (115) | | 28.00% |
Canada | 359 | | 25.90% | | 190 | | 25.90% | | 98 | | 26.10% | 234 | | 25.90% | | 359 | | 25.90% | | 190 | | 25.90% |
Kazakhstan | 65 | | 20.00% | | 77 | | 20.00% | | 36 | | 20.00% | 52 | | 20.00% | | 65 | | 20.00% | | 77 | | 20.00% |
Czech Republic | (51) | | 19.00% | | (21) | | 19.00% | | 3 | | 19.00% | (2) | | 19.00% | | (51) | | 19.00% | | (21) | | 19.00% |
Poland | 45 | | 19.00% | | 30 | | 19.00% | | 33 | | 19.00% | (27) | | 19.00% | | 45 | | 19.00% | | 30 | | 19.00% |
Romania | (44) | | 16.00% | | (7) | | 16.00% | | (11) | | 16.00% | (14) | | 16.00% | | (44) | | 16.00% | | (7) | | 16.00% |
Ukraine | 69 | | 18.00% | | 47 | | 18.00% | | 20 | | 18.00% | (21) | | 18.00% | | 69 | | 18.00% | | 47 | | 18.00% |
Trinidad & Tobago | — | | 25.00% | | — | | 25.00% | | 66 | | 25.00% | |
Liberia | (3) | | 25.00% | | (18) | | 25.00% | | 6 | | 25.00% | 31 | | 25.00% | | (3) | | 25.00% | | (18) | | 25.00% |
United Kingdom | 8 | | 17.00% | | (1) | | 17.00% | | 15 | | 17.00% | 4 | | 17.00% | | 8 | | 17.00% | | (1) | | 17.00% |
Switzerland | 17 | | 7.83% | | (67) | | 7.83% | | (13) | | 7.83% | 22 | | 7.83% | | 17 | | 7.83% | | (67) | | 7.83% |
Others | (57) | | | | (35) | | | | (65) | | | (10) | | | | (59) | | | | (29) | | |
Total | 1,043 | | | | 1,407 | | | | 677 | | | (468) | | | | 1,043 | | | | 1,407 | | |
Note: The statutory tax rates are the (future) rates enacted or substantively enacted by the end of the respective period.
Non-controlling interests
Net income attributable to non-controlling interests was $63 million for the year ended December 31, 2019 as compared to $181 million for the year ended December 31, 2018. Net income attributable to non-controlling interests decreased in 2019 primarily as a result of the operating performance of ArcelorMittal South Africa.
Net income attributable to non-controlling interests was $181 million for the year ended December 31, 2018 as compared to $7 million for the year ended December 31, 2017. Net income attributable to non-controlling interests increased in 2018 primarily as a result of the improved operating performance of ArcelorMittal South Africa.
Net income attributable to non-controlling interests was $7 million for the year ended December 31, 2017 as compared with net loss attributable to non-controlling interests of $45 million for the year ended December 31, 2016. Net income attributable to non-controlling interests for 2017 was primarily related to income generated by ArcelorMittal Mines and Infrastructure Canada and Belgo Bekaert Arames in Brazil partly offset by losses including impairment losses generated by ArcelorMittal South Africa.
Net income attributable to equity holders of the parent
ArcelorMittal’s net loss attributable to equity holders of the parent was $2.5 billion for the year ended December 31, 2019, compared to net income attributable to equity holders of the parent wasof $5.1 billion $4.6 billion and $1.8$4.6 billion for the years ended December 31, 2018 and 2017, and 2016, respectively.
B. Liquidity and capital resources
ArcelorMittal’s principal sources of liquidity are cash generated from its operations and its credit facilities at the corporate level.
Because ArcelorMittal is a holding company, it is dependent upon the earnings and cash flows of, as well as dividends and distributions from, its operating subsidiaries to pay expenses and meet its debt service obligations. Significant cash or cash equivalent balances may be held from time to time at the Company’s international operating subsidiaries, in particular those in France and in the United States, where the Company maintains cash management systems under which most of its cash and cash
equivalents are centralized, and in Brazil, Canada, India, Kazakhstan, South Africa and Ukraine. Some of these operating subsidiaries have debt
outstanding or are subject to acquisition agreements that impose restrictions on such operating subsidiaries’ ability to pay dividends, but such restrictions are not significant in the context of ArcelorMittal’s overall liquidity. Repatriation of funds from operating subsidiaries may also be affected by tax and foreign exchange policies in place from time to time in the various countries where the Company operates, though none of these policies is currently significant in the context of ArcelorMittal’s overall liquidity.
In management’s opinion, ArcelorMittal’s credit facilities are adequate for its present requirements.
As of December 31, 2018,2019, ArcelorMittal’s cash and cash equivalents, including restricted cash of $182$128 million, amounted to $2.4$5.0 billion as compared to $2.8$2.4 billion as of December 31, 2017.2018. In addition, ArcelorMittal had available borrowing capacity of $5.5 billion under its $5.5 billion revolving credit facility as of December 31, 20182019 and 2017.2018.
As of December 31, 2018,2019, ArcelorMittal’s total debt, which includes long-term debt and short-term debt (including debt classified as held for sale) was $12.6$14.3 billion, compared to $12.9$12.6 billion as of December 31, 2017.2018.
Net debt (defined as long-term debt ($11.5 billion) plus short-term debt ($2.9 billion) including debt classified as held for sale (nil), less cash and cash equivalents and restricted cash ($5.0 billion)) was $9.3 billion as of December 31, 2019, down from $10.2 billion at December 31, 2018, comprised of long-term debt ($9.3 billion) plus short-term debt ($3.2 billion) including debt classified as held for sale ($0.1 billion), less cash and cash equivalents and restricted cash ($2.4 billion) was $10.2 billion as of December 31, 2018, up from $10.1 billion at December 31, 2017, comprised of long-term debt ($10.1 billion) plus short-term debt ($2.8 billion), less cash and cash equivalents and restricted cash ($2.8 billion). Most of the external debt is borrowed by the parent company on an unsecured basis and bears interest at varying levels based on a combination of fixed and variable interest rates. Gearing (defined as net debt divided by total equity) at December 31, 2019 and 2018 was 23% as compared to 25% at December 31, 2017..
The margin applicable to ArcelorMittal’s principal credit facilities ($5.5 billion revolving credit facility and certain other credit facilities) and the coupons on certain of its outstanding bonds are subject to adjustment in the event of a change in its long-term credit ratings. On February 1, 2018, Standard & Poor's upgraded ArcelorMittal’sIn 2019, ArcelorMittal's credit ratingratings remained unchanged although outlooks were revised as described in the Risk Factors above. See "Item 3D—Key information—Risk factors—Risks related to BBB-ArcelorMittal's financial position and placed organizational structure—ArcelorMittal on stable outlook. On June 22, 2018, Moody's upgraded ArcelorMittal’s credit ratinghas a substantial amount of indebtedness, which could make it more difficult or expensive to Baa3refinance its maturing debt, incur new debt and/or flexibly manage its business and placed it on stable outlook. On July 13, 2018, Fitch upgraded ArcelorMittal’s credit rating to BBB- and placed it on stable outlook. These upgrades resulted in reduced interest expense.the market's perception of ArcelorMittal's leverage may affect its share price."
ArcelorMittal’s $5.5 billion revolving credit facility signed on December 19, 2018 and maturing onwith a maturity of December 19, 2023. During the fourth quarter of 2019, ArcelorMittal executed the option to extend the facility to December 19, 2024. The extension was completed for $5.4 billion of the available amount, with the remaining $0.1 billion remaining with a maturity of December 19, 2023 (with two one-year extension options (i.e. the options to extend areas of December 31, 2019. The facility may be further extended for an additional year in the first and second years, so at end 2019 and at end 2020)),December 2020. The facility contains restrictive covenants. Amongcovenants, which among other things, these covenants limit encumbrances on the assets of ArcelorMittal and its subsidiaries, the ability of ArcelorMittal’s subsidiaries to incur debt and the ability of ArcelorMittal and its subsidiaries to dispose of assets in certain circumstances. The agreement also requires compliance with a financial covenant, as summarized below.
The Company must ensure that the ratio of “Consolidated Total Net Borrowings” (consolidated total borrowings less consolidated cash and cash equivalents) to “Consolidated EBITDA” (the consolidated net pre-taxation profits of the ArcelorMittal group for a Measurement Period, subject to certain adjustments as set out in the facility) does not, at the end of each “Measurement Period” (each period of 12 months ending on the last day of a financial half-year or a financial year of the Company), exceed a certain ratio, referred to by the Company as the “Leverage ratio”. ArcelorMittal’s principal credit facilities set this ratio to 4.25 to 1. The Term Facilities Agreement entered into on November 20, 2018 also includes this financial covenant (see “—Financings—Other loans and facilities” below). As of December 31, 2018,2019, the Company was in compliance with the ratio.
Non-compliance with the covenants in the Company’s borrowing agreements would entitle the lenders under such facilities to accelerate the Company’s repayment obligations. The Company was in compliance with the financial covenants in the agreements related to all of its borrowings as of December 31, 20182019 and December 31, 2017.2018.
As of December 31, 2018,2019, ArcelorMittal had guaranteed $99$236 million of debt of its operating subsidiaries.subsidiaries, including $23 million following the adoption of IFRS 16 for which the Company recognized additional liabilities, compared to $99 million as of December 31, 2018. See also note 8.49.4 to the consolidated financial statements for all othera description of ArcelorMittal guarantees for associates and joint ventures.ventures of $3.8 billion as of December 31, 2019. ArcelorMittal’s debt facilities have provisions whereby the acceleration of the debt of another borrower within the ArcelorMittal group could, under certain circumstances, lead to acceleration under such facilities.
The following table summarizes the repayment schedule of ArcelorMittal’s outstanding indebtedness, which includes short-term and long-term debt, as of December 31, 2018.2019.
| | | Repayment amounts per year (in billions of $) | Repayment amounts per year (in billions of $) |
Type of indebtedness as of December 31, 2018 | | 2019 | 2020 | 2021 | 2022 | 2023 | >2023 | Total | |
Type of indebtedness as of December 31, 2019 | | | 2020 | 2021 | 2022 | 2023 | 2024 | >2024 | Total |
Bonds | | 0.9 |
| 1.9 |
| 1.3 |
| 1.5 |
| 0.5 |
| 1.6 |
| 7.7 |
| | 0.5 |
| 0.3 |
| 1.5 |
| 1.4 |
| 1.9 |
| 3.7 |
| 9.3 |
|
Commercial paper | | 1.3 |
| — |
| — |
| — |
| — |
| — |
| 1.3 |
| | 1.2 |
| — |
| — |
| — |
| — |
| — |
| 1.2 |
|
Other loans | | 1.0 |
| 1.3 |
| 0.5 |
| 0.2 |
| 0.3 |
| 0.3 |
| 3.6 |
| |
Lease liabilities and other loans | | | 1.1 |
| 0.7 |
| 0.4 |
| 0.8 |
| 0.2 |
| 0.6 |
| 3.8 |
|
Total gross debt | | 3.2 |
| 3.2 |
| 1.8 |
| 1.7 |
| 0.8 |
| 1.9 |
| 12.6 |
| | 2.8 |
| 1.0 |
| 1.9 |
| 2.2 |
| 2.1 |
| 4.3 |
| 14.3 |
|
As of December 31, 2018,2019, the $5.5 billion revolving credit facility was fully available.
The average debt maturity of the Company was 5.3 years as of December 31, 2019, as compared to 4.0 years as of December 31, 2018, as compared to 5.5 years as of December 31, 2017.2018.
Further information regarding ArcelorMittal’s outstanding short-term and long-term indebtedness as of December 31, 2018,2019, including the breakdown between fixed rate and variable rate debt, is set forth in note 6 to the consolidated financial statements. Further information regarding ArcelorMittal’s use of financial instruments for hedging purposes is set forth in note 6 to the consolidated financial statements.
Financings
TheArcelorMittal’s principal financings of ArcelorMittalcredit facilities are described below, for further information on its existing credit facilities and its subsidiaries are summarized below by category. Further information regarding ArcelorMittal’s short-termseveral debt financing and long-term indebtedness is provided inrepayment transactions completed during 2019, please refer to note 6 to the consolidated financial statements.
Principal credit facilities
On December 19, 2018, ArcelorMittal signed an agreement for a $5.5 billion revolving credit facility (the "Facility"). This Facility replaced the $5.5 billion revolving credit facility dated April 30, 2015, which was amended and extended on December 21, 2016. The agreement incorporates a single tranche of $5.5 billion maturingand on November 27, 2019 ArcelorMittal exercised the option to extend the facility's maturity by one year to December 19, 2024. The commitments are $5.5 billion until December 19, 2023 , with two one-year extension options (i.e. the optionsand $5.4 billion until December 19, 2024, subject to ArcelorMittal’s option to extend arethe term by an additional year exercisable in the first and second years end of 2019 and end of 2020).2020. The Facility may be used for general corporate purposes. As of December 31, 2018,2019, the $5.5 billion revolving credit facility was fully available. The Company makes drawdowns from and repayments on this Facility in the framework of its cash management.
On September 30, 2010, ArcelorMittal entered into the $500 million revolving multi-currency letter of credit facility (the “Letter of Credit Facility”). The Letter of Credit Facility is used by the Company and its subsidiaries for the issuance of letters of credit and other instruments. The terms of the letters of credit and other instruments contain certain restrictions as to duration. The Letter of Credit Facility was amended on October 26, 2012 and September 30, 2014 to reduce its amount to $450 million.million and to $350 million, respectively. On September 30, 2014,July 31, 2019, the Company refinanced its Letter of Credit Facility by entering into a $350 million revolving multi-currency letter of credit facility, which matures on MayJuly 31, 2019.2022.
2018 and early 2019 capital markets, liability management transactions and debt repayments
On March 29, 2018, at maturity, ArcelorMittal repaid the €334 million ($411 million) principal amount that remained outstanding, following the cash tender offers in April 2016 of its €500 million 4.5% unsecured bonds.
On April 9, 2018, at maturity, ArcelorMittal repaid its €400 million ($491 million) 2018 Floating Rate Notes.
On August 7, 2018, pursuant to cash tender offers and financed with existing cash and liquidity, ArcelorMittal purchased:
| |
• | $432 million of its U.S. dollar denominated 7.00% Notes due October 15, 2039 (the “2039 Notes”) for a total aggregate purchase price (including premiums and accrued interest) of $505 million. Following this purchase, $686 million principal amount of the 2039 Notes remained outstanding.
|
| |
• | $195 million of its U.S. dollar denominated 6.75% Notes due March 1, 2041 (the “2041 Notes”) for a total aggregate purchase price (including premiums and accrued interest) of $224 million. Following this purchase, $434 million principal amount of the 2041 Notes remained outstanding.
|
On January 17, 2019, ArcelorMittal issued €750 million 2.250% Notes due 2024. The Notes were issued under ArcelorMittal’s €10 billion wholesale Euro Medium Term Notes Program.Mandatory convertible bond
Mandatory convertible bond
On December 14, 2017, the Company extended the conversion date for the $1 billion privately placed mandatory convertible bond (the “MCB”) issued by Hera Ermac, a wholly-owned Luxembourg subsidiary. The MCB is mandatorily convertible into preferred shares of such subsidiary. The mandatory conversion date of the bond has been extendedPlease refer to January 29, 2021. The Company has the option to call the mandatory convertible bond until 10 business days before the maturity date. Hera Ermac invested the proceeds of the bond issuancenote 6.3 and an equity contribution by the Company in notes issued by subsidiaries of the Company linked to the values of shares of Erdemir and China Oriental. The bond was privately placed with Credit Agricole Corporate and Investment Bank and is not listed. In connection with the extension of the conversion date of the MCB, ArcelorMittal also extended the maturities of the equity-linked notes in which the proceeds of the MCB issuances are invested. The other main features of the MCB remain unchanged. See note 10.211.2 to the consolidated financial statements for additional details.
Commercial paper program
ArcelorMittal has a commercial paper program enabling borrowings of up to €1.5 billion. As of December 31, 2018, the outstanding amount was $1,295 million, compared to $1,125 million as of December 31, 2017.
Other loans and facilities
On December 18, 2018, ArcelorMittal entered into an agreement for financing with a financial institution for net proceeds of CAD 292 million ($214 million) with repayment over several dates in 2019 and 2020. As of December 31, 2018, CAD 295 million ($216 million) was outstanding.
On November 20, 2018, ArcelorMittal entered into a $7 billion term facility agreement with a group of lenders in connection with the acquisition of ESIL. The agreement has a term of one year (until November 20, 2019), subject to ArcelorMittal’s option to extend the term by six months. The facility may be used for certain payments by ArcelorMittal as well as by the joint venture through which the Company expects jointly to own and operate ESIL in partnership with Nippon Steel & Sumitomo Metal Corporation (the “Joint Venture”). Any amounts borrowed by the Joint Venture under the agreement are irrevocably and unconditionally guaranteed by ArcelorMittal.The agreement includes the same Leverage Ratio financial covenant as that included in the Company’s $5.5 billion revolving credit facility and is also subject to certain mandatory prepayment events, including the use of proceeds from debt capital market issuances by the Group or capital raising by the Joint Venture and certain disposals, in each case above $1 billion. See "Item 4.A—Information on the Company—History and development of the Company—Key transactions and events in 2018" for further information.
On August 10, 2018, ArcelorMittal entered into a €300 million ($344 million) term loan with a financial institution maturing on April 30, 2019.
On May 14, 2018, ArcelorMittal entered into a term facility agreement in the amount of $1 billion to make a payment to the financial creditors of Uttam Galva and KSS Petron to clear overdue debts in order that the offer the Company submitted for ESIL on April 2, 2018 would be eligible and considered by ESIL’s Committee of Creditors. The facility was drawn on May 14, 2018 in connection with the subsequent payment and was repaid on November 29, 2018 via a drawing under the above-referenced $7 billion term facility.
On January 16, 2018, the Company entered into a fully drawn bilateral term loan due July 16, 2018, for an amount of €400 million ($466 million). The bilateral term loan was fully repaid on July 16, 2018.
On December 21, 2017, ArcelorMittal Kryvyi Rih entered into a $175 million loan agreement with the European Bank for Reconstruction and Development in order to support the upgrade of its production facilities, energy efficiency improvement and environmental impact reduction. The loan agreement also provides for an additional $175 million in loan facilities which are currently uncommitted. As of December 31, 2018, $50 million was drawn under the agreement and the remainder remained fully available.
On October 9, 2017, ArcelorMittal issued a €300 million ($344 million) variable rate loan in the German Schuldschein market. The proceeds of the issuance were used to repay or prepay existing indebtedness.
On May 25, 2017, ArcelorMittal South Africa signed a 4.5 billion South African rand revolving borrowing base finance facility maturing on May 25, 2020. Any borrowings under the facility are secured by certain eligible inventory and receivables, as well as certain other working capital and related assets of ArcelorMittal South Africa. The facility is used for general
corporate purposes. The facility is not guaranteed by ArcelorMittal. As of December 31, 2018, 0.3 billion South African rand ($21 million) was drawn.
On December 16, 2016, ArcelorMittal signed a €350 million finance contract with the European Investment Bank in order to finance European research, development and innovation projects over the period 2017-2020 within the European Union, namely predominantly France, Belgium and Spain, but also in Czech Republic, Poland, Luxembourg and Romania. This operation benefits from a guarantee from the European Union under the European Fund for Strategic Investments. As of December 31, 2018, €350 million ($401 million) was fully drawn.
On May 23, 2016, ArcelorMittal USA LLC signed a $1 billion senior secured asset-based revolving credit facility maturing on May 23, 2021. Borrowings under the facility are secured by inventory and certain other working capital and related assets of ArcelorMittal USA and certain of its subsidiaries in the United States. The facility may be used for general corporate purposes. The facility is not guaranteed by ArcelorMittal. As of December 31, 2018, the facility was fully available.
In 2014, ArcelorMittal entered into certain short-term committed bilateral credit facilities. The facilities were extended in 2015, 2016, 2017 and 2018. As of December 31, 2018, the facilities, totaling approximately $0.9 billion, remained fully available.statements.
True sale of receivables (“TSR”) programs and payment terms with suppliers
The Company has established a number of programs for sales without recourse of trade accounts receivable to various financial institutions (referred to as true sale of receivables (“TSR”)). As of December 31, 2018,2019, the total amount of trade accounts receivables sold amounted to $4,980$4,436 million. Through the TSR programs, certain operating subsidiaries of ArcelorMittal surrender the control, risks and benefits associated with the accounts receivable sold; therefore, the amount of receivables sold is recorded as a sale of financial assets and the balances are removed from the consolidated statements of financial position at the moment of sale.
As part of the Company’s ongoing efforts to improve its working capital position, it continually engages with its customers and suppliers with the aim of improving overall terms, including pricing, quality, just in time delivery, discounts and payment terms. Trade accounts payable have maturities from 15 to 180 days depending on the type of material, the geographic area in which the purchase transaction occurs and the various contractual agreements. The Company’s average outstanding number of trade payable days amounted to 78 over the last 5 years. The ability of suppliers to provide payment terms may be dependent on
their ability to obtain funding for their own working capital needs and or their ability to early discount their receivables at their own discretion. Given the nature and large diversification of its suppliers base the Company does not expect any material impact to its own liquidity position as a result of suppliers not having access to liquidity. As of December 31, 2019, a 5 day reduction in trade payable days would result in a trade payables decrease by $750 million.
Earnings distribution
On November 6, 2015, ArcelorMittal’s Board of Directors proposed the suspension of the dividend for the financial year 2015. This proposal was approved by the shareholders at the annual general meeting held on May 4, 2016. The Company had indicated that a dividend will not be proposed until its leverage had further improved.
ArcelorMittal held 8.39.8 million shares in treasury as of December 31, 2018,2019, as compared to 2.08.3 million shares as of December 31, 2017.2018. As of December 31, 2018,2019, the number of shares held by the Company in treasury represented approximately 0.82%0.96% of the Company’s total issued share capital.
On January 31, 2018, the Company announced that the Board had agreed on a new dividend policy which was approved by the shareholders at the annual general meeting of shareholders in May 2018. Given the current de-leveraging focus, dividends beginbegan at $0.10/share in 2018 (paid from 2017 results). The Company intends to progressively increase the base dividend paid to its shareholders, and, on attainment of the net debt target, return a percentage of net cash provided by operating activities annually. Accordingly, the Board is proposing an increase inThe Company paid the base dividend for 2019 (paid from 2018 earnings) toof $0.20 per share to the shareholders. On February 4, 2020, given the resilient cash flow and progress towards its net debt target, the Board proposes a base dividend of $0.30 per share for 2020 (in respect of 2019) which will be proposed to the shareholders at the annual shareholders meetingAGM in May 2019. 2020.
Pension/OPEB liabilities
The defined benefit liabilities for employee benefits decreased $0.6increased by $0.4 billion to $7.3 billion as of December 31, 2019, as compared to $6.9 billion as of December 31, 2018, as compared to $7.5 billion as of December 31, 2017.2018. The decreaseincrease is mainly due to the decreaseincrease in the defined benefit obligation due to higherlower discount rates, during 2018.offset partly by increase in assets value and other actuarial gains. For additional information with respect to the Company’s pension plan and OPEB liabilities, including a breakdown by region and by type of plan, see note 7.28.2 to the consolidated financial statements.
IFRS 16
As described in note 1.3.2. to the consolidated financial statements,The Company adopted IFRS 16 “Leases” applies fromas of January 1, 2019. At December 31, 2018 and 2017,2019, using the modified retrospective transition approach with right-of-use assets measured at an amount equal to the lease liability recognized at January 1, 2019, adjusted by the amount of any prepaid or accrued lease payments relating to those leases. On January 1, 2019, the Company had non-cancellable operating lease commitments on an undiscounted basis of $1,869 million and $1,311 million, respectively (see note 8.4 to the consolidated financial statements). A review and assessment of the Company's lease arrangements indicates that most of these arrangements will meet the definition of a lease under IFRS 16 and the Company’s gross debt and net debt will increase accordingly. As at December 31, 2018, the Company expects to recognize on January 1, 2019recognized additional lease liabilities (discounted at the incremental borrowing rates at that date) and right-of-use assets for an amount of $1.1 billion.
IFRS 9
In connection with the initial application of IFRS 9, as of January 1, 2018, equity instruments with a carrying amount of $1,471$1,136 million were reclassified from assets available-for-sale to financial assets at fair value through other comprehensive income. As a result, unrealized gains and losses of investment in such equity instruments are no longer recycled(see note 7 to the consolidated statement of operations upon disposal but are now reclassified from other comprehensive income to retained earnings within equity upon disposal. The $608 million loss recorded in comprehensive income in 2018 was mainly related to the decrease in the share price of Erdemir.financial statements).
Sources and uses of cash
Years ended December 31, 2019, 2018 2017 and 20162017
The following table presents a summary of cash flow of ArcelorMittal:
| | Summary of cash flow | For the year ended December 31, | For the year ended December 31, |
(in $ millions) | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Net cash provided by operating activities | 4,196 | | 4,563 | | 2,708 | 6,017 | | 4,196 | | 4,563 |
Net cash used in investing activities | (3,759) | | (2,830) | | (1,143) | (3,824) | | (3,759) | | (2,830) |
Net cash used in financing activities | (689) | | (1,731) | | (2,926) | |
Net cash provided by (used in) financing activities | | 514 | | (689) | | (1,731) |
Net cash provided by operating activities
For the year ended December 31, 2019, net cash provided by operating activities increased to $6.0 billion, as compared with $4.2 billion for the year ended December 31, 2018. The increase in net cash provided by operating activities was mainly due to an operating working capital release of $2.2 billion as compared to an operating working capital investment of $4.4 billion in 2018, including an inflow for inventories of $2.47 billion , an inflow for trade accounts receivables of $0.96 billion, partially offset by an outflow of trade accounts payables of $1.24 billion. The operating working capital release was driven by lower inventories and receivables, due in part to lower selling prices, particularly in the fourth quarter of 2019, as well as by raw material costs and improved collection of receivables.
For the year ended December 31, 2018, net cash provided by operating activities decreased to $4.2 billion, , as compared with $4.6 billion for the year ended December 31, 2017. The decrease in net cash provided by operating activities was mainly due to an investment in operating working capital of $4.38 billion which represented an outflow for trade accounts receivablereceivables of $0.65 billion, an outflow for inventories of $4.65 billion and an inflow for trade accounts payablepayables and other of $0.91 billion, partially offset by an increase in operating income driven by the increase in average steel selling prices offset by lower steel shipments. The operating working capital investment for the year ended December 31, 2018 largely reflected the price effect of improved market conditions which impacted operating working capital through higher inventories and higher trade receivables. The investment in operating working capital for the year ended December 31, 2018 reflected a lower than anticipated release of working capital in the fourth quarter of 2018 due to the weaker apparent demand conditions leading to an accumulation of metal stock and raw material volumes.
For the year ended December 31, 2017, net cash provided by operating activities increased to $4.6 billion, as compared with $2.7 billion for the year ended December 31, 2016. The increase in net cash provided by operating activities is mainly due to an increase in operating income driven by the increase in average steel selling prices partially offset by increases in the raw material costs and an investment in operating working capital of $1.88 billion which represented an outflow for trade accounts receivable of $0.62 billion, an outflow for inventories of $2.35 billion and an inflow for trade accounts payable and other of $1.09 billion.
Net cash used in investing activities
Net cash used in investing activities was $3.8 billion for the year ended December 31, 2019 and 2018. Capital expenditures increased to $3.6 billion for the year ended December 31, 2019 as compared to $3.3 billion for the year ended December 31, 2018. Capital expenditures for the year ended December 31, 2019 were significantly below the initial guidance of $4.3 billion but marginally above the revised $3.5 billion guidance provided after the third quarter of 2019 and below the mid-year guidance of $3.8 billion as the Company adapted its capital expenditure plans to the weaker market conditions. Cash used in investing activities includes i) $0.8 billion net cash outflow for the acquisition of AMNS India and $83 million additional UG payments, ii) lease payments ($200 million) for the ArcelorMittal Italia acquisition and iii) the acquisition of Münker Metallprofile GmbH in Germany ($46 million) . These outflows were offset in part by i) proceeds from remedy asset sales for the ArcelorMittal Italia acquisition of $518 million (cash consideration of $694 million, net of cash disposed of $34 million, an escrow deposit of $125 million which was subsequently drawn and proceeds of $17 million paid to a joint venture of the Company), ii) the final installment of disposal proceeds from ArcelorMittal USA's 21% stake in the Empire Iron Mine Partnership for $44 million and iii) the sale of remaining 2.6% stake in Gerdau for $116 million. See “Item 4.D—Information on the Company—Property, plant and equipment—Capital expenditure projects”.
Net cash used in investing activities was $3.8 billion for the year ended December 31, 2018 as compared to $2.8 billion for the year ended December 31, 2017. Capital expenditures increased to $3.3 billion for the year ended December 31, 2018 as compared to $2.8 billion for the year ended December 31, 2017. Capital expenditures for the year ended December 31, 2018 waswere lower than expected due to underspending in certain strategic projects (see “Item 4.D—Information on the Company—Property, plant and equipment—Capital expenditure projects”) and at IlvaArcelorMittal Italia due to the acquisition only being completed in November 2018. Cash used in investing activities for the year ended December 31, 2018 included the acquisition of the Uttam Galva and KSS Petron debt for $1,001 million$1 billion in the context of the ESILAMNS India bidding process, offset in part by the proceeds from the sale of Go Steel Frýdek Místek ($39 million), the second installment of proceeds of $44 million from the disposal of ArcelorMittal USA’s 21% stake in the Empire Iron Mining Partnership, $220 million of sale proceeds following the disposal of the Company's 50% interest in Macsteel and $55 million relating to the release of restricted cash related to the mandatory convertible bond following contractual renegotiation.
Net cash usedArcelorMittal’s major capital expenditures in investing activities was $2.8 billion for the year ended December 31, 2017 as compared to $1.1 billion for2019 included the year ended December 31, 2016. Cash from investing activities forfollowing projects: the year ended December 31, 2017 included tangible asset disposals and proceeds fromArcelorMittal Mexico new hot strip mill, the disposal of U.S. long products Georgetown,ArcelorMittal Italy environmental investment program, the first installment of proceeds of $44 million from the disposal of ArcelorMittal USA’s 21% stake in the Empire Iron Mining Partnership offset by $44 million cash consideration (net of cash acquired for $14 million and $5 million to be paid upon conclusion of certain business restructuring measures) for the acquisition of a 55.5% stake in Bekaert Sumaré and $110 million deposited in a restricted cash accountnew LF&CC 2&3 in ArcelorMittal South Africa in connectionKryvyi Rih and the new walking beam furnaces at Burns Harbor, along with various environmental obligationsother ongoing projects. See “Item 4.D—Information on the Company—Property, plant and true salesequipment—Capital expenditure projects” for a summary of receivables programs. these and other projects.
ArcelorMittal’s major capital expenditures in the year ended December 31, 2018 included the following projects: the Mexico hot strip mill, the new LF&CC 2&3 in ArcelorMittal Kryvyi Rih, the modernization of ArcelorMittal Dofasco's hot strip mill, the footprint optimization project at Indiana Harbor and the new walking beam furnaces at Burns Harbor, along with other ongoing projects. See “Item 4.D—Information onArcelorMittal’s major capital expenditures in the Company—Property, plantyear ended December 31, 2017 included the following projects: the AM/NS Calvert slab yard expansion, ArcelorMittal Dofasco's galvalume line, ArcelorMittal Poland's HSM extension and equipment—Capital expenditure projects” for a summary of theseHDG capacity increase along with other ongoing projects.
The Company maintains the ability to adapt its capital expenditures plan to the operating environment and other projects.
In 2019,now expects 2020 capital expenditure is expectedexpenditures to be approximately $4.3 billion reflecting carry over from underspend in 2018 (approximately $0.4 billion), the impact of Ilva and the continued high return investments in Mexico and Brazil and other strategic projects (largely cost optimization).$3.2 billion. See “Item 4.D—Information on the Company—Property, plant and equipment—Capital expenditure projects”.
Net cash provided by financing activities
Net cash provided by financing activities was $0.5 billion for the year ended December 31, 2019, as compared to the net cash used in financing activities of $0.7 billion in 2018. In 2019, net cash provided by financing activities included an inflow of $1.3 billion net proceeds (proceeds of $6.4 billion offset by payments of $5.1 billion) for short and long-term debt, partially offset by dividends of $332 million, a $90 million outflow related to the share buyback program and $326 million net outflows from lease payments and other financing activities. The 2019 cash outflows for lease payments and other financing activities increased as a result of the first-time application of IFRS 16 effective from January 1, 2019, as the repayments of the principal portion of the operating leases are presented under financing activities (previously reported under operating activities). For further details related to capital markets, liability management transactions and debt repayments in 2019, see note 6.1.2 to the consolidated financial statements.
Net cash used in financing activities was $0.7 billion for the year ended December 31, 2018, as compared to $1.7 billion in 2017. In 2018, net cash used by financing activities included $0.2 billion net payments/proceedspayments for short and long-term debt included mainly $0.6 billion of bonds repurchased pursuant to cash tender offers, $0.9 billion repayment at maturity of the euro denominated Floating Rate Notes due April 9, 2018 and the remaining amount of the euro denominated 4.5% Notes due March 29, 2018 partly offset by $1 billion drawing under the $7 billion term facility with respect to the UG and KSS Petron payments. Net cash used in financing activities for the year ended December 31, 2018 also included dividend payments of $220 million and $226 million outflow related to the share buyback program. Net cash used by financing activities for the year ended December 31, 2017 included net payments/proceeds for short and long-term debt of $1.5 billion. Net cash used by financing activities for the year ended December 31, 2017 included $1.2 billion of bonds repurchased pursuant to cash tender offers, $0.6 billion repayment at maturity of the euro denominated 4.625% Notes, $0.6 billion used to early redeem the 6.125% Notes due June 1, 2018 and $1.0 billion used to early redeem the 9.85% Notes due June 1, 2019, offset in part by a new $0.4 billion Schuldschein loan, a $0.4 billion loan from the European Investment Bank, $0.3 billion drawdown on the 4.5 billion South African rand revolving borrowing base finance facility and $0.6 billion proceeds from the issuance of euro denominated 0.95% Notes due January 17, 2023. For further details related to capital markets, liability management transactions and debt repayments in 2018, see “Item 5.B—Operating and financial review and prospects—Liquidity and capital resources” above.
Net cash used by financing activities was $1.7 billion forDividends paid during the year ended December 31, 2017, as compared2019 were $332 million, including $203 million paid to $2.9 billionArcelorMittal shareholders and $129 million paid to non-controlling shareholders in 2016. In 2016, net cash used in financing activities included $6.0 billion net payments/proceeds for short and long-term debt, partially offset by the $3.1 billion proceeds from the Company’s equity offering, while for the year ended December 31, 2017, net payment/proceeds for short and long-term debt was $1.5 billion.
subsidiaries. Dividends paid during the year ended December 31, 2018 were $220 million, including $101 million paid to ArcelorMittal shareholders and $119 million paid to non-controlling shareholders in subsidiaries. Dividends paid
Equity
Equity attributable to non-controlling shareholders in subsidiaries duringthe equity holders of the parent decreased to $38.5 billion at December 31, 2019, as compared to $42.1 billion at December 31, 2018, primarily due to the net loss attributable to the equity holders of the parent of $2.5 billion . and $0.3 billion actuarial losses. See note 11 to ArcelorMittal’s consolidated financial statements for the year ended December 31, 2017 were $141 million. Dividends paid during the year ended December 31, 2016 were $61 million.
2019.
Equity
Equity attributable to the equity holders of the parent increased to $42.1 billion at December 31, 2018, as compared to $38.8 billion at December 31, 2017, primarily due to net income attributable to the equity holders of the parent of $5.1 billion and $0.6 billion actuarial gains partly offset by $2.2 billion foreign exchange losses. See note 10 to ArcelorMittal’s consolidated financial statements for the year ended December 31, 2018.
Equity attributable to the equity holders of the parent increased to $38.8 billion at December 31, 2017, as compared to $30.1 billion at December 31, 2016, primarily due to net income attributable to the equity holders of the parent of $4.6 billion, $2.6 billion foreign exchange gains and $1.2 billion in actuarial gains.
C. Research and development, patents and licenses
For information on the Company’s research and development policies, see "Item 4.B—Information on the Company—Business overview—Competitive strengths—Research and development" above for further details.
D. Trend information
All of the statements in this “Trend Information” section are subject to and qualified by the information set forth under the “Cautionary Statement Regarding Forward-Looking Statements”. See also “Item 5—Operating and financial review and prospects—Key factors affecting results of operations”.
Outlook
Based on the current economic outlook, ArcelorMittal expects a slightan expansion in global ASC in 20192020 by +0.5%+1% to +1%+2% (versus growth of +2.8%+1.1% in 2018)2019). Supply chain destocking constrained demand in ArcelorMittal's core markets, particularly for flat products, and the Company estimates that World-ex China ASC declined by 0.8% in 2019. China had a better than expected year with ASC estimated to have increased by 3%. Whilst acknowledging the risks and uncertainties, ArcelorMittal believes that there are signs that the real demand slowdown is beginning to stabilize, and the supportive inventory environment means that the Company is more optimistic on the apparent demand outlook for 2020. This may be revised downwards due to the impact of the Coronavirus outside China. By region:
| |
– | In the U.S., ASC is expected to grow within a range of +0% to +1% in 2020 (versus an estimated -2% contraction in 2019), with stronger ASC in flat products offsetting an anticipated decline in ASC for long products. |
| |
– | In Europe, ASC is expected to grow within a range of +1% to +2% in 2020 (versus over -4% estimated contraction in 2019); although automotive is expected to remain weak, the end of destocking is expected to support improved ASC for flat products, similarly the end of destocking should offset the impact of the slowdown in construction activity for long products ASC. |
| |
– | In Brazil, ASC is expected to rebound in 2020 with growth expected in the range of +4% to +5% (versus estimated -2.6% contraction in 2019) following the pronounced destocking of flat products in 2019 and expected growth in construction activity. |
| |
– | In the CIS, ASC growth in 2020 is expected to slow but remain positive within a range of +0% to +1% (versus +4% estimated growth in 2019). |
| |
– | As a result, overall World ex-China ASC in 2020 is expected to grow within the range of +2% to +2.5% (versus estimated -0.8% contraction in 2019). |
| |
– | In China, that in 2020 both GDP and steel demand growth are still likely to be weaker than what was expected prior to the Coronavirus outbreak (Steel demand now expected to grow only 0 to 1% in 2020, down from 1 to 2% previously expected). |
The China and global ASC forecast reflects the Company’s base case view of the impact of Coronavirus. Absent a degradation of the situation and/or a further extension of the holiday period, the Company believes the effect of the Coronavirus will likely have a short-term negative demand impact in China and to a lesser degree elsewhere. ArcelorMittal's current view is that the United States is expected to grow +0.5% to +1.5% in 2019, with automotive demand to remain broadly stable, growth is driven by continued albeit weaker demand in machinery and construction (a moderationvast majority of growth versus +1.7% in 2018). In Europe, continued strength in construction is balanced by stable automotive demand and slower growth in machinery and is expected to support ASC growth of approximately +0.5% to +1.0% in 2019 (a moderation of growth versus +2.9% in 2018). In Brazil, ASC growth in 2019 is forecasted in the range of +3.5% to +4.5% (a moderation of growth versus +7.3% in 2018) as growth in automotive and machinery slows but construction activity grows forimpact on the first time since 2013. In the CIS, ASC is expected to grow +1.0% to +2.0% in 2019 (versus +1.8% in 2018). Overall, World ex-China ASC is expected to grow by approximately +2.0% to +3.0% in 2019, slight stronger than in 2018 due to stabilization in Turkey after a significant decline in 2018 (versus +2.1% in 2018). In China, overallquarter of 2020 demand is expected to decline by between -0.5% to -1.5% in 2019 (versus growthbe recovered throughout the remainder of +3.5% in 2018) as relatively stable demand from automotivethe year and construction is offset by declining machinery output. Given these demand expectations, as well asits perspective on the expectation that operational disruptions (both controllable and uncontrollable) that negatively impacted 2018 shipments will not recur,fundamentals of the Company'sChinese steel shipments are expected tomarket remain unchanged. However, the recent increase in 2019 versus 2018.cases outside China is worrying and increases the risk of a global pandemic and a much larger negative impact on global GDP. The Company is monitoring the situation closely and in particular in Italy, as should the virus spread more widely through Europe this will likely have a material impact on the Company’s sales and profitability in 2020.
Market-priced iron ore shipmentsThe Company expects certain cash needs of the business (consisting of capital expenditures, cash paid for 2019 areinterest, cash paid for taxes, pensions and certain other cash payments but excluding operating working capital movements) to total $4.5 billion in 2020 versus $5.0 billion in 2019. The Company maintains the ability to adapt its capital expenditure plans to the operating environment and now expects 2020 capital expenditures to be $3.2 billion (down from $3.6 billion in 2019). Net interest expense in 2020 is expected to be broadly stable as compared to 2018 with increases in Liberia and AMMC to be offset by lower volume in Mexico (in part due to the end of life of the Volcan mine).
The Company expects capital expenditures to increase by $1.0$0.5 billion to $4.3(versus $0.6 billion in 2019 from $3.3 billion in 2018, including $0.4 billion carryover from underspend from 2018, the impact of Ilva ($0.4 billion)2019) while cash payments for taxes, pensions and the continued investment in higher return projects in Mexico and Brazil. Interest isother cash payments are expected to be stable at $0.6$0.8 billion (versus 2019).
The Company released $2.2 billion in operating working capital in 2019 (versus an operating working capital investment of $4.4 billion in 2018). Whilst the Company does not at this stage want to give a firm target or specific guidance for operating working capital needs in 2020 (due to the fact that it is so dependent on operating conditions towards the end of the year), should market conditions remain at current levels then there is the potential to reduce working capital by a further $1 billion.
As previously announced in the first half of 2019, and cash taxes arein line with the Company's ongoing efforts to optimize its asset portfolio, it identified opportunities to unlock $2 billion of value from the portfolio over the next 2 years. The Company has made good progress to date and has achieved ~$0.6 billion, including the sale of its stake in Gerdau ($0.1 billion) and the sale of a 50% stake in Global Chartering Ltd which is expected to increase primarily on account of certain cash tax settlements deferred from 2018.
Due to a smaller than anticipated releasereduce net debt in total by $0.5 billion ($0.4 billion in the fourth quarter of 2018,2019 and $0.1 billion early 2020). ArcelorMittal remains engaged in active discussions with interested parties on several additional opportunities.
Given the ongoing focus on delivering the $1 billion of identified cost improvement plans in order to fully achieve the Action 2020 targets, the potential for an approximate $1 billion operating working capital release assuming market conditions
remain at current levels, together with further progress on portfolio optimization efforts, the Company invested more in working capital than expected in 2018 ($4.4is optimistic that it can achieve its $7.0 billion versus guidancenet debt objectives by year end 2020 which would provide strong foundations for improved shareholder returns going forward.
ArcelorMittal intends to progressively increase the base dividend paid to its shareholders, and, given the resilient cash flow and progress towards its net debt target, the Board proposes a base dividend of $3.0-3.5 billion). The Company expects this additional investment to be released over the course$0.30 per share for 2020 (in respect of 2019. The extent of this release2019) which will be dictated by market conditions, particularlyproposed to the price and volume environmentshareholders at the AGM in the final weeks.
May 2020.
E. Off-balance sheet arrangements
As of December 31, 2018,2019, the Company had no off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
F. Tabular disclosure of contractual obligations
ArcelorMittal has various purchase commitments for materials, supplies and items of permanent investment incidental to the ordinary course of business. As of December 31, 2018,2019, ArcelorMittal’s management believes that these commitments are not in excess of current market prices and reflect normal business operations.
ArcelorMittal had outstanding, as of December 31, 2018,2019, various long-term obligations that will become due in 20192020 and beyond. These various purchase commitments and long-term obligations will have an effect on ArcelorMittal’s future liquidity and capital resources. The table below shows, by major category of commitment and obligations outstanding as of December 31, 2018,2019, ArcelorMittal’s current estimate of their annual maturities (undiscounted except for environmental commitments and asset retirement obligations).
|
| | | | | | | | | | | | | | | |
(amounts in $ millions) | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Debt obligations—scheduled repayments—note 6.1.2 to the consolidated financial statements | | 12,483 |
| | 3,167 |
| | 4,932 |
| | 2,498 |
| | 1,886 |
|
Operating lease obligations—note 8.4 to the consolidated financial statements | | 1,869 |
| | 322 |
| | 414 |
| | 262 |
| | 871 |
|
Environmental commitments and asset retirement obligations—note 8.1 and note 8.3 to the consolidated financial statements1 | | 1,650 |
| | 256 |
| | 456 |
| | 291 |
| | 647 |
|
Purchase obligations—note 8.4 to the consolidated financial statements | | 24,594 |
| | 8,173 |
| | 6,573 |
| | 3,863 |
| | 5,985 |
|
Funding contribution to the pension and post-employment plans2 | | 425 |
| | 425 |
| | — |
| | — |
| | — |
|
Scheduled interest payments | | 2,755 |
| | 455 |
| | 645 |
| | 308 |
| | 1,347 |
|
Other long-term liabilities | | 346 |
| | 102 |
| | 164 |
| | 2 |
| | 78 |
|
Acquisition/investment commitments—note 8.4 to the consolidated financial statements | | 697 |
| | 411 |
| | 284 |
| | 1 |
| | 1 |
|
Total | | 44,819 |
| | 13,311 |
| | 13,468 |
| | 7,225 |
| | 10,815 |
|
|
| | | | | | | | | | | | | | | |
(amounts in $ millions) | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Debt obligations—scheduled repayments—note 6.1.2 to the consolidated financial statements1 | | 14,340 |
| | 2,869 |
| | 2,950 |
| | 4,247 |
| | 4,274 |
|
Environmental commitments and asset retirement obligations—note 9.1 and note 9.3 to the consolidated financial statements2 | | 1,551 |
| | 249 |
| | 376 |
| | 209 |
| | 717 |
|
Purchase obligations—note 9.4 to the consolidated financial statements | | 19,697 |
| | 7,140 |
| | 4,673 |
| | 3,190 |
| | 4,694 |
|
Funding contribution to the pension and post-employment plans3—note 8.2 to the consolidated financial statements | | 422 |
| | 422 |
| | — |
| | — |
| | — |
|
Scheduled interest payments | | 3,549 |
| | 431 |
| | 745 |
| | 534 |
| | 1,839 |
|
Other long-term liabilities | | 341 |
| | — |
| | 41 |
| | 284 |
| | 16 |
|
Acquisition/investment commitments—note 9.4 to the consolidated financial statements | | 448 |
| | 299 |
| | 146 |
| | 1 |
| | 2 |
|
Total | | 40,348 |
| | 11,410 |
| | 8,931 |
| | 8,465 |
| | 11,542 |
|
| |
1 | With the adoption of IFRS 16, lease obligations have been shown as part of debt obligations (refer note 1, 6 and 7 to the consolidated financial statements for further details). |
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2 | ArcelorMittal may be subject to additional environmental liabilities not included in the table above. |
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23 | The funding contributions to the pension and post-retirement plans are presented for the following year and to the extent known. |
Estimated payments for long-term obligations have been determined by ArcelorMittal based on payment schedules for those long-term obligations where set payments exist. For long-term obligations with no set payment schedules, estimates have been made by ArcelorMittal based on the most likely timing of cash payments based on the facts and circumstances that exist as of December 31, 2018.2019. Also included are liabilities related to environmental matters, which are further discussed in notes 8.19.1 and 8.39.3 to the consolidated financial statements. For further details on commitments, please refer to note 8.49.4 to the consolidated financial statements.
G. Safe harbor
All information that is not historical in nature and disclosed under “Item 5—Operating and financial review and prospects” is deemed to be a forward-looking statement. See “Cautionary Statement Regarding Forward-Looking Statements”.
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ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. Directors and senior management
Board of Directors
ArcelorMittal places a strong emphasis on corporate governance. ArcelorMittal has five independent directors on its nine member Board of Directors. The Board’s Audit & Risk Committee and Appointments, Remuneration, Corporate Governance and Sustainability Committee (“ARCGS Committee”) are each comprised exclusively of independent directors.
The annual general meeting of shareholders on May 9, 20187, 2019 acknowledged the expiration of the terms of office of Mrs. Karyn OvelmenVanisha Mittal Bhatia, Mrs. Suzanne Nimocks, Mr. Karel De Gucht and Mr. Tye Burt.Jeannot Krecké.
At the same meeting, the shareholders re-elected Mrs. Karyn OvelmenVanisha Mittal Bhatia, Mrs. Suzanne Nimocks, Mr. Karel De Gucht and Mr. Tye BurtJeannot Krecké for a new term of three years each.
The Board of Directors is composed of nine directors, of which eight are non-executive directors and five are independent directors. The Board of Directors comprises only one executive director, Mr. Lakshmi N. Mittal, the Chairman and Chief Executive Officer of ArcelorMittal.
Mr. Bruno Lafont is the Lead Independent Director. In the most recent assessment of the Company’s leadership structure, the ARCGS Committee reviewed the key duties and responsibilities of the Company’s Chairman and Chief Executive Officer and its Lead Independent Director as follows:
|
| |
Chairman | Lead Independent Director |
* Chairs the Board of Directors' and shareholders' meetings | * Provides independent leadership to the Board of Directors |
* Works with the Lead Independent Director to set agenda for the Board of Directors and reviews the schedule of the meetings | * Presides at executive sessions of independent directors |
* Serves as a public face of the Board of Directors and of the Company | * Advises the Chairman of any decisions reached and suggestions made at the executive sessions, as appropriate |
* Serves as a resource for the Board of Directors | * Coordinates the activities of the other independent directors |
* Guides discussions at the Board of Directors meetings and encourages directors to express their positions | * Oversees Board of Directors' governance processes, including succession planning and other governance-related matters |
* Communicates significant business developments and time-sensitive matters to the Board of Directors | * Liaison between the Chairman and the other independent directors |
* Is responsible for managing day-to-day business and affairs of the Company | * Calls meetings of the independent directors when necessary and appropriate |
* Interacts with the CEO Office and Executive Officers of the Company and frequently meets stakeholders and provides feedback to the Board of Directors | * Leads the Board of Directors’ self-evaluation process and such other duties as are assigned from time to time by the Board of Directors |
The members of the Board of Directors are set out below:
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| | | | | | | | |
Name | | Age4 | | Date of joining the Board5 | | End of Term | | Position within ArcelorMittal |
Lakshmi N. Mittal | | 6869 | | May 1997 | | May 2020 | | Chairman of the Board of Directors and Chief Executive Officer |
Vanisha Mittal Bhatia6 | | 3839 | | December 2004 | | May 20192022 | | Director |
Jeannot Krecké | | 6869 | | January 2010 | | May 20192022 | | Director |
Suzanne P. Nimocks2 3 | | 5960 | | January 2011 | | May 20192022 | | Director |
Bruno Lafont1 2 3 | | 6263 | | May 2011 | | May 2020 | | Lead Independent Director |
Tye Burt2 3 | | 6162 | | May 2012 | | May 2021 | | Director |
Michel Wurth | | 6465 | | May 2014 | | May 2020 | | Director |
Karyn Ovelmen1 3 | | 5556 | | May 2015 | | May 2021 | | Director |
Karel de Gucht1 3 | | 6465 | | May 2016 | | May 20192022 | | Director |
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1. | Member of the Audit & Risk Committee. |
| |
2. | Member of the Appointments, Remuneration, Corporate Governance and Sustainability Committee. |
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3. | Non-executive and independent director. |
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4. | Age as of December 31, 2018.2019. |
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5. | Date of joining the Board of ArcelorMittal or, if prior to 2006, its predecessor Mittal Steel Company NV. |
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6. | Mrs. Vanisha Mittal Bhatia is the daughter of Mr. Lakshmi N. Mittal and sister of Mr. Aditya Mittal. |
Henk Scheffer is the Company Secretary and, accordingly, acts as secretary of the Board of Directors.
Lakshmi N. Mittal 68,, 69, is the Chairman and Chief Executive Officer of ArcelorMittal, a renowned global businessman who serves on the boards of various companies and advisory councils, andcouncils. He is an active philanthropist engaged in the fields of education and child health. Mr. Mittal was born in Sadulpur in Rajasthan in 1950. He graduated from St Xavier’s College in Kolkata, where he received a Bachelor of Commerce degree. Having completed his education in India, Mr. Mittal began his career working in his family’s steelmaking business in India before moving to Indonesia in 1976 to set up a small steel company that over time grew to become ArcelorMittal, the world’s leading steel company and one of the foremost industrial companies in the world. He is widely recognized for the role he played in restructuring the steel industry towards a more consolidated and globalized model, pursuing and successfully integrating many acquisitions in North America, South America, Europe, South Africa and the CIS. Today ArcelorMittal continues to be the largest and most global steel manufacturer. "Mittal Steel" became the world’s leading steel producer in 2004 following the merger of Ispat International and LNM Holdings, and the simultaneous acquisition of International Steel Group. Shortly after, in 2006, Mittal Steel launched an ambitious bid to merge with Arcelor which created ArcelorMittal. Mr. Mittal’s contribution to business and global industry has been widely recognized. In 1996 he was awarded “Steelmaker of the Year” by New Steel in the United States and in 1998 the “Willy Korf Steel Vision Award” by World Steel Dynamics for outstanding vision, entrepreneurship, leadership and success in global steel development. He was named Fortune magazine’s “European Businessman of the Year” in 2004 and “Business Person of the year” by the Sunday Times, “International Newsmaker of the Year” by Time Magazine and “Person of the Year” by the Financial Times in 2006 for his outstanding business achievements. In January 2007, Mr. Mittal was presented with a Fellowship from King’s College London, the college’s highest award. In 2007 he also received the Dwight D. Eisenhower Global Leadership Award, the Grand Cross of Civil Merit from Spain and was named AIST Steelmaker of the year. In January 2008, Mr. Mittal was awarded the Padma Vibhushan, India’s second highest civilian honor, by the President of India. In September 2008, Mr. Mittal was chosen for the third “Forbes Lifetime Achievement Award.” In October 2010, he was awarded World Steel Association’s medal in recognition of his services to the Association as its Chairman and alsonumerous awards for his contribution to the sustainable development ofsteel industry over the global steel industry. In January 2013, Mr. Mittal was awarded a Doctor Honoris Causa by the AGH University of Scienceyears and Technologyrecently, in Krakow, Poland. In April 2018, Mr. Mittal was awarded by the American Iron and Steel Institute with the Gary medal award recognizing his great contribution to the steel industry. In addition to his role at ArcelorMittal,He is widely recognized for successfully integrating many company acquisitions in North America, South America, Europe, South Africa and the CIS. Mr. Mittal is an active participant of various boards and advisory councils. He is Chairman of the board of Aperam and a member of the board of Goldman Sachs. He previously sat on the board of Airbus N.V. He is a member of the Foreign Investment Council in Kazakhstan, the National Investment Council of Ukraine, the Global CEO Council of the Chinese People’s Association for Friendship with Foreign Countries, the World Economic Forum’s International Business Council, the World Steel Association’s Executive Committee, the European Round Table of Industrialists, the Indian School of Business and a member of the board of Trustees of Cleveland Clinic. Mr. Mittal with his wife Usha Mittal, is also an active philanthropist. The Mittal family recently made a significant gift to Harvard to support the Lakshmi Mittal South Asia Institute and Mr. Mittal is a memberfather of the Global Advisory Council of Harvard University. The Mittal family has also made important gifts to Great Ormond Street Hospital, supporting the Mittal Children’s Medical Centre which formally opened in January 2018, and UNICEF, specifically on the topic of child malnutrition in India. Mr. Mittal and his wife Usha Mittal have a son, Aditya Mittal (who is President and Chief Financial Officer of ArcelorMittal), and a daughter, Vanisha Mittal Bhatia (who is a Director of ArcelorMittal). Mr. Mittal is a citizen of India., 68, is the Chairman and Chief Executive of ArcelorMittal, a renowned global businessman who serves on the boards of various advisory councils, and an active philanthropist engaged in the fields of education and child health. Mr. Mittal was born in Sadulpur in Rajasthan in 1950. He graduated from St Xavier’s College in Kolkata, where he received a Bachelor of Commerce degree. Having completed his education in India, Mr. Mittal began his career working in his family’s steelmaking business in India before moving to Indonesia in 1976 to set up a small steel company that over time grew to become ArcelorMittal, the world’s leading steel company and one of the foremost industrial companies in the world. He is widely recognized for the role he played in restructuring the steel industry towards a more consolidated and globalized model, pursuing and successfully integrating many acquisitions in North America, South America, Europe, South Africa and the CIS. Today ArcelorMittal continues to be the largest and most global steel manufacturer. "Mittal Steel" became the world’s leading steel producer in 2004 following the merger of Ispat International and LNM Holdings, and the simultaneous acquisition of International Steel Group. Shortly after, in 2006, Mittal Steel launched an ambitious bid to merge with Arcelor which created ArcelorMittal. Mr. Mittal’s contribution to business and global industry has been widely recognized. In 1996 he was awarded “Steelmaker of the Year” by New Steel in the United States and in 1998 the “Willy Korf Steel Vision Award” by World Steel Dynamics for outstanding vision, entrepreneurship, leadership and success in global steel development. He was named Fortune magazine’s “European Businessman of the Year” in 2004 and “Business Person of the year” by the Sunday Times, “International Newsmaker of the Year” by Time Magazine and “Person of the Year” by the Financial Times in 2006 for his outstanding business achievements. In January 2007, Mr. Mittal was presented with a Fellowship from King’s College London, the college’s highest award. In 2007 he also received the Dwight D. Eisenhower Global Leadership Award, the Grand Cross of Civil Merit from Spain and was named AIST Steelmaker of the year. In January 2008, Mr. Mittal was awarded the Padma Vibhushan, India’s second highest civilian honor, by the President of India. In September 2008, Mr. Mittal was chosen for the third “Forbes Lifetime Achievement Award.” In October 2010, he was awarded World Steel Association’s medal in recognition of his services to the Association as its Chairman and also for his contribution to the sustainable development of the global steel industry. In January 2013, Mr. Mittal was awarded a Doctor Honoris Causa by the AGH University of Science and Technology in Krakow, Poland. In April 2018, Mr. Mittal was awarded by the American Iron and Steel Institute with the Gary medal award recognizing his great contribution to the steel industry. In addition to his role at ArcelorMittal, Mr. Mittal is an active participant of various boards and advisory councils. He is Chairman of the board of Aperam and a member of the board of Goldman Sachs. He previously sat on the board of Airbus N.V. He is a member of the Foreign Investment Council in Kazakhstan, the National Investment Council of Ukraine, the Global CEO Council of the Chinese People’s Association for Friendship with Foreign Countries, the World Economic Forum’s International Business Council, the World Steel Association’s Executive Committee, the European Round Table of Industrialists, the Indian School of Business and a member of the board of Trustees of Cleveland Clinic. Mr. Mittal, with his wife Usha Mittal, is also an active philanthropist. The Mittal family recently made a significant gift to Harvard to support the Lakshmi Mittal South Asia Institute and Mr. Mittal is a member of the Global Advisory Council of Harvard University. The Mittal family has also made important gifts to Great Ormond Street Hospital, supporting the Mittal Children’s Medical Centre which formally opened in January 2018, and UNICEF, specifically on the topic of child malnutrition in India. Mr. Mittal and his wife Usha Mittal have a son, Aditya Mittal (who is President and Chief Financial Officer of ArcelorMittal), and a daughter, Vanisha Mittal Bhatia (who is a Director of ArcelorMittal). Mr. Mittal is a citizen of India.
Vanisha Mittal Bhatia, 38,39, is a non-independent Director of ArcelorMittal. She was appointed as a member of the LNM Holdings Board of Directors in June 2004. Ms. Vanisha Mittal Bhatia was appointed to Mittal Steel’s Board of Directors in December 2004, where she worked in the Procurement department leading various initiatives including "total cost of ownership program". She joined Aperam in April 2011 and since has held the position of Chief Strategy Officer. She has a Bachelor of Sciences from the European Business School. She is also the daughter of Mr. Lakshmi N. Mittal and sister of Mr. Aditya Mittal. Ms. Mittal Bhatia is a citizen of India.
Jeannot Krecké, 68,69, is a non-executive and non-independent Director of ArcelorMittal. He started his university studies at the Université Libre de Bruxelles (ULB) in Belgium in 1969, from where he obtained a degree in physical and sports education. He decided in 1983 to change professional direction. His interests led him to retrain in economics, accounting and taxation. He enrolled in various courses, in particular in the United States. Following the legislative elections of June 13, 2004, Mr. Krecké was appointed Minister of the Economy and Foreign Trade of Luxembourg on July 13, 2004. Upon the return of the coalition government formed by the Christian Social Party (CSV) and the Luxembourg Socialist Workers’ Party (LSAP) as a result of the legislative elections of June 7, 2009, Mr. Krecké retained the portfolio of Minister of the Economy and Foreign Trade on July 23, 2009. As of July 2004, Mr. Krecké represented the Luxembourg government at the Council of Ministers of the EU in the Internal Market and Industry sections of its Competitiveness configuration, as well as in the Economic and Financial Affairs Council, and in the Energy section of its Transport, Telecommunications and Energy configuration. He was also a member of the Eurogroup from July 2004 to June 2009. On February 1, 2012, Mr. Krecké retired from government and decided to end his active political career in order to pursue a range of different projects. Mr. Krecké is currently the CEO of Key International Strategy Services. He is a member of the boards of JSFC Sistema, of East West United Bank, of Calzedonia Finanziara S.A., Jan De Nul S.A. and Novenergia Holding Company S.A. Mr. Krecké is a citizen of Luxembourg.
, 68, is a non-executive and non-independent Director of ArcelorMittal. He started his university studies at the Université Libre de Bruxelles (ULB) in Belgium in 1969, from where he obtained a degree in physical and sports education. He decided in 1983 to change professional direction. His interests led him to retrain in economics, accounting and taxation. He enrolled in various courses, in particular in the United States. Following the legislative elections of June 13, 2004, Mr. Krecké was appointed Minister of the Economy and Foreign Trade of Luxembourg on July 13, 2004. Upon the return of the coalition government formed by the Christian Social Party (CSV) and the Luxembourg Socialist Workers’ Party (LSAP) as a result of the legislative elections of June 7, 2009, Mr. Krecké retained the portfolio of Minister of the Economy and Foreign Trade on July 23, 2009. As of July 2004, Mr. Krecké represented the Luxembourg government at the Council of Ministers of the EU in the Internal Market and Industry sections of its Competitiveness configuration, as well as in the Economic and Financial Affairs Council, and in the Energy section of its Transport, Telecommunications and Energy configuration. He was also a member of the Eurogroup from July 2004 to June 2009. On February 1, 2012, Mr. Krecké retired from government and decided to end his active political career in order to pursue a range of different projects. Mr. Krecké is currently the CEO of Key International Strategy Services. He is a member of the boards of JSFC Sistema, of East West United Bank, of Calzedonia Finanziara S.A., Jan De Nul S.A. and Novenergia Holding Company S.A. Mr. Krecké is a citizen of Luxembourg.
Suzanne P. Nimocks, 59,60, is a non-executive and independent Director of ArcelorMittal and a member of the Appointments, Remuneration, Corporate Governance and Sustainability Committee. She was previously a director (senior partner) with McKinsey & Company, a global management consulting firm, from June 1999 to March 2010, and was with the firm in various other capacities beginning in 1989, including as a leader in the firm’s Global Petroleum Practice, Electric Power & Natural Gas Practice, Organization Practice, and Risk Management Practice. Ms. Nimocks chaired the Environmental Committee of the Greater Houston Partnership, the primary advocate of Houston’s business community, until December 31, 2010. She holds a Bachelor of Arts in Economics from Tufts University and a Masters in Business Administration from the Harvard Graduate School of Business. Ms. Nimocks is currently a board member forof Ovintiv Inc (formerly Encana Corporation,Corporation), Valaris Plc (formerly Rowan Companies Plc,Plc), and Owens Corning, all listed companies. EncanaOvintiv Inc is a major natural gas exploration and production company, Rowan CompaniesValaris Plc provides drilling services for the oil and gas industry and Owens Corning is a manufacturer of building products. In the non-profit sector, she is a member of the board of directors of the Houston Zoo and serves as a Trustee of the Texas Children’s Hospital. Ms. Nimocks is a citizen of the United States of America.
Bruno Lafont, 62,63, is Lead Independent Director of ArcelorMittal, a member of the Audit & Risk Committee and chairman of the Appointments, Remuneration, Corporate Governance Committee and Sustainability Committee. He began his career at Lafarge in 1983 and has held numerous positions in finance and international operations with the same company. In 1995, Mr. Lafont was appointed Group Executive Vice President, Finance, and thereafter, Executive Vice President of the Gypsum Division in 1998. Mr. Lafont joined Lafarge’s General Management as Chief Operating Officer between May 2003 and December 2005, Chief Executive Officer in January 2006, and he was appointed Chairman and Chief Executive Officer in May 2007. In July 2015 Mr. Lafont was appointed Honorary Chairman of Lafarge. He was co-Chairman of the Board of Directors of LafargeHolcim between July 2015 and May 2017. He is presentlywas a board member of EDF and a member offrom 2008 to 2019. Mr. Lafont left the Executive Committee of the World Business Council for Sustainable Development (WBCSD). in December 2019. Born in 1956, Mr. Lafont is a graduate from the Hautes Etudes Commerciales business school (HEC 1977, Paris) and the Ecole Nationale d’Administration (ENA 1982, Paris). Mr. Lafont is a citizen of France. Mr. Lafont has informed the Company that, on December 8, 2017, he (along with five other former Lafarge officers) was placed under formal investigation (mis en examen) in his capacity as former CEO of Lafarge SA, in relation to alleged payments made by a subsidiary of Lafarge SA (Lafarge Cement Syria) to terrorist groups in Syria, and that alleged violations of EU economic sanctions and French labor law are also being investigated.
Tye Burt, 61,62, is a non-executive and independent Director of ArcelorMittal and a member of the Appointments, Remuneration, Corporate Governance Committee and Sustainability Committee. He was appointed President and Chief Executive Officer of Kinross Gold Corporation in March 2005. He held this position until August 1, 2012. Kinross is listed on the New York Stock Exchange and the Toronto Stock Exchange. Mr. Burt was also a member of the board of directors of Kinross. Mr. Burt has broad experience in the global mining industry, specializing in corporate finance, business strategy and mergers and acquisitions. Prior to joining Kinross, he held the position of Vice Chairman and Executive Director of Corporate Development at Barrick Gold Corporation. He was President of the Cartesian Capital Group from 2000 to 2002; Chairman of Deutsche Bank Canada and Deutsche Bank Securities Canada; Global Managing Director of Global Metals and Mining for Deutsche Bank AG from 1997 to 2000; and Managing Director and Co-Head of the Global Mining Group at BMO Nesbitt Burns from 1995 to 1997, holding various other positions at BMO Nesbitt Burns from 1986 to 1995. Mr. Burt is the Chair and Principal at Carbon Arc Capital Investments Corp. and was the Life Sciences Research Campaign Chair of the University of Guelph's Better Planet Project. Mr. Burt is a member of the Duke of Edinburgh's Award Charter for Business Board of Governors and is Vice-ChairDirectors of the Governors of the Royal Ontario Museum Foundation. He isBoart Longyear, a graduate of Osgoode Hall L, 61, is a non-executive and independent Director of ArcelorMittal and a member of the Appointments, Remuneration, Corporate Governance Committee and Sustainability Committee. He was appointed President and Chief Executive Officer of Kinross Gold Corporation in March 2005. He held this position until August 1, 2012. Kinross is listed on the New York Stock Exchange and the Toronto Stock Exchange. Mr. Burt was also a member of the board of directors of Kinross. Mr. Burt has broad experienceglobal leader in the global mining industry, specializing in corporate finance, business strategydrilling services and mergers and acquisitions. Prior to joining Kinross, he held the position of Vice Chairman and Executive Director of Corporate Development at Barrick Gold Corporation. He was President of the Cartesian Capital Group from 2000 to 2002; Chairman of Deutsche Bank Canada and Deutsche Bank Securities Canada; Global Managing Director of Global Metals and Mining for Deutsche Bank AG from 1997 to 2000; and Managing Director and Co-Head of the Global Mining Group at BMO Nesbitt Burns from 1995 to 1997, holding various other positions at BMO Nesbitt Burns from 1986 to 1995. Mr. Burt is the Chair and Principal at Carbon Arc Capital Investments Corp. and the Life Sciences Research Campaign Chair of the University of Guelph's Better Planet Project. Mr. Burt is a member of the Duke of Edinburgh's Award Charter for Business Board of Governors and is Vice-Chair of the Governors of the Royal Ontario Museum Foundation.equipment industry. He is a graduate of Osgoode Hall Law Scho
aw School, a member of the Law Society of Upper Canada, and he holds a Bachelor of Arts degree from the University of Guelph. Mr. Burt is a citizen of Canada. ol, a member of the Law Society of Upper Canada, and he holds a Bachelor of Arts degree from the University of Guelph. Mr. Burt is a citizen of Canada.
Michel Wurth, 64,65, is a non-independent Director of ArcelorMittal. He joined Arbed in 1979 and held a variety of functions before joining the Arbed Group Management Board and becoming its chief financial officer in 1996. The merger of Aceralia, Arbed and Usinor, leading to the creation of Arcelor in 2002, led to Mr. Wurth’s appointment as senior executive vice president and CFO of Arcelor. He became a member of ArcelorMittal’s Group Management Board in 2006, responsible for Flat Carbon Europe, Global R&D, Distribution Solutions and Long Carbon Worldwide respectively. Michel Wurth retired from the GMB in April 2014 and was elected to ArcelorMittal’s board of directors in May 2014. He holds a Law degree from the
University of Grenoble, France, and a degree in Political Science from the Institut d’Études Politiques de Grenoble as well as a Master’s of Economics from the London School of Economics, UK. Mr. Wurth is also doctor of laws honoris causa of the Sacred Heart University, Luxembourg. Mr. Wurth is Chairman of ArcelorMittal Luxembourg S.A. (a wholly owned subsidiary of ArcelorMittal S.A.) as well as Vice Chairman of the supervisory board of Dillinger Hütte AG and Dillinger Hütte Saarstahl AG (associates of ArcelorMittal). Mr. Wurth has served as Chairman of the Luxembourg Chamber of Commerce sincebetween May 2004 and May 2019 and is a member of the Council of the Central Bank of Luxembourg. He is also non-executive Chairman of Paul Wurth S.A. and member of the supervisory board of SMS Group (the controlling shareholder of Paul Wurth S.A.) as well as non-executive Chairman of BIP Investment Partners S.A., non-executive Director of BGL BNP Paribas and BIP Capital Partners S.A., of SMS Group and of Brasserie Nationale. Paul Wurth S.A. is controlled by SMS Group, a leading family owned equipment and engineering supplier for the steel and non-ferrous metal producing industry. BIP Investment Partners is aand BIP Capital Partners S.A. are Luxembourg based company, mainly investedcompanies organized as investment funds investing in small and mid-cap private equity BGL BNP Paribas is a Luxembourg bank, majority owned by BNP of France and Brasserie Nationale is a privately owned brewery based in Luxembourg. Mr. Wurth is vice-chairman of the Luxembourg Red Cross. Mr. Wurth is a citizen of Luxembourg.
Karyn Ovelmen, 55,56, is a non-executive and independent Director of ArcelorMittal as well as the chairman of the Audit & Risk Committee. SinceFrom January 2019 to December 31, 2019, Mrs. Ovelmen has beenwas the Gas Power Transformation Leader for the General Electric Company. Prior to that, she served as Executive Vice President and Chief Financial Officer of Flowserve, a position that she held from June 2015 to February 2017. Previously, she also served as Chief Financial Officer and Executive Vice President of LyondellBasell Industries NV from 2011 to May 2015, as Executive Vice President and Chief Financial Officer of Petroplus Holdings AG from May 2006 to September 2010 and as Executive Vice President and Chief Financial Officer of Argus Services Corporation from 2005 to 2006. Prior to that, she was Vice President of External Reporting and Investor Relations for Premcor Refining Group Inc. She also spent 12 years with PricewaterhouseCoopers, primarily serving energy industry accounts. Mrs. Ovelmen iswas a member of the Gates Industrial Corporation plc. Board of Directors as a non-executive director and iswas a member of their Audit Committee sincefrom December 2017.2017 to March 2019. Mrs. Ovelmen holds a Bachelor of Arts degree from the University of Connecticut, USA, and is a Certified Public Accountant ("CPA"). Mrs. Ovelmen is a citizen of the United States of America.
Karel de Gucht, 64,65, is a non-executive and independent Director. Mr. de Gucht is a Belgian Minister of State. He was the European Commissioner for Trade in the 2nd Barroso Commission from 2010 to 2014 and for Development and Humanitarian Aid in the 1st Barroso Commission from 2009 to 2010. Previously, Mr. De Gucht served as Belgium's Minister of Foreign Affairs from 2004 to 2009 and Vice Prime Minister of Belgium from 2008 to 2009. In addition, in 2006, he was the Chairman in Office of the Organization for Security and Cooperation in Europe (OSCE) and Member of the Security Council of the United Nations from 2007 to 2008. Since 1991, Mr. De Gucht has been a Professor of Law at the VUB (the Dutch-speaking Free University Brussels). He is currently a member of the European Advisory Board of CVC Capital Partners, a member of the board of directors of the listed company Proximus NV and the president of the IES, the Institute of European Studies at the VUB. Mr. de Gucht holds a Master of Law degree from the VUB. Mr. de Gucht is a Belgian citizen.
Senior management
On December 15, 2015, the Company announced that it would simplify its management structure in-line with the ongoing drive to promote a performance-driven culture, empowering the segments to deliver optimum business results. As a result the GMB, which was established to ensure a smooth integration following the creation of ArcelorMittal, was replaced, effective January 1, 2016, with a more flexible structure. As of December 31, 2018,2019, ArcelorMittal’s senior management is comprised of the CEO Office supported by five other Executive Officers. ArcelorMittal’s CEO Office is comprised of the Chief Executive Officer (“CEO”), Mr. Lakshmi N. Mittal, and the President and Chief Financial Officer (“CFO”), Mr. Aditya Mittal. Together, the Executive Officers are responsible for the implementation of the Company strategy, overall management of the business and all operational decisions.
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| | | | |
Name | | Age1 | | Position |
Lakshmi N. Mittal | | 6869 | | Chairman and Chief Executive Officer of ArcelorMittal |
Aditya Mittal | | 4243 | | President and Chief Financial Officer of ArcelorMittal, Investor Relations, and Chief Executive Officer of ArcelorMittal Europe |
Brian Aranha | | 6364 | | Executive vice president, head of strategy, CTO, R&D, CCM, and global automotive |
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Jefferson de Paula | | 6061 | | Executive vice president, CEO ArcelorMittal South America Long |
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Geert Van Poelvoorde | | 5354 | | Executive vice president, CEO ArcelorMittal Europe Flat |
Simon C. Wandke | | 5960 | | Executive vice president, CEO ArcelorMittal Mining |
Bart Wille | | 5758 | | Executive vice president, head of HR |
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1. | Age as of December 31, 2018.2019. |
Lakshmi N. Mittal (See “–Board of Directors”).
Aditya Mittal, 42,43, is the President and Chief Financial Officer of ArcelorMittal. He is also the Chief Executive Officer of ArcelorMittal Europe. Following the formation of ArcelorMittal in 2006, Aditya Mittal held various senior leadership roles, including managerial oversight of the Group's flat carbon steel businesses in the Americas and Europe, in addition to his role as CFO and membership in the Group Management Board. Aditya Mittal joined Mittal Steel in January 1997, serving in various finance and management roles. In 1999, he was appointed Head of Mergers and Acquisitions. In his position, he led the Company's acquisition strategy, resulting in Mittal Steel's expansion into Central Europe, Africa and the United States. Subsequently, he was also involved in post-merger integration, turnaround and improvement strategies of the acquired companies. Between 2004 and 2006, Aditya Mittal was the President and CFO of Mittal Steel. In 2006, he initiated and led Mittal Steel's offer for Arcelor, creating the world's first 100 million tonnes plus steel company. In 2008, Aditya Mittal was named 'European Business Leader of the Future' by CNBC Europe and was ranked fourth in Fortune magazine's '40 under 40' list in 2011. He is an active philanthropist with a particular interest in child health. Together with his wife Megha, he is a significant supporter of the Great Ormond Street Children’s Hospital in London, having funded the Mittal Children’s Medical Centre, and in India, the couple work closely with UNICEF, having funded the first ever country-wide survey into child nutrition, the result of which will be used by the Government of India to inform relevant policy. Aditya Mittal serves on the board of Aperam, Iconiq Capital and Wharton School, and is Chairman of India’s second largest refinery, HPCL-Mittal Energy Limited (HMEL)., and is Chairman of the Board of Directors of AMNS India. He is also a trustee at Brookings Institute and an alumni of the World Economic Forum Young Global Leader’s Programme. Aditya Mittal holds a Bachelor’s degree in Economics with concentrations in Strategic Management and Corporate Finance from the Wharton School in Pennsylvania, United States. Aditya Mittal is the son of Mr. Lakshmi N. Mittal and brother of Ms. Vanisha Mittal Bhatia. Mr. Aditya Mittal is a citizen of India.
Brian Aranha, 63,64, is a member of the Group management committee .and an executive vice president, responsible for several corporate functions: Strategy, Technology, R&D, Commercial Coordination, Global Automotive, Communications and CR, Capital Goods as well as certain JVs in China and Saudi Arabia. He joined Dofasco in 1979 as a member of the company's Research and Development Department. In 1989,held various diverse positions until 2003 when he was assigned to the American Iron & Steel Institute (AISI)appointed Vice President of Commercial. Following Dofasco's integration into ArcelorMittal in Washington, D.C. and in 1991 he was part of a Canadian consortium conducting a study for the World Bank on restructuring the Polish steel industry. In 1992, Brian returned to Dofasco where2007 he held various positions in Supply Chain, Quality, TechnologyEurope and Commercial sectionsNAFTA until 2003 when he was named Vice President - Commercial. Mr. Aranha took up additional responsibilities as Vice President, NAFTA automotive, after integration into ArcelorMittalassumed his current role in 2007. He moved to Europe as CMO and head of Global Automotive in 2009 followed by other assignments in NAFTA region in 2012. Currently based in Luxembourg, Mr. Aranha has responsibility for Global Automotive, R&D, Strategy, Commercial Coordination, Corporate Capital Goods Procurement, Corporate Communications and CSR as well as ArcelorMittal's automotive joint ventures in China and the tubular joint venture in Saudi Arabia. Mr. Aranha2016. Brian holds a Bachelor of Applied Science degreeapplied sciences and engineering from the University of Toronto Canada. In addition, heand has completedattended the Executive Development Program at Queen'sQueens University School of Business, Canada.in Kingston, Ontario (Canada). Mr. Aranha is a citizen of Canada.
Jefferson de Paula, 60,61, is a member of the Group management committee who joined the group in 1991 as Meltshop Manager of Cariacica’s plant (Brazil) and became the plant’s General Manager in 1998. In 2001, he moved to Acindar in Argentina as COO and was appointed its Industrial and Commercial Vice President in 2006. In 2008, he joined Long Carbon Europe as COO of the Sections, Rails and Piles business division, later becoming CEO of Long Carbon Europe - South D, 60, is a member of the Group management committee who joined the group in 1991 as Meltshop Manager of Cariacica’s plant (Brazil) and became the plant’s General Manager in 1998. In 2001, he moved to Acindar in Argentina as COO and was appointed its Industrial and Commercial Vice President in 2006. In 2008, he joined Long Carbon Europe as COO of the Sections, Rails and Piles business division, later becoming CEO of Long Carbon Europe - South Division. In 2011,
ivision. In 2011, he was named CEO of Long Carbon Americas, which in 2014 became Long Carbon Central & South America. Mr. de Paula holds a Bachelor’s Degree in metallurgical engineering from Universidade Federal Fluminense (Brazil), a Master’s Degree in finance and marketing from Universidad Austral (Argentina) and has attended to senior executive courses from Insead (France) and from Kellogg - Northwestern University (USA). In addition to his position in the Group, Mr. de Paula is the current vice president and member of the strategic board of Minas Gerais State Industry Association (FIEMG), he sits in the board of directors of Brazil’s Steel Association (Aço Brasil) and is the former president and member of Latin American Steel Association board (Alacero). Mr. de Paula is a citizen of Brazil. he was named CEO of Long Carbon Americas, which in 2014 became Long Carbon Central & South America. Mr. de Paula holds a Bachelor’s Degree in metallurgical engineering from Universidade Federal Fluminense (Brazil), a Master’s Degree in finance and marketing from Universidad Austral (Argentina) and has attended to senior executive courses from Insead (France) and from Kellogg - Northwestern University (USA). In addition to his position in the Group, Mr. de Paula is the current vice president and member of the strategic board of Minas Gerais State Industry Association (FIEMG), he sits in the board of directors of Brazil’s Steel Association (Aço Brasil) and is the former president and member of Latin American Steel Association board (Alacero). Mr. de Paula is a citizen of Brazil.
Geert Van Poelvoorde, 53,54, is a member of the Group management committee. He started his career in 1989 as a project engineer at the Sidmar Gent hot strip mill, where he held several senior positions in the automation and process computer department. He moved to Stahlwerke Bremen in 1995 as senior project manager. Between 1998 and 2002, he headed a number of departments, and in 2003 he was appointed director of Stahlwerke Bremen, responsible for operations and engineering. In 2005, Mr. Van Poelvoorde returned to ArcelorMittal Gent to take up the position of Chief Operating Officer. In 2008, he became Chief Executive Officer of ArcelorMittal Gent with direct responsibility for primary operations. He was appointed Chief Executive Officer of the Business Division North within Flat Carbon Europe in 2009 and in January 2014, he was appointed Chief Executive Officer of Flat Carbon Europe and Purchasing. Since November 2015 he is also president of Eurofer, the European steel federation. He graduated from the University of Ghent with a degree in civil engineering and electronics. Mr. Van Poelvoorde is a citizen of Belgium.
Simon C. Wandke, 59,60, is a member of the Group management committee and the Chief Executive Officer of ArcelorMittal Mining. He joined ArcelorMittal in January 2011 as chief commercial officer of ArcelorMittal Mining. He has over 30 years’ experience in the mining and minerals industry, starting his career in 1981 at BHP, where he held positions in mines in Australia and Indonesia and held other commercial offices globally until 2002. He then joined Destra Consulting Group as Partner before becoming Chief Marketing Officer for Ferrexpo plc in 2006 based in Hong Kong, Switzerland & United Kingdom. Simon is a graduate of the Australian Institute of Company Directors with a diploma in Company Directorship. He also holds a post graduate diploma in Corporate Finance from Swinburne University as well as a B.A., Psych, Marketing (Comm) from the University of Melbourne. Mr. Wandke holds dual citizenship in Australia and the United Kingdom.
Bart Wille, 57,58, is a member of the Group management committee. He was appointed head of human resources in January 2018. He joined ArcelorMittal after more than 30 years of global human resources management experience in various multinational companies. Mr. Wille joined Unilever in 1985 with 22 years of service and positions held in Belgium, the United Kingdom, Brazil and the Netherlands. After having joined Puratos (food ingredients) for a short period, Mr. Wille pursued his career with Bekaert as chief human resources officer at the beginning of 2009. As a member of the Bekaert Group Executive Board, Mr. Wille was responsible for human resources and the reorganization agenda of the company worldwide. In this role, he supported the international expansion of the company and he participated in the restructuring and change of the company's organization, as well as the continuous transformation of its culture. Mr. Wille is a graduate in international business administration of UFSIA, the University of Antwerp. Mr. Wille is a citizen of Belgium.
B. Compensation
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Content | |
Annual statement by the ARCGS Committee Chairman | |
Board of Directors | |
Remuneration at a glance - senior management | Overview of the Company's remuneration policy and rationale of each performance metric |
Remuneration at a glance - 20182019 pay outcomes | Comparison of pay outcomes 20182019 vs. 20172018 Explanation of results for 20172018 short-term incentives paid in 20182019 |
Remuneration | |
Remuneration strategy | Explanation of what informs the ARCGS's decision on pay |
Remuneration policy | Explanation of policies applied to senior management
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Remuneration mix | Overview of the remuneration mix for senior management |
20182019 Total remuneration | Overview of 20182019 outcomes |
Short-term incentives | Description of short-term incentives plan ("STI") |
Long-term incentive plan | Description of long-term incentive plan ("LTIP" or "LTI"s) |
Global stock option plan | Description of global stock option plan |
Other benefits | Description of other benefits |
SOX 304 and Clawback | Explanation of SOX section 304 rules regarding clawbacks of CEO/CFO remuneration |
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Abbreviations | |
EBITDA | Operating income plus depreciation, impairment expenses and exceptional items |
FCF | Free cash flow |
STI | Short-term incentives |
LTI/LTIP | Long-term incentives (plans) |
EPS | Earnings per share |
PSU | Performance share units |
RSU | Restricted share units |
ROCE | Return on capital employed |
TSR | Total shareholder return |
Annual statement by the ARCGS Committee Chairman
Dear Shareholders,
Description of the year:
Business and results
After a strong 2018, market conditions in 2019 were challenging, with the profitability of ArcelorMittal's 2018 net income of $5.1 billionsteel segments suffering due to lower steel prices combined with higher raw material costs. This was substantially higher, as compared to its net income of $4.6 billion for 2017. The strong financial performance isonly partially offset by improved profitability from the mining segment. Despite this challenging environment, ArcelorMittal has achieved notable progress which reflects the efforts in line with ArcelorMittal’s strategic plan,recent years through Action 2020 that aims at makingto strengthen the business. Significant cash flow generation in 2019 resulted in a historical low point for ArcelorMittal net debt. Global overcapacity remains a clear challenge, as such the Company strongerreduced capacity in Europe in response to the current weak demand environment. Further action needs to be taken to address the increasing level of imports entering the continent due to ineffective safeguard measures. ArcelorMittal continues to engage with structural improvementsthe European Commission to optimize cost, capture volume opportunities in attractive marketscreate a level playing field for the sector. A supportive regulatory and increase the share of high added value products. Although operational issues had an impact onfunding environment is also crucial for the Company's progress on Action 2020 during 2018, we are confident that these will be resolved and thatambition to significantly reduce its emissions. ArcelorMittal will deliveralso continue to evolve its full potential, through focused and effective leadership. This should enablesustainable product offering, for example with Steligence, its low-carbon solutions for the Company to outperformconstruction market. Despite the competition in its different market environments.
Board and Committee composition
During its meeting of May 8, 2018,current challenges, the Board renewed its emphasis on four key areas (Health & Safety, Environment and Community Relations, Climate Change and Social issues) and added these to the scope of the ARCG Committee to ensure a Board level review of these important topics. Accordingly, the ARCG Committee was renamed the ARCGS Committee ("Appointments, Remuneration, Corporate Governance and Sustainability Committee") to highlight the Company’s focus on these key areas. As a result, ArcelorMittal complies with the new Principle 9 on companies' corporate social responsibility introduced subsequently to the revision of the 10 Principles of the Luxembourg Stock Exchange. According to Recommendation 9.3 under the Principles, the Board shall regularly consider the Company's non-financial risks, including social and environmental risks. To this end, the ARCGS oversees the Company's sustainable development plans and associated management systems, to ensure that ArcelorMittalCompany is well positioned to meetbenefit from any improvement in market conditions and the evolving expectations of stakeholders including investors, customers, regulators, employeescurrent very low spread environment.
Board and communities.Committees
Executive remuneration
In preparationThe Board and Chairman have overall responsibility for the General Meeting held in May 2018,governance and strategic direction of ArcelorMittal, which includes considering the effects of climate change. The Board has two committees with further oversight and responsibilities on climate-related issues. Risks are also considered by boards of subsidiaries worldwide. The ARCGS oversees the implications of sustainability issues under five sustainability pillars, of which one is climate change. The chair of the ARCGS also liaises closely with the chair of the Audit & Risk Committee. The Committee found that in generalconsiders the implications of climate change for the business and oversees the Company’s remunerationstrategic planning in response to the risks and opportunities that arise. It receives regular reports from senior management on stakeholder expectations, the Company’s low-emissions technology strategy, climate-related policy including the base remunerationengagement and short-carbon performance.
Activities
Remuneration and long-term incentives for the most senior executives was well supported by our shareholders and stakeholders in 2018. The ARCGS Committee believes that the Long-Term Incentive Plan achieves its objective of being competitive and properly incentivizes management in line with shareholder priorities. Going forward, the ARCGS Committee will continue to interact with proxy advisors and shareholders on remuneration and corporate governance related matters and welcomes their questions and comments.Nomination
Activities
Throughout 2018,During 2019, the ARCGS Committee conducted the Annual Self-Assessment of the Board of Directors, reviewed and approved bonusshort term incentive proposals for senior management and approved the remuneration report for 2018.2019. The ARCGS Committee also reviewed remuneration and governance related proposals for the General Meetingannual general meeting of Shareholders.shareholders. The ARCGS Committee revised succession plans for the Board, the CEO office and senior executives. The ARCGS Committee also reviewed the salaries for the CEO, CFO and the Executive Vice Presidents. It reviewed the grant and vesting criteria for future grants, reviewed and selected performance and compensation peer groups under the Long-Term Incentive Plan and confirmed the vesting of existing plans in accordance with the criteria set in advance. The ARCGS Committee also considered the need for additional retention plans. Furthermore,The annual general meeting of shareholders in May 2019 approved an increase in remuneration for the non-executive members of the Board of Directors. A review of this remuneration takes place once every three years.
Environment
In May 2019 ArcelorMittal published its first Climate Action report in which it announced its ambition to significantly reduce CO2 emissions globally and be carbon neutral in Europe by 2050. The report explains in greater detail the future challenges and opportunities for the steel industry, the plausible technology pathways the Company is exploring as well as its views on the policy environment required for the steel industry to succeed in meeting the targets of the Paris Agreement. In addition, the Committee integrated Sustainabilityheld quarterly meetings dedicated to Corporate Social Responsibilities, including Health & Safety, Environment and Community relations and reviewed progress and proposed management actions in its Charterthis field. The year showed substantial progress in terms of quality of reporting and had discussions in the context of environmental and social improvement, supply chain and health and safety topics.follow up actions.
Going forward
The integration of Ilva and the potential acquisition of Essar SteelAMNS India remainis an important strategic stepsstep for ArcelorMittal. The successful HR integration formsnewly established joint venture with Nippon Steel Corporation, called AMNS India, with nominal crude steel production capacity of 9.6 million tonnes per year in India, is one of the greatest challengemost promising steel markets in our M&A transactions, strong management capabilitiesthe world. ArcelorMittal is confident that AMNS India will create significant value - for shareholders, its business partners, employees and engagement are critical for organizational success. Hence, a thorough and objective leadership selection process, as well as robust succession planning discussion are important priorities for the coming year. Going forward, the ARCGS Committee will continue to focus on the global challenges of sustainability, and what they mean for us as the world’s largest steel company. Thecommunities in India.
ARCGS Committee intends to progress a positive dialogue in 2019As for ArcelorMittal Italia, the Company experienced both business and to put even more focus on sustainability. The ARCGS Committee looks forward to discussing its activitiesstakeholder issues at the upcoming Annual General MeetingTaranto plant. These issues are persistent and ongoing.
As a result of the implementation of the recommendations of the previous Board self-assessment in May 2019.January 2019, there were noticeable improvements in this year’s process. In particular, the new responsibilities of the Committee on sustainable development matters and the increased emphasis given to succession planning are seen as important improvements.
Corporate Social Responsibility including Climate Action will remain a key focus area for the Committee in 2020. Even greater emphasis will be placed on health and safety matters as well. In the field of Remuneration, the Committee expects to consider proposals to ensure appropriate remuneration and management retention in challenging market conditions. Succession planning will remain a priority.
Sincerely yours,
Bruno Lafont
Sincerely yours,
Bruno Lafont
Board of Directors
Directors’ fees
The ARCGS Committee of the Board of Directors prepares proposals on the remuneration to be paid annually to the members of the Board of Directors.
At the May 9, 20187, 2019 annual general meeting of shareholders, the shareholders approved the annual remuneration for non-executive directors for the 20172018 financial year, based on the following annual fees (euro denominated amounts are translated into U.S. dollars as of December 31, 2018):
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• | Basic director’s remuneration: €144,720€151,956 ($165,704)173,990); |
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• | Lead Independent Director’s remuneration: €204,120€214,326 ($233,717)245,403); |
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• | Additional remuneration for the Chair of the Audit & Risk Committee: €28,080€29,484 ($32,152)33,759); |
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• | Additional remuneration for the other Audit & Risk Committee members: €17,280€18,144 ($19,786)20,775); |
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• | Additional remuneration for the Chairs of the other committees: €16,200€17,010 ($18,549)19,476); and |
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• | Additional remuneration for the members of the other committees: €10,800€11,340 ($12,366)12,984). |
The total annual remuneration of the members of the Board of Directors paid in 2018 and 2017for their service for the last five financial years was as follows: | | | Year ended December 31, | Year ended December 31, |
(Amounts in $ thousands except Long-term incentives information) | 2018 | | 2017 | 2019 | | 2018 | 2017 | 2016 | 2015 |
Base salary1 | 1,604 |
| | 1,505 |
| 1,569 |
| | 1,604 |
| 1,505 |
| 1,550 |
| 1,746 |
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Director fees | 1,509 |
| | 1,744 |
| 1,554 |
| | 1,509 |
| 1,744 |
| 1,900 |
| 1,856 |
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Short-term performance-related bonus1 | 2,775 |
| | 2,333 |
| 3,198 |
| | 2,775 |
| 2,333 |
| — |
| 1,910 |
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Long-term incentives 1, 2 | 70,302 |
| | 49,431 |
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Long-term incentives 1, 2, 3 | | 89,933 |
| | 70,302 |
| 49,431 |
| 168,214 |
| 59,773 |
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1 | Chairman and CEO only. Slight differences between the years are possible, due to foreign currency effects. |
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2 | See “Item 6.B—Directors, senior management and employees—Compensation—Remuneration—Long-term incentive plan.” |
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3 | Long-term incentives for the 2015 financial year were 179,320 prior to the 2017 reverse stock split which consolidated each three existing shares in the Company without nominal value into one share without nominal value. |
The annual remuneration paid for 2018 and 2017the last five financial years to the current and former members of the Board of Directors for services in all capacities was as follows: | | | | 2018 | | 2017 | | 2018 | | 2017 | |
(Amounts in $ thousands except share information) | | 20181 | | 20171 | | Short-term Incentives | | Short-term Incentives | | Long-term Number of PSUs | | Long-term Number of PSUs | |
(Amounts in $ thousands) | | | 20191 | 20181 | 20171 | 20161 | 20151 |
Lakshmi N. Mittal | | 1,604 | | 1,505 | | 2,775 | | 2,333 | | 70,302 | | 49,431 | | 1,569 | 1,604 | 1,505 | 1,550 | 1,746 |
Vanisha Mittal Bhatia | | 166 | | 174 | | — | | — | | — | | — | | 171 | 166 | 174 | 153 | 160 |
Narayanan Vaghul | | _ | | 69 | | — | | — | | — | | — | | — | 69 | 182 | 204 |
Suzanne P. Nimocks | | 178 | | 187 | | — | | — | | — | | — | | 183 | 178 | 187 | 164 | 184 |
Wilbur L. Ross, Jr. | | _ | | 32 | | — | | — | | — | | — | | — | 32 | 171 | 180 |
Lewis B. Kaden | | _ | | 95 | | — | | — | | — | | — | | — | 95 | 250 | 244 |
Bruno Lafont | | 272 | | 255 | | — | | — | | — | | — | | 280 | 272 | 255 | 171 | 180 |
Tye Burt | | 178 | | 187 | | — | | — | | — | | — | | 183 | 178 | 187 | 164 | 173 |
Antoine Spillmann | | | — | 55 | 198 |
Karyn Ovelmen | | 198 | | 203 | | — | | — | | — | | — | | 204 | 198 | 203 | 171 | — |
Jeannot Krecké | | 166 | | 174 | | — | | — | | — | | — | | 171 | 166 | 174 | 153 | 173 |
Michel Wurth | | 166 | | 174 | | — | | — | | — | | — | | 171 | 166 | 174 | 153 | 160 |
Karel de Gucht | | 185 | | 194 | | — | | — | | — | | — | | 191 | 185 | 194 | 114 | — |
Total | | 3,113 | | 3,249 | | 2,775 | | 2,333 | | 70,302 | | 49,431 | | 3,123 | 3,113 | 3,249 | 3,451 | 3,602 |
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1. | Remuneration for non-executive Directors with respect to 2018 (subject2019 will be paid in 2020 subject to the shareholder approval at the annual general meeting to be held on May 7, 2019) will be paid in 2019 and is included in the 2018 column. Remuneration for non-executive Directors with respect to 2017 (paid after shareholder approval at the annual general meeting held on May 9, 2018) is included in the 2017 column.5, 2020. Remuneration for non-executive Directors with respect to 2018, 2017, 2016 and 2015 was paid afterin 2019, 2018, 2017 and 2016, respectively, following the shareholder approval at the annual general meetingmeetings held on May 7, 2019, May 9, 2018, May 10, 2017 is included in the 2017 column.and May 4 , 2016, respectively. Slight differences between the years are possible, due to foreign currency effects. |
Members of the Board of Directors have not received any remuneration from any subsidiary of the Group.
The annual remuneration for the last five financial years on a full-time equivalent basis of employees of ArcelorMittal S.A. was as follows:
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| | | | | | | | | | |
(Amounts in $ thousands) | 20191 | 20181 | 20171 | 20161 | 20151 |
Average Remuneration | 389 |
| 408 |
| 379 |
| 336 |
| 326 |
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1. | The annual remuneration is calculated for the approximately 20 employees with a labor contract with ArcelorMittal S.A. |
ArcelorMittal has performed a benchmarking on remuneration with its selected peers and fixed the remuneration of the employees and Directors based on the outcome of that exercise.
The policy of the Company is not to grant any share-based remuneration to members of the Board of Directors who are not executives of the Company. As of December 31, 2018,2019, ArcelorMittal did not have any loans or advances outstanding to members of its Board of Directors and ArcelorMittal had not given any guarantees in favor of any member of its Board of Directors.
None of the members of the Board of Directors, including the Chairman and CEO, benefit from an ArcelorMittal pension plan. Executive short-term incentives were as follows for the last five financial years:
The policy of the Company is not to grant any share-based remuneration to members of the Board of Directors who are not executives of the Company. |
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| | 2019 | 2018 | 2017 | 2016 | 2015 |
| | Short-term Incentives |
Lakshmi N. Mittal | | 3,198 | 2,775 | 2,333 | — | 1,910 |
The following tables provide a summary of the options and the exercise price of options and PSUs granted (long-term incentives) to the Chairman and CEO, who is the sole executive director on the Board of Directors, as of December 31, 2018.2019.
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| Options granted in 2010 | | Options granted in 2009 | | Options Total | | Weighted Average Exercise Price of Options |
Lakshmi N. Mittal1 | 18,833 | | 20,000 | | 38,833 | | $100.82 |
Exercise price | 91.98 | | 109.14 | | — | | $100.82 |
Term (in years) | 10 | | 10 | | — | | — |
Expiration date | Aug. 3, 2020 | | Aug. 4, 2019 | | — | | — |
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1. | The optionsOptions granted in the table above were revised following the completion of the Company's share consolidation of each three existing shares into one share without nominal value on May 22, 2017. 2010 |
Lakshmi N. Mittal | 18,833 |
Exercise price | 91.98 |
Term (in years) | 10 |
Expiration date | Aug. 3, 2020 |
| | | PSUs granted in 2018 | PSUs granted in 2017 | PSUs granted in 2016 | |
| PSUs grants in 2019 | PSUs granted in 2018 | PSUs granted in 2017 | PSUs granted in 2016 | | PSUs granted in 2015 |
Lakshmi N. Mittal2 | 70,302 | 49,431 | 168,214 | |
| 89,933 | 70,302 | 49,431 | 168,214 | | 59,773 |
Term (in years) | 3 | 3+2 | |
| 3 | 3+2 | | 3 |
Vesting date1 | January 1, 2022 | January 1, 2021 | January 1, 2020 and January 1, 2022 | |
| January 1, 2023 | January 1, 2022 | January 1, 2021 | January 1, 2020 and January 1, 2022 | | June 30, 2018 |
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1. | See “Item 6.B—Directors, senior management and employees—Compensation—Remuneration—Long-term incentive plan", for vesting conditions. |
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2. | The optionsPSUs granted in the table above were revised following the completion of the Company's share consolidation of each three existing shares without nominal value into one share without nominal value on May 22, 2017. |
The PSUs granted in 2015 gave the right to receive ArcelorMittal shares at the end of the vesting period as the performance conditions set at the date of the grant have been partially met. See “—2018 LTI vesting (2015 grants)” below for more information.
Remuneration at a glance - senior management
The following table provides a brief overview of the Company’s remuneration policy for senior management. Additional information is provided below.
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ArcelorMittal's Remuneration Policy | | |
Remuneration | Period | Strategy | | Characteristic |
Salary | 20182019 | Recruitment and retention | l | Reviewed annually by the ARCGS Committee considering market data |
l | Increases based on Company performance and individual performance |
STI | 20182019 | Delivery of strategic priorities and financial success | l | Maximum STI award of 270% of base salary for the CEO, 225% of base salary for the CFO and 135% of base salary for other Executive Officers |
l | 100% STI paid in cash |
l | ArcelorMittal's first priority Health and Safety is part of the STI |
l | Overperformance towards competition |
LTIP | 2019-20212020-2022 | Encourages long term shareholder return | l | Performance share units granted with a face value of 100% of base salary for the CEO and CFO and between 50-60%60% for Executive Officers |
l | Shares vest after a three-year performance period |
l | Performance related vesting |
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Key Performance Metrics from 20182019 |
Metrics | Scheme | | Rationale |
EBITDA | STI | l | Demonstrates growth and operational performance of the underlying businesses |
FCF | STI | |
ROCE | STI | l | Critical factor for long-term success and sustainability of the Company |
Gap to competition | STI / LTIP | l | Outperform peers |
Health & Safety | STI | l | Employee health and safety is a core value for the Company |
Business Specific measures | STI | l | For corporate functions, links reward to strategic priorities of their functions |
EPS | LTIP | l | Links reward to delivery of underlying equity returns to shareholders |
TSR | LTIP | l | Creates a direct link between executive pay and shareholder value |
l | Measure is split equally between comparison against S&P 500 index and a peer group of companies |
Remuneration at a glance - 20182019 Pay outcomes
The following graphics compare the compensation paid to the CEO, CFO and other Executive Officers in 2019, 2018, 2017, 2016 and 20172015 in thousands of U.S. dollars. Information with respect to total remuneration paid is provided under “—Renumeration—2018Remuneration—2019 Total remuneration” below.
20172018 short-term incentives paid in 20182019
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| Executive | Realization as % of business target |
CEO office | Lakshmi Mittal Aditya Mittal | 134%139% |
Corporate | Brian Aranha | 146% |
Corporate | Henri Blaffart1
| 145%139% |
Flat Carbon Europe | Geert van Poelvoorde | 135%118% |
Long Carbon South America | Jefferson de Paula | 113%150% |
Mining | Simon Wandke | 85%75% |
50% NAFTA 50% CalvertCorporate | Robrecht Himpe2 Bart Wille | 84%138% |
Note: Individual performance not included in the percent of realization.
1 Mr. Blaffart retired from the Company on April 1, 2018.
2 Mr. Himpe retired from the Company on July 1, 2018.
20182019 LTI vesting (2015(2016 grants)
The following tables provide information about the vesting in 20182019 of long-term incentives granted to senior management in prior years. See also note 7.38.3 to the consolidated financial statements.
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TSR Vesting - 50% of overall opportunity | EPS Vesting - 50% of overall opportunity |
l | The Company’s TSR performance was 36.9% for the three-year performance period | l | The Company’s EPS performance was higher than 2,000% for the three-year performance period |
l | This was above the target compared to the S&P 500 and the peer group performance | l | This was an over-performance
|
l | As a result, 105.8% of the TSR component of the 2015 LTIP has vested | l | As a result, 150% of the EPS component of the 2015 LTIP has vested (as set forth in the table below) |
|
| | |
| Number of PSUs granted in 2015 outstanding in 2018 | Number of shares vested |
CEO | 59,773 | 76,450 |
President and CFO and other ex-GMB members1 | 94,994 | 70,389 |
1.For ex-GMB membersThere was no vesting scheduled in 2019 for the vesting was pro-rata temporis.CEO Office.
Executive Officers
In 2018,2019, the following long-term incentives vested:
| | Vehicle | Date of vesting | Date of Grant | Number of PSUs/RSUs granted to the Executive Officers and outstanding | Number of Shares acquired by the Executive Officers | Date of vesting | Date of Grant | Number of PSUs granted to the Executive Officers and outstanding | Number of Shares acquired by the Executive Officers |
PSUs | January 1, 2018 Performance approved by ARCGS Committee on March 6, 2018 | December 17, 2014 | 14,668 | 16,174 | January 1, 2019 Performance approved by ARCGS Committee on March 19, 2019 | December 18, 2015 | 10,668 | 11,603 |
RSUs | December 18, 2018 | December 18, 2015 | 16,002 | 14,948 | |
PSUs1 | | January 1, 2019 Performance approved by ARCGS Committee on March 19, 2019 | June 30, 2016 | 149,920 | 112,818 |
1.The grant number corresponds to half of the grant as only half vested in 2019.
Remuneration
Remuneration strategy
The ARCGS Committee assists the Board of Directors to maintain a formal and transparent procedure for setting policy on senior management's remuneration and to determine an appropriate remuneration package for senior management. The ARCGS Committee should ensure that remuneration arrangements support the strategic aims of the business and enable the recruitment, motivation and retention of senior executives while complying with applicable rules and regulations.
Board oversight
To this end, the Board of Directors has established the ARCGS Committee to assist it in making decisions affecting employee remuneration. All members of the ARCGS Committee are required to be independent under the Company’s corporate governance guidelines, the NYSE standards and the 10 Principles of Corporate Governance of the Luxembourg Stock Exchange.
The members are appointed by the Board of Directors each year after the annual general meeting of shareholders. The members have relevant expertise or experience relating to the purposes of the ARCGS Committee. The ARCGS Committee makes decisions by a simple majority with no member having a casting vote and is chaired by Mr. Bruno Lafont, Lead Independent Director.
Appointments, remuneration, corporate governance and sustainability committee
The primary function of the ARCGS Committee is to assist the Board of Directors with respect to the following:
| |
• | review and approve corporate goals and objectives regarding remuneration relevant to the CEO Office and Executive Officers and other members of executive management as deemed appropriate by the committee, and assess performance against goals and objectives; |
| |
• | make recommendations to the Board with respect to incentive remuneration plans and equity-based plans; |
| |
• | identify candidates qualified to serve as members of the Board, the CEO Office and Executive Officers; |
| |
• | recommend candidates to the Board for appointment by the general meeting of shareholders or for appointment by the Board to fulfill interim Board vacancies; |
| |
• | develop, monitor and review corporate governance principles applicable to the Company; |
| |
• | facilitate the evaluation of the Board; |
| |
• | review the succession planning and the executive development of the members of the CEO Office and Executive Officers; |
| |
• | submit proposals to the Board on the remuneration of the members of the CEO Office and Executive Officers, and on the appointment of new members thereto and new directors; and |
| |
• | make recommendations to the Board of Directors in respect of the Company’s framework of remuneration for the members of the CEO Office and Executive Officers and such other members of the executive management as designated by the committee. In making such recommendations, the committee may take into account factors that it deems necessary. This may include a member’s total cost of employment (factoring in equity/long term incentives, any perquisites and benefits in kind and pension contributions). |
The ARCGS Committee met six times in 2018.2019. Its members comprise Mr. Bruno Lafont (Chairman), Mrs. Suzanne Nimocks and Mr. Tye Burt.
Regular invitees include Mr. Lakshmi N. Mittal (CEO and Chairman) and Mr. Bart Wille (Head of Group Human Resources and Corporate Services). Mr. Henk Scheffer (Company Secretary) acts as secretary.
Individual remuneration is discussed by the ARCGS Committee without the person concerned being present. The ARCGS Committee Chairman presents its decisions and findings to the Board of Directors after each ARCGS Committee meeting.
Remuneration policy
The ARCGS Committee set policies applied to Senior Managementsenior management on base salary, short-term incentives and long-term incentives. According to Shareholders Right Directive II, that was transposed into Luxembourg law in August 1, 2019, the remuneration policies must be approved at the AGM at least every 4 years and whenever there is a material change.
Scope
ArcelorMittal’s remuneration philosophy and framework apply to the following groups of senior management:
| |
• | the CEO and the President and CFO; and |
| |
• | the other Executive Officers. |
The remuneration philosophy and governing principles also apply, with certain limitations, to a wider group of employees including Executive Vice Presidents, Vice Presidents, General Managers and Managers.
Remuneration philosophy
ArcelorMittal’s remuneration philosophy for its senior management is based on the following principles:
| |
• | provide total remuneration competitive with executive remuneration levels of peers of similar size, scope and industry; |
| |
• | encourage and reward performance that will lead to long-term enhancement of shareholder value; and |
| |
• | promote internal pay equity by providing base pay and total remuneration levels that reflect the role, job size and responsibility as well as the performance and effectiveness of the individual. |
Remuneration framework
The ARCGS Committee develops proposals for senior management remuneration annually for the Board of Directors' consideration. Such proposals include the following components:
| |
• | short-term incentives (i.e., performance-based bonus); and |
| |
• | long-term incentives (i.e., stock options (prior to May 2011), RSUs and PSUs (after May 2011), PSUs only as from 2016). |
The Company does not have any deferred compensation plans for senior management, including the Chairman and CEO.
The following table provides an overview of the remuneration policy applied by the ARCGS:
|
| | |
Remuneration component and link to strategy | Operational and performance framework | Opportunity |
Fixed annual salary
Competitive base salary to attract and retain high-quality and experienced senior executives | * Base salary levels are reviewed annually with effect from April 1 (except promotion) compared to the market to ensure that ArcelorMittal remains competitive with market median base pay levels * Reviews are based on market information obtained but not led by benchmarking to comparable roles, changes in responsibility and general economic conditions | The ARCGS does not set a maximum salary, instead when determining any salary increases it takes into account a number of reference points including salary increases across the Company |
Benefits
Competitive level to ensure coverage of the executives | * May include costs of health insurance, death and disability insurances, company car, tax return preparation, etc. * Relocation benefits may be provided where a change of location is made at Company’s request | The cost to the Company of providing benefits can change from year to year. The level of benefit provided is intended to remain competitive |
Pension
Competitive level of post-employment benefit to attract and retain executives | * Local benchmark of pension contributions for comparable roles | |
Short term incentives (STI)
Motivate the senior executives to achieve stretch performance on strategic priorities | * Scorecard is set at the commencement of each financial year * Measures and relative weights are chosen by the ARCGS Committee to drive overall performance for the coming year * STI calculations for each executive reflect the performance of ArcelorMittal and /or the performance of the relevant business units, the achievement of specific objectives of the department and the individual executive’s overall performance * No STI is paid for a performance below threshold 80%; for each criteria; 100% STI payout for performance achieved at 100%; for each criteria; 150% STI payout for performance achieved at 120% or above for each criteria | Range for CEO: 0 to 270% with a target at 120% of base salary
Range for President and CFO: 0 to 225% with a target at 100% of base salary
Range for Executive Officers: 0 to 135% with a target at 60% of base salary |
LTIP
Sustain shareholder wealth creation in excess of performance of a peer group and incentivize executives to achieve strategy | CEO Office LTIP
* The vesting is subject to a relative TSR (Total Shareholder Return) compared to the S&P 500 and a peer group and to a relative EPS of a peer group over a three year- period *The peer group is determined by the ARCGS Committee * No vesting will occur below the median for all grants as from 2016 * Performance is determined by the ARCGS Committee
Executive Officers LTIP
- The vesting is subject to a relative TSR compared to a peer group and eventually an additional strategic priority in someone or two measures depending on the business units, (such as Gap to competition or TCOE)and ROCE, in 20182019 - The peer group is determined by the ARCGS Committee - No vestingVesting will occur belowif the median for all grants for the TSR portionperformance is reached - Performance is determined by the ARCGS Committee | Maximum value at grant:
100% of base salary for CEO and President and CFO
50 to 60% of base salary for Executive Officers |
Remuneration mix
The total remuneration target of the CEO and the President and CFO is structured to attract and retain executives; the amount of the remuneration received is dependent on the achievement of superior business and individual performance and on generating sustained shareholder value from relative performance.
The following remuneration charts, which illustrate the various elements of the CEO, the President and CFO and the other Executive Officers' compensation, are applicable for 2018.2019. For each of the charts below, the columns on the left, middle and on the right, respectively, reflect the breakdown of compensation if targets are not met, met and exceeded.
Note: no pension contribution
Note: Other benefits, as shown above, do not include international mobility incentives that may be provided.
20182019 Total remuneration
The total remuneration paid in 20182019 to members of ArcelorMittal’s senior management listed in “Item 6.A—Directors, senior management and employees—Directors and senior management” (including Mr. Lakshmi N. Mittal in his capacity as CEO) was $7.3$6.5 million in base salary and other benefits paid in cash (such as health, other insurances, lunch allowances, financial services, gasoline and car allowance) and $8.3$9.2 million in short-term performance-related variable remuneration
consisting of a short-term incentive linked to the Company’s 20172018 results. During 2018,2019, approximately $0.9$0.7 million was accrued by ArcelorMittal to provide pension benefits to senior management (other than Mr. Mittal).
No loans or advances to ArcelorMittal’s senior management were made during 2018,2019, and no such loans or advances were outstanding as of December 31, 2018.2019.
The following table shows the remuneration received by the CEO, the President and CFO and the Executive Officers as determined by the ARCGS Committee in relation to 2018 and 2017the five most recent financial years including all remuneration components:
| | | | | Chief Executive Officer | | President and Chief Financial Officer and Executive Officers | | | Chief Executive Officer | | President and Chief Financial Officer and Executive Officers (Other GMB members for 2015) |
(Amounts in $ thousands except for Long-term incentives) | (Amounts in $ thousands except for Long-term incentives) | | 2018 | | 2017 | | 20185 | | 2017 | (Amounts in $ thousands except for Long-term incentives) | | 2019 | | 2018 | 2017 | 2016 | 20157 | | 2019 | | 20185 | 2017 | 20166 | 20157 |
Base salary1 | Base salary1 | | 1,604 | | 1,505 | | 5,371 | | 4,709 | Base salary1 | | 1,569 | | 1,604 | 1,505 | 1,550 | 1,746 | | 4,643 | | 5,371 | 4,709 | 8,729 | 3,497 |
Retirement benefits | Retirement benefits | | — | | — | | 862 | | 849 | Retirement benefits | | — | | — | | 698 | | 862 | 849 | 898 | 305 |
Other benefits2 | | — | | 41 | | 314 | | 250 | Other benefits2 | | 47 | | 48 | 41 | 42 | 40 | | 223 | | 314 | 250 | 225 | 101 |
Short-term incentives3 | | 2,775 | | 2,333 | | 5,495 | | 4,468 | Short-term incentives3 | | 3,198 | | 2,775 | 2,333 | — | 1,910 | | 6,015 | | 5,495 | 4,468 | 2,029 | 2,948 |
Long-term incentives | | - fair value in $ thousands4 | | 1,166 | | 1,130 | | 2,702 | | 1,922 | | - fair value in $ thousands4 | | 1,339 | | 1,166 | 1,130 | 2,297 | 1,530 | | 3,096 | | 2,702 | 1,922 | 6,882 | 2,431 |
| | - number of share units | | 70,302 | | 49,431 | | 141,109 | | 94,553 | | - number of share units | | 89,933 | | 70,302 | 49,431 | 168,214 | 59,773 | | 183,084 | | 141,109 | 94,553 | 509,623 | 94,995 |
| |
1. | The base salaries of the CEO and President and CFO were increased by 7.5%3.4% in 2018, including as a result of the promotion of the CFO and CEO ArcelorMittal Europe to President of ArcelorMittal.2019. |
| |
2. | Other benefits comprise benefits paid in cash such as lunch allowances, financial services, gasoline and car allowances. Health insurance and other insurances are also included. |
| |
3. | Short-term incentives are entirely performance-based and are fully paid in cash. The short-term incentive for a given year relates to the Company’s results in the previous year. |
| |
4. | Fair value determined at the grant date is recorded as an expense using the straight line method over the vesting period and adjusted for the effect of non-market based vesting conditions. The remuneration expenses recognized for the PSUs granted to the CEO and to the President and CFO and Executive Officers was nil and $4 million (net of reversal of expenses relating to unvested PSUs) for the year ended December 31, 2019 and December 31, 2018, respectively. |
| |
5. | Henri Blaffart was included until March 31, 2018, Robrecht Himpe was included until June 30, 2018. The remuneration expenses recognized |
| |
6. | Jim Baske was included until June 30, 2016, Davinder Chugh was included until July 20, 2016 and Robrecht Himpe was included as from July 1, 2016. |
| |
7. | Long-term incentives for the PSUs granted to2015 financial year were 179,320 for the CEO and to284,985 for the President and CFO and Executive Officers was $3 million (net of reversal of expenses relating(Other GMB members for 2015) prior to unvested PSUs) for the year ended December 31, 2017. |
| |
5. | Henri Blaffart is included until March 31, 2018, Robrecht Himpe is included until June 30, 2018.2017 reverse stock split which consolidated each three existing shares in the Company without nominal value into one share without nominal value. |
Short-term incentives
Targets associated with ArcelorMittal’s 2018 performance short-term incentive2019 Annual Performance Bonus Plan were aligned with itsthe companies’ strategic objectives of improving health and safety performance and overall business performance and competitiveness.
For the CEO and the President and CFO, the 2018 short-term incentive2019 annual performance bonus formula is based on:on the achievement of the following performance targets.
For the CEO and the President and CFO, the 2019 annual performance bonus formula is based on the achievement of the following performance targets:
| |
• | EBITDA targets at the Group level: 30% (this acts as “circuit breaker” with respect to group-level financial performance; |
measures as explained below);
| |
• | FCF targets at the Group level: 20%; |
| |
• | ROCE targets at the Group level: 20%; |
Gap to competition targets at the Group level: 20%; and
| |
• | Health and safety performance targets at the Group level: 10%. |
EBITDA operating as a “circuit breaker” for financial measures means that at least 80% of target must be met to trigger any short-term incentive payment with respect to the EBITDA and FCF performance measures.
For the CEO , the performance short-term incentive at 100% achievement of the agreed performance targets linked to the business plan is equalresults in an annual performance bonus which equals to 120% of his base salary. For the CFO, the performance short-term incentive at 100% achievement of the agreed performance targets linked to the business plan is equalresults in an annual performance bonus which equals to 100% of his base salary.
The different performance measures are combined through a cumulative system: each measure is calculated separately and is added up for the performance short-term incentive calculation.
Performance below threshold will result in zero performance short-term incentive payout.
For the other Executive Officers, the 2018 short-term incentive2019 annual performance bonus formula has been tailored for their respective positions and is generally based on the following:following performance targets:
| |
• | EBITDA targets at the Group, segment and / or Business unit level: this acts as the “circuit breaker” with respect to financial performance measures except for Mining where the Mining volume is the “circuit breaker”;level; |
| |
• | FCF targets at the Group, segment or Business unit level; |
| |
• | ROCE targets at the Group level, segment or Business unit level; |
| |
• | Gap to competition targets at the Group level, segment or Business unit level; |
| |
• | Health and safety performance;performance targets at Group, Segment or Business unit level; and |
| |
• | Business specific measures for corporate functions. |
For the other Executive Officers, the performance short-term incentive at 100% achievement of the agreed performance targets linked to the business plan is equalresults in an annual performance bonus which equals to 60% of their base salary.
For the calculation of the annual performance bonus, the achievement level of every performance target is calculated separately, and these are added up.
Individual performance and assessment ratings define the individual short-term incentiveannual performance bonus multiplier that will be applied to the annual performance short-term incentivebonus calculated based on actual performance against the performance measures. Those individuals who consistently perform at expected levels will have an individual multiplier of 1. For outstanding performers, an individual multiplier of up to 1.5 may cause the annual performance short-term incentivebonus pay-out to be higher than 150% of the target short-term incentive,annual performance bonus, up to 270% of the target short-term incentiveannual performance bonus being the absolute maximum for the CEO. Similarly, a reduction factor will be applied for those at the lower end.
In exceptional circumstances, the ARCGS committee can exercise discretion in the final determination of the annual performance bonus.
The achievement level of performance for the short-term incentiveannual performance bonus for the CEO, the President and CFO and the other Executive Officers is summarized as follows:
|
| | | | | | |
Functional level | | Target achievement threshold @ 80% | | Target achievement @ 100% | | Target achievement ≥ ceiling @ 120% |
Chief Executive Officer | | 60% of base pay | | 120% of base pay | | 180% of base pay |
President and Chief Financial Officer | | 50% of base pay | | 100% of base pay | | 150% of base pay |
Executive Officers | | 30% of base pay | | 60% of base pay | | 90% of base pay |
Long-term incentive plan
ArcelorMittal operates a long-term incentive plan to incentivize shareholder wealth creation in excess of performance of a peer group and incentivize executives to achieve strategy.
On May 10, 2011, the annual general meeting of shareholders approved the ArcelorMittal Equity Incentive Plan, a new equity-based incentive plan that replaced the Global Stock Option Plan (see below and note 7.3 to the consolidated financial statements for a description of the Global Stock Option Plan). The ArcelorMittal Equity Incentive Plan is intended to align the interests of the Company’s shareholders and eligible employees by allowing them to participate in the success of the Company. The ArcelorMittal Equity Incentive Plan provides for the grant of RSUs and PSUs to eligible Company employees (including the Executive Officers) and is designed to incentivize employees, improve the Company’s long-term performance and retain key employees. On May 8, 2013, the annual general meeting of shareholders approved the GMB PSU Plan, which provides for the grant of PSUs to GMB members (and is now applicable to the CEO Office). Until the introduction of the GMB PSU Plan in 2013, GMB members were eligible to receive RSUs and PSUs under the ArcelorMittal Equity Incentive Plan. In 2016, a special grant was approved in order to align the grant with the Action 2020 plan put in place by ArcelorMittal.
The maximum number of PSUs (and RSUs previously) available for grant during any given year is subject to the prior approval of the Company’s shareholders at the annual general meeting. The annual shareholders’ meeting on May 4, 2016 approved the maximum to be granted until the next annual shareholders’ meeting. For the period from the May 2016 annual general shareholders’ meeting to the May 2017 annual general shareholders’ meeting, a maximum of 30,000,000 PSUs (10,000,000 after the reverse stock split) may be allocated to eligible employees under the ArcelorMittal Equity Incentive Plan and the GMB PSU Plan combined. The 2017 Cap for the number of PSUs that may be allocated to the CEO Office and other retention based grants below the CEO Office was approved at the annual shareholders' meeting on May 10, 2017 at a maximum of 3,000,000 shares (9,000,000 before the reverse stock split). The 2018 Cap for the number of PSUs that may be allocated to
the CEO Office and other retention based grants below the CEO Office level was approved at the annual shareholders’ meeting on May 9, 2018 at a maximum of 1,500,000 (one million five hundred thousand)shares. The 2019 Cap for the number of PSUs that may be allocated to the CEO Office and other performance based grants below the CEO Office level, was approved at the annual shareholders' meeting held on May 7, 2019 at a maximum of 2,500,000 shares.
In 2016, ArcelorMittal adapted the plan:
| |
• | To consider the comments of shareholders that vesting should not happen below the median and |
| |
• | To adapt to Action 2020 (Special grant) |
Conditions of the 20182019 grant were as follows:
|
| | | | | | | | | | |
|
| CEO Office |
| Executive Officers |
2018 Grant | l | PSUs with a three year performance period |
| PSUs with a three year performance period
|
|
|
|
|
l | Value at grant 100% of base salary for the CEO and the President and CFO |
|
|
l | Vesting conditions: | l | Vesting conditions |
| Threshold | Target |
|
|
| Target |
| TSR/EPS vs. peer group
| 100% median | ≥120% median |
| ROCE |
| 100% target 100% vesting |
| TSR vs. S&P 500
| Performance equal to Index
| ≥Performance equal to Index + 2% outperformance |
| Gap to competition (where applicable) |
| 100% target 100% vesting |
| Vesting percentage
| 50% | 100% |
|
|
|
| | | | | | | | | | |
|
| CEO Office |
| Executive Officers |
2019 Grant | l | PSUs with a three year performance period | l | PSUs with a three year performance period |
l | Value at grant 100% of base salary for the CEO and the President and CFO |
|
|
l | Vesting conditions: | l | Vesting conditions |
| Threshold | Target |
|
|
| Target |
| TSR/EPS vs. peer group
| 100% median | ≥120% median |
| ROCE |
| 100% target 100% vesting |
| TSR vs. S&P 500
| Performance equal to Index
| ≥Performance equal to Index + 2% outperformance |
| Gap to competition (where applicable) |
| 100% target 100% vesting |
| Vesting percentage | 50% | 100% |
|
|
Awards made in previous financial years which have not yet reached the end of the vesting period2015 through 2018
The Company's Long-Term Incentive Plan for senior management including Executive Officers follows the Company's strategy.
In 2015, the Company's goal was to achieve ROCE and Mining volumes for the Mining segment and therefore the target was based on these performance measures.
In 2016, a special grant was deployed on a five-year performance period to achieve the Company's Action 2020 plan. ROCE remained a key target and Gap to Competition was added as performing against competition is essential.
The plans in 2015, 2016, 2017 and 20172018 are summarized below.
| |
|
| CEO Office |
| Other Executive Officers |
| CEO Office |
| Other Executive Officers |
2015 Grant | l | PSUs with a three-year performance period | l | RSUs with a three-year vesting period (2015 grant vested in December 2018) |
| PSUs with a three-year performance period | l | RSUs with a three-year vesting period (2015 grant vested in December 2018) |
l | Performance criteria: 50% TSR (½ vs. S&P 500 and ½ vs. peer group) and 50% EPS vs. peer group | l | PSUs with a three-year performance period |
| Performance criteria: 50% TSR (½ vs. S&P 500 and ½ vs. peer group) and 50% EPS vs. peer group | l | PSUs with a three-year performance period |
l | Value at grant: 100% of base salary for the CEO and 80% for the President and CFO | l | Performance target: mainly ROCE and mining volume plan for the Mining segment |
| Value at grant: 100% of base salary for the CEO and 80% for the President and CFO | l | Performance target: mainly ROCE and mining volume plan for the Mining segment |
|
| l | One PSU can give right to 0 through up to 1.5 share |
|
| l | One PSU can give right to 0 through up to 1.5 share |
l | Vesting conditions: | l | Vesting conditions: |
| Vesting conditions: | l | Vesting conditions: |
|
| Threshold | Target | Stretch |
| Performance | Threshold | Target | Stretch |
|
| Threshold | Target | Stretch |
| Performance | Threshold | Target | Stretch |
| TSR/EPS vs. peer group | 80% median | 100% median | ≥120% median |
| Performance | 80% | 100% | ≥120% |
| TSR/EPS vs. peer group | 80% median | 100% median | ≥120% median |
| Performance | 80% | 100% | ≥120% |
| TSR vs. S&P 500 | Performance equal to 80% of Index
| Performance equal to Index | ≥Performance equal to Index + 2% outperformance |
| Vesting | 50% | 100% | 150% |
| TSR vs. S&P 500 | Performance equal to 80% of Index
| Performance equal to Index | ≥Performance equal to Index + 2% outperformance |
| Vesting | 50% | 100% | 150% |
| Vesting percentage
| 50% | 100% | 150% |
|
|
| Vesting percentage | 50% | 100% | 150% |
|
|
2016 Special Grant | l | PSUs with a five-year performance period, 50% vesting after three-year performance period and 50% after additional two-year performance period | l | PSUs with a five-year performance period, 50% vesting after three-year performance period and 50% after additional two-year performance period | l | PSUs with a five-year performance period, 50% vesting after three-year performance period and 50% after additional two-year performance period | l | PSUs with a five-year performance period, 50% vesting after three-year performance period and 50% after additional two-year performance period |
l | Performance criteria: 50% TSR (½ vs. S&P 500 and ½ vs. peer group) and 50% EPS vs. peer group | l | Performance criteria: ROCE and Gap to competition in some areas one target grant: a share will vest if performance is met at target one overperformance grant: a share will vest if performance exceeds 120% | l | Performance criteria: 50% TSR (½ vs. S&P 500 and ½ vs. peer group) and 50% EPS vs. peer group | l | Performance criteria: ROCE and Gap to competition in some areas one target grant: a share will vest if performance is met at target one overperformance grant: a share will vest if performance exceeds 120% |
l | Value at grant: 150% of base salary for the CEO and the President and CFO | l | Vesting conditions: | l | Value at grant: 150% of base salary for the CEO and the President and CFO | l | Vesting conditions: |
l | Vesting conditions: |
|
| l | Vesting conditions: |
|
|
|
|
| Threshold | Target |
| Performance |
| 100% | ≥120% |
|
|
| Threshold | Target |
| Performance |
| 100% | ≥120% |
| TSR/EPS vs. peer group |
| 100% median | ≥120% median |
| Target award vesting | 100% | 100% |
| TSR/EPS vs. peer group |
| 100% median | ≥120% median |
| Target award vesting | 100% | 100% |
| TSR vs. S&P 500 |
| Performance equal to Index
| ≥Performance equal to Index + 2% outperformance |
| Overperformance award (=20% of target award) | - | 100% |
| TSR vs. S&P 500 |
| Performance equal to Index
| ≥Performance equal to Index + 2% outperformance |
| Overperformance award (=20% of target award) | - | 100% |
| Vesting percentage
|
| 50% | 100% |
|
|
| Vesting percentage |
| 50% | 100% |
|
|
2017 Grant | l | PSUs with a three-year performance period |
| l | PSUs with a three-year performance period |
| l | PSUs with a three-year performance period |
| l | PSUs with a three-year performance period |
|
l | Performance criteria: 50% TSR (½ vs. S&P 500 and ½ vs. peer group) and 50% EPS vs. peer group | l | Performance criteria: TSR and Gap to competition in some areas | l | Performance criteria: 50% TSR (½ vs. S&P 500 and ½ vs. peer group) and 50% EPS vs. peer group | l | Performance criteria: TSR and Gap to competition in some areas |
l | Value at grant: 100% of base salary for the CEO and the President and CFO |
|
|
| l | Value at grant: 100% of base salary for the CEO and the President and CFO |
|
|
|
l | Vesting conditions: |
| l | Vesting conditions: |
| l | Vesting conditions: |
| l | Vesting conditions: |
|
|
| Threshold | Target |
| Performance |
| Threshold | Target |
|
| Threshold | Target |
| Performance |
| Threshold | Target |
| TSR/EPS vs. peer group
| 100% median | ≥120% median |
| TSR vs. peer group
| 100% median 50% vesting | ≥120% median 100% vesting |
| TSR/EPS vs. peer group
| 100% median | ≥120% median |
| TSR vs. peer group
| 100% median 50% vesting | ≥120% median 100% vesting |
| TSR vs. S&P 500
| Performance equal to Index
| ≥Performance equal to Index + 2% outperformance |
| Gap to competition (where applicable) | - | 100% target 100% vesting |
| TSR vs. S&P 500
| Performance equal to Index
| ≥Performance equal to Index + 2% outperformance |
| Gap to competition (where applicable) | - | 100% target 100% vesting |
| Vesting percentage
| 50% | 100% |
|
|
|
| Vesting percentage
| 50% | 100% |
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| CEO Office |
| Executive Officers |
2018 Grant | l | PSUs with a three year performance period | l | PSUs with a three year performance period |
l | Value at grant 100% of base salary for the CEO and the President and CFO |
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l | Vesting conditions: | l | Vesting conditions |
| Threshold | Target |
|
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| Target |
| TSR/EPS vs. peer group
| 100% median | ≥120% median |
| ROCE |
| 100% target 100% vesting |
| TSR vs. S&P 500
| Performance equal to Index
| ≥Performance equal to Index + 2% outperformance |
| Gap to competition (where applicable) |
| 100% target 100% vesting |
| Vesting percentage | 50% | 100% |
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See note 7.38.3 to the consolidated financial statements for further details on RSUs and PSUs.
Global Stock Option Plan
Prior to the May 2011 annual general shareholders’ meeting adoption of the ArcelorMittal Equity Incentive Plan described above, ArcelorMittal’s equity-based incentive plan took the form of a stock option plan known as the Global Stock Option Plan.
See note 7.38.3 to the consolidated financial statements for further details on stock options.
Other benefits
In addition to the remuneration described above, other benefits may be provided to senior management and, in certain cases, other employees. These other benefits can include insurance, housing (in cases of international transfers), car allowances and tax assistance.
SOX 304 and clawback policy
Under Section 304 of the Sarbanes-Oxley Act, the SEC may seek to recover remuneration from the CEO and CFO of the Company in the event that it is required to restate accounting information due to any material misstatement thereof or as a result of misconduct in respect of a financial reporting requirement under the U.S. securities laws (the “SOX Clawback”).
Under the SOX Clawback, the CEO and the CFO may have to reimburse ArcelorMittal for any short-term incentive or other incentive- or equity-based remuneration received during the 12-month period following the first public issuance or filing with the SEC (whichever occurs first) of the relevant filing, and any profits realized from the sale of ArcelorMittal securities during that 12-month period.
The Board of Directors, through its ARCGS Committee, decided in 2012 to adopt its own clawback policy (the “Clawback Policy”) that applies to the members of the former GMB and to the Executive Vice President of Finance of ArcelorMittal. In 2016, the Clawback Policy was updated to reflect the Company’s structural changes and now applies to the CEO Office and the Executive Officers.
The Clawback Policy comprises cash short-term incentives and any other incentive-based or equity-based remuneration, as well as profits from the sale of the Company’s securities received during the 12-month period following the first public issuance or filing with the SEC (whichever first occurs) of the filing that contained the material misstatement of accounting information.
For purposes of determining whether the Clawback Policy should be applied, the Board of Directors will evaluate the circumstances giving rise to the restatement (in particular, whether there was any fraud or misconduct), determine when any such misconduct occurred and determine the amount of remuneration that should be recovered by the Company. In the event that the Board of Directors determines that remuneration should be recovered, it may take appropriate action on behalf of the Company, including, but not limited to, demanding repayment or cancellation of cash short-term incentives, incentive-based or
equity-based remuneration or any gains realized as the result of options being exercised or awarded or long-term incentives vesting. The Board may also choose to reduce future remuneration as a means of recovery.
C. Board practices/corporate governance
This section describes the corporate governance practices of ArcelorMittal for the year ended December 31, 2018.2019.
Board of Directors and senior management
ArcelorMittal is governed by a Board of Directors and managed by the senior management. As described in Item 6A above, ArcelorMittal’s senior management is comprised of the CEO Office - comprising the CEO, Mr. Lakshmi N. Mittal and the President and CFO, Mr. Aditya Mittal. The CEO Office is supported by a team of five other Executive Officers, who together encompass the key regions and corporate functions.
A number of corporate governance provisions in the Articles of Association of ArcelorMittal reflect provisions of the Memorandum of Understanding signed on June 25, 2006 (prior to Mittal Steel Company N.V.’s merger with Arcelor), amended
in April 2008 and which mostly expired on August 1, 2009. For more information about the Memorandum of Understanding, see “Item 10.C—Additional information—Material contracts—Memorandum of Understanding”.
ArcelorMittal fully complies with the 10 Principles of Corporate Governance of the Luxembourg Stock Exchange. This is explained in more detail in “—Other corporate governance practices” below. ArcelorMittal also complies with the New York Stock Exchange Listed Company Manual as applicable to foreign private issuers.
Board of Directors
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9 members | | 8 non-executive directors | | 5 independent directors | | 1 executive director (CEO) |
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33% women | | 67% men | | 7 average years on the Board | | 61 average age of directors |
The Board of Directors is in charge of the overall governance and direction of ArcelorMittal. It is responsible for the performance of all acts of administration necessary or useful in furtherance of the corporate purpose of ArcelorMittal, except for matters reserved by Luxembourg law or the Articles of Association to the general meeting of shareholders. The Articles of Association provide that the Board of Directors is composed of a minimum of three and a maximum of 18 members, all of whom, except the CEO, must be non-executive directors. None of the members of the Board of Directors, except for the CEO, may hold an executive position or executive mandate within ArcelorMittal or any entity controlled by ArcelorMittal.
The Articles of Association provide that directors are elected and removed by the general meeting of shareholders by a simple majority of votes cast. Other than as set out in the Company’s Articles of Association, no shareholder has any specific right to nominate, elect or remove directors. Directors are elected by the general meeting of shareholders for three-year terms. In the event that a vacancy arises on the Board of Directors for any reason, the remaining members of the Board of Directors may by a simple majority elect a new director to temporarily fulfill the duties attaching to the vacant post until the next general meeting of the shareholders.
The Board of Directors is comprised of nine members, of which 8 are non-executive directors and one is an executive director. The CEO of ArcelorMittal is the sole executive director. For further information on the composition of the Board of Directors, including the expiration of each Director’s term and the period during which each Director has served, see Item 6.A above.
Mr. Lakshmi N. Mittal was elected Chairman of the Board of Directors on May 13, 2008. Mr. Mittal is also ArcelorMittal’s CEO. Mr. Mittal was re-elected to the Board of Directors for a three-year term at the annual general meeting of shareholders on May 10, 2017.
Five of the 9 members of the Board of Directors are independent. The non-independent directors are Mr. Lakshmi N. Mittal, Ms. Vanisha Mittal Bhatia, Mr. Jeannot Krecké and Mr. Michel Wurth. A director is considered “independent” if:
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(a) | he or she is independent within the meaning of the New York Stock Exchange Listed Company Manual, as applicable to foreign private issuers, |
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(b) | he or she is unaffiliated with any shareholder owning or controlling more than two percent of the total issued share capital of ArcelorMittal, and |
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(c) | the Board of Directors makes an affirmative determination to this effect. |
For these purposes, a person is deemed affiliated to a shareholder if he or she is an executive officer, a director who also is an employee, a general partner, a managing member or a controlling shareholder of such shareholder. The 10 Principles of Governance of the Luxembourg Stock Exchange, which constitute ArcelorMittal's domestic corporate governance code, require ArcelorMittal to define the independence criteria that apply to its directors, which are described in article 8.1 of its Articles of Association.
Specific characteristics of the director role
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Required share ownership Lead Independent Director - minimum of 6,000 ordinary shares Non-executive directors - minimum of 4,000 ordinary shares | | Maximum 12 year service (independent directors) | | May not serve on the boards of directors of more than four publicly listed companies (non-executive directors) | | Required to sign the Company’s Code of Business Conduct and confirm their adherence annually |
The Company’s Articles of Association do not require directors to be shareholders of the Company. The Board of Directors nevertheless adopted a share ownership policy on October 30, 2012, that was amended on November 7, 2017, considering that it is in the best interests of all shareholders for all non-executive directors to acquire and hold a minimum number of ArcelorMittal ordinary shares in order to better align their long-term interests with those of ArcelorMittal’s shareholders. The Board of Directors believes that this share ownership policy will result in a meaningful holding of ArcelorMittal shares by each non-executive director, while at the same time taking into account the fact that the share ownership requirement should not be excessive in order not to unnecessarily limit the pool of available candidates for appointment to the Board of Directors. DirectlyDirectors must hold their shares directly or indirectly, and as sole or joint beneficiary owner (e.g., with a spouse or minor children), at the latest within fivethree years of the earlier of October 30, 2012his or the relevant person’sher election to the Board of Directors the Lead Independent Director should own a minimum of 6,000 ordinary shares and each other non-executive director should own a minimum of 4,000 ordinary shares.. Each director will hold the shares acquired on the basis of this policy for so long as he or she serves on the Board of Directors. Directors purchasing shares in compliance with this policy must comply with the ArcelorMittal Insider Dealing Regulations and, in particular, refrain from trading during any restricted period, including any such period that may apply immediately after the Director’s departure from the Board of Directors for any reason.
On October 30, 2012, the Board of Directors also adopted a policy that places limitations on the terms of independent directors as well as the number of directorships that directors may hold in order to align the Company’s corporate governance practices with best practices in this area. The policy provides that an independent director may not serve onarea (as highlighted in the Board of Directors for more than 12 consecutive years, althoughtable above). Nevertheless, the Board of Directors may, by way of exception to this rule, make an affirmative determination, on a case-by-case basis, that he or shea Director may continue to serve beyond the 12-year rule if the Board of Directors considers it to be in the best interest of the Company based on the contribution of the Director involved andtaking into consideration the balance between the knowledge, skills, experience of the director and the need for renewal of the Board.
As membership of the Board of Directors represents a significant time commitment, the policy requires both executive and non-executive directors to devote sufficient time to the discharge of their duties as a director of ArcelorMittal. Directors are therefore required to consult with the Chairman and the Lead Independent Director before accepting any additional commitment that could conflict with or impact the time they can devote to their role as a Director of ArcelorMittal. Furthermore, a non-executive director may not serve on the boards of directors of more than four publicly listed companies in addition to the ArcelorMittal Board of Directors. However, aA non-executive Director’s service on the board of directors of any subsidiary or affiliate of ArcelorMittal or of any non-publicly listed company is not taken into account for purposes of complying with the foregoingservice limitation.
Although non-executive directors of ArcelorMittal who change their principal occupation or business association are not necessarily required to leave the Board of Directors, the policy requires each non-executive director, in such circumstances, to promptly to inform the Board of Directors of the action he or she is contemplating. Should the Board of Directors determine that
the contemplated action would generate a conflict of interest, such non-executive director would be asked to tender his or her resignation to the Chairman of the Board of Directors, who would decide to accept the resignation or not.
None of the members of the Board of Directors, including the executive director, have entered into service contracts with ArcelorMittal or any of its subsidiaries that provide for any form of remuneration or for benefits upon the termination of their term. All non-executive Directors of the Company signed the Company’s Appointment Letter, which confirms the conditions of their appointment by the General Meeting of the Shareholders including compliance with certain non-compete provisions, the 10 Principles of Corporate Governance of the Luxembourg Stock Exchange and the Company’s Code of Business Conduct.
All members of the Board of Directors are required to sign the Company’s Code of Business Conduct upon first joining the Board of Directors and confirm their adherence thereto on an annual basis thereafter.
The remuneration of the members of the Board of Directors is determined on a yearly basis by the annual general meeting of shareholders.
Share transactions by management
In compliance with laws prohibiting insider dealing, the Board of Directors of ArcelorMittal has adopted insider dealing regulations, which apply throughout the ArcelorMittal group. These regulations are designed to ensure that insider information is treated appropriately within the Company and avoid insider dealing and market manipulation. Any breach of the rules set out in this procedure may lead to criminal or civil charges against the individuals involved, as well as disciplinary action by the Company.
Shareholding requirement for non-executive directors
In consideration of corporate governance trends indicating that a reasonable amount of share ownership helps better align the interests of the directors with those of all shareholders, the Board of Directors adopted on October 30, 2012 share ownership guidelines for non-executive directors as described above under “—Specific characteristics of the director role”. These share ownership guidelines have been amended on November 7, 2017.
Operation
General
The Board of Directors and the Board committees may engage the services of external experts or advisers as well as take all actions necessary or useful to implement the Company’s corporate purpose. The Board of Directors (including its two committees) has its own budget, which covers functioning costs such as external consultants, continuing education activities for directors and travel expenses.
Meetings
The Board of Directors meets when convened by the Chairman of the Board or any two members of the Board of Directors. The Board of Directors holds physical meetings at least on a quarterly basis as five regular meetings are scheduled per year. The Board of Directors holds additional meetings if and when circumstances require, in person or by teleconference and can take decisions by written circulation, provided that all members of the Board of Directors agree.
The Board of Directors held twelve meetings in 2018. The average attendance rate of the directors at the Board of Directors’ meetings was 92.59%. |
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6 meetings (2019) | | 100% Average attendance rate |
In order for a meeting of the Board of Directors to be validly held, a majority of the directors must be present or represented, including at least a majority of the independent directors. In the absence of the Chairman, the Board of Directors will appoint by majority vote a chairman for the meeting in question. The Chairman may decide not to participate in a Board of Directors’ meeting, provided he has given a proxy to one of the directors who will be present at the meeting. For any meeting of the Board of Directors, a director may designate another director to represent him or her and vote in his or her name, provided that the director so designated may not represent more than one of his or her colleagues at any time.
Each director has one vote and none of the directors, including the Chairman, has a casting vote. Decisions of the Board of Directors are made by a majority of the directors present and represented at a validly constituted meeting, except for the decisions of the Board of Directors relating to the issue of any financial instruments carrying or potentially carrying a right to equity pursuant to the authorization conferred by article 5.5 of the Articles of Association, which shall be taken by a majority of two-thirds of the directors present or represented at a validly constituted meeting.
Lead Independent Director
In April 2008, the Board of Directors created the role of Lead Independent Director. His or her function is highlighted above in Item 6A.
Mr. Bruno Lafont was elected by the Board of Directors as ArcelorMittal's second Lead Independent Director and re-elected as a director for a three-year term at ArcelorMittal annual general shareholder's meetingAGM held on May 10, 2017.
The agenda of each meeting of the Board of Directors is decided jointly by the Chairman of the Board of Directors and the Lead Independent Director.
Separate meetings of independent directors
The independent members of the Board of Directors may schedule meetings outside the presence of non-independent directors. Five meetingsOne meeting of the independent directors outside the presence of management werewas held in 2018.2019.
Annual self-evaluation
The Board of Directors decided in 2008 to start conducting an annual self-evaluation of its functioning in order to identify potential areas for improvement. The first self-evaluation process was carried out in early 2009. The self-evaluation process includes structured interviews between the Lead Independent Director and each director and covers the overall performance of the Board of Directors, its relations with senior management, the performance of individual directors, and the performance of the committees. The process is supported by the Company Secretary under the supervision of the Chairman and the Lead Independent Director. The findings of the self-evaluation process are examined by the ARCGS Committee and presented with recommendations from the ARCGS Committee to the Board of Directors for adoption and implementation. Suggestions for improvement of the Board of Directors’ process based on the prior year’s performance and functioning are implemented during the following year.
The 20182019 Board of Directors’ self-evaluation was completed by the Board on February 5, 2019.January 15, 2020. The Board of Directors was of the opinion that it and the management had cooperated successfully during 20182019 on important matters including operational and financial performance, the acquisition of Ilva and of Essar Steel, the ongoing strengthening of the balance sheet, strategy, especially on short term strategic planning, sustainability, labor relations and health and safety. The extension of the role of Audit Committee to Risk and of the role of ARCGS Committee to environment and sustainability is proving to be effective. The Board of Directors reviewed the practical implementation of the governance structure and thought it was working well. The Board set new priorities for discussion and review and identified a number of priority topics for 2019.2020.
The Board of Directors believes that its members have the appropriate range of skills, knowledge and experience, as well as the degree of diversity necessary to enable it to effectively govern the business. The Board of Directors composition is reviewed on a regular basis and additional skills and experience are actively searched for in line with the expected development of ArcelorMittal’s business as and when appropriate.
Required skills, experience and other personal characteristics
Diverse skills, backgrounds, knowledge, experience, geographic location, nationalities and gender are required in order to effectively govern a global business the size of the Company’s operations. The Board of Directors and its committees are therefore required to ensure that the Board has the right balance of skills, experience, independence and knowledge necessary to perform its role in accordance with the highest standards of governance.
The Company’s directors must demonstrate unquestioned honesty and integrity, preparedness to question, challenge and critique constructively, and a willingness to understand and commit to the highest standards of governance. They must be committed to the collective decision-making process of the Board of Directors and must be able to debate issues openly and constructively, and question or challenge the opinions of others. Directors must also commit themselves to remain actively involved in Board decisions and apply strategic thought to matters at issue. They must be clear communicators and good listeners who actively contribute to the Board in a collegial manner. Each director must also ensure that no decision or action is taken that places his or her interests before the interests of the business. Each director has an obligation to protect and advance the interests of the Company and must refrain from any conduct that would harm it.
In order to govern effectively, non-executive directors must have a clear understanding of the Company’s strategy, and a thorough knowledge of the ArcelorMittal group and the industries in which it operates. Non-executive directors must be sufficiently familiar with the Company’s core business to effectively contribute to the development of strategy and monitor performance.
With specific regard to the non-executive directors of the Company, the composition of the group of non-executive directors should be such that the combination of experience, knowledge and independence of its members allows the Board to fulfill its obligations towards the Company and other stakeholders in the best possible manner.
The ARCGS Committee ensures that the Board of Directors is comprised of high-caliber individuals whose background, skills, experience and personal characteristics enhance the overall profile of the Board and meets its needs and diversity aspirations by nominating high quality candidates for election to the Board by the general meeting of shareholders.
Board profile
The key skills and experience of the directors, and the extent to which they are represented on the Board of Directors and its committees, are set out below. In summary, the non-executive directors contribute:
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• | internationalInternational and operational experience;
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experience | |
• | understandingUnderstanding of the industry sectors in which ArcelorMittal operates;
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operates | |
• | knowledgeKnowledge of worldglobal capital markets and being a company listed in several jurisdictions; and
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jurisdictions | |
• | an understandingUnderstanding of the health, safety, environmental, political and community challenges that ArcelorMittal faces. faces |
Each director is required to adhere to the values set out in, and sign, the ArcelorMittal Code of Business Conduct.
Renewal
The Board of Directors plans for its own succession, with the assistance of the ARCGS Committee. In doing this, the Board of Directors:
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• | considers the skills, backgrounds, knowledge, experience and diversity of geographic location, nationality and gender necessary to allow it to meet the corporate purpose; |
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• | assesses the skills, backgrounds, knowledge, experience and diversity currently represented; |
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• | identifies any inadequate representation of those attributes and agrees the process necessary to ensure a candidate is selected who brings them to the Board of Directors; and |
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• | reviews how Board performance might be enhanced, both at an individual director level and for the Board as a whole. |
The Board believes that orderly succession and renewal is achieved through careful planning and by continuously reviewing the composition of the Board.
When considering new appointments to the Board, the ARCGS Committee oversees the preparation of a position specification that is provided to an independent recruitment firm retained to conduct a global search, taking into account, among other factors, geographic location, nationality and gender. In addition to the specific skills, knowledge and experience required of the candidate, the specification contains the criteria set out in the ArcelorMittal Board profile.
Diversity
In line with the worldwide effort to increase gender diversity on the boards of directors of listed and unlisted companies, the Board met its goal of increasing the number of women on the Board to at least three by the end of 2015 with the election of Mrs. Karyn Ovelmen in May 2015. Out of 9 members of the Board of Directors, women represent 33.33% in 2018.2019. The ArcelorMittal Board’s diversity not only relates to gender, but also to the region, background and industry of its members.
Director induction, training and development
The Board considers that the development of the directors’ knowledge of the Company, the steel-making and mining industries, and the markets in which the Company operates is an ongoing process. To further bolster the skills and knowledge of directors, the Company set up a continuous development program in 2009.
Upon his or her election, each new non-executive director undertakes an induction program specifically tailored to his or her needs and includes ArcelorMittal’s long-term vision centered on the concept of “Safe Sustainable Steel”.
The Board’s development activities include the provision of regular updates to directors on each of the Company’s products and markets. Non-executive directors may also participate in training programs designed to maximize the effectiveness of the directors throughout their tenure and link in with their individual performance evaluations. The training and development program may cover not only matters of a business nature, but also matters falling into the environmental, social and governance area.
Structured opportunities are provided to build knowledge through initiatives such as visits to plants and mine sites and business briefings provided at Board meetings. Non-executive directors also build their Company and industry knowledge
through the involvement of the CEO Office and other senior employees in Board meetings. Business briefings, site visits and development sessions underpin and support the Board’s work in monitoring and overseeing progress towards the corporate purpose of creating long-term shareholder value through the development of the ArcelorMittal business in steel and mining. The Company therefore continuously builds directors’ knowledge to ensure that the Board remains up-to-date with developments within the Company’s segments, as well as developments in the markets in which the Company operates.
During the year, non-executive directors participated in the following activities:
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• | comprehensive business briefings intended to provide the directors with a deeper understanding of the Company’s activities, environment, key issues and strategy of the Company’s segments. These briefings are provided to the Board of Directors by senior executives, including CEO Office members. The briefings provided during the course of 2019 covered health and safety processes, cyber security, risk management, corporate responsibility, carbon reduction strategy in steelmaking, capital allocation process, strategy. Business briefings intended to provide each director with a deeper understanding of the Company’s activities, environment, key issues and strategy of the Company’s segments. These briefings are provided to the Board of Directors by senior executives, including CEO Office members. The briefings provided during the course of 2018 covered health and safety processes, HR, legal and compliance, corporate responsibility, marketing, steel-making, strategy, international trade trends in steel industry in Europe. Certain business briefings were combined with site visits and thus took place on-site and, in other cases, they took place at Board and committee meetings; |
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• | briefing meetings with Company executives in charge of specific business segments or markets; |
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• | site visits to plants and R&D centers; and |
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• | development sessions on specific topics of relevance, such as health and safety, commodity markets, HR, investor relations, accounting, the world economy, changes in corporate governance standards, directors’ duties and shareholder feedback. |
The ARCGS Committee oversees director training and development. This approach allows induction and learning opportunities to be tailored to the directors’ committee memberships, as well as the Board of Directors' specific areas of focus. In addition, this approach ensures a coordinated process in relation to succession planning, Board renewal, training, development and committee composition, all of which are relevant to the ARCGS Committee’s role in securing the supply of talent to the Board.
Board of Directors committees
The Board of Directors has two committees:
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• | the Audit & Risk Committee, and |
Audit & Risk Committee
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3 members (100% independent) | | 7 meetings (2019) |
In 2015, the Board decided to combine the Audit Committee with the Risk Management Committee in order to provide their members with a more holistic view of ArcelorMittal’s current governance, risks and control systems.
The primary function of the Audit & Risk Committee is to assist the Board in fulfilling its oversight responsibilities by reviewing:
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• | the integrity of the financial reports and other financial information provided by the Company to any governmental body or the public; |
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• | the Company’s compliance with legal and regulatory requirements; |
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• | the registered public accounting firm’s (Independent Auditor) qualifications and independence; |
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• | the Company’s system of internal control regarding finance, accounting, legal compliance, ethics and risk management that management and the Board have established; |
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• | the Company’s auditing, accounting and financial reporting processes generally; and |
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• | the identification and management of risks to which the ArcelorMittal group is exposed.exposed and |
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• | conducting investigations into any matters, including whistleblower complaints, within its scope of responsibility and obtaining advice from outside legal, accounting, or other advisers, as necessary, to perform its duties and responsibilities. |
The Audit & Risk Committee must be composed solely of independent members of the Board of Directors. The members are appointed by the Board of Directors each year after the annual general meeting of shareholders. The Audit & Risk Committee comprises three members, all of whom must be independent under the company’s corporate governance guidelines, the New York Stock Exchange (NYSE) standards as applicable to foreign private issuers and the 10 Principles of Corporate Governance of the Luxembourg Stock Exchange. The Audit & Risk Committee makes decisions by a simple majority with no member having a casting vote.
At least one member must qualify as an Audit & Risk Committee “financial expert” as defined by the SEC and determined by the Board.
At least one member must qualify as an Audit & Risk Committee “risk management expert” having experience in identifying, assessing, and managing risk exposures of large, complex companies.
The Audit & Risk Committee currently consists of 3 members: Mrs. Karyn Ovelmen, Mr. Bruno Lafont and Mr. Karel de Gucht, each of whom is an independent Director according to the NYSE standards and the 10 Principles of Corporate Governance of the Luxembourg Stock Exchange. The Chairman of the Audit & Risk Committee is Mrs. Ovelmen. For more information, see “Item 16.A— Audit & Risk Committee Financial Expert”.
According to its charter, the Audit & Risk Committee is required to meet at least four times a year. During 2018, the Audit & Risk Committee met seven times. The Audit & Risk Committee performs an annual self-evaluation and completed its 20182019 self-evaluation on February 5, 2019.January 15, 2020. The charter of the Audit & Risk Committee is available from ArcelorMittal upon request.
Appointments, Remuneration, Corporate Governance and Sustainability Committee (former ARCG Committee)
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3 members (100% independent) | | 6 meetings (2019) |
The ARCGS Committee is comprised of three directors, each of whom is independent under the New York Stock Exchange standards as applicable to foreign private issuers and the 10 Principles of Corporate Governance of the Luxembourg Stock Exchange.
The members are appointed by the Board of Directors each year after the annual general meeting of shareholders. The ARCGS Committee makes decisions by a simple majority with no member having a casting vote.
The Board of Directors has established the ARCGS Committee to:
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• | determine, on its behalf and on behalf of the shareholders within agreed terms of reference, ArcelorMittal’s compensation framework, including short and long term incentives for the CEO, the President and CFO and for the five other Executive Officers; |
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• | review and approve succession and contingency plans for key managerial positions at the level of the Executive Officers; |
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• | consider any candidate for appointment or reappointment to the Board of Directors at the request of the Board of Directors and provide advice and recommendations to it regarding the same; |
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• | evaluate the functioning of the Board of Directors and monitor the Board of Directors’ self-evaluation process; |
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• | assess the roles of the Chairman and CEO and deliberate on the merits of the Board’s leadership structure to ensure that the most efficient and appropriate structure is in place; and |
develop, monitor and review corporate governance principles and corporate responsibility policies applicable to ArcelorMittal, as well as their application in practice;
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• | develop, monitorreview the company’s sustainable development plan and review corporate governance principlesassociated management systems and corporate responsibility policies applicableensure the group is well positioned to ArcelorMittal, as well as their application in practice.meet the evolving expectations of stakeholders, including investors, customers, regulators, employees and communities.
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During its meeting of May 8, 2018, the Board renewed its emphasis on four key areas (health & safety, environment and community relations, climate change and social issues) and added these to the scope of the ARCG Committee to ensure a Board level review of these important topics. Accordingly, the ARCG Committee was renamed the ARCGS Committee ("Appointments, Remuneration, Corporate Governance and Sustainability Committee") to highlight the Company’s focus on these key areas. As a result, ArcelorMittal complies with the new Principle 9 on companies' corporate social responsibility introduced subsequently to the revision of the 10 Principles of the Luxembourg Stock Exchange. According to Recommendation 9.3 under the Principles, the Board shall regularly consider the Company's non-financial risks, including social and environmental risks. To this end, the ARCGS Committee oversees the Company's sustainable development plan and associated management systems to ensure that ArcelorMittal is well positioned to meet the evolving expectations of stakeholders including investors, customers, regulators, employees and communities.
The ARCGS Committee’s principal criteria in determining the compensation of executives is to encourage and reward performance that will lead to long-term enhancement of shareholder value. The ARCGS Committee may seek the advice of outside experts.
The three members of the ARCGS Committee are Mr. Bruno Lafont, Mrs. Suzanne P. Nimocks and Mr. Tye Burt, each of whom is independent in accordance with the NYSE standards applicable to foreign private issuers and the 10 Principles of Corporate Governance of the Luxembourg Stock Exchange. The Chairman of the ARCGS Committee is Mr. Lafont.
The ARCGS Committee is required to meet at least twicethree times a year. During 2018, this committee met six times.
The ARCGS Committee performs an annual self-evaluation and completed its 20182019 self-evaluation on February 5, 2019.January 15, 2020.
The charter of the ARCGS Committee is available from ArcelorMittal upon request.
Succession management
Succession management at ArcelorMittal is a systematic, structured process for identifying and preparing employees with potential to fill key organizational positions, should the position become vacant. This process applies to all ArcelorMittal key positions up to and including the CEO Office. Succession management aims to ensure the continued effective performance of the organization by providing for the availability of experienced and capable employees who are prepared to assume these roles as they become available. For each position, candidates are identified based on performance, potential and an assessment of leadership capabilities and their “years to readiness”. Development needs linked to the succession plans are discussed, after which “Personal Development Plans” are put in place, to accelerate development and prepare candidates. Regular reviews of succession plans are conducted at different levels of the organization to ensure that they are accurate and up to date, leading to at least once yearly a year formal review by the CEO Office, of all key positions. Succession management is a necessary process to reduce risk of vacant positions or skill gap transitions, create a pipeline of future leaders, ensure smooth business continuity and improve employee motivation and engagement. This process has been in place for several years and reinforced, widened and made more systematic in all regions of the organization. The responsibility to review and approve succession plans and contingency plans at the highest level rests with the Board’s ARCGS Committee.
Other corporate governance practices
ArcelorMittal is committed to adhere to best practices in terms of corporate governance in its dealings with shareholders and aims to ensure good corporate governance by applying rules on transparency, quality of reporting and the balance of powers. ArcelorMittal continually monitors U.S., EU and Luxembourg legal requirements and best practices in order to make adjustments to its corporate governance controls and procedures when necessary, as evidenced by the new policies adopted by the Board of Directors in 2012.
ArcelorMittal complies with the 10 Principles of Corporate Governance of the Luxembourg Stock Exchange in all respects. However, in respect of Recommendation 1.3 under the Principles, which advocates separating the roles of chairman of the board and the head of the executive management body, the Company has made a different choice. This is permitted, however, as, unlike the 10 Principles themselves with which ArcelorMittal must comply, the Recommendations are subject to a more flexible “comply or explain” standard.
The nomination of the same person to both positions was approved by the shareholders (with Lumen and Nuavam, companies controlled by the Significant Shareholder abstaining). Since that date, the rationale for combining the positions of CEO and Chairman of the Board of Directors has become even more compelling. The Board of Directors is of the opinion that Mr. Mittal’s strategic vision for the steel industry in general and for ArcelorMittal in particular in his role as CEO is a key asset to the Company, while the fact that he is fully aligned with the interests of the Company’s shareholders means that he is uniquely positioned to lead the Board of Directors in his role as Chairman. The combination of these roles was revisited at the Annual General Meeting of ShareholdersAGM of the Company held in May 2017, when Mr. Lakshmi N. Mittal was re-elected to the Board of Directors for another three year term by a strong majority.
Ethics and conflicts of interest
Ethics and conflicts of interest are governed by ArcelorMittal’s Code of Business Conduct, which establishes the standards for ethical behavior that are to be followed by all employees and Directors of ArcelorMittal in the exercise of their duties. Each employee of ArcelorMittal is required to sign and acknowledge the Code of Conduct upon joining the Company. This also applies to the members of the Board of Directors of ArcelorMittal, who signed the Company’s Appointment Letter in which they acknowledged their duties and obligations. Any new member of the Board of Directors must sign and acknowledge the Code of Conduct upon appointment.
Employees must always act in the best interests of ArcelorMittal and must avoid any situation in which their personal interests conflict, or could conflict, with their obligations to ArcelorMittal. Employees are prohibited from acquiring any financial or other interest in any business or participating in any activity that could deprive ArcelorMittal of the time or the attention needed to devote to the performance of their duties. Any behavior that deviates from the Code of Business Conduct is to be reported to the employee’s supervisor, a member of the management, the head of the legal department or the head of the internal assurance department.
Code of Business Conduct training is offered throughout ArcelorMittal on a regular basis in the form of face-to-face trainings, webinars and online trainings. Employees are periodically trained about the Code of Business Conduct in each location where ArcelorMittal has operations. The Code of Business Conduct is available in the “Corporate Governance-Our Policies-Code of Business Conduct” section of ArcelorMittal’s website at www.arcelormittal.com.
In addition to the Code of Business Conduct, ArcelorMittal has developed a Human Rights Policy and a number of other compliance policies in more specific areas, such as antitrust, anti-corruption, economic sanctions, insider dealing and data protection. In all these areas, specifically targeted groups of employees are required to undergo specialized compliance training. Furthermore, ArcelorMittal’s compliance program also includes a quarterly compliance certification process covering all business segments and entailing reporting to the Audit & Risk Committee.
Process for Handling Complaints on Accounting Matters
As part of the procedures of the Board of Directors for handling complaints or concerns about accounting, internal controls and auditing issues, ArcelorMittal’s Anti-Fraud Policy and Code of Business Conduct encourage all employees to bring such issues to the Audit & Risk Committee’s attention on a confidential basis. In accordance with ArcelorMittal’s Anti-Fraud and Whistleblower Policy, concerns with regard to possible fraud or irregularities in accounting, auditing or banking matters or bribery within ArcelorMittal or any of its subsidiaries or other controlled entities may also be communicated through the “Corporate Governance — Whistleblower” section of the ArcelorMittal website at www.arcelormittal.com, where ArcelorMittal’s Anti-Fraud Policy and Code of Business Conduct are also available in each of the main working languages used within the Group. In recent years, ArcelorMittal has implemented local whistleblowing facilities, as needed.
During 2018,2019, there were 145162 complaints received relating to alleged fraud, which were referred to and duly reviewed by the Company’s Internal Assurance Department. Following review by the Audit & Risk Committee, none of these complaints waswere found to be significant.
Internal assurance
ArcelorMittal has an Internal Assurance function that, through its Head of Internal Assurance, reports to the Audit & Risk Committee. The function is staffed by full-time professional staff located within each of the principal operating subsidiaries and at the corporate level. Recommendations and matters relating to internal control and processes are made by the Internal Assurance function and their implementation is regularly reviewed by the Audit & Risk Committee.
Independent auditors
The appointment and determination of fees of the independent auditors is the direct responsibility of the Audit & Risk Committee. The Audit & Risk Committee is further responsible for obtaining, at least once each year, a written statement from the independent auditors that their independence has not been impaired. The Audit & Risk Committee has also obtained a confirmation from ArcelorMittal’s principal independent auditors to the effect that none of its former employees are in a position within ArcelorMittal that may impair the principal auditors’ independence.
Measures to prevent insider dealing and market manipulation
The Board of Directors of ArcelorMittal has adopted Insider Dealing Regulations (“IDR”), which are updated when necessary (most recently in January 2019) and in relation to which training is conducted throughout the Group. The IDR’s most recent version has been updated in light of the new Market Abuse Regulation and is available on ArcelorMittal’s website, www.arcelormittal.com.
The IDR apply to the worldwide operations of ArcelorMittal. The compliance and data protection officer of ArcelorMittal is also the IDR compliance officer and answers questions that members of senior management, the Board of Directors, or employees may have about the IDR’s interpretation. The IDR compliance officer maintains a list of insiders as required by Regulation No 596/2014 of the European Parliament and the Council dated 16 April 2014 on market abuse or “MAR” and the Commission Implementing Regulation 2016/347 of 10 March 2016 laying down technical standards with regard to the precise format of insider lists and for updating insider lists in accordance with MAR. The IDR compliance officer may assist senior executives and directors with the filing of notices required by Luxembourg law to be filed with the Luxembourg financial regulator, the CSSF (Commission de Surveillance du Secteur Financier). Furthermore, the IDR compliance officer has the power to conduct investigations in connection with the application and enforcement of the IDR, in which any employee or member of senior management or of the Board of Directors is required to cooperate.
Selected new employees of ArcelorMittal are required to participate in a training course about the IDR upon joining ArcelorMittal and every three years thereafter. The individuals who must participate in the IDR training include the members of senior management, employees who work in finance, legal, sales, mergers and acquisitions and other areas that the Company may determine from time to time. In addition, ArcelorMittal’s Code of Business Conduct contains a section on “Trading in the Securities of the Company” that emphasizes the prohibition to trade on the basis of inside information, as amended in July 2016.information. An online interactive training tool based on the IDR was developed in 2010 and deployed across the group through ArcelorMittal’s intranet, with the aim to enhance the staff’s awareness of the risks of sanctions applicable to insider dealing. The importance of the IDR was again reiterated in the Group's internal Group Policies and Procedures Manual in 2013.
D. Employees
As of December 31, 2018,2019, ArcelorMittal employs approximately 209,000191,000 people directly, as well as a large number of contractors and part-time workers.
The table below sets forth the total number of employees by segment for the past three years.
| | Segment | 2018 | 2017 | 2016 | 2019 | 2018 | 2017 |
NAFTA | 26,550 | 26,324 | 27,233 | 25,159 | 26,550 | 26,324 |
Brazil | 19,555 | 18,058 | 18,380 | 18,696 | 19,555 | 18,058 |
Europe | 88,768 | 78,643 | 80,975 | 74,149 | 88,768 | 78,643 |
ACIS | 41,544 | 42,451 | 41,989 | 41,284 | 41,544 | 42,451 |
Mining | 30,579 | 30,088 | 28,455 | 30,345 | 30,579 | 30,088 |
Other activities | 1,587 | 1,544 | 1,485 | 1,615 | 1,587 | 1,544 |
Total | 208,583 | 197,108 | 198,517 | 191,248 | 208,583 | 197,108 |
ArcelorMittal employees in various parts of the world are represented by trade unions and ArcelorMittal is a party to collective bargaining agreements with employee organizations in certain locations. The following description summarizes the status of certain of these agreements and relationships.
The Company is committed to open, respectful and transparent social dialogue at all of its operations, to strong employee relations, and safe, healthy and quality working lives for all its workers.
Employee relations and engagement
Finding, developing and developingretaining the right people is a strategic priority to build a high-performing organization. We recognizeThe Company recognizes that the world of work has changed and that the expectations of employees and potential employees have changed with it. There is a strong demand for the best talent and the Company wants to ensure it is considered as an aspirational place to work.
That means ensuring employees feel safe, respected and valued. It also means building a culture that constantly keeps employees committed, motivated and eager to perform at their best. In 2018,2019, ArcelorMittal surveyed a wide groupdesigned, developed and activated its Employee Value Proposition which represents the Company’s values, culture, and the unique set of managers at all levelsbenefits ArcelorMittal has to offer its employees in the organizationreturn for their skills, capabilities and experience they bring. ArcelorMittal Employee Value Proposition and its Employer Promise MAKE YOUR WORLD were designed following extensive internal and external research to gather feedback on how it can continue to develop itsestablish itself as an employer brand.of choice in the various markets it operates in. The results of this project will enableEmployee Value Proposition enables the Company to better communicateattract and retain best talents, by increasing the value propositionawareness of ArcelorMittalthe diverse and challenging career opportunities offered. It also helps the Company to ensure that opportunities for employees are better understood both among existing employeesshowcase the role steels play in the modern world and amongst potential recruits of ArcelorMittal.inspires the right talent to join the industry leader in building communities and a more sustainable world.
Employee engagement is key, and feedback is integrated into action plans, to address employees’ concerns. Every two years, a Company-wide engagement survey gauges employees’ opinions, attitudes and levels of satisfaction. This "Speak up!" survey seeks feedback in a range of areas, including organizational direction, leadership and professional deployment and development. It allows employees to relay feedback anonymously to the executive leadership and the Company to build specific action plans to address employee’s concerns. A representative, random sampleThe Speak Up! survey took place in 2019. More than 33,000 employees were invited to anonymously give their feedback and honest opinion. The survey showed a global favorability rate at 70%, stable compared to the 2017 results. Concrete action plans to address employees’ concerns identified in 2019 survey have been put in place at all levels of Company employees is also included in ArcelorMittal's reputation surveys, which canvas the viewsorganization and are regularly followed-up on to ensure implementation of a wide range of stakeholders. Other surveys, conducted at a country level to gauge the most important issues for stakeholders, also include employee samples and in 2018, these were conducted in the United States and Luxembourg, where the results have led to concrete follow-up plans.improvement initiatives.
ArcelorMittal conducts an open and continuous dialogue with its employees to create a working environment based on mutual trust, understanding and respect and to ensure that the rights of its workers are protected. It prides itself on productive working relationships with unions and it works to maintain collective bargaining agreements with employees in all countries of production.
Diversity and inclusion
ArcelorMittal values diversity as a way of bringing fresh perspectives and experiences to the business and as part of its ambition to be an employer of choice. The Company has a presence in over 60 countries and employees from many more and its diversity and inclusion policy aims to encompass different cultures, generations, genders, ethnic groups, nationalities, abilities and social backgrounds. In November 2018, the Company was one of some 50 leading companies from the European Roundtable of Industrialists (ERT), to sign the #EmbraceDifference pledge, to promote diversity and inclusion in the workplace.
ArcelorMittal’s senior management is committed to building a more inclusive culture and recruiting, retaining and promoting more talented women. It also recognizes the increasing expectations of stakeholders, including employees and investors, to report on progress in this area. In 2018, the Company developed KPIs to support this commitment, which it will report against in its Integrated Annual Review. It also began anIn 2018, internal benchmarking projectwas conducted to compare the diversity and inclusion policies and initiatives in place at 11 sites, alongside consultation with employees. The results of this benchmark were shared with the Human Resources Council members and Heads of Human Resource of all segments, in order to inspire them to initiate diversity actions and to compare their practices against other segments of the Company.
In 2018,2019, women held 12.4%12.6% of management positions; this comprised 6%6.9% of Vice-President positions, 6%7.9% at General Manager level and 14%13.8% of Managers. 11.4%Managers and 13% of senior succession plan candidates - those who are foreseen to take over senior manager positions at General Managers level and above - are women.
In line with the worldwide effort to increase gender diversity in company boards, ArcelorMittal met its goal of increasing the number of women on the Board of Directors to at least three by the end of 2015. In 2018, 32019, three of the 9nine positions on the Board of Directors were held by women.
A number of programs are in place to develop women as leaders. These are supported by initiatives including training programs for women employees, mentoring and coaching, networking and role model involvement. This is aligned with a commitment to support future leaders in science, technology, engineering and maths ("STEM"). In 2018,2019, the Company ran
initiatives in a number of countries, including France and the United States, specifically designed to attract women applicants with STEM backgrounds.
In 2017, the ArcelorMittal University launched Women@ArcelorMittal, a program which includes an online learning channel, webinars and face-to-face training; 84in 2019, 133 employees attended sessions organized in 2018.Luxembourg, Brazil and the USA. To help foster a broader inclusive culture, the ArcelorMittal University also runs training programs for employees to build their understanding of how cultural orientations affect attitudes and actions and how they can manage interactions between different cultural perspectives and communication styles.
Initiatives in a number of countries support people with disabilities in the workplace. In France, the seven sites of ArcelorMittal Atlantique & Lorraine have an agreement with three unions to promote the vocational integration of workers with disabilities and they run a dedicated awareness week for the workforce.disabilities. In its Fos-sur-Mer site, during the 2019 Health and Safety Day, the Company runs a training program aimed at qualifying unemployed people with disabilitiesdisplayed all the specific equipment available to work in metallurgical roles in partnership with Agefiph (Fund for the Integrationdisabled employees, such as adapted chairs, computers and communication tools and promoted initiatives that have been conducted to facilitate their professional life, such as facilitation of the Disabled). Alsoaccess to the plant and workstation. In the Saint Chély d’Apcher site, an initiative was conducted in 2019 to encourage employees to spend the day with a disabled person and guide him/her through the site in order to discover the different jobs and live a real immersion in the Company. In Brazil, an inclusiona Diversity and Inclusion program started in 2019. The program will be implemented in 2020 and includes a workforce target for peopleconcrete action plan, with disabilities.
tangible measures such as increased awareness toward disabilities through events and communication material and assessment of Career Development of disabled people.
Employee development
Employee development, including succession planning and the development of young talent, is also crucial in building a high-performing organization. It goes to the heart of the Company's aspiration to engage and retain employees, as described above. The Company aims to have a clear career pathway for employees, supported with ongoing initiatives to build their technical capabilities through training. ArcelorMittal has programs designed to spot people with potential and manage the succession of key roles, as part of its overall strategic workforce planning process, which is overseen by the Appointments, Remuneration and Corporate GovernanceARCGS Committee. Strategic workforce planning is a key element of business unit quarterly reviews.
Employees chart their personal and professional progress through a performance review process with their line managers. This is tracked centrally for non-hourly employees, of whom 96.797.47 % had twice yearly reviews in 2018,2019, compared to 97.2%96.7% in 2017.2018.
Employees can select online and classroom training courses from the ArcelorMittal University, as well as a range of leadership, management, functional, technical and bespoke programs for lifelong learning and professional progression. The ArcelorMittal University is based in Esch-sur-Alzette (Luxembourg) and it has campuses in Temirtau and Karaganda (Kazakhstan), Hamilton (Canada), Aviles (Spain), Ostrava (Czech Republic), Vanderbijlpark (South Africa), Kryvyi Rih (Ukraine) and Tubarão (Brazil) and - since April 2019 - in Dabrowa (Poland). Following the disposal of the Ostrava plant as part of the Ilva remedies, the campus in Ostrava (Czech Republic) does not belong to the network of campuses anymore. Career committees oversee the management and development of individuals, the improvement
of competency levels across the organization and the availability of a pipeline of talent for all key positions. Every year, top management reviews individual succession plans for around 300 key positions worldwide.
Collective Labor Agreements
The Joint Global Health and Safety Agreement signed in 2008 between the Company and the IndustriALL union at the European and international level (formerly European and International Metalworkers Federations, respectively) and United Steelworkers Union in North America remained in effect in 2018.2019. This agreement, which is the first of its kind in the steel industry, recognizes the vital role played by trade unions in improving health and safety. It sets out minimum standards for every site the Group operates with the objective of achieving world-class performance. These standards include the commitment to form joint management of union health and safety committees, as well as training and education programs at the facility level in order to make a meaningful impact on health and safety across the Group. The creation of a joint global health and safety committee is also included in the agreement. This committee consists of representatives of management and the unions and focuses on helping ArcelorMittalArcelorMittal's steel and mining activities to further improve their health and safety performance. This committee meets regularly to support improvements in the efficiency of local committees. In 2018,2019, meetings took place in February in PolandArgentina, in June in Ukraine and in October in South Africa.Germany. In addition, several other safety training programs, including the Take Care Training were rolled out in 20182019 to support the “Journey to Zero” program aimed at reducing the amount of injuries and fatalities in the Group to zero. See “Item 4B—4.B—Information on the Company—Business overview—Competitive strengths—Sustainablestrengths-Sustainable development—Outcome 1: Safe, healthy, quality working lives for ArcelorMittal’s people.Management Theme #1: Health and safety.”
In 2018,2019, collective labor agreements (“CLAs”) were entered into or renewed in the United States, Argentina, Brazil, Liberia, Mexico, South Africa, and most European countries.
The main CLA renewed by ArcelorMittal USA renewed a CLA in November 2018, which was effective September 1, 2018 and covers most of the Company’s unionized employees in the United States. After the existing CLA expired on September 1, 2018, an agreement for a new labor contract was achieved in November 2018 and will beStates, remains effective until it expires on September 1, 2022. This applies to employees at the Indiana Harbor East, Indiana Harbor West, Burns Harbor, Cleveland, Coatesville, Conshohocken, Minorca, Steelton, Riverdale, Warren and Weirton plants. Eight separate CLAs effective September 1, 2018 through September 1, 2022 cover office and technical employees at the Indiana Harbor East plant, process automation employees at the Indiana Harbor East plant, research employees at the Indiana Harbor East plant, bricklayer employees at the Indiana Harbor East and West plants, employees at the Columbus plant, employees at the Obetz plant, employees at the I/N Tek & Kote plant, and employees at the Hibbing Taconite plant. Additional CLAs cover, effective April 1, 2019 through April 1, 2021, the employees at the Monessen plant, effective August 1, 2016 through July 31, 2021,the fleet officer employees and effective August 1, 2019 through July 31, 2023, the fleet seamen employees.
At ArcelorMittal Long Products Canada, unionized employees at Contrecoeur West continue to work under an agreement with the United Steel Workers ("USW") expiring in July 2020. The six-year labor agreements ratified in February 2016, covering Contrecoeur East and Longueuil facilities remains valid until January 2022. The collective agreement with USW covering the Contrecoeur Scrap Recycling Center employees, renewed in April 2016 for a six-year term expiring on March 31, 2022 remains valid. The collective agreement with USW at Hamilton-East Wire, renewed in 2016 for a five-year term expiring July 31, 2021 and the agreement with USW at St-Patrick Wire was renewed in 2017 for a six-year term expiring on December 31, 2023 also remain valid.
ArcelorMittal Mexico and the National Miners Union agreed to a new, one-year contract effective August 1, 2018.2019. ArcelorMittal Mexico continues to explore opportunities with the union to improve workforce productivity, efficiency and competitiveness, in lightincluding scheduling production stoppages due to the crisis caused by the decrease of the significantdemand and low market challenges for 2019.prices. At ArcelorMittal Tubular Products Monterrey, the collective agreement with the National Federation of Independent Unions expired onwas renewed effective February 15,16, 2019 and negotiations for a renewal areaone year period. Negotiations with the unions started in progress.February 2020.
In Brazil, 2019 was a challenging year for labor relations in light of presidential decrees that directly impacted labor issues and union revenue and funding. In this respect, the 2017 “Labor Reform” had an important impact oncollective labor agreement negotiations including an immediate decreaseduring the first half of employment related litigations. In 2018, the numberyear faced additional difficulties due to the absence of cases decreased by 40% as compared to 2017. The post-"Labor Reform" environment was more peaceful for negotiation withunion contributions. However, all the trade unions. The Company’s CLA negotiations vary from one plant to another as these are locatedCLAs in different cities and states throughout the country. Seventeen CLA negotiations took place between May and November, of which fifteenLong Carbon Brazil segment that were signed and concluded without undue delay, while two negotiations are still ongoing. The main criteria for the adjustment of salaries takes into accountbefore October 2019 granted salary adjustments to employees that were equal to or below the rate of inflation registeredinflation. Ten CLAs were negotiated in the 12 months period preceding the datesecond half of the CLA.year.
The Argentinian economy continuesIn the Flat Carbon Latin America segment, negotiations concluded in Vega do Sul and Contagem, granting salary increases at the current rate of inflation to suffer from economic recessionall employees (- 2.92% in Contagem and financial volatility. There is high uncertainty, due3.43% in Vega). In Tubarão, negotiations between the Company and trade union were concluded on January 17, 2020 granting a salary increase of 2.92% to interest rates increases of up to 70% annually and the 2018 GDP falling between 2% to 2.5% and inflation rate endingall employees.
In Argentina, the year at around 47.5%.was characterized by difficult economic circumstances and political instability, mainly caused by the elections. Given high inflation, salary increases granted to employees also tend to be high to match the percentage of inflation. In 2019, four different CLAs were effective for different categories of employees and regions. All CLAs have a duration of 1 year with different expiration deadlines; as such, negotiations are ongoing in Argentina throughout the context, Acindar signed a CLA with the Union UOM in October 2018 to adjust salaries, and a further adjustment will be agreed to in the first quarter of 2019.year.
In Venezuela, the economic collapse continues its course in the absence of corrective measures, hyperinflation has decimated the buying power of the population. GDP fell in 2018 for the fifth consecutive year and there is still a lot of volatility in the country.political situation remains uncertain. No CLA was signed in 20182019 but - with hyperinflation continuing - frequent increases of employee salaries have taken place to account for the impact of inflation.
continuing hyperinflation.
In response to weak market conditions in Europe since 2011, ArcelorMittal has reviewed its footprint and adapted its operations to respond to changing demands and to optimize its costs and capacity utilization. Management and unions have been engaged in constructive social dialogue to better face the challenging economic environment.
In France, a one-year salary agreement covering 20192020 was concluded in December 2019. This agreement covers flat products entities and negotiations will start early 2020 for three of the major entities representing approximately 60% of the Company’s French employees, namely ArcelorMittal Méditerranée, ArcelorMittal Atlantique & Lorraine and Industeel. All other French legal entities have started their negotiations, targeting agreement dates within the first quarter of 2019. During 2018, successful negotiations were reached with three trade unions regarding the Company's pension scheme.
entities. Regular meetings have been held with national representatives of the main trade unions to share all relevant information on various topics, including key challenges for the steel industry. These meetings are aimed at sharing views and reinforcing social dialogue at all levels. As the French law on employee representative bodies has changed, ArcelorMittal has entered (or will enter) intoled negotiations in order to adapt to the new framework to its different legal entities. Some agreements. Due to the difficult economic outlook, some entities have already been successfully concluded and others are expected to be reached throughout 2019.also implemented reduced working hours.
In Luxembourg, the Company continuedPostLux2016 agreement terminated at the implementationend of the « PostLux2016 »June 2019 and has not been renewed or replaced by another plan. A new collective labor agreement was signed in September 2016, which is aimed at securing investments on production sites onJune with the one hand, while enabling pre-retirement and maintainingrepresentatives from the talent pool resulting from previous reorganizations. This agreement will be valid until July 1, 2019. As of September 2018,two unions in the Company entered, upon request from tradefollowing elections in March. A transformation plan has been presented to both unions into negotiations for renewal ofaiming at improving productivity with different measures on a CLA in steel, as well as of an agreement for free hours for delegates in view of the social elections that are3 to take place on March 12, 2019.5 years term.
In Belgium, 2018 was the second yearCLA negotiations at the Company level took place in May/June for blue and white collar workers and led to an agreement within the limits of the 2017-2018“national wage norm” including a salary increase of 1.1% over two years 2019-2020. The CLA period. No new CLA negotiations took place and there were zero salary increases. Significant efforts were exerted across management levels to complete the Gent-Liège cluster organization. Intensivewas signed without voting. The intensive social dialogue was conducted relating towith the carve out of certain Liège production facilities in the contextunions and workforce as part of the remedies forArcelorMittal Italia related divestments continued in 2019, until the acquisitioncompletion of Ilva. Political tensions related tothe divestment on June 30. Social elections (for composition of works councils and safety committees) will be organized in May 2019 and upcoming CLA negotiations for the 2019-2020 period are expected to bring challenges during the year.2020.
In Romania, negotiations for the 2019 CLA began in November 2018 and were finalized in January. The negotiating context also changed for several reasons, including the increase in minimum base salary, the introduction of a minimum salary for university degree employees with one year of seniority, and further changes and minimum wage increases expected during the 2019 election year.
In Germany,Italy, employee relations were managed according to the agreement signed by unions on September 6, 2018 as part of the Ilva acquisition. The main focus was on the renewal of the Work Councils in all plants with a calmnew system of social dialogue, as well as on local environment, health and prudent manner.safety topics, in particular for the Taranto plant. Since November 2019, ArcelorMittal and the Italian Government have entered into negotiations to agree on a new industrial plan. For further information, see “Item 4.A—Information on the Company—Key transactions and events in 2019—ArcelorMittal Italia acquisition and subsequent events”.
In Germany, the CLA was negotiated and renewed without loss of production. Social partners met after finishing CLA negotiations twice in the social dialogue group, comprised of both employer and employee representatives. The focus was on the European Works Council’s (EWC) work in relation to the Ilva acquisition as well as on localof ArcelorMittal Italia, health and safety topics.topics and on different social treatments within ArcelorMittal entities in Germany. Throughout the year, the union supported the Company in its demand for safeguard measures and the implementation of the emissions trading system (ETS) or lower costs of energy to maintain the competitiveness of the steel industry in Germany and Europe. At the end of 2018, the existing CLA expired and the union published steep demands. Negotiations for the renewal of the CLA are ongoing.
In the Czech Republic, the CLA signed in 2016 for 3 years remained valid and only amendments on salaries negotiated on a yearly basis were negotiated. A deal was reached in December 2018 which included a permanent salary increase of 1830 CZK on average per employee per month. The CLA's of ArcelorMittal Ostrava's subsidiaries remain under discussion. In terms of the scope of labor activities, ArcelorMittal Frýdek-Místek (with 466 employees) was sold at the end of February 2018 to Stalprodukt S.A.
At ArcelorMittal Poland has started negotiations with trade unions for major changes to the current CLA will remain valid until one ofCLA. Negotiations are scheduled to last at least 22 months according to the parties terminates it.contemplated procedure. Salary increases are agreed during the annual negotiations as the CLA does not provide for any automatic renewal mechanism. Inmechanism (in 2018, for the first time in history, ArcelorMittal Poland exceptionally reached a salary agreement covering a 2-year period (2018 and 2019)period). An agreement withThe Company received requests from trade unions on general rules that conditional bonuses partially depend on profitability were also concluded. for a salary increase of 11% in the 2020 CLA. The Company’s official position was sent to trade unions in the week of December 16, 2019. Official CLA 2020 negotiations started in January 2020.
Regular meetings were held with the main trade unions in order to share all relevant information on various topics connected with maintenance of ArcelorMittal Poland's production installations.installations and temporary idling of primary operations in Kraków. These meetings are aimed at sharing views and reinforcing social dialogue at new levels. The Company agreed with the trade unions on mitigating social action (including holidays and employees redeployment) effects in the period of the temporary idling of the blast furnace and steelmaking plant in ArcelorMittal Poland which regulates the re-allocation of employees and other social issues during the idling.
In the area of remuneration and employment, employee relations were managed in the context of decreasing unemployment in the country and rising wages in Poland (with the minimum wage increasing by 7.1% in 2019).Poland. The focus of discussions with social partners on enhancing a culture of cooperation based on mutual respect and supporting creative ideas that bring added value and support the labor market.
Due to the difficulties in the steel market, an agreement was signed to regulate economic unemployment covering a 2-year period (2019 and 2020), which includes actions like the maximization of trainings, redeployment of employees and additional days off, etc.
In Spain, ArcelorMittal's policy aims at promoting social dialogue. Accordingly, management and unions have consistently worked together in efforts to find solutions to regain competitiveness and to maintain social dialogue. With this objective, a framework agreement was used between 2016 toand 2018 for entities producing flat products and some specific companies of ArcelorMittal Downstream Solutions, which included a defined but moderate base salary increase. An additional variable premium linked to productivity and the financial objectives of the Company was included in the framework agreement. AllIn 2019, a process was launched to negotiate a new framework agreement, but it was not possible to obtain the support of a sufficient majority of the employee representatives to ratify the preliminary agreement reached in July. For that reason, it was decided to refocus the process to a site-by-site negotiation and, in this context, collective labor agreements were signed at most of the sites in 2019 (Asturias, Etxebarri, Lesaca, among others), with negotiations continuing at the other Spanish legal entities from Long Products have extended their CLA covering 2017 and 2018 and negotiations for 2019 are ongoing.
plants. Additionally, the Temporary Layoff Plan,temporary layoff plan, in force since June 2009 and designed to adapt the available human resources to the levels of activity in the facilities was extended until the end of 2020. It is being applied on a plant-by-plant basis depending on the activity.activity and its implementation has been increased due to the market and economic situation in Spain.
ArcelorMittal remains committed to a strong
Throughout 2019, the information and continuous social dialogue in sensitive contexts. Continuous and high-level conversation, a reactive process based on the exchangeconsultation of views and fully transparent discussions underlies ArcelorMittal's fundamental approach to anticipating and managing change within the Company. In 2018, the European Works Council (EWC) experienced an extraordinarily intensive level("EWC’’) on the sale of activity due tothe remedies imposed by the European Commission after the acquisition of Ilva;ArcelorMittal Italia was finalized.
In 2019, ArcelorMittal also invited the number of meetings doubled to ensure updated information on the acquisition and the remedies was available to the employee representatives.
Meanwhile, the EWC meetings also represented an opportunity to review ArcelorMittal activities in Europe and to identify and highlight the Company’s key challenges. The Company regularly presented and commented on safety, financial results, market outlooks, quality, industrial performance, human resources topics, recent developments or projects maintaining the proximity with the top-level management and employee representative bodies. As partmembers of the EWC missions, three working groups on health and safety, employment and social responsibility have met during the year on the common topic of subcontractor management.
In November 2018,to open a three-day training session on environment and health and safety topics, was organized by management and was attended by more than 50 employee representatives. In December, the plenary session was dedicated to the reviewnegotiation aimed at revising some of the segments’ key information such as health and safety, employment, financial results and business perspective with the participationelements of the respective CEOsArcelorMittal's EWC agreement signed in 2007. The negotiations started in early November and are expected to be finalized in the first quarter of the businesses operating2020.
The employee situation in Europe.
In Ukraine remained stable in 2019. Among the five collective labor disputes were registered at Kryviy rih, of whichKryvyi Rih, two were suspended pending court decision (one registered in 2017decisions , two are under review and one in 2018). Three collective labor disputes (one registered in 2016 and two in 2017) are under review.was solved following negotiations with trade unions.
In
In South Africa, the Company’sArcelorMittal South Africa's operations are currently covered by the CLA concluded in August 2018 with the two recognized trade unions, Solidarity and NUMSA, for a period of three years ending March 31, 2021. The focus on productivity will remain integral to the Business Transformation Project, which was initiated in June 2018, as well as the Strategic Workforce Planning process that commenced in January 2019. Formal engagements with labor, as part of these processes, will be initiated ifhave started as required as perunder the relevant South African legislation. A further factor affectinglegislation after the labor relations landscape relates toCompany announced a large scale reorganization and reduction on July 10, 2019. ArcelorMittal South Africa has engaged in formal consultations with employee representatives since August under the treatment under South African law of different categories of temporary labor and related rulings in South African courts, including the Constitutional Court. The Company is currently reviewing the implications thereof, as well as measures it may be required to take.
In Kazakhstan, all the requirements, terms and conditionsfacilitation of the Commission for Conciliation, Mediation and Arbitration ("CCMA’"). The consultation process concluded on November 6, 2019 and the implementation of the new organizational structures and retrenchment of redundant employees will be concluded by the end of January 2020. ArcelorMittal South Africa further announced the wind down of operations at the Saldanha Works facility on November 12, 2019 and concluded formal consultations with employee representatives, as prescribed by law, on January 7, 2020. It is anticipated that all operations at the Saldanha facility will cease during February 2020 at which time retrenchment of Saldanha based employees will be concluded.
NUMSA, the largest union operating within ArcelorMittal South Africa by absolute membership has continued to apply pressure on ArcelorMittal South Africa to equalize the remuneration and benefits of many of the employees of contractors who deliver a service to ArcelorMittal South Africa. This culminated in 8 weeks of strike action between March 11, 2019 and May 7, 2019 which did not significantly impact the operations of the Company.
As far as ArcelorMittal Temirtau is concerned, the CLA were fulfilled in 2018.for both the steel and coal operations covers the period from January 1, 2018 to January 1, 2021 and the CLAs for its subsidiaries are valid until 2021. Social dialogue with trade unions is stable. The currentstable, and all the issues arising as a result of CLA was concluded for 3 years covering 2018, 2019implementation are negotiated during bilateral committees consisting of representatives from the employer and 2020.trade unions.
In 2018,2019, the miningMining segment has maintained productive social dialogue and relationships with its trade unions and communities where there are operations. Like every year, theThe collective labor agreements signed in 2018 in Canada with USW Union and in Liberia with UWUL Union were still in force and will be renegotiated in 2020 and 2021, respectively. The annual negotiations with SINDEXTRA Union infor Serra Azul in Brazil were concluded within the mandate. Similarly, the CLAstarted in Liberia with the UWUL union, a 3 year collective agreement, was successfully concluded within mandate during November 2018. In Canada, the implementation of a 3 years CLA agreed2019, similar to in 2017 with USW Union is currently under way.prior years.
E. Share ownership
As of December 31, 2018,2019, the aggregate beneficial share ownership of ArcelorMittal directors and senior management (15 individuals) totaled 370,557267,905 ArcelorMittal shares (excluding shares beneficially owned by the Significant Shareholder), including options to acquire 138,38429,250 ArcelorMittal ordinary shares that are exercisable within 60 days of December 31, 2018,2019, representing 0.04%0.03% of the total issued share capital of ArcelorMittal. Excluding options to acquire ArcelorMittal ordinary shares (and excluding shares beneficially owned by the Significant Shareholder), these 15 individuals beneficially own 232,173238,655 ArcelorMittal ordinary shares. Other than Mr. Lakshmi Mittal, each director and member of senior management beneficially
owns less than 1% of ArcelorMittal’s shares. For purposes of this Item 6.E, ordinary shares held directly by Mr. Lakshmi Mittal and his wife, Mrs. Usha Mittal, and options held directly by Mr. Lakshmi Mittal are aggregated with those ordinary shares beneficially owned by the Significant Shareholder. In addition, seeSee “Item 7.A—Major shareholders and related party transactions—Major shareholders” for the beneficial share ownership of the Significant Shareholder, Mr. Aditya Mittal and Ms. Vanisha Mittal Bhatia.
On April 27, 2015, ArcelorMittal adopted share ownership guidelines for its CEO. The share ownership policy aims to demonstrate to ArcelorMittal’ shareholders, the investing public and the Company’s employees, the commitment of the CEO to the Company and directly aligns his interests with those of the Company’s shareholders. Accordingly, the CEO should, within 5
five years of the end of the current calendar year, own shares of the Company’s common shares at least equal to 3three times his annual salary and hold the purchased shares for so long as he serves the Company.
In accordance with the Luxembourg Stock Exchange’s 10 Principles of Corporate Governance, independent non-executive members of ArcelorMittal's Board of Directors do not receive share options, RSUs or PSUs, and the policy of the Company is not to grant any share-based remuneration to members of the Board of Directors who are not executives of the Company.
See “Item 6.B—Directors, senior management and employees—Compensation” for a description of options, RSUs and PSUs held by members of ArcelorMittal’s senior management, including the Chairman and CEO.
The following tables summarize outstanding share options, as of December 31, 2018,2019, granted to the members of the ex-GMB and Executive Officers of ArcelorMittal:
|
| | | | | | | | | |
| Options granted in 2010 | | Options granted in 2009 | | | | Options Total | | Weighted Average Exercise Price of Options |
Ex-GMB (Including Chief Executive Officer) | 56,967 | | 61,333 | | | | 118,300 | | — |
Exercise price1 | $91.98 | | $109.14 | | | | — | | $100.88 |
Term (in years) | 10 | | 10 | | | | — | | — |
Expiration date | Aug. 3, 2020 | | Aug. 4, 2019 | | | | — | | — |
|
| |
| Options granted in 2010 |
CEO office | 33,900 |
Exercise price1 | $91.98 |
Term (in years) | 10 |
Expiration date | Aug. 3, 2020 |
| |
1 | The options granted in the table above were revised following the completion of the Company’s share consolidation of each three existing shares into one share without nominal value on May 22, 2017. |
|
| | | | | | | | | |
| Options granted in 2010 | | Options granted in 2009 | | | | Options Total | | Weighted Average Exercise Price of Options |
Executive Officers1 | 29,250 | | 29,667 | | | | 58,917 | | — |
Exercise price2 | $91.98 | | $109.14 | | | | — | | $100,62 |
Term (in years) | 10 | | 10 | | | | — | | — |
Expiration date | Aug. 3, 2020 | | Aug. 4, 2019 | | | | — | | — |
|
| |
1 | Any Executive Officer who has been a GMB member is includedOptions granted in the Ex-GMB members in the prior table. |
| 2010 |
2Executive Officers | The options granted in the table above were revised following the completion of the Company’s share consolidation of each three existing shares into one share without nominal value on May 22, 2017.29,250 |
Exercise price1 | $91.98 |
Term (in years) | 10 |
Expiration date | Aug. 3, 2020 |
1 The options granted in the table above were revised following the completion of the Company’s share consolidation of each three existing shares into one share without nominal value on May 22, 2017.
The following tables summarize outstanding PSUs and RSUs granted to the members of the ex-GMB and Executive OfficersCEO Office of ArcelorMittal in 2019, 2018, 2017 2016 and 2015.2016.
| | | PSUs granted in 2018 | PSUs granted in 2017 | | PSUs granted in 2016 | | PSUs granted in 2019 | PSUs granted in 2018 | PSUs granted in 2017 | | PSUs granted in 2016 |
Ex-GMB (Including Chief Executive Officer) | 134,861 | 90,084 | | 306,536 | | |
CEO office | | 172,517 | 134,861 | 90,084 | | 306,536 |
Term (in years) | 3 | | 3+2 | | 3 | | 3+2 |
Vesting date1 | January 1, 2022 | January1, 2021 | | January 1, 2020 - January 1, 2022 | | January 1, 2023 | January 1, 2022 | January1, 2021 | | January 1, 2020 - January 1, 2022 |
| |
1 | See “Item 6.B—Directors, senior management and employees—Compensation—Remuneration—Long-term incentives plans”, for vesting conditions. |
| | | PSUs granted in 2018 | PSUs granted in 2017 | | PSUs granted in 2016 | | PSUs granted in 2015 | PSUs granted in 2019 | PSUs granted in 2018 | PSUs granted in 2017 | | PSUs granted in 2016 |
Executive Officers2 | 76,550 | 44,720 | | 445,560 | | 10,668 | |
Executive Officers | | 100,500 | 76,550 | 44,720 | | 149,920 |
Term (in years) | 3 | | 3+2 | | 3 | 3 | | 2 |
Vesting date1 | January 1, 2022 | January 1, 2021 | | January 1, 2019 -January 1, 2021 | | January 1, 2019 | January 1, 2023 | January 1, 2022 | January 1, 2021 | | January 1, 2021 |
| |
1 | See note 7.38.3 to the consolidated financial statements, for vesting conditions. |
| |
2 | Any Executive Officer who has been a GMB member is included in the Ex-GMB members in the prior table. |
See note 7.38.3 of the consolidated financial statements for a description of ArcelorMittal’s equity-settled share-based payments to certain employees, including stock options, RSUs and PSUs.
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ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. Major shareholders
The following table sets out information as of December 31, 20182019 with respect to the beneficial ownership of ArcelorMittal ordinary shares by each person who is known to be the beneficial owner of more than 5% of the shares and all directors and senior management as a group. | | | ArcelorMittal Ordinary Shares1 | ArcelorMittal Ordinary Shares1 |
| Number | | % | Number | | % |
Significant Shareholder2 | 382,297,751 |
| | 37.41 | % | 382,277,751 |
| | 37.41 | % |
Treasury Shares3 | 8,335,365 |
| | 0.82 | % | 9,824,202 |
| | 0.96 | % |
Other Public Shareholders4 | 631,270,507 |
| | 61.77 | % | |
Other Public Shareholders | | 629,801,670 |
| | 61.63 | % |
Total | 1,021,903,623 |
| | 100.00 | % | 1,021,903,623 |
| | 100.00 | % |
Of which: Directors and Senior Management5 | 370,557 |
| | 0.04 | % | |
Of which: Directors and Senior Management4 | | 267,905 |
| | 0.03 | % |
| |
1 | For purposes of this table, a person or group of persons is deemed to have beneficial ownership of any ArcelorMittal ordinary shares as of a given date on which such person or group of persons has the right to acquire such shares within 60 days after December 31, 20182019 upon exercise of vested portions of stock options. All stock options that have been granted to date by ArcelorMittal have vested. |
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2 | For purposes of this table, ordinary shares owned directly by Mr. Lakshmi Mittal and his wife, Mrs. Usha Mittal, and options held directly by Mr. Lakshmi Mittal, are aggregated with those ordinary shares beneficially owned by the Significant Shareholder. At December 31, 2018,2019, Mr. Lakshmi Mittal and his wife, Mrs. Usha Mittal, had direct ownership of ArcelorMittal ordinary shares and beneficial ownership (within the meaning set forth in Rule 13d-3 of the Exchange Act), through the Significant Shareholder, of the outstanding equity of two holding companies that own ArcelorMittal ordinary shares—Nuavam Investments S.à r.l. (“Nuavam”) and Lumen Investments S.à r.l. (“Lumen”). Nuavam, a limited liability company organized under the laws of Luxembourg, was the owner of 63,658,348 ArcelorMittal ordinary shares. Lumen, a limited liability company organized under the laws of Luxembourg, was the owner of 318,288,328 ArcelorMittal ordinary shares. Mr. Mittal was the direct owner of 286,742 ArcelorMittal ordinary shares and held options to acquire an additional 38,83318,833 ArcelorMittal ordinary shares, all of which are, for the purposes of this table, deemed to be beneficially owned by Mr. Mittal due to the fact that these options are exercisable within 60 days. Mrs. Mittal was the direct owner of 25,500 ArcelorMittal ordinary shares. Mr. Mittal, Mrs. Mittal and the Significant Shareholder shared beneficial ownership of 100% of the outstanding equity of each of Nuavam and Lumen (within the meaning set forth in Rule 13d-3 of the Exchange Act). Accordingly, Mr. Mittal was the beneficial owner of 382,272,251382,252,251 ArcelorMittal ordinary shares, Mrs. Mittal was the beneficial owner of 381,972,176 ordinary shares and the Significant Shareholder (when aggregated with ordinary shares of ArcelorMittal and options to acquire ordinary shares of ArcelorMittal held directly by Mr. and Mrs. Mittal) was the beneficial owner of 382,297,751382,277,751 ordinary shares. Excluding options, Mr. Lakshmi Mittal and Mrs. Usha Mittal together beneficially owned 382,258,918 ArcelorMittal ordinary shares at such date. As of December 31, 20172018 and 20162017 , the Significant Shareholder (together with Mr. Mittal and Mrs. Mittal) held 37.41% and 37.40%37.41% of the Company’s ordinary shares respectively. |
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3 | Represents ArcelorMittal ordinary shares repurchased pursuant to share repurchase programs, fractional shares returned in various transactions, and the use of treasury shares in various transactions; includes (1) 138,38429,250 stock options that can be exercised by senior management (other than Mr. Mittal) and (2) 38,83318,833 stock options that can be exercised by Mr. Mittal, in each case within 60 days of December 31, 2018,2019, i.e. 0.02%0.001% of the total amount of outstanding shares. If exercised, the shares underlying these options will either have to be delivered out of Treasury shares or by the issuance of additional shares. |
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4 | The Capital Group Companies Inc.’s shareholding increased to 168,541,781 shares, corresponding to an interest of 5.49% on April 11, 2016 and subsequently decreased to 147,321,072 on January 25, 2017, corresponding to an interest of 4.8%. Following the reverse stock split in May 2017, the Capital Group Companies Inc. was the owner of 49,107,024 ArcelorMittal shares on December 31, 2018.
|
| |
5 | Includes shares beneficially owned by directors and members of senior management listed in Item 6.E of this annual report; excludes shares beneficially owned by Mr. Mittal. Note that (i) stock options included in this item that are exercisable within 60 days are excluded from “Treasury Shares” above (see also note 3 above) and (ii) ordinary shares included in this item are included in “Other Public Shareholders” above. |
Aditya Mittal is the direct owner of 120,413 ArcelorMittal ordinary shares and holds options to acquire an additional 31,06715,067 ArcelorMittal ordinary shares, together representing 0.1%0.01% of the ArcelorMittal ordinary shares outstanding. Aditya Mittal holds a total of 243,534326,118 PSUs of which 40,653 may vest in 2021, 64,559 may vest in 2022 and 138,3222022,138,322 of which 50% may vest after 3 years in 2020 and 50% may vest after five years in 2022.2022 and 82,584 which may vest in 2023. As the vesting of PSUs is dependent on company performance criteria not fully within the control of the PSU holder, Aditya Mittal does not beneficially own ArcelorMittal ordinary shares by virtue of his ownership of the PSUs. Aditya Mittal is the son of Mr. Mittal and Mrs. Mittal and is Group President and CFO and CEO of ArcelorMittal Europe. Vanisha Mittal Bhatia is the direct owner of 8,500 ArcelorMittal ordinary shares, representing less than 0.1% of the ArcelorMittal ordinary shares outstanding. Vanisha Mittal Bhatia is the daughter of Mr. Mittal and Mrs. Mittal and a member of the Company’s Board of Directors.
As of December 31, 2015, 1,817,869 Mandatorily Convertible Notes had been converted at the option of their holders. On January 15, 2016, ArcelorMittal issued 137,967,116 (45,989,039 after reverse stock split mentioned below) new ordinary shares of the Company upon conversion as at such date of the 88,182,131 outstanding Mandatorily Convertible Notes at a conversion ratio of 1.56457. Following this issuance, the share capital of the Company was comprised of 1,803,359,338 (601,119,779 after reverse stock split mentioned below) shares and the Significant Shareholder (when aggregated with ordinary shares of ArcelorMittal and options to acquire ordinary shares of ArcelorMittal held directly by Mr. and Mrs. Mittal) held 37.41% of the outstanding shares.
Following the Company’s equity offering authorized by the EGM which closed on April 8, 2016, the Company’s issued share capital was increased from 1,803,359,338 (601,119,779 after reverse stock split mentioned below) ordinary shares to 3,065,710,869 (1,021,903,623 after reverse stock split mentioned below) ordinary shares.
The EGM of ArcelorMittal shareholders held on May 10, 2017 approved a reverse stock split. Following this approval, on May 22, 2017 ArcelorMittal completed the consolidation of each three existing shares in ArcelorMittal without nominal value into one share without nominal value. As a result, the aggregate number of shares issued and fully paid up decreased from 3,065,710,869 to 1,021,903,623.
The ArcelorMittal ordinary shares may be held in registered form on the Company’s register only. Registered shares are fully fungible and may consist of:
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a. | ArcelorMittal Registry Shares, which are registered directly on ArcelorMittal’s Luxembourg shareholder register, |
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b. | shares traded on Euronext Amsterdam, Euronext Paris, the regulated market of the Luxembourg Stock Exchange and the Spanish Stock Exchanges, which are held in Euroclear, or |
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c. | shares traded on the NYSE, named the ("New York Registry Shares,Shares"), which are registered (including in the name of the nominee of DTC) in a registerNew York Share Register kept by or on behalf of ArcelorMittal by Citibank N.A., its New York transfer agent. |
Under Luxembourg law, the ownership of registered shares is evidenced by the inscription of the name of the shareholder, the number of shares held by such shareholder and the amount paid up on each share in the shareholder register of ArcelorMittal.
At December 31, 2018, 2,7092019, 2,691 shareholders other than the Significant Shareholder, holding an aggregate of 21,821,25321,826,165 ArcelorMittal ordinary shares were registered in ArcelorMittal’s shareholder register, representing approximately 2.14% of the ordinary shares issued (including treasury shares).
At December 31, 2018,2019, there were 200175 registered shareholders holding an aggregate of 57,620,57451,794,561 New York Registry Shares, representing approximately 5.64%5.07% of the ordinary shares issued (including treasury shares). ArcelorMittal’s knowledge of the number of New York Registry Shares held by U.S. holders is based solely on the records of its New York transfer agent regarding registered ArcelorMittal ordinary shares.
At December 31, 2018, 571,154,1962019, 576,975,297 ArcelorMittal ordinary shares were held through the Euroclear/Iberclear clearing system in The Netherlands, France, Luxembourg and Spain.Spain, representing approximately 56.5% of the ordinary shares issued (including treasury shares).
Voting rights
Each share entitles the holder to one vote at the general meeting of shareholders, and no shareholder benefits from specificspecial voting rights. For more information relating to ArcelorMittal shares, see “Item 10.B—Additional information—Memorandum and Articles of Association—Voting and information rights”.
B. Related party transactions
ArcelorMittal engages in certain commercial and financial transactions with related parties, including associates and joint ventures of ArcelorMittal. Please refer to note 1112 of ArcelorMittal’s consolidated financial statements. Further information related to required disclosure of related party transactions under the Shareholders’ Rights Law of August 1, 2019 implementing the European Union's Shareholders' Rights Directive in Luxembourg (the "Shareholders' Rights Law") is included in “Item 10.B—Memorandum and Articles of Association—Voting and information rights”.
Shareholder’s Agreement
Mr. Lakshmi Mittal and ArcelorMittal are parties to a shareholder and registration rights agreement (the “Shareholder’s Agreement”) dated August 13, 1997. Pursuant to the Shareholder’s Agreement and subject to the terms and conditions thereof, ArcelorMittal shall, upon the request of certain holders of restricted ArcelorMittal shares, use its reasonable efforts to register under the Securities Act of 1933, as amended, the sale of ArcelorMittal shares intended to be sold by those holders. By its terms, the Shareholder’s Agreement may not be amended, other than for manifest error, except by approval of a majority of ArcelorMittal’s shareholders (other than the Significant Shareholder and certain permitted transferees) at a general shareholders’ meeting.
Memorandum of Understanding
The Memorandum of Understanding entered into in connection with the Mittal Steel acquisition of Arcelor, certain provisions of which expired in August 2009 and August 2011, is described under “Item 10.C—Additional information—Material contracts—Memorandum of Understanding”.
Agreements with Aperam SA post-Stainless Steel Spin-Off
In connection with the spin-off of its stainless steel division into a separately focused company, Aperam SA (“Aperam”), which was completed on January 25, 2011, ArcelorMittal entered into several agreements with Aperam and/ or certain Aperam subsidiaries which are still in force: a purchasing services agreement for negotiation services from ArcelorMittal Purchasing (the “Purchasing Services Agreement”) as well as certain commitments regarding cost-sharing in Brazil and certain other ancillary arrangements governing the relationship between Aperam and ArcelorMittal following the spin-off, as well as certain agreements relating to financing.
The parties agreed to renew a limited number of services where expertise and bargaining power created value for each party. ArcelorMittal will continue to provide certain services in 20192020 and 2021 relating to areas including environmental and technical support.
In the area of research and development at the time of the spin-off, Aperam entered into a framework arrangement with ArcelorMittal to establish a structure for future cooperation in relation to certain ongoing or new research and development programs. Currently, only limited research and development support is implemented through this agreement, but new collaborative endeavors are foreseen in 2019.2020.
Under the terms of the Purchasing Services Agreement and ArcelorMittal Sourcing Agreement, Aperam still relies on ArcelorMittal for services in relation to the negotiation of certain contracts with global or large regional suppliers, including those relating to the following key categories: operating materials (rolls (only hot strip mill), electrodes and refractory materials), spare parts, transport,sea freight, industrial products and services.support services (excluding industrial services). The Purchasing Services Agreement also permits Aperam to avail itself of the services and expertise of ArcelorMittal for certain capital expenditure items. The Purchasing Services Agreement was entered into for an initial term of two years, which was to expire on January 24, 2013. However, since that date, the Purchasing Services Agreement has been extended successively and will remain in force until 2021. The ArcelorMittal Sourcing Agreement is effective starting from January 2020 for the sale of electrodes to Aperam. Specific IT service agreements have been put in place with Aperam, one for Asset Reliability Maintenance Program (ARMP)("ARMP") in its Brazilian entities, and two others for the use in Europe of ARMP and for the use of the global wide area network (WAN). In Europe, Aperam purchased most of its electricity and natural gas though energy supply contracts put in place for the period 2014-2019 with ArcelorMittal Energy SCA and ArcelorMittal Purchasing SAS.SAS, and such contracts are to be automatically renewed in 2020.
Purchasing activities will continue to be provided to Aperam pursuant to existing contracts with ArcelorMittal entities that it has specifically elected to assume. In addition, since 2011, a services agreement has been concluded between ArcelorMittal Shared Service Center Europe Sp z.o.o. Sp.k. and Aperam for accounting services.
In connection with the spin-off, management also renegotiated an existing Brazilian cost-sharing agreement between ArcelorMittal Brasil and Aperam Inox América do Sul S.A. (formerly known as ArcelorMittal Inox Brasil), pursuant to which, starting as of April 1, 2011, ArcelorMittal Brasil continued to perform purchasing for the benefit of certain of Aperam’s Brazilian subsidiaries, with costs being shared on the basis of cost allocation parameters agreed between the parties.
Headquarters
ArcelorMittal Kirchberg Real Estate s.à r.l., Kennedy 2020 SAS, and Aperam Real Estate s.à r.l, which are subsidiaries of ArcelorMittal and Aperam, respectively, signed a land use right for a combined head office project in Kirchberg, Luxembourg with Fonds Kirchberg on March 7, 2019.
C. Interest of experts and counsel
Not applicable.
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ITEM 8. | FINANCIAL INFORMATION |
A. Consolidated statements and other financial information
Export sales
Because ArcelorMittal’s customers are mainly based outside its home country of Luxembourg, all of its sales are considered to be export sales. Annual sales to a single individual customer did not exceed 5% of sales in any of the periods presented.
Legal proceedings
ArcelorMittal is currently and may in the future be involved in litigation, arbitration or other legal proceedings. Provisions related to legal and arbitration proceedings are recorded in accordance with the principlesaccounting policies described in note 8.19.1 to ArcelorMittal’s consolidated financial statements. Please refer to note 8.39.3 for a description of contingencies, including legal proceedings.
Dividend distributions
Based on Luxembourg law and its Articles of Association, ArcelorMittal allocates at least five percent of its net profits to the creation of a reserve. This allocation ceases to be compulsory when the reserve reaches ten percent (10%) of its issued share capital, and becomes compulsory once again when the reserve falls below that percentage. Under Luxembourg law, the amount of any dividends paid to shareholders may not exceed the amount of the profits at the end of the last financial year plus any profits carried forward and any amounts drawn from reserves that are available for that purpose, less any losses carried forward and sums to be placed in reserve in accordance with Luxembourg law or the Articles of Association. A company may not pay dividends to shareholders when, on the closing date of the last financial year, the net assets are, or following the payment of such dividend would become, lower than the amount of the subscribed capital plus the reserves that may not be distributed by law or by virtue of the articles of association. ArcelorMittal’s Articles of Association provide that the portion of annual net profit that remains unreserved is allocated as follows by the general meeting of shareholders upon the proposal of the Board of Directors:
a global amount is allocated to the Board of Directors by way of directors’ fees (“tantièmes”). This amount may not be less than €1,000,000. In the event that the profits are insufficient, the amount of €1,000,000 shall be imputed in whole or in part to charges. The distribution of this amount among the members of the Board of Directors shall be effected in accordance with the Board of Directors’ rules of procedure; and
the balance is distributed as dividends to the shareholders or placed in the reserves or carried forward.
Interim dividends may be distributed under the conditions set forth in Luxembourg law by decision of the Board of Directors.
No interest is paid on dividends declared but not paid which are held by the Company on behalf of shareholders.
On November 6, 2015, ArcelorMittal’s Board of Directors proposed the suspension of the dividend for the financial year 2015. This proposal was approved by the shareholders at the annual general meeting held on May 4, 2016.
The Board of Directors reviewed the progress made in 2016, and although not concerned by the sustainability of the Company’s performance, it nevertheless wanted to see further progress. As such, deleveraging remained the near-term priority for surplus cash flow and the Board of Directors decided against proposing a dividend from 2016 earnings. This proposal was approved by the shareholders at the annual general meeting held on May 10, 2017.
On January 31, 2018, the Company announced that the Board has agreed on a new dividend policy following two years of no dividends, which was proposed to shareholders at the annual general meeting of shareholdersAGM in May 2018. GivenArcelorMittal intends to progressively increase the current deleveraging focus, dividends were proposedbase dividend paid to beginits shareholders, and, on attainment of the net debt target at $0.10/share in 2018 (paid from 2017 results) and were approved at the annual general meetingor below $6 billion, return a percentage of shareholders on May 9, 2018 . They amounted to $101 million and were paid on June 13, 2018. Furthermore,net cash provided by operating activities less cash outflows for capital expenditures annually. Accordingly, the Board proposesproposed an increase in the base dividend for 2019 (paid from 2018 earnings) from $0.10 (paid in 2018 from 2017 earnings) to $0.20 per share which was approved by the shareholders at the AGM in May 2019 and was paid on June 13, 2019. On February 6, 2020, given the resilient cash flow and progress towards its net debt target (revised to $7 billion during 2019 to reflect impact of IFRS 16), the Board proposed a base dividend of $0.30 per share for 2020 (in respect of 2019), which will be proposed to the shareholders at the AGM inon May 2019.
Once the Company achieves net debt at or below its $6 billion target, then the Company is committed to returning a portion of the amount of annual net cash provided by operating activities less capital expenditures to shareholders.
5, 2020.
B. Significant changes
Not applicable.
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ITEM 9. | THE OFFER AND LISTING |
A. Offer and listing details
Nature of trading market
ArcelorMittal shares are listedSee below "Item 9.C—The offer and traded on the NYSE (symbol "MT"). ArcelorMittal shares are listed and traded (through a single order book as from January 14, 2009) on the Euronext European markets (Paris and Amsterdam) (symbol “MT”), are admitted to trading on the Luxembourg Stock Exchange’s regulated market and listed on the Official List of the Luxembourg Stock Exchange (symbol “MT”) and are listed and traded on the Spanish Stock Exchanges (symbol “MTS”)listing details—Markets".
B. Plan of distribution
Not applicable.
C. Markets
ArcelorMittal shares are listed and traded (through a single order book as from January 14, 2009) on the Euronext European markets (Paris and Amsterdam) (symbol “MT”), are admitted to trading on the Luxembourg Stock Exchange’s regulated market and listed on the Official List of the Luxembourg Stock Exchange (symbol “MT”) and are listed and traded on the Spanish Stock Exchanges (symbol “MTS”). In the United States, ArcelorMittal shares are also listed and traded on the NYSE (symbol “MT”).
D. Selling shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the issue
Not applicable.
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ITEM 10. | ADDITIONAL INFORMATION |
A. Share capital
As of December 31, 2018,2019, the Company’s issued share capital was $364 million represented by 1,021,903,623 ordinary shares without nominal value. The Company's issued share capital changed as described below in 2016, 2017 and 2018.
Out of the total of 1,021,903,623 shares in issue, 8,335,3659,824,202 shares were held in treasury by ArcelorMittal at December 31, 2018,2019, representing approximately (0.82)%0.96% of its issued share capital.
The Company’s authorized share capital, including the issued share capital, was $411 million represented by 1,151,576,921 ordinary shares without nominal value as of December 31, 2018.
On January 15, 2016, following the maturity of the $2.25 billion 6% Mandatorily Convertible Subordinated Notes due 2016 (the “Notes”), the Company’s issued share capital increased by €570 million from €6,883 million, represented by 1,665,392,222 shares without nominal value, as of December 31, 2015 to €7,453 million represented by 1,803,359,338 shares without nominal value. For the 1,817,869 Notes converted at the option of their holders during the fourth quarter of 2015, the Company delivered a total of 2,275,026 treasury shares.
On February 5, 2016, the Company announced its intention to increase its capital through a rights issue with shareholders benefiting from non-statutory preferential subscription rights on terms to be determined by the Company. At its meeting on February 3, 2016, the Board of Directors resolved, among other things and subject to approval by an extraordinary general meeting of shareholders, to authorize the issue of up to 30,000,000,000 new ordinary shares, to cancel the statutory preferential subscription rights of the existing shareholders and to authorize the granting of preferential subscription rights to existing shareholders on terms to be determined based on market practice and conditions (the “equity offering”).
The extraordinary general meeting (the “EGM”) of ArcelorMittal shareholders, held on March 10, 2016, approved the two resolutions on its agenda:
to reduce the share capital of the Company without distribution to shareholders, in order to reduce the par value of the shares in the Company to an amount of 10 euro cents per share and
to increase the Company’s2019.The Company's authorized share capital including the authorization to limit or cancel the shareholders’ preferential subscription rights.
Following such approval, the Company’s share capital decreased on March 10, 2016 from €7,453 million to €180 million represented by 1,803,359,338 ordinary shares without nominal value. The Company’s authorized share capital decreased from €8,249 millionchanged as of December 31, 2015 represented by 1,995,857,213 shares to €200 million with an unchanged number of shares and subsequently increased to €3,200 million represented by 31,995,857,213 shares.
As a result of the Company’s equity offering authorized by the EGM and which closed on April 8, 2016 at a price of €2.20 per share, the Company’s issued share capital increased from €180 million to €306 million represented by 3,065,710,869 ordinary shares without nominal value. The Company’s authorized share capital including the issued share capital decreased from €3,200 million represented by 31,995,857,213 shares to €337 million represented by 3,372,281,956 ordinary shares without nominal value.described below in 2017.
The EGM of ArcelorMittal shareholders held on May 10, 2017 approved a reverse stock split and an increase of the Company’s authorized share capital from €337 million to €345 million. Following this approval, on May 22, 2017 ArcelorMittal completed the consolidation of each three existing shares in ArcelorMittal without nominal value into one share without nominal value. As a result, the authorized share capital increased from €337 million represented by 3,372,281,956 ordinary shares without nominal value as of December 31, 2016 to €345 million represented by 1,151,576,921 ordinary shares without nominal value. There was no change in the issued share capital of ArcelorMittal which continues to amount towas €306 million as of December 31, 2017 but the aggregate number of shares issued and fully paid up decreased from 3,065,710,869 to 1,021,903,623.
The EGM of ArcelorMittal shareholders held on May 16, 2018 approved the change of currency of the Company's share capital from euro to U.S. dollar based on the exchange rate published by the European Central Bank on May 15, 2018. As a result, the issued share capital amountsamounted to $364 million at December 31, 2018. There was no change in the aggregate number of shares issued which continues to amount to 1,021,903,623 ordinary shares fully paid without nominal value. The Company’s authorized share capital, including the issued share capital, amountsamounted to $411 million at December 31, 20182019 represented by 1,151,576,921 ordinary shares without nominal value.
Over the years, ArcelorMittal has issued equity-settled share-based payments to certain employees, including stock options, restricted share units and performance share units. See Note 7.3note 8.3 to the consolidated financial statements.
B. Memorandum and Articles of Association
Below is a summary of ArcelorMittal’s Articles of Association, filed as an exhibit to this annual report on Form 20-F and incorporated by reference herein. The full text of the Company’s Articles of Association is also available on www.arcelormittal.com under “Investors—Corporate Governance—Board“Investors-Corporate Governance-Articles of Directors.Association.”
Corporate purpose
Article 3 of the Articles of Association provides that the corporate purpose of ArcelorMittal is the manufacture, processing and marketing of steel, steel products and all other metallurgical products, as well as all products and materials used in their manufacture, their processing and their marketing, and all industrial and commercial activities connected directly or indirectly with those objects, including mining and research activities and the creation, acquisition, holding, exploitation and sale of patents, licenses, know-how and, more generally, intellectual and industrial property rights.
The Company may realize its corporate purpose either directly or through the creation of companies, the acquisition, holding or acquisition of interests in any companies or partnerships, membership in any associations, consortia and joint ventures.
In general, the Company’s corporate purpose comprises the participation, in any form whatsoever, in companies and partnerships and the acquisition by purchase, subscription or in any other manner as well as the transfer by sale, exchange or in any other manner of shares, bonds, debt securities, warrants and other securities and instruments of any kind.
It may grant assistance to any affiliated company and take any measure for the control and supervision of such companies.
It may carry out any commercial, financial or industrial operation or transaction that it considers to be directly or indirectly necessary or useful in order to achieve or further its corporate purpose.
Form and transfer of shares
The shares of ArcelorMittal are issued in registered form only and are freely transferable. There are no restrictions on the rights of Luxembourg or non-Luxembourg residents to own ArcelorMittal shares.
Under Luxembourg law, the ownership of registered shares is evidenced by the inscription of the name of the shareholder and the number of shares held by such shareholder in the shareholders’ register. Each transfer of shares is made by a written declaration of transfer recorded in the shareholders’ register of ArcelorMittal, dated and signed by the transferor and the transferee or by their duly appointed agent. ArcelorMittal may accept and enter into its shareholders’ register any transfer based on an agreement between the transferor and the transferee provided a true and complete copy of the agreement is provided to ArcelorMittal.
The Articles of Association provide that shares may be held through a securities settlement (clearing) system or a professional depositary of securities. Shares held in this manner have the same rights and obligations as the registered shares. Shares held through a securities settlement system or a professional depositary of securities may be transferred in accordance with customary procedures for the transfer of securities in book-entry form.
The ArcelorMittal ordinary shares may be held in registered form on the Company’s register only. Registered shares are fully fungible and may consist of:
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a. | ArcelorMittal Registry Shares, which are registered directly on ArcelorMittal’s Luxembourg shareholder register, |
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b. | shares traded on Euronext Amsterdam, Euronext Paris, the regulated market of the Luxembourg Stock Exchange and the Spanish Stock Exchanges, which are held in Euroclear, or |
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c. | shares traded on the NYSE, named New(the "New York Registry Shares,Shares"), which are registered in a register (including in the name of the nominee of DTC) in a New York Share Register kept by or on behalf of ArcelorMittal by Citibank N.A., its New York transfer agent. |
Since March 2009, ArcelorMittal has used the services of BNP Paribas Securities Services to assist it with certain administrative tasks relating to the day-to-day administrative management of the shareholders’ register. The Company maintains a New York Share Register with Citibank N.A. (located at 388 Greenwich Street, New York, New York 10013) for its New York Registry Shares that trade on the NYSE with underlying positions held in Euroclear. As of December 31, 2019, 51,794,561 shares (or approximately 5.07% of ArcelorMittal's total issued shares) were New York Registry Shares.
The law of April 6, 2013 concerning dematerialized securities allows Luxembourg issuers to opt for the full dematerialization of shares. The EGM of ArcelorMittal shareholders held on May 10, 2017 authorized and empowered the Board of Directors to give effect to such dematerialization and to determine its effective date, following which new shares in the Company may only be issued in dematerialized form (the “Effective Date”). Notice of the compulsory dematerialization will be given in accordance with Article 6.9 (i) of the Company’s Articles of Association. As from the Effective Date, shareholders would be required to hold their shares in a securities account at a bank or other financial intermediary, which would in turn hold the shares via an account with a securities depository such as Clearstream or Euroclear. Dematerialized securities would be solely represented by account entries with the securities depositary and would therefore exist only in electronic form. It would then no longer be possible for shareholders to hold shares through a direct, nominative registration in the Company’s register of shareholders as is currently the case. As of December 31, 2019, notice of the Effective Date has not been given.
Issuance of shares
The issuance of shares by ArcelorMittal requires either an amendment of the Articles of Association approved by an EGM or a decision of the Board of Directors that is within the limits of the authorized share capital set out in the Articles of Association. In the latter case, the Board of Directors may determine the conditions for the issuance of shares, including the consideration (cash or in kind) payable for such shares.
The EGM may not validly deliberate unless at least half of the share capital is present or represented upon the first call. If the quorum is not met, the meeting may be reconvened as described in “–General meeting of shareholders” below. The second meeting will be held regardless of the proportion of share capital represented. At both meetings, resolutions, in order to be adopted, must be carried by at least two-thirds of the votes cast.
Following the mandatory conversion on January 15, 2016 of outstanding Notes of the Company’s $2.25 billion 6% Mandatorily Convertible Subordinated Notes due 2016, the Company’s issued share capital increased by €570 million from €6,883 million to €7,453 million represented by 1,803,359,338 shares without nominal value.
On February 5, 2016, the Company announced its intention to increase its capital through a rights issue with shareholders benefiting from non-statutory preferential subscription rights on terms to be determined by the Company. At its meeting on February 3, 2016, the Board of Directors resolved among others and subject to approval by an EGM, to authorize the issue of up to 30,000,000,000 new ordinary shares, to cancel the statutory preferential subscription rights of the existing shareholders and to authorize the granting of preferential subscription rights to existing shareholders on terms to be determined based on market practice and conditions (the “equity offering”).
The EGM of ArcelorMittal shareholders, held on March 10, 2016, approved the two resolutions on its agenda:
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• | to reduce the share capital of the Company without distribution to shareholders, in order to reduce the par value of the shares in the Company to an amount of 10 euro cents per share and
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• | to increase the Company’s authorized share capital including the authorization to limit or cancel the shareholders’ preferential subscription rights.
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The above authorization expires five years from the date of publication of the EGM minutes in the Official Luxembourg Gazette Mémorial C, which occurred on March 23, 2016. This authorization may be renewed from time to time by an EGM for periods not to exceed five years each.
Following such approval, the Company’s share capital decreased on March 10, 2016 from €7,453 million to €180 million represented by 1,803,359,338 ordinary shares without nominal value. The Company’s authorized share capital, including the issued share capital, amounted to €3,200 million represented by 31,995,857,213 ordinary shares without nominal value.
As a result of the Company’s equity offering authorized by the EGM and which closed on April 8, 2016 at a price of €2.20 per share, the Company’s issued share capital increased from €180 million to €306 million represented by 3,065,710,869 ordinary shares without nominal value and remained unchanged at December 31, 2016. The Company’s authorized share capital, including the issued share capital, amounted to €337 million represented by 3,372,281,956 ordinary shares without nominal value.
The EGM of ArcelorMittal shareholders held on May 10, 2017 approved a reverse stock split and an increase of the Company’s authorized share capital from €337 million to €345 million. Following this approval, on May 22, 2017 ArcelorMittal completed the consolidation of every three existing shares in ArcelorMittal without nominal value into one share without nominal value. As a result, the authorized share capital increased from €337 million represented by 3,372,281,956 ordinary shares without nominal value as of December 31, 2016 to €345 million represented by 1,151,576,921 ordinary shares without nominal value. There was no change in the issued share capital of ArcelorMittal but the aggregate number of shares issued and fully paid up decreased from 3,065,710,869 to 1,021,903,623.
Articles 4, 5, 7, 8, 9, 11, 13, 14 and 15 of the Articles of Association have been amended to reflect the recent changes in Luxembourg law. Such amendments to the Articles of Association were filed with the Luxembourg Register of Commerce and Companies on May 18, 2017.
The EGM of ArcelorMittal shareholders held on May 16, 2018 approved the change of the currency of the share capital of the Company from euro into U.S. dollar (the “Change of Currency”) based on the EUR/USD exchange rate of 1.1883 published by the European Central Bank at about 4 pm CET on May 15, 2018, the day preceding the EGM. As a result, the issued share capital amounts to $364 million represented by 1,021,903,623 ordinary shares fully paid without nominal value. The Company’s authorized share capital, including the issued share capital, amounts to $411 million represented by 1,151,576,921 ordinary shares without nominal value.
Articles 5.1, 5.2 and the second paragraph of article 17 of the Articles of Association of the Company have been amended to reflect the Change of Currency. Such amendments to the Articles of Association were filed with the Luxembourg Register of Commerce and Companies on May 31, 2018.
Preemptive rights
Unless limited or cancelledcanceled by the Board of Directors as described below or by an EGM, holders of ArcelorMittal shares have a pro rata preemptive right to subscribe for newly issued shares, except for shares issued for consideration other than cash (i.e., in kind).
The Articles of Association provide that preemptive rights may be limited or cancelled by the Board of Directors in the event of an increase in the Company’s issued share capital until the date being five years from the date of publication via the online platform called Recueil électronique des sociétés et associations (“RESA”) which replaced as of June 1, 2016 the Luxembourg official legal gazette, the Mémorial, Recueil des Sociétés et Associations,of the relevant meeting minutes, which publication occurred on May 18, 2017 with respect to the minutes of the EGM held on May 10, 2017. This power of the Board of Directors may from time to time be renewed by an EGM for subsequent periods not to exceed five years each.
Repurchase of shares
ArcelorMittal is prohibited by Luxembourg law from subscribing for its own shares. ArcelorMittal may, however, repurchase its own shares or have another person repurchase shares on its behalf, subject to certain conditions, including:
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• | a prior authorization of the general meeting of shareholders setting out the terms and conditions of the proposed repurchase, including the maximum number of shares to be repurchased, the duration of the period for which the authorization is given (which may not exceed five years) and the minimum and maximum consideration per share; |
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• | the repurchase may not reduce the net assets of ArcelorMittal on a non-consolidated basis to a level below the aggregate of the issued share capital and the reserves that ArcelorMittal must maintain pursuant to Luxembourg law or its Articles of Association; |
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• | only fully paid-up shares may be repurchased. At December 31, 2018,2019, all of ArcelorMittal’s issued ordinary shares were fully paid-up; and |
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• | the acquisition offer is made on the same terms and conditions to all the shareholders who are in the same position, it being noted however that listed companies may repurchase their own shares on the stock exchange without an acquisition offer having to be made to the shareholders. |
In addition, Luxembourg law allows the Board of Directors to approve the repurchase of ArcelorMittal shares without the prior approval of the general meeting of shareholders if necessary to prevent serious and imminent harm to ArcelorMittal. In such a case, the next general meeting of shareholders must be informed by the Board of Directors of the reasons for and the purpose of the acquisitions made, the number and nominal values, or in the absence thereof, the accounting par value of the shares acquired, the proportion of the issued share capital that they represent, and the consideration paid for them.
The general meeting of shareholders held on May 5, 2015 (the “General Meeting”) decided (a) to cancel with effect as of the date of the General Meeting the authorization granted to the Board of Directors by the general meeting of shareholders held on May 11, 2010 with respect to the share buy-back program, and (b) to authorize, effective immediately after the General Meeting, the Board of Directors, with the option to delegate to the corporate bodies of the other companies in the ArcelorMittal group in accordance with the Luxembourg law of August 10, 1915 on commercial companies, as amended (the “Law”), to acquire and sell shares in the Company in accordance with the Law and any other applicable laws and regulations, including but not limited to entering into off-market and over-the-counter transactions and to acquire shares in the Company through derivative financial instruments.
Any acquisitions, disposals, exchanges, contributions or transfers of shares by the Company or other companies in the ArcelorMittal group must be in accordance with Luxembourg laws transposing Directive 2003/6/EC regarding insider dealing and market manipulation as repealed and replaced by Regulation (EU) No. 596/2014 of the European Parliament and of the Council of April 16, 2014 on market abuse and Commission Delegated Regulation (EU) No. 2016/1052 of March 8, 2016 with regard to regulatory technical standards for the conditions applicable to buy-back programs and stabilization measures.
Such transactions may be carried out at any time, including during a tender offer period, subject to applicable laws and regulations including Section 10(b) and Section 9(a)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated under the Exchange Act.
The authorization is valid for a period of five years, i.e., until the annual general meeting of shareholders to be held in May 2020, or until the date of its renewal by a resolution of the general meeting of shareholders if such renewal date is prior to the expiration of the five-year period.
The maximum number of shares that may be acquired is the maximum allowed by the Luxembourg law of 10 August 1915 on commercial companiesLaw (as defined above) in such manner that the accounting par value of the Company’s shares held by the Company dodoes not in any event exceed 10% of the Company’s issued share capital. The maximum number of own shares that the Company may hold at any time directly or indirectly may not have the effect of reducing its net assets (“actif net”) below the amount mentioned in paragraphs 1 and 2 of Article 461-2 of the Law. The purchase price per share to be paid shall not represent more than 110% of the trading price of the shares on the New York Stock Exchange and on the Euronext markets where the Company is listed, the Luxembourg Stock Exchange or the Spanish stock exchanges of Barcelona, Bilbao, Madrid and Valencia, depending on the market on which the purchases are made, and no less than one cent. For off-market transactions, the maximum purchase price shall be 110% of the reference price on the Euronext markets where the Company is listed. The reference price will be deemed to be the average of
the final listing prices per share on the relevant stock exchange during 30 consecutive days on which the relevant stock exchange is open for trading preceding the three trading days prior to the date of purchase. In the event of a share capital increase by incorporation of reserves or issue premiums and the free allotment of shares as well as in the event of the division or regrouping of the shares, the purchase price indicated above shall be adjusted by a multiplying coefficient equal to the ratio between the number of shares comprising the issued share capital prior to the transaction and such number following the transaction. The total amount allocated for the Company’s share repurchase program may not in any event exceed the amount of the Company’s then available equity.
Capital reduction
The Articles of Association provide that the issued share capital of ArcelorMittal may be reduced subject to the approval of at least two-thirds of the votes cast at an extraordinary general meeting of shareholders where, at first call, at least 50% of the issued share capital is required to be represented, with no quorum being required at a reconvened meeting.
General meeting of shareholders
The shareholders’ rights law of May 24, 2011, which transposes into Luxembourg law Directive 2007/36/EC of the European Parliament and of the Council of July 11, 2007 on(on the exercise of certain rights of shareholders in listed companiescompanies) of July 14, 2007 came into force on July 1, 2011 was amended by the law of August 1, 2019 which entered into force on August 24, 2019 implementing the Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC (as regards the encouragement of long term shareholder engagement) (the “Shareholder’s“Shareholders' Rights Law”). and includes provisions relating to general meetings of shareholders, as discussed below.
General meetings of shareholders are convened by the publication of a notice at least 30 days before the meeting date in a Luxembourg newspaper, via the online platform called Recueil électronique des sociétés et associations (“RESA”), and by way of press release sent to the major news agencies. Ordinary general meetings are not subject to any minimum shareholder participation level. Extraordinary general meetings, however, are subject to a minimum quorum of 50% of the share capital. In the event the 50% quorum is not met upon the first call, the meeting may be reconvened by way of convening notice published in the same manner as the first notice, at least 17 days before the meeting date. No quorum is required upon the second call.
Shareholders whose share ownership is directly registered in the shareholders’ register of the Company must receive the convening notice by regular mail, unless they have accepted to receive it through other means (i.e., electronically). In addition, all materials relating to a general meeting of shareholders must be made available on the website of ArcelorMittal from the first date of publication of the convening notice.
The Shareholders’ Rights Law abolished the blocking period and introduced the record date system into Luxembourg law. As set out in the Articles of Association, the record date applicable to ArcelorMittal is the 14th14th day at midnight before the general meeting date. Only the votes of shareholders who are shareholders of the Company on the record date will be taken into account, regardless of whether they remain shareholders on the general meeting date. Shareholders who intend to participate in the general meeting must notify the Company at the latest on the date indicated in the convening notice of their intention to participate (by proxy or in person).
Ordinary general meetings of shareholders. At an ordinary general meeting of shareholders there is no quorum requirement and resolutions are adopted by a simple majority, irrespective of the number of shares represented. Ordinary general meetings deliberate on any matter that does not require the convening of an extraordinary general meeting.
Based on an amendment voted by the extraordinary general meeting of shareholders on May 10, 2017, the Articles of Association provide that the annual general meeting of shareholders is held each year within six months from the end of the previous financial year at the Company’s registered office or at any other place in the Grand Duchy of Luxembourg as determined by the Board of Directors and indicated in the convening notice.
Extraordinary general meetings of shareholders. An extraordinary general meeting must be convened to deliberate on the following types of matters:
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• | an increase or decrease of the authorized or issued share capital, |
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• | a limitation or exclusion of existing shareholders’ preemptive rights, |
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• | the acquisition by any person of 25% or more of the issued share capital of ArcelorMittal, |
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• | approving a merger or similar transaction such as a spin-off, and |
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• | any transaction or matter requiring an amendment of the Articles of Association. |
The extraordinary general meeting must reach a quorum of shares present or represented at the meeting of 50% of the share capital in order to validly deliberate. If this quorum is not reached, the meeting may be reconvened and the second meeting will not be subject to any quorum requirement. In order to be adopted by the extraordinary general meeting (on the first or the second call), any resolution submitted must be approved by at least two-thirds of the votes cast except for certain limited matters where the Articles of Association require a higher majority (see “—Amendment of the Articles of Association”). Votes cast do not include votes attaching to shares with respect to which the shareholder has not taken part in the vote, has abstained or has returned a blank or invalid vote.
Voting and information rights
The voting and information rightsIn addition, Luxembourg law requires the Board of ArcelorMittal’s shareholders have been further expanded since the entry into force of the Shareholders’ Rights Law on July 1, 2011.
There are no restrictions on the rights of Luxembourg or non-Luxembourg residentsDirectors to vote ArcelorMittal shares. Each share entitles the shareholder to attendconvene a general meeting of shareholders if shareholders representing in person or by proxy, to addressthe aggregate 10% of the issued share capital so require in writing with an indication of the requested agenda. In this case, the general meeting of shareholders and to vote. Each share entitlesmust be held within one month of the holder to one vote atrequest. If the requested general meeting of shareholders. Thereshareholders is no minimum shareholding (beyond owningnot so convened, the relevant shareholder or group of shareholders may petition the competent court in Luxembourg to have a single share or representingcourt appointee convene the owner of a single share) required to be able to attend or vote at a general meeting of shareholders.meeting.
The Board of Directors may also decide to allow shareholders to vote by correspondence by means of a form providing for a positive or negative vote or an abstention on each agenda item. The conditions for voting by correspondence are set out in the Articles of Association and in the convening notice.Shareholder participation at general meetings
The Board of Directors may decide to arrange for shareholders to be able to participate in the general meeting by electronic means by way, among others, of (i) real-time transmission to the public of the general meeting, (ii) two-way communication enabling shareholders to address the general meeting from a remote location, or (iii) a mechanism allowing duly identified shareholders to cast their votes before or during the general meeting without the need for them to appoint a proxyholder who would be physically present at the meeting.
A shareholder may act at any general meeting of shareholders by appointing another person (who need not be a shareholder) as his or her attorney by means of a written proxy using the form made available on the website of the Company. The completed and signed proxy must be sent to the Company in accordance with the instructions set out in the convening notice.
General meetingsThe Board of Directors may also decide to allow shareholders are convenedto vote by the publicationcorrespondence by means of a notice at least 30 days before the meeting dateform providing for a positive or negative vote or an abstention on each agenda item. The conditions for voting by correspondence are set out in a Luxembourg newspaper, via the RESA, and by way of press release sent to the major news agencies. Ordinary general meetings are not subject to any minimum shareholder participation level. Extraordinary general meetings, however, are subject to a minimum quorum of 50% of the share capital. In the event the 50% quorum is not met upon the first call, the meeting may be reconvened by way of convening notice published in the same manner as the first notice, at least 17 days before the meeting date. No quorum is required upon the second call.
Shareholders whose share ownership is directly registered in the shareholders’ register of the Company must receive the convening notice by regular mail, unless they have accepted to receive it through other means (i.e., electronically). In addition, all materials relating to a general meeting of shareholders must be made available on the website of ArcelorMittal from the first date of publication of the convening notice.
Based on an amendment voted by the extraordinary general meeting of shareholders on May 10, 2017, the Articles of Association provide that the annual general meeting of shareholders is held each year within six months from the end of the previous financial year at the Company’s registered office or at any other place in the Grand Duchy of Luxembourg as determined by the Board of Directors and indicated in the convening notice.
Luxembourg law requires the Board of Directors to convene a general meeting of shareholders if shareholders representing in the aggregate 10% of the issued share capital so require in writing with an indication of the requested agenda. In this case, the general meeting of shareholders must be held within one month of the request. If the requested general meeting of shareholders is not so convened, the relevant shareholder or group of shareholders may petition the competent court in Luxembourg to have a court appointee convene the general meeting.
Shareholders representing in the aggregate 5% of the issued share capital may also request that additional items be added to the agenda of a general meeting and may draft alternative resolutions to be submitted to the general meeting regarding existing agenda items. The request must be made in writing and sent either to the electronic address or to the Company’s postal address set out in the convening notice.
The Shareholders’ Rights Law provides that a company’s articles of association may allow shareholders to ask questions prior to the general meeting which will be answered by management during the general meeting’s questions and answers session prior to the vote on the agenda items. Although the Articles of Association do not specifically address this point, shareholders may ask questions in writing ahead of a general meeting, which are taken into account in preparing the general meeting’s questions and answers session. With regard to the May 9, 20187, 2019 general meeting, shareholders were expressly encouraged to send questions and comments to the Company in advance by writing to a dedicated e-mail address indicated in the convening notice.
Identification of shareholders
Pursuant to the Shareholders’ Rights Law, listed companies now have the ability to identify their shareholders and ultimately improve communication between them and their shareholders. Intermediaries, including those in third countries, are required to provide the Company with information to enable the identification of shareholders. Intermediaries in-scope of the Shareholders' Rights Law are investment firms, credit institutions and central securities depositories which provide share safekeeping or administration of securities accounts or maintenance services to shareholders or other persons. Third country in-
scope intermediaries are those which provide these services to shareholders or other intermediaries with respect to shares in the Company and are located outside of the European Union.
Voting and information rights
There are no restrictions on the rights of Luxembourg or non-Luxembourg residents to vote ArcelorMittal shares. Each share entitles the shareholder to attend a general meeting of shareholders in person or by proxy, to address the general meeting of shareholders and to vote. Each share entitles the holder to one vote at the general meeting of shareholders. There is no minimum shareholding (beyond owning a single share or representing the owner of a single share) required to be able to attend or vote at a general meeting of shareholders.
The voting and information rights of ArcelorMittal’s shareholders have been further expanded since the entry into force of the Shareholders’ Rights Law.
Election and removal of directors.
Members of the Board of Directors are elected by simple majority of the represented shareholders at an ordinary general meeting of shareholders. Directors are elected for a period ending on a date determined at the time of their appointment. The directors of ArcelorMittal are elected for three-year terms.terms in staggered intervals. Any director may be removed with or without cause by a simple majority vote at any general meeting of shareholders.
(a) a director’s power to vote on a proposal, arrangement or contract in which the director is materially interested;
If a Director has directly or indirectly a financial interest in a transaction that is submitted to the Board of Directors for approval and this interest conflicts with that of ArcelorMittal (other than transactions which are ordinary business operations and are entered into under normal conditions), the Director must advise the Board of Directors of the existence and nature of the conflict and cause a record of his/her statement to be included in the minutes of the meeting. In addition, the Director may not take part in the discussions on and may not vote on the relevant transaction and he or she shall not be counted for the purposes of whether the quorum is present, in which case the Board of Directors may validly deliberate if at least the majority of the non-conflicted directors are present or represented. At the next following general meeting of shareholders of ArcelorMittal, before any other resolution is put to a vote, a special report will be made by the Board of Directors to the shareholders’ meeting on any such transaction.
If a material transaction with a related party involves a Director, that Director may not participate in the approval of such transaction.
(b) the directors’ power, in the absence of an independent quorum, to vote compensation to themselves or any members of their body;
The remuneration of the Directors is determined each year by the annual general meeting of shareholders subject to Article 17 of the Articles of Association. The annual shareholders meeting of the Company decides on the directors’ remuneration. The Chairman & CEO is not remunerated for his membership on the Board of Directors. The remuneration of the Chairman & CEO is determined by the Board’s ARCGS Committee, which consists solely of independent directors. For more information, see “Item 6.B—Directors, senior management and employees—Compensation”.
Pursuant to the Shareholders’ Rights Law, the shareholders must be informed in detail of the remuneration of the members of the Company's Board of Directors and its CEO and the company's remuneration policy. Companies must prepare a management remuneration policy describing all components, criteria, methods and modalities applied to determine the fixed and variable remuneration of such persons. Such remuneration policy must contribute to the Company' business strategy and long term interests. It must be resubmitted to an advisory vote at the general meeting of shareholders for approval each time there is a significant change thereto and at least every four years. In addition, companies must prepare a renumeration report for the annual general meeting on the remuneration and benefits granted to directors, and such remuneration report is required to be submitted for an advisory vote at the general meeting of shareholders each year.
(c) borrowing powers exercisable by the directors and how such borrowing powers can be varied;
Any transaction between ArcelorMittal or a subsidiary of ArcelorMittal and a Director (or an affiliate of a Director) must be conducted on arm’s length terms and, if material, must obtain the approval of the Independent Directors.
(d) retirement or non-retirement of directors under an age limit requirement
There is no retirement or non-retirement of directors under an age limit requirement. However, on October 30, 2012, the Board of Directors adopted a policy that places limitations on the terms of independent directors as well as the number of directorships Directors may hold in order to align the Company’s corporate governance practices with best practices in this area. The policy provides that an independent director may not serve on the Board of Directors for more than 12 consecutive years, although the Board of Directors may, by way of exception to this rule, make an affirmative determination, on a case-by-case basis, that he or she may continue to serve beyond the 12 years rule if the Board of Directors considers it to be in the best interest of the Company based on the contribution of the Director involved and the balance between the knowledge, skills, experience and need for renewal of the Board.
(e) number of shares, if any, required for director’s qualification.
Article 8.2 of the Articles of Association states that the members of the Board of Directors do not have to be shareholders in the Company. However, the Board of Directors introduced on April 27, 2015October 30, 2012 (as amended on November 7, 2017) a policy that requires members of the Board of Directors to hold 10,0004,000 shares in the Company (15,000(6,000 for the Lead Independent Director). For more information, see “Item 6.C—Directors, senior management and employees—Board practices/corporate governance—Specific characteristics of the director role”.
ArcelorMittal’s Articles of Association provide that the Significant Shareholder is entitled to nominate a number of candidates for election by the shareholders to the Board of Directors in proportion to its shareholding. The Significant Shareholder has not exercised this right to date.
Amendment of the Articles of Association
Any amendments to the Articles of Association must be approved by an extraordinary general meeting of shareholders held in the presence of a Luxembourg notary, followed by the publications required by Luxembourg law.
In order to be adopted, amendments of the Articles of Association relating to the size and the requisite minimum number of independent and non-executive directors of the Board of Directors, the composition of the Audit & Risk Committee, and the nomination rights to the Board of Directors of the Significant Shareholder require a majority of votes representing two-thirds of the voting rights attached to the shares in ArcelorMittal. The same majority rule would apply to amendments of the provisions of the Articles of Association that set out the foregoing rule.
Annual accounts
Each year before submission to the annual ordinary general meeting of shareholders, the Board of Directors approves the stand-alone audited annual accounts for ArcelorMittal, the parent company of the ArcelorMittal group as well as the consolidated annual accounts of the ArcelorMittal group, each of which are prepared in accordance with IFRS. The Board of Directors also approves the management reports on each of the stand-alone audited annual accounts and the consolidated annual accounts, and in respect of each of these sets of accounts a report must be issued by the independent auditors.
The stand-alone audited annual accounts, the consolidated annual accounts, the management reports and the auditor’s reports will be available on request from the Company and on the Company’s website from the date of publication of the convening notice for the annual ordinary general meeting of shareholders.
The stand-alone audited annual accounts and the consolidated annual accounts, after their approval by the annual ordinary general meeting of shareholders, are filed with the Luxembourg Register of Commerce and Companies.
Dividends
Except for shares held in treasury by the Company, each ArcelorMittal share is entitled to participate equally in dividends if and when declared out of funds legally available for such purposes. The Articles of Association provide that the annual ordinary general meeting of shareholders may declare a dividend and that the Board of Directors may declare interim dividends within the limits set by Luxembourg law.
Declared and unpaid dividends held by ArcelorMittal for the account of its shareholders do not bear interest. Under Luxembourg law, claims for dividends lapse in favor of ArcelorMittal five years after the date on which the dividends have been declared.
Merger and division
A merger whereby the Luxembourg company being acquired transfers to an existing or newly incorporated Luxembourg company all of its assets and liabilities in exchange for the issuance to the shareholders of the company being acquired of shares in the acquiring company, and a division whereby a company (the company being divided) transfers all its assets and liabilities to two or more existing or newly incorporated companies in exchange for the issuance of shares in the beneficiary companies to the shareholders of the company being divided or to such company, and certain similar restructurings must be approved by an extraordinary general meeting of shareholders of the relevant companies held in the presence of a notary. These transactions require the approval of at least two-thirds of the votes cast at a general meeting of shareholders of each of the companies where at least 50% of the share capital is represented upon first call, with no such quorum being required at a reconvened meeting.
Liquidation
In the event of the liquidation, dissolution or winding-up of ArcelorMittal, the assets remaining after allowing for the payment of all liabilities will be paid out to the shareholders pro rata to their respective shareholdings. The decision to liquidate, dissolve or wind-up requires the approval of at least two-thirds of the votes cast at a general meeting of shareholders where at first call at least 50% of the share capital is represented, with no quorum being required at a reconvened meeting. Irrespective of whether the liquidation is subject to a vote at the first or a subsequent extraordinary general meeting of shareholders, it requires the approval of at least two-thirds of the votes cast at the extraordinary general meeting of shareholders.
Mandatory bid—squeeze-out right—sell-out right
Mandatory bid. The Luxembourg law of May 19, 2006 implementing Directive 2004/25/EC of the European Parliament and the Council of April 21, 2004 on takeover bids ( the “Takeover Law”), provides that, if a person acting alone or in concert acquires securities of ArcelorMittal which, when added to any existing holdings of ArcelorMittal securities, give such person voting rights representing at least one third of all of the voting rights attached to the issued shares in ArcelorMittal, this person is obliged to make an offer for the remaining shares in ArcelorMittal. In a mandatory bid situation the “fair price” is in principle considered to be the highest price paid by the offeror or a person acting in concert with the offeror for the securities during the 12–month period preceding the mandatory bid.
ArcelorMittal’s Articles of Association provide that any person who acquires shares giving them 25% or more of the total voting rights of ArcelorMittal must make or cause to be made, in each country where ArcelorMittal’s securities are admitted to trading on a regulated or other market and in each of the countries in which ArcelorMittal has made a public offering of its shares, an unconditional public offer of acquisition for cash to all shareholders for all of their shares and also to all holders of securities giving access to capital or linked to capital or whose rights are dependent on the profits of ArcelorMittal. The price offered must be fair and equitable and must be based on a report drawn up by a leading international financial institution or other internationally recognized expert.
Squeeze-out right The Takeover Law provides that, when an offer (mandatory or voluntary) is made to all of the holders of voting securities of ArcelorMittal and after such offer the offeror holds at least 95% of the securities carrying voting rights and 95% of the voting rights, the offeror may require the holders of the remaining securities to sell those securities (of the same class) to the offeror. The price offered for such securities must be a fair price. The price offered in a voluntary offer would be considered a fair price in the squeeze-out proceedings if the offeror acquired at least 90% of the ArcelorMittal shares carrying voting rights that were the subject of the offer. The price paid in a mandatory offer is deemed a fair price. The consideration p. The Takeover Law provides that, when an offer (mandatory or voluntary) is made to all of the holders of voting securities of ArcelorMittal and after such offer the offeror holds at least 95% of the securities carrying voting rights and 95% of the voting rights, the offeror may require the holders of the remaining securities to sell those securities (of the same class) to the offeror. The price offered for such securities must be a fair price. The price offered in a voluntary offer would be considered a fair price in the squeeze-out proceedings if the offeror acquired at least 90% of the ArcelorMittal shares carrying voting rights that were the subject of the offer. The price paid in a mandatory offer is deemed a fair price. The consideration paid in the squee
aid in the squeeze-out proceedings must take the same form as the consideration offered in the offer or consist solely of cash. Moreover, an all-cash option must be offered to the remaining ArcelorMittal shareholders. Finally, the right to initiate squeeze-out proceedings must be exercised within three months following the expiration of the offer. ze-out proceedings must take the same form as the consideration offered in the offer or consist solely of cash. Moreover, an all-cash option must be offered to the remaining ArcelorMittal shareholders. Finally, the right to initiate squeeze-out proceedings must be exercised within three months following the expiration of the offer.
Sell-out right. The Takeover Law provides that, when an offer (mandatory or voluntary) is made to all of the holders of voting securities of ArcelorMittal and if after such offer the offeror holds securities carrying more than 90% of the voting rights, the remaining security holders may require that the offeror purchase the remaining securities of the same class. The price offered in a voluntary offer would be considered “fair” in the sell-out proceedings if the offeror acquired at least 90% of the ArcelorMittal shares carrying voting rights and which were the subject of the offer. The price paid in a mandatory offer is deemed a fair price. The consideration paid in the sell-out proceedings must take the same form as the consideration offered in
the offer or consist solely of cash. Moreover, an all-cash option must be offered to the remaining ArcelorMittal shareholders. Finally, the right to initiate sell-out proceedings must be exercised within three months following the expiration of the offer.
Disclosure of significant ownership in ArcelorMittal shares
Holders of ArcelorMittal shares and derivatives or other financial instruments linked to ArcelorMittal shares may be subject to the notification obligations of the Luxembourg law of January 11, 2008, as last amended by the law dated May 10, 2016, on transparency requirements regarding information about issuers whose securities are admitted to trading on a regulated market (the “Transparency Law”). The following description summarizes these obligations. ArcelorMittal shareholders are advised to consult with their own legal advisers to determine whether the notification obligations apply to them.
The Transparency Law provides that, if a person acquires or disposes of a shareholding in ArcelorMittal, and if following the acquisition or disposal the proportion of voting rights held by the person reaches, exceeds or falls below one of the thresholds of 5%, 10%, 15%, 20%, 25%, one-third, 50% or two-thirds of the total voting rights existing when the situation giving rise to a declaration occurs, the relevant person must simultaneously notify ArcelorMittal and the CSSF (the Luxembourg securities regulator) of the proportion of voting rights held by it further to such event within four Luxembourg Stock Exchange trading days of the day of execution of the transaction triggering the threshold crossing.
A person must also notify ArcelorMittal of the proportion of his or her voting rights if that proportion reaches, exceeds or falls below the above mentioned thresholds as a result of events changing the breakdown of voting rights.
The above notification obligations also apply to persons who directly or indirectly hold financial instruments linked to ArcelorMittal shares. Pursuant to article 12 a. of the Transparency Law, persons who hold ArcelorMittal shares and financial instruments linked to ArcelorMittal Sharesshares must aggregate their holding.
ArcelorMittal’s Articles of Association also provide that the above disclosure obligations also apply to:
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• | any acquisition or disposal of shares resulting in the threshold of 2.5% of voting rights in ArcelorMittal being crossed upwards or downwards, |
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• | any acquisition or disposal of shares resulting in the threshold of 3.0% of voting rights in ArcelorMittal being crossed upwards or downwards, and |
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• | with respect to any shareholder holding at least 3.0% of the voting rights in ArcelorMittal, to any acquisition or disposal of shares resulting in successive thresholds of 1.0% of voting rights being crossed upwards or downwards. |
Pursuant to the Articles of Association, any person who acquires shares giving him or her 5% or more or a multiple of 5% or more of the voting rights must inform ArcelorMittal within 10 Luxembourg Stock Exchange trading days following the date on which the threshold was crossed by registered letter with return receipt requested as to whether he or she intends to acquire or dispose of shares in ArcelorMittal within the next 12 months or intends to seek to obtain control over ArcelorMittal or to appoint a member to ArcelorMittal’s Board of Directors.
The sanction of suspension of voting rights automatically applies, subject to limited exceptions set out in the Transparency Law as amended from time to time, to any shareholder (or group of shareholders) who has (or have) crossed the thresholds set out in article 7 of the Articles of Association and articles 8 to 15 of the Luxembourg law of 11 January 2008 on the transparency requirements regarding issuers of securities (the “Transparency Law”) but have not notified the Company accordingly. The sanction of suspension of voting rights will apply until such time as the notification has been properly made by the relevant shareholder(s).
For the purposes of calculating the percentage of a shareholder’s voting rights in ArcelorMittal, the following are taken into account:
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• | voting rights held by a third party with whom that person or entity has concluded an agreement and which obliges them to adopt, by concerted exercise of the voting rights they hold, a lasting common policy towards ArcelorMittal; |
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• | voting rights held by a third party under an agreement concluded with that person or entity providing for the temporary transfer for consideration of the voting rights in question; |
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• | voting rights attaching to shares pledged as collateral with that person or entity, provided the person or entity controls the voting rights and declares its intention to exercise them; |
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• | voting rights attaching to shares in which a person or entity holds a life interest; |
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• | voting rights which are held or may be exercised within the meaning of the four foregoing points by an undertaking controlled by that person or entity; |
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• | voting rights attaching to shares deposited with that person or entity which the person or entity may exercise at its discretion in the absence of specific instructions from the shareholders; |
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• | voting rights held by a third party in its own name on behalf of that person or entity; and |
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• | voting rights which that person or entity may exercise as a proxy where the person or entity may exercise the voting rights in its sole discretion. |
In addition, the Articles of Association provide that, for the purposes of calculating a person’s voting rights in ArcelorMittal, the voting rights attached to shares underlying any other financial instruments owned by that person (such as convertible notes) must be taken into account for purposes of the calculation described above.
Disclosure of insider dealing transactions
Members of the Board of Directors and the members of the CEO Office, Executive Officers and other executives fulfilling senior management responsibilities within ArcelorMittal and falling with the definition of “Persons Discharging Senior Managerial Responsibilities” set out below and persons closely associated with them must disclose to the CSSF and to ArcelorMittal all transactions relating to shares or debt instruments of ArcelorMittal or derivatives or other financial instruments linked to any shares or debt instruments of ArcelorMittal (together the “Financial Instruments”) conducted by them or for their account.
Such notifications shall be made promptly and not later than three business days after the date of the transaction.
“Persons Discharging Senior Managerial Responsibilities” within ArcelorMittal are the members of the Board of Directors, and the CEO Office, the Executive Officers, and other executives occupying a high level management position with regular access to non-public material information relating, directly or indirectly, to ArcelorMittal and have the authority to make management decisions about the future development of the Company and its business strategy (see “Item 6.A—Directors, senior management and employees— Directors and senior management" for a description of senior management). Persons closely associated with them include their respective family members.
Both information on trading in Financial Instruments by “Persons Discharging Senior Managerial Responsibilities” and ArcelorMittal’s Insider Dealing Regulations are available on www.arcelormittal.com under “Investors—Corporate Governance—Share Transactions by Management”. For more information, see “Item 6.A—Directors, senior management and employees—Directors and senior management”.
In 2018, nine2019, two notifications were received by ArcelorMittal from such persons and filed with the CSSF.
Related Party Transactions
The Shareholders’ Rights Law provides that a company is now required to publicly disclose material transactions (excluding "transactions taking place as part of the company's ordinary activity and concluded under normal market conditions") with related parties no later than at the time of conclusion of the transaction. The same requirement applies to material transactions concluded between related parties of a company and subsidiaries of such company. The Board of Directors must approve material transactions of the Company with related parties. A transaction with a related party is material if (i) its publication and divulgation may have a significant impact on the economic decisions of shareholders and (ii) it may create a risk for the company and its shareholders which are not related parties, including minority shareholders. In the determination of whether a transaction is material both the nature of the transaction and the position of the related party must be taken into account.
Publication of regulated information
Since January 2009, disclosure to the public of “regulated information” (within the meaning of the Luxembourg Transparency Law) concerning ArcelorMittal has been made by publishing the information through the centralized regulated information filing and storage system managed by the Luxembourg Stock Exchange and accessible in English and French on www.bourse.lu, in addition to the publication by ArcelorMittal of the information by way of press release. All news and press releases issued by the Company are available on www.arcelormittal.com in the “News and Media” section.
Limitation of directors’ liability/indemnification of Directors and the members of the CEO Office
The Articles of Association provide that ArcelorMittal will, to the broadest extent permitted by Luxembourg law, indemnify every director and member of the CEO Office as well as every former director or member of the CEO Office for fees, costs and expenses reasonably incurred in the defense or resolution (including a settlement) of all legal actions or proceedings, whether civil, criminal or administrative, he or she has been involved in his or her role as former or current director or member of the CEO Office.
The right to indemnification does not exist in the case of gross negligence, fraud, fraudulent inducement, dishonesty or for a criminal offense, or if it is ultimately determined that the director or members of the CEO Office has not acted honestly, in good faith and with the reasonable belief that he or she was acting in the best interests of ArcelorMittal.
The Company also maintains liability insurance for its directors and officers, including insurance against liabilities arising under the U.S. Securities Act of 1933, as amended, and the U.S. Securities Exchange Act of 1934, as amended.
C. Material contracts
The following are material contracts, not entered into in the ordinary course of business, to which ArcelorMittal has been a party during the past two years.
ArcelorMittal Equity Incentive Plan, Performance Share Unit Plan and Special Grant
For a description of such plans, please refer to “Item 6B—Directors, senior management and employees—Compensation.”
Memorandum of Understanding
Mr. Lakshmi Mittal, Mrs. Usha Mittal, Lumen Investments S.à r.l., Nuavam Investments S.à r.l. (together, the “MoU Group”) and the Company are parties to a Memorandum of Understanding (“MoU”), dated June 25, 2006, to combine Mittal Steel and Arcelor in order to create the world’s leading steel company. (Lumen Investments S.à r.l. and Nuavam Investments S.à r.l. became parties following the assumption of the obligations of original parties to the MoU that have since ceased to hold Company shares). In April 2008, the Board of Directors approved resolutions amending certain provisions of the MoU in order to adapt it to the Company’s needs in the post-merger and post-integration phase, as described under “Item 6.C.—Directors, senior management and employees—Board practices/corporate governance—Operation—Lead Independent Director”.
On the basis of the MoU, Arcelor’s Board of Directors recommended Mittal Steel’s offer for Arcelor, and the parties to the MoU agreed to certain corporate governance and other matters relating to the combined ArcelorMittal group. Certain provisions of the MoU relating to corporate governance were incorporated into the Articles of Association of ArcelorMittal at the extraordinary general meeting of the shareholders on November 5, 2007.
Certain additional provisions of the MoU expired effective August 1, 2009 and on August 1, 2011. ArcelorMittal’s corporate governance rules will continue to reflect, subject to those provisions of the MoU that have been incorporated into the Articles of Association, the best standards of corporate governance for comparable companies and to conform with the corporate governance aspects of the NYSE listing standards applicable to non-U.S. companies and Ten Principles of Corporate Governance of the Luxembourg Stock Exchange.
The following summarizes the main provisions of the MoU that remain in effect or were in effect in 2018.2019.
Standstill
The MoU Group agreed not to acquire, directly or indirectly, ownership or control of an amount of shares in the capital stock of the Company exceeding the percentage of shares in the Company that it will own or control following completion of the Offer (as defined in the MoU) for Arcelor and any subsequent offer or compulsory buy-out, except with the prior written consent of a majority of the independent directors on the Company’s Board of Directors. Any shares acquired in violation of this restriction will be deprived of voting rights and shall be promptly sold by the MoU Group. Notwithstanding the above, if (and whenever) the MoU Group holds, directly and indirectly, less than 45% of the then-issued Company shares, the MoU Group may purchase (in the open market or otherwise) Company shares up to such 45% limit. In addition, the MoU Group is also permitted to own and vote shares in excess of the threshold mentioned in the immediately preceding paragraph or the 45% limit mentioned above, if such ownership results from (1) subscription for shares or rights in proportion to its existing shareholding in the Company where other shareholders have not exercised the entirety of their rights or (2) any passive crossing of this threshold resulting from a reduction of the number of Company shares (e.g., through self-tender offers or share buy-backs) if, in respect of (2) only, the decisions to implement such measures were taken at a shareholders’ meeting in which the MoU Group did not vote or by the Company’s Board of Directors with a majority of independent directors voting in favor.
Once the MoU Group exceeds the threshold mentioned in the first paragraph of this “Standstill” subsection or the 45% limit, as the case may be, as a consequence of any corporate event set forth in (1) or (2) above, it shall not be permitted to increase the percentage of shares it owns or controls in any way except as a result of subsequent occurrences of the corporate events described in (1) or (2) above, or with the prior written consent of a majority of the independent directors on the Company’s Board of Directors.
If subsequently the MoU Group sells down below the threshold mentioned in the first paragraph of this “Standstill” subsection or the 45% limit, as the case may be, it shall not be permitted to exceed the threshold mentioned in the first paragraph of this “Standstill” subsection or the 45% limit, as the case may be, other than as a result of any corporate event set out in (1) or (2) above or with the prior written consent of a majority of the independent directors.
Finally, the MoU Group is permitted to own and vote shares in excess of the threshold mentioned in the first paragraph of this “Standstill” subsection or the 45% limit mentioned above if it acquires the excess shares in the context of a takeover bid by a third party and (1) a majority of the independent directors of the Company’s Board of Directors consents in writing to such acquisition by the MoU Group or (2) the MoU Group acquires such shares in an offer for all of the shares of the Company.
Non-compete
For so long as the MoU Group holds and controls at least 15% of the outstanding shares of the Company or has representatives on the Company’s Board of Directors or CEO Office, the MoU Group and its affiliates will not be permitted to invest in, or carry on, any business competing with the Company, except for PT ISPAT Indo.
D. Exchange controls
There are no legislative or other legal provisions currently in force in Luxembourg or arising under ArcelorMittal’s Articles of Association that restrict the payment of dividends to holders of ArcelorMittal shares not resident in Luxembourg, except for regulations restricting the remittance of dividends and other payments in compliance with United Nations and EU sanctions. There are no limitations, either under the laws of Luxembourg or in the Articles of Association, on the right of non-Luxembourg nationals to hold or vote ArcelorMittal shares.
E. Taxation
United States taxation
The following discussion is a summary of the material U.S. federal income tax consequences that are likely to be relevant to U.S. Holders (as defined below) in respect of the ownership and disposition of ArcelorMittal common shares (hereinafter the “ArcelorMittal shares”) that are held as capital assets (such as for investment purposes). This summary does not purport to address all material tax consequences that may be relevant to a particular U.S. Holder. This summary also does not take into account the specific circumstances of particular investors, some of which (such as tax-exempt entities, banks, insurance companies, broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for their securities
holdings, regulated investment companies, real estate investment trusts, partnerships and other pass-through entities, investors liable for the U.S. alternative minimum tax, investors that own or are treated as owning 10% or more of the total combined
voting power or value of ArcelorMittal’s shares, investors that hold ArcelorMittal shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction, and U.S. Holders (as defined below) whose functional currency is not the U.S. dollar) may be subject to special tax rules. This summary is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), the Treasury regulations issued thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (“IRS”), all as in effect on the date hereof, and all of which are subject to change (possibly with retroactive effect) or to differing interpretations.
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of ArcelorMittal shares that is, for U.S. federal income tax purposes:
an individual citizen or resident of the United States;
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized in or under the laws of the United States, any state thereof, or the District of Columbia; or
any other person that is subject to U.S. federal income tax on a net income basis in respect of the ArcelorMittal shares.
The U.S. federal income tax consequences of a partner in a partnership holding ArcelorMittal shares generally will depend on the status of the partner and the activities of the partnership. The Company recommends that partners in such a partnership consult their own tax advisors.
Except where specifically described below, this discussion assumes that ArcelorMittal is not a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. See “—Passive foreign investment company ("PFIC") status”. This summary does not address any aspects of U.S. federal tax law other than income taxation, or any state, local, or non-U.S. tax considerations that may be applicable to investors. Additionally, this summary does not apply to an investor that is not a U.S. Holder or that holds ArcelorMittal shares other than as a capital asset. Investors are urged to consult their tax advisors regarding the U.S. federal, state, local and other tax consequences of acquiring, owning and disposing of ArcelorMittal shares.
(a) Taxation of distributions
Cash distributions made by ArcelorMittal in respect of ArcelorMittal shares will constitute a taxable dividend when such distribution is actually or constructively received, to the extent such distribution is paid out of the current or accumulated earnings and profits of ArcelorMittal (as determined under U.S. federal income tax principles). The amount of any distribution will include the amount of any applicable Luxembourg withholding tax. To the extent the amount of any distribution received by a U.S. Holder in respect of ArcelorMittal shares exceeds the current or accumulated earnings and profits of ArcelorMittal, the distribution (1) will be treated as a non-taxable return of the U.S. Holder’s adjusted tax basis in those ArcelorMittal shares and (2) thereafter will be treated as U.S.-source capital gain. Because ArcelorMittal does not maintain calculations of earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. Distributions of additional ArcelorMittal shares that are made to U.S. Holders with respect to their ArcelorMittal shares, and that are part of a pro rata distribution to all ArcelorMittal shareholders, generally will not be subject to U.S. federal income tax.
The U.S. dollar amount of a taxable dividend generally will be included in the gross income of a U.S. Holder as ordinary income derived from sources outside the United States for U.S. foreign tax credit purposes and generally will be passive category income for purposes of the foreign tax credit limitation. Dividends paid in euro will be included in a U.S. Holder’s income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date the dividend is received; a recipient of such dividends that converts such euro to dollars upon receipt generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. Fluctuations in the U.S. dollar-euro exchange rate between the date that U.S. Holders receive a dividend and the date that they receive any related refund of Luxembourg withholding tax may give rise to foreign currency gain or loss. Such gain or loss will generally be treated as ordinary income or loss for U.S. tax purposes. Dividends paid by ArcelorMittal will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from U.S. corporations.
Subject to certain exceptions for short-term or hedged positions, taxable dividends received by certain non-corporate U.S. Holders (including individuals) with respect to the ArcelorMittal shares will be subject to U.S. federal income taxation at rates that are lower than the rates applicable to ordinary income if the dividends represent “qualified dividend income”. Dividends
paid on the ArcelorMittal shares will be treated as qualified dividend income if ArcelorMittal is not a PFIC in the year in which the dividend was paid or in the year prior thereto. As discussed further below, ArcelorMittal believes that it was not a PFIC for
U.S. federal income tax purposes with respect to its 20182019 taxable year, and ArcelorMittal does not anticipate being a PFIC for its 20192020 taxable year. See “—Passive foreign investment company ("PFIC") status”.
U.S. Holders of ArcelorMittal shares should consult their own tax advisors regarding the availability of the reduced rate of U.S. federal income tax on dividends in light of their own particular circumstances.
Subject to the limitations and conditions provided in the Code and the applicable U.S. Treasury Regulations, a U.S. Holder of ArcelorMittal shares may be able to claim a foreign tax credit against its U.S. federal income tax liability in respect of any Luxembourg income taxes withheld at the appropriate rate applicable to the U.S. Holder from a dividend paid by ArcelorMittal to such U.S. Holder and paid to the Luxembourg government. Alternatively, the U.S. Holder may deduct such Luxembourg income taxes from its U.S. federal taxable income, provided that the U.S. Holder elects to deduct rather than credit all foreign income taxes for the relevant taxable year. The rules with respect to foreign tax credits are complex and involve the application of rules that depend on a U.S. Holder’s particular circumstances. Accordingly, U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
(b) Taxation of sales, exchanges, or other dispositions of ArcelorMittal shares
Sales or other taxable dispositions by U.S. Holders of ArcelorMittal shares generally will give rise to gain or loss equal to the difference between the amount realized on the disposition and the U.S. Holder’s tax basis in such ArcelorMittal shares. A U.S. Holder generally will have an initial tax basis in each ArcelorMittal share equal to its U.S. dollar cost to the U.S. Holder.
In general, gain or loss recognized on the sale or exchange of ArcelorMittal shares will be capital gain or loss and, if the U.S. Holder’s holding period for such ArcelorMittal shares exceeds one year, will be long-term capital gain or loss. Certain U.S. Holders, including individuals, are eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. The deduction of capital losses against ordinary income is subject to limitations under the Code.
Passive foreign investment company (“PFIC”) status
Special U.S. federal income tax rules apply to U.S. Holders owning stock of a PFIC. ArcelorMittal believes that it currently is not a PFIC for U.S. federal income tax purposes, and ArcelorMittal does not expect to become a PFIC in the future. This conclusion is based upon an annual analysis of its financial position and an interpretation of the PFIC provisions that ArcelorMittal believes is correct. No assurances can be made, however, that the applicable tax law or relevant factual circumstances will not change in a manner that affects the determination of ArcelorMittal’s PFIC status. If, contrary to the foregoing, ArcelorMittal were classified as a PFIC, a U.S. Holder of ArcelorMittal shares would be subject to an increased tax liability upon the gain realized on a sale or other disposition of ArcelorMittal shares or upon the receipt of certain distributions treated as “excess distributions”. Any gain realized would not be treated as a capital gain but would be treated as if the U.S. Holder had realized its gain and certain “excess distributions”, as applicable, ratably over its holding period for ArcelorMittal shares and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. In addition, if ArcelorMittal were a PFIC and its shares constitute “marketable stock”, a U.S. Holder may elect to be taxed annually on a mark-to-market basis with respect to its ArcelorMittal shares and mitigate the adverse tax consequences. U.S. Holders should consult their tax advisors as to the availability and consequences of a mark-to-market election with respect to their shares of ArcelorMittal.
Foreign Financial Asset Reporting.Reporting
Certain U.S. Holders that own “specified foreign financial assets” with an aggregate value in excess of U.S.$50,000 on the last day of the taxable year or U.S.$75,000 at any time during the taxable year are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer that are not held in accounts maintained by financial institutions. The understatement of income attributable to “specified foreign financial assets” in excess of U.S.$5,000 extends the statute of limitations with respect to the tax return to six years after the return was filed. U.S. Holders who fail to report the required information could be subject to substantial penalties. Prospective investors are encouraged to consult with their own tax advisers regarding the possible application of these rules, including the application of the rules to their particular circumstances.
Backup withholding and information reporting
The payment of proceeds received upon the sale, exchange or redemption of ArcelorMittal shares by U.S. Holders within the United States (or through certain U.S.-related financial intermediaries), and dividends on ArcelorMittal shares paid to U.S. Holders in the United States (or through certain U.S.-related financial intermediaries), will be subject to information reporting and may be subject to backup withholding unless the U.S. Holder (1) is an exempt recipient, and establishes that exemption if required or (2) in the case of backup withholding, provides an IRS Form W-9 (or an acceptable substitute form) that contains the U.S. Holder’s taxpayer identification number and that certifies that no loss of exemption from backup withholding has occurred.
Backup withholding is not an additional tax. The amount of backup withholding imposed on a payment to a U.S. Holder will be allowed as a credit against the holder’s U.S. federal income tax liability, if any, or as a refund, so long as the required information is properly furnished to the IRS. Holders that are not U.S. Holders may need to comply with certification procedures to establish their non-U.S. status in order to avoid information reporting and backup withholding tax requirements.
THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT ABOVE IS INTENDED FOR GENERAL INFORMATION PURPOSES ONLY. EACH INVESTOR IN ARCELORMITTAL ORDINARY SHARES IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF ARCELORMITTAL SHARES BASED ON THE INVESTOR’S PARTICULAR CIRCUMSTANCES.
Luxembourg taxation
The following is a summary addressing certain material Luxembourg tax consequences that are likely to be relevant to holders of shares in respect of the ownership and disposition of shares in ArcelorMittal.
This summary does not purport to address all material tax considerations that may be relevant to a holder or prospective holder of ArcelorMittal shares. This summary also does not take into account the specific circumstances of particular investors some of which may be subject to special tax rules, including dealers in securities, financial institutions, insurance companies, investment funds, and of current or prior holders (directly or indirectly) of five percent or more of the shares of ArcelorMittal.
This summary is based on the laws, regulations and applicable tax treaties as in effect on the date hereof in Luxembourg, all of which are subject to change, possibly with retroactive effect. Holders of ArcelorMittal shares should consult their own tax advisers as to the particular tax consequences, under the tax laws of the country of which they are residents for tax purposes of the ownership or disposition of ArcelorMittal shares.
This summary does not address the terms of employee stock options or other incentive plans implemented by ArcelorMittal and its subsidiaries and does not purport to provide the holders of stock subscription options or other comparable instruments (including shares acquired under employee share ownership programs) with a description of the possible tax and social security implications for them, nor to determine under which conditions these options or other instruments are or may become exercisable. These holders are therefore urged to consult their own tax advisers as to the potential tax and social security implications of an exercise of their options or other instruments.
As used herein, a “Luxembourg individual” means an individual resident in Luxembourg who is subject to personal income tax (impôt sur le revenu) on his or her worldwide income from Luxembourg or foreign sources, and a “Luxembourg company” means a company or another entity resident in Luxembourg subject to corporate income tax (impôt sur le revenu des collectivités) on its worldwide income from Luxembourg or foreign sources. For the purposes of this summary, Luxembourg individuals and Luxembourg companies are collectively referred to as “Luxembourg Holders”. A “non-Luxembourg Holder” means any investor in ArcelorMittal shares other than a Luxembourg Holder.
(a) Luxembourg withholding tax on dividends paid on ArcelorMittal shares
Dividends distributed by ArcelorMittal will in principle be subject to Luxembourg withholding tax at the rate of 15%.
Luxembourg resident corporate holders
No dividend withholding tax applies on dividends paid by ArcelorMittal to a Luxembourg company (that is, a fully taxable entity within the meaning of Article 159 of the Luxembourg Income Tax Law) holding shares (or a Luxembourg permanent
establishment/representative of a qualifying foreign entity to which the shares are attributable), which meets the qualifying participation test (that is, a shareholding in ArcelorMittal of at least 10% or having an acquisition cost of at least EUR
1.2 million held or committed to be held for a minimum one year holding period, per Article 147 of the Luxembourg Income Tax Law). If such exemption from dividend withholding tax does not apply, a Luxembourg company may be entitled to a tax credit.
Luxembourg resident individual holders
Luxembourg withholding tax on dividends paid by ArcelorMittal to a Luxembourg resident individual holder may entitle such Luxembourg Holder to a tax credit for the tax withheld.
Non-Luxembourg Holders
Non-Luxembourg Holders of ArcelorMittal shares who have held a shareholding in ArcelorMittal representing at least 10% of ArcelorMittal’s share capital (or shares with an acquisition cost of at least EUR 1.2 million) for an uninterrupted period of at least 12 months (or where held for a shorter period, where the holder takes the commitment to hold the qualifying shareholding for such period) may benefit from an exemption from the dividend withholding tax if they are: (i) entities which fall within the scope of Article 2 of the European Council Directive 2011/96/EU, as amended (the “EU Parent-Subsidiary Directive”) and which are not excluded to benefit from the EU Parent-Subsidiary Directive under its mandatory general anti-avoidance rule (“GAAR”) in each case as implemented in Luxembourg, or (ii) corporates subject to a tax comparable to Luxembourg corporate income tax and which are resident of a country having concluded a double tax avoidance treaty with Luxembourg, or (iii) corporates subject to a tax comparable to Luxembourg corporate income tax and which are resident in a State being part of the European Economic Area (EEA) other than a Member State of the European Union, or (iv) corporates resident in Switzerland subject to corporate income tax in Switzerland without benefiting from an exemption.
Non-Luxembourg Holders of ArcelorMittal shares who are tax resident in a country having a double tax avoidance treaty with Luxembourg may claim for a reduced withholding tax rate or a withholding tax relief under the conditions and subject to the limitations set forth in the relevant treaty.
(b) Luxembourg income tax on dividends paid on ArcelorMittal shares and capital gains
Luxembourg resident individual holders
For Luxembourg individuals, income in the form of dividends or capital gains derived from ArcelorMittal shares will normally be subject to individual income tax at the applicable progressive rate with a current top effective marginal rate of 45.78% including the unemployment fund contribution at the maximum rate of 9%. Such dividends may benefit from the 50% exemption set forth in Article 115(15a) of the Luxembourg Income Tax Law, subject to fulfillment of the conditions set out therein. Capital gains will only be taxable if they are realized on a sale of ArcelorMittal shares, which takes place within the first six months following their acquisition, or if the relevant holder (alone or together with his/her spouse or registered partner and his/her underage children), directly or indirectly, holds or has held more than 10% of the ArcelorMittal shares at any time during the past five years.
Luxembourg resident corporate holders
For Luxembourg companies, which do not benefit from a special tax regime, income in the form of dividends or capital gains derived from ArcelorMittal shares will be subject to corporate income tax and municipal business tax. The combined rate for these two taxes (including an unemployment fund contribution of 7%) for Luxembourg companies with registered office in Luxembourg City is 26.01%24.94% in 2018.2019. Such dividends may benefit either from the 50% exemption set forth in Article 115(15a) of the Luxembourg Income Tax Law or from the full exemption set forth in Article 166 of the Luxembourg Income Tax Law, subject in each case to fulfillment of the respective conditions set out therein. Capital gains realized on the sale of ArcelorMittal shares may benefit from the full exemption provided for by the Grand Ducal Decree of December 21, 2001, as amended, subject to fulfillment of the conditions set out therein.
Non-Luxembourg Holders
An individual or corporate non-Luxembourg Holder of ArcelorMittal shares who/which realizes a gain on disposal thereof (and who/which does not have a permanent establishment in Luxembourg to which the ArcelorMittal shares would be attributable) will only be subject to Luxembourg taxation on capital gains arising upon disposal of such shares if such holder
has (if an individual, alone or together with his or her spouse or registered partner and underage children) directly or indirectly held more than 10% of the capital of ArcelorMittal, at any time during the past five years, and either (1) such holder has been a
resident of Luxembourg for tax purposes for at least 15 years and has become a non-resident within the last five years preceding the realization of the gain, subject to any applicable tax treaty, or (2) the disposal of ArcelorMittal shares occurs within six months from their acquisition, subject to any applicable tax treaty.
A corporate non-Luxembourg Holder, which has a permanent establishment or a permanent representative in Luxembourg to which ArcelorMittal shares would be attributable, will bear corporate income tax and municipal business tax on dividends received and/or a gain realized on a disposal of such shares under the same conditions as are applicable to a Luxembourg resident corporate holder, as described above.
(c) Other taxes
Net wealth tax
Luxembourg net wealth tax will not be levied on a Luxembourg Holder unless:
the Luxembourg Holder is a legal entity subject to net wealth tax in Luxembourg; or
ArcelorMittal shares are attributable to an enterprise or part thereof which is carried on through a permanent establishment or a permanent representative in Luxembourg of a non-resident entity.
Net wealth tax is levied annually at a digressive rate depending on the amount of the net wealth of the above holders, as determined for net wealth tax purposes (i.e. 0.5% on an amount up to EUR 500 million and 0.05% on the amount of taxable net wealth exceeding EUR 500 million).
ArcelorMittal shares may be exempt from net wealth tax subject to the conditions set forth by Article 60 of the Law of October 16, 1934 on the valuation of assets (Bewertungsgesetz), as amended.
Estate and gift tax
Luxembourg inheritance tax may be levied on the transfer of ArcelorMittal shares upon the death of a Luxembourg individual.
Luxembourg gift tax will be levied in the event that a gift of ArcelorMittal shares is made pursuant to a notarial deed signed before a Luxembourg notary.
Other Luxembourg tax considerations
No registration tax will be payable by a holder of shares upon the issue, subscription or acquisition of shares in ArcelorMittal or upon the disposal of shares by sale or exchange.
F. Dividends and paying agents
The paying agent for shareholders who hold shares listed on the NYSE is Citibank and the paying agent for shareholders who hold shares listed on Euronext Amsterdam, Euronext Paris, Luxembourg Stock Exchange and Spanish Stock Exchanges is BNP Paribas Securities Services. For more information see, “Item 8.A—Financial Information—Consolidated statements and other financial information—Dividend distributions.”
G. Statements by experts
Please refer to “Item 4.D—Information on the Company—Property, plant and equipment—Reserves (iron ore and coal),” and Item 19.
H. Documents on display
A copy of any or all of the documents deemed to be incorporated in this report by reference, unless such documents have been modified or superseded as specified herein, may be obtained by sending a request to:
company.secretary@arcelormittal.com or at ArcelorMittal’s registered office as set out in “Item 4.A—Information on the Company—History and development of the Company—Other information” of this annual report.
I. Subsidiary information
Not applicable.
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ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ArcelorMittal is exposed to a number of different market risks arising from its normal business activities. Market risk is the possibility that changes in raw materials prices, foreign currency exchange rates, interest rates, base metal prices (zinc, nickel, aluminum and tin) and energy prices (oil, natural gas and power) will adversely affect the value of ArcelorMittal’s financial assets, liabilities or expected future cash flows.
The fair value information presented below is based on the information available to management as of the date of the consolidated statements of financial position. Although ArcelorMittal is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of this annual report since that date, and therefore, the current estimates of fair value may differ significantly from the amounts presented. The estimated fair values of certain financial instruments have been determined using available market information or other valuation methodologies that require considerable judgment in interpreting market data and developing estimates.
See note 6 to ArcelorMittal’s consolidated financial statements for quantitative information about risks relating to financial instruments, including financial instruments entered into pursuant to the Company’s risk management policies.
Risk management
ArcelorMittal has implemented strict policies and procedures to manage and monitor financial market risks. Organizationally, supervisory functions are separated from operational functions, with proper segregation of duties. Financial market activities are overseen by the President and CFO, the Corporate Finance and Tax Committee and the CEO Office.
All financial market risks are managed in accordance with the Treasury and Financial Risk Management Policy. These risks are managed centrally through Group Treasury by a group specializing in foreign exchange, interest rate, commodity, internal and external funding and cash and liquidity management.
All financial market hedges are governed by ArcelorMittal’s Treasury and Financial Risk Management Policy, which includes a delegated authority and approval framework, sets the boundaries for all hedge activities and dictates the required approvals for all Treasury activities. Hedging activity and limits are monitored on an ongoing basis. ArcelorMittal enters into transactions with numerous counterparties, mainly banks and financial institutions, as well as brokers, major energy producers and consumers.
As part of its financial risk management activities, ArcelorMittal uses derivative instruments to manage its exposure to changes in interest rates, foreign exchange rates and commodities prices. These instruments are principally interest rate, currency and commodity swaps, spots and forwards. ArcelorMittal may also use futures and options contracts.
Counterparty risk
ArcelorMittal has established detailed counterparty limits to mitigate the risk of default by its counterparties. The limits restrict the exposure ArcelorMittal may have to any single counterparty. Counterparty limits are calculated taking into account a range of factors that govern the approval of all counterparties. The factors include an assessment of the counterparty’s financial soundness and its ratings by the major rating agencies, which must be of a high quality. Counterparty limits are monitored on a periodic basis.
All counterparties and their respective limits require the prior approval of the Corporate Finance and Tax Committee. Standard agreements, such as those published by the International Swaps and Derivatives Association, Inc. (ISDA) are negotiated with all ArcelorMittal trading counterparties.
Currency exposure
ArcelorMittal seeks to manage each of its entities’ exposure to its operating currency. For currency exposure generated by activities, the conversion and hedging of revenues and costs in foreign currencies is typically performed using currency transactions on the spot market and forward market. For some of its business segments, ArcelorMittal hedges future cash flows.
Because a substantial portion of ArcelorMittal’s assets, liabilities, sales and earnings are denominated in currencies other than the U.S. dollar (its reporting currency), ArcelorMittal has exposure to fluctuations in the values of these currencies relative to the U.S. dollar. These currency fluctuations, especially the fluctuation of the value of the U.S. dollar relative to the euro, the Canadian dollar, Brazilian real, South African rand, Argentine peso, Kazakh tenge, Indian rupee, Polish zloty and Ukrainian hryvnia, as well as fluctuations in the currencies of the other countries in which ArcelorMittal has significant operations and/or sales, could have a material impact on its results of operations.
ArcelorMittal faces transaction risk, where its businesses generate sales in one currency but incur costs relating to that revenue in a different currency. For example, ArcelorMittal’s non-U.S. subsidiaries may purchase raw materials, including iron ore and coking coal, in U.S. dollars, but may sell finished steel products in other currencies. Consequently, an appreciation of the U.S. dollar will increase the cost of raw materials, thereby negatively impacting the Company’s operating margins, unless the Company is able to pass along the higher cost in the form of higher selling prices.
ArcelorMittal faces foreign currency translation risk, which arises when ArcelorMittal translates the financial statements of its subsidiaries, denominated in currencies other than the U.S. dollar for inclusion in ArcelorMittal’s consolidated financial statements.
The tables below illustrate the impact of an appreciation and a depreciation of the U.S. dollar of 10% against the euro, on the conversion of the net debt of ArcelorMittal into U.S. dollars as of December 31, 20182019 and December 31, 2017.2018. The impact on net debt denominated in a currency different than the euro, is computed based on historical data of how such currency would move against the U.S. dollar when the U.S. dollar appreciates/depreciates 10% against the euro. A positive sign means an increase in the net debt.
| | Currency | | Impact on net debt translation of a 10% appreciation of the U.S. dollar against the euro | | Impact on net debt translation of a 10% depreciation of the U.S. dollar against the euro | | Impact on net debt translation of a 10% appreciation of the U.S. dollar against the euro | | Impact on net debt translation of a 10% depreciation of the U.S. dollar against the euro |
In 2018 | | in $ equivalent (in millions) | | in $ equivalent (in millions) | |
In 2019 | | | in $ equivalent (in millions) | | in $ equivalent (in millions) |
Argentine peso | | 7 | | (23) | | 9 | | (19) |
Canadian dollar | | (9) | | 10 | |
Brazilian real | | | (3) | | 6 |
Euro | | (564) | | 564 | | (522) | | 522 |
Indian rupee | | 33 | | (42) | |
Polish Zloty | | | (21) | | 27 |
South African rand | | 25 | | (38) | | 8 | | (12) |
Swiss franc | | (12) | | 14 | |
Ukrainian hryvinia | | | 26 | | (12) |
Other | | 10 | | (8) | | 6 | | (7) |
| | Currency | | Impact on net debt translation of a 10% appreciation of the U.S. dollar against the euro | | Impact on net debt translation of a 10% depreciation of the U.S. dollar against the euro | | Impact on net debt translation of a 10% appreciation of the U.S. dollar against the euro | | Impact on net debt translation of a 10% depreciation of the U.S. dollar against the euro |
In 2017 | | in $ equivalent (in millions) | | in $ equivalent (in millions) | |
In 2018 | | | in $ equivalent (in millions) | | in $ equivalent (in millions) |
Argentine peso | | (6) | | 5 | | 7 | | (23) |
Bosnia and Herzegovina convertible mark | | 2 | | (3) | |
Chinese renminbi | | (8) | | 9 | |
Canadian dollar | | | (9) | | 10 |
Euro | | (597) | | 597 | | (564) | | 564 |
Moroccan dirham | | 3 | | (4) | |
Indian rupee | | | 33 | | (42) |
South African rand | | | 25 | | (38) |
Swiss franc | | (6) | | 7 | | (12) | | 14 |
Other | | 2 | | (1) | | 10 | | (8) |
Derivative instruments
ArcelorMittal uses derivative instruments to manage its exposure to movements in interest rates, foreign exchange rates and commodity prices. Changes in the fair value of derivative instruments are recognized in the consolidated statements of operations or in equity according to nature and effectiveness of the hedge.
Derivatives used are non-exchange-traded derivatives such as over-the-counter swaps, options and forward contracts.
For the Company’s tabular presentation of information related to its market risk sensitive instruments, please see note 6 to the consolidated financial statements.
Interest rate sensitivity
Cash balances, which are primarily composed of euros and U.S. dollars, are managed according to the short term (up to one year) guidelines established by senior management on the basis of a daily interest rate benchmark, primarily through short-term currency swaps, without modifying the currency exposure.
Interest rate risk on debt
ArcelorMittal’s policy consists of incurring debt at fixed and floating interest rates, primarily in U.S. dollars and euros according to general corporate needs. Interest rate and currency swaps are utilized to manage the currency and/or interest rate exposure of the debt.
For the Company’s tabular presentation of the fair values of its short and long term debt, please see note 6 to the consolidated financial statements.
Commodity price risk
ArcelorMittal utilizes a number of exchange-traded commodities in the steel-making process. In certain instances, ArcelorMittal is the leading consumer worldwide of certain commodities. In some businesses and in certain situations, ArcelorMittal is able to pass this exposure on to its customers. The residual exposures are managed as appropriate.
Financial instruments related to commodities (base metals, energy, freight and emission rights) are utilized to manage ArcelorMittal’s exposure to price fluctuations.
Hedges in the form of swaps and options are utilized to manage the exposure to commodity price fluctuations.
For the Company’s tabular presentation of information related to its market risk sensitive instruments, please see note 6 to the consolidated financial statements.
In respect of non-exchange traded commodities, ArcelorMittal is exposed to volatility in the prices of raw materials such as iron ore (which is generally correlated with steel prices with a time lag) and coking coal. This exposure is almost entirely managed through long-term contracts, however some hedging of iron ore exposures is made through derivative contracts. For a more detailed discussion of ArcelorMittal’s iron ore and coking coal purchases, see “Item 5—Operating and financial review and prospects—Key factors affecting results of operation—Raw materials”.
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ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
A. Debt securities
Not applicable.
B. Warrants and rights
Not applicable.
C. Other securities
Not applicable.
D. American depositary shares
The Company does not have any American Depositary Receipts. As described under “Item 10.B—Additional information—Memorandum and Articles of Association—Form and transfer of shares”, the Company maintains a New York share register with Citibank, N.A. for its shares that trade on the NYSE. As of December 31, 2018, 57,620,5742019, 51,794,561 shares (or approximately 5.64%5.07% of ArcelorMittal’s total issued shares) were ArcelorMittal New York Registry Shares. Holders of ArcelorMittal New York Registry Shares do not pay fees to Citibank as a general matter, but do incur costs of up to $5 per 100 shares for transactions that require canceling or issuing New York Registry Shares, such as cross-border trades where New York Registry Shares are cancelled in exchange for shares held in ArcelorMittal’s European register, or vice-versa. Subject to certain conditions, Citibank reimburses the Company on an annual basis for expenses incurred by the Company in relation to the ongoing maintenance of the New York share facility (e.g., investor relations expenses, NYSE listing fees, etc.). In 2018,2019, Citibank paid the Company $600,000$456,779 in respect of reimbursements of expenses incurred by the Company in 2018.2019.
PART II
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ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
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ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
None.
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ITEM 15. | CONTROLS AND PROCEDURES |
Disclosure controls and procedures
Management maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. ArcelorMittal’s controls and procedures are designed to provide reasonable assurance of achieving their objectives.
Management carried out an evaluation, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of December 31, 2018.2019. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 20182019 so as to provide reasonable assurance that (1) information required to be disclosed by the Company in the reports that the Company files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that:
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• | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of ArcelorMittal; |
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• | provide reasonable assurance that transactions are recorded, as necessary, to permit preparation of financial statements in accordance with IFRS; |
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• | provide reasonable assurance that receipts and expenditures of ArcelorMittal are made in accordance with authorizations of ArcelorMittal's management and directors; and |
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• | provide reasonable assurance that unauthorized acquisition, use or disposition of ArcelorMittal’s assets that could have a material effect on the financial statements would be prevented or detected on a timely basis. |
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Company’s financial statements would be prevented or detected. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of internal control over financial reporting as of December 31, 20182019 based upon the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management concluded that ArcelorMittal’s internal control over financial reporting was effective as of December 31, 2018.
On November 1, 2018, ArcelorMittal completed the acquisition of Ilva S.p.A. and certain of its subsidiaries ("Ilva"). Management acknowledges that it is responsible for establishing and maintaining a system of internal controls over financial reporting for Ilva. ArcelorMittal is in the process of integrating Ilva and accordingly a number of processes and controls will be changed. In accordance with SEC staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, ArcelorMittal excluded Ilva from its assessment of the effectiveness of internal controls over financial reporting as of December 31, 2018. Ilva represents 3% of the Company’s total assets as of December 31, 2018 and less than 1% of the Company’s sales and consolidated net income for the year ended December 31, 2018. The transaction has not materially affected nor is expected to materially affect ArcelorMittal's internal control over financial reporting. The Company expects its internal control system to be fully implemented at Ilva in 2019 and, accordingly, to evaluate it for effectiveness at that time.2019.
The effectiveness of management’s internal control over financial reporting as of December 31, 20182019 has been audited by the Company’s independent registered public accounting firm, Deloitte Audit, and their report as of February 22, 2019March 3, 2020 below expresses an unqualified opinion on the Company’s internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the year endingended December 31, 20182019 that have materially affected or are reasonably likely to have materially affected the Company’s internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of ArcelorMittal
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of ArcelorMittal and subsidiaries (the “Company”) as of December 31, 2018,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018,2019, of the Company and our report dated February 22, 2019,March 3, 2020, expressed an unqualified opinion on those consolidated financial statements.
As described in Management’s Annual Report on Internal Control Overstatements and included an explanatory paragraph regarding the Company’s adoption of International Financial Reporting management excluded from its assessmentStandard (IFRS) 16, Leases, effective January 1, 2019, using the internal control over financial reporting at Ilva S.p.A. and certain of its subsidiaries ("Ilva"), which was acquired on November 1, 2018 and whose financial statements constitute 3% of total assets and less than 1% of sales and net income (including non-controlling interests) of the consolidated financial statement amounts as of and for the year ended December 31, 2018. Accordingly, our audit did not include the internal control over financial reporting at Ilva.modified retrospective transition approach.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte Audit S.à r.l.
Luxembourg, Grand Duchy of Luxembourg
February 22, 2019March 3, 2020
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ITEM 16A. | AUDIT & RISK COMMITTEE FINANCIAL EXPERT |
Mrs. Karyn Ovelmen is the Chairman of the Audit & Risk Committee. Mrs. Ovelmen is an “Audit & Risk committee financial expert” as defined by the SEC regulations for Item 16A of Form 20-F.
Mrs. Ovelmen and each of the other members of the Audit & Risk Committee are “independent directors” as defined under the NYSE listing standards.
Please see “Item 6.A—Directors, senior management and employees—Directors and senior management—–Board of Directors” for Mrs. Ovelmen's experience.
ArcelorMittal has adopted a “Code of Business Conduct” applicable to all directors and to senior management, including the Company’s Chief Executive Officer and Chief Financial Officer, and employees of ArcelorMittal. The Code has been disseminated through company-wide communications and is posted on ArcelorMittal’s website at www.arcelormittal.com.
ArcelorMittal intends to disclose any amendment to or waiver from the Code of Business Conduct applicable to any of ArcelorMittal’s directors, its Chief Executive Officer, Chief Financial Officer or any other person who is an executive officer of ArcelorMittal on ArcelorMittal’s website at www.arcelormittal.com.
For more information refer to “Item 6.C—Directors, senior management and employees—Board practices/Corporatecorporate governance—Ethics and conflicts of interest”.
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ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Deloitte Audit S.à r.l. acted as the principal independent registered public accounting firm for ArcelorMittal for the fiscal years ended December 31, 20182019 and 2017.2018. Set forth below is a breakdown of fees for services rendered in 20182019 and 2017.2018.
Audit Fees. Audit fees in 2019 and 2018 and 2017 included $26.7$25.5 million and $23.6$26.7 million, respectively, for the audits of financial statements, and $0.4 million and $0.5 million in 2019 and $0.2 million in 2018, and 2017, respectively, for regulatory filings.
Audit-Related Fees. Audit-related fees in 2019 and 2018 and 2017 were $0.9$1.0 million and $1.0$0.9 million, respectively. Audit-related fees primarily include fees for employee benefit plan audits.agreed upon procedures for various transactions or reports.
Tax Fees. Fees relating to tax planning, advice and compliance in 2019 and 2018 and 2017 were $0.4$0.3 million and $0.4 million, respectively.
All Other Fees. Fees in 20182019 and 20172018 for all other services were $0.2$0.1 million and $0.2 million, respectively. All other fees relate to services not included in the first three categories.
The Audit & Risk Committee has reviewed and approved all of the audit, audit-related, tax and other services provided by the principal independent registered public accounting firm in 20182019 within its scope, prior to commencement of the engagements. None of the services provided in 20182019 were approved under the de minimis exception allowed under the Exchange Act.
The Audit & Risk Committee pre-approves all permissible non-audit service engagements rendered by the principal independent registered public accounting firm. The Audit & Risk Committee has delegated pre-approval powers on a case-by-case basis to the Audit & Risk Committee Chairman, for instances where the Committee is not in session and the pre-approved services are reviewed in the subsequent Committee meeting.
In making its recommendation to appoint Deloitte Audit S.à r.l. as our principal independent registered public accounting firm for the fiscal year ended December 31, 2018,2019, the Audit & Risk Committee has considered whether the services provided are compatible with maintaining Deloitte Audit S.à r.l. independence and has determined that such services do not interfere with Deloitte Audit S.à r.l. independence.
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ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
None.
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ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
|
| | | | |
20182019 | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)(2) |
January 1 - January 31 | - | - | - | - |
February 1 - February 28 | -4,000,000(1) | -$22.42 | -4,000,000(1) | - |
March 1 - March 31 | 7,000,000(1) - | $32.36- | 7,000,000(1) - | -(1) |
April 1 - April 30 | - | - | - | - |
May 1 - May 31 | - | - | - | - |
June 1 - June 30 | - | - | - | - |
July 1 - July 31 | - | - | - | - |
August 1 - August 31 | - | - | - | - |
September 1 - September 30 | - | - | - | - |
October 1 - October 31 | - | - | - | - |
November 1 - November 30 | - | - | - | - |
December 1 - December 31 | - | - | - | - |
(1) In accordance with the authorization provided by the annual general meeting of shareholders of May 5, 2015 as described in “Item 10.B—Additional Information—Memorandum and Articles of Association”, on March 13, 2018,February 7, 2019, ArcelorMittal announced a share buyback program with the intent to acquire shares intended to meet the Company’s obligations arising from employee share option programs, or other allocations of shares, to employees or to members of management including the CEO Office of ArcelorMittal or group companies.programs. ArcelorMittal announced its intent to repurchase an aggregate maximum amount of US$280,000,000$113,424,000 in accordance with the resolution of the annual general meeting of shareholders held on May 5, 2015 and applicable market abuse regulations for a maximum of 7,000,0004,000,000 shares to be acquired during the period from March 13, 2018February 11, 2019 to May 5, 2020.December 31, 2019. On March 28, 2018,February 19, 2019, ArcelorMittal announced the completion of its share buyback program on March 26, 2018. Following this share buy-back program,February 15, 2019. Under the authorization given on May 5, 2015 and if further programs are announced, the Company may still buy back shares up to approximately 9.3%9% of its issued share capital as of December 31, 2018. See “Item 4.A—Information on the Company—History and development of the Company—Recent Developments.” about the 2019 Program.2019.
(2) As described in “Item 10.B—Additional Information—Memorandum and Articles of Association”, the maximum number of shares that may be acquired is the maximum allowed by the Luxembourg law of 10 August 1915 on commercial companies in such manner that the accounting par value of the Company’s shares held by the Company do not in any event exceed 10% of the Company’s issued share capital. The maximum number of own shares that the Company may hold at any time directly or indirectly may not have the effect of reducing its net assets (“actif net”) below the amount mentioned in paragraphs 1 and 2 of Article 461-272-1 of the Grand-Ducal Regulation coordinating the amended law of 10 August 1915 on commercial companies Law.
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ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
Not applicable.
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ITEM 16G. | CORPORATE GOVERNANCE |
There are no significant differences between the corporate governance practices of ArcelorMittal and those required of a U.S. domestic issuer under the Listed Company Manual of the New York Stock Exchange.
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ITEM 16H. | MINE SAFETY DISCLOSURE |
The information concerning mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act is included in Exhibit 16.1 to this annual report on Form 20-F.
PART III
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ITEM 17. | FINANCIAL STATEMENTS |
The Company has responded to Item 18 in lieu of responding to this Item.
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ITEM 18. | FINANCIAL STATEMENTS |
Reference is made to pages F-1 to F-134.F-136.
EXHIBIT INDEX
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| |
Exhibit | Description |
Number |
| |
1.11.1* |
|
2.1 | The total amount of long-term debt securities authorized under any instrument does not exceed 10% of the total assets of ArcelorMittal and its subsidiaries on a consolidated basis. ArcelorMittal hereby agrees to furnish to the SEC, upon its request, a copy of any instrument defining the rights of holders of long-term debt of ArcelorMittal or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed. |
2.2 | Description of ArcelorMittal securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 and available at Exhibit 2.2. |
4.1* | Shareholder’s agreement dated as of August 13, 1997 among Ispat International N.V., LNM Holdings S.L. (renamed Ispat International Investments S.L.) and Mr. Lakshmi N. Mittal (filed as Exhibit 4.3 to Mittal Steel Company N.V.’s annual report on Form 20-F for the year ended December 31, 2004 (File No. 001-14666), and incorporated by reference herein) and available at: http://www.sec.gov/Archives/edgar/data/1041989/000095012305003893/y07225exv4w3.txt. |
4.2* | |
4.3* | |
4.4* | |
4.5* | |
4.6* | |
4.7*4.6* | Supplemental Terms for 2014-2015 Restricted Share Units and Performance Share Units Plan to the ArcelorMittal Equity Incentive Plan effective May 8, 2014 (filed as Exhibit 4.8 to ArcelorMittal’s annual report on Form 20-F for the year ended December 31, 2014 (File No. 001-35788), and incorporated by reference herein) and available at: http://www.sec.gov/Archives/edgar/data/1243429/000124342915000002/Exhibit48.htm. |
4.9* |
| |
4.8* | |
4.10*4.9* | |
4.11*4.10* | |
4.12*4.11* | |
4.134.12* | |
4.144.13* | |
4.14 | Supplemental Terms for 2019-2020 Group Management Board Performance Share Units Plan effective December 12, 2019 and available at Exhibit 4.14. |
4.15 | Supplemental Terms for 2019-2020 Performance Share Units effective December 12, 2019 and available at Exhibit 4.15. |
8.1 | |
12.1 | Certifications of ArcelorMittal’s Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act and available at Exhibit 12.112.1.. |
13.1 | Certifications of ArcelorMittal’s Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code and available at Exhibit 13.113.1.. |
15.1 | |
15.2 | Consent of Gustavson Associates - Mexico (Las Truchas and San Jose) and available at Exhibit 15.215.2.. |
15.3 | Consent of SRK Consulting (UK) LimitedKAI Ltd. - iron oreUkraine (ArecelorMittal Kryvyi Rih Open Pit) and available at Exhibit 15.3. |
15.4 | Consent of SRK Consulting (UK) Limited - coaliron ore and available at:at Exhibit 15.415.4.. |
15.5 | Consent of SRK Consulting (Canada) Inc.(UK) Limited - coal and available at Exhibit 15.5. |
15.6 | Consent of SRK Consultores do Brasil Ltda.Consulting (Canada) Inc. - Ukraine (ArcelorMittal Kryvyi Rih Open Pit) and available at Exhibit 15.615.6. |
15.7 | Consent of SRK Consulting (Canada) Inc. - AMMC and available at Exhibit 15.7. |
15.8 | Consent of Breton, Banville and Associates and available at Exhibit 15.8. |
16.1 | |
101.INS | XBRL Instance Document
- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | XBRL Taxonomy Extension Schema Document
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101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
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ARCELORMITTAL |
|
/s/ Henk Scheffer |
Henk Scheffer |
Company Secretary |
Date: February 22, 2019March 3, 2020
ARCELORMITTAL AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
as of December 31, 20182019 and 20172018 and
for each of the three years in the period ended December 31, 20182019
INDEX
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| Page |
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Report of Independent Registered Public Accounting Firm | |
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Consolidated Statements of Operations | |
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Consolidated Statements of Other Comprehensive Income | |
| |
Consolidated Statements of Financial Position | |
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Consolidated Statements of Changes in Equity | |
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Consolidated Statements of Cash Flows | |
| |
Notes to Consolidated Financial Statements | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholdersand the Board of Directors of ArcelorMittal
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of ArcelorMittal and subsidiaries (the "Company") as of December 31, 20182019 and 2017,2018, the related consolidated statements of operations, other comprehensive income, changes in equity and cash flows, for each of the three years in the period ended December 31, 2018,2019, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182019 and 2017,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2019, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sCompany’s internal control over financial reporting as of December 31, 2018,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2019, March 3, 2020, expressed an unqualified opinion on the Company'sCompany’s internal control over financial reporting.
Adoption of New Accounting Standard
As discussed in Notes 1 and 7 to the consolidated financial statements, effective January 1, 2019, the Company adopted IFRS 16 Leases using the modified retrospective transition approach.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of Goodwill and Property, Plant and Equipment - Refer to Note 5 to the Consolidated Financial Statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment at the group of cash-generating units (“GCGU”) level, and property, plant and equipment (“PP&E”) as part of the relevant cash-generating unit (“CGU”), involves a comparison of the recoverable amount of each GCGU or CGU to its carrying amount. Recoverable amount is defined as the higher of fair value less costs of disposal and the value-in-use for each GCGU or CGU. The Company primarily used a discounted cash flow approach to determine the recoverable amounts, which required management to make significant assumptions related to estimates of future cash flows.
Valuation of Goodwill and Property, Plant and Equipment
The goodwill balances of the two GCGUs with the lowest excess of estimated recoverable amount over carrying value as of December 31, 2019 were NAFTA at $2,233 million and ACIS at $973 million. There was no impairment of goodwill recorded as of and for the year ended December 31, 2019.
The PP&E balance of the Company as of December 31, 2019 was $36,231 million. Impairment charges relating to PP&E amounted to $1,927 million for the year ended December 31, 2019, and mainly related to the impairment of PP&E of the ArcelorMittal USA CGU of $1,300 million due to a downward revision of selling prices.
Key assumptions that had a significant impact on the Company’s cash flow forecasts included selling prices and volume of shipments. Changes in these assumptions could have a significant impact on the estimates of future cash flows, and subsequently the recoverable amount of a GCGU or CGU.
Given the significant judgments made by management to estimate the recoverable amounts of the relevant GCGUs and CGUs, performing audit procedures to evaluate the reasonableness of management’s estimates related to selling prices and volume of shipments, specifically due to the sensitivity of these key assumptions, required a high degree of auditor judgment and an increased extent of effort.
Valuation of Property, Plant & Equipment of ArcelorMittal Italia
On November 1, 2018, the Company acquired Ilva S.p.A and certain of its subsidiaries (“ILVA”), subsequently renamed ArcelorMittal Italia, by means of a lease agreement with obligation to purchase. On November 4, 2019, the Company notified ILVA’s Commissioners of intent to withdraw from, or terminate, the lease purchase agreement.
Following the termination notice, the Company continued to maintain control over the leased business. On December 20, 2019, the Company and ILVA’s Commissioners signed a non-binding agreement forming a basis to continue negotiating a new industrial plan for ILVA, which has not been finalized as of the date of this report.
The Company determined that ArcelorMittal Italia represented a separate CGU as of December 31, 2019 and used a discounted cash flow approach to determine the recoverable amount of ArcelorMittal Italia CGU, which requires management to make significant assumptions related to estimates of future cash flows.
The discount rate was a key assumption, which reflected the level of uncertainty associated with the ongoing negotiations. Changes in this discount rate could have a significant impact on the determination of the recoverable amount of ArcelorMittal Italia CGU.
The PP&E balance of ArcelorMittal Italia was $1,477 million as of December 31, 2019 and there was no impairment of PP&E recorded for ArcelorMittal Italia as of and for the year ended December 31, 2019.
Auditing management’s judgment regarding the determination that ArcelorMittal Italia represented a separate CGU and whether the judgment complied with the requirements of IFRS required an increased extent of effort. Further, given the significant judgments made by management to estimate the recoverable amount of ArcelorMittal Italia’s PP&E, specifically related to the impact of lease termination notice and the ongoing negotiations with the ILVA Commissioners, performing audit procedures to evaluate the reasonableness of management’s estimates related to the discount rate required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the GCGU and CGU assessment, selling prices, volume of shipments and discount rate used by management to estimate future cash flows of the GCGUs and CGUs included the following, among others:
We tested the effectiveness of internal controls over management’s valuation methodology and assumptions used, and estimates of future cash flows, including controls over the determination of the recoverable amount of the GCGUs and CGUs.
We evaluated management’s ability to reasonably estimate future cash flows by comparing actual results to management’s historical forecasts.
We evaluated the reasonableness of management’s cash flow forecasts by considering macroeconomic conditions, internal communications of management and the Board of Directors and holding discussions with relevant personnel.
We evaluated the impact of any changes in management’s cash flow forecasts from October 1, 2019, the annual measurement date for testing impairment of goodwill, to December 31, 2019.
For ArcelorMittal Italia, in addition to the above, our procedures included:
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◦ | we evaluated the impact of the termination notice on the determination of the CGUs as of December 31, 2019. |
| |
◦ | we considered the terms of the lease purchase agreement and the Company’s communications with legal counsel, ILVA’s Commissioners, and other key stakeholders involved in the negotiations. |
| |
◦ | with the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate by: |
| |
◦ | evaluating the reasonableness of the methodology used and the underlying source information used in the Company’s calculation of the discount rate. |
| |
◦ | testing the mathematical accuracy of the calculation. |
| |
◦ | developing an independent range of estimates and comparing the discount rate selected by management to our range. |
Valuation of Deferred Tax Assets - Refer to Note 10.4 to the Consolidated Financial Statements
Critical Audit Matter Description
ArcelorMittal S.A. (parent company) has deferred tax assets primarily related to tax losses carried forward. Under current tax law in Luxembourg, tax losses accumulated before January 1, 2017 do not expire and are recoverable against future taxable income. The valuation of deferred tax assets requires management to make significant estimates related to the future taxable income to be derived from entities within the Luxembourg tax integration and, as a result, the amounts of deferred tax assets expected to be realized by ArcelorMittal S.A. Further, the assessment of the likelihood of future taxable profits being available, specifically the length of the forecast periods also requires significant management judgment.
The Company recognized deferred tax assets amounting to $8,680 million as of December 31, 2019. Given the complexity of management’s valuation process, auditing management’s estimates of future taxable income and the determination of whether it is more likely than not that the deferred tax assets will be realized involved a high degree of auditor judgment and an increased extent of effort, including the need to involve our tax specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to estimates of future taxable income and determination of whether it is more likely than not that the deferred tax assets will be realized included the following, among others:
We tested the effectiveness of internal controls over management’s valuation of deferred tax assets, including the controls over the assessment of the likelihood of future taxable profits being available and the length of the forecast periods.
With the assistance of our tax specialists knowledgeable in Luxembourg-specific and international tax planning matters, we evaluated whether management’s estimates of future taxable income were consistent with available evidence related to management’s assessment of the likelihood of future taxable profits being available and the length of the forecast periods.
We evaluated management’s ability to estimate future taxable income by comparing actual results to management’s historical forecasts, and considered the results in evaluating the current-year estimated future taxable income.
We evaluated management’s proposed tax planning strategies, potential tax implications of material current year or future planned transactions (acquisitions, divestitures, finance and shareholding restructuring) and the related impact on management’s determination of the forecast periods and amounts of deferred tax assets recognized.
/s/ Deloitte Audit S.à r.l.
Luxembourg, Grand Duchy of Luxembourg
February 22, 2019March 3, 2020
We have served as the Company'sCompany’s auditor since 2007.
ARCELORMITTAL AND SUBSIDIARIES
Consolidated Statements of Operations
(millions of U.S. dollars, except share and per share data)
|
| | | | | | | | | | |
| | | Year Ended December 31, |
| Notes | | 2018 |
| 2017 |
| 2016 |
Sales | 4.1 and 11.1 | | 76,033 |
| | 68,679 |
| | 56,791 |
|
(including 8,259, 7,503 and 5,634 of sales to related parties for 2018, 2017 and 2016, respectively) | | | | | | | |
Cost of sales | 4.2 and 11.2 | | 67,025 |
| | 60,876 |
| | 50,428 |
|
(including 1,116, 1,033 and 1,390 of purchases from related parties for 2018, 2017 and 2016, respectively) | | | | | | | |
Gross margin | | | 9,008 |
| | 7,803 |
| | 6,363 |
|
Selling, general and administrative expenses | | | 2,469 |
| | 2,369 |
| | 2,202 |
|
Operating income | | | 6,539 |
| | 5,434 |
| | 4,161 |
|
Income from investments in associates, joint ventures and other investments | 2.6 | | 652 |
| | 448 |
| | 615 |
|
Financing costs - net | 6.2 | | (2,210 | ) | | (875 | ) | | (2,056 | ) |
Income before taxes | | | 4,981 |
| | 5,007 |
| | 2,720 |
|
Income tax (benefit) / expense | 9.1 | | (349 | ) | | 432 |
| | 986 |
|
Net income (including non-controlling interests) | | | 5,330 |
| | 4,575 |
| | 1,734 |
|
| | | | | | | |
| | | | | | | |
Net income attributable to equity holders of the parent | | | 5,149 |
| | 4,568 |
| | 1,779 |
|
Net income / (loss) attributable to non-controlling interests | | | 181 |
| | 7 |
| | (45 | ) |
Net income (including non-controlling interests) | | | 5,330 |
| | 4,575 |
| | 1,734 |
|
|
| | | | | | | | | | |
| | | Year Ended December 31, |
| Notes | | 2019 |
| 2018 |
| 2017 |
Sales | 4.1 and 12.1 | | 70,615 |
| | 76,033 |
| | 68,679 |
|
(including 7,442, 8,259 and 7,503 of sales to related parties for 2019, 2018 and 2017, respectively) | | |
| | | | |
Cost of sales | 4.2 and 12.2 | | 68,887 |
| | 67,025 |
| | 60,876 |
|
(including 1,092, 1,116 and 1,033 of purchases from related parties for 2019, 2018 and 2017, respectively) | | | | | | | |
Gross margin | | | 1,728 |
| | 9,008 |
| | 7,803 |
|
Selling, general and administrative expenses | | | 2,355 |
| | 2,469 |
| | 2,369 |
|
Operating (loss) / income | | | (627 | ) | | 6,539 |
| | 5,434 |
|
Income from investments in associates, joint ventures and other investments | 2.6 | | 347 |
| | 652 |
| | 448 |
|
Financing costs - net | 6.2 | | (1,652 | ) | | (2,210 | ) | | (875 | ) |
(Loss) / income before taxes | | | (1,932 | ) | | 4,981 |
| | 5,007 |
|
Income tax expense/(benefit) | 10.1 | | 459 |
| | (349 | ) | | 432 |
|
Net (loss) / income (including non-controlling interests) | | | (2,391 | ) | | 5,330 |
| | 4,575 |
|
| | | | | | | |
| | | | | | | |
Net (loss) / income attributable to equity holders of the parent | | | (2,454 | ) | | 5,149 |
| | 4,568 |
|
Net income attributable to non-controlling interests | | | 63 |
| | 181 |
| | 7 |
|
Net (loss) / income (including non-controlling interests) | | | (2,391 | ) | | 5,330 |
| | 4,575 |
|
| | | | Year Ended December 31, | | Year Ended December 31, |
| | 2018 |
| 2017 |
| 2016 | | 2019 |
| 2018 |
| 2017 |
Earnings per common share (in U.S. dollars) 1 | | | | | | | |
(Loss) / earning per common share (in U.S. dollars) | | | | | | | |
Basic | | 5.07 |
| | 4.48 |
| | 1.87 |
| | (2.42 | ) | | 5.07 |
| | 4.48 |
|
Diluted | | 5.04 |
| | 4.46 |
| | 1.86 |
| | (2.42 | ) | | 5.04 |
| | 4.46 |
|
Weighted average common shares outstanding (in millions) | 10.3 | | | | | | | 11.3 | |
| | | | |
Basic | | 1,015 |
| | 1,020 |
| | 953 |
| | 1,013 |
| | 1,015 |
| | 1,020 |
|
Diluted | | 1,021 |
| | 1,024 |
| | 955 |
| | 1,013 |
| | 1,021 |
| | 1,024 |
|
| |
1 | Following the completion of the Company’s share consolidation of each three existing shares into one share without nominal value on May 22, 2017, the earnings (loss) per common share and corresponding basic and diluted weighted average common shares outstanding for prior periods has been recast in accordance with IFRS. Please refer to note 10 for more information.
|
The accompanying notes are an integral part of these consolidated financial statements.
ARCELORMITTAL AND SUBSIDIARIES
Consolidated Statements of Other Comprehensive Income
(millions of U.S. dollars, except share and per share data)
| | | Year Ended December 31, | Year Ended December 31, |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Net income (including non-controlling interests) | | | 5,330 |
| | | | 4,575 |
| | | | 1,734 |
| |
Net (loss) income (including non-controlling interests) | | | | (2,391 | ) | | | | 5,330 |
| | | | 4,575 |
|
Items that can be recycled to the consolidated statements of operations | | | | | | | | | | | | | | | | | | | | | | |
Available-for-sale-investments: | | | | | | | | | | | | | | | | | | | | | | |
Gain arising during the period | — |
| | | | 497 |
| | | | 333 |
| | | — |
| | | | — |
| | | | 497 |
| | |
Reclassification adjustments for loss (gain) included in the consolidated statements of operations | — |
| | | | — |
| | | | (74 | ) | | | — |
| | | | — |
| | | | — |
| | |
| — |
| | | | 497 |
| | | | 259 |
| | | — |
| | | | — |
| | | | 497 |
| | |
Derivative financial instruments: | | | | | | | | | | | | | | | | | | | | | | |
Gain (loss) arising during the period | 755 |
| | | | (340 | ) | | | | 40 |
| | | 354 |
| | | | 755 |
| | | | (340 | ) | | |
Reclassification adjustments for loss (gain) included in the consolidated statements of operations | 353 |
| | | | 28 |
| | | | (14 | ) | | | |
Reclassification adjustments for (gain) loss included in the consolidated statements of operations | | (1,004 | ) | | | | 353 |
| | | | 28 |
| | |
| 1,108 |
| | | | (312 | ) | | | | 26 |
| | | (650 | ) | | | | 1,108 |
| | | | (312 | ) | | |
Exchange differences arising on translation of foreign operations: | | | | | | | | | | | | | | | | | | | | | | |
(Loss) gain arising during the period | (1,996 | ) | | | | 2,025 |
| | | | (398 | ) | | | |
Gain (loss) arising during the period | | 177 |
| | | | (1,996 | ) | | | | 2,025 |
| | |
Reclassification adjustments for gain included in the consolidated statements of operations | (15 | ) | | | | (21 | ) | | | | (13 | ) | | | (105 | ) | | | | (15 | ) | | | | (21 | ) | | |
| (2,011 | ) | | | | 2,004 |
| | | | (411 | ) | | | 72 |
| | | | (2,011 | ) | | | | 2,004 |
| | |
Share of other comprehensive income (loss) related to associates and joint ventures | | | | | | | | | | | | |
Share of other comprehensive (loss) income related to associates and joint ventures | | | | | | | | | | | | |
(Loss) gain arising during the period | (239 | ) | | | | 341 |
| | | | (79 | ) | | | (82 | ) | | | | (239 | ) | | | | 341 |
| | |
Reclassification adjustments for (gain) loss included in the consolidated statements of operations | (123 | ) | | | | 217 |
| | | | 86 |
| | | |
Reclassification adjustments for loss (gain) included in the consolidated statements of operations | | 10 |
| | | | (123 | ) | | | | 217 |
| | |
| (362 | ) | | | | 558 |
| | | | 7 |
| | | (72 | ) | | | | (362 | ) | | | | 558 |
| | |
Income tax benefit (expense) related to components of other comprehensive income (loss) that can be recycled to the consolidated statements of operations | (274 | ) | | | | 167 |
| | | | (26 | ) | | | 279 |
| | | | (274 | ) | | | | 167 |
| | |
| | | | | | | | | | | | | | | | | | | | | | |
Items that cannot be recycled to the consolidated statements of operations | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Investments in equity instruments at FVOCI: | |
| | | | | | | | | | |
| | | | | | | | | |
Loss arising during the period | (603 | ) | | | | — |
| | | | — |
| | | |
Share of other comprehensive loss related to associates and joint ventures | (5 | ) | | | | — |
| | | | — |
| | | |
Gain (loss) arising during the period | | 28 |
| | | | (603 | ) | | | | — |
| | |
Share of other comprehensive gain (loss) related to associates and joint ventures | | 10 |
| | | | (5 | ) | | | | — |
| | |
| (608 | ) | | | | — |
| | | | — |
| | | 38 |
| | | | (608 | ) | | | | — |
| | |
Employee benefits - Recognized actuarial gains | 344 |
| | | | 1,098 |
| | | | 9 |
| | | |
Employee benefits - Recognized actuarial (losses) gains | | (259 | ) | | | | 344 |
| | | | 1,098 |
| | |
Share of other comprehensive income (loss) related to associates and joint ventures | — |
| | | | 29 |
| | | | (24 | ) | | | — |
| | | | — |
| | | | 29 |
| | |
Income tax benefit related to components of other comprehensive income that cannot be recycled to the consolidated statements of operations | 228 |
| | | | 42 |
| | | | 1 |
| | | |
Income tax (expense) benefit related to components of other comprehensive income that cannot be recycled to the consolidated statements of operations | | (32 | ) | | | | 228 |
| | | | 42 |
| | |
Total other comprehensive (loss) income | (1,575 | ) | | | | 4,083 |
| | | | (159 | ) | | | (624 | ) | | | | (1,575 | ) | | | | 4,083 |
| | |
Total other comprehensive (loss) income attributable to: | | | | | | | | | | | | | | | | | | | | | | |
Equity holders of the parent | (1,478 | ) | | | | 4,037 |
| | | | (186 | ) | | | (666 | ) | | | | (1,478 | ) | | | | 4,037 |
| | |
Non-controlling interests | (97 | ) | | | | 46 |
| | | | 27 |
| | | 42 |
| | | | (97 | ) | | | | 46 |
| | |
| | | (1,575 | ) | | | | 4,083 |
| | | | (159 | ) | | | (624 | ) | | | | (1,575 | ) | | | | 4,083 |
|
Total comprehensive income | | | 3,755 |
| | | | 8,658 |
| | | | 1,575 |
| |
Total comprehensive income attributable to: | | | | | | | | | | | | |
Total comprehensive (loss) income | | | | (3,015 | ) | | | | 3,755 |
| | | | 8,658 |
|
Total comprehensive (loss) income attributable to: | | | | | | | | | | | | |
Equity holders of the parent | | | 3,671 |
| | | | 8,605 |
| | | | 1,593 |
| | | (3,120 | ) | | | | 3,671 |
| | | | 8,605 |
|
Non-controlling interests | | | 84 |
| | | | 53 |
| | | | (18 | ) | | | 105 |
| | | | 84 |
| | | | 53 |
|
Total comprehensive income | | | 3,755 |
| | | | 8,658 |
| | | | 1,575 |
| |
Total comprehensive (loss) income | | | | (3,015 | ) | | | | 3,755 |
| | | | 8,658 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ARCELORMITTAL AND SUBSIDIARIES
Consolidated Statements of Financial Position
(millions of U.S. dollars, except share data)
| | | | December 31, | | December 31, |
| Notes | | 2018 | | 2017 | Notes | | 2019 | | 2018 |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | 6.1.3 | | 2,172 |
| | 2,574 |
| 6.1.3 | | 4,867 |
| | 2,172 |
|
Restricted cash | 6.1.3 | | 182 |
| | 212 |
| 6.1.3 | | 128 |
| | 182 |
|
Trade accounts receivable and other (including 366 and 406 from related parties at December 31, 2018 and 2017, respectively) | 4.3 and 11.1 | | 4,432 |
| | 3,863 |
| |
Trade accounts receivable and other (including 298 and 366 from related parties at December 31, 2019 and 2018, respectively) | | 4.3 and 12.1 | | 3,569 |
| | 4,432 |
|
Inventories | 4.4 | | 20,744 |
| | 17,986 |
| 4.4 | | 17,296 |
| | 20,744 |
|
Prepaid expenses and other current assets | 4.5 | | 2,834 |
| | 1,931 |
| 4.5 | | 2,756 |
| | 2,834 |
|
Assets held for sale | 2.3.2 | | 2,111 |
| | 179 |
| 2.3.2 | | — |
| | 2,111 |
|
Total current assets | | 32,475 |
| | 26,745 |
| | 28,616 |
| | 32,475 |
|
Non-current assets: | | | | | | | | |
Goodwill and intangible assets | 5.1 | | 5,728 |
| | 5,737 |
| 5.1 and 5.3 | | 5,432 |
| | 5,728 |
|
Property, plant and equipment and biological assets | 5.2 | | 35,638 |
| | 36,971 |
| 5.2, 5.3 and 7 | | 36,231 |
| | 35,638 |
|
Investments in associates and joint ventures | 2.4 | | 4,906 |
| | 5,084 |
| 2.4 | | 6,529 |
| | 4,906 |
|
Other investments | 2.5 | | 855 |
| | 1,471 |
| 2.5 | | 772 |
| | 855 |
|
Deferred tax assets | 9.4 | | 8,287 |
| | 7,055 |
| 10.4 | | 8,680 |
| | 8,287 |
|
Other assets
| 4.6 | | 3,360 |
| | 2,234 |
| 4.6 | | 1,648 |
| | 3,360 |
|
Total non-current assets | | 58,774 |
| | 58,552 |
| | 59,292 |
| | 58,774 |
|
Total assets | | 91,249 |
| | 85,297 |
| | 87,908 |
| | 91,249 |
|
| | | | | | | | |
LIABILITIES AND EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Short-term debt and current portion of long-term debt | 6.1.2.1 | | 3,167 |
| | 2,785 |
| 6.1.2.1 and 7 | | 2,869 |
| | 3,167 |
|
Trade accounts payable and other (including 201 and 260 to related parties at December 31, 2018 and 2017, respectively) | 4.7 and 11.2 | | 13,981 |
| | 13,428 |
| |
Trade accounts payable and other (including 251 and 201 to related parties at December 31, 2019 and 2018, respectively) | | 4.7 and 12.2 | | 12,614 |
| | 13,981 |
|
Short-term provisions | 8.1 | | 539 |
| | 410 |
| 9.1 | | 516 |
| | 539 |
|
Accrued expenses and other liabilities | 4.8 | | 4,709 |
| | 4,505 |
| 4.8 | | 4,910 |
| | 4,709 |
|
Income tax liabilities | | 238 |
| | 232 |
| | 378 |
| | 238 |
|
Liabilities held for sale | 2.3.2 | | 821 |
| | 50 |
| 2.3.2 | | — |
| | 821 |
|
Total current liabilities | | 23,455 |
| | 21,410 |
| | 21,287 |
| | 23,455 |
|
Non-current liabilities: | | | | | | | | |
Long-term debt, net of current portion | 6.1.2.2 | | 9,316 |
| | 10,143 |
| 6.1.2.2 and 7 | | 11,471 |
| | 9,316 |
|
Deferred tax liabilities | 9.4 | | 2,374 |
| | 2,684 |
| 10.4 | | 2,331 |
| | 2,374 |
|
Deferred employee benefits | 7.2 | | 6,982 |
| | 7,630 |
| 8.2 | | 7,343 |
| | 6,982 |
|
Long-term provisions | 8.1 | | 1,995 |
| | 1,612 |
| 9.1 | | 2,475 |
| | 1,995 |
|
Other long-term obligations | 8.2 | | 3,019 |
| | 963 |
| 9.2 | | 2,518 |
| | 3,019 |
|
Total non-current liabilities | | 23,686 |
| | 23,032 |
| | 26,138 |
| | 23,686 |
|
Total liabilities | | 47,141 |
| | 44,442 |
| | 47,425 |
| | 47,141 |
|
| | | | | | | | |
Contingencies and commitments | 8.3 and 8.4 | | | | | 9.3 and 9.4 | | | | |
| | | | | | | | |
Equity: | 10 | | | | | 11 | | | | |
Common shares (no par value, 1,151,576,921 and 1,151,576,921 shares authorized, 1,021,903,623 and 1,021,903,623 shares issued, and 1,013,568,258 and 1,019,916,787 shares outstanding at December 31, 2018 and 2017, respectively) | | 364 |
| | 401 |
| |
Treasury shares (8,335,365 and 1,986,836 common shares at December 31, 2018 and 2017, respectively, at cost) | | (569 | ) | | (362 | ) | |
Common shares (no par value, 1,151,576,921 and 1,151,576,921 shares authorized, 1,021,903,623 and 1,021,903,623 shares issued, and 1,012,079,421 and 1,013,568,258 shares outstanding at December 31, 2019 and 2018, respectively) | | | 364 |
| | 364 |
|
Treasury shares (9,824,202 and 8,335,365 common shares at December 31, 2019 and 2018, respectively, at cost) | | | (602 | ) | | (569 | ) |
Additional paid-in capital | | 34,894 |
| | 34,848 |
| | 34,826 |
| | 34,894 |
|
Retained earnings | | 25,611 |
| | 20,635 |
| | 22,883 |
| | 25,611 |
|
Reserves | | (18,214 | ) | | (16,733 | ) | | (18,950 | ) | | (18,214 | ) |
Equity attributable to the equity holders of the parent | | 42,086 |
| | 38,789 |
| | 38,521 |
| | 42,086 |
|
Non-controlling interests | | 2,022 |
| | 2,066 |
| | 1,962 |
| | 2,022 |
|
Total equity | | 44,108 |
| | 40,855 |
| | 40,483 |
| | 44,108 |
|
Total liabilities and equity | | 91,249 |
| | 85,297 |
| | 87,908 |
| | 91,249 |
|
| | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
ARCELORMITTAL AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
(millions of U.S. dollars, except share and per share data) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
| Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Items that can be recycled to the Consolidated Statements of Operations |
| Items that cannot be recycled to the Consolidated Statements of Operations |
|
|
|
|
|
|
| Shares1 |
| Share capital |
| Treasury Shares |
| Mandatorily convertible notes |
| Additional Paid-in Capital |
| Retained Earnings |
| Foreign Currency Translation Adjustments |
| Unrealized Gains (Losses) on Derivative Financial Instruments |
| Unrealized Gains (Losses) on Investments in Equity Instruments at FVOCI |
| Recognized actuarial (losses) gains |
| Equity attributable to the equity holders of the parent |
| Non-controlling interests |
| Total Equity |
Balance at December 31, 2015 | 553 |
|
| 10,011 |
|
| (377 | ) |
| 1,800 |
|
| 20,294 |
|
| 13,902 |
|
| (15,793 | ) |
| 114 |
|
| 51 |
|
| (4,730 | ) |
| 25,272 |
|
| 2,298 |
|
| 27,570 |
|
Net income (including non-controlling interests) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,779 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,779 |
|
| (45 | ) |
| 1,734 |
|
Other comprehensive income (loss) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| |
|
| (471 | ) |
| 28 |
|
| 271 |
|
| (14 | ) |
| (186 | ) |
| 27 |
|
| (159 | ) |
Total comprehensive income (loss) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,779 |
|
| (471 | ) |
| 28 |
|
| 271 |
|
| (14 | ) |
| 1,593 |
|
| (18 | ) |
| 1,575 |
|
Equity offering (note 10.1) | 421 |
|
| 144 |
|
| — |
|
| — |
|
| 2,971 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,115 |
|
| — |
|
| 3,115 |
|
Reduction of the share capital par value (note 10.1) | — |
|
| (10,376 | ) |
| — |
|
| — |
|
| 10,376 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Conversion of the mandatorily convertible notes (note 10.2) | 46 |
|
| 622 |
|
| — |
|
| (1,800 | ) |
| 1,178 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Recognition of share-based payments (note 7.3) | — |
|
| — |
|
| 6 |
|
| — |
|
| 7 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 13 |
|
| — |
|
| 13 |
|
Dividend (note 10.4) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (63 | ) |
| (63 | ) |
Equity offering in ArcelorMittal South Africa ("AMSA") (note 10.5.2) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 437 |
|
| (301 | ) |
| — |
|
| — |
|
| — |
|
| 136 |
|
| (80 | ) |
| 56 |
|
Equity share option plan in AMSA (note 10.5.2) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (36 | ) |
| 21 |
|
| — |
|
| — |
|
| — |
|
| (15 | ) |
| 15 |
|
| — |
|
AMSA B-BBEE transaction (note 10.5.2) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 44 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 44 |
|
| 19 |
|
| 63 |
|
Other movements | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (77 | ) |
| — |
|
| — |
|
| — |
|
| 54 |
|
| (23 | ) |
| 19 |
|
| (4 | ) |
Balance at December 31, 2016 | 1,020 |
|
| 401 |
|
| (371 | ) |
| — |
|
| 34,826 |
|
| 16,049 |
|
| (16,544 | ) |
| 142 |
|
| 322 |
|
| (4,690 | ) |
| 30,135 |
|
| 2,190 |
|
| 32,325 |
|
Net income (including non-controlling interests) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 4,568 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 4,568 |
|
| 7 |
|
| 4,575 |
|
Other comprehensive income (loss) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,602 |
|
| (235 | ) |
| 501 |
|
| 1,169 |
|
| 4,037 |
|
| 46 |
|
| 4,083 |
|
Total comprehensive income (loss) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 4,568 |
|
| 2,602 |
|
| (235 | ) |
| 501 |
|
| 1,169 |
|
| 8,605 |
|
| 53 |
|
| 8,658 |
|
Recognition of share-based payments (note 7.3) | — |
|
| — |
|
| 9 |
|
| — |
|
| 22 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 31 |
|
| — |
|
| 31 |
|
Dividend (note 10.4) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (145 | ) |
| (145 | ) |
Acquisition of Sumaré (note 2.2.4) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 48 |
|
| 48 |
|
Mandatory convertible bonds extension (note 10.2) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (83 | ) |
| (83 | ) |
Other movements | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 18 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 18 |
|
| 3 |
|
| 21 |
|
Balance at December 31, 2017 | 1,020 |
|
| 401 |
|
| (362 | ) |
| — |
|
| 34,848 |
|
| 20,635 |
|
| (13,942 | ) |
| (93 | ) |
| 823 |
|
| (3,521 | ) |
| 38,789 |
|
| 2,066 |
|
| 40,855 |
|
Net income (including non-controlling interests) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5,149 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5,149 |
|
| 181 |
|
| 5,330 |
|
Other comprehensive income (loss) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (2,174 | ) |
| 732 |
|
| (608 | ) |
| 572 |
|
| (1,478 | ) |
| (97 | ) |
| (1,575 | ) |
Total comprehensive income (loss) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5,149 |
|
| (2,174 | ) |
| 732 |
|
| (608 | ) |
| 572 |
|
| 3,671 |
|
| 84 |
|
| 3,755 |
|
Recognition of share-based payments (note 7.3) | — |
|
| — |
|
| 19 |
|
| — |
|
| 9 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 28 |
|
| — |
|
| 28 |
|
Dividend (note 10.4) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (101 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| (101 | ) |
| (115 | ) |
| (216 | ) |
Share buyback (note 10.1) | (7 | ) |
| — |
|
| (226 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (226 | ) |
| — |
|
| (226 | ) |
Change in share capital currency (note 10.1) | — |
|
| (37 | ) |
| — |
|
| — |
|
| 37 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Acquisition of non-controlling interests (note 10.5) | — |
| | — |
| | — |
| | — |
| | — |
| | (55 | ) | | — |
| | — |
| | — |
| | — |
| | (55 | ) | | (13 | ) | | (68 | ) |
Other movements | 1 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (17 | ) |
| — |
|
| — |
|
| (3 | ) |
| — |
|
| (20 | ) |
| — |
|
| (20 | ) |
Balance at December 31, 2018 | 1,014 |
|
| 364 |
|
| (569 | ) |
| — |
|
| 34,894 |
|
| 25,611 |
|
| (16,116 | ) |
| 639 |
|
| 212 |
|
| (2,949 | ) |
| 42,086 |
|
| 2,022 |
|
| 44,108 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
| Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Items that can be recycled to the Consolidated Statements of Operations |
| Items that cannot be recycled to the Consolidated Statements of Operations |
|
|
|
|
|
|
| Shares1 |
| Share Capital |
| Treasury Shares |
| Additional Paid-in Capital |
| Retained Earnings |
| Foreign Currency Translation Adjustments |
| Unrealized Gains (Losses) on Derivative Financial Instruments relating to CFH |
| Unrealized Gains (Losses) on Investments in Equity Instruments at FVOCI |
| Recognized actuarial (losses) gains |
| Equity attributable to the equity holders of the parent |
| Non-controlling interests |
| Total Equity |
Balance at December 31, 2016 | 1,020 |
|
| 401 |
| | (371 | ) | | 34,826 |
| | 16,049 |
| | (16,544 | ) | | 142 |
| | 322 |
| | (4,690 | ) | | 30,135 |
| | 2,190 |
| | 32,325 |
|
Net income (including non-controlling interests) | — |
|
| — |
| | — |
| | — |
| | 4,568 |
| | — |
| | — |
| | — |
| | — |
| | 4,568 |
| | 7 |
| | 4,575 |
|
Other comprehensive income (loss) | — |
|
| — |
| | — |
| | — |
| | |
| | 2,602 |
| | (235 | ) | | 501 |
| | 1,169 |
| | 4,037 |
| | 46 |
| | 4,083 |
|
Total comprehensive income (loss) | — |
|
| — |
| | — |
| | — |
| | 4,568 |
| | 2,602 |
| | (235 | ) | | 501 |
| | 1,169 |
| | 8,605 |
| | 53 |
| | 8,658 |
|
Recognition of share-based payments (note 8.3) | — |
|
| — |
| | 9 |
| | 22 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 31 |
| | — |
| | 31 |
|
Dividend (note 11.4) | — |
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (145 | ) | | (145 | ) |
Acquisition of Bekaert Sumaré Ltda (note 2.2.4) | — |
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 48 |
|
| 48 |
|
Mandatorily convertible bonds extension (note 11.2) | — |
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (83 | ) |
| (83 | ) |
Other movements | — |
|
| — |
| | — |
| | — |
| | 18 |
| | — |
| | — |
| | — |
| | — |
| | 18 |
| | 3 |
| | 21 |
|
Balance at December 31, 2017 | 1,020 |
|
| 401 |
| | (362 | ) | | 34,848 |
| | 20,635 |
| | (13,942 | ) | | (93 | ) | | 823 |
| | (3,521 | ) | | 38,789 |
| | 2,066 |
| | 40,855 |
|
Net income (including non-controlling interests) | — |
|
| — |
| | — |
| | — |
| | 5,149 |
| | — |
| | — |
| | — |
| | — |
| | 5,149 |
| | 181 |
| | 5,330 |
|
Other comprehensive income (loss) | — |
|
| — |
| | — |
| | — |
| | — |
| | (2,174 | ) | | 732 |
| | (608 | ) | | 572 |
| | (1,478 | ) | | (97 | ) | | (1,575 | ) |
Total comprehensive income (loss) | — |
|
| — |
| | — |
| | — |
| | 5,149 |
| | (2,174 | ) | | 732 |
| | (608 | ) | | 572 |
| | 3,671 |
| | 84 |
| | 3,755 |
|
Recognition of share-based payments (note 8.3) | — |
|
| — |
| | 19 |
| | 9 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 28 |
| | — |
| | 28 |
|
Dividend (note 11.4) | — |
|
| — |
| | — |
| | — |
| | (101 | ) | | — |
| | — |
| | — |
| | — |
| | (101 | ) | | (115 | ) | | (216 | ) |
Share buyback (note 11.1) | (7 | ) |
| — |
| | (226 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (226 | ) | | — |
| | (226 | ) |
Change in share capital currency (note 11.1) | — |
|
| (37 | ) | | — |
| | 37 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Acquisition of non-controlling interests (note 11.5) | — |
| | — |
| | — |
| | — |
| | (55 | ) | | — |
| | — |
| | — |
| | — |
| | (55 | ) | | (13 | ) | | (68 | ) |
Other movements | 1 |
|
| — |
| | — |
| | — |
| | (17 | ) | | — |
| | — |
| | (3 | ) | | — |
| | (20 | ) | | — |
| | (20 | ) |
Balance at December 31, 2018 | 1,014 |
|
| 364 |
| | (569 | ) | | 34,894 |
| | 25,611 |
| | (16,116 | ) | | 639 |
| | 212 |
| | (2,949 | ) | | 42,086 |
| | 2,022 |
| | 44,108 |
|
Net (loss) income (including non-controlling interests) | — |
|
| — |
| | — |
| | — |
| | (2,454 | ) | | — |
| | — |
| | — |
| | — |
| | (2,454 | ) | | 63 |
| | (2,391 | ) |
Other comprehensive income (loss) | — |
|
| — |
| | — |
| | — |
| | — |
| | (9 | ) | | (404 | ) | | 38 |
| | (291 | ) | | (666 | ) | | 42 |
| | (624 | ) |
Total comprehensive income (loss) | — |
|
| — |
| | — |
| | — |
| | (2,454 | ) | | (9 | ) | | (404 | ) | | 38 |
| | (291 | ) | | (3,120 | ) | | 105 |
| | (3,015 | ) |
Recognition of share-based payments (note 8.3) | 2 |
|
| — |
| | 57 |
| | (68 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (11 | ) | | — |
| | (11 | ) |
Dividend (note 11.4) | — |
|
| — |
| | — |
| | — |
| | (203 | ) | | — |
| | — |
| | — |
| | — |
| | (203 | ) | | (154 | ) | | (357 | ) |
Share buyback (note 11.1) | (4 | ) |
| — |
| | (90 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (90 | ) | | — |
| | (90 | ) |
Sharing of cash flow hedge (gain) from INR/USD hedging programs related to AMNS India (note 2.4.1) | — |
| | — |
| | — |
| | — |
| | (141 | ) | | — |
| | — |
| | — |
| | — |
| | (141 | ) | | — |
| | (141 | ) |
Transfer of fair value reserve of equity instruments designated at FVOCI (note 2.5) | — |
| | — |
| | — |
| | — |
| | 70 |
| | — |
| | — |
| | (70 | ) | | — |
| | — |
| | — |
| | — |
|
Other movements | — |
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (11 | ) | | (11 | ) |
Balance at December 31, 2019 | 1,012 |
|
| 364 |
| | (602 | ) | | 34,826 |
| | 22,883 |
| | (16,125 | ) | | 235 |
| | 180 |
| | (3,240 | ) | | 38,521 |
| | 1,962 |
| | 40,483 |
|
| |
1. | Amounts are in millions of shares (treasury shares are excluded). On May 22, 2017, ArcelorMittal completed the consolidation of each three existing shares in ArcelorMittal without nominal value into one share without nominal value. As a result of this reverse stock split, the number of outstanding shares decreased from 3,058 to 1,020 and all prior periods have been recast in accordance with IFRS. Please refer to note 1011 for further information. |
The accompanying notes are an integral part of these consolidated financial statements.
ARCELORMITTAL AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(millions of U.S. dollars, except share and per share data) | | | | Year Ended December 31, | | Year Ended December 31, |
| Notes | | 2018 | | 2017 | | 2016 | Notes | | 2019 | | 2018 | | 2017 |
Operating activities: | | | | | | | | | | | | |
Net income (including non-controlling interests) | | 5,330 |
| | 4,575 |
| | 1,734 |
| |
Net (loss) income (including non-controlling interests) | | | (2,391 | ) | | 5,330 |
| | 4,575 |
|
Adjustments to reconcile net income to net cash provided by operations: | | | | | | | | | | | | |
Depreciation and amortization | 5.1 and 5.2 | | 2,799 |
| | 2,768 |
| | 2,721 |
| 5.1 and 5.2 | | 3,067 |
| | 2,799 |
| | 2,768 |
|
Impairment | 5.2 and 5.3 | | 994 |
| | 206 |
| | 205 |
| 5.3 | | 1,927 |
| | 994 |
| | 206 |
|
Bargain purchase gain | 2.2.4 |
| (209 | ) |
| — |
|
| — |
| 2.2.4 |
| — |
|
| (209 | ) |
| — |
|
Interest expense | 6.2 | | 687 |
| | 879 |
| | 1,172 |
| 6.2 | | 695 |
| | 687 |
| | 879 |
|
Interest income | 6.2 | | (72 | ) | | (56 | ) | | (58 | ) | 6.2 | | (88 | ) | | (72 | ) | | (56 | ) |
Income tax (benefit)/ expense | 9.1 | | (349 | ) | | 432 |
| | 986 |
| |
Remeasurement loss (gain) relating to US deferred employee benefits | 7.2 | | 15 |
| | — |
| | (832 | ) | |
Income tax expense/ (benefit) | | 10.1 | | 459 |
| | (349 | ) | | 432 |
|
Remeasurement loss relating to US deferred employee benefits | | 8.2 | | — |
| | 15 |
| | — |
|
Net gain on disposal of subsidiaries | 2.3.1 | | (16 | ) | | (18 | ) | | (23 | ) | 2.3.1 | | (101 | ) | | (16 | ) | | (18 | ) |
Income from investments in associates, joint ventures and other investments | 2.6 | | (652 | ) | | (448 | ) | | (615 | ) | 2.6 | | (347 | ) | | (652 | ) | | (448 | ) |
Provision on pensions and OPEB | 7.2 | | 463 |
| | 555 |
| | 439 |
| 8.2 | | 435 |
| | 463 |
| | 555 |
|
Change in fair value adjustment on call option on mandatory convertible bonds and pellet purchase agreement | 6.2 | | 572 |
| | (578 | ) | | (138 | ) | 6.2 | | 320 |
| | 572 |
| | (578 | ) |
Unrealized foreign exchange effects | | 152 |
| | (541 | ) | | 486 |
| | 7 |
| | 152 |
| | (541 | ) |
Write-downs (reversal) of inventories to net realizable value, provisions and other non-cash operating expenses net | 4.4 | | 789 |
| | 781 |
| | (201 | ) | 4.4 | | 818 |
| | 789 |
| | 781 |
|
Changes in assets and liabilities that provided (required) cash, net of acquisitions: | | | | | | | | | | | | |
Trade accounts receivable | | (646 | ) | | (620 | ) | | (373 | ) | | 964 |
| | (646 | ) | | (620 | ) |
Inventories | 4.4 | | (4,652 | ) | | (2,347 | ) | | (2,055 | ) | 4.4 | | 2,469 |
| | (4,652 | ) | | (2,347 | ) |
Trade accounts payable and other | 4.7 | | 914 |
| | 1,094 |
| | 1,405 |
| 4.7 | | (1,236 | ) | | 914 |
| | 1,094 |
|
Interest paid | | (749 | ) | | (947 | ) | | (1,354 | ) | | (723 | ) | | (749 | ) | | (947 | ) |
Interest received | | 67 |
| | 57 |
| | 60 |
| | 118 |
| | 67 |
| | 57 |
|
Income taxes paid | | (629 | ) | | (506 | ) | | (296 | ) | | (484 | ) | | (629 | ) | | (506 | ) |
Dividends received from associates, joint ventures and other investments | | 360 |
| | 232 |
| | 176 |
| | 370 |
| | 360 |
| | 232 |
|
Cash contributions to plan assets and benefits paid for pensions and OPEB | 7.2 | | (472 | ) | | (496 | ) | | (395 | ) | 8.2 | | (348 | ) | | (472 | ) | | (496 | ) |
VAT and other amounts received (paid) from/to public authorities | | (544 | ) | | (177 | ) | | 46 |
| | 196 |
| | (544 | ) | | (177 | ) |
Other working capital and provisions movements | | 44 |
| | (282 | ) | | (382 | ) | | (110 | ) | | 44 |
| | (282 | ) |
Net cash provided by operating activities | | 4,196 |
| | 4,563 |
| | 2,708 |
| | 6,017 |
| | 4,196 |
| | 4,563 |
|
Investing activities: | | | | | | | | | | | | |
Purchase of property, plant and equipment and intangibles | | (3,305 | ) | | (2,819 | ) | | (2,444 | ) | | (3,572 | ) | | (3,305 | ) | | (2,819 | ) |
Disposals of net assets of subsidiaries, net of cash disposed of 1, 13 and nil in 2018, 2017 and 2016, respectively | 2.3.1 | | 65 |
| | 6 |
| | 185 |
| |
Acquisitions of net assets of subsidiaries, net of cash acquired of 13, 617 and 63 in 2018, 2017 and 2016, respectively | 2.2.4 | | (39 | ) | | 16 |
| | 7 |
| |
Disposals of net assets of subsidiaries, net of cash disposed of 38, 1 and 13 in 2019, 2018 and 2017, respectively | | 2.3.1 | | 514 |
| | 65 |
| | 6 |
|
Acquisitions of net assets of subsidiaries, net of cash acquired of 3, 13 and 617 in 2019, 2018 and 2017, respectively | | 2.2.4 | | (46 | ) | | (39 | ) | | 16 |
|
Lease installments and capital expenditure refund relating to ArcelorMittal Italia acquisition | |
| | (200 | ) | | — |
| | — |
|
Acquisition of AMNS India | | 2.4.1 | | (755 | ) | | — |
| | — |
|
Acquisition of Uttam Galva and KSS Petron debt | 4.6 | | (1,001 | ) | | — |
| | — |
| 4.6 | | (83 | ) | | (1,001 | ) |
| — |
|
Disposals of associates and joint ventures | 2.4.1 and 2.5 | | 220 |
| | — |
| | 1,017 |
| 2.4.1 and 2.5 | | — |
| | 220 |
| | — |
|
Disposals of financial assets | 2.6 | | 44 |
| | 44 |
| | 165 |
| 2.5 and 2.6 | | 196 |
| | 44 |
| | 44 |
|
Other investing activities net | | 257 |
| | (77 | ) | | (73 | ) | | 122 |
| | 257 |
| | (77 | ) |
Net cash used in investing activities | | (3,759 | ) | | (2,830 | ) | | (1,143 | ) | | (3,824 | ) | | (3,759 | ) | | (2,830 | ) |
Financing activities: | | | | | | | | | | | | |
(Acquisition)/ Disposal of non-controlling interests | 10.5.2 | | (68 | ) | | — |
| | 56 |
| |
Acquisition of non-controlling interests | | 11.5.2 | | — |
| | (68 | ) | | — |
|
Proceeds from put and call option on shares
| 2.2.4 | | 115 |
| | — |
| | — |
| 2.2.4 | | — |
| | 115 |
| | — |
|
Proceeds from short-term debt | 6.1.3 | | 2,319 |
| | 1,859 |
| | 1,516 |
| 6.1.3 | | 600 |
| | 2,319 |
| | 1,859 |
|
Proceeds from long-term debt | 6.1.3 | | 1,138 |
| | 1,407 |
| | 110 |
| 6.1.3 | | 5,772 |
| | 1,138 |
| | 1,407 |
|
Payments of short-term debt | 6.1.3 | | (2,871 | ) | | (2,102 | ) | | (2,721 | ) | 6.1.3 | | (1,811 | ) | | (2,871 | ) | | (2,102 | ) |
Payments of long-term debt | 6.1.3 | | (798 | ) | | (2,691 | ) | | (4,912 | ) | 6.1.3 | | (3,299 | ) | | (798 | ) | | (2,691 | ) |
Equity offering | 10.1 | | — |
| | — |
| | 3,115 |
| |
Share buyback | 10.1 | | (226 | ) | | — |
| | — |
| 11.1 | | (90 | ) | | (226 | ) | | — |
|
Dividends paid (includes 119, 141 and 61 of dividends paid to non-controlling shareholders in 2018, 2017 and 2016, respectively) | | (220 | ) | | (141 | ) | | (61 | ) | |
Other financing activities net | 6.1.3 | | (78 | ) | | (63 | ) | | (29 | ) | |
Net cash used in financing activities | | (689 | ) | | (1,731 | ) | | (2,926 | ) | |
Dividends paid (includes 129, 119 and 141 of dividends paid to non-controlling shareholders in 2019, 2018 and 2017, respectively) | | | (332 | ) | | (220 | ) | | (141 | ) |
Payment of principal portion of lease liabilities and other financing activities | | 6.1.3 | | (326 | ) | | (78 | ) | | (63 | ) |
Net cash provided by (used in) financing activities | | | 514 |
| | (689 | ) | | (1,731 | ) |
Net increase (decrease) in cash and cash equivalents | | (252 | ) | | 2 |
| | (1,361 | ) | | 2,707 |
| | (252 | ) | | 2 |
|
Effect of exchange rate changes on cash | | (140 | ) | | 58 |
| | (127 | ) | | (22 | ) | | (140 | ) | | 58 |
|
Cash and cash equivalents: | | | | | | | | | | | | |
At the beginning of the year | | 2,574 |
| | 2,501 |
| | 4,002 |
| | 2,172 |
| | 2,574 |
| | 2,501 |
|
Reclassification of the period-end cash and cash equivalents from (to) held for sale | 2.3 | | (10 | ) | | 13 |
| | (13 | ) | 2.3 | | 10 |
| | (10 | ) | | 13 |
|
At the end of the year | | 2,172 |
| | 2,574 |
| | 2,501 |
| | 4,867 |
| | 2,172 |
| | 2,574 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
SUMMARY OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| |
NoteNOTE 1: Accounting principlesACCOUNTING PRINCIPLES |
1.1 | Basis of presentation |
1.2 | Use of judgment and estimates |
1.3 | Accounting standards applied |
NoteNOTE 2: Scope of consolidationSCOPE OF CONSOLIDATION |
2.1 | Basis of consolidation |
2.2 | Investments in subsidiaries |
2.3 | Divestments and assets held for sale |
2.4 | Investments in associates and joint arrangements |
2.5 | Other investments |
2.6 | Income (loss) from investments in associates, joint ventures and other investments |
NoteNOTE 3: Segment reportingSEGMENT REPORTING |
3.1 | Reportable segments |
3.2 | Geographical information |
3.3 | Sales by type of products |
Note3.4 | Disaggregated revenue |
NOTE 4: Operating dataOPERATING DATA |
4.1 | Revenue |
4.2 | Cost of sales |
4.3 | Trade accounts receivable and other |
4.4 | Inventories |
4.5 | Prepaid expenses and other current assets |
4.6 | Other assets |
4.7 | Trade accounts payable and other |
4.8 | Accrued expenses and other liabilities |
NoteNOTE 5: Goodwill, intangible and tangible assetsGOODWILL, INTANGIBLE AND TANGIBLE ASSETS |
5.1 | Goodwill and intangible assets |
5.2 | Property, plant and equipment and biological assets |
5.3 | Impairment of intangible assets, including goodwill, and tangible assets |
NoteNOTE 6: Financing and financial instrumentsFINANCING AND FINANCIAL INSTRUMENTS |
6.1 | Financial assets and liabilities |
6.2 | Financing costs - net |
6.3 | Risk management policy |
NoteNOTE 7: Personnel expenses and deferred employee benefitsLEASES |
7.1NOTE 8: PERSONNEL EXPENSES AND DEFERRED EMPLOYEE BENEFITS |
8.1 | Employees and key management personnel |
7.28.2 | Deferred employee benefits |
7.38.3 | Share-based payments |
Note 8: Provisions, contingencies and commitmentsNOTE 9: PROVISIONS, CONTINGENCIES AND COMMITMENTS |
8.19.1 | Provisions overview |
8.29.2 | Other long-term obligations |
8.39.3 | Environmental liabilities, asset retirement obligations and legal proceedings |
8.49.4 | Commitments |
Note 9: Income taxesNOTE 10: INCOME TAXES |
9.110.1 | Income tax expense (benefit) |
9.210.2 | Income tax recorded directly in equity and/or other comprehensive income |
9.310.3 | Uncertain tax positions |
9.410.4 | Deferred tax assets and liabilities |
9.510.5 | Tax losses, tax credits and other tax benefits carried forward |
Note 10: EquityNOTE 11: EQUITY |
10.111.1 | Share details |
10.211.2 | Equity instruments and hybrid instruments |
10.311.3 | Earnings per common share |
10.411.4 | Dividends |
10.511.5 | Non-controlling interests |
Note 11: Related partiesNOTE 12: RELATED PARTIES |
11.112.1 | Sales and trade receivables |
11.212.2 | Purchases and trade payables |
11.312.3 | Other transactions with related parties |
Note 12: Subsequent event |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
NOTE 1: ACCOUNTING PRINCIPLES
ArcelorMittal (“ArcelorMittal” or the “Company”), together with its subsidiaries, owns and operates steel manufacturing and mining facilities in Europe, North and South America, Asia and Africa. Collectively, these subsidiaries and facilities are referred to in the consolidated financial statements as the “operating subsidiaries”. These consolidated financial statements were authorized for issuance on February 22, 2019March 3, 2020 by the Company’s Board of Directors.
1.1Basis of presentation
The consolidated financial statements have been prepared on a historical cost basis, except for equity instruments and trade receivables at fair value through other comprehensive income ("FVOCI"), financial assets at fair value through profit or loss ("FVTPL"), derivative financial instruments, biological assets and certain assets and liabilities held for sale, which are measured at fair value less cost to sell, inventories, which are measured at the lower of net realizable value or cost, and the financial statements of the Company’s Venezuelan tubular production facilities Industrias Unicon CA (“Unicon”) and the Company's Argentinian operation Acindar Industria Argentina de Aceros S.A. ("Acindar"), for which hyperinflationary accounting is applied (see note 2.2.2). The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are presented in U.S. dollars with all amounts rounded to the nearest million, except for share and per share data.
1.2Use of judgment and estimates
The preparation of consolidated financial statements in conformity with IFRS recognition and measurement principles and, in particular, making the critical accounting judgments requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management reviews its estimates on an ongoing basis using currently available information. Changes in facts and circumstances or obtaining new information or more experience may result in revised estimates, and actual results could differ from those estimates.
The following summary provides further information about the Company’s critical accounting policies under which significant judgments, estimates and assumptions are made. It should be read in conjunction with the notes mentioned in the summary:
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• | Deferred tax assets (note 9.4)10.4): The Company assesses the recoverability of deferred tax assets based on future taxable income projections, which are inherently uncertain and may be subject to changes over time. Judgment is required to assess the impact of such changes on the measurement of these assets and the time frame for their utilization. In addition, the Company applies judgment to recognize income tax liabilities when they are probable and can be reasonably estimated depending on the interpretation, which may be uncertain, of applicable tax laws and regulations. ArcelorMittal periodically reviews its estimates to reflect changes in facts and circumstances. |
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• | Provisions for pensions and other post-employment benefits (note 7.2)8.2): Benefit obligations and plan assets can be subject to significant volatility, in particular due to changes in market conditions and actuarial assumptions. Such assumptions differ by plan, take local conditions into account and include discount rates, expected rates of compensation increases, health care cost trend rates, mortality and retirement rates. They are determined following a formal process involving the Company's expertise and independent actuaries. Assumptions are reviewed annually and adjusted following actuarial and experience changes. |
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• | Provisions (note 8)9): Provisions, which result from legal or constructive obligations arising as a result of past events, are recognized based on the Company's, and in certain instances, third-party's best estimate of costs when the obligation arises. They are reviewed periodically to take into consideration changes in laws and regulations and underlying facts and circumstances. |
Impairment of tangible and intangible assets, including goodwill (note 5.3): In the framework of the determination of the recoverable amount of assets, the estimates, judgments and assumptions applied for the value in use calculations relate primarily to growth rates, expected changes to average selling prices, shipments and direct costs.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Assumptions for average selling prices and shipments are based on historical experience and expectations of future changes in the market. Discount rates are reviewed annually.
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• | Business combinations (note 2.2.4)2.2.3): Assets acquired and liabilities assumed as part of a business combination are recorded at their acquisition-date fair values. Similarly, consideration including consideration receivable and contingent consideration is measured at fair value. Determining the fair value of identifiable assets and liabilities requires the use of valuation techniques which may include judgment and estimates and which may affect the allocation of the amount of consideration paid to the assets and liabilities acquired and goodwill or gain from a bargain purchase recorded as part of the business combination. |
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• | Financial instruments (note 6.1.5) and financial amounts receivable (note 4.6): Certain of the Company's financial instruments are classified as Level 3 as they include unobservable inputs. In particular, the Company uses estimates to compute unobservable historical volatility based on movements of stock market prices for the fair valuation of the call option on the 1,000 mandatory convertible bonds and unobservable inputs such as discounted cash flow model for the fair valuation of financial amounts receivable relating to Uttam Galva and KSS Petron. |
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• | Mining reserve estimates (note 5.2): Proven iron ore and coal reserves are those quantities whose recoverability can be determined with reasonable certainty from a given date forward and under existing government regulations, economic and operating conditions; probable reserves have a lower degree of assurance but high enough to assume continuity between points of observation. Their estimates and the estimates of mine liveslife have been prepared by ArcelorMittal experienced engineers and geologists and detailed independent verifications of the methods and procedures are conducted on a regular basis by external consultants. Reserves are updated annually and calculated using a 3-year average reference price duly adjusted for quality, ore content, logistics and other considerations. In order to estimate reserves, estimates are required for a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity demand, commodity prices and exchange rates. Estimating the quantity and/or grade of reserves requires the size, shape and depth of ore bodies to be determined by analyzing geological data such as drilling samples. This process may require complex and difficult geological judgments to interpret the data. Because the economic assumptions used to estimate reserves change from period to period, and because additional geological data is generated during the course of operations, estimates of reserves may change from period to period. |
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1.3 | 1.3 Accounting standards applied |
1.3.1 Adoption of new IFRS standards, amendments and interpretations applicable from January 1, 20182019
On January 1, 2018,2019, the Company adopted the following standardsIFRS 16 "Leases", which havehas an impact on the disclosures in the consolidated financial statements of the Company:Company.
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• | IFRS 9 “Financial Instruments”16 "Leases" was issued on July 24, 2014,January 13, 2016, and replaced International Accounting Standards "IAS" 17 “Leases”. This new standard specifies how to recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. This standard is effective for annual periods beginning on or after January 1, 2019, with early application permitted if IFRS 15 "Revenue from Contracts with Customers" has also been applied. The Company adopted IFRS 16 “Leases” as of January 1, 2019, using the modified retrospective transition approach with right-of-use assets measured at an amount equal to the lease liability recognized at January 1, 2019, adjusted by the amount of any prepaid or accrued lease payments relating to those leases. In addition, the Company applied the practical expedient not to reassess whether or not a contract meets the definition of a lease on transition and accordingly applied IFRS 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 "Leases" and IFRIC 4 "Determining whether an Arrangement contains a lease". Also, the Company used the practical expedient of not recognizing lease liabilities and right-of-use assets for which replaces IAS 39 and modifies substantially the classification and measurement of financial instruments. The final versionlease term ended within twelve months of the standard contains requirementsdate of initial application and corresponding expenses have been recognized as part of short-term lease expenses in the following areas: |
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• | Classificationstatement of operations. On January 1, 2019, the Company recognized additional lease liabilities (discounted at the incremental borrowing rates at that date) and measurement: Financialright of use assets are classified(including reclassifications from intangible assets) for an amount of 1,136 and measured by reference to the business model within which they are held and their contractual cash flow characteristics. Financial liabilities are classified in a similar manner to IAS 39, however there are differences in the requirements regarding the recognition of an entity's own credit risk for financial liabilities designated as FVTPL.
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• | Impairment: The standard introduces an 'expected credit loss' model replacing the current incurred loss model for the measurement of the impairment of financial assets; it is therefore no longer necessary for a credit event to have occurred before a credit loss is recognized.
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• | Hedge accounting: The standard introduces a new hedge accounting model that is designed to more closely align with how entities undertake risk management activities when hedging financial and non-financial risk exposures, which may result in the increased application of hedge accounting.1,405, respectively (see note 7).
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Derecognition: The requirements for derecognition of financial assets and liabilities are carried forward from IAS 39. Accordingly, the Company has applied the requirements of IFRS 9 to instruments that have not been derecognized at January 1, 2018 and has not applied the requirements to instruments that have already been
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
derecognized at January 1, 2018. Comparative amounts in relation to instruments that have not been derecognized at January 1, 2018 have been recast where appropriate.
The classification, measurement and impairment requirements of IFRS 9 have been applied retrospectively while hedge accounting requirements have been applied prospectively. The adoption of IFRS 9 did not result in a material impact on the consolidated financial statements of the Company. Unrealized gains and losses from investments in equity instruments at FVOCI are no longer recycled to the consolidated statement of operations upon disposal. Furthermore, trade receivables subject to programs for sales without recourse (see note 4.3) have changed from loans and receivables measured at amortized cost to fair value through other comprehensive income. Additional required disclosures are presented in note 6. As permitted by the transition provisions of IFRS 9, the Company has not restated comparatives.
IFRS 15 “Revenue from Contracts with Customers” issued on May 28, 2014, which provides a unified five-step model for determining the timing, measurement and recognition of revenue. The focus of the new standard is to recognize revenue as performance obligations are met rather than based on the transfer of risks and rewards. IFRS 15 includes a comprehensive set of disclosure requirements including qualitative and quantitative information about contracts with customers to understand the nature, amount, timing and uncertainty of revenue. The standard supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations. On April 12, 2016, the IASB issued amendments to IFRS 15 which clarify how to identify a performance obligation, determine whether a company is a principal or an agent. The Company’s revenue is predominantly derived from the single performance obligation to transfer steel and mining products under arrangements in which the transfer of risks and rewards of ownership and the fulfillment of the Company’s performance obligation occur at the same time. As part of the adoption process, the Company established revised processes and controls and assessed its performance obligations underlying the revenue recognition, estimation of variable considerations including rebates, methods for estimating warranties, customized products and principal versus agent considerations. The adoption of this standard did not have a material impact on the consolidated financial statements of the Company. The additional required disclosures are presented in note 3.4 and 4.1.
On January 1, 2018,2019, the Company also adopted the following amendments which did not have anya material impact on the consolidated financial statements of the Company:
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• | IFRIC 23 “Uncertainty over Income Tax Treatments” issued by the IASB on June 7, 2017. This interpretation addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates when there is uncertainty over income tax treatments under IAS 12 "Income Taxes". |
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• | Amendment to IFRS 9 "Financial Instruments" issued by the IASB on October 12, 2017 in respect of prepayment features with negative compensation and which amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortized cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments. |
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• | Amendment to IAS 28 “Investments in Associates and Joint Ventures” also issued on October 12, 2017 in relation to long-term interests in associates and joint ventures. The amendment clarifies that an entity should apply IFRS 9 to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. |
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• | Amendments to IFRS 2 “Share-based Payment”IAS 19 “Employee benefits” issued by the IASB on June 20, 2016,February 7, 2018, which clarify that current service cost and net interest after a remeasurement resulting from a plan amendment, curtailment or settlement should be determined using the effectsassumptions applied for the remeasurement. In addition, the amendments clarify the effect of vesting and non-vesting conditionsa plan amendment, curtailment or settlement on the measurement of cash-settled share-based payments;requirements regarding the treatment of share-based payment transactions with a net settlement feature for withholding tax obligations; and the treatment of a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled.asset ceiling. |
AmendmentsOn January 1, 2019, the Company also adopted the Annual Improvements 2015–2017 issued by the IASB on December 12, 2017 to IFRS 4 “Insurance Contracts” issued on September 12, 2016, which propose two approaches (an overlay approach and a deferral approach) in order to address temporary volatility in reported results arising from the timing difference between the implementation of IFRS 9 and IFRS 17 "Insurance Contracts" that will replace IFRS 4. Thesemake amendments to IFRS 4 supplement existing options in the standard that can already be used to address the temporary volatility.following standards:
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• | IFRIC 22 “Foreign Currency Transactions and Advance Consideration” issued on December 8, 2016. This interpretation provides guidance about which exchange rate to useIFRS 3 "Business Combinations" clarifies that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in reporting foreign currency transactions (such as revenue transactions) when payment is made or received in advance.that business.
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• | IFRS 11 "Joint Arrangements" clarifies that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business. |
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• | IAS 12 "Income Taxes" clarifies that an entity shall recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. |
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• | IAS 23 "Borrowing Costs" clarifies that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization rate on general borrowings. |
1.3.2 New IFRS standards, amendments and interpretations applicable from 20192020 onward
On January 13, 2016, the IASB issued IFRS 16 “Leases” which will replace IAS 17 “Leases”. This new standard specifies how to recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. This standard is effective for annual periods beginning on or after January 1, 2019, with early application permitted if IFRS 15 "Revenue from Contracts with Customers" has also been applied. At December 31, 2018 and 2017, the Company has non-cancellable operating lease commitments on an undiscounted basis of 1,869 and 1,311, respectively (see note 8.4). A review and assessment of the Company's lease arrangements indicates that most of these arrangements will meet the definition of a lease under IFRS 16. The Company will apply the modified retrospective transition approach with right-of-use
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
assets measured at an amount equal to the lease liability recognized at January 1, 2019. In addition, it will apply the practical expedient to grandfather the definition of a lease on transition and accordingly apply IFRS 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4. Hence, the Company will recognize a right-of-use asset and corresponding liability in respect of the net present value of these leases unless they qualify for short-term leases or relate to low-value assets upon the application of IFRS 16.
As at December 31, 2018 the above mentioned operating lease commitments of 1,869 includes undiscounted amounts of 20 for short-term leases and 58 of leases of low-value assets that will remain being recognized on a straight-line basis as expenses in profit and loss. For the remaining undiscounted operating lease commitments of 1,791 (of which 29 relating to entities presented as held for sale), the Company expects to recognize on January 1, 2019 additional lease liabilities (discounted at the incremental borrowing rates at that date) and right-of-use assets for an amount of 1.1 billion.
On May 18, 2017, the IASB issued IFRS 17 "Insurance Contracts", which is designed to achieve the goal of a consistent, principle-based accounting for insurance contracts. IFRS 17 requires insurance liabilities to be measured at a current fulfillment value and provides a more uniform measurement and presentation approach for all insurance contracts. IFRS 17 supersedes IFRS 4 "Insurance Contracts" and related interpretations and is effective for periods beginning on or after January 1, 2021, with earlier adoption permitted if both IFRS 15 "Revenue from Contracts with Customers" and IFRS 9 "Financial Instruments" have also been applied. The Company does not expect that the adoption of this interpretation will have a material impact to its consolidated financial statements.
On June 7, 2017, the IASB issued IFRIC 23 “Uncertainty over Income Tax Treatments”. This interpretation addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates when there is uncertainty over income tax treatments under IAS 12. This interpretation is effective for annual periods beginning on or after January 1, 2019, with early application permitted. The Company does not expect that the adoption of this interpretation will have a material impact to its consolidated financial statements.
On October 12, 2017, the IASB issued an amendment to IFRS 9 in respect of prepayment features with negative compensation, which amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortized cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments. This amendment is effective for annual periods beginning on or after January 1, 2019, with early application permitted. The Company does not expect that the adoption of this interpretation will have a material impact to its consolidated financial statements.
Also, on October 12, 2017, the IASB issued an amendment to IAS 28 “Investments in Associates and Joint Ventures” in relation to long-term interests in associates and joint ventures. The amendment clarifies that an entity applies IFRS 9 to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. This amendment is effective for annual periods beginning on or after January 1, 2019, with early application permitted. The Company does not expect that the adoption of this amendment will have a material impact to its consolidated financial statements.
On December 12, 2017 the IASB issued Annual Improvements 2015–2017 to make amendments to the following standards:
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• | IFRS 3 "Business Combinations" clarifies that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business.
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• | IFRS 11 "Joint Arrangements" clarifies that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business.
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• | IAS 12 "Income Taxes" clarifies that an entity shall recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events.
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IAS 23 "Borrowing Costs" clarifies that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization rate on general borrowings.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
These amendments are effective for annual periods beginning on or after January 1, 2019, with early application permitted. The Company does not expect that the adoption of these amendments will have a material impact to its consolidated financial statements.
On February 7, 2018, the IASB issued amendments to IAS 19 “Employee benefits” which clarify that current service cost and net interest after a remeasurement resulting from a plan amendment, curtailment or settlement should be determined using the assumptions applied for the remeasurement. In addition, the amendments clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. These amendments are effective for annual periods beginning on or after January 1, 2019, with early application permitted. The Company does not expect that the adoption of these amendments will have a material impact to its consolidated financial statements.
On March 29, 2018, the IASB published its revised 'Conceptual"Conceptual Framework for Financial Reporting'Reporting", which includes revised definitions of an asset and a liability as well as new guidance on measurement and derecognition, presentation and disclosure. The Company does not expect that the adoption of this amendment, which areis effective for annual periods beginning on or after January 1, 2020, will have a material impact to its consolidated financial statements.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
On October 22, 2018, the IASB issued amendments to IFRS 3 'Business Combinations'"Business Combinations", which includes the definition of a business aimed at resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The Company does not expect that the adoption of these amendments, which are effective for annual periods beginning on or after January 1, 2020, will have a material impact to its consolidated financial statements.
On October 31, 2018, the IASB issued amendments to IAS 1 'Presentation"Presentation of Financial Statements'Statements" and IAS 8 'Accounting"Accounting Policies, Changes in Accounting Estimates and Errors'Errors" to clarify the definition of ‘material’ and to align the definition used in the Conceptual Framework and the standards themselves. The Company does not expect that the adoption of these amendments, which are effective for annual periods beginning on or after January 1, 2020, will have a material impact to its consolidated financial statements.
On September 26, 2019, the IASB published Interest Rate Benchmark Reform, Amendments to IFRS 9, IAS 39 and IFRS 7 (the amendments). The amendments provide relief from the specific hedge accounting requirements, so that entities would apply those hedge accounting requirements (highly probable forecast transaction and prospective effectiveness test under IFRS 9 which is applied by the Company) assuming that the interest rate benchmark is not altered as a result of the interest rate benchmark reform. Application of the relief is mandatory and is effective for annual periods beginning on or after January 1, 2020, with early application permitted. The requirements must be applied retrospectively. The Company does not expect that the adoption of these amendments will have a material impact to its consolidated financial statements as it is relieving the possible effects of the uncertainty due to the Interest rate benchmark reform "IBOR".
On January 23, 2020, the IASB issued narrow-scope amendments to IAS 1 "Presentation of Financial Statements" to clarify how to classify debt and other liabilities as current or non-current. The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The amendments include clarifying the classification requirements for debt a company might settle by converting it into equity. The Company does not expect that the adoption of these amendments, which are effective for annual periods beginning on or after January 1, 2022, will have a material impact to its consolidated financial statements.
The Company does not plan to early adopt the new accounting standards, amendments and interpretations.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
NOTE 2: SCOPE OF CONSOLIDATION
2.1 Basis of consolidation
The consolidated financial statements include the accounts of the Company, its subsidiaries and its interests in associated companies and joint arrangements. Subsidiaries are consolidated from the date the Company obtains control (ordinarily the date of acquisition) until the date control ceases. The Company controls an entity when the Company is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Associated companies are those companies over which the Company has the ability to exercise significant influence on the financial and operating policy decisions, which it does not control. Generally, significant influence is presumed to exist when the Company holds more than 20% of the voting rights. Joint arrangements, which include joint ventures and joint operations, are those over whose activities the Company has joint control, typically under a contractual arrangement. In joint ventures, ArcelorMittal exercises joint control and has rights to the net assets of the arrangement. The investment is accounted for under the equity method and therefore recognized at cost at the date of acquisition and subsequently adjusted for ArcelorMittal’s share in undistributed earnings or losses since acquisition, less any impairment incurred. Any excess of the cost of the acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities, and contingent liabilities of the associate or joint venture recognized at the date of acquisition is considered as goodwill. The goodwill, if any, is included in the carrying amount of the investment and is evaluated for impairment as part of the investment. The consolidated statements of operations include the Company’s share of the profit or loss of associates and joint ventures from the date that significant influence or joint control commences until the date significant influence or joint control ceases, adjusted for any impairment losses. Adjustments to the carrying amount may also be necessary for changes in the Company’s proportionate interest in the investee arising from changes in the investee’s equity that have not been recognized in the investee’s profit or loss. The Company’s share of those changes is recognized directly in the relevant reserve within equity.
The Company assesses the recoverability of its investments accounted for under the equity method whenever there is an indication of impairment. In determining the value in use of its investments, the Company estimates its share in the present
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
value of the projected future cash flows expected to be generated by operations of associates and joint ventures. The amount of any impairment is included in income (loss) from investments in associates, joint ventures and other investments in the consolidated statements of operations (see also note 2.6).
For investments in joint operations, in which ArcelorMittal exercises joint control and has rights to the assets and obligations for the liabilities relating to the arrangement, the Company recognizes its assets, liabilities and transactions, including its share of those incurred jointly.
Investments in other entities, over which the Company and/or its operating subsidiaries do not have the ability to exercise significant influence, are accounted for as investments in equity instruments at FVOCI with any resulting gain or loss, net of related tax effect, recognized in the consolidated statements of other comprehensive income. Realized gains and losses from the sale of investments in equity instruments at FVOCI are reclassified from other comprehensive income to retained earnings within equity upon disposal.
While there are certain limitations on the Company’s operating and financial flexibility arising from the restrictive and financial covenants of the Company’s principal credit facilities described in note 6.1.2, there are no significant restrictions resulting from borrowing agreements or regulatory requirements on the ability of consolidated subsidiaries, associates and jointly controlled entities to transfer funds to the parent in the form of cash dividends to pay commitments as they come due.
Intercompany balances and transactions, including income, expenses and dividends, are eliminated in the consolidated financial statements. Gains and losses resulting from intercompany transactions are also eliminated.
Non-controlling interests represent the portion of profit or loss and net assets not held by the Company and are presented separately in the consolidated statements of operations, in the consolidated statements of other comprehensive income and within equity in the consolidated statements of financial position.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
2.2 Investments in subsidiaries
2.2.1 List of subsidiaries
The table below provides a list of the Company’s principal operating subsidiaries at December 31, 2018.2019. Unless otherwise stated, the subsidiaries listed below have share capital consisting solely of ordinary shares or voting interests in the case of partnerships, which are held directly or indirectly by the Company and the proportion of ownership interests held equals to the voting rights held by the Company. The country of incorporation corresponds to their principal place of operations. |
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Name of Subsidiary | | Country | | % of Ownership | |
NAFTA | | | | | |
ArcelorMittal Dofasco G.P. | | Canada | | 100.00% | |
ArcelorMittal México S.A. de C.V. | | Mexico | | 100.00% | |
ArcelorMittal USA LLC | | United States | | 100.00% | |
ArcelorMittal Long Products Canada G.P. | | Canada | | 100.00% | |
Brazil and neighboring countries ("Brazil") | | | | | |
ArcelorMittal Brasil S.A. | | Brazil | | 97.01% | 1
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Acindar Industria Argentina de Aceros S.A. | | Argentina | | 100.00% | |
Europe | | | | | |
ArcelorMittal Atlantique et LorraineFrance S.A.S. | | France | | 100.00% | 1 |
ArcelorMittal Belgium N.V. | | Belgium | | 100.00% | |
ArcelorMittal España S.A. | | Spain | | 99.85% | |
ArcelorMittal Flat Carbon Europe S.A. | | Luxembourg | | 100.00% | |
ArcelorMittal Galati S.A. | | Romania | | 99.70% | 2
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ArcelorMittal Poland S.A. | | Poland | | 100.00% | |
ArcelorMittal Eisenhüttenstadt GmbH | | Germany | | 100.00% | |
ArcelorMittal Bremen GmbH | | Germany | | 100.00% | |
ArcelorMittal Méditerranée S.A.S. | | France | | 100.00% | |
ArcelorMittal Belval & Differdange S.A. | | Luxembourg | | 100.00% | |
ArcelorMittal Hamburg GmbH | | Germany | | 100.00% | |
ArcelorMittal Ostrava a.s. | | Czech Republic | | 100.00% | 2
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ArcelorMittal Duisburg GmbH | | Germany | | 100.00% | |
ArcelorMittal International Luxembourg S.A. | | Luxembourg | | 100.00% | |
ArcelorMittal Italia S.p.A. | | Italy | | 94.45% | 3
|
Africa and Commonwealth of Independent States ("ACIS") | | | | | |
ArcelorMittal South Africa Ltd. ("AMSA") | | South Africa | | 69.22% |
|
JSC ArcelorMittal Temirtau | | Kazakhstan | | 100.00% | |
PJSC ArcelorMittal Kryvyi Rih ("AM Kryvyi Rih") | | Ukraine | | 95.13% | |
Mining | | | | | |
ArcelorMittal Mining Canada G.P. and ArcelorMittal Infrastructure G.P.("AMMIC"AMMC") | | Canada | | 85.00% | |
ArcelorMittal Liberia Ltd | | Liberia | | 85.00% | |
JSC ArcelorMittal Temirtau | | Kazakhstan | | 100.00% | |
PJSC ArcelorMittal Kryvyi Rih | | Ukraine | | 95.13% | |
| |
1. | On AprilJuly 1, 2018,2019, ArcelorMittal Brasil issued preferred shares to Votorantim S.A. representing a 2.99%Atlantique et Lorraine S.A.S. was merged into ArcelorMittal France S.A.S. ownership interest. See note 2.2.4. |
| |
2. | ArcelorMittal Galati S.A. and ArcelorMittal Ostrava a.s. are classified held for sale as of December 31, 2018. See note 2.3.2.
|
| |
3. | On November 1, 2018, ArcelorMittal completed the acquisition of Ilva S.p.A. subsequently renamed ArcelorMittal Italia S.p.A. See note 2.2.4.
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
2.2.2 Translation of financial statements denominated in foreign currency
The functional currency of ArcelorMittal S.A. is the U.S. dollar. The functional currency of each of the principal operating subsidiaries is the local currency, except for ArcelorMittal México, AMMICAMMC and ArcelorMittal International Luxembourg, whose functional currency is the U.S. dollar and ArcelorMittal Poland, ArcelorMittal Ostrava and ArcelorMittal Galati, whose functional currency is the euro.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Transactions in currencies other than the functional currency of a subsidiary are recorded at the rates of exchange prevailing at the date of the transaction. Monetary assets and liabilities in currencies other than the functional currency are remeasured at the rates of exchange prevailing on the date of the consolidated statements of financial position and the related translation gains and losses are reported within financing costs in the consolidated statements of operations. Non-monetary items that are carried at cost are translated using the rate of exchange prevailing at the date of the transaction. Non-monetary items that are carried at fair value are translated using the exchange rate prevailing when the fair value was determined and the related translation gains and losses are reported in the consolidated statements of comprehensive income.
Upon consolidation, the results of operations of ArcelorMittal’s subsidiaries, associates and joint arrangements whose functional currency is other than the U.S. dollar are translated into U.S. dollars at the monthly average exchange rates and assets and liabilities are translated at the year-end exchange rates. Translation adjustments are recognized directly in other comprehensive income and are included in net income (including non-controlling interests) only upon sale or liquidation of the underlying foreign subsidiary, associate or joint arrangement.
As ofSince July 1, 2018, Argentina has been considered a highly inflationary country and therefore the financial statements of the Company's long production facilities Acindar Industria Argentina de Aceros S.A. ("Acindar") in Argentina, using a historical cost approach, are adjusted prospectively to reflect the changes in the general purchasing power of the local currency before being translated into U.S. dollars at the year end exchange rate. The Company used an estimated general price index (Consumer Price Index "IPC") ofchanged by 54.7% and 47.9% for the year ended December 31, 2019 and 2018, respectively, for this purpose. As a result of the inflation-related adjustments on non-monetary items, a gain of 64 and 45 was recognized in net financing costs for the year ended December 31, 2018.2019 and 2018, respectively.
Since 2010 Venezuela has been considered a hyperinflationary economy and therefore the financial statements of Unicon are adjusted to reflect the changes in the general purchasing power of the local currency before being translated into U.S. dollars. The Company used estimated general price indices ofchanged by 12,922%, 213,605%, and 2,056% and 534% for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively, for this purpose. As a result of the inflation-related adjustments on non-monetary items, losses of 6, 31 and 8 were recognized in net financing costs for the years ended December 31, 2018, 2017 and 2016, respectively.
Effective January 1, 2016, the Company applied the DICOM rate to translate its Venezuelan operations. As a result of this change, ArcelorMittal’s net equity in Unicon decreased from 628 to 43 at January 1, 2016. The DICOM rate was originally set at 206 bolivars per U.S. dollar on March 10, 2016, before falling to 674 bolivars per U.S. dollar at December 31, 2016. The DICOM rate continued to weaken during 2017 to 3,345 bolivars per U.S. dollar on August 31, 2017, when the Venezuelan government temporarily suspended the sale of U.S. dollars through its DICOM auction system. On February 5, 2018, the Venezuelan government reopened the auction at the new DICOM rate of 30,987 bolivars per euro (25,000 bolivars per U.S. dollar). On August 20, 2018, the Venezuelan government launched the new bolivar soberano currency, with one bolivar soberano worth 100,000 previous bolivars.
The Company continued to translate its Unicon's operations at the DICOM rate. At December 31, 2018, ArcelorMittal’s net investment in Unicon was 8. The foreign exchange controls in Venezuela may limit the ability to repatriate earnings and ArcelorMittal’s Venezuelan operations’ ability to remit dividends and pay intercompany balances at any official exchange rate or at all.
2.2.3 Business combinations
Business combinations are accounted for using the acquisition method as of the acquisition date, which is the date on which control is transferred to ArcelorMittal. The Company controls an entity when it is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The Company measures goodwill at the acquisition date as the total of the fair value of consideration transferred, plus the proportionate amount of any non-controlling interest, plus the fair value of any previously held equity interest in the acquiree, if any, less the net recognized amount (generally at fair value) of the identifiable assets acquired and liabilities assumed.
In a business combination in which the fair value of the identifiable net assets acquired exceeds the cost of the acquired business, the Company reassesses the fair value of the assets acquired and liabilities assumed. If, after reassessment, ArcelorMittal’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess (bargain purchase) is recognized immediately as a reduction of cost of sales in the consolidated statements of operations.
Any contingent consideration payable is recognized at fair value at the acquisition date and any costs directly attributable to the business combination are expensed as incurred.
2.2.4 Acquisitions
Ilva (renamed ArcelorMittal Italia)
On November 1, 2018, ArcelorMittal completed the acquisition of Ilva S.p.A. and certain of its subsidiaries ("Ilva") following the signaturesigning on June 28, 2017 of a lease agreement with ana conditional obligation to purchase between the Italian Governmentcommissioners appointed in the ongoing extraordinary administration proceedings to which the former Ilva business is subject and AM InvestCo Italy S.r.l.S.p.A. ("AM InvestCo"), a consortium formed by ArcelorMittal and Intesa San Paolo S.p.A. ("ISP") with respective interests of 94.45% and 5.55% .The. The completion of the acquisition followed ArcelorMittal's notification to the European Commission ("EC") of AM InvestCo's proposed acquisition of Ilva on September 21, 2017 and the submission of commitments on October 19, 2017. The European CommissionEC initiated a Phase II review of AM InvestCo’s proposed acquisition of Ilva on November 8, 2017 and approved the transaction on May 7, 2018 subject to the fulfillment of divestment commitments (see note 2.3.2)
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
2.3.1) and the exit of Marcegaglia from AM InvestCo (Marcegaglia initially held initially a 15% interest in AM InvestCo) completed on November 9, 2018 (see note 10.5.2)11.5.2).
Ilva (now ArcelorMittal Italia) is Europe’s largest single steel site and only integrated steelmaker in Italy with its main production facility based in Taranto. IlvaArcelorMittal Italia also has significant steel finishing capacity in Taranto, Novi Ligure and Genova. As a result of the lease agreement, the assets and liabilities subject to the transaction are leased by subsidiaries of AM InvestCo, including ArcelorMittal Italia S.p.A., which combines the sites of Taranto, Novi Ligure and Genova. The nominal purchase price amountsamounted to €1.8 billion (2.1 billion) subject to certain adjustments including working capital adjustment, with annual leasing costs of €180 million (206) to be paid in quarterly installments resulting in a present value of 1,540 at acquisition date. The total consideration includesincluded a 54 liability corresponding to environmental capital expenditures already completed by the former Ilva business and which will bewas refunded by ArcelorMittal to Ilva.the latter. In September 2018, Ilva'sthe former Ilva business' trade unions ratified a labourlabor agreement following which ArcelorMittal committed to initially hire 10,700 workers based on their existing contractual terms of employment. In addition, between 2023 and 2025, the Company has committed to hire any workers who remain under Ilva’sthe former Ilva business’ extraordinary administration. Ilva’sThe business units are initially leased with rental payments qualifying as down payments against the purchase price and are part of the Europe reportable segment. The lease period is for a minimum of four years followed by a subsequentconditional purchase obligation.obligation, subject to certain conditions precedent (see note 9.3). The Company accounted for this transaction as a business combination as it obtained control of the business subject to the lease.
ISP's interest is subject to put and call option arrangements exercisable by ArcelorMittalISP and ISPArcelorMittal between November 1, 2020 and November 1, 2025 and between November 1, 2021 and November 1, 2025, respectively. The Company determined that it has a present ownership interest in the shares subject to the put option. Accordingly, it recognized at acquisition date a 122 financial liability measured at the present value of the redemption amount.
Following the recent closing of the transaction, the acquisition-date fair value of the identifiable assets and liabilities of Ilva has beenArcelorMittal Italia was determined on a provisional basis as of December 31, 2018, in particular with respect to property, plant and equipment, environmental provisions, indemnification asset, tax implications and working capital balances at closing date. The Company expects to complete its accountingArcelorMittal finalized the acquisition-date fair values during the first halffourth quarter of 2019. ArcelorMittal recognized provisions of 517397 in connection with environmental remediation obligations. As the latter will be funded with funds seized by the Italian Government from the former shareholder, the Company recognized an indemnification asset for the same amount, of which 365359 was classified as non-current assets. Current assets include trade receivables of 439437 with gross contract amounts receivable of 503501 and contractual cash flows not expected to be collected of 64. Intangible assets include 201 relating to CO2 emission rights held by the former Ilva business at acquisition date (the Company also recognized liabilities of 158 relating to estimated emissions for the first 10 months of 2018) and favorable land lease contracts for 76.61. ArcelorMittal recognized a 209 bargain purchase gain in cost of sales in 2018 mainly as a
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
result of the preliminary €0.4 billion (0.5 billion) working capital reduction while the total fair value of net assets acquired remained substantially driven by the economic obsolescence applied to property, plant and equipment. Following the finalization of the acquisition-date fair values, the bargain purchase gain decreased by 28 mainly as a result of the finalization of the environmental provisions (118 decrease of both environmental provision and indemnification asset), tax implications (74) and working capital balances. Property, plant and equipment increased by 92.
Revenue and net loss of IlvaArcelorMittal Italia for the year ended December 31, 2018 since acquisition date were 398 and (49), respectively. The Company recognized acquisition-related costs of 25 in selling, general and administrative expenses.expenses for the year ended December 31, 2018. The agreement includes industrial capital expenditure commitments of approximately €1.3 billion (1.4 billion) over a seven-year period focused on blast furnaces, steel shops and finishing lines and environmental capital expenditure commitments of approximately €0.8 billion (0.9 billion).
Votorantim (renamed AMSF)
On April 1, 2018, ArcelorMittal completed the acquisition of Votorantim Siderurgia (subsequently renamed ArcelorMittal Sul Fluminense "AMSF"), Votorantim S.A.'s long steel business in Brazil pursuant to which Votorantim Siderurgia became a wholly-owned subsidiary of ArcelorMittal Brasil. The combination of ArcelorMittal Brasil's long steel business and AMSF aims to create cost, logistical and operational synergies. The combined operations include ArcelorMittal Brasil’s production sites at Monlevade, Juiz de Fora and Piracicaba, and AMSF’s production sites at Barra Mansa, Resende and its 50% interest in the joint venture Sitrel in Três Lagoas. On February 7, 2018, the Brazilian antitrust authority CADE approved the transaction, conditioned to the fulfillment of divestment commitments by ArcelorMittal Brasil which were completed in May 2018 (see note 2.3).
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The acquisition was completed through the issuance of preferred shares to Votorantim S.A. representing a 2.99% interest in ArcelorMittal Brasil. Pursuant to the shareholders' agreement, such preferred shares are subject to put and call option arrangements exercisable by Votorantim S.A. and ArcelorMittal Brasil between July 1, 2019 and December 31, 2022 and between January 1, 2023 and December 31, 2024, respectively. The Company determined that it has a present ownership interest in the preferred shares subject to the put option. Accordingly, it recognized at acquisition date a 328 financial liability at amortized cost and measured at the present value of the redemption amount. Following the recent closing of the transaction, theThe Company completed its acquisition-date fair value of the identifiable assets and liabilities of AMSF has been determined onin the first half of 2019 and recognized an increase of 8 in goodwill and other liabilities following a provisional basis asrevised measurement of December 31, 2018, in particular with respect to unfavorable contracts and contingent liabilities. Other non-current assets include an 83 indemnification asset towards Votorantim S.A. relating to contingent liabilities of 8593 and an 82 investment in Sitrel. Other liabilities include unfavorable contracts for 293 and borrowings of 211. Current assets include cash and receivables for 13 and 141, respectively (including trade receivable of 92 with gross contractual amounts of 108 and contractual cash flows not expected to be collected of 16). The Company expects to complete its accounting during the first quarter of 2019. Revenue and net loss of AMSF for the year ended December 31, 2018 since acquisition date were 285 and (108), respectively. The Company recognized acquisition-related costs of 8 in selling, general and administrative expenses.expenses in 2018.
Revenue and net income attributable to the equity holders of the parent of the Company for the year ended December 31, 2018 were 79,192 and 4,801 respectively, as though the acquisition date for IlvaArcelorMittal Italia and VotorantimAMSF had been as of January 1, 2018.
Other
On June 4, 2019, the Company completed the acquisition of Münker Metallprofile GmbH ("Münker") for total consideration of €48 million (54) of which €44 million (46 net of cash acquired of 3) was paid at closing and €4 million (5) payable contingent upon certain criteria. The acquisition of Münker will strengthen ArcelorMittal Downstream Solutions' construction business within the Europe segment. The Company completed its acquisition-date fair value of the identifiable assets and liabilities of Münker in the second half of 2019. It recognized 6 of goodwill and 34, 11 and 22 of property, plant and equipment, intangible assets and current assets, respectively, following the final measurement. Revenue and net income since acquisition date were 45 and 2, respectively.
Revenue and net loss attributable to the equity holders of the parent of the Company, for year ended December 31, 2019 were 70,646 and 2,454, respectively, as though the acquisition date of Münker had been as of January 1, 2019.
On December 21, 2017, the Company acquired from Alcatel Lucent the reinsurance company Electro-Re S.A. for total consideration of €246 million (290; cash inflow was 35 net of cash acquired of 325).
On June 21, 2017, as a result of the extension of the partnership between ArcelorMittal and Bekaert Group ("Bekaert") in the steel cord business in Brazil, the Company completed the acquisition from Bekaert of a 55.5% controlling interest in Bekaert Sumaré Ltda. subsequently renamed ArcelorMittal Bekaert Sumaré Ltda. ("Sumaré"), which subsequently merged into Belgo-Mineira Bekaert Artefatos de Arames Ltda. a manufacturer of metal ropes for automotive tires located in the municipality of Sumaré/SP, Brazil. The Company agreed to pay total cash consideration of €56 million (63; 49, net of cash acquired of 14) of which €52 million (58) settled on closing date and €4 million (5) to be paid subsequently upon conclusion of certain business restructuring measures by Bekaert. Sumaré is part of the Brazil reportable segment.
On May 18, 2017, the Company acquired from Crédit Agricole Assurances the reinsurance company Crédit Agricole Reinsurance S.A. for consideration of €186 million (208; cash inflow was 20, net of cash acquired of 228).
On January 18, 2017, the Company acquired from Parfinada B.V. the reinsurance company Artzare S.A. for total consideration of €43 million (45; cash inflow was 5, net of cash acquired of 50). The reinsurance company is incorporated in Luxembourg and operates through a series of reinsurance agreements with the Company’s subsidiaries.
The Company concluded that the acquisitions of Electro-Re S.A. and Crédit Agricole Reinsurance S.A. were not business combinations mainly as the transactions did not include the acquisition of any strategic management processes, operational processes and resource management processes.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
On December 21, 2016, ArcelorMittal acquired from Skanska Financial Services AB the reinsurance company SCEM Reinsurance S.A. (“SCEM”) for total consideration of €54 million (56; cash inflow was 7, net of cash acquired of 63).
The Company concluded that the acquisitions of Electro-Re S.A., SCEM, Artzare S.A. and Crédit Agricole Reinsurance S.A. were not business combinations mainly as the transactions did not include the acquisition of any strategic management processes, operational processes and resource management processes.
The table below summarizes the estimatedfinal acquisition-date fair value of the assets acquired and liabilities assumed in respect of Ilva,Münker, AMSF and Sumaréthe former Ilva business in 2018 and 2017:2019: | | | 2018 | | 2017 | | | | | | |
| AMSF | | Ilva | | Sumaré | Münker | | AMSF | | Ilva |
Current assets | 262 |
| | 1,273 |
| | 50 |
| 22 |
| | 262 |
| | 1,156 |
|
Property, plant and equipment | 600 |
| | 1,026 |
| | 69 |
| 34 |
| | 600 |
| | 1,118 |
|
Intangible assets | 19 |
| | 300 |
| | 21 |
| 11 |
| | 19 |
| | 267 |
|
Other non-current assets | 252 |
| | 375 |
| | 7 |
| — |
| | 252 |
| | 369 |
|
Total assets acquired | 1,133 |
| | 2,974 |
| | 147 |
| 67 |
| | 1,133 |
| | 2,910 |
|
Deferred tax liabilities | (45 | ) | | — |
| | (23 | ) | (8 | ) | | (45 | ) | | (74 | ) |
Other liabilities | (784 | ) | | (1,225 | ) | | (29 | ) | (14 | ) | | (792 | ) | | (1,113 | ) |
Total liabilities acquired | (829 | ) | | (1,225 | ) | | (52 | ) | (22 | ) | | (837 | ) | | (1,187 | ) |
Net assets acquired | 304 |
| | 1,749 |
| | 95 |
| 45 |
| | 296 |
| | 1,723 |
|
Non-controlling interests | — |
| | — |
| | (48 | ) | — |
| | — |
| | — |
|
Consideration paid, net | — |
| | 52 |
| | 44 |
| 46 |
| | — |
| | 52 |
|
Consideration payable | 328 |
| | 1,488 |
| | 5 |
| 5 |
| | 328 |
| | 1,490 |
|
Goodwill/(bargain purchase gain) | 24 |
| | (209 | ) | | 2 |
| 6 |
| | 32 |
| | (181 | ) |
2.3 Divestments and assets held for sale
Non-current assets and disposal groups that are classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. The non-current asset, or disposal group, is classified as held for sale only when the sale is highly probable and is available for immediate sale in its present condition and is marketed for sale at a price that is reasonable in relation to its current fair value. Assets held for sale are presented separately in the consolidated statements of financial position and are not depreciated. Gains (losses) on disposal of subsidiaries are recognized in cost of sales, whereas gains (losses) on disposal of investments accounted for under the equity method are recognized in income (loss) from investments in associates, joint ventures and other investments.
2.3.1 Divestments
Divestments in 2019
ArcelorMittal Italia remedies
On May 7, 2018, the EC approved the acquisition of Ilva (renamed "ArcelorMittal Italia"). As part of the approval, ArcelorMittal agreed to divest certain of its European assets (“ArcelorMittal Italia remedies”) which were part of the Europe reportable segment. The ArcelorMittal Italia remedies included the following 3 divestment packages.
The Dudelange and Liège divestment package was composed of ArcelorMittal Dudelange and certain finishing facilities of ArcelorMittal Liège in Belgium including the hot dipped galvanizing lines 4 and 5 in Flémalle, hot-rolled pickling, cold rolling and tin packaging lines in Tilleur.
The Galati divestment package was mainly composed of the integrated steel making site of ArcelorMittal Galati S.A., ArcelorMittal Tubular Products Galati SRL, both in Romania, ArcelorMittal Skopje AD in North Macedonia and ArcelorMittal Piombino S.p.A. in Italy, the Company’s only galvanizing steel plant in Italy.
The Ostrava divestment package was mainly composed of the integrated steel making site of ArcelorMittal Ostrava a.s. and its subsidiary, ArcelorMittal Tubular Products Ostrava a.s.
On June 30, 2019, ArcelorMittal completed the sale of the ArcelorMittal Italia remedies to Liberty House Group ("Liberty"). The total consideration which consisted of amounts payable upon closing and deferred consideration in part contingent upon certain criteria, net of €110 million (125) deposited in escrow was €740 million (842) subject to customary
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
closing adjustments. Of this total amount, €610 million (694) was received on June 28, 2019. The escrow which was subsequently drawn was to be used by Liberty for certain capital expenditure projects to satisfy commitments given in the EC approval process.
During 2019, prior to the completion of the disposal, the Company recorded an impairment charge in cost of sales of 497 to adjust the carrying amount of the disposal group to the sale proceeds of 692 including a cash consideration of 518 (694, net of cash disposed of 34, the escrow deposit of 125 and proceeds of 17 paid to a joint venture of the Company) and 174 of deferred consideration (of which 161 outstanding as of December 31, 2019 following subsequent receipt of a portion of the consideration receivable) recognized at present value and fair value of contingent consideration. The Company also assigned receivables of 404 mainly comprised of cash pooling balances to Liberty. The fair value measurement of ArcelorMittal Italia remedies was determined using the contract price, a Level 3 unobservable input, which was revised in the first half of 2019.
Global Chartering
On December 31, 2019, ArcelorMittal completed the sale of a 50% controlling interest in Global Chartering Ltd. ("Global Chartering") to DryLog Ltd. ("DryLog") for total deferred consideration of 6. The resulting net gain on disposal was 29 including the reclassification from other comprehensive income to the consolidated statements of operations of 33 foreign exchange translation gains. In connection with the disposal, the Company derecognized right-of-use assets and lease liabilities of 390 and 400, respectively (see note 7).
Global Chartering is a Mauritius-based shipping company that handles shipping for a portion of the Company's raw materials through the chartering of vessels on a short- to long-term basis. Global Chartering's fleet includes owned and leased Capesize, Panamax and Supramax vessels on a medium- to long-term charter. Simultaneously, ArcelorMittal entered into a joint venture agreement with DryLog to operate jointly the Global Chartering fleet and certain other vessels chartered from DryLog. Accordingly, the Company's remaining 50% interest in Global Chartering is accounted for under the equity method. The fair value measurement was determined using the selling price, a Level 3 unobservable input. At inception of the joint venture, certain of Global Chartering's lease terms were unfavorable compared to market rates and therefore the Company agreed to indemnify the joint venture for operating losses that could potentially arise within an agreed time frame if market rates do not improve and recognized accordingly in cost of sales a 126 provision (see note 9.1) representing the net present value of the maximum amount agreed.
Divestments in 2018
On February 28, 2018, ArcelorMittal completed the sale of Go Steel Frýdek Místek ("Frýdek Místek"), for consideration of 49 (net of cash disposed of 1) of which 10 remained outstanding at December 31, 2018. Frýdek Místek was part of the Europe segment. The fair value measurement was determined using the contract price, a Level 3 unobservable input.
On February 7, 2018, the Brazilian Antitrust Authority (CADE) approved the acquisition of Votorantim subject to divestment commitments (see note 2.2.4). Accordingly, in May 2018, ArcelorMittal Brasil disposed of its two production sites Cariacica and Itaúna as well as some wire drawing equipment in Brazil (the “Votorantim remedies”), which were part of the Brazil reportable segment. Prior to the disposal, the Company recorded an impairment charge in cost of sales of 86 to adjust the carrying amount of the disposal group to the sale proceeds of 84 (net of cash disposed of 1) of which 58 remained outstanding
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
as of December 31, 2018. The fair value measurement of these Votorantim remedies was determined using the contract price, a Level 3 unobservable input.
Divestments in 2017
On December 15, 2017, ArcelorMittal completed the sale of its 100% shareholding in ArcelorMittal Georgetown Inc. ("Georgetown"), a wire rod mill in Georgetown in the United States for total cash consideration of 19 and the result on disposal was 18. The fair value measurement of Georgetown, which was part of the NAFTA reportable segment, was determined using the contract price, a Level 3 unobservable input.
On March 13, 2017, ArcelorMittal and the management of ArcelorMittal Tailored Blanks Americas (“AMTBA”), comprising the Company’s tailored blanks operations in Canada, Mexico and the United States, entered into a joint venture agreement following which the Company recognized an investment of 65 in AMTBA accounted for under the equity method. AMTBA was part of the NAFTA reportable segment and was classified as held for sale at December 31, 2016.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
On February 10, 2017, ArcelorMittal completed the sale of certain ArcelorMittal Downstream Solutions entities in the Europe segment following its commitment to sell such operations in December 2015. The Company recorded an impairment charge of 18 in cost of sales in 2015. The assets and liabilities subject to the sale were classified as held for sale at December 31, 2016. The fair value measurement of these operations, which were part of the Europe reportable segment, was determined using the contract price, a Level 3 unobservable input.
Divestments in 2016
On September 30, 2016, ArcelorMittal completedThe table below summarizes the
sale of its wholly owned subsidiary ArcelorMittal Zaragoza in Spain to Megasa Siderúrgica S.L. for total consideration of €80 million (89). Prior to the disposal, the Company recorded an impairment charge of 49 (of which 2 related to allocated goodwill) in cost of sales to write the net carrying amount down to the net proceeds from the sale. The fair value measurement of ArcelorMittal Zaragoza was determined using the contract price, a Level 3 unobservable input. ArcelorMittal Zaragoza was part of the Europe reportable segment.significant divestments: |
| | | | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| ArcelorMittal Italia remedies | Global Chartering Limited | | Frýdek Místek | | Votorantim remedies | | AMTBA | | Downstream Solutions Europe | | Georgetown |
Cash and cash equivalents | — |
| — |
| | — |
| | — |
| | 13 |
| | — |
| | — |
|
Other current assets | 1,386 |
| 14 |
| | 48 |
| | 40 |
| | 46 |
| | 38 |
| | — |
|
Property, plant and equipment | 178 |
| 517 |
| | 35 |
| | 48 |
| | 55 |
| | 2 |
| | 4 |
|
Other assets | 11 |
| 21 |
| | — |
| | — |
| | 10 |
| | 17 |
| | — |
|
Total assets | 1,575 |
| 552 |
| | 83 |
| | 88 |
| | 124 |
| | 57 |
| | 4 |
|
Current liabilities | 1,046 |
| 229 |
| | 31 |
| | 4 |
| | 52 |
| | 18 |
| | 1 |
|
Other long-term liabilities | 241 |
| 311 |
| | 4 |
| | — |
| | 7 |
| | 12 |
| | 2 |
|
Total liabilities | 1,287 |
| 540 |
| | 35 |
| | 4 |
| | 59 |
| | 30 |
| | 3 |
|
Total net assets | 288 |
| 12 |
| | 48 |
| | 84 |
| | 65 |
| | 27 |
| | 1 |
|
Assigned receivables | 404 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
% of net assets sold | 100 | % | 50 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
Total net assets disposed of | 692 |
| 6 |
| | 48 |
| | 84 |
| | 65 |
| | 27 |
| | 1 |
|
Cash consideration received, net of escrow deposit and cash disposed | 518 |
| (4 | ) | | 39 |
| | 26 |
| | 65 |
| | 6 |
| | 19 |
|
Consideration receivable | 174 |
| 6 |
| | 10 |
| | 58 |
| | | | | | |
Reclassification of foreign exchange reserves | 72 |
| 33 |
| | 15 |
| | — |
| | — |
| | 21 |
| | — |
|
Gain on disposal | 72 |
| 29 |
| | 16 |
| | — |
| | — |
| | — |
| | 18 |
|
On August 7, 2016, ArcelorMittal completed the sale of the Company’s 49% interest in its associates ArcelorMittal Algérie and ArcelorMittal Tebessa and its 70% interest in its subsidiary ArcelorMittal Pipes and Tubes Algeria, which was announced on October 7, 2015 as part of an outline agreement for restructuring the shareholding of its Algerian activities. As part of the agreement, ArcelorMittal transferred such interests to IMETAL, an Algerian state-owned entity. ArcelorMittal Pipes and Tubes Algeria and ArcelorMittal Algérie were part of the ACIS reportable segment while ArcelorMittal Tebessa was part of the Mining reportable segment.
On April 4, 2016, ArcelorMittal completed the sale of the LaPlace and Vinton Long Carbon facilities in the United States. The total consideration was 96 and the result on disposal was nil. In 2015, the Company recorded an impairment charge of 231 (of which 13 relating to allocated goodwill) in cost of sales to write the carrying amount of the LaPlace, Steelton and Vinton facilities down to the expected net proceeds from the sale. The fair value measurement of the Long Carbon facilities in the United States was determined using the contract price, a Level 3 unobservable input. These facilities were part of the NAFTA reportable segment. The assets and liabilities of the Steelton facility remained classified as held for sale at December 31, 2017 and 2016 (see note 2.3.2).
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The table below summarizes the significant divestments: |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2017 | | 2016 |
| Frýdek Místek | | Votorantim remedies | | AMTBA | | Downstream Solutions Europe | | Georgetown | | ArcelorMittal Zaragoza | | ArcelorMittal Tubular Products Algeria | | LaPlace and Vinton Long Carbon facilities |
Cash and cash equivalents | — |
| | — |
| | 13 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other current assets | 48 |
| | 40 |
| | 46 |
| | 38 |
| | — |
| | 53 |
| | 15 |
| | 118 |
|
Property, plant and equipment | 35 |
| | 48 |
| | 55 |
| | 2 |
| | 4 |
| | 74 |
| | 2 |
| | 13 |
|
Other assets | — |
| | — |
| | 10 |
| | 17 |
| | — |
| | — |
| | — |
| | 7 |
|
Total assets | 83 |
| | 88 |
| | 124 |
| | 57 |
| | 4 |
| | 127 |
| | 17 |
| | 138 |
|
Current liabilities | 31 |
| | 4 |
| | 52 |
| | 18 |
| | 1 |
| | 38 |
| | 16 |
| | 33 |
|
Other long-term liabilities | 4 |
| | — |
| | 7 |
| | 12 |
| | 2 |
| | — |
| | 12 |
| | 9 |
|
Total liabilities | 35 |
| | 4 |
| | 59 |
| | 30 |
| | 3 |
| | 38 |
| | 28 |
| | 42 |
|
Total net assets/(liabilities) | 48 |
| | 84 |
| | 65 |
| | 27 |
| | 1 |
| | 89 |
| | (11 | ) | | 96 |
|
% of net assets sold | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
Total net assets/(liabilities) disposed of | 48 |
| | 84 |
| | 65 |
| | 27 |
| | 1 |
| | 89 |
| | (11 | ) | | 96 |
|
Cash consideration | 39 |
| | 26 |
| | 65 |
| | 6 |
| | 19 |
| | 89 |
| | — |
| | 96 |
|
Consideration receivable | 10 |
| | 58 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Reclassification of foreign exchange translation difference | 15 |
| | — |
| | — |
| | 21 |
| | — |
| | 8 |
| | 4 |
| | — |
|
Gain on disposal | 16 |
| | — |
| | — |
| | — |
| | 18 |
| | 8 |
| | 15 |
| | — |
|
2.3.2 Assets held for sale
On May 7, 2018, the European Commission approved the acquisition of Ilva (see note 2.2.4). As part of the approval, ArcelorMittal agreed to divest certain of its European assets (“Ilva remedies”) which are part of the Europe reportable segment.
The Ilva remedies are comprised of the following three divestment packages.
The Dudelange and Liège divestment package is composed of ArcelorMittal Dudelange and certain finishing facilities including the hot dipped galvanizing lines 4 and 5 in Flémalle, hot-rolled pickling, cold rolling and tin packaging lines in Tilleur of ArcelorMittal Liège in Belgium.
The Galati divestment package is mainly composed of the integrated steel making site of ArcelorMittal Galati S.A., ArcelorMittal Tubular Products Galati SRL, both in Romania, ArcelorMittal Skopje AD in North Macedonia and ArcelorMittal Piombino S.p.A. in Italy, the Company’s only galvanizing steel plant in Italy.
The Ostrava divestment package is mainly composed of the integrated steel making site of ArcelorMittal Ostrava a.s. and its subsidiaries, ArcelorMittal Tubular Products Ostrava a.s.
On October 12, 2018 and November 2, 2018, ArcelorMittal received two binding offers from Liberty House Group ("Liberty") for the acquisition of the combined Ostrava and Galati divestment package and the Dudelange and Liège divestment package, respectively. The European Commission is currently reviewing revised offers from Liberty submitted by the Company on January 23, 2019. Transaction closing is conditional on EU approval and the conclusion of information consultations with local and European Works Councils.
At December 31, 2018, the carrying amount of assets and liabilities subject to the Ilva remedies was classified as held for sale. Based on the offers received, the Company recorded an impairment charge (see note 5.3) in cost of sales of 888 to adjust the carrying amount of the disposal group to the expected sale proceeds. The fair value measurement was determined using the selling price, a Level 3 unobservable input. The Company expects to complete the disposal of the divestment packages during the first half of 2019.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
In addition, the assets and liabilities of the Steelton facility in the United States remainedceased to be classified as held for sale at December 31, 2018 (see note 2.3.1).2019 as the Company is no longer committed to a sale of the assets.
The table below provides the details for the entities classified as held for sale as at December 31, 2017, which have been2018. The ArcelorMittal Italia remedies were disposed during 2018 are2019 as disclosed in note 2.3.1.
The tables below provide details of the assets and liabilities held for sale after elimination of intra-group balances in the consolidated statements of financial position:
|
| | | | | | | | | |
| | December 31, 2018 |
| | Ilva remedies | | Steelton | | Total |
Current Assets: | | | | | | |
Cash and cash equivalents | | 10 |
| | — |
| | 10 |
|
Trade accounts receivable, prepaid expenses and other current assets | | 291 |
| | 28 |
| | 319 |
|
Inventories | | 1,011 |
| | 23 |
| | 1,034 |
|
Total Current Assets | | 1,312 |
| | 51 |
| | 1,363 |
|
Non-current Assets: | | | | | | — |
|
Property, plant and equipment | | 638 |
| | 78 |
| | 716 |
|
Other assets | | 32 |
| | — |
| | 32 |
|
Total Non-current Assets | | 670 |
| | 78 |
| | 748 |
|
Total Assets | | 1,982 |
| | 129 |
| | 2,111 |
|
| | | | | |
|
Current Liabilities: | | | | | |
|
Trade accounts payables, accrued expenses and other liabilities | | 542 |
| | 21 |
| | 563 |
|
Total Current Liabilities | | 542 |
| | 21 |
| | 563 |
|
Non-current Liabilities: | | | | | |
|
Long-term debt | | 77 |
| | — |
| | 77 |
|
Other long-term liabilities | | 164 |
| | 17 |
| | 181 |
|
Total Non-current Liabilities | | 241 |
| | 17 |
| | 258 |
|
Total Liabilities | | 783 |
| | 38 |
| | 821 |
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The tables below provide details of the assets and liabilities held for sale after elimination of intra-group balances in the consolidated statements of financial position:
|
| | | | | | | | |
| December 31, 2017 |
| Frýdek Místek | | Steelton | | Total |
ASSETS | | | | | |
Current assets: | | | | | |
Trade accounts receivable and other | — |
| | 23 |
| | 23 |
|
Inventories | 25 |
| | 21 |
| | 46 |
|
Total current assets | 25 |
| | 44 |
| | 69 |
|
Non-current assets: | | | | | |
Property, plant and equipment | 34 |
| | 76 |
| | 110 |
|
Total non-current assets | 34 |
| | 76 |
| | 110 |
|
Total assets | 59 |
| | 120 |
| | 179 |
|
| | | | | |
LIABILITIES | | | | | |
Current liabilities: | | | | | |
Trade accounts payable and other | 5 |
| | 17 |
| | 22 |
|
Accrued expenses and other liabilities | 2 |
| | 5 |
| | 7 |
|
Total current liabilities | 7 |
| | 22 |
| | 29 |
|
Non-current liabilities: | | | | | |
Long-term provisions | 4 |
| | 17 |
| | 21 |
|
Total non-current liabilities | 4 |
| | 17 |
| | 21 |
|
Total liabilities | 11 |
| | 39 |
| | 50 |
|
|
| | | | | | | | | |
| | December 31, 2018 |
| | ArcelorMittal Italia remedies | | Steelton | | Total |
Current Assets: | | | | | | |
Cash and cash equivalents | | 10 |
| | — |
| | 10 |
|
Trade accounts receivable, prepaid expenses and other current assets | | 291 |
| | 28 |
| | 319 |
|
Inventories | | 1,011 |
| | 23 |
| | 1,034 |
|
Total Current Assets | | 1,312 |
| | 51 |
| | 1,363 |
|
Non-current Assets: | | | | | |
|
Property, plant and equipment | | 638 |
| | 78 |
| | 716 |
|
Other assets | | 32 |
| | — |
| | 32 |
|
Total Non-current Assets | | 670 |
| | 78 |
| | 748 |
|
Total Assets | | 1,982 |
| | 129 |
| | 2,111 |
|
| | | | | |
|
Current Liabilities: | | | | | |
|
Trade accounts payables, accrued expenses and other liabilities | | 542 |
| | 21 |
| | 563 |
|
Total Current Liabilities | | 542 |
| | 21 |
| | 563 |
|
Non-current Liabilities: | | | | | |
|
Long-term debt | | 77 |
| | — |
| | 77 |
|
Other long-term liabilities | | 164 |
| | 17 |
| | 181 |
|
Total Non-current Liabilities | | 241 |
| | 17 |
| | 258 |
|
Total Liabilities | | 783 |
| | 38 |
| | 821 |
|
2.4 Investments in associates and joint arrangements
The carrying amounts of the Company’s investments accounted for under the equity method were as follows: | | | December 31, | December 31, |
Category | 2018 | | 2017 | 2019 |
| 2018 |
Joint ventures | 1,011 |
| | 1,249 |
| 2,586 |
|
| 1,011 |
|
Associates | 2,871 |
| | 2,854 |
| 2,859 |
|
| 2,871 |
|
Individually immaterial joint ventures and associates1 | 1,024 |
| | 981 |
| 1,084 |
|
| 1,024 |
|
Total | 4,906 |
| | 5,084 |
| 6,529 |
|
| 4,906 |
|
| |
1. | Individually immaterial joint ventures and associates represent in aggregate less than 20% of the total carrying amount of investments in joint ventures and associates at December 31, 20182019 and 2017,2018, and none of them have a carrying value exceeding 100 at December 31, 20182019 and 20172018. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
2.4.1 Joint ventures
The following tables summarize the latest available financial information and reconcile it to the carrying value of each of the Company’s material joint ventures, as well as the income statement of the Company’s material joint ventures:
| | | | December 31, 2018 | | December 31, 2019 |
Joint Ventures | | Calvert | | VAMA | | Tameh | | Borçelik | | Total | | AMNS India | | Calvert | | VAMA | | Tameh | | Borçelik | | Total |
Place of incorporation and operation 1 | | United States | | China | | Poland | | Turkey | | | | India | | United States | | China | | Poland | | Turkey | | |
Principal Activity | | Automotive steel finishing | | Automotive steel finishing | | Energy production and supply | | Manufacturing and sale of steel 2,3,4 | | | | Integrated flat steel producer 5,6 | | Automotive steel finishing | | Automotive steel finishing | | Energy production and supply | | Manufacturing and sale of steel 2,3,4 | | |
Ownership and voting rights at December 31, 2018 | | 50.00% | | 50.00% | | 50.00% | | 50.00% | | | |
Ownership and voting rights at December 31, 2019 | | | 60.00% | | 50.00% | | 50.00% | | 50.00% | | 50.00% | | |
Current assets | | 1,490 |
| | 329 |
| | 205 |
| | 519 |
| | 2,543 |
| | 2,318 |
| | 1,604 |
| | 313 |
| | 171 |
| | 508 |
| | 4,914 |
|
of which cash and cash equivalents | | 76 |
| | 85 |
| | 90 |
| | 67 |
| | 318 |
| | 444 |
| | 62 |
| | 81 |
| | 75 |
| | 106 |
| | 768 |
|
Non-current assets | | 1,282 |
| | 688 |
| | 540 |
| | 282 |
| | 2,792 |
| | 6,295 |
| | 1,282 |
| | 637 |
| | 580 |
| | 267 |
| | 9,061 |
|
Current liabilities | | 824 |
| | 491 |
| | 208 |
| | 398 |
| | 1,921 |
| | 5,922 |
| | 984 |
| | 485 |
| | 183 |
| | 378 |
| | 7,952 |
|
of which trade and other payables and provisions | | 173 |
| | 180 |
| | 176 |
| | 263 |
| | 792 |
| | 670 |
| | 144 |
| | 226 |
| | 139 |
| | 274 |
| | 1,453 |
|
Non-current liabilities | | 853 |
| | 217 |
| | 226 |
| | 49 |
| | 1,345 |
| | 189 |
| | 764 |
| | 147 |
| | 244 |
| | 49 |
| | 1,393 |
|
of which trade and other payables and provisions | | — |
| | — |
| | 22 |
| | — |
| | 22 |
| | 46 |
| | — |
| | — |
| | 26 |
| | 49 |
| | 121 |
|
Net assets | | 1,095 |
| | 309 |
| | 311 |
| | 354 |
| | 2,069 |
| | 2,502 |
| | 1,138 |
| | 318 |
| | 324 |
| | 348 |
| | 4,630 |
|
Company's share of net assets | | 548 |
| | 156 |
| | 156 |
| | 177 |
| | 1,037 |
| | 1,501 |
| | 569 |
| | 159 |
| | 162 |
| | 174 |
| | 2,565 |
|
Adjustments for differences in accounting policies and other | | 6 |
| | — |
| | — |
| | (32 | ) | | (26 | ) | | 48 |
| | 6 |
| | — |
| | — |
| | (33 | ) | | 21 |
|
Carrying amount in the statements of financial position | | 554 |
| | 156 |
| | 156 |
| | 145 |
| | 1,011 |
| | 1,549 |
| | 575 |
| | 159 |
| | 162 |
| | 141 |
| | 2,586 |
|
Revenue | | 3,295 |
| | 625 |
| | 467 |
| | 1,328 |
| | 5,715 |
| | — |
| | 3,504 |
| | 772 |
| | 499 |
| | 1,141 |
| | 5,916 |
|
Depreciation and amortization | | (62 | ) | | (32 | ) | | (31 | ) | | (22 | ) | | (147 | ) | | — |
| | (63 | ) | | (31 | ) | | (37 | ) | | (24 | ) | | (155 | ) |
Interest income | | 1 |
| | 1 |
| | — |
| | 2 |
| | 4 |
| | 2 |
| | 2 |
| | 1 |
| | — |
| | 1 |
| | 6 |
|
Interest expense | | (40 | ) | | (26 | ) | | (4 | ) | | (20 | ) | | (90 | ) | | (10 | ) | | (48 | ) | | (23 | ) | | (7 | ) | | (19 | ) | | (107 | ) |
Income tax benefit (expense) | | — |
| | (1 | ) | | (8 | ) | | (18 | ) | | (27 | ) | | (83 | ) | | — |
| | (22 | ) | | (7 | ) | | (10 | ) | | (122 | ) |
Profit or loss from continuing operations | | 312 |
| | 5 |
| | 30 |
| | 6 |
| | 353 |
| |
Other comprehensive income (loss) | | — |
| | — |
| | 3 |
| | 1 |
| | 4 |
| |
Profit (loss) from continuing operations | | | (116 | ) | | 156 |
| | 10 |
| | 28 |
| | 19 |
| | 97 |
|
Total comprehensive income (loss) | | 312 |
| | 5 |
| | 33 |
| | 7 |
| | 357 |
| | (116 | ) | | 156 |
| | 10 |
| | 28 |
| | 19 |
| | 97 |
|
Cash dividends received by the Company | | 48 |
| | — |
| | 4 |
| | 34 |
| | 86 |
| | — |
| | 57 |
| | — |
| | 9 |
| | 12 |
| | 78 |
|
| |
1. | The country of incorporation corresponds to the country of operation except for Tameh whose country of operation is also the Czech Republic. |
| |
2. | Ownership interest in Borçelik was 45.33% and 50.00% based on issued shares and outstanding shares, respectively, at December 31, 2019; voting interest was 48.01% at December 31, 2019. |
| |
3. | The non-current liabilities include 42 deferred tax liability. |
| |
4. | Adjustment in Borçelik relates primarily to differences in accounting policies regarding revaluation of fixed assets. |
| |
5. | Adjustments in AMNS India correspond to transaction costs incurred to set up the joint venture. |
| |
6. | Includes AMNS Luxembourg, AMNS India and intermediate holding entities. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
|
| | | | | | | | | | | | | | | | |
| | December 31, 2018 |
Joint Ventures | | Calvert | | | VAMA | | Tameh | | Borçelik | | Total |
Place of incorporation and operation1 | | United States | | | China | | Poland | | Turkey | | |
Principal Activity | | Automotive steel finishing | | | Automotive steel finishing | | Energy production and supply | | Manufacturing and sale of steel 2,3,4 | | |
Ownership and voting rights at December 31, 2018 | | 50.00% | | | 50.00% | | 50.00% | | 50.00% | | |
Current assets | | 1,490 |
| | | 329 |
| | 205 |
| | 519 |
| | 2,543 |
|
of which cash and cash equivalents | | 76 |
| | | 85 |
| | 90 |
| | 67 |
| | 318 |
|
Non-current assets | | 1,282 |
| | | 688 |
| | 540 |
| | 282 |
| | 2,792 |
|
Current liabilities | | 824 |
| | | 491 |
| | 208 |
| | 398 |
| | 1,921 |
|
of which trade and other payables and provisions | | 173 |
| | | 180 |
| | 176 |
| | 263 |
| | 792 |
|
Non-current liabilities | | 853 |
| | | 217 |
| | 226 |
| | 49 |
| | 1,345 |
|
of which trade and other payables and provisions | | — |
| | | — |
| | 22 |
| | — |
| | 22 |
|
Net assets | | 1,095 |
| | | 309 |
| | 311 |
| | 354 |
| | 2,069 |
|
Company's share of net assets | | 548 |
| | | 156 |
| | 156 |
| | 177 |
| | 1,037 |
|
Adjustments for differences in accounting policies and other | | 6 |
| | | — |
| | — |
| | (32 | ) | | (26 | ) |
Carrying amount in the statements of financial position | | 554 |
| | | 156 |
| | 156 |
| | 145 |
| | 1,011 |
|
Revenue | | 3,295 |
| | | 625 |
| | 467 |
| | 1,328 |
| | 5,715 |
|
Depreciation and amortization | | (62 | ) | | | (32 | ) | | (31 | ) | | (22 | ) | | (147 | ) |
Interest income | | 1 |
| | | 1 |
| | — |
| | 2 |
| | 4 |
|
Interest expense | | (40 | ) | | | (26 | ) | | (4 | ) | | (20 | ) | | (90 | ) |
Income tax benefit (expense) | | — |
| | | (1 | ) | | (8 | ) | | (18 | ) | | (27 | ) |
Profit (loss) from continuing operations | | 312 |
| | | 5 |
| | 30 |
| | 6 |
| | 353 |
|
Other comprehensive income (loss) | | — |
| | | — |
| | 3 |
| | 1 |
| | 4 |
|
Total comprehensive income (loss) | | 312 |
| | | 5 |
| | 33 |
| | 7 |
| | 357 |
|
Cash dividends received by the Company | | 48 |
| | | — |
| | 4 |
| | 34 |
| | 86 |
|
1. The country of incorporation corresponds to the country of operation except for Tameh whose country of operation is also the Czech Republic.
| |
2. | Ownership interest in Borçelik was 45.33% and 50.00% based on issued shares and outstanding shares, respectively, at December 31, 2018; voting interest was 48.01% at December 31, 2018. |
| |
3. | The non-current liabilities include 43 deferred tax liability. |
| |
4. | Adjustment in Borçelik relates primarily to differences in accounting policies regarding revaluation of fixed assets. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
| | | | December 31, 2017 |
| December 31, 2017 |
Joint Ventures | | Calvert | | Macsteel | | VAMA | | Tameh | | Borçelik | | Total |
| Calvert |
| Macsteel |
| VAMA |
| Tameh |
| Borçelik |
| Total |
Place of incorporation and operation1 | | United States | | Netherlands | | China | | Poland | | Turkey | | |
| United States |
| Netherlands |
| China |
| Poland |
| Turkey |
|
|
Principal Activity | | Automotive steel finishing | | Steel trading and shipping | | Automotive steel finishing | | Energy production and supply | | Manufacturing and sale of steel2, 3 | | |
| Automotive steel finishing |
| Steel trading and shipping |
| Automotive steel finishing |
| Energy production and supply |
| Manufacturing and sale of steel 2,3 |
|
|
Ownership and voting rights at December 31, 2017 | | 50.00% | | 50.00% | | 49.00% | | 50.00% | | 45.33% | | |
| 50.00% |
| 50.00% |
| 49.00% |
| 50.00% |
| 45.33% |
| Ownership and voting rights % at ** |
|
Current assets | | 1,135 |
| | 739 |
| | 283 |
| | 158 |
| | 519 |
| | 2,834 |
|
| 1,135 |
|
| 739 |
|
| 283 |
|
| 158 |
|
| 519 |
|
| 2,834 |
|
of which cash and cash equivalents | | 13 |
| | 95 |
| | 71 |
| | 57 |
| | 7 |
| | 243 |
|
| 13 |
|
| 95 |
|
| 71 |
|
| 57 |
|
| 7 |
|
| 243 |
|
Non-current assets | | 1,303 |
| | 389 |
| | 754 |
| | 476 |
| | 296 |
| | 3,218 |
|
| 1,303 |
|
| 389 |
|
| 754 |
|
| 476 |
|
| 296 |
|
| 3,218 |
|
Current liabilities | | 612 |
| | 404 |
| | 449 |
| | 132 |
| | 357 |
| | 1,954 |
|
| 612 |
|
| 404 |
|
| 449 |
|
| 132 |
|
| 357 |
|
| 1,954 |
|
of which trade and other payables and provisions | | 118 |
| | 235 |
| | 190 |
| | 118 |
| | 244 |
| | 905 |
|
| 118 |
|
| 235 |
|
| 190 |
|
| 118 |
|
| 244 |
|
| 905 |
|
Non-current liabilities | | 947 |
| | 43 |
| | 277 |
| | 189 |
| | 46 |
| | 1,502 |
|
| 947 |
|
| 43 |
|
| 277 |
|
| 189 |
|
| 46 |
|
| 1,502 |
|
of which trade and other payables and provisions | | — |
| | 3 |
| | — |
| | 20 |
| | — |
| | 23 |
|
| — |
|
| 3 |
|
| — |
|
| 20 |
|
| — |
|
| 23 |
|
Net assets | | 879 |
| | 681 |
| | 311 |
| | 313 |
| | 412 |
| | 2,596 |
|
| 879 |
|
| 681 |
|
| 311 |
|
| 313 |
|
| 412 |
|
| 2,596 |
|
Company's share of net assets | | 440 |
| | 341 |
| | 152 |
| | 156 |
| | 187 |
| | 1,276 |
|
| 440 |
|
| 341 |
|
| 152 |
|
| 156 |
|
| 187 |
|
| 1,276 |
|
Adjustments for differences in accounting policies and other | | 6 |
| | (3 | ) | | — |
| | — |
| | (30 | ) | | (27 | ) |
| 6 |
|
| (3) |
|
| — |
|
| — |
|
| (30) |
|
| (27) |
|
Carrying amount in the statements of financial position | | 446 |
| | 338 |
| | 152 |
| | 156 |
| | 157 |
| | 1,249 |
|
| 446 |
|
| 338 |
|
| 152 |
|
| 156 |
|
| 157 |
|
| 1,249 |
|
Revenue | | 2,870 |
| | 2,775 |
| | 489 |
| | 330 |
| | 1,234 |
| | 7,698 |
|
| 2,870 |
|
| 2,775 |
|
| 489 |
|
| 330 |
|
| 1,234 |
|
| 7,698 |
|
Depreciation and amortization | | (62 | ) | | (1 | ) | | (30 | ) | | (27 | ) | | (22 | ) | | (142 | ) |
| (62) |
|
| (1) |
|
| (30) |
|
| (27) |
|
| (22) |
|
| (142) |
|
Interest income | | — |
| | 14 |
| | 1 |
| | — |
| | 1 |
| | 16 |
|
| — |
|
| 14 |
|
| 1 |
|
| — |
|
| 1 |
|
| 16 |
|
Interest expense | | (35 | ) | | (10 | ) | | (28 | ) | | 4 |
| | (12 | ) | | (81 | ) |
| (35) |
|
| (10) |
|
| (28) |
|
| 4 |
|
| (12) |
|
| (81) |
|
Income tax benefit (expense) | | — |
| | (5 | ) | | — |
| | (7 | ) | | (20 | ) | | (32 | ) |
| — |
|
| (5) |
|
| — |
|
| (7) |
|
| (20) |
|
| (32) |
|
Profit or loss from continuing operations | | 270 |
| | 31 |
| | 5 |
| | 42 |
| | 65 |
| | 413 |
| |
Profit (loss) from continuing operations | |
| 270 |
|
| 31 |
|
| 5 |
|
| 42 |
|
| 65 |
|
| 413 |
|
Other comprehensive income (loss) | | — |
| | 2 |
| | — |
| | (1 | ) | | (1 | ) | | — |
|
| — |
|
| 2 |
|
| — |
|
| (1 | ) |
| (1 | ) |
| — |
|
Total comprehensive income (loss) | | 270 |
| | 33 |
| | 5 |
| | 41 |
| | 64 |
| | 413 |
|
| 270 |
|
| 33 |
|
| 5 |
|
| 41 |
|
| 64 |
|
| 413 |
|
Cash dividends received by the Company | | 20 |
| | — |
| | — |
| | 4 |
| | 30 |
| | 54 |
|
| 20 |
|
| — |
|
| — |
|
| 4 |
|
| 30 |
|
| 54 |
|
| |
1. | The country of incorporation corresponds to the country of operation except for Tameh whose country of operation is also the Czech Republic and Macsteel whose countries of operation are mainly the United States, the United Arab Emirates and China. |
| |
2. | The non-current liabilities include 40 deferred tax liability. |
| |
3. | Adjustment in Borçelik relates primarily to differences in accounting policies regarding revaluation of fixed assets. |
ESIL (renamed AMNS India)
F-25On December 11, 2019, following the unconditional approval received by the Indian Supreme Court of ArcelorMittal's acquisition plan ("the Resolution Plan") for Essar Steel India Limited ("ESIL") subsequently renamed AMNS India Limited ("AMNS India") on November 15, 2019, ArcelorMittal and Nippon Steel Corporation ("NSC"), Japan’s largest steel producer and the third largest steel producer in the world, created a joint venture to own and operate AMNS India with ArcelorMittal holding a 60% interest and NSC holding 40% in accordance with the second amended joint venture formation agreement signed as of December 8, 2019. ArcelorMittal and NSC contributed their respective initial equity funding of 1,362 and 891 into AMNS Luxembourg Holding S.A. ("AMNS Luxembourg"), the parent company of the joint venture. ArcelorMittal's 60% interest is accounted for under the equity method. ArcelorMittal also transferred 360 cash proceeds (of which 293 recognized in 2019 and the remainder in 2018), including through a 193 equity contribution, into the joint venture following hedging programs entered into to hedge the volatility between the Indian Rupee and the U.S. dollar in relation to the acquisition of AMNS India. The total cash proceeds included 353 designated as cash flow hedge gains and the Company reflected in retained earnings NSC's 40% entitlement in the amount of 141 in accordance with the final joint venture formation agreement.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
On December 16, 2019, AMNS Luxembourg completed the acquisition of AMNS India. ArcelorMittal and NSC financed the joint venture for the acquisition of AMNS India through a combination of partnership equity of 2,253 and debt of 3,679 including2,204 drawn by the joint venture under the 7 billion term facility agreement (see note 6.1.2) and 1,475 shareholder loan from NSC. The joint venture accounted for the acquisition of AMNS India as a business combination. Following the recent closing of the transaction, the acquisition-date fair value of identifiable assets and liabilities of AMNS India has been determined on a provisional basis, in particular with respect to intangible assets, property, plant and equipment, working capital balances, provisions and income taxes at closing date. The joint venture expects to complete its purchase price accounting during 2020. |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
Joint Ventures | | Calvert | | Macsteel | | Baffinland | | VAMA | | Tameh | | Borçelik | | Total |
Place of incorporation and operation1 | | United States | | Netherlands | | Canada | | China | | Poland | | Turkey | | |
Principal Activity | | Automotive steel finishing | | Steel trading and shipping | | Extraction of iron ore2 | | Automotive steel finishing | | Energy production and supply | | Manufacturing and sale of steel | | |
Ownership and voting rights at December 31, 2016 | | 50.00% | | 50.00% | | 44.54% | | 49.00% | | 50.00% | | 45.33% | | |
Revenue | | 2,358 |
| | 2,353 |
| | 116 |
| | 335 |
| | 254 |
| | 845 |
| | 6,261 |
Depreciation and amortization | | (59) |
| | (1) |
| | (3) |
| | (30) |
| | (20) |
| | (20) |
| | (133) |
Interest income | | — |
| | 12 |
| | — |
| | 1 |
| | — |
| | 1 |
| | 14 |
Interest expense | | (31) |
| | (9) |
| | (20) |
| | (28) |
| | (1) |
| | (7) |
| | (96) |
Income tax benefit (expense) | | — |
| | (4) |
| | (26) |
| | 18 |
| | (10) |
| | (28) |
| | (50) |
Profit or loss from continuing operations | | 148 |
| | 15 |
| | (43) |
| | (58) |
| | 29 |
| | 75 |
| | 166 |
Other comprehensive income (loss) | | — |
| | 10 |
| | — |
| | — |
| | 3 |
| | — |
| | 13 |
Total comprehensive income (loss) | | 148 |
| | 25 |
| | (43) |
| | (58) |
| | 32 |
| | 75 |
| | 179 |
Cash dividends received by the Company | | 19 |
| | — |
| | — |
| | — |
| | 6 |
| | 16 |
| | 41 |
AMNS India is an integrated flat steel producer, and the largest steel company in western India. AMNS India’s main steel manufacturing facility is located at Hazira, Gujarat in western India. It also has: | |
1.– | The country of incorporation corresponds2 iron ore beneficiation plants close to the country of operation except for Tameh whose country of operation is alsomines in Kirandul and Dabuna, with slurry pipelines that then transport the Czech Republicbeneficiated iron ore slurry to the pellet plants in the Kirandul-Vizag and Macsteel whose countries of operation are mainly the United States, the United Arab Emirates and China.Dabuna-Paradeep systems;
|
| |
2.– | During 2017, ArcelorMittal lost joint control but maintained significant influence over Baffinlanda downstream facility in Pune (including a pickling line, a cold rolling mill, a galvanizing mill, a color coating mill and as such the investment was reclassified to an associate (refer to note 2.4.2)a batch annealing plant); and |
| |
– | 7 service centers in the industrial clusters of Hazira, Bhuj, Indore, Bahadurgarh, Chennai, Kolkata and Pune. It has a complete range of flat rolled steel products, including value added products, and significant iron ore pellet capacity with 2 main pellet plant systems in Kirandul-Vizag and Dabuna-Paradeep, which have the potential for expansion. Its facilities are located close to ports with deep draft for movement of raw materials and finished goods. |
The Resolution Plan which was approved for the acquisition of AMNS India included an upfront payment of 6.0 billion towards AMNS India’s debt resolution, with a further 1.1 billion of capital injection into AMNS India to support operational improvements, increase production levels and deliver enhanced levels of profitability. The Company provided a 0.6 billion performance guarantee in connection with the execution of the Resolution Plan, which terminated on December 31, 2019. In addition, the Resolution Plan includes a capital expenditure plan of 2.6 billion to be implemented in 2 stages over six years.
In the context of the creation of the AMNS India joint venture, the Company transferred the Uttam Galva Steels Ltd. payments (see note 4.6) to the joint venture. ArcelorMittal and NSC financed such payments through a combination of equity contributions into the joint venture of 173 and 115, respectively, and debt of 597 including 367 drawn by the joint venture under the 7 billion term facility agreement and a 230 shareholder loan from NSC. The joint venture used such proceeds to repay the loan granted by ArcelorMittal for an amount of 680 on December 31, 2019.
On February 13, 2020 and pursuant to the follow-on funding requirement in accordance with the second amended joint venture formation agreement, AMNS Luxembourg completed an additional equity injection into AMNS India of 840 mainly through an additional 475 drawn under the 7 billion term facility agreement and a 325 shareholder loan from NSC.
Macsteel
On May 28, 2018, ArcelorMittal announced the sale of its 50% shareholding in Macsteel International Holdings B.V. (“Macsteel”), a joint venture between Macsteel Holdings Luxembourg S.à r.l. and ArcelorMittal South Africa, which provided the Company with an international network of traders and trading channels including the shipping of steel. The Company recorded a 132 impairment to adjust the carrying amount of the investment to the expected sale proceeds partially offset by a 142 gain following the recycling upon closing of the sale on October 31, 2018 of accumulated foreign exchange translation gains from other comprehensive income to income (loss) from investments in associates, joint ventures and other investments. The fair value measurement was determined using the contract price, a Level 3 unobservable input.
VAMA
Valin ArcelorMittal Automotive Steel (“VAMA”) is a joint venture between ArcelorMittal and Hunan Valin which produces steel for high-end applications in the automobile industry. VAMA supplies international automakers and first-tier suppliers as well as Chinese car manufacturers and their supplier networks.
Calvert
AM/NS Calvert ("Calvert"), a joint venture between the Company and Nippon Steel & Sumitomo Metal Corporation ("NSSMC"),NSC, is a steel processing plant in Calvert, Alabama, United States. Calvert had a 6-year agreement to purchase 2 million tonnes of slabs annually from ThyssenKrupp Steel USA ("TK CSA"), an integrated steel mill complex located in Rio de Janeiro, Brazil, using a market-based price formula. TK CSA had an option to extend the agreement for an additional 3 years on terms that are more favorable to the joint venture,
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
as compared with the initial 6-year period. In December 2017 and in connection with the acquisition of TK CSA by Ternium S.A., the agreement was amended to (i) extend the term of the agreement to December 31, 2020, (ii) make a corresponding reduction in the annual slab purchase obligation so that the aggregate slab purchase obligation over the full term of the agreement remained the same and (iii) eliminate TK CSA’s extension option. The remaining slabs for Calvert's operations are sourced from ArcelorMittal plants in the United States, Brazil and Mexico. ArcelorMittal is principally responsible for marketing the product on behalf of the joint venture. Calvert serves the automotive, construction, pipe and tube, service center and appliance/ HVAC industries.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Tameh
Tameh is a joint venture between ArcelorMittal and Tauron Group including four energy production facilities located in Poland and the Czech Republic. Tameh’s objective is to ensure energy supply to the Company’s steel plants in these countriesPoland and external customers in the Czech Republic as well as the utilization of steel plant gases for energy production processes.
Borçelik
Borçelik Çelik Sanayii Ticaret Anonim Şirketi ("Borçelik"), incorporated and located in Turkey, is a joint venture between ArcelorMittal and Borusan Holding involved in the manufacturing and sale of cold-rolled and galvanized flat steel products.
2.4.2 Associates
The following table summarizes the financial information and reconciles it to the carrying amount of each of the Company’s material associates, as well as the income statement of the Company’s material associates:
| | | | December 31, 2018 | | December 31, 2019 |
Associates | | China Oriental | | DHS Group | | Gonvarri Steel Industries | | Baffinland | | Total | | China Oriental | | DHS Group | | Gonvarri Steel Industries | | Baffinland | | Total |
Financial statements reporting date | | June 30, 2018 | | September 30, 2018 | | September 30, 2018 | | December 31, 2018 | | | | June 30, 2019 | | September 30, 2019 | | September 30, 2019 | | December 31, 2019 | | |
Place of incorporation and operation1 | | Bermuda | | Germany | | Spain | | Canada | | | | Bermuda | | Germany | | Spain | | Canada | | |
Principal Activity | | Iron and steel manufacturing | | Steel manufacturing 3 | | Steel manufacturing 4 | | Extraction of iron ore 5 | | | | Iron and steel manufacturing |
| Steel manufacturing 3 |
| Steel manufacturing 4 |
| Extraction of iron ore 5 | | |
Ownership and voting rights at December 31, 2018 | | 37.02% | | 33.43% | | 35.00% | | 28.76% | | | |
Ownership and voting rights at December 31, 2019 | | | 37.02% | | 33.43% | | 35.00% | | 25.70% | | |
Current assets | | 2,516 |
| | 1,528 |
| | 2,183 |
| | 390 |
| | 6,617 |
| | 2,920 |
| | 1,385 |
| | 2,062 |
| | 479 |
| | 6,846 |
|
Non-current assets | | 1,443 |
| | 3,062 |
| | 1,526 |
| | 1,949 |
| | 7,980 |
| | 1,797 |
| | 2,794 |
| | 1,628 |
| | 2,403 |
| | 8,622 |
|
Current liabilities | | 1,426 |
| | 480 |
| | 1,134 |
| | 399 |
| | 3,439 |
| | 1,837 |
| | 402 |
| | 1,038 |
| | 663 |
| | 3,940 |
|
Non-current liabilities | | 35 |
| | 1,005 |
| | 677 |
| | 694 |
| | 2,411 |
| | 150 |
| | 979 |
| | 795 |
| | 891 |
| | 2,815 |
|
Non-controlling interests | | 45 |
| | 136 |
| | 219 |
| | — |
| | 400 |
| | 44 |
| | 122 |
| | 218 |
| | — |
| | 384 |
|
Net assets attributable to equity holders of the parent | | 2,453 |
| | 2,969 |
| | 1,679 |
| | 1,246 |
| | 8,347 |
| | 2,686 |
| | 2,676 |
| | 1,639 |
| | 1,328 |
| | 8,329 |
|
Company's share of net assets | | 908 |
| | 992 |
| | 588 |
| | 358 |
| | 2,846 |
| | 994 |
| | 895 |
| | 574 |
| | 341 |
| | 2,804 |
|
Adjustments for differences in accounting policies and other | | — |
| | 27 |
| | (52 | ) | | 22 |
| | (3 | ) | | — |
| | 43 |
| | (49 | ) | | 7 |
| | 1 |
|
Other adjustments2 | | 44 |
| | (4 | ) | | (12 | ) | | — |
| | 28 |
| | 5 |
| | 27 |
| | 22 |
| | — |
| | 54 |
|
Carrying amount in the statements of financial position | | 952 |
| | 1,015 |
| | 524 |
| | 380 |
| | 2,871 |
| | 999 |
| | 965 |
| | 547 |
| | 348 |
| | 2,859 |
|
Revenue | | 3,370 |
| | 1,959 |
| | 3,544 |
| | 320 |
| | 9,193 |
| | 3,102 |
| | 1,795 |
| | 3,724 |
| | 454 |
| | 9,075 |
|
Profit or loss from continuing operations | | 474 |
| | 20 |
| | 60 |
| | (98 | ) | | 456 |
| |
Profit (loss) from continuing operations | | | 249 |
| | (116 | ) | | 82 |
| | (72 | ) | | 143 |
|
Other comprehensive income (loss) | | — |
| | 5 |
| | (37 | ) | | — |
| | (32 | ) | | — |
| | 8 |
| | (7 | ) | | — |
| | 1 |
|
Total comprehensive income (loss) | | 474 |
| | 25 |
| | 23 |
| | (98 | ) | | 424 |
| | 249 |
| | (108 | ) | | 75 |
| | (72 | ) | | 144 |
|
Cash dividends received by the Company | �� | 92 |
| | 5 |
| | 16 |
| | — |
| | 113 |
| | 57 |
| | — |
| �� | 13 |
| | — |
| | 70 |
|
| |
1. | The country of incorporation corresponds to the country of operation except for China Oriental whose country of operation is China. |
| |
2. | Other adjustments correspond to the difference between the carrying amount at December 31, 2019 and the net assets situation corresponding to the latest financial statements ArcelorMittal is permitted to disclose as of the reporting dates described in the table above. |
| |
3. | The amount for DHS Group includes an adjustment to align the German GAAP financial information with the Company’s accounting policies and is mainly linked to property, plant and equipment, inventory and pension. |
| |
4. | Adjustments in Gonvarri Steel Industries primarily relate to differences in accounting policies regarding revaluation of fixed assets. |
| |
5. | Adjustments in Baffinland primarily relate to differences in accounting policies regarding revaluation of fixed assets and locally recognized goodwill. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
|
| | | | | | | | | | | | | | | |
| | December 31, 2018 |
Associates | | China Oriental | | DHS Group | | Gonvarri Steel Industries | | Baffinland | | Total |
Financial statements reporting date | | June 30, 2018 | | September 30, 2018 | | September 30, 2018 | | December 31, 2018 | | |
Place of incorporation and operation1 | | Bermuda | | Germany | | Spain | | Canada | | |
Principal Activity | | Iron and steel manufacturing |
| Steel manufacturing 3 |
| Steel manufacturing 4 |
| Extraction of iron ore 5 | | |
Ownership and voting rights at December 31, 2018 | | 37.02% | | 33.43% | | 35.00% | | 28.76% | | |
Current assets | | 2,516 |
| | 1,528 |
| | 2,183 |
| | 390 |
| | 6,617 |
|
Non-current assets | | 1,443 |
| | 3,062 |
| | 1,526 |
| | 1,949 |
| | 7,980 |
|
Current liabilities | | 1,426 |
| | 480 |
| | 1,134 |
| | 399 |
| | 3,439 |
|
Non-current liabilities | | 35 |
| | 1,005 |
| | 677 |
| | 694 |
| | 2,411 |
|
Non-controlling interests | | 45 |
| | 136 |
| | 219 |
| | — |
| | 400 |
|
Net assets attributable to equity holders of the parent | | 2,453 |
| | 2,969 |
| | 1,679 |
| | 1,246 |
| | 8,347 |
|
Company's share of net assets | | 908 |
| | 992 |
| | 588 |
| | 358 |
| | 2,846 |
|
Adjustments for differences in accounting policies and other | | — |
| | 27 |
| | (52 | ) | | 22 |
| | (3 | ) |
Other adjustments2 | | 44 |
| | (4 | ) | | (12 | ) | | — |
| | 28 |
|
Carrying amount in the statements of financial position | | 952 |
| | 1,015 |
| | 524 |
| | 380 |
| | 2,871 |
|
Revenue | | 3,370 |
| | 1,959 |
| | 3,544 |
| | 320 |
| | 9,193 |
|
Profit (loss) from continuing operations | | 474 |
| | 20 |
| | 60 |
| | (98 | ) | | 456 |
|
Other comprehensive income (loss) | | — |
| | 5 |
| | (37 | ) | | — |
| | (32 | ) |
Total comprehensive income (loss) | | 474 |
| | 25 |
| | 23 |
| | (98 | ) | | 424 |
|
Cash dividends received by the Company | | 92 |
| | 5 |
| | 16 |
| | — |
| | 113 |
|
| |
1. | The country of incorporation corresponds to the country of operation except for China Oriental whose country of operation is China. |
| |
2. | Other adjustments correspond to the difference between the carrying amount at December 31, 2018 and the net assets situation corresponding to the latest financial statements ArcelorMittal is permitted to disclose as of the reporting dates described in the table above. |
| |
3. | The amount for DHS Group includes an adjustment to align the German GAAP financial information with the Company’s accounting policies, and is mainly linked to property, plant and equipment, inventory and pension. |
| |
4. | Adjustments in Gonvarri Steel Industries primarily relate to differences in accounting policies regarding revaluation of fixed assets. |
| |
5. | Adjustments in Baffinland primarily relate to differences in accounting policies regarding revaluation of fixed assets and locally recognized goodwill. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
| | | | December 31, 2017 |
| December 31, 2017 |
|
|
Associates | | China Oriental | | DHS Group | | Gonvarri Steel Industries | | Baffinland | | Total |
| China Oriental |
| DHS Group |
| Gonvarri Steel Industries |
| Baffinland |
| Total |
Financial statements reporting date | | June 30, 2017 | | September 30, 2017 | | September 30, 2017 | | December 31, 2017 | | |
| June 30, 2017 |
| September 30, 2017 |
| September 30, 2017 |
| December 31, 2017 |
|
|
Place of incorporation and operation1 | | Bermuda | | Germany | | Spain | | Canada | | |
| Bermuda |
| Germany |
| Spain |
| Canada |
|
|
Principal Activity | | Iron and steel manufacturing | | Steel manufacturing3 | | Steel manufacturing4 | | Extraction of iron ore5 | | |
| Iron and steel manufacturing |
| Steel manufacturing 3 |
| Steel manufacturing 4 |
| Extraction of iron ore 5 |
|
|
|
Ownership and voting rights at December 31, 2017 | | 39.02% | | 33.43% | | 35.00% | | 31.07% | | |
| 39.02% |
| 33.43% |
| 35.00% |
| 31.07% |
|
|
Current assets | | 1,737 |
| | 1,699 |
| | 1,967 |
| | 355 |
| | 5,758 |
|
| 1,737 |
|
| 1,699 |
|
| 1,967 |
|
| 355 |
|
| 5,758 |
|
Non-current assets | | 1,336 |
| | 3,096 |
| | 1,372 |
| | 1,698 |
| | 7,502 |
|
| 1,336 |
|
| 3,096 |
|
| 1,372 |
|
| 1,698 |
|
| 7,502 |
|
Current liabilities | | 1,261 |
| | 555 |
| | 889 |
| | 302 |
| | 3,007 |
|
| 1,261 |
|
| 555 |
|
| 889 |
|
| 302 |
|
| 3,007 |
|
Non-current liabilities | | 119 |
| | 1,121 |
| | 446 |
| | 531 |
| | 2,217 |
|
| 119 |
|
| 1,121 |
|
| 446 |
|
| 531 |
|
| 2,217 |
|
Non-controlling interests | | 23 |
| | 136 |
| | 220 |
| | — |
| | 379 |
|
| 23 |
|
| 136 |
|
| 220 |
|
| — |
|
| 379 |
|
Net assets attributable to equity holders of the parent | | 1,670 |
| | 2,983 |
| | 1,784 |
| | 1,220 |
| | 7,657 |
|
| 1,670 |
|
| 2,983 |
|
| 1,784 |
|
| 1,220 |
|
| 7,657 |
|
Company's share of net assets | | 652 |
| | 997 |
| | 624 |
| | 379 |
| | 2,652 |
|
| 652 |
|
| 997 |
|
| 624 |
|
| 379 |
|
| 2,652 |
|
Adjustments for differences in accounting policies and other | | — |
| | 32 |
| | (54 | ) | | 23 |
| | 1 |
|
| — |
|
| 32 |
|
| (54 | ) |
| 23 |
|
| 1 |
|
Other adjustments2 | | 183 |
| | 22 |
| | (4 | ) | | — |
| | 201 |
|
| 183 |
|
| 22 |
|
| (4 | ) |
| — |
|
| 201 |
|
Carrying amount in the statements of financial position | | 835 |
| | 1,051 |
| | 566 |
| | 402 |
| | 2,854 |
|
| 835 |
|
| 1,051 |
|
| 566 |
|
| 402 |
|
| 2,854 |
|
Revenue | | 2,944 |
| | 1,773 |
| | 2,862 |
| | 341 |
| | 7,920 |
|
| 2,944 |
|
| 1,773 |
|
| 2,862 |
|
| 341 |
|
| 7,920 |
|
Profit or loss from continuing operations | | 275 |
| | (4 | ) | | 122 |
| | (20 | ) | | 373 |
| |
Profit (loss) from continuing operations | |
| 275 |
|
| (4 | ) |
| 122 |
|
| (20 | ) |
| 373 |
|
Other comprehensive income (loss) | | (1 | ) | | (5 | ) | | (9 | ) | | — |
| | (15 | ) |
| (1 | ) |
| (5 | ) |
| (9 | ) |
| — |
|
| (15 | ) |
Total comprehensive income (loss) | | 274 |
| | (9 | ) | | 113 |
| | (20 | ) | | 358 |
|
| 274 |
|
| (9 | ) |
| 113 |
|
| (20 | ) |
| 358 |
|
Cash dividends received by the Company | | 49 |
| | — |
| | 18 |
| | — |
| | 67 |
|
| 49 |
|
| — |
|
| 18 |
|
| — |
|
| 67 |
|
| |
1. | The country of incorporation corresponds to the country of operation except for China Oriental whose country of operation is China. |
| |
2. | Other adjustments correspond to the difference between the carrying amount at December 31, 2017 and the net assets situation corresponding to the latest financial statements ArcelorMittal is permitted to disclose.disclose as of the reporting dates described in the table above. |
| |
3. | The amount for DHS Group includes an adjustment to align the German GAAP financial information with the Company’s accounting policies, and is mainly linked to property, plant and equipment, inventory and pension. |
| |
4. | Adjustments in Gonvarri Steel Industries primarily relate to differences in accounting policies regarding revaluation of fixed assets. |
| |
5. | Adjustments in Baffinland primarily relate to differences in accounting policies regarding revaluation of fixed assets and locally recognized goodwill. |
|
| | | | | | | | | | | | |
| | December 31, 2016 |
Associates | | China Oriental | | DHS Group | | Gonvarri Steel Industries | | Total |
Financial statements reporting date | | June 30, 2016 | | September 30, 2016 | | September 30, 2016 | |
|
Place of incorporation and operation1 | | Bermuda | | Germany | | Spain | |
|
Principal Activity | | Iron and steel manufacturing | | Steel manufacturing | | Steel manufacturing | |
|
Ownership and voting rights at December 31, 2016 | | 46.99% | | 33.43% | | 35.00% | | |
Revenue | | 1,751 |
| | 1,396 |
| | 2,258 |
| | 5,405 |
|
Profit or loss from continuing operations | | 83 |
| | (96 | ) | | 145 |
| | 132 |
|
Other comprehensive income (loss) | | — |
| | (3 | ) | | 4 |
| | 1 |
|
Total comprehensive income (loss) | | 83 |
| | (99 | ) | | 149 |
| | 133 |
|
Cash dividends received by the Company | | — |
| | — |
| | 16 |
| | 16 |
|
| |
1. | The country of incorporation corresponds to the country of operation except for China Oriental whose country of operation is China.
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
China Oriental
China Oriental Group Company Limited (“China Oriental”) is a Chinese integrated iron and steel company listed on the Hong Kong Stock Exchange (“HKEx”). On January 27, 2017, in order to restore the minimum free float requirement, China Oriental issued 586,284,000 new shares resulting in a decrease of the Company’s interest from 46.99% to 39.02%. As a result, ArcelorMittal recorded a loss of 67 upon dilution partially offset by a gain of 23 following the recycling of accumulated foreign exchange translation gains from other comprehensive income to income from investments in associates, joint ventures and other investments. The trading of China Oriental’s shares, which had been suspended since April 29, 2014, resumed on February 1, 2017.
In January 2018, China Oriental issued 192 million new shares to fulfill its obligations under its share-based compensation plans. As a result, ArcelorMittal’s interest in China Oriental decreased to 37.02%. ArcelorMittal recorded a loss of 20 upon dilution partially offset by a gain of 8 following the recycling of accumulated foreign exchange translation gains in income from investments in associates, joint ventures and other investments.
DHS Group
DHS - Dillinger Hütte Saarstahl AG (“DHS Group”), incorporated and located in Germany, is a leading producer of heavy steel plates, cast slag pots and semi-finished products, such as pressings, pressure vessel heads and shell sections in Europe. The DHS Group also includes a further rolling mill operated by Dillinger France in Dunkirk (France).
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Gonvarri Steel Industries
Holding Gonvarri SL (“Gonvarri Steel Industries”) is dedicated to the processing of steel. The entity is a European leader in steel service centers and renewable energy components, with strong presence in Europe and Latin America.
Baffinland
Baffinland owns the Mary River project, which has direct shipping, high grade iron ore on Baffin Island in Nunavut (Canada). During 2017, ArcelorMittal's shareholding in Baffinland decreased from 44.54% to 31.07% following capital calls exclusively fulfilled by Nunavut Iron Ore (''NIO''), the other shareholder, and the conversion of preferred shares held by NIO into equity. As a result, ArcelorMittal recognized a loss on dilution of 22, including the recycling of accumulated foreign exchange translation losses of 52, loss in income (loss) from investments in associates, joint ventures and other investments. During 2018 ArcelorMittal’sand 2019 the Company's shareholding in Baffinland decreased further from 31.07% to 28.76% and 25.70%, respectively, following capital calls exclusively fulfilled by NIO. The Company recognized additional losses in 2018 and 2019 on dilution of 3 and 4 including the recycling of accumulated foreign exchange translation losses of 9 and 12, respectively, in income (loss) from investments in associates, joint ventures and other investments.
2.4.3 Other associates and joint ventures that are not individually material
The Company has interests in a number of other joint ventures and associates, none of which are regarded as individually material. The following table summarizes the financial information of all individually immaterial joint ventures and associates that are accounted for using the equity method: | | | | December 31, 2018 | | December 31, 2017 | | December 31, 2019 | | December 31, 2018 |
| | Associates | | Joint Ventures | | Total | | Associates | | Joint Ventures | | Total | | Associates | | Joint Ventures | | Total | | Associates | | Joint Ventures | | Total |
Carrying amount of interests in associates and joint ventures | | 310 | | 714 | | 1,024 |
| | 337 | | 644 | | 981 |
| | 304 | | 780 | | 1,084 |
| | 310 | | 714 | | 1,024 |
|
Share of: | | | | | | | | |
Income (loss) from continuing operations | | 8 | | 80 | | 88 |
| | 16 | | 23 | | 39 |
| |
Income from continuing operations | | | 26 | | 87 | | 113 |
| | 8 | | 80 | | 88 |
|
Other comprehensive income (loss) | | (5) | | 2 | | (3 | ) | | — | | 10 | | 10 |
| | 1 | | 2 | | 3 |
| | (5) | | 2 | | (3 | ) |
Total comprehensive income (loss) | | 3 | | 82 | | 85 |
| | 16 | | 33 | | 49 |
| |
Total comprehensive income | | | 27 | | 89 | | 116 |
| | 3 | | 82 | | 85 |
|
In 2018,During 2019, the Company’s shareCompany converted 31 of net losses reduced the carrying amountshareholders loans into equity and made an additional cash injection of 30 to its 40.80% interest in the joint venture ArcelorMittal Tubular Products Jubail (“Al Jubail”) to nil. Furthermore,maintain 40.80% interest in the Company granted shareholder loans to Al Jubail for 140 and 140joint venture in line with shareholding restructuring, which resulted in an increase of carrying amount of the investment from nil as of December 31, 2018 and 2017, respectively. During 2018,to 26 as of December 31, 2019 including the Company’sCompany's share of accumulated net losses, reduced thewhich were recognized against shareholder loans as of December 31, 2018 (as carrying amount of its investment inwas nil). The Company had outstanding shareholder loans given to Al Jubail to nilfor 109 and 9 were recognized against the Company's shareholder loans in Al Jubail reducing the total carrying amount to 131 atas of December 31, 2019 and 2018, as compared to 152 at December 31, 2017.respectively.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
2.4.4 Impairment of associates and joint ventures
For the years ended December 31, 20182019 and 2017,2018, the Company identified an impairment indicator with respect to its investment and shareholder loans in Al Jubail. Accordingly, it performed a value in use calculation and concluded the carrying amount of the investment and shareholder loans was recoverable. For the remaining investments, the Company concluded there were no impairment triggers.
For the year ended December 31, 2016, the Company recorded an impairment charge of 14 of its shareholder loan to Kalagadi Manganese (Proprietary) Ltd ("Kalagadi Manganese"). The Company sold its 50% interest in this joint venture with Kalahari Resource (Proprietary) Ltd that is engaged in exploring, mining, ore processing and smelting manganese in the Kalahari Basin in South Africa in 2017. In addition, the Company recorded an impairment charge of 14 of its 28.24% interest in Comvex, a deep sea harbor facility on the Black Sea in Romania. For the remaining investments, the Company concluded there were no impairment triggers.
For the year ended December 31, 2016, the Company’s unrecognized share of accumulated losses in Kalagadi Manganese was 9.
The Company is not aware of any material contingent liabilities related to associates and joint ventures for which it is severally liable for all or part of the liabilities of the associates, nor are there any contingent liabilities incurred jointly with other investors. See note 8.49.4 for disclosure of commitments related to associates and joint ventures.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
2.4.5 Investments in joint operations
The Company had investments in the following joint operations as of December 31, 20182019 and 2017:2018:
Peña Colorada
Peña Colorada is an iron ore mine located in Mexico in which ArcelorMittal holds a 50.00% interest. Peña Colorada operates an open pit mine as well as concentrating facility and two-line pelletizing facility.
Hibbing Taconite Mines
The Hibbing Taconite Mines in which the Company holds a 62.31% interest are iron ore mines located in the USA and operations consist of open pit mining, crushing, concentrating and pelletizing. The Company assumed the managing partner role of Hibbing Taconite company in August 2019 following the resignation of Cleveland-Cliffs without changes in the ownership group.
I/N Tek
I/N Tek in which the Company holds a 60.00% interest operates a cold-rolling mill in the United States.
Double G Coatings
ArcelorMittal holds a 50.00% interest in Double G Coating, a hot dip galvanizing and Galvalume facility in the United States.
Hibbing Taconite Mines and Peña Colorada are part of the Mining segment; other joint operations are part of NAFTA.
2.5 Other investments
Other investments include those investments in equity instruments for which the Company does not have significant influence. Following the adoption of IFRS 9 as of January 1, 2018, theThe Company irrevocably elected to present the changes in fair value of such equity instruments, which are not held for trading, in other comprehensive income, (see detailbecause these investments are held as long-term strategic investments that are not expected to be sold in note 6.1.
ARCELORMITTAL AND SUBSIDIARIES
Notesthe short to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
1).medium term. Other investments include the following: |
| | | | | |
| December 31, |
| 2018 | | 20171
|
Erdemir | 577 |
| | — |
|
Stalprodukt S.A. | 101 |
| | — |
|
Gerdau | 115 |
| | — |
|
Other investments | 62 |
| | — |
|
Investments in equity instruments at FVOCI | 855 |
| | — |
|
Erdemir | — |
| | 1,118 |
|
Stalprodukt S.A. | — |
| | 171 |
|
Gerdau | — |
| | 112 |
|
Other investments | — |
| | 43 |
|
Available-for-sale securities (at fair value) | — |
| | 1,444 |
|
Investments in equity instruments at cost | — |
| | 27 |
|
Total | 855 |
| | 1,471 |
|
1. Following the adoption of IFRS 9, available-for-sale investments are classified as investments in equity instruments at FVOCI as of January 1, 2018. |
| | | | | |
| December 31, |
| 2019 |
| 2018 |
Erdemir | 642 |
|
| 577 |
|
Stalprodukt S.A. | 57 |
|
| 101 |
|
Powercell Sweden | 23 |
|
| 12 |
|
Gerdau | — |
|
| 115 |
|
Others | 50 |
|
| 50 |
|
Investments in equity instruments at FVOCI | 772 |
|
| 855 |
|
The Company’s significant investments in equity instruments at FVOCI at December 31, 20182019 and 20172018 are the following:
Ereĝli Demir ve Çelik Fabrikalari T.A.S. (“Erdemir”)
ErdermirErdemir is the leading steel producer in Turkey and produces plates, hot and cold rolled, tin chromium and zinc coated flat steel and supplies basic inputs to automotive, white goods, pipes and tubes, rolling, manufacturing, electrics-electronics, mechanical engineering, energy, heating equipment, shipbuilding, defense and packaging industries. Unrealized gains (losses) recognized in other comprehensive income were 127196 and 658127 for the year ended December 31, 20182019 and 2017,2018, respectively.
Stalprodukt S.A.
Stalprodukt S.A. is a leading manufacturer and exporter of highly processed steel products based in Poland.
Following the sale of 729,643 shares including the subsequent capital reduction of Stalprodukt S.A. during the first six months of 2016, for total cash consideration of 46, ArcelorMittal’s ownership interest and voting rights in Stalprodukt S.A. decreased from 28.47% to 21.20% and from 28.26% to 11.61%, respectively.
As of December 31, 2018 and 2017, the fair value of ArcelorMittal’s stake in Stalprodukt S.A. was 101 and 171, respectively. Unrealized gains recognized in other comprehensive income were 11 and 77 for the year ended December 31, 2018 and 2017, respectively.
Gerdau
Gerdau is the largest producer of long steel in the Americas and is headquartered in Brazil. Unrealized gains recognized in other comprehensive income were 48 and 42 for the year ended December 31, 2018 and 2017, respectively.
Unconsolidated structured entities
ArcelorMittal has operating lease arrangements for two vessels (Panamax Bulk Carriers) involving structured entities whose main purpose is to hold legal title of the two vessels and to lease them to the Company. Such entities are wholly-owned and controlled by a financial institution and are funded through equity instruments by the financial institution. Operating lease arrangements began for one vessel in 2013 and for the second vessel in 2014.
The aforesaid operating leases have been agreed for a 12 year period, during which the Company is obliged to pay the structured entities minimum fees equivalent to approximately 4 per year and per vessel. In addition, ArcelorMittal holds cal
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
l optionsStalprodukt S.A.
Stalprodukt S.A. is a leading manufacturer and exporter of highly processed steel products based in Poland. Unrealized (losses) gains recognized in other comprehensive income were (32) and 11 for the year ended December 31, 2019 and 2018, respectively.
Powercell Sweden AB
Powercell Sweden AB is the leading developer and producer of fuel cell stacks and systems, powered by hydrogen, and produce electricity and heat with no emissions other than water. In 2019 the Company sold in aggregate 3.4 million shares of Powercell Sweden AB for total consideration of 36. The accumulated gain recognized in other comprehensive income of 19 was transferred to buy eachretained earnings. The remaining share of ownership after disposal is equal to 3.9%.
Gerdau
Gerdau is the largest producer of long steel in the Americas and is headquartered in Brazil. The accumulated gain recognized in other comprehensive income was 48 at December 31 2018. On July 16, 2019, the Company sold its 30 million shares, representing a 2.6% stake of preferred shares for 116 in line with Company's ongoing efforts to optimize and unlock value from its asset portfolio that no longer coincides with the Company's investment strategy. The accumulated gain recognized in other comprehensive income of 51 was transferred to retained earnings.
Unconsolidated structured entities
Global Chartering has lease arrangements for two vessels (Panamax Bulk Carriers) involving structured entities whose main purpose is to hold legal title of the two2 vessels fromand to lease them to Global Chartering. Such entities are wholly-owned and controlled by a financial institution and are funded through equity instruments by the financial institution. Lease arrangements began for one vessel in 2013 and for the second vessel in 2014. On December 31, 2019, following the sale of a 50% controlling interest in Global Chartering to DryLog (see note 2.3.1), the Company's remaining 50% interest in Global Chartering is accounted for under the equity method and therefore ArcelorMittal has no longer any involvement with the structured entities at pre-determined dates and prices as presented in the table below. The structured entities hold put options enabling them to sell each of the vessels at the end of the lease terms at 6 each to the Company. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Call option strike prices |
Exercise dates | at the 60th month | | at the 72nd month | | at the 84th month | | at the 96th month | | at the 108th month | | at the 120th month | | at the 132nd month | | at the 144th month |
Amounts per vessel 1 | | | | | | | | | | | | | | | |
First vessel | 29 |
| | 27 |
| | 26 |
| | 24 |
| | 22 |
| | 20 |
| | 17 |
| | 14 |
|
Second vessel | 31 |
| | 30 |
| | 28 |
| | 27 |
| | 26 |
| | 24 |
| | 20 |
| | 14 |
|
1. If the actual fair value of each vessel is higher than the strike price at each of the exercise dates, ArcelorMittal is obliged to share 50% of the gain with the structured entities.
In addition, pursuant to these arrangements, the Company had a receivable (classified as “Other assets”) of 22 and 26 at December 31, 2018 and 2017, respectively, which does not bear interest, is forgiven upon default and will be repaid by the structured entities quarterly in arrears throughout the lease term. The outstanding balance will be used to offset payment of any interim call options, if exercised.2019.
2.6 Income (loss) from investments in associates, joint ventures and other investments
Income (loss) from investments in associates, joint ventures and other investments consisted of the following: | | | Year Ended December 31, | Year Ended December 31, |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Share in net earnings of equity-accounted companies | 567 |
| | 537 |
| | 207 |
| 252 |
| | 567 |
| | 537 |
|
Impairment charges | (132 | ) | | (26 | ) | | (28 | ) | — |
| | (132 | ) | | (26 | ) |
Gain (loss) on disposal | 126 |
| | (117 | ) | | 377 |
| (4 | ) | | 126 |
| | (117 | ) |
Dividend income | 91 |
| | 54 |
| | 59 |
| 99 |
| | 91 |
| | 54 |
|
Total | 652 |
| | 448 |
| | 615 |
| 347 |
| | 652 |
| | 448 |
|
For the year ended December 31, 2019, the loss on disposal include loss on dilution of the Company's interest in Baffinland (see note 2.4.2).
For the year ended December 31, 2018, impairment charges include 132 relating to Macsteel in connection with the sale completed on October 31, 2018 (see note 2.4.1).
For the year ended December 31, 2017, impairment charges include 17 and 9 relating to the write down of receivables from associates and joint ventures.
For the year ended December 31, 2016, impairment charges include 14 and 14 relating to Kalagadi Manganese and Comvex, respectively (see note 2.4.4).
For the year ended December 31, 2018, gain (loss) on disposal included mainly a 142 gain from the recycling of the currency translation reserve following the sale of Macsteel and a 12 loss on the dilution of the Company's interest from 39.02% to 37.02% in China Oriental (see note 2.4).
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
For the year ended December 31, 2017, gain (loss) on disposal includes a gain of 133 (the cash settlement occursoccured through three annual installments of 44 of which one is outstanding as of December 31, 2018)44) on the disposal of the Company's 21% shareholding in Empire Iron Mining Partnership ("EIMP"), a loss of 44 on dilution of the Company's share in China Oriental (see note 2.4), a loss of 22 on dilution of the Company's interest in Baffinland (see note 2.4), a loss of 187 as a result of the reclassification of the accumulated foreign exchange translation losses from other comprehensive income to the statements of operations following the completion of the sale of the Company's 50% shareholding in Kalagadi Manganese to Kgalagadi Alloys (Proprietary) Ltd on August 25, 2017. As per sales agreement signed on October 21, 2016, ArcelorMittal received a contingent consideration to be paid during the life of the mine, which is capped at 150 and contingent upon the financial performance of the mine and cash flow availability.
For the year ended December 31, 2016, gain (loss) on disposal mainly includes a gain of 329 relating to the disposal of Gestamp (see note 2.4), a loss of 26 relating to the disposal of Stalprodukt S.A. shares (see note 2.5) and a gain of 74 following
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
the sale of its 10.08% interest in Hunan Valin to a private equity fund. The Company transferred the Hunan Valin shares and simultaneously received the full proceeds of 165 (RMB1,103 million) on September 14, 2016.
NOTE 3: SEGMENT REPORTING
3.1 Reportable segments
The Company is organized in five5 operating and reportable segments, which are components engaged in business activities from which they may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Company), for which discrete financial information is available and whose operating results are evaluated regularly by the chief operating decision maker “CODM” to make decisions about resources to be allocated to the segment and assess its performance. As of January 1, 2016, the Group Management Board “GMB” (ArcelorMittal’s previous CODM) was replaced byThe Company's CODM is the CEO Office - comprising the CEO,Chairman and Chief Executive Officer, Mr. Lakshmi N. Mittal and the President and CFO,Chief Financial Officer of ArcelorMittal, Mr. Aditya Mittal.
These operating segments include the attributable goodwill, intangible assets, property, plant and equipment, and certain equity method investments. They do not include cash and short-term deposits, short-term investments, tax assets and other current financial assets. Attributable liabilities are also those resulting from the normal activities of the segment, excluding tax liabilities and indebtedness but including post retirement obligations where directly attributable to the segment. The treasury function is managed centrally for the Company and is not directly attributable to individual operating segments or geographical areas.
ArcelorMittal’s segments are structured as follows:
| |
• | NAFTA represents the flat, long and tubular facilities of the Company located in North America (Canada, United States and Mexico). NAFTA produces flat products such as slabs, hot-rolled coil, cold-rolled coil, coated steel and plate. These products are sold primarily to customers in the following sectors: automotive, energy, construction, packaging and appliances and via distributors or processors. NAFTA also produces long products such as wire rod, sections, rebar, billets, blooms and wire drawing, and tubular products; |
| |
• | Brazil includes the flat operations of Brazil and the long and tubular operations of Brazil and neighboring countries including Argentina, Costa Rica and Venezuela. Flat products include slabs, hot-rolled coil, cold-rolled coil and coated steel. Long products consist of wire rod, sections, bar and rebar, billets, blooms and wire drawing; |
| |
• | Europe is the largest flat steel producer in Europe, with operations that range from Spain in the west to Romania in the east, and covering the flat carbon steel product portfolio in all major countries and markets. Europe produces hot-rolled coil, cold-rolled coil, coated products, tinplate, plate and slab. These products are sold primarily to customers in the automotive, general and packaging sectors. Europe also produces long products consisting of sections, wire rod, rebar, billets, blooms and wire drawing, and tubular products. In addition, it includes Downstream Solutions, primarily an in-house trading and distribution arm of ArcelorMittal. Downstream Solutions also provides value-added and customized steel solutions through further steel processing to meet specific customer requirements; |
| |
• | ACIS produces a combination of flat, long and tubular products. Its facilities are located in Africa, Ukraine and the Commonwealth of Independent States; and |
| |
• | Mining comprises all mines owned by ArcelorMittal in the Americas (Canada, United States, Mexico and Brazil), Asia (Kazakhstan), Europe (Ukraine and Bosnia & Herzegovina) and Africa (Liberia). It provides the Company's steel operations with high quality and low-cost iron ore and coal reserves and also sells limited amounts of mineral products to third parties. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The following table summarizes certain financial data for ArcelorMittal’s operations by reportable segments.
| |
| NAFTA | | Brazil | | Europe | | ACIS | | Mining | | Others 1 | | Elimination | | Total | NAFTA | | Brazil | | Europe | | ACIS | | Mining | | Others 1 | | Elimination | | Total |
Year ended December 31, 2016 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Sales to external customers | 15,769 |
| | 5,526 |
| | 28,999 |
| | 5,675 |
| | 781 |
| | 41 |
| | — |
| | 56,791 |
| |
Intersegment sales 2 | 37 |
| | 697 |
| | 273 |
| | 210 |
| | 2,333 |
| | 260 |
| | (3,810 | ) | | — |
| |
Operating income (loss) | 2,002 |
| | 614 |
| | 1,270 |
| | 211 |
| | 366 |
| | (208 | ) | | (94 | ) | | 4,161 |
| |
Depreciation and amortization | (549 | ) | | (258 | ) | | (1,184 | ) | | (311 | ) | | (396 | ) | | (23 | ) | | — |
| | (2,721 | ) | |
Impairment | — |
| | — |
| | (49 | ) | | (156 | ) | | — |
| | — |
| | — |
| | (205 | ) | |
Capital expenditures | 445 |
| | 237 |
| | 951 |
| | 397 |
| | 392 |
| | 22 |
| | — |
| | 2,444 |
| |
Year ended December 31, 2017 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Year ended December 31, 2019 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Sales to external customers | 17,893 |
| | 6,571 |
| | 35,825 |
| | 7,323 |
| | 985 |
| | 82 |
| | — |
| | 68,679 |
| 18,478 |
| | 6,927 |
| | 37,487 |
| | 6,487 |
| | 1,165 |
| | 71 |
| | — |
| | 70,615 |
|
Intersegment sales 2 | 104 |
| | 1,184 |
| | 383 |
| | 298 |
| | 3,048 |
| | 303 |
| | (5,320 | ) | | — |
| 77 |
| | 1,186 |
| | 234 |
| | 350 |
| | 3,672 |
| | 353 |
| | (5,872 | ) | | — |
|
Operating income (loss) | 1,185 |
| | 697 |
| | 2,359 |
| | 508 |
| | 991 |
| | (288 | ) | | (18 | ) | | 5,434 |
| (1,259 | ) | | 846 |
| | (1,107 | ) | | (25 | ) | | 1,215 |
| | (295 | ) | | (2 | ) | | (627 | ) |
Depreciation and amortization | (518 | ) | | (293 | ) | | (1,201 | ) | | (313 | ) | | (416 | ) | | (27 | ) | | — |
| | (2,768 | ) | (570 | ) | | (274 | ) | | (1,256 | ) | | (364 | ) | | (448 | ) | | (155 | ) | | — |
| | (3,067 | ) |
Impairment | — |
| | — |
| | — |
| | (206 | ) | | — |
| | — |
| | — |
| | (206 | ) | (1,300 | ) | | — |
| | (525 | ) | | (102 | ) | | — |
| | — |
| | — |
| | (1,927 | ) |
Capital expenditures | 466 |
| | 263 |
| | 1,143 |
| | 427 |
| | 495 |
| | 25 |
| | — |
| | 2,819 |
| 727 |
| | 328 |
| | 1,353 |
| | 513 |
| | 480 |
| | 171 |
| | — |
| | 3,572 |
|
Year ended December 31, 2018 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Sales to external customers | 20,145 |
| | 7,041 |
| | 40,247 |
| | 7,506 |
| | 1,009 |
| | 85 |
| | — |
| | 76,033 |
| 20,145 |
| | 7,041 |
| | 40,247 |
| | 7,506 |
| | 1,009 |
| | 85 |
| | — |
| | 76,033 |
|
Intersegment sales 2 | 187 |
| | 1,670 |
| | 241 |
| | 455 |
| | 3,202 |
| | 307 |
| | (6,062 | ) | | — |
| 187 |
| | 1,670 |
| | 241 |
| | 455 |
| | 3,202 |
| | 307 |
| | (6,062 | ) | | — |
|
Operating income (loss) | 1,889 |
| | 1,356 |
| | 1,632 |
| | 1,094 |
| | 860 |
| | (247 | ) | | (45 | ) | | 6,539 |
| 1,889 |
| | 1,356 |
| | 1,632 |
| | 1,094 |
| | 860 |
| | (247 | ) | | (45 | ) | | 6,539 |
|
Depreciation and amortization | (522 | ) | | (298 | ) | | (1,195 | ) | | (311 | ) | | (418 | ) | | (55 | ) | | — |
| | (2,799 | ) | (522 | ) | | (298 | ) | | (1,195 | ) | | (311 | ) | | (418 | ) | | (55 | ) | | — |
| | (2,799 | ) |
Bargain purchase gain3 | — |
| | — |
| | 209 |
| | — |
| | — |
| | — |
| | — |
| | 209 |
| — |
| — |
| — |
| | 209 |
| | — |
| | — |
| | — |
| | — |
| | 209 |
|
Impairment | — |
| | (86 | ) | | (908 | ) | | — |
| | — |
| | — |
| | — |
| | (994 | ) | — |
| | (86 | ) | | (908 | ) | | — |
| | — |
| | — |
| | — |
| | (994 | ) |
Capital expenditures | 669 |
| | 244 |
| | 1,336 |
| | 534 |
| | 485 |
| | 37 |
| | — |
| | 3,305 |
| 669 |
| | 244 |
| | 1,336 |
| | 534 |
| | 485 |
| | 37 |
| | — |
| | 3,305 |
|
Year ended December 31, 2017 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Sales to external customers | | 17,893 |
| | 6,571 |
| | 35,825 |
| | 7,323 |
| | 985 |
| | 82 |
| | — |
| | 68,679 |
|
Intersegment sales 2 | | 104 |
| | 1,184 |
| | 383 |
| | 298 |
| | 3,048 |
| | 303 |
| | (5,320 | ) | | — |
|
Operating income (loss) | | 1,185 |
| | 697 |
| | 2,359 |
| | 508 |
| | 991 |
| | (288 | ) | | (18 | ) | | 5,434 |
|
Depreciation and amortization | | (518 | ) | | (293 | ) | | (1,201 | ) | | (313 | ) | | (416 | ) | | (27 | ) | | — |
| | (2,768 | ) |
Impairment | | — |
| | — |
| | — |
| | (206 | ) | | — |
| | — |
| | — |
| | (206 | ) |
Capital expenditures | | 466 |
| | 263 |
| | 1,143 |
| | 427 |
| | 495 |
| | 25 |
| | — |
| | 2,819 |
|
1. Others include all other operational and non-operational items which are not segmented, such as corporate and shared services, financial activities, and shipping and logistics.
2. Transactions between segments are reported on the same basis of accounting as transactions with third parties except for certain mining products shipped internally and reported on a cost plus basis.
3. See note 2.2.4.
The reconciliation from operating income to net income (including non-controlling interests) is as follows: | |
| Year ended December 31, | Year ended December 31, |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Operating income | 6,539 |
| | 5,434 |
| | 4,161 |
| |
Operating (loss)/income | | (627 | ) | | 6,539 |
| | 5,434 |
|
Income from investments in associates and joint ventures | 652 |
| | 448 |
| | 615 |
| 347 |
| | 652 |
| | 448 |
|
Financing costs - net | (2,210 | ) | | (875 | ) | | (2,056 | ) | (1,652 | ) | | (2,210 | ) | | (875 | ) |
Income before taxes | 4,981 |
| | 5,007 |
| | 2,720 |
| |
(Loss) income before taxes | | (1,932 | ) | | 4,981 |
| | 5,007 |
|
Income tax expense (benefit) | (349 | ) | | 432 |
| | 986 |
| 459 |
| | (349 | ) | | 432 |
|
Net income (including non-controlling interests) | 5,330 |
| | 4,575 |
| | 1,734 |
| |
Net (loss) income (including non-controlling interests) | | (2,391 | ) | | 5,330 |
| | 4,575 |
|
The Company does not regularly provide a measure of total assets and liabilities for each reportable segment to the CODM.
3.2 Geographical information
Geographical information, by country or region, is separately disclosed and represents ArcelorMittal’s most significant regional markets. Attributed assets are operational assets employed in each region and include items such as pension balances that are specific to a country. Unless otherwise stated in the table heading as a segment disclosure, these disclosures are specific to the country or region stated. They do not include goodwill, deferred tax assets, other investments or receivables and other non-current financial assets. Attributed liabilities are those arising within each region, excluding indebtedness.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Sales (by destination) | | | Year ended December 31, | Year ended December 31, |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Americas | | | | | | | | | | |
United States | 16,271 |
| | 14,367 |
| | 12,284 |
| 15,238 |
| | 16,271 |
| | 14,367 |
|
Brazil | 4,982 |
| | 4,149 |
| | 3,506 |
| 5,094 |
| | 4,982 |
| | 4,149 |
|
Canada | 3,563 |
| | 3,034 |
| | 2,818 |
| 3,004 |
| | 3,563 |
| | 3,034 |
|
Mexico | 1,970 |
| | 2,251 |
| | 1,806 |
| 1,941 |
| | 1,970 |
| | 2,251 |
|
Argentina | 960 |
| | 1,230 |
| | 858 |
| 814 |
| | 960 |
| | 1,230 |
|
Others | 1,322 |
| | 1,005 |
| | 935 |
| 1,195 |
| | 1,322 |
| | 1,005 |
|
Total Americas | 29,068 |
| | 26,036 |
| | 22,207 |
| 27,286 |
| | 29,068 |
| | 26,036 |
|
| | | | | | | | | | |
Europe | |
| | |
| | |
| |
| | |
| | |
|
Germany | 6,757 |
| | 5,933 |
| | 4,768 |
| 5,694 |
| | 6,757 |
| | 5,933 |
|
Poland | 4,518 |
| | 3,746 |
| | 2,997 |
| 3,957 |
| | 4,518 |
| | 3,746 |
|
France | 4,431 |
| | 4,051 |
| | 3,655 |
| 4,114 |
| | 4,431 |
| | 4,051 |
|
Spain | 4,265 |
| | 3,751 |
| | 3,015 |
| 3,855 |
| | 4,265 |
| | 3,751 |
|
Italy | 3,333 |
| | 2,711 |
| | 2,067 |
| 4,317 |
| | 3,333 |
| | 2,711 |
|
Czech Republic | 1,782 |
| | 1,400 |
| | 1,107 |
| 1,244 |
| | 1,782 |
| | 1,400 |
|
Turkey | 1,683 |
| | 1,937 |
| | 1,789 |
| 1,499 |
| | 1,683 |
| | 1,937 |
|
United Kingdom | 1,471 |
| | 1,370 |
| | 1,159 |
| 1,434 |
| | 1,471 |
| | 1,370 |
|
Belgium | 1,309 |
| | 1,129 |
| | 929 |
| 1,617 |
| | 1,309 |
| | 1,129 |
|
Netherlands | 1,209 |
| | 1,117 |
| | 1,030 |
| 1,142 |
| | 1,209 |
| | 1,117 |
|
Russia | 1,144 |
| | 1,204 |
| | 688 |
| 876 |
| | 1,144 |
| | 1,204 |
|
Romania | 708 |
| | 621 |
| | 526 |
| 720 |
| | 708 |
| | 621 |
|
Others | 5,653 |
| | 4,948 |
| | 3,886 |
| 4,899 |
| | 5,653 |
| | 4,948 |
|
Total Europe | 38,263 |
| | 33,918 |
| | 27,616 |
| 35,368 |
| | 38,263 |
| | 33,918 |
|
| | | | | | | | | | |
Asia & Africa | | | | | | | | | | |
South Africa | 2,742 |
| | 2,560 |
| | 2,026 |
| 2,260 |
| | 2,742 |
| | 2,560 |
|
Morocco | 628 |
| | 596 |
| | 498 |
| 583 |
| | 628 |
| | 596 |
|
Egypt | 206 |
| | 310 |
| | 499 |
| 309 |
| | 206 |
| | 310 |
|
Rest of Africa | 1,257 |
| | 1,033 |
| | 658 |
| 1,278 |
| | 1,257 |
| | 1,033 |
|
China | 608 |
| | 622 |
| | 549 |
| 676 |
| | 608 |
| | 622 |
|
Kazakhstan | 496 |
| | 392 |
| | 350 |
| 470 |
| | 496 |
| | 392 |
|
South Korea | 365 |
| | 259 |
| | 184 |
| 380 |
| | 365 |
| | 259 |
|
India | 92 |
| | 163 |
| | 85 |
| 95 |
| | 92 |
| | 163 |
|
Rest of Asia | 2,308 |
| | 2,790 |
| | 2,119 |
| 1,910 |
| | 2,308 |
| | 2,790 |
|
Total Asia & Africa | 8,702 |
| | 8,725 |
| | 6,968 |
| 7,961 |
| | 8,702 |
| | 8,725 |
|
| | | | | | | | | | |
Total | 76,033 |
| | 68,679 |
| | 56,791 |
| 70,615 |
| | 76,033 |
| | 68,679 |
|
Revenues from external customers attributed to the country of domicile (Luxembourg) were 151, 162 111 and 88111 for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Non-current assets |
| | | | | |
| December 31, |
| 2018 |
| 2017 |
Americas | |
| |
Canada | 5,187 |
|
| 5,368 |
|
Brazil | 4,259 |
|
| 4,466 |
|
United States | 4,022 |
|
| 4,029 |
|
Mexico | 1,163 |
|
| 978 |
|
Argentina | 252 |
|
| 137 |
|
Venezuela | 10 |
|
| 100 |
|
Others | 19 |
|
| 20 |
|
Total Americas | 14,912 |
|
| 15,098 |
|
|
|
|
|
Europe |
|
|
|
France | 4,363 |
|
| 4,738 |
|
Germany | 2,607 |
|
| 2,737 |
|
Belgium3 | 2,526 |
|
| 2,827 |
|
Poland | 2,356 |
|
| 2,421 |
|
Ukraine | 2,219 |
|
| 2,077 |
|
Spain | 1,971 |
|
| 2,035 |
|
Italy2 | 1,365 |
|
| 171 |
|
Luxembourg | 1,229 |
|
| 1,277 |
|
Bosnia and Herzegovina | 205 |
|
| 202 |
|
Romania3 | 86 |
|
| 633 |
|
Czech Republic3 | 24 |
|
| 621 |
|
Others | 235 |
|
| 264 |
|
Total Europe | 19,186 |
|
| 20,003 |
|
|
|
|
|
Asia & Africa |
|
|
|
Kazakhstan | 1,309 |
|
| 1,322 |
|
South Africa | 625 |
|
| 677 |
|
Liberia | 148 |
|
| 93 |
|
Morocco | 93 |
|
| 103 |
|
Others | 107 |
|
| 119 |
|
Total Asia & Africa | 2,282 |
|
| 2,314 |
|
|
|
|
|
Unallocated assets | 22,394 |
|
| 21,137 |
|
Total | 58,774 |
|
| 58,552 |
|
1 |
| | | | | |
| December 31, |
| 2018 |
| 2017 |
Americas | |
| |
Canada | 5,187 |
|
| 5,368 |
|
Brazil | 4,259 |
|
| 4,466 |
|
United States | 4,022 |
|
| 4,029 |
|
Mexico | 1,163 |
|
| 978 |
|
Argentina | 252 |
|
| 137 |
|
Venezuela | 10 |
|
| 100 |
|
Others | 19 |
|
| 20 |
|
Total Americas | 14,912 |
|
| 15,098 |
|
|
|
|
|
Europe |
|
|
|
France | 4,363 |
|
| 4,738 |
|
Germany | 2,607 |
|
| 2,737 |
|
Belgium3 | 2,526 |
|
| 2,827 |
|
Poland | 2,356 |
|
| 2,421 |
|
Ukraine | 2,219 |
|
| 2,077 |
|
Spain | 1,971 |
|
| 2,035 |
|
Italy2 | 1,365 |
|
| 171 |
|
Luxembourg | 1,229 |
|
| 1,277 |
|
Bosnia and Herzegovina | 205 |
|
| 202 |
|
Romania3 | 86 |
|
| 633 |
|
Czech Republic3 | 24 |
|
| 621 |
|
Others | 235 |
|
| 264 |
|
Total Europe | 19,186 |
|
| 20,003 |
|
|
|
|
|
Asia & Africa |
|
|
|
Kazakhstan | 1,309 |
|
| 1,322 |
|
South Africa | 625 |
|
| 677 |
|
Liberia | 148 |
|
| 93 |
|
Morocco | 93 |
|
| 103 |
|
Others | 107 |
|
| 119 |
|
Total Asia & Africa | 2,282 |
|
| 2,314 |
|
|
|
|
|
Unallocated assets | 22,394 |
|
| 21,137 |
|
Total | 58,774 |
|
| 58,552 |
|
per significant country: |
| | | | | |
| December 31, |
| 2018 |
| 2017 |
Americas | |
| |
Canada | 5,187 |
|
| 5,368 |
|
Brazil | 4,259 |
|
| 4,466 |
|
United States | 4,022 |
|
| 4,029 |
|
Mexico | 1,163 |
|
| 978 |
|
Argentina | 252 |
|
| 137 |
|
Venezuela | 10 |
|
| 100 |
|
Others | 19 |
|
| 20 |
|
Total Americas | 14,912 |
|
| 15,098 |
|
|
|
|
|
Europe |
|
|
|
France | 4,363 |
|
| 4,738 |
|
Germany | 2,607 |
|
| 2,737 |
|
Belgium3 | 2,526 |
|
| 2,827 |
|
Poland | 2,356 |
|
| 2,421 |
|
Ukraine | 2,219 |
|
| 2,077 |
|
Spain | 1,971 |
|
| 2,035 |
|
Italy2 | 1,365 |
|
| 171 |
|
Luxembourg | 1,229 |
|
| 1,277 |
|
Bosnia and Herzegovina | 205 |
|
| 202 |
|
Romania3 | 86 |
|
| 633 |
|
Czech Republic3 | 24 |
|
| 621 |
|
Others | 235 |
|
| 264 |
|
Total Europe | 19,186 |
|
| 20,003 |
|
|
|
|
|
Asia & Africa |
|
|
|
Kazakhstan | 1,309 |
|
| 1,322 |
|
South Africa | 625 |
|
| 677 |
|
Liberia | 148 |
|
| 93 |
|
Morocco | 93 |
|
| 103 |
|
Others | 107 |
|
| 119 |
|
Total Asia & Africa | 2,282 |
|
| 2,314 |
|
|
|
|
|
Unallocated assets | 22,394 |
|
| 21,137 |
|
Total | 58,774 |
|
| 58,552 |
|
|
| | | | | |
| December 31, |
| 2019 |
| 2018 |
Americas | |
| |
Canada | 5,336 |
|
| 5,187 |
|
Brazil | 4,254 |
|
| 4,259 |
|
United States | 2,878 |
|
| 4,022 |
|
Mexico | 1,408 |
|
| 1,163 |
|
Argentina | 266 |
|
| 252 |
|
Venezuela | 17 |
|
| 10 |
|
Others | 16 |
|
| 19 |
|
Total Americas | 14,175 |
|
| 14,912 |
|
|
|
|
|
Europe |
|
|
|
France | 4,293 |
|
| 4,363 |
|
Germany | 2,665 |
|
| 2,607 |
|
Belgium2 | 2,695 |
|
| 2,526 |
|
Poland | 2,508 |
|
| 2,356 |
|
Ukraine | 2,674 |
|
| 2,219 |
|
Spain | 1,920 |
|
| 1,971 |
|
Italy | 1,488 |
|
| 1,365 |
|
Luxembourg | 1,231 |
|
| 1,229 |
|
Bosnia and Herzegovina | 188 |
|
| 205 |
|
Romania2 | 62 |
|
| 86 |
|
Czech Republic2 | 31 |
|
| 24 |
|
Others | 165 |
|
| 235 |
|
Total Europe | 19,920 |
|
| 19,186 |
|
|
|
|
|
Asia & Africa |
|
|
|
Kazakhstan | 1,519 |
|
| 1,309 |
|
South Africa | 568 |
|
| 625 |
|
Liberia | 157 |
|
| 148 |
|
Morocco | 92 |
|
| 93 |
|
Others | 128 |
|
| 107 |
|
Total Asia & Africa | 2,464 |
|
| 2,282 |
|
|
|
|
|
Unallocated assets | 22,733 |
|
| 22,394 |
|
Total | 59,292 |
|
| 58,774 |
|
| |
1. | Non-current assets do not include goodwill (as it is not allocated to the individual countries), deferred tax assets, investments in associates and joint ventures, other investments and other non-current financial assets. Such assets are presented under the caption “Unallocated assets”. |
| |
2. | Increase relates mainly to the Ilva acquisition (see note 2.2.4). |
| |
3. | ArcelorMittal Ostrava, ArcelorMittal Galati and certain assets of ArcelorMittal Belgium arewere classified as held for sale asat December 31, 2018 and sold in 2019 (see note 2.3.1 and 2.3.2). |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
3.3 Sales by type of products
The table below presents sales to external customers by product type. In addition to steel produced by the Company, amounts include material purchased for additional transformation and sold through distribution services. Others mainly include non-steel and by-products sales, manufactured and specialty steel products sales, shipping and other services. | | | Year ended December 31, | Year ended December 31, |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Flat products | 46,734 |
| | 43,065 |
| | 34,215 |
| 43,633 |
| | 46,734 |
| | 43,065 |
|
Long products | 15,751 |
| | 13,685 |
| | 12,104 |
| 13,706 |
| | 15,751 |
| | 13,685 |
|
Tubular products | 2,158 |
| | 1,810 |
| | 1,500 |
| 2,044 |
| | 2,158 |
| | 1,810 |
|
Mining products | 1,009 |
| | 985 |
| | 781 |
| 1,165 |
| | 1,009 |
| | 985 |
|
Others | 10,380 |
| | 9,134 |
| | 8,191 |
| 10,067 |
| | 10,380 |
| | 9,134 |
|
Total | 76,033 |
| | 68,679 |
| | 56,791 |
| 70,615 |
| | 76,033 |
| | 68,679 |
|
3.4 Disaggregated revenue
Disaggregated revenue
The tables below summarize the disaggregated revenue recognized from contracts with customers:
|
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2019 | NAFTA | | Brazil | | Europe | | ACIS | | Mining | | Others | | Total |
Steel sales | 17,669 |
| | 6,467 |
| | 33,759 |
| | 5,789 |
| | — |
| | — |
| | 63,684 |
|
Non-steel sales 1 | 122 |
| | 66 |
| | 1,130 |
| | 239 |
| | 1,117 |
| | — |
| | 2,674 |
|
By-product sales 2 | 114 |
| | 93 |
| | 816 |
| | 135 |
| | — |
| | — |
| | 1,158 |
|
Other sales 3 | 573 |
| | 301 |
| | 1,782 |
| | 324 |
| | 48 |
| | 71 |
| | 3,099 |
|
Total | 18,478 |
| | 6,927 |
| | 37,487 |
| | 6,487 |
| | 1,165 |
| | 71 |
| | 70,615 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2018 | NAFTA | | Brazil | | Europe | | ACIS | | Mining | | Others | | Total |
Steel sales | 19,372 |
| | 6,582 |
| | 36,603 |
| | 6,748 |
| | — |
| | — |
| | 69,305 |
|
Non-steel sales 1 | 148 |
| | 31 |
| | 882 |
| | 243 |
| | 968 |
| | — |
| | 2,272 |
|
By-product sales 2 | 124 |
| | 115 |
| | 947 |
| | 182 |
| | — |
| | — |
| | 1,368 |
|
Other sales 3 | 501 |
| | 313 |
| | 1,815 |
| | 333 |
| | 41 |
| | 85 |
| | 3,088 |
|
Total | 20,145 |
| | 7,041 |
| | 40,247 |
| | 7,506 |
| | 1,009 |
| | 85 |
| | 76,033 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2017 | NAFTA | | Brazil | | Europe | | ACIS | | Mining | | Others | | Total |
Steel sales | 17,210 |
| | 6,128 |
| | 32,676 |
| | 6,661 |
| | — |
| | — |
| | 62,675 |
|
Non-steel sales 1 | 121 |
| | 77 |
| | 817 |
| | 188 |
| | 947 |
| | — |
| | 2,150 |
|
By-product sales 2 | 98 |
| | 89 |
| | 683 |
| | 159 |
| | — |
| | — |
| | 1,029 |
|
Other sales 3 | 464 |
| | 277 |
| | 1,649 |
| | 315 |
| | 38 |
| | 82 |
| | 2,825 |
|
Total | 17,893 |
| | 6,571 |
| | 35,825 |
| | 7,323 |
| | 985 |
| | 82 |
| | 68,679 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2016 | NAFTA | | Brazil | | Europe | | ACIS | | Mining | | Others | | Total |
Steel sales | 15,158 |
| | 5,148 |
| | 26,134 |
| | 5,190 |
| | — |
| | — |
| | 51,630 |
|
Non-steel sales 1 | 84 |
| | 38 |
| | 803 |
| | 160 |
| | 741 |
| | — |
| | 1,826 |
|
By-product sales 2 | 92 |
| | 79 |
| | 568 |
| | 105 |
| | — |
| | — |
| | 844 |
|
Other sales 3 | 435 |
| | 261 |
| | 1,494 |
| | 220 |
| | 40 |
| | 41 |
| | 2,491 |
|
Total | 15,769 |
| | 5,526 |
| | 28,999 |
| | 5,675 |
| | 781 |
| | 41 |
| | 56,791 |
|
1.Non-steel sales mainly relate to iron ore, coal, scrap and electricity;
2.By-product sales mainly relate to slag, waste and coke by-products;
3.Other sales are mainly comprised of shipping and other services.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
NOTE 4: OPERATING DATA
4.1 Revenue
The Company’s revenue is derived from the single performance obligation to transfer primarily steel and mining products under arrangements in which the transfer of control of the products and the fulfillment of the Company’s performance obligation occur at the same time. Revenue from the sale of goods is recognized when the Company has transferred control o
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
f the goods to the buyer and the buyer obtains the benefits from the goods, the potential cash flows and the amount of revenue (the transaction price) can be measured reliably, and it is probable that the Company will collect the consideration to which it is entitled to in exchange for the goods.
Whether the customer has obtained control over the asset depends on when the goods are made available to the carrier or the buyer takes possession of the goods, depending on the delivery terms. For the Company’s steel producing operations, generally the criteria to recognize revenue has been met when its products are delivered to its customers or to a carrier who will transport the goods to its customers, this is the point in time when the Company has completed its performance obligations. Revenue is measured at the transaction price of the consideration received or receivable, the amount the Company expects to be entitled to.
Additionally, the Company identifies when goods have left its premises, not when the customer receives the goods. Therefore, the Company estimates, based on its historical experience, the amount of goods in-transit when the transfer of control occurs at the destination and defers the revenue recognition.
The Company’s products must meet customer specifications. A certain portion of the Company’s products are returned or have claims filed against the sale because the products contained quality defects or other problems. Claims may be either of the following:
| |
– | Product Rejection - Product shipped and billed to an end customer that did not meet previously agreed customer specifications. Claims typically result from physical defects in the goods, goods shipped to the wrong location, goods produced with incorrect specifications and goods shipped outside acceptable time parameters. |
| |
– | Consequential Damages - Damages reported by the customer not directly related to the value of the rejected goods (for example: customer processing cost or mill down time, sampling, storage, sorting, administrative cost, replacement cost, etc.). |
The Company estimates the variable consideration for such claims using the expected value method and reduces the
amount of revenue recognized.
Warranties:
The warranties and claims arise when the product fails on the criteria mentioned above. Sales‑related warranties associated with the goods cannot be purchased separately and they serve as an assurance that the products sold comply with agreed‑upon specifications. Accordingly, the Company accounts for warranties in accordance with IAS 37 Provisions,"Provisions, Contingent Liabilities and Contingent AssetsAssets" (see note 8)9).
Periodically, the Company enters into volume or other rebate programs where once a certain volume or other conditions are met, it refunds the customer some portion of the amounts previously billed or paid. For such arrangements, the Company only recognizes revenue for the amounts it ultimately expects to realize from the customer. The Company estimates the variable consideration for these programs using the most likely amount method or the expected value method, whichever approach best predicts the amount of the consideration based on the terms of the contract and available information and updates its estimates each reporting period.
The Company’s payment terms range from 30 to 90 days from date of delivery, depending on the market and product sold. The Company has applied the practical expedient in IFRS 15 (C5) (d). In 2018, the Company received 364354 as advances from its customers which are classified as unsatisfied performance obligations and recognized as liabilities in line with IFRS 15. The Company expects 100% of the unsatisfied performance obligations as of December 31, 20182019 to be recognized as revenue during 20192020 as the Company’s contracts have an original expected duration of one year or less.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The tables below summarize the movements relating to the Company's trade receivable and other for the years ended December 31, 2019, 2018 2017 and 2016.2017. | |
| Year ended December 31, | Year ended December 31, |
| 2018 |
| 2017 |
| 2016 | 2019 |
| 2018 |
| 2017 |
Trade accounts receivable and other - opening balance | 3,863 |
|
| 2,974 |
|
| 2,679 |
| 4,432 |
|
| 3,863 |
|
| 2,974 |
|
Performance obligations satisfied | 76,033 |
|
| 68,679 |
|
| 56,791 |
| 70,615 |
|
| 76,033 |
|
| 68,679 |
|
Payments received | (75,387 | ) |
| (68,059 | ) |
| (56,418 | ) | (71,559 | ) |
| (75,387 | ) |
| (68,059 | ) |
Impairment of receivables (net of write backs) | (8 | ) |
| — |
|
| (16 | ) | |
Impairment of receivables (net of write backs and utilization) | | 9 |
|
| (8 | ) |
| — |
|
Reclassification of the period-end receivables to held for sale | (182 | ) | | — |
| | (39 | ) | — |
| | (182 | ) | | — |
|
Acquisitions through business combinations | 532 |
| | 33 |
| | — |
| |
Additions through business combinations | | 4 |
| | 532 |
| | 33 |
|
Foreign exchange and others | (419 | ) |
| 236 |
|
| (23 | ) | 68 |
|
| (419 | ) |
| 236 |
|
Trade accounts receivable and other - closing balance | 4,432 |
|
| 3,863 |
|
| 2,974 |
| 3,569 |
|
| 4,432 |
|
| 3,863 |
|
4.2 Cost of sales
Cost of sales includes the following components:
| | | Year ended December 31, | Year ended December 31, |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Materials | 46,842 |
| | 42,813 |
| | 34,276 |
| 47,809 |
| | 46,842 |
| | 42,813 |
|
Labor costs 1 | 9,206 |
| | 8,842 |
| | 7,572 |
| |
Labor costs | | 9,094 |
| | 9,206 |
| | 8,842 |
|
Logistic expenses | 4,974 |
| | 4,161 |
| | 3,760 |
| 4,951 |
| | 4,974 |
| | 4,161 |
|
Depreciation and amortization | 2,799 |
| | 2,768 |
| | 2,721 |
| 3,067 |
| | 2,799 |
| | 2,768 |
|
Gain on bargain purchase2 | (209 | ) |
| — |
|
| — |
| |
Gain on bargain purchase1 | | — |
|
| (209 | ) |
| — |
|
Impairment | 994 |
| | 206 |
| | 205 |
| 1,927 |
| | 994 |
| | 206 |
|
Other | 2,419 |
| | 2,086 |
| | 1,894 |
| 2,039 |
| | 2,419 |
| | 2,086 |
|
Total | 67,025 |
| | 60,876 |
| | 50,428 |
| 68,887 |
| | 67,025 |
| | 60,876 |
|
| |
1. | In 2016, labor costs included an 832 gain relating to changes in post-employment benefit plans in the United States (see note 7.2).
|
4.3 Trade accounts receivable and other
Trade accounts receivable are initially recorded at their transaction price and do not carry any interest. ArcelorMittal maintains an allowance for lifetime expected credit loss at an amount that it considers to be a reliable estimate of expected credit losses resulting from the inability of its customers to make required payments. In judging the adequacy of the allowance for expected credit losses, ArcelorMittal considers multiple factors including historical bad debt experience, the current and forward looking economic environment and the aging of the receivables. Recoveries of trade receivables previously reserved in the allowance for expected credit losses are recognized as gains in selling, general and administrative expenses.
ArcelorMittal’s policy is to record an allowance for expected lifetime credit losses and a charge in selling, general and administrative expense when a specific account is deemed uncollectible. The Company concluded that a trade receivable is in default when they are overdue by more than 180 days. Based on historical experience and analysis, the Company concluded that there is a risk of default as such receivables are generally not recoverable and therefore provided for, unless it can be clearly demonstrated that the receivable is still collectible. Trade receivables and the associated allowance are written off when ArcelorMittal has exhausted its recovery efforts and enforcement options.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Trade accounts receivable and allowance for lifetime |
| | | | | |
| December 31, |
| 2018 | | 2017 |
Gross amount | 4,605 |
| | 4,056 |
|
Allowance for lifetime expected credit losses | (173 | ) | | (193 | ) |
Total | 4,432 |
| | 3,863 |
|
|
| | | | | |
| December 31, |
| 2018 | | 2017 |
Gross amount | 4,605 |
| | 4,056 |
|
Allowance for lifetime expected credit losses | (173 | ) | | (193 | ) |
Total | 4,432 |
| | 3,863 |
|
expected credit losses | | | December 31, | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Gross amount | 4,605 |
| | 4,056 |
| 3,698 |
| | 4,605 |
|
Allowance for lifetime expected credit losses | (173 | ) | | (193 | ) | (129 | ) | | (173 | ) |
Total | 4,432 |
| | 3,863 |
| 3,569 |
| | 4,432 |
|
The carrying amount of the trade accounts receivable and other approximates their fair value. Before granting credit to any new customer, ArcelorMittal uses an internally developed credit scoring system to assess the potential customer’s credit quality and to define credit limits by customer. For all significant customers the credit terms must be approved by the credit committees of each reportable segment. Limits and scoring attributed to customers are reviewed periodically. There are no customers who represent more than 5% of the total balance of trade accounts receivable.
Exposure to credit risk by reportable segment
The maximum exposure to credit risk for trade accounts receivable by reportable segment is as follows: | | | December 31, | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
NAFTA | 579 |
| | 343 |
| 285 |
| | 579 |
|
Brazil | 864 |
| | 857 |
| 702 |
| | 864 |
|
Europe | 2,348 |
| | 2,052 |
| 1,983 |
| | 2,348 |
|
ACIS | 531 |
| | 546 |
| 523 |
| | 531 |
|
Mining | 110 |
| | 65 |
| 76 |
| | 110 |
|
Total | 4,432 |
| | 3,863 |
| 3,569 |
| | 4,432 |
|
Aging of trade accounts receivable | | | December 31, | | December 31, | December 31, | | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
| Gross | | Allowance under lifetime expected credit loss model (IFRS 9) | | Total | | Gross | | Allowance under incurred loss model (IAS 39) | | Total | Gross | | Allowance | | Total | | Gross | | Allowance | | Total |
Not past due | 3,377 |
| | (3 | ) | | 3,374 |
| | 3,134 |
| | (4 | ) | | 3,130 |
| 2,851 |
| | (11 | ) | | 2,840 |
| | 3,377 |
| | (3 | ) | | 3,374 |
|
Overdue 1-30 days | 691 |
| | (3 | ) | | 688 |
| | 538 |
| | (9 | ) | | 529 |
| 452 |
| | (2 | ) | | 450 |
| | 691 |
| | (3 | ) | | 688 |
|
Overdue 31-60 days | 178 |
| | (1 | ) | | 177 |
| | 106 |
| | (1 | ) | | 105 |
| 85 |
| | (1 | ) | | 84 |
| | 178 |
| | (1 | ) | | 177 |
|
Overdue 61-90 days | 97 |
| | (1 | ) | | 96 |
| | 34 |
| | — |
| | 34 |
| 43 |
| | — |
| | 43 |
| | 97 |
| | (1 | ) | | 96 |
|
Overdue 91-180 days | 59 |
| | (4 | ) | | 55 |
| | 46 |
| | (13 | ) | | 33 |
| 67 |
| | (4 | ) | | 63 |
| | 59 |
| | (4 | ) | | 55 |
|
More than 180 days | 203 |
| | (161 | ) | | 42 |
| | 198 |
| | (166 | ) | | 32 |
| 200 |
| | (111 | ) | | 89 |
| | 203 |
| | (161 | ) | | 42 |
|
Total | 4,605 |
| | (173 | ) | | 4,432 |
| | 4,056 |
| | (193 | ) | | 3,863 |
| 3,698 |
| | (129 | ) | | 3,569 |
| | 4,605 |
| | (173 | ) | | 4,432 |
|
The movements in the allowance are calculated based on lifetime expected credit loss model for 2019 and 2018 following the adoption of IFRS 9 and incurred loss model for 2017 and 2016.2017. The allowances in respect of trade accounts receivable during the periods presented is as follows: |
| | | | | | | | |
Balance as of December 31, 2015 | | Additions | | Deductions/ Releases | | Foreign exchange and others | | Balance as of December 31, 2016 |
170 | | 34 | | (25) | | 5 | | 184 |
Balance as of December 31, 2016 | | Additions | | Deductions/ Releases | | Foreign exchange and others | | Balance as of December 31, 2017 |
184 | | 34 | | (38) | | 13 | | 193 |
Balance as of December 31, 2017 | | Additions | | Deductions/ Releases | | Foreign exchange and others | | Balance as of December 31, 2018 |
193 | | 35 | | (29) | | (26) | | 173 |
|
| | | | | | | | |
| Year ended December 31, |
| 2019 | | 2018 | | 2017 |
Allowance - opening balance | 173 |
| | 193 |
| | 184 |
|
Additions | 18 |
| | 35 |
| | 34 |
|
Write backs / utilization | (27 | ) | | (29 | ) | | (38 | ) |
Foreign exchange and others | (35 | ) | | (26 | ) | | 13 |
|
Allowance - closing balance | 129 |
| | 173 |
| | 193 |
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The Company has established a number of programs for sales without recourse of trade accounts receivable to various financial institutions (referred to as true sale of receivables (“TSR”)). Through the TSR programs, certain operating subsidiaries
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
of ArcelorMittal surrender the control, risks and benefits associated with the accounts receivable sold; therefore, the amount of receivables sold is recorded as a sale of financial assets and the balances are derecognized from the consolidated statements of financial position at the moment of sale. Upon adoption of IFRS 9 as of January 1, 2018, theThe Company classifiedclassifies trade receivables subject to TSR programs as financial assets that are held to collect or to sell and recognized them at FVOCI.FVOCI (see note 6). The fair value measurement wasis determined based on the invoice amount net of TSR expense payable, a Level 3 unobservable input. The TSR expense is insignificant due to the rate applicable and the short timeframe between the time of sale and the invoice due date. Any loss allowance for these trade receivables is recognized in OCI.
4.4 Inventories
Inventories are carried at the lower of cost or net realizable value. Cost is determined using the average cost method. Costs of production in process and finished goods include the purchase costs of raw materials and conversion costs such as direct labor and an allocation of fixed and variable production overheads. Raw materials and spare parts are valued at cost, inclusive of freight, shipping, handling as well as any other costs incurred in bringing the inventories to their present location and condition. Interest charges, if any, on purchases have been recorded as financing costs. Costs incurred when production levels are abnormally low are capitalized as inventories based on normal capacity with the remaining costs incurred recorded as a component of cost of sales in the consolidated statements of operations.
Net realizable value represents the estimated selling price at which the inventories can be realized in the normal course of business after allowing for the cost of conversion from their existing state to a finished condition and for the cost of marketing, selling, and distribution. Net realizable value is estimated based on the most reliable evidence available at the time the estimates were made of the amount that the inventory is expected to realize, taking into account the purpose for which the inventory is held.
Previous write-downs are reversed in case the circumstances that previously caused inventories to be written down below cost no longer exist.
Inventories, net of allowance for slow-moving inventory, excess of cost over net realizable value and obsolescence of 1,1681,760 and 1,2391,168 as of December 31, 20182019 and 2017,2018, respectively, are comprised of the following:
| | | December 31, | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Finished products | 7,464 |
| | 6,321 |
| 5,821 |
| | 7,464 |
|
Production in process | 4,596 |
| | 4,049 |
| 4,165 |
| | 4,596 |
|
Raw materials | 6,822 |
| | 5,883 |
| 5,101 |
| | 6,822 |
|
Manufacturing supplies, spare parts and other 1 | 1,862 |
| | 1,733 |
| 2,209 |
| | 1,862 |
|
Total | 20,744 |
| | 17,986 |
| 17,296 |
| | 20,744 |
|
| |
1. | This consists ofIncluding spare parts of 1.31.6 billion and 1.3 billion, and manufacturing and other of 0.6 billion and 0.40.6 billion as of December 31, 20182019 and 20172018, respectively.
|
Note 4.2 discloses the cost of inventories (materials) recognized as an expense during the year.
The movementMovements in the inventory reserve isare as follows: |
| | | | | | | | |
Balance as of December 31, 2015 | | Additions 1 | | Deductions / Releases 2 | | Foreign exchange and others | | Balance as of December 31, 2016 |
1,707 | | 473 | | (964) | | (119) | | 1,097 |
Balance as of December 31, 2016 | | Additions 1 | | Deductions / Releases 2 | | Foreign exchange and others | | Balance as of December 31, 2017 |
1,097 | | 442 | | (404) | | 104 | | 1,239 |
Balance as of December 31, 2017 | | Additions 1 | | Deductions / Releases 2 | | Foreign exchange and others | | Balance as of December 31, 2018 |
1,239 | | 423 | | (382) | | (112) | | 1,168 |
|
| | | | | | | | |
| Year ended December 31, |
| 2019 | | 2018 | | 2017 |
Inventory reserve - opening balance | 1,168 |
| | 1,239 |
| | 1,097 |
|
Additions 1 | 726 |
| | 423 |
| | 442 |
|
Deductions / Releases 2 | (212 | ) | | (382 | ) | | (404 | ) |
Foreign exchange and others | 78 |
| | (112 | ) | | 104 |
|
Inventory reserve - closing balance | 1,760 |
| | 1,168 |
| | 1,239 |
|
| |
1. | Additions in 2019 refer to write-downs of inventories excluding those utilized or written back during the same financial year. The additions in 2018 and 2017 refer to write-downs of inventories including those utilized or written back during the same financial year. |
| |
2. | Deductions/releases correspond to write-backs and utilizations related to the prior periods in 2019 and correspond to write-backs and utilizations related to the current and prior periods.periods in 2018 and 2017. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
4.5 Prepaid expenses and other current assets |
| | | | | |
| December 31, |
| 2019 | | 2018 |
VAT receivables | 941 |
| | 1,049 |
|
Prepaid expenses and non-trade receivables | 696 |
| | 416 |
|
Financial amounts receivable | 350 |
| | 304 |
|
Income tax receivable | 102 |
| | 106 |
|
Receivables from public authorities | 137 |
| | 125 |
|
Receivables from sale of financial and intangible assets | 153 |
| | 149 |
|
Derivative financial instruments | 268 |
| | 617 |
|
Other 1 | 109 |
| | 68 |
|
Total | 2,756 |
| | 2,834 |
|
|
| | | | | |
| December 31, |
| 2018 | | 2017 |
VAT receivables | 1,049 |
| | 822 |
|
Prepaid expenses and non-trade receivables | 416 |
| | 321 |
|
Financial amounts receivable | 304 |
| | 219 |
|
Income tax receivable | 106 |
| | 176 |
|
Receivables from public authorities | 125 |
| | 147 |
|
Receivables from sale of financial and intangible assets | 149 |
| | 118 |
|
Derivative financial instruments | 617 |
| | 87 |
|
Other 1 | 68 |
| | 41 |
|
Total | 2,834 |
| | 1,931 |
|
| |
1. | Other includes mainly advances to employees, accrued interest and other miscellaneous receivables. |
Financial amounts receivable include a 127 short-term loan granted to Global Chartering (see note 12.3).
4.6 Other assets
Other assets consisted of the following: | | | December 31, | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Derivative financial instruments | 609 |
| | 995 |
| 130 |
| | 609 |
|
Financial amounts receivable | 1,679 |
| | 345 |
| 594 |
| | 1,679 |
|
Long-term VAT receivables | 322 |
| | 198 |
| 285 |
| | 322 |
|
Cash guarantees and deposits | 185 |
| | 190 |
| 164 |
| | 185 |
|
Receivables from public authorities | 172 |
| | 173 |
| 51 |
| | 172 |
|
Accrued interest | 86 |
| | 96 |
| 65 |
| | 86 |
|
Receivables from sale of financial and intangible assets | 61 |
| | 93 |
| 131 |
| | 61 |
|
Income tax receivable | 18 |
| | 14 |
| 25 |
| | 18 |
|
Other 1 | 228 |
| | 130 |
| 203 |
| | 228 |
|
Total | 3,360 |
| | 2,234 |
| 1,648 |
| | 3,360 |
|
| |
1. | Other mainly includes assets in pension funds and other amounts receivable. |
Following the Indian Supreme Court ruling dated October 4, 2018, ArcelorMittal completed a series of payments to the financial creditors of Uttam Galva ("UG") and KSS Petron to clear overdue debts so that the Company's offer submitted for Essar SteelAMNS India Limited ("ESIL") remainsremained eligible and cancould be considered by ESIL’sESIL's Committee of Creditors. At December 31, 2018, financial amounts receivable included 844 and 193 related to such payments to UG and KSS Petron, respectively, measured at fair value throughrecognized in profit or loss as of December 31, 2018 (a Level 3 fair value estimate). In 2019, ArcelorMittal made additional payments of 83. The fair value of the UG payments was determined on the basis of market multiples and a discounted cash flow model including market participant synergies. Unobservable inputs arewere used to measure fair value to the extent that relevant observable inputs arewere not available and include primarily the discount rate, growth rate, expected changes to average selling prices, shipments and direct costs. Assumptions for average selling prices and shipments arewere based on historical experience and expectations of future changes in the market.
On December 11, 2019, ArcelorMittal derecognized the UG payments as they were transferred to the AMNS India joint venture (see note 2.4.1).
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
4.7 Trade accounts payable and other
Trade accounts payable are obligations to pay for goods that have been acquired in the ordinary course of business from suppliers. Trade accounts payable have maturities from 15 to 180 days depending on the type of material, the geographic area in which the purchase transaction occurs and the various contractual agreements. The carrying value of trade accounts payable approximates fair value.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
4.8 Accrued expenses and other liabilities
Accrued expenses and other liabilities are comprised of the following as of: | | | December 31, | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Accrued payroll and employee related expenses | 1,613 |
| | 1,787 |
| 1,560 |
| | 1,613 |
|
Accrued interest and other payables | 976 |
| | 794 |
| 927 |
| | 976 |
|
Payable from acquisition of intangible, tangible & financial assets | 1,332 |
| | 943 |
| 1,559 |
| | 1,332 |
|
Other amounts due to public authorities | 540 |
| | 587 |
| 507 |
| | 540 |
|
Derivative financial instruments | 190 |
| | 325 |
| |
Derivative financial instruments 1 | | 308 |
| | 190 |
|
Unearned revenue and accrued payables | 58 |
| | 69 |
| 49 |
| | 58 |
|
Total | 4,709 |
| | 4,505 |
| 4,910 |
| | 4,709 |
|
| |
1. | Derivative financial instruments include 125 as of December 31, 2019 relating to the fair value of the put option granted to ISP in the framework of the acquisition of ArcelorMittal Italia. As of December 31, 2018 the option’s fair value of 124 was included in long-term liabilities (note 9.2). |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
NOTE 5: GOODWILL, INTANGIBLE AND TANGIBLE ASSETS
5.1 Goodwill and intangible assets
The carrying amounts of goodwill and intangible assets are summarized as follows: | | | December 31, | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Goodwill on acquisitions | 4,986 |
| | 5,294 |
| 5,104 |
| | 4,986 |
|
Concessions, patents and licenses | 293 |
| | 275 |
| 197 |
| | 293 |
|
Customer relationships and trade marks | 90 |
| | 118 |
| 95 |
| | 90 |
|
Other1 | 359 |
| | 50 |
| 36 |
| | 359 |
|
Total | 5,728 |
| | 5,737 |
| 5,432 |
| | 5,728 |
|
1. Other includes In 2018, other included 201 relating to CO2 emission rights, which were surrendered in 2019, and 7677 related to favorable land lease contracts held by Ilva at acquisition date (please refer toin ArcelorMittal Italia, which were reclassified as right-of-use assets upon adoption of IFRS 16 as of January 1, 2019 (see note 2.2.4)7)
Goodwill
Goodwill arising on an acquisition is recognized as previously described within the business combinations section in note 2.2.3. Goodwill is allocated to those groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose and in all cases is at the operating segment level, which represents the lowest level at which goodwill is monitored for internal management purposes.
Goodwill acquired in business combinations for each of the Company’s operating segments is as follows:
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
|
| | | | | | | | | | | |
| December 31, 2016 | | Divestments and assets held for sale | | Foreign exchange differences and other movements 1 | | December 31, 2017 |
NAFTA | 2,202 |
| | — |
| | 47 |
| | 2,249 |
|
Brazil | 1,668 |
| | — |
| | (28 | ) | | 1,640 |
|
Europe | 529 |
| | — |
| | 53 |
| | 582 |
|
ACIS | 849 |
| | — |
| | (26 | ) | | 823 |
|
Total | 5,248 |
| | — |
| | 46 |
| | 5,294 |
|
|
| | | | | | | | | | | |
| December 31, 2017 | | Divestments and assets held for sale 1 | | Foreign exchange differences and other movements 2 | | December 31, 2018 |
NAFTA | 2,249 |
| | — |
| | (51 | ) | | 2,198 |
|
Brazil | 1,640 |
| | (18 | ) | | (218 | ) | | 1,404 |
|
Europe | 582 |
| | (16 | ) | | (16 | ) | | 550 |
|
ACIS | 823 |
| | — |
| | 11 |
| | 834 |
|
Total | 5,294 |
| | (34 | ) | | (274 | ) | | 4,986 |
|
1. TheSee note 2.3.1 and 2.3.2
2. Other movements for Brazil includes 2 related to Sumaré acquisition (please refer to note 2.2.4) |
| | | | | | | | | | | |
| December 31, 2017 | | Divestments and assets held for sale 2 | | Foreign exchange differences and other movements 1 | | December 31, 2018 |
NAFTA | 2,249 |
| | — |
| | (51 | ) | | 2,198 |
|
Brazil | 1,640 |
| | (18 | ) | | (218 | ) | | 1,404 |
|
Europe | 582 |
| | (16 | ) | | (16 | ) | | 550 |
|
ACIS | 823 |
| | — |
| | 11 |
| | 834 |
|
Total | 5,294 |
| | (34 | ) | | (274 | ) | | 4,986 |
|
1. The movements for Brazil includesinclude 24 related to Votorontim Siderurgiathe acquisition (please refer toof AMSF (see note 2.2.4)
|
| | | | | | | | | | | |
| December 31, 2018 | | Divestments and assets held for sale | | Foreign exchange differences and other movements 1 | | December 31, 2019 |
NAFTA | 2,198 |
| | — |
| | 35 |
| | 2,233 |
|
Brazil | 1,404 |
| | — |
| | (51 | ) | | 1,353 |
|
Europe | 550 |
| | — |
| | (5 | ) | | 545 |
|
ACIS | 834 |
| | — |
| | 139 |
| | 973 |
|
Total | 4,986 |
| | — |
| | 118 |
| | 5,104 |
|
1.Other movements for Europe include 6 relating to the acquisition of Münker and 8 for Brazil relating to the increase in goodwill following the completion of the acquisition-date fair value of AMSF (see note 2.2.4).
2. See note 2.3.1 and 2.3.2
Intangible assets
Intangible assets are recognized only when it is probable that the expected future economic benefits attributable to the assets will accrue to the Company and the cost can be reliably measured. Intangible assets acquired separately by ArcelorMittal are initially recorded at cost and those acquired in a business combination are initially recorded at fair value at the date of the business combination. These primarily include the cost of technology and licenses purchased from third parties and operating authorizations granted by governments or other public bodies (concessions). Intangible assets are amortized on a straight-line basis over their estimated economic useful lives, which typically do not exceed five years. Amortization is included in the consolidated statements of operations as part of cost of sales.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
ArcelorMittal’s industrial sites which are regulated by the European Directive 2003/87/EC of October 13, 2003 on carbon dioxide (“CO2”) emission rights, effective as of January 1, 2005, are located primarily in Belgium, Czech Republic, France, Germany, Luxembourg, Poland, Romania, Spain and Italy. ArcelorMittal's operations in Ontario, Canada are subject to the “Climate Change Mitigation and Low-carbon Economy Act, 2016”, a cap and trade program regulation effective from July 1, 2016.2016, in South Africa, a CO2 tax system was introduced in 2019 and in Kazakhstan, the Emission Trading Scheme restarted operation on January 1, 2018. The emission rights allocated to the Company on a no-charge basis pursuant to the annual national allocation plan are recorded at nil value and purchased emission rights are recorded at cost.
Other intangible assets are summarized as follows: |
| | | | | | | | | | | |
| Concessions, patents and licenses |
| Customer relationships and trade marks |
| Other |
| Total |
Cost | |
| |
| |
| |
At December 31, 2016 | 676 |
|
| 1,100 |
|
| 56 |
|
| 1,832 |
|
Acquisitions | 6 |
|
| 21 |
|
| 34 |
|
| 61 |
|
Disposals | (1 | ) |
| — |
|
| — |
|
| (1 | ) |
Foreign exchange differences | 83 |
|
| 97 |
|
| 9 |
|
| 189 |
|
Transfers and other movements1 | 20 |
|
| (1 | ) |
| (3 | ) |
| 16 |
|
Fully amortized intangible assets 2 | (18 | ) |
| (3 | ) |
| — |
|
| (21 | ) |
At December 31, 2017 | 766 |
|
| 1,214 |
|
| 96 |
|
| 2,076 |
|
Acquisitions | 22 |
|
| — |
|
| 39 |
|
| 61 |
|
Acquisitions through business combinations (note 2.2.4) | 2 |
|
| — |
|
| 317 |
|
| 319 |
|
Disposal | — |
|
| — |
|
| (5 | ) |
| (5 | ) |
Foreign exchange differences | (61 | ) |
| (83 | ) |
| (4 | ) |
| (148 | ) |
Transfers to assets held for sale (note 2.3) | (32 | ) |
| — |
|
| — |
|
| (32 | ) |
Transfers and other movements 1 | 64 |
|
| 1 |
|
| — |
|
| 65 |
|
Fully amortized intangible assets 2 | (16 | ) |
| (4 | ) |
| — |
|
| (20 | ) |
At December 31, 2018 | 745 |
|
| 1,128 |
|
| 443 |
|
| 2,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization and impairment losses |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016 | 424 |
|
| 980 |
|
| 25 |
|
| 1,429 |
|
Amortization charge | 31 |
|
| 31 |
|
| 16 |
|
| 78 |
|
Foreign exchange differences | 58 |
|
| 89 |
|
| 5 |
|
| 152 |
|
Transfers and other movements1 | (4 | ) |
| (1 | ) |
| — |
|
| (5 | ) |
Fully amortized intangible assets 2 | (18 | ) |
| (3 | ) |
| — |
|
| (21 | ) |
At December 31, 2017 | 491 |
|
| 1,096 |
|
| 46 |
|
| 1,633 |
|
Amortization charge | 47 |
|
| 22 |
|
| 42 |
|
| 111 |
|
Foreign exchange differences | (44 | ) |
| (76 | ) |
| (3 | ) |
| (123 | ) |
Transfers to assets held for sale (note 2.3) | (27 | ) |
| — |
|
| — |
|
| (27 | ) |
Transfers and other movements1 | 1 |
|
| — |
|
| (1 | ) |
| — |
|
Fully amortized intangible assets 2 | (16 | ) |
| (4 | ) |
| — |
|
| (20 | ) |
At December 31, 2018 | 452 |
|
| 1,038 |
|
| 84 |
|
| 1,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017 | 275 |
|
| 118 |
|
| 50 |
|
| 443 |
|
At December 31, 2018 | 293 |
|
| 90 |
|
| 359 |
|
| 742 |
|
| |
1. | Transfers and other movements correspond mainly to transfer from assets under construction into patents and licenses in 2018 and 2017.
|
| |
2. | Fully amortized assets correspond mainly to licenses in 2018 and 2017.
|
Research and development costs not meeting the criteria for capitalization are expensed as incurred. These costs amounted to 290, 278 and 239 for the years ended December 31, 2018, 2017, and 2016, respectively and were recognized in selling, general and administrative expenses.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Other intangible assets are summarized as follows: |
| | | | | | | | | | | |
| Concessions, patents and licenses |
| Customer relationships and trade marks |
| Other |
| Total |
Cost | |
| |
| |
| |
At December 31, 2017 | 766 |
|
| 1,214 |
|
| 96 |
|
| 2,076 |
|
Acquisitions | 22 |
|
| — |
|
| 39 |
|
| 61 |
|
Acquisitions through business combinations (note 2.2.4) | 2 |
| | — |
| | 317 |
| | 319 |
|
Disposals | — |
|
| — |
|
| (5 | ) |
| (5 | ) |
Foreign exchange differences | (61 | ) |
| (83 | ) |
| (4 | ) |
| (148 | ) |
Transfers to assets held for sale (note 2.3) | (32 | ) | | — |
| | — |
| | (32 | ) |
Transfers and other movements1 | 64 |
|
| 1 |
|
| — |
|
| 65 |
|
Fully amortized intangible assets 2 | (16 | ) |
| (4 | ) |
| — |
|
| (20 | ) |
At December 31, 2018 | 745 |
|
| 1,128 |
|
| 443 |
|
| 2,316 |
|
Acquisitions | 17 |
|
| — |
|
| 65 |
|
| 82 |
|
Acquisitions through business combination (note 2.2.4) | — |
| | 12 |
| | — |
| | 12 |
|
Disposal | — |
|
| — |
|
| (6 | ) |
| (6 | ) |
Foreign exchange differences | (8 | ) |
| (11 | ) |
| (4 | ) |
| (23 | ) |
Transfers and other movements 1 | (107 | ) |
| 4 |
|
| (351 | ) |
| (454 | ) |
Fully amortized intangible assets 2 | (17 | ) |
| — |
|
| — |
|
| (17 | ) |
At December 31, 2019 | 630 |
|
| 1,133 |
|
| 147 |
|
| 1,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization and impairment losses |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017 | 491 |
|
| 1,096 |
|
| 46 |
|
| 1,633 |
|
Amortization charge | 47 |
|
| 22 |
|
| 42 |
|
| 111 |
|
Foreign exchange differences | (44 | ) |
| (76 | ) |
| (3 | ) |
| (123 | ) |
Transfers to assets held for sale (note 2.3) | (27 | ) | | — |
| | — |
| | (27 | ) |
Transfers and other movements1 | 1 |
|
| — |
|
| (1 | ) |
| — |
|
Fully amortized intangible assets 2 | (16 | ) |
| (4 | ) |
| — |
|
| (20 | ) |
At December 31, 2018 | 452 |
|
| 1,038 |
|
| 84 |
|
| 1,574 |
|
Amortization charge | 53 |
|
| 11 |
|
| 30 |
|
| 94 |
|
Foreign exchange differences | (7 | ) |
| (11 | ) |
| (2 | ) |
| (20 | ) |
Transfers and other movements1 | (48 | ) |
| — |
|
| (1 | ) |
| (49 | ) |
Fully amortized intangible assets 2 | (17 | ) |
| — |
|
| — |
|
| (17 | ) |
At December 31, 2019 | 433 |
|
| 1,038 |
|
| 111 |
|
| 1,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018 | 293 |
|
| 90 |
|
| 359 |
|
| 742 |
|
At December 31, 2019 | 197 |
|
| 95 |
|
| 36 |
|
| 328 |
|
| |
1. | In 2019, transfers and other movements mainly relate to CO2 emission rights utilized from the acquisition of ArcelorMittal Italia amounting to 158 (see note 2.2.4)and favorable land lease contracts from the acquisition of ArcelorMittal Italia and advances for land use which were transferred to right-of-use assets upon implementation of IFRS 16 (see notes 1 and 7). In 2018, transfers and other movements correspond mainly to transfer from assets under construction into patents and licenses. |
| |
2. | Fully amortized assets correspond mainly to licenses in 2019 and 2018. |
Research and development costs not meeting the criteria for capitalization are expensed as incurred. These costs amounted to 301, 290 and 278 for the years ended December 31, 2019, 2018, and 2017, respectively and were recognized in selling, general and administrative expenses.
5.2 Property, plant and equipment and biological assets
Property, plant and equipment is recorded at cost less accumulated depreciation and impairment. Cost includes all related costs directly attributable to the acquisition or construction of the asset. Except for land and assets used in mining activities, property, plant and equipment is depreciated using the straight-line method over the useful lives of the related assets as presented in the table below.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
|
| | |
Asset Category | | Useful Life Range |
Land | | Not depreciated |
Buildings | | 10 to 50 years |
Property plant & equipment | | 15 to 50 years |
Auxiliary facilities | | 15 to 45 years |
Other facilities | | 5 to 20 years |
The Company’s annual review of useful lives leverages on the experience gained from an in-depth review performed every five years, any significant change in the expected pattern of consumption embodied in the asset, and the specialized knowledge of ArcelorMittal’s network of chief technical officers. The chief technical officer network includes engineers with facility-specific expertise related to plant and equipment used in the principal production units of the Company’s operations. The most recent in-depth review took place in 2014,2019, during which the Company performed a review of the useful lives of its assets and determined its maintenance and operating practices enabled an extension ofthere were no material changes to the useful lives of plant and equipment. In performing this review, the Company gathered and evaluated data, including commissioning dates, designed capacities, maintenance records and programs, and asset performance history, among other attributes. In accordance with IAS 16, Property, Plant and Equipment, the Company considered this information at the level of components significant in relation to the total cost of the item of plant and equipment. Other factors the Company considered in its determination of useful lives included the expected use of the assets, technical or commercial obsolescence, and operational factors that led to improvements in monitoring and process control that contribute to longer asset lives.factors. In addition, the Company considered the accumulated technical experience and knowledge sharing programs that allowed for the exchange of best practices within the chief technical officer network and the deployment of these practices across the Company’s principal production units.
Major improvements, which add to productive capacity or extend the life of an asset, are capitalized, while repairs and maintenance are expensed as incurred. Where a tangible fixed asset comprises major components having different useful lives, these components are accounted for as separate items.
Property, plant and equipment under construction is recorded as construction in progress until it is ready for its intended use; thereafter it is transferred to the related class of property, plant and equipment and depreciated over its estimated useful life. Interest incurred during construction is capitalized if the borrowing cost is directly attributable to the construction. Gains and losses on retirement or disposal of assets are recognized in cost of sales.
Property, plant and equipment acquired by way of finance leases is stated at an amount equal to the lower of the fair value and the present value of the minimum lease payments at the inception of the lease. Each lease payment is allocated between the finance charges and a reduction of the lease liability. The interest element of the finance cost is charged to the consolidated statements of operations over the lease period so as to achieve a constant rate of interest on the remaining balance of the liability.
The residual values and useful lives of property, plant and equipment are reviewed at each reporting date and adjusted if expectations differ from previous estimates. Depreciation methods applied to property, plant and equipment are reviewed at each reporting date and changed if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset.
Mining assets comprise:
| |
• | Mineral rights acquired; |
| |
• | Capitalized developmental stripping (as described below in “—Stripping and overburden removal costs”). |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Property, plant and equipment used in mining activities is depreciated over its useful life or over the remaining life of the mine, if shorter, and if there is no alternative use. For the majority of assets used in mining activities, the economic benefits from the asset are consumed in a pattern which is linked to the production level and accordingly, assets used in mining activities are primarily depreciated on a units-of-production basis. A unit-of-production is based on the available estimate of proven and probable reserves.
Capitalization of pre-production expenditures ceases when the mining property is capable of commercial production as it is intended by management. General administration costs that are not directly attributable to a specific exploration area are charged to the consolidated statements of operations.
Mining Reserves
Reserves are estimates of the amount of product that can be economically and legally extracted from the Company’s properties. In order to estimate reserves, estimates are required for a range of geological, technical and economic factors,
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
including quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity demand, commodity prices and exchange rates.
Estimating the quantity and/or grade of reserves requires the size, shape and depth of ore bodies to be determined by analyzing geological data such as drilling samples. This process may require complex and difficult geological judgments to interpret the data.
Because the economic assumptions used to estimate reserves change from period to period, and because additional geological data is generated during the course of operations, estimates of reserves may change from period to period. Changes in reported reserves may affect the Company’s financial results and financial position in a number of ways, including the following:
| |
• | Asset carrying amounts may be affected due to changes in estimated future cash flows. |
| |
• | Depreciation, depletion and amortization charged in the consolidated statements of operations may change where such charges are determined by the units of production basis, or where the useful economic lives of assets change. |
| |
• | Overburden removal costs recognized in the consolidated statements of financial position or charged to the consolidated statements of operations may change due to changes in stripping ratios or the units of production basis of depreciation. |
| |
• | Decommissioning, site restoration and environmental provisions may change where changes in estimated reserves affect expectations about the timing or cost of these activities. |
Stripping and overburden removal costs
In open pit and underground mining operations, it is often necessary to remove overburden and other waste materials to access the deposit from which minerals can be extracted. This process is referred to as stripping. Stripping costs can be incurred before the mining production commences (“developmental stripping”) or during the production stage (“production stripping”).
A mine can operate several open pits that are regarded as separate operations for the purpose of mine planning and production. In this case, stripping costs are accounted for separately, by reference to the ore extracted from each separate pit. If, however, the pits are highly integrated for the purpose of mine planning and production, stripping costs are aggregated.
The determination of whether multiple pit mines are considered separate or integrated operations depends on each mine’s specific circumstances. The following factors would point towards the stripping costs for the individual pits being accounted for separately:
| |
• | If mining of the second and subsequent pits is conducted consecutively with that of the first pit, rather than concurrently. |
| |
• | If separate investment decisions are made to develop each pit, rather than a single investment decision being made at the outset. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
| |
• | If the pits are operated as separate units in terms of mine planning and the sequencing of overburden and ore mining, rather than as an integrated unit. |
| |
• | If expenditures for additional infrastructure to support the second and subsequent pits are relatively large. |
| |
• | If the pits extract ore from separate and distinct ore bodies, rather than from a single ore body. |
The relative importance of each factor is considered by local management to determine whether the stripping costs should be attributed to the individual pit or to the combined output from several pits.
Developmental stripping costs contribute to the future economic benefits of mining operations when the production begins and so are capitalized as tangible assets (construction in progress), whereas production stripping is a part of on-going activities and commences when the production stage of mining operations begins and continues throughout the life of a mine.
Capitalization of developmental stripping costs ends when the commercial production of the minerals commences.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Production stripping costs are incurred to extract the ore in the form of inventories and/or to improve access to an additional component of an ore body or deeper levels of material. Production stripping costs are accounted for as inventories to the extent the benefit from production stripping activity is realized in the form of inventories. Production stripping costs are recognized as a non-current asset (“stripping activity assets”) to the extent it is probable that future economic benefit in terms of improved access to ore will flow to the Company, the components of the ore body for which access has been improved can be identified and the costs relating to the stripping activity associated with that component can be measured reliably.
All stripping costs assets (either stripping activity assets or capitalized developmental stripping costs) are presented within a specific “mining assets” class of property, plant and equipment and then depreciated on a units-of-production basis.
Exploration and evaluation expenditure
Exploration and evaluation activities involve the search for iron ore and coal resources, the determination of technical feasibility and the assessment of commercial viability of an identified resource. Exploration and evaluation activities include:
| |
• | researching and analyzing historical exploration data; |
| |
• | conducting topographical, geological, geochemical and geophysical studies; |
| |
• | carrying out exploratory drilling, trenching and sampling activities; |
| |
• | drilling, trenching and sampling activities to determine the quantity and grade of the deposit; |
| |
• | examining and testing extraction methods and metallurgical or treatment processes; and |
| |
• | detailed economic feasibility evaluations to determine whether development of the reserves is commercially justified and to plan methods for mine development. |
Exploration and evaluation expenditure is charged to the consolidated statements of operations as incurred except in the following circumstances, in which case the expenditure is capitalized: (i) the exploration and evaluation activity is within an area of interest which was previously acquired in a business combination and measured at fair value on acquisition; or (ii) when management has a high degree of confidence in the project’s economic viability and it is probable that future economic benefits will flow to the Company.
Capitalized exploration and evaluation expenditures are generally recorded as a component of property, plant and equipment at cost less impairment charges, unless their nature requires them to be recorded as an intangible asset. As the asset is not available for use, it is not depreciated and all capitalized exploration and evaluation expenditure is monitored for indications of impairment. To the extent that capitalized expenditure is not expected to be recovered, it is recognized as an expense in the consolidated statements of operations.
Cash flows associated with exploration and evaluation expenditure are classified as operating activities when they are related to expenses or as an investing activity when they are related to a capitalized asset in the consolidated statements of cash flows.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Development expenditure
Development is the establishment of access to the mineral reserve and other preparations for commercial production. Development activities often continue during production and include:
| |
• | sinking shafts and underground drifts (often called mine development); |
| |
• | making permanent excavations; |
| |
• | developing passageways and rooms or galleries; |
| |
• | building roads and tunnels; and |
| |
• | advance removal of overburden and waste rock. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Development (or construction) also includes the installation of infrastructure (e.g., roads, utilities and housing), machinery, equipment and facilities.
When reserves are determined and development is approved, expenditures capitalized as exploration and evaluation are reclassified as construction in progress and are reported as a component of property, plant and equipment. All subsequent development expenditures are capitalized and classified as construction in progress. On completion of development, all assets included in construction in progress are individually reclassified to the appropriate category of property, plant and equipment and depreciated accordingly.
Biological assets
Biological assets are part of the Brazil operating segment and consist of eucalyptus forests located in the Brazilian state of Minas Gerais exclusively from renewable plantations and intended for the production of charcoal to be utilized as fuel and a source of carbon in the direct reduction process of pig iron production in some of the Company’s blast furnaces in Brazil.
Biological assets are measured at their fair value, net of estimated costs to sell at the time of harvest. The fair value (level(Level 3 in the fair value hierarchy) is determined based on the discounted cash flow method, taking into consideration the cubic volume of wood, segregated by plantation year, and the equivalent sales value of standing trees. The average sales price was estimated based on domestic market prices. In determining the fair value of biological assets, a discounted cash flow model was used, with a harvest cycle of 6 to 7 years.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Property, plant and equipment and biological assets are summarized as follows:
|
| | | | | | | | | | | | | | |
| Land, buildings and Improvements | | Machinery, equipment and other 2 | | Construction in progress | | Mining Assets | | Total |
Cost | | | | | | | | | |
At December 31, 2016 | 11,108 |
| | 43,317 |
| | 3,257 |
| | 3,751 |
| | 61,433 |
|
Additions | 90 |
| | 357 |
| | 2,441 |
| | 50 |
| | 2,938 |
|
Foreign exchange differences | 1,629 |
| | 5,560 |
| | 154 |
| | — |
| | 7,343 |
|
Disposals | (97 | ) | | (853 | ) | | (7 | ) | | (1 | ) | | (958 | ) |
Divestments (note 2.3) | (7 | ) | | (40 | ) | | — |
| | — |
| | (47 | ) |
Transfers to assets held for sale (note 2.3) | (21 | ) | | (95 | ) | | — |
| | — |
| | (116 | ) |
Other movements 1 | 143 |
| | 1,928 |
| | (2,113 | ) | | 75 |
| | 33 |
|
At December 31, 2017 | 12,845 |
| | 50,174 |
| | 3,732 |
| | 3,875 |
| | 70,626 |
|
Additions | 36 |
| | 282 |
| | 3,064 |
| | 28 |
| | 3,410 |
|
Acquisitions through business combinations (see note 2.2.4)
| 358 |
|
| 1,210 |
|
| 58 |
|
| — |
|
| 1,626 |
|
Foreign exchange differences | (888 | ) | | (4,006 | ) | | (220 | ) | | (100 | ) | | (5,214 | ) |
Disposals | (120 | ) | | (535 | ) | | (113 | ) | | (13 | ) | | (781 | ) |
Divestments (note 2.3) | (43 | ) | | (215 | ) | | (2 | ) | | — |
| | (260 | ) |
Transfers to assets held for sale (note 2.3) | (1,434 | ) | | (4,532 | ) | | (143 | ) | | — |
| | (6,109 | ) |
Other movements 1 | 125 |
| | 1,684 |
| | (2,013 | ) | | 111 |
| | (93 | ) |
At December 31, 2018 | 10,879 |
| | 44,062 |
| | 4,363 |
| | 3,901 |
| | 63,205 |
|
| | | | | | | | | |
Accumulated depreciation and impairment | | | | | | | | |
At December 31, 2016 | 3,138 |
| | 19,980 |
| | 993 |
| | 2,491 |
| | 26,602 |
|
Depreciation charge for the year | 329 |
| | 2,249 |
| | — |
| | 112 |
| | 2,690 |
|
Impairment (note 5.3) | 10 |
| | 196 |
| | — |
| | — |
| | 206 |
|
Disposals | (61 | ) | | (820 | ) | | (1 | ) | | — |
| | (882 | ) |
Foreign exchange differences | 940 |
| | 4,080 |
| | 18 |
| | 2 |
| | 5,040 |
|
Divestments (note 2.3) | (4 | ) | | (39 | ) | | — |
| | — |
| | (43 | ) |
Transfers to assets held for sale (note 2.3) | (18 | ) | | (64 | ) | | — |
| | — |
| | (82 | ) |
Other movements 1 | 22 |
| | 118 |
| | (22 | ) | | 6 |
| | 124 |
|
At December 31, 2017 | 4,356 |
| | 25,700 |
| | 988 |
| | 2,611 |
| | 33,655 |
|
Depreciation charge for the year | 356 |
| | 2,212 |
| | — |
| | 120 |
| | 2,688 |
|
Impairment (note 5.3) | 21 |
| | 930 |
| | 9 |
| | — |
| | 960 |
|
Disposals | (110 | ) | | (494 | ) | | — |
| | (13 | ) | | (617 | ) |
Foreign exchange differences | (484 | ) | | (2,715 | ) | | (7 | ) | | (81 | ) | | (3,287 | ) |
Divestments (note 2.3) | (31 | ) | | (181 | ) | | — |
| | — |
| | (212 | ) |
Transfers to assets held for sale (note 2.3) | (989 | ) | | (4,456 | ) | | (26 | ) | | — |
| | (5,471 | ) |
Other movements 1 | (6 | ) | | (158 | ) | | 17 |
| | (2 | ) | | (149 | ) |
At December 31, 2018 | 3,113 |
| | 20,838 |
| | 981 |
| | 2,635 |
| | 27,567 |
|
| | | | | | | | | |
Carrying amount | | | | | | | | | |
At December 31, 2017 | 8,489 |
| | 24,474 |
| | 2,744 |
| | 1,264 |
| | 36,971 |
|
At December 31, 2018 | 7,766 |
| | 23,224 |
| | 3,382 |
| | 1,266 |
| | 35,638 |
|
|
| | | | | | | | | | | | | | |
| Land, buildings and Improvements | | Machinery, equipment and other 2 | | Construction in progress | | Mining Assets | | Total |
Cost | | | | | | | | | |
At December 31, 2016 | 11,108 |
| | 43,317 |
| | 3,257 |
| | 3,751 |
| | 61,433 |
|
Additions | 90 |
| | 357 |
| | 2,441 |
| | 50 |
| | 2,938 |
|
Foreign exchange differences | 1,629 |
| | 5,560 |
| | 154 |
| | — |
| | 7,343 |
|
Disposals | (97 | ) | | (853 | ) | | (7 | ) | | (1 | ) | | (958 | ) |
Divestments (note 2.3) | (7 | ) | | (40 | ) | | — |
| | — |
| | (47 | ) |
Transfers to assets held for sale (note 2.3) | (21 | ) | | (95 | ) | | — |
| | — |
| | (116 | ) |
Other movements 1 | 143 |
| | 1,928 |
| | (2,113 | ) | | 75 |
| | 33 |
|
At December 31, 2017 | 12,845 |
| | 50,174 |
| | 3,732 |
| | 3,875 |
| | 70,626 |
|
Additions | 36 |
| | 282 |
| | 3,064 |
| | 28 |
| | 3,410 |
|
Acquisitions through business combinations (see note 2.2.4)
| 358 |
|
| 1,210 |
|
| 58 |
|
| — |
|
| 1,626 |
|
Foreign exchange differences | (888 | ) | | (4,006 | ) | | (220 | ) | | (100 | ) | | (5,214 | ) |
Disposals | (120 | ) | | (535 | ) | | (113 | ) | | (13 | ) | | (781 | ) |
Divestments (note 2.3) | (43 | ) | | (215 | ) | | (2 | ) | | — |
| | (260 | ) |
Transfers to assets held for sale (note 2.3) | (1,434 | ) | | (4,532 | ) | | (143 | ) | | — |
| | (6,109 | ) |
Other movements 1 | 125 |
| | 1,684 |
| | (2,013 | ) | | 111 |
| | (93 | ) |
At December 31, 2018 | 10,879 |
| | 44,062 |
| | 4,363 |
| | 3,901 |
| | 63,205 |
|
| | | | | | | | | |
Accumulated depreciation and impairment | | | | | | | | |
At December 31, 2016 | 3,138 |
| | 19,980 |
| | 993 |
| | 2,491 |
| | 26,602 |
|
Depreciation charge for the year | 329 |
| | 2,249 |
| | — |
| | 112 |
| | 2,690 |
|
Impairment (note 5.3) | 10 |
| | 196 |
| | — |
| | — |
| | 206 |
|
Disposals | (61 | ) | | (820 | ) | | (1 | ) | | — |
| | (882 | ) |
Foreign exchange differences | 940 |
| | 4,080 |
| | 18 |
| | 2 |
| | 5,040 |
|
Divestments (note 2.3) | (4 | ) | | (39 | ) | | — |
| | — |
| | (43 | ) |
Transfers to assets held for sale (note 2.3) | (18 | ) | | (64 | ) | | — |
| | — |
| | (82 | ) |
Other movements 1 | 22 |
| | 118 |
| | (22 | ) | | 6 |
| | 124 |
|
At December 31, 2017 | 4,356 |
| | 25,700 |
| | 988 |
| | 2,611 |
| | 33,655 |
|
Depreciation charge for the year | 356 |
| | 2,212 |
| | — |
| | 120 |
| | 2,688 |
|
Impairment (note 5.3) | 21 |
| | 930 |
| | 9 |
| | — |
| | 960 |
|
Disposals | (110 | ) | | (494 | ) | | — |
| | (13 | ) | | (617 | ) |
Foreign exchange differences | (484 | ) | | (2,715 | ) | | (7 | ) | | (81 | ) | | (3,287 | ) |
Divestments (note 2.3) | (31 | ) | | (181 | ) | | — |
| | — |
| | (212 | ) |
Transfers to assets held for sale (note 2.3) | (989 | ) | | (4,456 | ) | | (26 | ) | | — |
| | (5,471 | ) |
Other movements 1 | (6 | ) | | (158 | ) | | 17 |
| | (2 | ) | | (149 | ) |
At December 31, 2018 | 3,113 |
| | 20,838 |
| | 981 |
| | 2,635 |
| | 27,567 |
|
| | | | | | | | | |
Carrying amount | | | | | | | | | |
At December 31, 2017 | 8,489 |
| | 24,474 |
| | 2,744 |
| | 1,264 |
| | 36,971 |
|
At December 31, 2018 | 7,766 |
| | 23,224 |
| | 3,382 |
| | 1,266 |
| | 35,638 |
|
|
| | | | | | | | | | | | | | | | | |
| Land, buildings and Improvements | | Machinery, equipment and other 2 | | Construction in progress | | Right-of-use assets4 | | Mining Assets | | Total |
Cost | | | | | | | | | | | |
At December 31, 2017 | 12,845 |
| | 50,174 |
| | 3,732 |
| | — |
| | 3,875 |
| | 70,626 |
|
Additions | 36 |
| | 282 |
| | 3,064 |
| | — |
| | 28 |
| | 3,410 |
|
Acquisitions through business combinations (note 2.2.4) | 358 |
| | 1,210 |
| | 58 |
| | — |
| | — |
| | 1,626 |
|
Foreign exchange differences | (888 | ) | | (4,006 | ) | | (220 | ) | | — |
| | (100 | ) | | (5,214 | ) |
Disposals | (120 | ) | | (535 | ) | | (113 | ) | | — |
| | (13 | ) | | (781 | ) |
Divestments (note 2.3.1) | (43 | ) | | (215 | ) | | (2 | ) | | — |
| | — |
| | (260 | ) |
Transfers (to)/ from assets held for sale (note 2.3.2) | (1,434 | ) | | (4,532 | ) | | (143 | ) | | — |
| | — |
| | (6,109 | ) |
Other movements 1 | 125 |
| | 1,684 |
| | (2,013 | ) | | — |
| | 111 |
| | (93 | ) |
At December 31, 2018 | 10,879 |
| | 44,062 |
| | 4,363 |
| | — |
| | 3,901 |
| | 63,205 |
|
Adoption of IFRS 16 (notes 1 and 7)3 | — |
| | (921 | ) | | — |
| | 2,365 |
| | — |
| | 1,444 |
|
At January 1, 2019 | 10,879 |
| | 43,141 |
| | 4,363 |
| | 2,365 |
| | 3,901 |
| | 64,649 |
|
Additions | 35 |
| | 471 |
| | 3,245 |
| | 259 |
| | 26 |
| | 4,036 |
|
Acquisitions through business combinations (note 2.2.4) | 24 |
|
| 10 |
|
| — |
|
| — |
| | — |
|
| 34 |
|
Foreign exchange differences | (99 | ) | | (98 | ) | | 50 |
| | (7 | ) | | 38 |
| | (116 | ) |
Disposals | (66 | ) | | (654 | ) | | (16 | ) | | (4 | ) | | (19 | ) | | (759 | ) |
Divestments (note 2.3.1) | — |
| | (130 | ) | | — |
| | (484 | ) | | — |
| | (614 | ) |
Other movements 1 | 124 |
| | 1,888 |
| | (2,152 | ) | | (37 | ) | | 167 |
| | (10 | ) |
At December 31, 2019 | 10,897 |
| | 44,628 |
| | 5,490 |
| | 2,092 |
| | 4,113 |
| | 67,220 |
|
| | | | | | | | | | | |
Accumulated depreciation and impairment | | | | | | | | | | |
At December 31, 2017 | 4,356 |
| | 25,700 |
| | 988 |
| | — |
| | 2,611 |
| | 33,655 |
|
Depreciation charge for the year | 356 |
| | 2,212 |
| | — |
| | — |
| | 120 |
| | 2,688 |
|
Impairment (note 5.3) | 21 |
| | 930 |
| | 9 |
| | — |
| | — |
| | 960 |
|
Disposals | (110 | ) | | (494 | ) | | — |
| | — |
| | (13 | ) | | (617 | ) |
Foreign exchange differences | (484 | ) | | (2,715 | ) | | (7 | ) | | — |
| | (81 | ) | | (3,287 | ) |
Divestments (note 2.3.1) | (31 | ) | | (181 | ) | | — |
| | — |
| | — |
| | (212 | ) |
Transfers (to)/ from assets held for sale (note 2.3.2) | (989 | ) | | (4,456 | ) | | (26 | ) | | — |
| | — |
| | (5,471 | ) |
Other movements 1 | (6 | ) | | (158 | ) | | 17 |
| | — |
| | (2 | ) | | (149 | ) |
At December 31, 2018 | 3,113 |
| | 20,838 |
| | 981 |
| | — |
| | 2,635 |
| | 27,567 |
|
Adoption of IFRS 16 (notes 1 and 7)3 | — |
| | (558 | ) | | — |
| | 597 |
| | — |
| | 39 |
|
At January 1, 2019 | 3,113 |
| | 20,280 |
| | 981 |
| | 597 |
| | 2,635 |
| | 27,606 |
|
Depreciation charge for the year | 338 |
| | 2,171 |
| | — |
| | 343 |
| | 121 |
| | 2,973 |
|
Impairment (note 5.3) | 154 |
| | 1,202 |
| | 9 |
| | 65 |
| | — |
| | 1,430 |
|
Disposals | (45 | ) | | (614 | ) | | — |
| | (3 | ) | | (17 | ) | | (679 | ) |
Foreign exchange differences | (58 | ) | | (112 | ) | | (4 | ) | | 4 |
| | 24 |
| | (146 | ) |
Divestments (note 2.3.1) | — |
| | (3 | ) | | — |
| | (94 | ) | | — |
| | (97 | ) |
Other movements 1 | (14 | ) | | (35 | ) | | 5 |
| | (55 | ) | | 1 |
| | (98 | ) |
At December 31, 2019 | 3,488 |
| | 22,889 |
| | 991 |
| | 857 |
| | 2,764 |
| | 30,989 |
|
| | | | | | | | | | | |
Carrying amount | | | | | | | | | | | |
At December 31, 2018 | 7,766 |
| | 23,224 |
| | 3,382 |
| | — |
| | 1,266 |
| | 35,638 |
|
At December 31, 2019 | 7,409 |
| | 21,739 |
| | 4,499 |
| | 1,235 |
| | 1,349 |
| | 36,231 |
|
1. Other movements predominantly represent transfers from construction in progress to other categories and retirement of fully amortized assets. In 2019, other movement also include 92 relating to finalization of acquisition date fair values of AM Italia (refer note 2.2.4).
2. Machinery, equipment and other includes biological assets of 4959 and 3649 as of December 31, 20182019 and 2017,2018, respectively, and bearer plants of 38 and 3538 as of December 31, 20182019 and 2017,2018, respectively.
3. Includes additions due to implementation of IFRS 16 amounting to 1,136 as well as favorable terms of operating leases of ArcelorMittal Italia and amounts prepaid for the right of use of land, both reclassified from intangible assets (refer note 7).
4. Right-of-use assets as of December 31, 2018 include 921 of cost of assets and 558 of accumulated depreciation previously recognized under IAS 17 and presented within machinery, equipment and other. Upon implementation of IFRS 16, the right-of-use assets are presented separately in the table above.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The carrying amount of temporarily idle property, plant and equipment at December 31, 2019 and 2018 was 332 and 2017 was 260 including 228 and 325 including 244 and 297 in Brazil, 14 and 614 in NAFTA, 88 and 2 and 22 in the Europe segment and 2 and 0 in the ACIS segment respectively.
The carrying amount of property, plant and equipment retired from active use and not classified as held for sale was 5147 and 51 at December 31, 20182019 and 2017,2018, respectively. Such assets are carried at their recoverable amount.
Lease arrangementsAssets pledged as security
The Company may enter into arrangements that do not takeRefer note 9.4 for information on assets pledged as security by the legal form of a lease, but may contain a lease. This will be the case if the following two criteria are met:
| |
• | The fulfillment of the arrangement depends on the use of a specific asset and
|
| |
• | The arrangement conveys a right to use the asset.
|
Assets under lease arrangements which transfer substantially all of the risks and rewards of ownership to the Company are classified as finance leases. On initial recognition, the leased asset and its related liability are measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset while the minimum lease payments are apportioned between financing costs and reduction of the lease liability.Company.
Assets held under lease arrangements that are not finance leases are classified as operating leases and are not recognized in the consolidated statements of financial position. Payments made under operating leases are recognized in cost of sales in the consolidated statements of operations on a straight-line basis over the lease terms.Capital commitments
The carrying amountRefer note 9.4 for information on contractual commitments for acquisition of capitalized leases was 363 and 415 as of December 31, 2018 and 2017, respectively including 232 and 364 related to machineryproperty, plant and equipment 93 and 51 to buildings and 38 and 0 to land, respectively.
The total future minimum lease payments related to finance leases forby the year ended December 31, 2018 were as follows: |
| | |
2019 | 121 |
|
2020 – 2023 | 392 |
|
2024 and beyond | 86 |
|
Total minimum lease commitments | 599 |
|
Less: future finance charges | 176 |
|
Present value of minimum lease payments | 423 |
|
The total future minimum lease payments related to finance leases for the year ended December 31, 2017 were as follows: |
| | |
2018 | 144 |
|
2019 – 2022 | 440 |
|
2023 and beyond | 160 |
|
Total minimum lease commitments | 744 |
|
Less: future finance charges | 256 |
|
Present value of minimum lease payments | 488 |
|
The present value of the future minimum lease payments was 423 and 488 for the year ended December 31, 2018 and 2017, respectively. The 2018 calculation is based on an average discount rate of 12.5% (13.2% in 2017) considering maturities from 1 to 13 years (from 1 to 14 years in 2017) including the renewal option when intended to be exercised.Company.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
5.3 Impairment of intangible assets, including goodwill, and tangible assets
Impairment charges recognized were as follows: | | | | Year ended December 31, | | Year ended December 31, |
Type of asset | | 2018 | | 2017 | | 2016 | | 2019 | | 2018 | | 2017 |
Goodwill | | 34 |
| | — |
| | — |
| | — |
| | 34 |
| | — |
|
Tangible assets | | 960 |
| | 206 |
| | 205 |
| | 1,927 |
| | 960 |
| | 206 |
|
Total | | 994 |
| | 206 |
| | 205 |
| | 1,927 |
| | 994 |
| | 206 |
|
Impairment test of goodwill
Goodwill is tested for impairment annually, as of October 1 or whenever changes in circumstances indicate that the carrying amount may not be recoverable, at the level of the groups of cash-generating units (“GCGU”) which correspond to the operating segments representing the lowest level at which goodwill is monitored for internal management purposes. Whenever the cash-generating units comprising the operating segments are tested for impairment at the same time as goodwill, the cash-generating units are tested first and any impairment of the assets is recorded prior to the testing of goodwill. Until the year ended December 31, 2017, the Company performed its annual impairment test of goodwill using October 31 as the measurement date. Effective September 2018, the Company changed its impairment test date to October 1 in order to better align with its internal strategic and financial planning process. The Company believes that this change in datesdate is preferable under the circumstances and does not result in the delay, acceleration or avoidance of an impairment charge.
The recoverable amounts of the GCGUs are mainly determined based on their value in use. The value in use of each GCGU is determined by estimating future cash flows. The 20182019 impairment test of goodwill did not include the GCGU corresponding to the Mining segment as goodwill allocated to this GCGU was fully impaired in 2015. The key assumptions for the value in use calculations are primarily the discount rates, growth rates, expected changes to average selling prices, shipments and direct costs during the period. Assumptions for average selling prices and shipments are based on historical experience and expectations of future changes in the market. In addition, with respect to raw material price assumptions, the Company applied a range of $60$63 per tonne to $65$80 per tonne for iron ore and $130$145 per tonne to $192$170 per tonne for coking coal. Cash flow forecasts adjusted for the risks specific to the tested assets are derived from the most recent financial plans approved by management for the next five years. Beyond the specifically forecasted period, the Company extrapolates cash flows for the remaining years based on an estimated growth rate of 2%. This rate does not exceed the average long-term growth rate for the relevant markets.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Management estimates discount rates using pre-tax rates that reflect current market rates for investments of similar risk. The rate for each GCGU was estimated from the weighted average cost of capital of producers, which operate a portfolio of assets similar to those of the Company’s assets. | | | NAFTA |
| Brazil |
| Europe |
| ACIS | NAFTA |
| Brazil |
| Europe |
| ACIS |
GCGU weighted average pre-tax discount rate used in 2019 (in %) | | 10.8 |
| 15.0 |
| 9.1 |
| 14.5 |
GCGU weighted average pre-tax discount rate used in 2018 (in %) | 12.9 |
| 15.5 |
| 10.6 |
| 15.4 | 12.9 |
| 15.5 |
| 10.6 |
| 15.4 |
GCGU weighted average pre-tax discount rate used in 2017 (in %) | 11.9 |
| 15.6 |
| 11.0 |
| 16.3 | |
Once recognized, impairment losses for goodwill are not reversed.
There was no0 impairment charge recognized with respect to goodwill following the Company’s impairment test as of October 1, 2018.2019. The total value in use calculated for all GCGUs increaseddecreased overall in 20182019 as compared to 2017. The2018. In 2018, the Company recognized a 18 and 16 impairment loss relating to goodwill in connection with the sale of the Votorantim remedies (see note 2.3.1.) and the intended sale of the IlvaArcelorMittal Italia remedies (see note 2.3.2.)2.3.1).
In validating the value in use determined for the GCGUs, the Company performed a sensitivity analysis of key assumptions used in the discounted cash-flow model (such as discount rates, average selling prices shipments and terminal growth rate)shipments). The Company believes that reasonably possible changes in key assumptions could cause an impairment loss to be recognized in respect of the NAFTA and ACIS segments.
In 2017,ACIS produces a combination of flat and long products. Its facilities are located in Africa, Ukraine and the Commonwealth of Independent States. ACIS is significantly self-sufficient in raw materials. The Company believes that sales volumes, prices and discount rates are the key assumptions most sensitive to change. ACIS is also exposed to export markets and international steel prices which are volatile, reflecting the cyclical nature of the global steel industry, developments in particular steel consuming industries and macroeconomic trends of emerging markets, such as economic growth. Discount rates may be affected by changes in countries’ specific risks. The ACIS value in use model anticipates an increase in sales volumes in 2020 and 2021 compared to 2019 (11.5 million tonnes for the year ended December 31, 2019) followed by stable volumes thereafter. Average selling prices in the model are expected to increase in 2020 due to higher international raw material prices and stabilize subsequently in line with such long-term prices.
The NAFTA segment produces a combination of flat, long and tubular products. Its facilities are located in North America including Canada, the USA and Mexico. The segment is primarily focused on the domestic automotive industry in Canada, the USA while in Mexico a major investment program has been launched to build downstream capabilities in order to anticipate increased demand from domestic customers for flat and long products. The Company believes that sales volumes, prices and discount rates are the key assumptions most sensitive to change. The NAFTA model anticipates a decrease in sales volumes in 2020 compared to 2019 (20.9 million tonnes for the year ended December 31, 2019) followed by an increase in 2021 and stable volumes thereafter. Average steel selling prices in the model are expected to decrease slightly and stabilize after 2022.
The following changes in key assumptions in projected earnings in every year of initial five-year period and perpetuity, at the GCGU level, assuming unchanged values for the other assumptions, would have causedcause the recoverab
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
lerecoverable amount to equal respective carrying value as of the impairment test date (i.e.: October 31, 2017)1, 2019). | | | 2017 | 2019 |
| ACIS | | Brazil | NAFTA | | ACIS |
Excess of recoverable amount over carrying amount | 272 | | 1,307 | 789 | | 152 |
Increase in pre-tax discount rate (change in basis points) | 72 | | 140 | 65 | | 27 |
Decrease in average selling price (change in %) | 0.49 | | 1.37 | 0.37 | | 0.29 |
Decrease in shipments (change in %) | 2.16 | | 4.11 | 1.06 | | 1.00 |
In 2018, given the overall increase in value in use, the Company did not identify any reasonably possible change in key assumptions which could cause an impairment loss to be recognized.
Impairment test of property, plant and equipment
At each reporting date, ArcelorMittal reviews the carrying amounts of its intangible assets (excluding goodwill) and tangible assets to determine whether there is any indication that the carrying amount of those assets may not be recoverable
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
through continuing use. If any such indication exists, the recoverable amount of the asset (or cash generating unit) is reviewed in order to determine the amount of the impairment, if any. The recoverable amount is the higher of its net selling price (fair value reduced by selling costs) and its value in use.
In estimating its value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or cash-generating unit). For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. The cash-generating unit is the smallest identifiable group of assets corresponding to operating units that generate cash inflows. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, an impairment loss is recognized. An impairment loss is recognized as an expense immediately as part of operating income in the consolidated statements of operations.
In the case of permanently idled assets, the impairment is measured at the individual asset level. Otherwise, the Company’s assets are measured for impairment at the cash-generating unit level. In certain instances, the cash-generating unit is an integrated manufacturing facility which may also be an operating subsidiary. Further, a manufacturing facility may be operated in concert with another facility with neither facility generating cash flows that are largely independent from the cash flows of the other. In this instance, the two facilities are combined for purposes of testing for impairment. As of December 31, 2018,2019, the Company determined it has 61 cash-generating units.
In the context of the termination notice sent to the Ilva Commissioners indicating ArcelorMittal's intent to withdraw from or terminate the lease and purchase agreement, which was followed by subsequent negotiations (see note 9.3), the Company determined that ArcelorMittal Italia represented a separate cash-generating unit as of December 31, 2019 with a carrying amount of 1,970 (including property, plant and equipment of 1,477). In estimating its value in use, key assumptions impacting significantly the cash flow projections included the discount rate reflecting uncertainty associated with the ongoing negotiations, selling prices, shipments and direct costs resulting from the execution of the industrial plan as contractually agreed at inception of the lease.
An impairment loss, related to intangible assets other than goodwill and tangible assets recognized in prior years is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. However, the increased carrying amount of an asset due to a reversal of an impairment loss will not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized immediately as part of operating income in the consolidated statements of operations.
Impairment charges relating to property, plant and equipment were as follows for the years ended December 31, 2019, 2018 2017 and 2016:2017:
2019
In 2019, the Company recognized a total impairment charge related to property, plant and equipment amounting to 1,927, of which 1,300 relating to ArcelorMittal USA (NAFTA), 102 to ArcelorMittal South Africa (ACIS), and 525 in Europe, including 497related to ArcelorMittal Italia remedies (see note 2.3.1).
During the six months ended June 30, 2019, the Company recognized an impairment charge for property, plant and equipment amounting to 600 relating to ArcelorMittal USA as a result of a downward revision of cash flow projections in particular with respect to near-term steel selling prices as follows:
|
| | | | | | | | | | | | | | | | |
Cash-Generating Unit | | Country | | Operating Segment | | Impairment Recorded | | 2019 Pre-Tax Discount Rate | | 2018 Pre-Tax Discount Rate | | Carrying amount of property, plant and equipment as of June 30, 2019 |
ArcelorMittal USA | | USA | | NAFTA | | 600 |
| | 13.98 | % | | 16.91 | % | | 3,213 |
|
In the second half of 2019, in connection with management’s annual test for impairment of goodwill, property, plant and equipment was also tested for impairment at that date. The Company recognized an impairment charge for property, plant and equipment amounting to 700 relating to ArcelorMittal USA in the NAFTA operating segment as a result of a downward revision of cash flow projections in particular with respect to near-term steel selling prices consisting of the following:
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
|
| | | | | | | | | | | | | | | | |
Cash-Generating Unit | | Country | | Operating Segment | | Impairment Recorded | | 2019 Pre-Tax Discount Rate | | 2018 Pre-Tax Discount Rate | | Carrying amount of property, plant and equipment as of December 31, 2019 |
ArcelorMittal USA | | USA | | NAFTA | | 700 |
| | 10.17 | % | | 16.91 | % | | 2,568 |
|
In the same context, the Company recognized a impairment charge for property, plant and equipment of 75 relating to the Long Steel Products facility of Newcastle in ArcelorMittal South Africa as a result of a lower domestic volumes as follows:
|
| | | | | | | | | | | | | | | | |
Cash-Generating Unit | | Country | | Operating Segment | | Impairment Recorded | | 2019 Pre-Tax Discount Rate | | 2018 Pre-Tax Discount Rate | | Carrying amount of property, plant and equipment as of December 31, 2019 |
Long Steel Products | | South Africa | | ACIS | | 75 |
| | 13.87 | % | | 15.13 | % | | 163 |
|
In addition, the Company recorded impairment charges for property, plant and equipment of ArcelorMittal South Africa of 27 including 20 with respect to the closure of the Saldanha facility.
2018
In 2018, the Company recognized a total impairment charge related to property, plant and equipment of 960 including 872 in connection with the intended sale of the IlvaArcelorMittal Italia remedies (see note 2.3.2) and 68 in relation to the sale of the Votorantim remedies (see note 2.3.1).
2017
In 2017, the Company recognized a total impairment charge related to property, plant and equipment in AMSAArcelorMittal South Africa (ACIS) amounting to 206.
During the six months ended June 30, 2017, management performed a test for impairment relating to the Long CarbonSteel Products cash-generating unit of ArcelorMittal South Africa as a result of a downward revision of cash flow projections. Accordingly, t
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
hethe Company recognized an impairment charge of 46 consisting of the following: |
| | | | | | | | | | | | | | | | |
Cash-Generating Unit | | Country | | Operating Segment | | Impairment Recorded | | 2017 Pre-Tax Discount Rate | | 2016 Pre-Tax Discount Rate | | Carrying amount of property, plant and equipment as of June 30, 2017 |
Long Steel Products | | South Africa | | ACIS | | 46 |
| | 17.12 | % | | 16.63 | % | | 325 |
|
In connection with management’s annual test for impairment of goodwill, property, plant and equipment was also tested for impairment at that date. As of December 31, 2017, the Company concluded that the value in use of property, plant and equipment in AMSAArcelorMittal South Africa was lower than its carrying amount in the context of the appreciation of the rand against U.S. dollar and the uncertainties about demand outlook. Accordingly, the Company recognized a total impairment charge of 160 consisting mainly of the following: |
| | | | | | | | | | | | | | | | |
Cash-Generating Unit | | Country | | Operating Segment | | Impairment Recorded | | 2017 Pre-Tax Discount Rate | | 2016 Pre-Tax Discount Rate | | Carrying amount of property, plant and equipment as of December 31, 2017 |
Vanderbijlpark facility | | South Africa | | ACIS | | 86 |
| | 15.23 | % | | 14.97 | % | | 296 |
|
Long Steel Products | | South Africa | | ACIS | | 33 |
| | 15.24 | % | | 15.22 | % | | 306 |
|
2016ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In 2016, the Company recognized a total impairment charge(millions of property, plantU.S. dollars, except share and equipment amounting to 205.per share data)
This charge included 49 in connection with the sale of the ArcelorMittal Zaragoza facility in Spain (Europe segment) on September 30, 2016 (see note 2.3.1).
In connection with management’s annual test for impairment of goodwill as of October 31, 2016, property, plant and equipment was also tested for impairment at that date. The Company concluded that the value in use of property, plant and equipment in AMSA was lower than its carrying amount following a revised competitive outlook. Accordingly, the Company recognized a total impairment charge of 156 consisting mainly of the following: |
| | | | | | | | | | | | | | | | |
Cash-Generating Unit | | Country | | Operating Segment | | Impairment Recorded | | 2016 Pre-Tax Discount Rate | | 2015 Pre-Tax Discount Rate | | Carrying amount of property, plant and equipment as of December 31, 2016 |
Vanderbijlpark facility | | South Africa | | ACIS | | 125 |
| | 14.97 | % | | 14.71 | % | | 330 |
|
NOTE 6: FINANCING AND FINANCIAL INSTRUMENTS
6.1Financial assets and liabilities
Financial assets and liabilities mainly comprise:
| |
• | fair values versus carrying amounts (see note 6.1.1) |
| |
• | gross debt (see note 6.1.2) |
| |
• | cash and cash equivalents, restricted cash and reconciliations of cash flows (see note 6.1.3) |
| |
• | net debt (see note 6.1.4) |
| |
• | derivative financial instruments (see note 6.1.5) |
| |
• | other non-derivative financial assets and liabilities (see note 6.1.6) |
6.1.1 Fair values versus carrying amounts
The estimated fair values of certain financial instruments have been determined using available market information or other valuation methodologies that require judgment in interpreting market data and developing estimates. On January 1, 2018 (the date of initial application of IFRS 9), the Company has assessed which business model applies to the financial assets held
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
by the Company and has classified its financial instruments into the appropriate IFRS 9 categories. The Company has applied IFRS 9 in accordance with the transition provisions set out in IFRS 9.
Classification and measurement of financial assets
The date of initial application (i.e. the date on which the Company has assessed its existing financial assets and financial liabilities in terms of IFRS 9 requirements) is January 1, 2018. Accordingly, the Company has applied the requirements of IFRS 9 to instruments that continue to be recognized at January 1, 2018 and has not applied the requirements to instruments that have already been derecognized at January 1, 2018. Comparative amounts in relation to instruments that continue to be recognized at January 1, 2018 have been reclassified where appropriate.
Equity investments previously classified as available-for-sale and at cost
The Company elected to present in OCI changes in the fair value of all its equity investments previously classified as available-for-sale and at cost, because these investments are held as long-term strategic investments that are not expected to be sold in the short to medium term. As a result, on January 1, 2018, assets with a carrying amount of 1,444 and 27 were reclassified from assets available-for-sale and investments at cost, respectively, to financial assets at FVOCI.
Trade accounts receivable previously classified as loans and receivables
Trade receivables subject to TSR programs with a carrying amount of 594 were reclassified on January 1, 2018 from loans and receivables at amortized cost to financial assets at FVOCI (see note 4.3).
The main impact of the adoption of IFRS 9 relates to financial assets as the requirements for financial liabilities remained substantially unchanged from IAS 39. On the date of initial application, the Company’s financial instruments were as follows, with any applicable reclassifications:
|
| | | | | | | | | | | |
| Measurement category | | Carrying amount |
| Original (IAS 39) | | New (IFRS 9) | | Original | | New | | Change |
Current financial assets | | | | | | | | | |
Trade accounts receivable and other | Loans and receivables | | Amortized cost | | 3,269 |
| | 3,269 |
| | — |
Trade accounts receivable and other subject to TSR programs | Loans and receivables | | FVOCI | | 594 |
| | 594 |
| | — |
Cash and cash equivalents | Loans and receivables | | Amortized cost | | 2,574 |
| | 2,574 |
| | — |
Restricted cash | Loans and receivables | | Amortized cost | | 212 |
| | 212 |
| | — |
Prepaid expenses and other current assets | Loans and receivables | | Amortized cost | | 574 |
| | 574 |
| | — |
Derivatives | Fair value recognized in profit or loss | | Fair value recognized in profit or loss | | 87 |
| | 87 |
| | — |
Non-current financial assets | | | | | | | | | |
Other assets | Loans and receivables | | Amortized cost | | 834 |
| | 834 |
| | — |
Other investments | Available-for-sale | | FVOCI | | 1,444 |
| | 1,444 |
| | — |
Other investments | Investments at cost | | FVOCI | | 27 |
| | 27 |
| | — |
Derivatives | Fair value recognized in profit or loss | | Fair value recognized in profit or loss | | 989 |
| | 989 |
| | — |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The following tables summarizetable summarizes assets and liabilities based on their categories.
|
| | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Carrying amount in the consolidated statements of financial position |
| Non-financial assets and liabilities |
| Assets/Liabilities at amortized cost |
| Fair value recognized in profit or loss |
| Fair value recognized in OCI |
| Derivatives |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | 2,172 |
|
| — |
|
| 2,172 |
|
| — |
|
| — |
|
| — |
|
Restricted cash | 182 |
|
| — |
|
| 182 |
|
| — |
|
| — |
|
| — |
|
Trade accounts receivable and other | 4,432 |
|
| — |
|
| 3,957 |
|
| — |
|
| 475 |
|
| — |
|
Inventories | 20,744 |
|
| 20,744 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Prepaid expenses and other current assets | 2,834 |
|
| 1,405 |
|
| 812 |
|
| — |
|
| — |
|
| 617 |
|
Assets held for sale | 2,111 |
|
| 2,111 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total current assets | 32,475 |
|
| 24,260 |
|
| 7,123 |
|
| — |
|
| 475 |
|
| 617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Goodwill and intangible assets | 5,728 |
|
| 5,728 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Property, plant and equipment and biological assets | 35,638 |
|
| 35,589 |
|
| — |
|
| 49 |
|
| — |
|
| — |
|
Investments in associates and joint ventures | 4,906 |
|
| 4,906 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Other investments | 855 |
|
| — |
|
| — |
|
| — |
|
| 855 |
|
| — |
|
Deferred tax assets | 8,287 |
|
| 8,287 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Other assets | 3,360 |
|
| 526 |
|
| 1,188 |
|
| 1,037 |
|
| — |
|
| 609 |
|
Total non-current assets | 58,774 |
|
| 55,036 |
|
| 1,188 |
|
| 1,086 |
|
| 855 |
|
| 609 |
|
Total assets | 91,249 |
|
| 79,296 |
|
| 8,311 |
|
| 1,086 |
|
| 1,330 |
|
| 1,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Current liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Short-term debt and current portion of long-term debt | 3,167 |
|
| — |
|
| 3,167 |
|
| — |
|
| — |
|
| — |
|
Trade accounts payable and other | 13,981 |
|
| — |
|
| 13,981 |
|
| — |
|
| — |
|
| — |
|
Short-term provisions | 539 |
|
| 528 |
|
| 11 |
|
| — |
|
| — |
|
| — |
|
Accrued expenses and other liabilities | 4,709 |
|
| 1,212 |
|
| 3,307 |
|
| — |
|
| — |
|
| 190 |
|
Income tax liabilities | 238 |
|
| 238 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Liabilities held for sale | 821 |
|
| 821 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total current liabilities | 23,455 |
|
| 2,799 |
|
| 20,466 |
|
| — |
|
| — |
|
| 190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Long-term debt, net of current portion | 9,316 |
|
| — |
|
| 9,316 |
|
| — |
|
| — |
|
| — |
|
Deferred tax liabilities | 2,374 |
|
| 2,374 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Deferred employee benefits | 6,982 |
|
| 6,982 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Long-term provisions | 1,995 |
|
| 1,984 |
|
| 11 |
|
| — |
|
| — |
|
| — |
|
Other long-term obligations | 3,019 |
|
| 457 |
|
| 1,854 |
|
| — |
|
| — |
|
| 708 |
|
Total non-current liabilities | 23,686 |
|
| 11,797 |
|
| 11,181 |
|
| — |
|
| — |
|
| 708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Equity attributable to the equity holders of the parent | 42,086 |
|
| 42,086 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Non-controlling interests | 2,022 |
|
| 2,022 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total equity | 44,108 |
|
| 44,108 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total liabilities and equity | 91,249 |
|
| 58,704 |
|
| 31,647 |
|
| — |
|
| — |
|
| 898 |
|
categories at December 31, 2019:
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
|
| | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Carrying amount in the consolidated statements of financial position |
| Non-financial assets and liabilities |
| Assets/Liabilities at amortized cost |
| Fair value recognized in profit or loss |
| Fair value recognized in OCI |
| Derivatives |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | 4,867 |
|
| — |
|
| 4,867 |
|
| — |
|
| — |
|
| — |
|
Restricted cash | 128 |
|
| — |
|
| 128 |
|
| — |
|
| — |
|
| — |
|
Trade accounts receivable and other | 3,569 |
|
| — |
|
| 3,146 |
|
| — |
|
| 423 |
|
| — |
|
Inventories | 17,296 |
|
| 17,296 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Prepaid expenses and other current assets | 2,756 |
|
| 1,305 |
|
| 1,047 |
|
| 136 |
|
| — |
|
| 268 |
|
Total current assets | 28,616 |
|
| 18,601 |
|
| 9,188 |
|
| 136 |
|
| 423 |
|
| 268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Goodwill and intangible assets | 5,432 |
|
| 5,432 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Property, plant and equipment and biological assets | 36,231 |
|
| 36,172 |
|
| — |
|
| 59 |
|
| — |
|
| — |
|
Investments in associates and joint ventures | 6,529 |
|
| 6,529 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Other investments | 772 |
|
| — |
|
| — |
|
| — |
|
| 772 |
|
| — |
|
Deferred tax assets | 8,680 |
|
| 8,680 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Other assets | 1,648 |
|
| 388 |
|
| 1,130 |
|
| — |
|
| — |
|
| 130 |
|
Total non-current assets | 59,292 |
|
| 57,201 |
|
| 1,130 |
|
| 59 |
|
| 772 |
|
| 130 |
|
Total assets | 87,908 |
|
| 75,802 |
|
| 10,318 |
|
| 195 |
|
| 1,195 |
|
| 398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Current liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Short-term debt and current portion of long-term debt | 2,869 |
|
| — |
|
| 2,869 |
|
| — |
|
| — |
|
| — |
|
Trade accounts payable and other | 12,614 |
|
| — |
|
| 12,614 |
|
| — |
|
| — |
|
| — |
|
Short-term provisions | 516 |
|
| 485 |
|
| 31 |
|
| — |
|
| — |
|
| — |
|
Accrued expenses and other liabilities | 4,910 |
|
| 1,075 |
|
| 3,527 |
|
| — |
|
| — |
|
| 308 |
|
Income tax liabilities | 378 |
|
| 378 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total current liabilities | 21,287 |
|
| 1,938 |
|
| 19,041 |
|
| — |
|
| — |
|
| 308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Long-term debt, net of current portion | 11,471 |
|
| — |
|
| 11,471 |
|
| — |
|
| — |
|
| — |
|
Deferred tax liabilities | 2,331 |
|
| 2,331 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Deferred employee benefits | 7,343 |
|
| 7,343 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Long-term provisions | 2,475 |
|
| 2,465 |
|
| 10 |
|
| — |
|
| — |
|
| — |
|
Other long-term obligations | 2,518 |
|
| 501 |
|
| 1,779 |
|
| — |
|
| — |
|
| 238 |
|
Total non-current liabilities | 26,138 |
|
| 12,640 |
|
| 13,260 |
|
| — |
|
| — |
|
| 238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Equity attributable to the equity holders of the parent | 38,521 |
|
| 38,521 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Non-controlling interests | 1,962 |
|
| 1,962 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total equity | 40,483 |
|
| 40,483 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total liabilities and equity | 87,908 |
|
| 55,061 |
|
| 32,301 |
|
| — |
|
| — |
|
| 546 |
|
|
| | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| Carrying amount in the consolidated statements of financial position | | Non-financial assets and liabilities | | Assets/Liabilities at amortized cost | | Fair value recognized in profit or loss | | Available-for-sale assets | | Derivatives |
ASSETS | | | | | | | | | | | |
Current assets: | | | | | | | | | | | |
Cash and cash equivalents | 2,574 |
| | — |
| | 2,574 |
| | — |
| | — |
| | — |
|
Restricted cash | 212 |
| | — |
| | 212 |
| | — |
| | — |
| | — |
|
Trade accounts receivable and other | 3,863 |
| | — |
| | 3,863 |
| | — |
| | — |
| | — |
|
Inventories | 17,986 |
| | 17,986 |
| | — |
| | — |
| | — |
| | — |
|
Prepaid expenses and other current assets | 1,931 |
| | 1,270 |
| | 574 |
| | — |
| | — |
| | 87 |
|
Assets held for sale | 179 |
| | 179 |
| | — |
| | — |
| | — |
| | — |
|
Total current assets | 26,745 |
| | 19,435 |
| | 7,223 |
| | — |
| | — |
| | 87 |
|
| | | | | | | | | | | |
Non-current assets: | |
| | |
| | |
| | |
| | |
| | |
|
Goodwill and intangible assets | 5,737 |
| | 5,737 |
| | — |
| | — |
| | — |
| | — |
|
Property, plant and equipment and biological assets | 36,971 |
| | 36,935 |
| | — |
| | 36 |
| | — |
| | — |
|
Investments in associates and joint ventures | 5,084 |
| | 5,084 |
| | — |
| | — |
| | — |
| | — |
|
Other investments | 1,471 |
| | — |
| | — |
| | — |
| | 1,471 |
| | — |
|
Deferred tax assets | 7,055 |
| | 7,055 |
| | — |
| | — |
| | — |
| | — |
|
Other assets | 2,234 |
| | 411 |
| | 834 |
| | — |
| | — |
| | 989 |
|
Total non-current assets | 58,552 |
| | 55,222 |
| | 834 |
| | 36 |
| | 1,471 |
| | 989 |
|
Total assets | 85,297 |
| | 74,657 |
| | 8,057 |
| | 36 |
| | 1,471 |
| | 1,076 |
|
| | | | | | | | | | | |
LIABILITIES AND EQUITY | |
| | |
| | |
| | |
| | |
| | |
|
Current liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
Short-term debt and current portion of long-term debt | 2,785 |
| | — |
| | 2,785 |
| | — |
| | — |
| | — |
|
Trade accounts payable and other | 13,428 |
| | — |
| | 13,428 |
| | — |
| | — |
| | — |
|
Short-term provisions | 410 |
| | 394 |
| | 16 |
| | — |
| | — |
| | — |
|
Accrued expenses and other liabilities | 4,505 |
| | 1,080 |
| | 3,100 |
| | — |
| | — |
| | 325 |
|
Income tax liabilities | 232 |
| | 232 |
| | — |
| | — |
| | — |
| | — |
|
Liabilities held for sale | 50 |
| | 50 |
| | — |
| | — |
| | — |
| | — |
|
Total current liabilities | 21,410 |
| | 1,756 |
| | 19,329 |
| | — |
| | — |
| | 325 |
|
| | | | | | | | | | | |
Non-current liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
Long-term debt, net of current portion | 10,143 |
| | — |
| | 10,143 |
| | — |
| | — |
| | — |
|
Deferred tax liabilities | 2,684 |
| | 2,684 |
| | — |
| | — |
| | — |
| | — |
|
Deferred employee benefits | 7,630 |
| | 7,630 |
| | — |
| | — |
| | — |
| | — |
|
Long-term provisions | 1,612 |
| | 1,612 |
| | — |
| | — |
| | — |
| | — |
|
Other long-term obligations | 963 |
| | 204 |
| | 415 |
| | — |
| | — |
| | 344 |
|
Total non-current liabilities | 23,032 |
| | 12,130 |
| | 10,558 |
| | — |
| | — |
| | 344 |
|
| | | | | | | | | | | |
Equity: | |
| | |
| | | | |
| | |
| | |
|
Equity attributable to the equity holders of the parent | 38,789 |
| | 38,789 |
| | — |
| | — |
| | — |
| | — |
|
Non-controlling interests | 2,066 |
| | 2,066 |
| | — |
| | — |
| | — |
| | — |
|
Total equity | 40,855 |
| | 40,855 |
| | — |
| | — |
| | — |
| | — |
|
Total liabilities and equity | 85,297 |
| | 54,741 |
| | 29,887 |
| | — |
| | — |
| | 669 |
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
|
| | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Carrying amount in the consolidated statements of financial position | | Non-financial assets and liabilities | | Assets/Liabilities at amortized cost | | Fair value recognized in profit or loss | | Fair value recognized in OCI
| | Derivatives |
ASSETS | | | | | | | | | | | |
Current assets: | | | | | | | | | | | |
Cash and cash equivalents | 2,172 |
| | — |
| | 2,172 |
| | — |
| | — |
| | — |
|
Restricted cash | 182 |
| | — |
| | 182 |
| | — |
| | — |
| | — |
|
Trade accounts receivable and other | 4,432 |
| | — |
| | 3,957 |
| | — |
| | 475 |
| | — |
|
Inventories | 20,744 |
| | 20,744 |
| | — |
| | — |
| | — |
| | — |
|
Prepaid expenses and other current assets | 2,834 |
| | 1,405 |
| | 812 |
| | — |
| | — |
| | 617 |
|
Assets held for sale | 2,111 |
| | 2,111 |
| | — |
| | — |
| | — |
| | — |
|
Total current assets | 32,475 |
| | 24,260 |
| | 7,123 |
| | — |
| | 475 |
| | 617 |
|
| | | | | | | | | | | |
Non-current assets: | |
| | |
| | |
| | |
| | |
| | |
|
Goodwill and intangible assets | 5,728 |
| | 5,728 |
| | — |
| | — |
| | — |
| | — |
|
Property, plant and equipment and biological assets | 35,638 |
| | 35,589 |
| | — |
| | 49 |
| | — |
| | — |
|
Investments in associates and joint ventures | 4,906 |
| | 4,906 |
| | — |
| | — |
| | — |
| | — |
|
Other investments | 855 |
| | — |
| | — |
| | — |
| | 855 |
| | — |
|
Deferred tax assets | 8,287 |
| | 8,287 |
| | — |
| | — |
| | — |
| | — |
|
Other assets | 3,360 |
| | 526 |
| | 1,188 |
| | 1,037 |
| | — |
| | 609 |
|
Total non-current assets | 58,774 |
| | 55,036 |
| | 1,188 |
| | 1,086 |
| | 855 |
| | 609 |
|
Total assets | 91,249 |
| | 79,296 |
| | 8,311 |
| | 1,086 |
| | 1,330 |
| | 1,226 |
|
| | | | | | | | | | | |
LIABILITIES AND EQUITY | |
| | |
| | |
| | |
| | |
| | |
|
Current liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
Short-term debt and current portion of long-term debt | 3,167 |
| | — |
| | 3,167 |
| | — |
| | — |
| | — |
|
Trade accounts payable and other | 13,981 |
| | — |
| | 13,981 |
| | — |
| | — |
| | — |
|
Short-term provisions | 539 |
| | 528 |
| | 11 |
| | — |
| | — |
| | — |
|
Accrued expenses and other liabilities | 4,709 |
| | 1,212 |
| | 3,307 |
| | — |
| | — |
| | 190 |
|
Income tax liabilities | 238 |
| | 238 |
| | — |
| | — |
| | — |
| | — |
|
Liabilities held for sale | 821 |
| | 821 |
| | — |
| | — |
| | — |
| | — |
|
Total current liabilities | 23,455 |
| | 2,799 |
| | 20,466 |
| | — |
| | — |
| | 190 |
|
| | | | | | | | | | | |
Non-current liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
Long-term debt, net of current portion | 9,316 |
| | — |
| | 9,316 |
| | — |
| | — |
| | — |
|
Deferred tax liabilities | 2,374 |
| | 2,374 |
| | — |
| | — |
| | — |
| | — |
|
Deferred employee benefits | 6,982 |
| | 6,982 |
| | — |
| | — |
| | — |
| | — |
|
Long-term provisions | 1,995 |
| | 1,984 |
| | 11 |
| | — |
| | — |
| | — |
|
Other long-term obligations | 3,019 |
| | 457 |
| | 1,854 |
| | — |
| | — |
| | 708 |
|
Total non-current liabilities | 23,686 |
| | 11,797 |
| | 11,181 |
| | — |
| | — |
| | 708 |
|
| | | | | | | | | | | |
Equity: | |
| | |
| | | | |
| | |
| | |
|
Equity attributable to the equity holders of the parent | 42,086 |
| | 42,086 |
| | — |
| | — |
| | — |
| | — |
|
Non-controlling interests | 2,022 |
| | 2,022 |
| | — |
| | — |
| | — |
| | — |
|
Total equity | 44,108 |
| | 44,108 |
| | — |
| | — |
| | — |
| | — |
|
Total liabilities and equity | 91,249 |
| | 58,704 |
| | 31,647 |
| | — |
| | — |
| | 898 |
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The Company classifies the bases used to measure certain assets and liabilities at their fair value. Assets and liabilities carried or measured at fair value have been classified into three levels based upon a fair value hierarchy that reflects the significance of the inputs used in making the measurements.
The levels are as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2: Significant inputs other than within Level 1 that are observable for the asset or liability, either directly (i.e.: as prices) or indirectly (i.e.: derived from prices);
Level 3: Inputs for the assets or liabilities that are not based on observable market data and require management assumptions or inputs from unobservable markets.
The following tables summarize the bases used to measure certain Financial assets and Financial liabilities at their fair value on recurring basis. | | As of December 31, 2018 | | | | | | | | | |
As of December 31, 2019 | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets at fair value: | | | | | | | | | | | | | | | | |
Investments in equity instruments at FVOCI | | 793 |
| | — |
| | 62 |
| | 855 |
| | 699 |
| | — |
| | 73 |
| | 772 |
|
Trade accounts receivable and other subject to TSR programs* | | — |
| | — |
| | 475 |
| | 475 |
| | — |
| | — |
| | 423 |
| | 423 |
|
Derivative financial current assets | | — |
| | 617 |
| | — |
| | 617 |
| | — |
| | 268 |
| | — |
| | 268 |
|
Derivative financial non-current assets | | — |
| | 126 |
| | 483 |
| | 609 |
| | — |
| | 3 |
| | 127 |
| | 130 |
|
Total assets at fair value | | 793 |
| | 743 |
| | 1,020 |
| | 2,556 |
| | 699 |
| | 271 |
| | 623 |
| | 1,593 |
|
Liabilities at fair value: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Derivative financial current liabilities | | — |
| | 75 |
| | 115 |
| | 190 |
| | — |
| | 144 |
| | 164 |
| | 308 |
|
Derivative financial non-current liabilities | | — |
| | 131 |
| | 577 |
| | 708 |
| | — |
| | 101 |
| | 137 |
| | 238 |
|
Total liabilities at fair value | | — |
| | 206 |
| | 692 |
| | 898 |
| | — |
| | 245 |
| | 301 |
| | 546 |
|
*The fair value of TSR program receivables equals carrying amount due to the short time frame between the initial recognition and time of sale.
|
| | | | | | | | | | | | |
As of December 31, 2018 | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Assets at fair value: | | | | | | | | |
Investments in equity instruments at FVOCI | | 793 |
| | — |
| | 62 |
| | 855 |
|
Trade accounts receivable and other subject to TSR programs* | | — |
| | — |
| | 475 |
| | 475 |
|
Derivative financial current assets | | — |
| | 617 |
| | — |
| | 617 |
|
Derivative financial non-current assets | | — |
| | 126 |
| | 483 |
| �� | 609 |
|
Total assets at fair value | | 793 |
| | 743 |
| | 1,020 |
| | 2,556 |
|
Liabilities at fair value: | | |
| | |
| | |
| | |
|
Derivative financial current liabilities | | — |
| | 75 |
| | 115 |
| | 190 |
|
Derivative financial non-current liabilities | | — |
| | 131 |
| | 577 |
| | 708 |
|
Total liabilities at fair value | | — |
| | 206 |
| | 692 |
| | 898 |
|
*The fair value of TSR program receivables equals carrying amount due to the short time frame between the initial recognition and time of sale.
|
| | | | | | | | | | | | |
As of December 31, 2017 | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Assets at fair value: | | | | | | | | |
Available-for-sale financial assets | | 1,444 |
| | — |
| | — |
| | 1,444 |
|
Derivative financial current assets | | — |
| | 87 |
| | — |
| | 87 |
|
Derivative financial non-current assets | | — |
| | 5 |
| | 984 |
| | 989 |
|
Total assets at fair value | | 1,444 |
| | 92 |
| | 984 |
| | 2,520 |
|
Liabilities at fair value: | | |
| | |
| | |
| | |
|
Derivative financial current liabilities | | — |
| | 247 |
| | 78 |
| | 325 |
|
Derivative financial non-current liabilities | | — |
| | 158 |
| | 186 |
| | 344 |
|
Total liabilities at fair value | | — |
| | 405 |
| | 264 |
| | 669 |
|
Investments in equity instruments at FVOCI classified as Level 1 refer to listed securities quoted in active markets. A quoted market price in an active market provides the most reliable evidence of fair value and is used without adjustment to measure fair value whenever available, with limited exceptions. The total fair value is either the price of the most recent trade at the time of the market close or the official close price as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs. The decrease in investments in equity instruments at FVOCI in 20182019 is mainly related to the decrease in the share pricesale of Erdemir and China Oriental.Gerdau (see note 2.5).
Derivative financial assets and liabilities classified as Level 2 refer to instruments to hedge fluctuations in interest rates, foreign exchange rates, raw materials (base metals), freight, energy and emission rights, see note 6.1.5 for further information.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Derivative financial assets and liabilities classified as Level 3 are described in note 6.1.5.
6.1.2 Gross debt
Gross debt includes bank debt, debenture loans and finance lease obligations and is stated at amortized cost. However, loans that are hedged under a fair value hedge are remeasured for the changes in the fair value that are attributable to the risk that is being hedged.
6.1.2.1 Short-term debt
Short-term debt, including the current portion of long-term debt, consisted of the following: | | | December 31, | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Short-term bank loans and other credit facilities including commercial paper 1 | 1,968 |
| | 1,735 |
| 1,838 |
| | 1,968 |
|
Current portion of long-term debt | 1,130 |
| | 976 |
| 770 |
| | 1,130 |
|
Lease obligations | 69 |
| | 74 |
| |
Lease obligations2 | | 261 |
| | 69 |
|
Total | 3,167 |
| | 2,785 |
| 2,869 |
| | 3,167 |
|
| |
1. | The weighted average interest rate on short-term borrowings outstanding was 1.3%1.1% and 3.1%1.3% as of December 31, 20182019 and 20172018, respectively. |
| |
2. | On January 1, 2019, the Company adopted IFRS 16 and recognized additional lease liabilities (discounted at the incremental borrowing rates at that date). In 2018, lease obligations corresponded to finance leases under IAS 17. See note 7. |
In 2014, ArcelorMittal entered into certain short-term committed bilateral credit facilities. The facilities were subsequently extended in 2016, 2017 and 2018.annually. As of December 31, 2018,2019, the facilities, totaling approximately 0.9 billion, remain fully available.
On January 16, 2018,April 26, 2019, the Company entered into a fully drawn bilateral term loan due July 16, 2018, for an amount of €400 million (466). The bilateral term loan was fully repaid at maturity on July 16, 2018.
On August 10, 2018, the Company entered intoamended a €300 million (344) term loan with a financial institution maturing onto extend the maturity to April 30, 2019.2020. As of December 31, 2019, €300 million (337) was outstanding.
On December 18, 2018,April 1, 2019, ArcelorMittal entered into an agreement for financing with a financial institution for net proceeds of CAD 292197 million (214)(151) with repayment over several dates in 20192020 and 2020.2021. As of December 31, 2018,2019, CAD 295202 million (216)(155) was outstanding.
Commercial paper
The Company has a commercial paper program enabling borrowings of up to €1.5 billion. As of December 31, 20182019 and 2017,2018, the outstanding amount was 1,200 and 1,295, and 1,125, respectively.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
6.1.2.2 Long-term debt
Long-term debt is comprised of the following: | | | | December 31, | | December 31, |
| Year of maturity | | Type of Interest | | Interest rate1 | | 2018 | | 2017 | Year of maturity | | Type of Interest | | Interest rate1 | | 2019 | | 2018 |
Corporate | | | | | | | | |
5.5 billion Revolving Credit Facility | 2023 | | Floating | | — |
| | — |
| |
€500 million Unsecured Notes2 | 2018 | | Fixed | | 5.75% | | — |
| | 400 |
| |
€400 million Unsecured Notes3 | 2018 | | Floating | | 1.70% | | — |
| | 480 |
| |
5.5 billion Revolving Credit Facility4 | | 2023-2024 | | Floating | | — |
| | — |
|
€750 million Unsecured Notes | 2019 | | Fixed | | 3.00% | | 858 |
| | 897 |
| 2019 | | Fixed | | 3.00% | | — |
| | 858 |
|
500 Unsecured Notes | 2020 | | Fixed | | 5.13% | | 324 |
| | 323 |
| 2020 | | Fixed | | 5.13% | | — |
| | 324 |
|
CHF 225 million Unsecured Notes | 2020 | | Fixed | | 2.50% | | 228 |
| | 230 |
| 2020 | | Fixed | | 2.50% | | 233 |
| | 228 |
|
€600 million Unsecured Notes | 2020 | | Fixed | | 2.88% | | 685 |
| | 715 |
| 2020 | | Fixed | | 2.88% | | 316 |
| | 685 |
|
1.0 billion Unsecured Bonds | 2020 | | Fixed | | 5.25% | | 623 |
| | 622 |
| 2020 | | Fixed | | 5.25% | | — |
| | 623 |
|
1.5 billion Unsecured Notes | 2021 | | Fixed | | 5.50% | | 754 |
| | 753 |
| 2021 | | Fixed | | 5.50% | | — |
| | 754 |
|
€500 million Unsecured Notes | 2021 | | Fixed | | 3.00% | | 570 |
| | 597 |
| 2021 | | Fixed | | 3.00% | | 320 |
| | 570 |
|
€750 million Unsecured Notes | 2022 | | Fixed | | 3.13% | | 856 |
| | 895 |
| 2022 | | Fixed | | 3.13% | | 841 |
| | 856 |
|
1.1 billion Unsecured Notes4 | 2022 | | Fixed | | 6.25% | | 656 |
| | 655 |
| |
1.1 billion Unsecured Notes | | 2022 | | Fixed | | 6.25% | | 657 |
| | 656 |
|
€500 million Unsecured Notes | 2023 | | Fixed | | 0.95% | | 568 |
| | 593 |
| 2023 | | Fixed | | 0.95% | | 558 |
| | 568 |
|
€750 million Unsecured Notes | | 2023 | | Fixed | | 1.00% | | 838 |
| | — |
|
€1 billion Unsecured Notes | | 2024 | | Fixed | | 2.25% | | 1,131 |
| | — |
|
750 Unsecured Notes | | 2024 | | Fixed | | 3.60% | | 746 |
| | — |
|
500 Unsecured Notes | 2025 | | Fixed | | 6.13% | | 497 |
| | 497 |
| 2025 | | Fixed | | 6.13% | | 498 |
| | 497 |
|
1.5 billion Unsecured Bonds4 | 2039 | | Fixed | | 7.00% | | 670 |
| | 1,092 |
| |
1.0 billion Unsecured Notes4 | 2041 | | Fixed | | 6.75% | | 428 |
| | 619 |
| |
€750 million Unsecured Notes | | 2025 | | Fixed | | 1.75% | | 834 |
| | — |
|
750 Unsecured Notes | | 2026 | | Fixed | | 4.55% | | 745 |
| | — |
|
500 Unsecured Notes | | 2029 | | Fixed | | 4.25% | | 493 |
| | — |
|
1.5 billion Unsecured Bonds | | 2039 | | Fixed | | 7.00% | | 671 |
| | 670 |
|
1.0 billion Unsecured Notes | | 2041 | | Fixed | | 6.75% | | 428 |
| | 428 |
|
Other loans | 2019-2021 | | Fixed | | 1.25% - 3.46% | | 114 |
| | 53 |
| 2021 | | Fixed | | 3.10% - 3.46% | | 151 |
| | 114 |
|
EIB loan | 2025 | | Fixed | | 1.16% | | 401 |
| | 420 |
| 2025 | | Fixed | | 1.16% | | 344 |
| | 401 |
|
7 billion Term Facility | 2020 |
| Floating |
| 3.31% |
| 1,000 |
|
| — |
| |
7.0 billion Term Facility3 | | 2020 |
| Floating |
| 3.09% |
| — |
|
| 1,000 |
|
Other loans | 2019 - 2035 | | Floating | | 0.0% - 5.03% | | 639 |
| | 672 |
| 2021 - 2035 | | Floating | | 0.35% - 4.06% | | 1,218 |
| | 639 |
|
Total Corporate | | 9,871 |
| | 10,513 |
| | 11,022 |
| | 9,871 |
|
| | | | | | | | |
Americas | | | | | | | | |
Other loans | 2019 - 2025 | | Fixed/Floating | | 2.25% - 10.00% | | 84 |
| | 107 |
| 2020 - 2030 | | Fixed/Floating | | 0.0% - 10.0% | | 81 |
| | 84 |
|
Total Americas | | 84 |
| | 107 |
| | 81 |
| | 84 |
|
|
| |
| |
| |
|
| |
|
|
| |
| |
| |
|
| |
|
|
Europe, Asia & Africa | | | | | | | | |
EBRD Facility | 2024 | | Floating | | 4.77% - 5.07% | | 50 |
| | — |
| 2024 | | Floating | | 3.8% - 4.1% | | 175 |
| | 50 |
|
Other loans | 2019 - 2029 | | Fixed/Floating | | 0.00% - 2.62% | | 86 |
| | 85 |
| 2020 - 2029 | | Fixed/Floating | | 0.0% - 5.8% | | 97 |
| | 86 |
|
Total Europe, Asia & Africa | | 136 |
| | 85 |
| | 272 |
| | 136 |
|
| | | | | | | | |
Total | | 10,091 |
| | 10,705 |
| | 11,375 |
| | 10,091 |
|
Less current portion of long-term debt | | (1,130 | ) | | (976 | ) | | (770 | ) | | (1,130 | ) |
Total long-term debt (excluding lease obligations) | | 8,961 |
| | 9,729 |
| | 10,605 |
| | 8,961 |
|
Long-term lease obligations5 | | 355 |
| | 414 |
| |
Long-term lease obligations2 | | | 866 |
| | 355 |
|
Total long-term debt, net of current portion | | 9,316 |
| | 10,143 |
| | 11,471 |
| | 9,316 |
|
| |
1. | Rates applicable to balances outstanding at December 31, 20182019, including the effect of step-downs following rating changes.. For debt that has been redeemed in its entirety during 20182019, the interest rates refer to the rates at repayment date. |
| |
2. | Amount outstanding was repaid at the original maturity,Net of current portion of March 29, 2018.261 and 69 as of December 31, 2019 and December 31, 2018, respectively. Further information regarding leases is provided in note 7.
|
| |
3. | Amount outstanding in 2018 was repaid at the original maturity, April 9, 2018.on March 22, 2019 and March 29, 2019. |
| |
4. | Bonds or Notes partially repurchased on August 22, 2018 and September 6, 2018, pursuantOn November 27, 2019, ArcelorMittal exercised the option to cash tender offer.extend the maturity by
|
| |
5. | Net of current portion of one year69 to December 19, 2024. The commitments are 5.5 billion until December 19, 2023 and 745.4 billion as ofuntil December 31, 201819, 2024 and. 2017, respectively.
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Corporate
5.5 billion Revolving Credit Facility
On December 19, 2018, ArcelorMittal signed an agreement for a 5.5 billion revolving credit facility (the "Facility"). This Facility amends and restates the 5.5 billion revolving credit facility dated April 30, 2015 and which was amended and extended on December 21, 2016. The new agreement incorporatesincorporated initially a single tranche of 5.5 billion maturing on December 19, 2023. The Facility may be used for general corporate purposes. On November 27, 2019, all lenders except one approved a one year extension request. The new maturity date is December 19, 2024. The commitments are 5.5 billion until December 19, 2023 and 5.4 billion until December 19, 2024. As of December 31, 2018,2019, the 5.5 billion revolving credit facility was fully available. The Company makes drawdowns from and repayments on this Facility in the framework of its cash management.
On September 30, 2010, ArcelorMittal entered into 500 revolving multi-currency letter of credit facility (the "Letter of Credit Facility"). The Letter of Credit Facility is used by the Company and its subsidiaries for the issuance of letters of credit and other instruments. The terms of the letters of credit and other instruments contain certain restrictions as to duration. The Letter of Credit Facility was amended on October 26, 2012 and September 30, 2014 to reduce its amount to 450 and to 350, respectively. On July 31, 2019, the Company refinanced its Letter of Credit Facility by entering into a 350 revolving multi-currency letter of credit facility, which matures on July 31, 2022.
Bonds
On March 29, 2018, at maturity, ArcelorMittal repaid the €334 million (411) principal amount that remained outstanding,
following the cash tender offers in April 2016 of its €500 million 4.5% unsecured bonds.
On April 9, 2018, at maturity, ArcelorMittal repaid its €400 million (491) 2018 Floating Rate Notes.
On August 7, 2018, pursuant to cash tender offers and financed with existing cash and liquidity, ArcelorMittal purchased:
| |
• | 195 of its U.S. dollar denominated 6.75% Notes due March 1, 2041 (the “USD 2041 Notes”) for a total aggregate purchase price (including premiums and accrued interest) of 224. Following this purchase, 434 principal amount of the USD 2041 Notes remained outstanding.
|
| |
• | 432 of its U.S. dollar denominated 7.00% Notes due October 15, 2039 (the “2039 Notes”) for a total aggregate purchase price (including premiums and accrued interest) of 505. Following this purchase, 686 principal amount of the USD 2039 Notes remained outstanding.
|
As a result of the above mentioned early redemptions, net financing costs for the year ended December 31, 2018 included 104 of premiums.
On January 17, 2019, ArcelorMittal issued €750 million (854) 2.25% Notes due 2024. The Notes were issued under ArcelorMittal’s €10 billion wholesale Euro Medium Term Notes Program.Program ("EMTN Program"). The proceeds of the issuance were used for general corporate purposes.
On March 11, 2019, ArcelorMittal issued 750 4.55% Notes due 2026 under the Company's automatic shelf registration statement filed with the U.S. Securities and Exchange Commission. The proceeds of the issuance were used towards repayment of existing debt including the 1 billion then outstanding under the 7 billion term facilities agreement entered into in connection with the acquisition of AMNS India through the joint venture with NSC (see below).
F-61
On March 25, 2019, at maturity, ArcelorMittal repaid its €750 million (854) Fixed Rate Notes.
On July 4, 2019, ArcelorMittal completed the issuance of €250 million (285) of 2.25% Fixed Rate Notes due 2024, which were consolidated and formed a single series with the existing €750 million 2.25% Fixed Rate Notes due 2024 originally issued on January 17, 2019 under its €10 billion EMTN Program. The proceeds of the issuance were used for general corporate purposes.
On July 16, 2019, ArcelorMittal issued 750 of 3.6% Notes due 2024 and 500 of 4.25% Notes due 2029. The proceeds were used for general corporate purposes including repayments of existing indebtedness and to partially pre-fund commitments under the AMNS India acquisition.
On August 30, 2019, ArcelorMittal redeemed all of the outstanding 324 of its 500 5.125% Notes due June 1, 2020 and the outstanding 626 of its 1 billion 5.25% Notes due August 5, 2020 for a total aggregate purchase price including accrued interest and premium on early repayment of 981, which was financed with existing cash and liquidity.
On November 19, 2019, ArcelorMittal issued €750 million (830) of 1% Notes due May 19, 2023 and €750 million (830) of 1.75% Notes due November 19, 2025.
On December 11, 2019, pursuant to cash tender offers, ArcelorMittal repurchased:
- €318 million (352) of its 2.875% Notes due July 6, 2020 (the “2020 Notes”) for a total aggregate purchase price (including premiums and accrued interest) of €328 million (363). Following this purchase, €282 million (312) principal amount of the 2020 Notes remained outstanding.
- €214 million (238) of its 3% Notes due April 9, 2021 (the “2021 Notes”) for a total aggregate purchase price (including premiums and accrued interest) of €227 million (252). Following this purchase, €286 million (316) principal amount of the 2021 Notes remained outstanding.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
On December 27, 2019, ArcelorMittal redeemed all of the outstanding 756 of its 5.5% Notes due March 1, 2021, for a total aggregate purchase price including accrued interest and premium on early repayment of 800, which was financed with existing cash resources, including the proceeds of its Eurobond offering that closed on November 19, 2019.
On February 5, 2020, ArcelorMittal gave notice to redeem all of the outstanding 659 of its 6.25% Notes due February 25, 2022 on March 9, 2020.
The margin applicable to ArcelorMittal’s principal credit facilities (5.5 billion revolving credit facility and certain other credit facilities) and the coupons on certain of its outstanding bonds are subject to adjustment in the event of a change in its long-term credit ratings. The following table provides details of the outstanding bonds on maturity, the original coupons and the current interest rates for the bonds impacted by changes in the long-term credit rating: | | Nominal value | | Date of issuance | | Repayment date | | Original/Current interest rate1 | | Issued at | | Date of issuance | | Repayment date | | Interest rate1 | | Issued at |
€750 million Unsecured Notes | | Mar 25, 2014 | | Mar 25, 2019 | | 3.00% | | 99.65% | |
500 million Unsecured Notes | | Jun 1, 2015 | | Jun 1, 2020 | | 5.13% | | 100.00% | |
CHF 225 million Unsecured Notes | | Jul 3, 2015 | | Jul 3, 2020 | | 2.50% | | 100.00% | | Jul 3, 2015 | | Jul 3, 2020 | | 2.50% | | 100.00% |
€600 million Unsecured Notes | | Jul 4, 2014 | | Jul 6, 2020 | | 2.88% | | 99.18% | | Jul 4, 2014 | | Jul 6, 2020 | | 2.88% | | 99.18% |
1.0 billion Unsecured Bonds | | Aug 5, 2010 | | Aug 5, 2020 | | 5.25% | | 98.46% | |
1.5 billion Unsecured Notes | | Mar 7, 2011 | | Mar 1, 2021 | | 5.50% | | 99.36% | |
€500 million Unsecured Notes | | Apr 9, 2015 | | Apr 9, 2021 | | 3.00% | | 99.55% | | Apr 9, 2015 | | Apr 9, 2021 | | 3.00% | | 99.55% |
€750 million Unsecured Notes | | Jan 14, 2015 | | Jan 14, 2022 | | 3.13% | | 99.73% | | Jan 14, 2015 | | Jan 14, 2022 | | 3.13% | | 99.73% |
1.1 billion Unsecured Notes | | Feb 28, 2012 | | Feb 25, 2022 | | 6.25% | | 98.28% | | Feb 28, 2012 | | Feb 25, 2022 | | 6.25% | | 98.28% |
€500 million Unsecured Notes | | Dec 4, 2017 | | Jan 17, 2023 | | 0.95% | | 99.38% | | Dec 4, 2017 | | Jan 17, 2023 | | 0.95% | | 99.38% |
500 million Unsecured Notes | | Jun 1, 2015 | | Jun 1, 2025 | | 6.13% | | 100.00% | |
€750 million Unsecured Notes | | | Nov 19, 2019 | | May 19, 2023 | | 1.00% | | 99.89% |
€250 million Unsecured Notes | | | Jul 4, 2019 | | Jan 17, 2024 | | 2.25% | | 105.59% |
€750 million Unsecured Notes | | | Jan 17, 2019 | | Jan 17, 2024 | | 2.25% | | 99.72% |
750 Unsecured Notes | | | Jul 16, 2019 | | Jul 16, 2024 | | 3.60% | | 99.86% |
500 Unsecured Notes | | | Jun 1, 2015 | | Jun 1, 2025 | | 6.13% | | 100.00% |
€750 million Unsecured Notes | | | Nov 19, 2019 | | Nov 19, 2025 | | 1.75% | | 99.41% |
750 Unsecured Notes | | | Mar 11, 2019 | | Mar 11, 2026 | | 4.55% | | 99.72% |
500 Unsecured Notes | | | Jul 16, 2019 | | Jul 16, 2029 | | 4.25% | | 99.00% |
1.0 billion Unsecured Bonds | | Oct 8, 2009 | | Oct 15, 2039 | | 7.00% | | 95.20% | | Oct 8, 2009 | | Oct 15, 2039 | | 7.00% | | 95.20% |
500 million Unsecured Bonds | | Aug 5, 2010 | | Oct 15, 2039 | | 7.00% | | 104.84% | |
500 Unsecured Bonds | | | Aug 5, 2010 | | Oct 15, 2039 | | 7.00% | | 104.84% |
1.0 billion Unsecured Notes | | Mar 7, 2011 | | Mar 1, 2041 | | 6.75% | | 99.18% | | Mar 7, 2011 | | Mar 1, 2041 | | 6.75% | | 99.18% |
| |
1. | Rates applicable at December 31, 2018.2019. |
European Investment Bank (“EIB”) Loan
On December 16, 2016, ArcelorMittal signed a €350 million finance contract with the European Investment Bank in order to finance European research, development and innovation projects over the period 2017-2020 within the European Union, namely predominantly in France, Belgium and Spain, but also in Czech Republic, Poland Luxembourg and Romania.Luxembourg. This operation benefits from a guarantee from the European Union under the European Fund for Strategic Investments. As of December 31, 2018, €3502019, €306 million (401)(344) was fully drawn.outstanding.
Other loans
On November 20, 2018, ArcelorMittal entered into a 7 billion term facility agreement with a group of lenders in connection with the acquisition of ESIL.AMNS India. The agreement has ahad an initial term of one year (until November 20, 2019), subject to ArcelorMittal’s option to extend the term by six months. The facility may be used for certain payments by ArcelorMittal as well as by the joint venture through which the Company expects jointly to own and operate ESIL in partnership with Nippon Steel & Sumitomo Metal Corporation (the “Joint Venture”). Any amounts borrowed by the Joint Venture under the agreement are irrevocably and unconditionally guaranteed by ArcelorMittal. The Term Facilities Agreement includes the same Leverage Ratioleverage ratio financial covenant as that included in the Company’s 5.5 billion revolving credit facility. The Term Facilities Agreement is also subject tofacility may be used for certain mandatory prepayment events, includingpayments by ArcelorMittal as well as by AMNS Luxembourg, the useparent company of proceeds from debt capital market issuancesthe AMNS India joint venture in partnership with NSC (see note 2.4.1). Any amounts borrowed by AMNS Luxembourg under the Group or capital raisingagreement are irrevocably and unconditionally guaranteed by the JV group and certain disposals, in each case aboveArcelorMittal. On November 29, 2018, 1 billion.
On May 14, 2018, ArcelorMittal entered into abillion was drawn under this term facility agreement by ArcelorMittal and subsequently repaid in March 2019. On June 12, 2019, the amountcontractual maturity date was extended to June 30, 2020 with one extension possible until December 31, 2020. AMNS Luxembourg has drawn under the facility to finance the portion of 1 billion to make a payment to the financial creditorsinitial funding requirement beyond the shareholders’ equity contributions and NSC’s share of Uttam Galva and KSS Petron to clear overdue debts in order that the offer the Company submitted for ESIL on April 2, 2018 would be eligible and considered by ESIL’s Committee of Creditors. The facilitydebt financing. On December 9, 2019, 2,571 was drawn on May 14, 2018 in connection withunder the paymentfacilities agreement by AMNS Luxembourg and was repaidoutstanding on November 29, 2018 via a drawingDecember 31, 2019. On February 10, 2020, an additional 475 was drawn under the above-referenced 7 billion term facility.
Other loans relatefacility by AMNS Luxembourg, increasing the outstanding amount as of such date to various debt with banks and public institutions.3,046.
On October 9, 2017, ArcelorMittal completed the offering of a €300 million (344) variable rate loan in the German Schuldschein market. The proceeds of the issuance were used to repay or prepay existing indebtedness.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
On December 21, 2018, the Company entered into a facility agreement with a group of lenders for €235 million to finance the construction of a new hot strip mill in Mexico. This facility became effective upon issuance of a guarantee by the Oesterreichische Kontrollbank AG in March 2019. The last installment under this agreement is due 8½ years after the starting date of the credit facility (which means the earlier of (a) the date of issue of the provisional acceptance certificate for the hot strip mill and (b) June 30, 2021). The outstanding amount in total as of December 31, 2019 was €126 million (142).
On May 21, 2019, ArcelorMittal entered into a bilateral term loan due May 20, 2022. The bilateral term loan was fully drawn on June 3, 2019 and was outstanding as of December 31, 2019 for an amount of €125 million (142).
On July 1, 2019, ArcelorMittal completed the offering of a €450 million (512) variable rate loan in the German Schuldschein market. The proceeds of the issuance were used for general corporate purposes.
On December 20, 2019, ArcelorMittal entered into a €100 million bilateral term loan due June 20, 2023. The bilateral term loan was fully available as of December 31, 2019. On January 30, 2020, €100 million (110) bilateral term loan was fully drawn.
Other loans relate to various debt with banks and public institutions.
Americas
1 billion senior secured asset-based revolving credit facility
On May 23, 2016, ArcelorMittal USA LLC signed a 1 billion senior secured asset-based revolving credit facility maturing on May 23, 2021. The facility was amended and extended on August 22, 2019 and now matures on August 21, 2024. Borrowings under the facility are secured by inventory and certain other working capital and related assets of ArcelorMittal USA and certain of its subsidiaries in the United States. The facility may be used for general corporate purposes. The facility is not guaranteed by ArcelorMittal. As of December 31, 2018,2019, the facility iswas fully available.
Other loans
Other loans relate mainly to loans contracted by ArcelorMittal Brazilsubsidiaries in Mexico with different counterparties.
Europe, Asia and Africa
On December 21, 2017, ArcelorMittal Kryvyi Rih entered into a 175 loan agreement with the European Bank for Reconstruction and Development in order to support the upgrade of its production facilities, energy efficiency improvement and environmental impact reduction. The loan agreement also provides for an additional 175 in loan facilities which are currently uncommitted. As of December 31, 2018, 502019, 175 was drawn under the agreement and the remainder remains fully available.agreement.
On May 25, 2017, ArcelorMittal South Africa signed a 4.5 billion South African rand revolving borrowing base finance facility maturing on May 25, 2020. The facility was amended and extended on July 26, 2019 and now matures on July 26, 2022. Any borrowings under the facility are secured by certain eligible inventory and receivables, as well as certain other working capital and related assets of ArcelorMittal South Africa. The facility is used for general corporate purposes. The facility is not guaranteed by ArcelorMittal. As of December 31, 2018, 0.32019, 1.2 billion South African rand (21)(81) was drawn.
Other loans
Other loans mainly relate to loans contracted by ArcelorMittal subsidiaries in Spain with different counterparties.
Other
Certain debt agreements of the Company or its subsidiaries contain certain restrictive covenants. Among other things, these covenants limit encumbrances on the assets of ArcelorMittal and its subsidiaries, the ability of ArcelorMittal’s subsidiaries to incur debt and the ability of ArcelorMittal and its subsidiaries to dispose of assets in certain circumstances. Certain of these agreements also require compliance with a financial covenant.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Hedge of net investments
As of April 1, 2018, the Company designated a portfolio of euro denominated debt (€5,1696,922 million as of December 31, 2018)2019) as a hedge of certain euro denominated investments (€7,8048,070 million as of December 31, 2018)2019) in order to mitigate the foreign currency risk arising from certain euro denominated subsidiaries' net assets. The risk arises from the fluctuation in spot exchange rates between the U.S. dollar and euro, which causes the amount of the net investments to vary. The hedged risk in the hedge of net investments is a risk of a weakening euro against the U.S. dollar that will result in a reduction in the carrying amount of the Company's net investments in the subsidiaries subject to the hedge. The euro denominated debt is designated as a hedging instrument for the change in the value of the net investments that is attributable to changes in the euro/U.S. dollar spot rate.
To assess the hedge effectiveness, the Company determines the economic relationship between the hedging instrument and the hedged item by comparing changes in the carrying amount of the debt portfolio that are attributable to a change in the spot rate with changes in the net investments in the foreign operations due to movements in the spot rate.
As of December 31, 2018,2019, the Company recognized 474109 foreign exchange gains arising on the translation of the euro denominated debt designated as a hedge of the euro denominated net investments in foreign operations in other comprehensive income within the foreign exchange translation reserve.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial StatementsMaturity profile
(millions of U.S. dollars, except share and per share data)
As of December 31, 20182019 the scheduled maturities of short-term debt, long-term debt and long-term lease obligations, including their current portion are as follows: | | Year of maturity | | Amount | | Amount |
2019 | | 3,167 |
| |
2020 | | 3,163 |
| | 2,869 |
|
2021 | | 1,769 |
| | 994 |
|
2022 | | 1,690 |
| | 1,956 |
|
2023 | | 808 |
| | 2,185 |
|
2024 | | | 2,062 |
|
Subsequent years | | 1,886 |
| | 4,274 |
|
Total | | 12,483 |
| | 14,340 |
|
The carrying amount and the estimated fairFair value of the Company’s short and long-term debt is: |
| | | | | | | | | | | |
| December 31, 2018 | | December 31, 2017 |
| Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Instruments payable bearing interest at fixed rates | 8,692 |
| | 9,078 |
| | 9,862 |
| | 11,084 |
|
Instruments payable bearing interest at variable rates | 1,823 |
| | 1,759 |
| | 1,331 |
| | 1,301 |
|
Total long-term debt, including current portion | 10,515 |
| | 10,837 |
| | 11,193 |
| | 12,385 |
|
Short term bank loans and other credit facilities including commercial paper | 1,968 |
| | 1,967 |
| | 1,735 |
| | 1,731 |
|
The following tables summarize the Company’s bases used to estimate its debt at fair value. Fair value measurement has been classified into three levels based upon a fair value hierarchy that reflects the significance of the inputs used in making the measurements.
| | As of December 31, 2018 | Carrying amount | | Fair Value | |
As of December 31, 2019 | | Carrying amount | | Fair Value |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total |
Instruments payable bearing interest at fixed rates | 8,692 |
| | 8,029 |
| | 1,049 |
| | — |
| | 9,078 |
| 10,999 |
| | 9,963 |
| | 1,747 |
| | — |
| | 11,710 |
|
Instruments payable bearing interest at variable rates | 1,823 |
| | — |
| | 1,759 |
| | — |
| | 1,759 |
| 1,503 |
| |
|
| | 1,501 |
| | — |
| | 1,501 |
|
Total long-term debt, including current portion | 10,515 |
| | 8,029 |
| | 2,808 |
| | — |
| | 10,837 |
| 12,502 |
| | 9,963 |
| | 3,248 |
| | — |
| | 13,211 |
|
Short term bank loans and other credit facilities including commercial paper | 1,968 |
| | — |
| | 1,967 |
| | — |
| | 1,967 |
| 1,838 |
| | — |
| | 1,854 |
| | — |
| | 1,854 |
|
|
| | | | | | | | | | | | | | |
As of December 31, 2017 | Carrying amount | | Fair Value |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
Instruments payable bearing interest at fixed rates | 9,862 |
| | 9,946 |
| | 1,138 |
| | — |
| | 11,084 |
|
Instruments payable bearing interest at variable rates | 1,331 |
| | 481 |
| | 820 |
| | — |
| | 1,301 |
|
Total long-term debt, including current portion | 11,193 |
| | 10,427 |
| | 1,958 |
| | — |
| | 12,385 |
|
Short term bank loans and other credit facilities including commercial paper | 1,735 |
| | — |
| | 1,731 |
| | — |
| | 1,731 |
|
F-65
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
|
| | | | | | | | | | | | | | |
As of December 31, 2018 | Carrying amount | | Fair Value |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
Instruments payable bearing interest at fixed rates | 8,692 |
| | 8,029 |
| | 1,049 |
| | — |
| | 9,078 |
|
Instruments payable bearing interest at variable rates | 1,823 |
| | — |
| | 1,759 |
| | — |
| | 1,759 |
|
Total long-term debt, including current portion | 10,515 |
| | 8,029 |
| | 2,808 |
| | — |
| | 10,837 |
|
Short term bank loans and other credit facilities including commercial paper | 1,968 |
| | — |
| | 1,967 |
| | — |
| | 1,967 |
|
Instruments payable classified as Level 1 refer to the Company’s listed bonds quoted in active markets. The total fair value is the official closing price as defined by the exchange on which the instrument is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.
Instruments payable classified as Level 2 refer to all debt instruments not classified as Level 1. The fair value of the debt is based on estimated future cash flows converted into U.S. dollar at the forward rate and discounted using current U.S. dollar zero coupon rates and ArcelorMittal’s credit spread quotations for the relevant maturities.
There were no instruments payable classified as Level 3.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
6.1.3 Cash and cash equivalents, restricted cash and reconciliations of cash flows
Cash and cash equivalents consist of cash and short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at the time of purchase and are carried at cost plus accrued interest, which approximates fair value.
Significant cash or cash equivalent balances may be held from time to time at the Company’s international operating subsidiaries, including in particular those in France and the United States, where the Company maintains cash management systems under which most of its cash and cash equivalents are centralized. Other subsidiaries which may hold significant cash balances, include those in Brazil, Canada, India, Kazakhstan, South Africa and Ukraine. Some of these operating subsidiaries have debt outstanding or are subject to acquisition agreements that impose restrictions on such operating subsidiaries’ ability to pay dividends, but such restrictions are not significant in the context of ArcelorMittal’s overall liquidity. Repatriation of funds from operating subsidiaries may also be affected by tax and foreign exchange policies in place from time to time in the various countries where the Company operates, though none of these policies are currently significant in the context of ArcelorMittal’s overall liquidity.
Cash and cash equivalents consisted of the following: | | | December 31, | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Cash at bank | 1,832 |
| | 1,701 |
| 3,443 |
| | 1,832 |
|
Term deposits | 283 |
| | 297 |
| 246 |
| | 283 |
|
Money market funds1 | 57 |
| | 576 |
| 1,178 |
| | 57 |
|
Total | 2,172 |
| | 2,574 |
| 4,867 |
| | 2,172 |
|
| |
1 | Money market funds are highly liquid investments with a maturity of 3 months or less from the date of acquisition. |
Restricted cash represents cash and cash equivalents not readily available to the Company, mainly related to insurance deposits, cash accounts in connection with environmental obligations and true sale of receivables programs, as well as various other deposits or required balance obligations related to letters of credit and credit arrangements. Changes in restricted cash are included within other investing activities (net) in the consolidated statements of cash flows.
Restricted cash of 128 as of December 31, 2019 included 80 relating to various environmental obligations and true sales of receivables programs in ArcelorMittal South Africa. Restricted cash of 182 as of December 31, 2018 included 103 relating to various environmental obligations and true sales of receivables programs in ArcelorMittal South Africa. Restricted cashIt also included 20 and 7520 in connection with the mandatory convertible bonds as of December 31, 20182019 and December 31, 2017,2018, respectively (see note 10.2)11.2).
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Reconciliation of liabilities arising from financing activities
The table below details changes in the Company's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be classified in the Company's consolidated statements of cash flows from financing activities.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
| | | Long-term debt, net of current portion | | Short-term debt and current portion of long term debt | Long-term debt, net of current portion | | Short-term debt and current portion of long term debt |
Balance as of December 31, 2016 | 11,789 |
| | 1,885 |
| |
Proceeds from long-term debt | 1,407 |
| | — |
| |
Payments of long-term debt | (2,691 | ) | | — |
| |
Amortized cost | 19 |
| | 22 |
| |
Unrealized foreign exchange effects | 589 |
| | 190 |
| |
Proceeds from short-term debt | — |
| | 1,859 |
| |
Payments of short-term debt1 | — |
| | (2,164 | ) | |
Current portion of long-term debt | (976 | ) | | 976 |
| |
Other movements2 | 6 |
| | 17 |
| |
Balance as of December 31, 2017 (note 6.1.2) | 10,143 |
| | 2,785 |
| 10,143 |
| | 2,785 |
|
Proceeds from long-term debt | 1,138 |
| | — |
| 1,138 |
| | — |
|
Payments of long-term debt | (798 | ) | | — |
| (798 | ) | | — |
|
Amortized cost | 9 |
| | 18 |
| 9 |
| | 18 |
|
Unrealized foreign exchange effects | (240 | ) | | (219 | ) | (240 | ) | | (219 | ) |
Proceeds from short-term debt | — |
| | 2,319 |
| — |
| | 2,319 |
|
Payments of short-term debt1 | — |
| | (2,949 | ) | — |
| | (2,949 | ) |
Current portion of long-term debt | (1,130 | ) | | 1,130 |
| (1,130 | ) | | 1,130 |
|
Debt acquired through business combinations | 174 |
| | 69 |
| 174 |
| | 69 |
|
Debt classified as held for sale (2.3.2) | (77 | ) | | — |
| |
Debt classified as held for sale (note 2.3.2) | | (77 | ) | | — |
|
Other movements2 | 97 |
| | 14 |
| 97 |
| | 14 |
|
Balance as of December 31, 2018 (note 6.1.2) | 9,316 |
| | 3,167 |
| 9,316 |
| | 3,167 |
|
Adoption of IFRS 16 (notes 1 and 7) | | 893 |
| | 243 |
|
Balance as of January 1, 2019 | | 10,209 |
| | 3,410 |
|
Proceeds from long-term debt | | 5,772 |
| | — |
|
Payments of long-term debt | | (3,299 | ) | | — |
|
Amortized cost | | 7 |
| | 13 |
|
Unrealized foreign exchange effects | | (78 | ) | | (42 | ) |
Proceeds from short-term debt | | — |
| | 600 |
|
Payments of short-term debt | | — |
| | (1,811 | ) |
Payments of principal portion of lease liabilities (note 7) | | (10 | ) | | (310 | ) |
Additions to lease liabilities (notes 5.2 and 7) | | 185 |
| | 74 |
|
Current portion of long-term debt | | (1,031 | ) | | 1,031 |
|
Derecognition of lease liabilities following the divestment of Global Chartering (note 2.3.1) | | (311 | ) | | (89 | ) |
Other movements | | 27 |
| | (7 | ) |
Balance as of December 31, 2019 (note 6.1.2) | | 11,471 |
| | 2,869 |
|
| |
1. | Cash payments decreasing the outstanding liability relating to finance leases are classified under payments of principal portion of lease liabilities and other financing activities in the Company's consolidated statements of cash flows. |
| |
2. | Others movements include non-current and current obligations under finance leases. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
6.1.4 Net debt
The Company monitors its net debt in order to manage its capital. The following tables present the structure of the Company’s net debt by original currency at December 31, 20182019 and December 31, 2017:2018: | | As of December 31, 2018 | Total USD |
| | EUR |
| | USD |
| | CHF |
| | INR |
| | CAD |
| | Other (in USD) |
| |
As of December 31, 2019 | | Total USD |
| | EUR |
| | USD |
| | CHF |
| | PLN |
| | CAD |
| | Other (in USD) |
|
Short-term debt and current portion of long-term debt | 3,167 |
| | 2,566 |
| | 338 |
| | — |
| | 8 |
| | 151 |
| | 104 |
| 2,869 |
| | 1,966 |
| | 248 |
| | 233 |
| | 20 |
| | 174 |
| | 228 |
|
Long-term debt, net of current portion | 9,316 |
| | 3,530 |
| | 5,405 |
| | 228 |
| | — |
| | 69 |
| | 84 |
| 11,471 |
| | 6,240 |
| | 4,754 |
| | — |
| | 239 |
| | 106 |
| | 132 |
|
Cash and cash equivalents including restricted cash | (2,354 | ) | | (454 | ) | | (1,017 | ) | | (2 | ) | | (307 | ) | | (29 | ) | | (545 | ) | (4,995 | ) | | (2,986 | ) | | (1,383 | ) | | (2 | ) | | (64 | ) | | (32 | ) | | (528 | ) |
Net debt | 10,129 |
| | 5,642 |
| | 4,726 |
| | 226 |
| | (299 | ) | | 191 |
| | (357 | ) | 9,345 |
| | 5,220 |
| | 3,619 |
| | 231 |
| | 195 |
| | 248 |
| | (168 | ) |
| | As of December 31, 2017 | Total USD |
| | EUR |
| | USD |
| | CHF |
| | ZAR |
| | CAD |
| | Other (in USD) |
| |
As of December 31, 2018 | | Total USD |
| | EUR |
| | USD |
| | CHF |
| | INR |
| | CAD |
| | Other (in USD) |
|
Short-term debt and current portion of long-term debt | 2,785 |
| | 1,875 |
| | 291 |
| | — |
| | 304 |
| | 191 |
| | 124 |
| 3,167 |
| | 2,566 |
| | 338 |
| | — |
| | 8 |
| | 151 |
| | 104 |
|
Long-term debt, net of current portion | 10,143 |
| | 4,831 |
| | 5,044 |
| | 230 |
| | 4 |
| | 1 |
| | 33 |
| 9,316 |
| | 3,530 |
| | 5,405 |
| | 228 |
| | — |
| | 69 |
| | 84 |
|
Cash and cash equivalents including restricted cash | (2,786 | ) | | (724 | ) | | (1,387 | ) | | (1 | ) | | (249 | ) | | (17 | ) | | (408 | ) | (2,354 | ) | | (454 | ) | | (1,017 | ) | | (2 | ) | | (307 | ) | | (29 | ) | | (545 | ) |
Net debt | 10,142 |
| | 5,982 |
| | 3,948 |
| | 229 |
| | 59 |
| | 175 |
| | (251 | ) | 10,129 |
| | 5,642 |
| | 4,726 |
| | 226 |
| | (299 | ) | | 191 |
| | (357 | ) |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
6.1.5 Derivative financial instruments
The Company uses derivative financial instruments principally to manage its exposure to fluctuations in interest rates, exchange rates, prices of raw materials, energy and emission rights allowances arising from operating, financing and investing activities. Derivative financial instruments are classified as current or non-current assets or liabilities based on their maturity dates and are accounted for at the trade date. Embedded derivatives are separated from the host contract and accounted for separately if they are not closely related to the host contract. The Company measures all derivative financial instruments based on fair values derived from market prices of the instruments or from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the consolidated statements of operations, except for derivatives that are designated and qualify for cash flow or net investment hedge accounting.
Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge are recorded in other comprehensive income. Amounts deferred in equity are recorded in the consolidated statements of operations in the periods when the hedged item is recognized in the consolidated statements of operations and within the same line item (see note 6.3 Cash flow hedges).
The Company formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are effective in offsetting changes in fair values or cash flows of hedged items. When a hedging instrument is sold, terminated, expired or exercised, the accumulated unrealized gain or loss on the hedging instrument is maintained in equity until the forecasted transaction occurs. If the hedged transaction is no longer probable, the cumulative unrealized gain or loss, which had been recognized in equity, is reported immediately in the consolidated statements of operations.
Foreign currency differences arising on the translation of a financial liability designated as a hedge of a net investment in a foreign operation are recognized directly as a separate component of equity, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the consolidated statements of operations (see note 6.3 Net investment hedge).
The Company manages the counter-party risk associated with its instruments by centralizing its commitments and by applying procedures which specify, for each type of transaction and underlying position, risk limits and/or the characteristics of the counter-party. The Company does not generally grant to or require guarantees from its counterparties for the risks incurred. Allowing for exceptions, the Company’s counterparties are part of its financial partners and the related market transactions are
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
governed by framework agreements (mainly International Swaps and Derivatives Association agreements which allow netting only in case of counterparty default). Accordingly, derivative assets and derivative liabilities are not offset.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Derivative financial instruments classified as Level 2:
The following tables summarize this portfolio:
| | | December 31, 2018 | December 31, 2019 |
| Assets | | Liabilities | Assets | | Liabilities |
| Notional Amount | | Fair Value | | Notional Amount | | Fair Value | Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
Foreign exchange rate instruments |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
|
Forward purchase contracts | 2,005 |
| | 66 |
| | 1,258 |
| | (13 | ) | 1,187 |
| | 29 |
| | 2,633 |
| | (36 | ) |
Forward sale contracts | 5,810 |
| | 252 |
| | 724 |
| | (9 | ) | 1,716 |
| | 42 |
| | 705 |
| | (4 | ) |
Currency swaps purchases | — |
| | — |
| | — |
| | — |
| |
Currency swaps sales | — |
| | — |
| | 1,000 |
| | (101 | ) | — |
| | — |
| | 500 |
| | (41 | ) |
Exchange option purchases | 2,000 |
| | 71 |
| | 43 |
| | — |
| 2,317 |
| | 38 |
| | 1,030 |
| | (4 | ) |
Exchange options sales | 234 |
| | 3 |
| | 1,000 |
| | (35 | ) | 1,213 |
| | 10 |
| | 1,418 |
| | (5 | ) |
Total foreign exchange rate instruments |
|
| | 392 |
| |
|
| | (158 | ) |
|
| | 119 |
| |
|
| | (90 | ) |
|
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
|
Raw materials (base metals), freight, energy, emission rights |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
|
Term contracts sales | 79 |
| | 4 |
| | 24 |
| | (6 | ) | 250 |
| | 29 |
| | 182 |
| | (7 | ) |
Term contracts purchases | 1,524 |
| | 347 |
| | 739 |
| | (42 | ) | 419 |
| | 117 |
| | 1,479 |
| | (142 | ) |
Options sales/purchases | | 12 |
| | 6 |
| | 10 |
| | (6 | ) |
Total raw materials (base metals), freight, energy, emission rights |
|
| | 351 |
| |
|
| | (48 | ) |
|
| | 152 |
| |
|
| | (155 | ) |
Total |
|
| | 743 |
| |
|
| | (206 | ) |
|
| | 271 |
| |
|
| | (245 | ) |
| | | December 31, 2017 | December 31, 2018 |
| Assets | | Liabilities | Assets | | Liabilities |
| Notional Amount | | Fair Value | Average Rate 1 | Notional Amount | | Fair Value | Average Rate 1 | Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
Interest rate swaps - fixed rate borrowing/loans | 6 |
| | — |
| 0.98 | % | | | — |
| 1.01 | % | |
| | | | | | |
Foreign exchange rate instruments |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Forward purchase contracts | 586 |
| | 8 |
| | 3,939 |
| | (140 | ) | | 2,005 |
| | 66 |
| | 1,258 |
| | (13 | ) |
Forward sale contracts | 525 |
| | 17 |
| | 774 |
| | (11 | ) | | 5,810 |
| | 252 |
| | 724 |
| | (9 | ) |
Currency swaps purchases | — |
| | — |
| | 9 |
| | (7 | ) | | |
Currency swaps sales | — |
| | — |
| | 1,000 |
| | (157 | ) | | — |
| | — |
| | 1,000 |
| | (101 | ) |
Exchange option purchases | — |
| | — |
| | 338 |
| | (7 | ) | | 2,000 |
| | 71 |
| | 43 |
| | — |
|
Exchange options sales | — |
| | — |
| | 319 |
| | (5 | ) | | 234 |
| | 3 |
| | 1,000 |
| | (35 | ) |
Total foreign exchange rate instruments |
|
| | 25 |
| |
|
| | (327 | ) | |
|
| | 392 |
| |
|
| | (158 | ) |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Raw materials (base metals), freight, energy, emission rights |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Term contracts sales | 20 |
| | 1 |
| | 467 |
| | (38 | ) | | 79 |
| | 4 |
| | 24 |
| | (6 | ) |
Term contracts purchases | 796 |
| | 65 |
| | 534 |
| | (40 | ) | | 1,524 |
| | 347 |
| | 739 |
| | (42 | ) |
Option sales/purchases | 9 |
| | 1 |
| | — |
| | — |
| | |
Total raw materials (base metals), freight, energy, emission rights |
|
| | 67 |
| |
|
| | (78 | ) | |
|
| | 351 |
| |
|
| | (48 | ) |
Total |
|
| | 92 |
| |
|
| | (405 | ) | |
|
| | 743 |
| |
|
| | (206 | ) |
1. The average rate is determined for fixed rate instruments on basis of the U.S. dollar and foreign currency rates and for variable rate instruments generally
on basis of Euribor or Libor.
Derivative financial assets and liabilities classified as Level 2 refer to instruments to hedge fluctuations in interest rates, foreign exchange rates, raw materials (base metals), freight, energy and emission rights. The total fair value is based on the price a dealer would pay or receive for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and the fair value is calculated using standard industry models based on significant observable market inputs such as foreign exchange rates, commodity prices, swap rates and interest rates.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Derivative financial instruments classified as Level 3:
Derivative financial non-current assets classified as Level 3 refer to the call option on the 1,000 mandatory convertible bonds (see note 10.2)11.2). The fair valuation of Level 3 derivative instruments is established at each reporting date and compared to the prior period. ArcelorMittal’s valuation policies for Level 3 derivatives are an integral part of its internal control procedures and have been reviewed and approved according to the Company’s principles for establishing such procedures. In particular, such procedures address the accuracy and reliability of input data, the accuracy of the valuation model and the knowledge of the staff performing the valuations.
ArcelorMittal establishes the fair valuation of the call option on the 1,000 mandatory convertible bonds through the use of binomial valuation models based on the estimated values of the underlying equity spot price of $219$162 and volatility of 24.33%24%. Binomial valuation models use an iterative procedure to price options, allowing for the specification of nodes, or points in time, during the time span between the valuation date and the option’s expiration date. In contrast to the Black-Scholes model, which provides a numerical result based on inputs, the binomial model allows for the calculation of the asset and the option for multiple periods along with the range of possible results for each period.
Observable input data used in the valuations include zero coupon yield curves, stock market prices of Erdemir and China Oriental, European Central Bank foreign exchange fixing rates and Libor interest rates. Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available. Specifically, the Company computescomputed unobservable volatility data during 2019 based mainly on the movement of Erdemir and China Oriental stock market prices observable in the active market over 90 working days, which is particularly sensitive for the valuation resulting from the model. Following the repayment of notes issued by subsidiaries to the Company which were linked to the value of Erdemir shares in 2019 as described in note 11.2, the unobservable volatility data from the movement of Erdemir shares will no longer impact the valuation. A 10% increase or decrease in Hera Ermac share prices would result in a 28%83% and 26%73% increase and decrease of the fair value of the call option at December 31, 2018,2019, respectively.
Derivative financial liabilities classified as Level 3 relate to a pellet purchase agreement that contains a special payment that varies according to the price of steel in the United States domestic market (“domestic steel price”). The Company concluded that this payment feature was an embedded derivative not closely related to the host contract. ArcelorMittal establishes the fair valuation of the special payment by comparing the current forecasted domestic steel price to the projected domestic steel price at the inception of the contract. Observable input data includes third-party forecasted domestic steel prices. Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available or not consistent with the Company’s views on future prices and refer specifically to domestic steel prices beyond the timeframe of available third-party forecasts. A U.S. dollar one changechange per metric ton in the price of hot rolled steel would result in aU.S. dollar ten cents per metric ton change in the price of iron ore. Any significant increase in the steel price would result in a significant increase in fair value, and vice versa. As of December 31, 2018,2019, the fair valuation of the pellet purchase agreement was based on the future average US domestic steel price of $633$566 per metric ton.
Derivative financial liabilities classified as Level 3 relate also to the put option granted to ISP in the context of the acquisition of IlvaArcelorMittal Italia (see note 2.2.4). The option exercise price is the higher of a reference operating income projection and the net present value of ISP's initial €100 million equity contribution bearing interest at a contractually agreed rate at the put option exercise date. The fair value of the put option liability is sensitive to unobservable inputs such as ArcelorMittal Italia's future cash flow projections. Observable inputs include ISP's credit rating.
The following table summarizes the reconciliation of the fair value of the conversion option classified as Level 3 with respect to the put option granted to ISP , the call option on the 1,000 mandatory convertible bonds and the fair value of the special payment included in the pellet purchase agreement:
| | | Put option with ISP1 |
| Call option on 1,000 mandatory convertible bonds |
| Special payment in pellet purchase agreement |
| Total | Put option with ISP1 |
| Call option on 1,000 mandatory convertible bonds |
| Special payment in pellet purchase agreement |
| Total |
Balance as of December 31, 2016 | — |
|
| 175 |
|
| (33 | ) |
| 142 |
| |
Change in fair value | — |
|
| 809 |
|
| (231 | ) |
| 578 |
| |
Balance as of December 31, 2017 | — |
|
| 984 |
|
| (264 | ) |
| 720 |
| — |
|
| 984 |
|
| (264 | ) |
| 720 |
|
Change in fair value | (124 | ) |
| (501 | ) |
| (304 | ) |
| (929 | ) | (124 | ) |
| (501 | ) |
| (304 | ) |
| (929 | ) |
Balance as of December 31, 2018 | (124 | ) |
| 483 |
|
| (568 | ) |
| (209 | ) | (124 | ) |
| 483 |
|
| (568 | ) |
| (209 | ) |
Change in fair value | | (1 | ) |
| (356 | ) |
| 392 |
|
| 35 |
|
Balance as of December 31, 2019 | | (125 | ) |
| 127 |
|
| (176 | ) |
| (174 | ) |
| |
1. | The change in fair value in 2018 was recognized through the business combination (see note 2.2). |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The fair value movement on Level 3 derivative instruments is recorded in the consolidated statements of operations and other comprehensive income. The decrease in the fair value of the call option on 1,000 mandatory convertible bonds is due to a decrease in the share price of Erdemir and China Oriental, which impacts the value of the notes in which Hera Ermac, a wholly-owned subsidiary, invested the bonds proceeds, and a repayment of notes of Hera Ermac linked to the value of the shares of Erdemir (see note 10.2)11.2). The decrease in the fair value of the special payment in pellet purchase agreement is due to a decrease in forecasted domestic steel prices.
6.1.6 Other non-derivative financial assets and liabilities
Other non-derivative financial assets and liabilities include cash and cash equivalents and restricted cash (see note 6.1.3), trade and certain other receivables (see note 4.3, 4.5 and 4.6), investments in equity instruments at FVOCI (see note 2.5), trade payables and certain other liabilities (see notes 4.7 and 4.8). These instruments are recognized initially at fair value when the Company becomes a party to the contractual provisions of the instrument. Non-derivative financial assets are derecognized if the Company’s contractual rights to the cash flows from the financial instruments expire or if the Company transfers the financial instruments to another party without retaining control of substantially all risks and rewards of the instruments. Non-derivative financial liabilities are derecognized when they are extinguished (i.e. when the obligation specified in the contract is discharged, canceled or expired).
Impairment of financial assets
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss (ECL) model as opposed to an incurred credit loss model under IAS 39.("ECL") model. The ECL model requires the Group to account for expected credit losses and changes in those ECL at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In particular, IFRS 9 requires the Group to measure the loss allowance for a financial instrument at an amount equal to the lifetime ECL if the credit risk on that financial instrument has increased significantly since initial recognition.
In the case ofAll fair value movements for investments in equity instruments at FVOCI, all fair value movements, including the difference between the acquisition cost and the current fair value, are recorded in OCI and are no longernot reclassified to the consolidated statements of operations. Equity investmentsInvestments in equity instruments at FVOCI are exemptedexempt from the annual impairment test under IFRS 9 because the fair value of the equity investmentsinvestment is recorded in OCI areand not recycled to Profitprofit and Loss.loss.
Financial assets are tested for expected credit lossesECLs annually or whenever changes in circumstances indicate that there is a change in credit risk .risk. Any expected credit lossECL is recognized in the consolidated statements of operations. An expected credit lossECL related to financial assets is reversed if and to the extent there has been a change in the factors used to determine the recoverable amount. The loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined if no expected credit lossECL had been recognized. Reversals of expected credit lossesECLs are recognized in net income except for investments in equity instruments at FVOCI, for which all fair value movements are recognized in OCI.
6.2 Financing costs - net
Financing costs - net recognized in the years ended December 31, 2019, 2018 2017 and 20162017 are as follows:
| | | Year ended December 31, | Year ended December 31, |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Interest expense | (687 | ) | | (879 | ) | | (1,172 | ) | (695 | ) | | (687 | ) | | (879 | ) |
Interest income | 72 |
| | 56 |
| | 58 |
| 88 |
| | 72 |
| | 56 |
|
Change in fair value adjustment on call option on mandatory convertible bonds and pellet purchase agreement (note 6.1.5) | (572 | ) | | 578 |
| | 138 |
| (320 | ) | | (572 | ) | | 578 |
|
Accretion of defined benefit obligations and other long term liabilities | (349 | ) | | (353 | ) | | (435 | ) | (405 | ) | | (349 | ) | | (353 | ) |
Net foreign exchange result | (235 | ) | | 546 |
| | (3 | ) | 4 |
| | (235 | ) | | 546 |
|
Other 1 | (439 | ) | | (823 | ) | | (642 | ) | (324 | ) | | (439 | ) | | (823 | ) |
Total | (2,210 | ) | | (875 | ) | | (2,056 | ) | (1,652 | ) | | (2,210 | ) | | (875 | ) |
| |
1. | Other mainly includes expenses related to true sale of receivables (“TSR”) programs and bank fees. It also includes premiums and fees of 10471 relating to the bonds early redeemed in 20182019 (389104 and 399389 of premiums and fees relating to bonds early redeemed in 20172018 and 20162017, respectively). In 2017,, other also includes expenses relating to the extension of the mandatory convertible bonds (see note 10.2)11.2) of 92.92. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
6.3 Risk management policy
The Company's operations expose it to a variety of financial risks: interest rate risk, foreign exchange risk, liquidity risk and risks in fluctuations in prices of raw materials, freight, energy and energy.emissions. The Company actively monitors and seeks to reduce volatility of these exposures through a diversity of financial instruments, where considered appropriate. The Company has formalized how it manages these risks within the Treasury and Financial Risk Management Policy, which has been approved by Management.
Capital management
The Company's objective when managing capital is to safeguard continuity, maintain a strong credit rating and healthy capital ratios to support its business and provide adequate return to shareholders through continuing growth.
The Company sets the amount of capital required on the basis of annual business and long-term operating plans which include capital and other strategic investments. The funding requirement is met through a combination of equity, bonds and other long-term and short-term borrowings.
The Company monitors capital using a gearing ratio, being the ratio of net debt as a percentage of total equity. | |
| December 31, | December 31, |
| 2018 |
| 2017 | 2019 |
| 2018 |
Total equity | 44,108 |
|
| 40,855 |
| 40,483 |
|
| 44,108 |
|
Net debt (including 67 cash and debt classified as held for sale as of December 31, 2018) | 10,196 |
|
| 10,142 |
| |
Net debt (including nil and 67 cash and debt classified as held for sale as of December 31, 2019 and December 31, 2018 respectively) | | 9,345 |
|
| 10,196 |
|
Gearing | 23.1 | % |
| 24.8 | % | 23.1 | % |
| 23.1 | % |
Interest rate risk
The Company is exposed to interest rate risk on short-term and long-term floating rate instruments and on refinancing of fixed rate debt. The Company's policy is to maintain a balance of fixed and floating interest rate borrowings, which is adjusted depending on the prevailing market interest rates and outlook. As at December 31, 2018,2019, the long-term debt was comprised of 83%88% fixed rate debt and 17%12% variable rate debt (note 6.1.2). The Company utilizes certain instruments to manage interest rate risks. Interest rate instruments allow the Company to borrow long-term at fixed or variable rates, and to swap the rate of this debt either at inception or during the lifetime of the borrowing. The Company and its counterparties exchange, at predefined intervals, the difference between the agreed fixed rate and the variable rate, calculated on the basis of the notional amount of the swap. Similarly, swaps may be used for the exchange of variable rates against other variable rates.
Foreign exchange rate risk
The Company is exposed to changes in values arising from foreign exchange rate fluctuations generated by its operating activities. Because a substantial portion of ArcelorMittal’s assets, liabilities, sales and earnings are denominated in currencies other than the U.S. dollar (its reporting currency), ArcelorMittal has an exposure to fluctuations and depreciation in the values of these currencies relative to the U.S. dollar. These currency fluctuations, especially the fluctuation of the value of the U.S. dollar relative to the euro, the Canadian dollar, Brazilian real, Polish Zloty, KazakhKazakhstani tenge, South African rand and Ukrainian hryvnia, as well as fluctuations in the other countries’ currencies in which ArcelorMittal has significant operations and/or sales, could have a material impact on its financial position, cash flows and results of operations.
ArcelorMittal faces transaction risk, where its businesses generate sales in one currency but incur costs relating to that revenue in a different currency. For example, ArcelorMittal’s non-U.S. subsidiaries may purchase raw materials, including iron ore and coking coal, in U.S. dollars, but may sell finished steel products in other currencies. Consequently, an appreciation of the U.S. dollar will increase the cost of raw materials; thereby having a negative impact on the Company’s operating margins, unless the Company is able to pass along the higher cost in the form of higher selling prices.
Following its Treasury and Financial Risk Management Policy, the Company hedges a portion of its net exposure to foreign exchange rates through forwards, options and swaps.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
ArcelorMittal also faces foreign currency translation risk, which arises when ArcelorMittal translates the statements of operations of its subsidiaries, its corporate net debt (note 6.1.4) and other items denominated in currencies other than the U.S. dollar, for inclusion in the consolidated financial statements. The Company manages translation risk arising from its investments in subsidiaries by monitoring the currency mix of the consolidated statements of financial position. The Company may enter into derivative transactions to hedge the residual exposure and currently designated an EUR/USD cross currency swap with a notional of 1,000 to hedge euro denominated net investments in foreign operations (see “—Net investment hedge”).
The Company also uses the derivative instruments, described above, at the corporate level to hedge debt recorded in foreign currency other than the functional currency or the balance sheet risk associated with certain monetary assets denominated in a foreign currency other than the functional currency.
In October 2018, the Company entered into hedging programs including non deliverable forwards and non deliverable options for a nominal amount of $5.9 billion in order to hedge the volatility between the Indian Rupee and U.S. dollar in relation to the proposed acquisition of ESIL. AMNS India. The hedging programs generated 360 gain (gross) recognized in the AMNS India joint venture (note 2.4.1).
Foreign currency sensitivity analysis
As of December 31, 2018,2019, the Company is mainly subject to foreign exchange exposure relating to the euro, Brazilian real, Canadian dollar, Kazakhstani tenge, South African rand, Mexican peso, Polish zloty, Argentine peso and Ukranian hryvnia against the U.S. dollar resulting from its trade payables and receivables.
| | | December 31, 2018 | December 31, 2019 |
| Trade receivables | | Trade payables | Trade receivables | | Trade payables |
USD | 1,115 |
| | 5,723 |
| 810 |
| | 5,179 |
|
EUR | 1,630 |
| | 5,585 |
| 1,391 |
| | 4,901 |
|
BRL | 656 |
| | 686 |
| 491 |
| | 566 |
|
CAD | 76 |
| | 488 |
| 34 |
| | 357 |
|
KZT | 43 |
| | 106 |
| 60 |
| | 186 |
|
ZAR | 166 |
| | 424 |
| 173 |
| | 364 |
|
MXN | 94 |
| | 96 |
| 70 |
| | 50 |
|
UAH | 54 |
| | 129 |
| 72 |
| | 157 |
|
PLN | 135 |
| | 323 |
| 116 |
| | 498 |
|
ARS | 73 |
| | — |
| 47 |
| | 71 |
|
Other (non-USD) | 390 |
| | 421 |
| |
Other | | 305 |
| | 285 |
|
Total | 4,432 |
| | 13,981 |
| 3,569 |
| | 12,614 |
|
The sensitivity analysis carried out by the Company considers the effects on its trade receivables and trade payables of a 10% increase or decrease between the relevant foreign currencies and the U.S. dollar.
| |
| 10% increase |
| 10% decrease | 10% increase |
| 10% decrease |
| Trade receivables |
| Trade payables |
| Trade receivables |
| Trade payables | Trade receivables |
| Trade payables |
| Trade receivables |
| Trade payables |
EUR | 1,793 |
| | 6,144 |
|
| 1,467 |
| | 5,027 |
| 1,530 |
| | 5,391 |
|
| 1,252 |
| | 4,411 |
|
BRL | 722 |
|
| 755 |
|
| 590 |
|
| 617 |
| 540 |
|
| 623 |
|
| 442 |
|
| 509 |
|
CAD | 84 |
| | 537 |
|
| 68 |
| | 439 |
| 37 |
| | 393 |
|
| 31 |
| | 321 |
|
KZT | 47 |
|
| 117 |
|
| 39 |
|
| 95 |
| 66 |
|
| 205 |
|
| 54 |
|
| 167 |
|
ZAR | 183 |
| | 466 |
|
| 149 |
| | 382 |
| 190 |
| | 400 |
|
| 156 |
| | 328 |
|
MXN | 103 |
|
| 106 |
|
| 85 |
|
| 86 |
| 77 |
|
| 55 |
|
| 63 |
|
| 45 |
|
UAH | 59 |
| | 142 |
|
| 49 |
| | 116 |
| 79 |
| | 173 |
|
| 65 |
| | 141 |
|
PLN | 149 |
| | 355 |
|
| 122 |
| | 291 |
| 128 |
| | 548 |
|
| 104 |
| | 448 |
|
ARS | 80 |
| | — |
|
| 66 |
| | — |
| 52 |
| | 78 |
|
| 42 |
| | 64 |
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The use of a 10% sensitivity rate is used when reporting foreign currency exposure internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes trade receivables and trade payables denominated in a currency other than the U.S. dollar and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number indicates an increase in profit, and a negative number a decrease in profit.
Hedge accounting policy
The Company determines the economic relationship between the hedged item and the hedging instrument by analyzing the critical terms of the hedge relationship. In case critical terms do not match and fair value changes in the hedging instrument cannot be expected to perfectly offset changes in the fair value of the hedged item, further qualitative analysis may be performed. Such analysis serves to establish whether the economic relationship is sufficiently strong to comply with the Company’s risk management policies.
The hedge ratio is set out in the Company's risk management strategy and may be individually tailored for each hedging program in the risk management objective. Hedge ratios below 100% would usually be applied on hedging of forecast exposures with the hedge ratio typically reducing where there is uncertainty due to long hedging tenors or volatility in the underlying exposure.
The most frequent sources of hedge ineffectiveness relate to changes in the hedged item (such as maturity, volume and pricing indices), basis spread and significant changes in the credit risk. Such sources are analyzed at hedge initiation and monitored throughout the life of a hedge.
Liquidity Risk
Liquidity risk is the risk that the Company may encounter difficulties in meeting its obligations associated with financial liabilities that are settled by delivering cash. ArcelorMittal Treasury is responsible for the Company's funding and liquidity management. ArcelorMittal’s principal sources of liquidity are cash generated from its operations, its credit lines at the corporate level and various working capital credit lines at the level of its operating subsidiaries. The Company actively manages its liquidity. Following the Company's Treasury and Financial Risk Management Policy, the levels of cash, credit lines and debt are closely monitored and appropriate actions are taken in order to comply with the covenant ratios, leverage, fixed/floating ratios, maturity profile and currency mix.
The contractual maturities of the below financial liabilities include estimated loan repayments, interest payments and settlement of derivatives, excluding any impact of netting agreements. The cash flows are calculated based on market data as of December 31, 2018,2019, and as such are sensitive to movements in mainly forexforeign exchange rates and interest rates. The cash flows are non-discounted, except for derivative financial liabilities where the cash flows equal their fair values. | | | December 31, 2018 | December 31, 2019 |
| Carrying amount | | Contractual Cash Flow | | 2019 | | 2020 | | from 2021 to 2023 | | After 2023 | Carrying amount | | Contractual Cash Flow | | 2020 | | 2021 | | from 2022 to 2024 | | After 2024 |
Non-derivative financial liabilities | | | | | | | | | | | | | | | | | | | | | | |
Bonds | (7,807 | ) | | (10,277 | ) | | (1,200 | ) | | (2,166 | ) | | (3,898 | ) | | (3,013 | ) | (9,398 | ) | | (12,227 | ) | | (880 | ) | | (643 | ) | | (5,542 | ) | | (5,162 | ) |
Loans over 100 | (2,322 | ) | | (2,505 | ) | | (639 | ) | | (1,153 | ) | | (629 | ) | | (84 | ) | (1,968 | ) | | (2,405 | ) | | (534 | ) | | (453 | ) | | (1,014 | ) | | (404 | ) |
Trade and other payables | (13,981 | ) | | (13,999 | ) | | (13,999 | ) | | — |
| | — |
| | — |
| (12,614 | ) | | (12,619 | ) | | (12,619 | ) | | — |
| | — |
| | — |
|
Other loans | (2,354 | ) | | (2,456 | ) | | (1,783 | ) | | (228 | ) | | (310 | ) | | (135 | ) | |
Other loans and lease | | (2,974 | ) | | (3,257 | ) | | (1,886 | ) | | (297 | ) | | (528 | ) | | (546 | ) |
Total | (26,464 | ) | | (29,237 | ) | | (17,621 | ) | | (3,547 | ) | | (4,837 | ) | | (3,232 | ) | (26,954 | ) | | (30,508 | ) | | (15,919 | ) | | (1,393 | ) | | (7,084 | ) | | (6,112 | ) |
Derivative financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity contracts (Put options) | (124 | ) |
| (124 | ) |
| — |
|
| — |
|
| (124 | ) |
| — |
| (125 | ) |
| (125 | ) |
| (125 | ) |
| — |
|
| — |
|
| — |
|
Foreign exchange contracts | (158 | ) |
| (158 | ) |
| (52 | ) |
| (41 | ) |
| (3 | ) |
| (62 | ) | (90 | ) |
| (90 | ) |
| (49 | ) |
| — |
|
| — |
|
| (41 | ) |
Other commodities contracts1 | (616 | ) |
| (616 | ) |
| (138 | ) |
| (148 | ) |
| (217 | ) |
| (113 | ) | (331 | ) |
| (331 | ) |
| (134 | ) |
| (76 | ) |
| (103 | ) |
| (18 | ) |
Total | (898 | ) |
| (898 | ) |
| (190 | ) |
| (189 | ) |
| (344 | ) |
| (175 | ) | (546 | ) |
| (546 | ) |
| (308 | ) |
| (76 | ) |
| (103 | ) |
| (59 | ) |
| |
1. | Commodity contracts include base metals, freight, energy and emission rights. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
| | | December 31, 2017 | December 31, 2018 |
| Carrying amount | | Contractual Cash Flow | | 2018 | | 2019 | | from 2020 to 2022 | | After 2022 | Carrying amount | | Contractual Cash Flow | | 2019 | | 2020 | | from 2021 to 2023 | | After 2023 |
Non-derivative financial liabilities | | | | | | | | | | | | | | | | | | | | | | |
Bonds | (9,458 | ) | | (13,514 | ) | | (1,309 | ) | | (1,306 | ) | | (5,658 | ) | | (5,241 | ) | (7,807 | ) | | (10,277 | ) | | (1,200 | ) | | (2,166 | ) | | (3,898 | ) | | (3,013 | ) |
Loans over 100 | (1,371 | ) | | (1,546 | ) | | (549 | ) | | (118 | ) | | (676 | ) | | (203 | ) | (2,322 | ) | | (2,505 | ) | | (639 | ) | | (1,153 | ) | | (629 | ) | | (84 | ) |
Trade and other payables | (13,428 | ) | | (13,448 | ) | | (13,448 | ) | | — |
| | — |
| | — |
| (13,981 | ) | | (13,999 | ) | | (13,999 | ) | | — |
| | — |
| | — |
|
Other loans | (2,099 | ) | | (2,232 | ) | | (1,444 | ) | | (263 | ) | | (258 | ) | | (267 | ) | (2,354 | ) | | (2,456 | ) | | (1,783 | ) | | (228 | ) | | (310 | ) | | (135 | ) |
Total | (26,356 | ) | | (30,740 | ) | | (16,750 | ) | | (1,687 | ) | | (6,592 | ) | | (5,711 | ) | (26,464 | ) | | (29,237 | ) | | (17,621 | ) | | (3,547 | ) | | (4,837 | ) | | (3,232 | ) |
Derivative financial liabilities | | | | | | | | | | | | | | | | | | | | | | |
Equity contracts (Put options) | | (124 | ) | | (124 | ) | | — |
| | — |
| | (124 | ) | | — |
|
Foreign exchange contracts | (327 | ) | | (327 | ) | | (170 | ) | | — |
| | (64 | ) | | (93 | ) | (158 | ) | | (158 | ) | | (52 | ) | | (41 | ) | | (3 | ) | | (62 | ) |
Other commodities contracts1 | (342 | ) | | (342 | ) | | (156 | ) | | (37 | ) | | (68 | ) | | (81 | ) | (616 | ) | | (616 | ) | | (138 | ) | | (148 | ) | | (217 | ) | | (113 | ) |
Total | (669 | ) | | (669 | ) | | (326 | ) | | (37 | ) | | (132 | ) | | (174 | ) | (898 | ) | | (898 | ) | | (190 | ) | | (189 | ) | | (344 | ) | | (175 | ) |
| |
1. | Commodity contracts include base metals, freight, energy and emission rights. |
The sensitivity analysis carried out by the Company considers the effects on its trade receivables and trade payables of a 10% increase or decrease between the relevant foreign currencies and the U.S. dollar.
The use of a 10% sensitivity rate is used when reporting foreign currency exposure internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes trade receivables and trade payables denominated in a currency other than the U.S. dollar and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number indicates an increase in profit, and a negative number a decrease in profit.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Cash flow hedges
The following tables present the periods in which the derivatives designated as cash flows hedges are expected to mature: | | | December 31, 2018 | December 31, 2019 |
| Assets/ (liabilities) | | (Outflows)/inflows | Assets/ (liabilities) | | (Outflows)/inflows |
| Fair value | | 3 months and less | | 3-6 months | | 6-12 months | | 2020 | | After 2020 | Fair value | | 3 months and less | | 3-6 months | | 6-12 months | | 2021 | | After 2021 |
Foreign exchange contracts | 329 |
| | 329 |
| | 4 |
| | — |
| | (1 | ) | | (3 | ) | 46 |
| | 67 |
| | (17 | ) | | (4 | ) | | — |
| | — |
|
Commodities | (20 | ) | | (8 | ) | | (1 | ) | | — |
| | (3 | ) | | (8 | ) | (275 | ) | | (12 | ) | | (27 | ) | | (40 | ) | | (47 | ) | | (149 | ) |
Emission rights | 317 |
| | — |
| | — |
| | 206 |
| | 111 |
| | — |
| 88 |
| | (4 | ) | | — |
| | 92 |
| | — |
| | — |
|
Total | 626 |
| | 321 |
| | 3 |
| | 206 |
| | 107 |
| | (11 | ) | (141 | ) | | 51 |
| | (44 | ) | | 48 |
| | (47 | ) | | (149 | ) |
| | | December 31, 2017 | December 31, 2018 |
| Assets/ (liabilities) | | (Outflows)/inflows | Assets/ (liabilities) | | (Outflows)/inflows |
| Fair value | | 3 months and less | | 3-6 months | | 6-12 months | | 2019 | | After 2019 | Fair value | | 3 months and less | | 3-6 months | | 6-12 months | | 2020 | | After 2020 |
Foreign exchange contracts | (118 | ) | | (83 | ) | | (25 | ) | | (10 | ) | | — |
| | — |
| 329 |
| | 329 |
| | 4 |
| | — |
| | (1 | ) | | (3 | ) |
Commodities | 20 |
| | 9 |
| | 4 |
| | 6 |
| | 1 |
| | — |
| |
Commodities1 | | (588 | ) | | (8 | ) | | (39 | ) | | (77 | ) | | (143 | ) | | (321 | ) |
Emission rights | (37 | ) | | — |
| | — |
| | (37 | ) | | — |
| | — |
| 317 |
| | — |
| | — |
| | 206 |
| | 111 |
| | — |
|
Total | (135 | ) | | (74 | ) | | (21 | ) | | (41 | ) | | 1 |
| | — |
| 58 |
| | 321 |
| | (35 | ) | | 129 |
| | (33 | ) | | (324 | ) |
| |
1. | The commodities balance as of December 31, 2018 shown above has been revised to correct the prior period disclosure, increasing the liability balance of commodities by 568 for the special payment in the pellet purchase agreement described in note 6.1.5. The revision only impacted the amount disclosed above and the hedging instruments table below and otherwise had no impact on the Company’s consolidated financial statements. The Company has evaluated the impact of the revision and determined that it did not have a material impact on any of its prior period annual consolidated financial statements. |
Associated gains or losses that were recognized in other comprehensive income are reclassified from equity to the consolidated statements of operations in the same period during which the hedged forecasted cash flow affects the consolidated statements of operations. The following table presents the periods in which the realized and unrealized gains or losses on derivatives designated as cash flows hedges recognized in other comprehensive income, net of tax, are expected to impact the
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
consolidated statements of operations: | | | December 31, 2018 | December 31, 2019 |
| Assets/ (liabilities) | | (Expense)/income | Cash flow reserve | | (Expense)/income |
| Carrying amount | | 3 months and less | | 3-6 months | | 6-12 months | | 2020 | | After 2020 | Carrying amount | | 3 months and less | | 3-6 months | | 6-12 months | | 2021 | | After 2021 |
Foreign exchange contracts | 4 |
| | — |
| | — |
| | 4 |
| | — |
| | — |
| 13 |
| | 9 |
| | 1 |
| | 3 |
| | — |
| | — |
|
Commodity contracts | (390 | ) | | (34 | ) | | (32 | ) | | (59 | ) | | (115 | ) | | (150 | ) | (106 | ) | | (16 | ) | | (19 | ) | | (27 | ) | | (44 | ) | | — |
|
Emission rights | 778 |
| | 46 |
| | 47 |
| | 93 |
| | 87 |
| | 505 |
| 310 |
| | 72 |
| | 73 |
| | 145 |
| | 16 |
| | 4 |
|
Total | 392 |
| | 12 |
| | 15 |
| | 38 |
| | (28 | ) | | 355 |
| 217 |
| | 65 |
| | 55 |
| | 121 |
| | (28 | ) | | 4 |
|
| | | December 31, 2017 | December 31, 2018 |
| Assets/ (liabilities) | | (Expense)/income | Cash flow reserve | | (Expense)/income |
| Carrying amount | | 3 months and less | | 3-6 months | | 6-12 months | | 2019 | | After 2019 | Carrying amount | | 3 months and less | | 3-6 months | | 6-12 months | | 2020 | | After 2020 |
Foreign exchange contracts | (141 | ) | | (95 | ) | | (26 | ) | | (20 | ) | | — |
| | — |
| 4 |
| | — |
| | — |
| | 4 |
| | — |
| | — |
|
Commodity contracts | 19 |
| | 9 |
| | 4 |
| | 5 |
| | 1 |
| | — |
| (390 | ) | | (34 | ) | | (32 | ) | | (59 | ) | | (115 | ) | | (150 | ) |
Emission rights | 84 |
| | — |
| | — |
| | 7 |
| | 33 |
| | 44 |
| 778 |
| | 46 |
| | 47 |
| | 93 |
| | 87 |
| | 505 |
|
Total | (38 | ) | | (86 | ) | | (22 | ) | | (8 | ) | | 34 |
| | 44 |
| 392 |
| | 12 |
| | 15 |
| | 38 |
| | (28 | ) | | 355 |
|
The following tables summarize the effect of hedge accounting on ArcelorMittal’s consolidated statement of financial position, statement of comprehensive income and statement of changes in equity.
|
| | | | | | | | | | |
| December 31, 2019 |
Hedging Instruments | Nominal amount of the hedging instrument |
| Assets carrying amount |
| Liabilities carrying amount |
| Line item in the statement of financial position where the hedging instrument is located |
Cash flow hedges |
|
|
|
|
|
|
|
Foreign exchange risk - Option/Forward contracts | 5,207 |
|
| 80 |
|
| (34 | ) |
| Prepaid expenses and other current assets/Accrued expenses and other liabilities |
Price risk - Commodities forwards1 | 531 |
|
| 14 |
|
| (93 | ) |
| Prepaid expenses and other current assets/Accrued expenses and other liabilities |
Price risk - Commodities forwards1 | 721 |
|
| — |
|
| (196 | ) |
| Other assets/Other long-term obligations |
Price risk - Emission rights forwards | 559 |
|
| 104 |
|
| (16 | ) |
| Prepaid expenses and other current assets/Accrued expenses and other liabilities |
Total | — |
|
| 198 |
| | (339 | ) |
|
|
| |
1. | Including energy forwards |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
|
| | | | | | | | | | | | | | | |
| December 31, 2018 | | |
Hedging Instruments | Nominal amount of the hedging instrument |
| Assets carrying amount |
| Liabilities carrying amount |
| Line item in the statement of financial position where the hedging instrument is located |
| Changes in fair value used for calculated hedge ineffectiveness | | Line item in the statement of comprehensive income that includes the recognized hedge ineffectiveness |
Cash flow hedges |
|
|
|
|
|
|
|
|
| | |
Foreign exchange risk - Option/Forward contracts | 7,465 |
|
| 332 |
|
| — |
|
| Prepaid expenses and other current assets |
| — |
| | n/a |
Price risk - Commodities forwards | 350 |
|
| — |
|
| (124 | ) |
| Accrued expenses and other liabilities |
| — |
| | n/a |
Price risk - Commodities forwards
| 491 |
| | — |
| | (454 | ) | | Other long-term obligations | | — |
| | n/a |
Price risk - Energy forwards | 765 |
| | — |
| | (9 | ) | | Other long-term obligations
| | — |
| | n/a
|
Price risk - Emission rights forwards | 1,091 |
| | 205 |
| | — |
| | Prepaid expenses and other current assets | | (1 | ) | | Financing costs - net |
Price risk - Emission rights forwards | 79 |
|
| 112 |
|
| — |
|
| Other assets |
| — |
| | n/a |
Total | 10,241 |
|
| 649 |
|
| (587 | ) |
|
|
| (1 | ) | | |
| |
| December 31, 2018 | December 31, 2019 |
|
|
Hedging Instruments | Hedging gains or losses of the reporting period that were recognized in OCI |
| Change in value used for calculating hedge ineffectiveness for 2018 | | Line item in the statement of comprehensive income that includes the recognized hedge ineffectiveness
| | Cash flow hedge reserve | Cash flow hedge reserve at December 31, 2018 |
| Hedging gains or losses of the reporting period that were recognized in OCI |
| Gains or losses reclassification adjustment and hedge ineffectiveness |
| Basis adjustment |
| Line item in the statement of comprehensive income that includes the reclassification adjustment and hedge ineffectiveness |
| Cash flow hedge reserve at December 31, 2019 |
|
| |
Cash flow hedges |
|
|
| |
| |
|
|
|
|
|
|
|
|
|
|
Foreign exchange risk - Option/Forward contracts | 469 |
|
| — |
| | n/a | | 282 |
| 282 |
|
| 76 |
|
| (4 | ) |
| (323 | ) |
| Sales |
| 31 |
|
Price risk - Commodities forwards | (28 | ) |
| — |
| | n/a | | (9 | ) | (399 | ) |
| 272 |
|
| 21 |
|
| — |
|
| Sales, Cost of sales |
| (106 | ) |
Price risk - Energy forwards
| (9 | ) | | — |
| | n/a | | (9 | ) | |
Price risk - Emission rights forwards | 694 |
|
| (1 | ) | | Financing costs - net | | 778 |
| 778 |
|
| (32 | ) |
| (436 | ) |
| — |
|
| Cost of sales |
| 310 |
|
Total | 1,126 |
|
| (1 | ) | |
| | 1,042 |
| 661 |
|
| 316 |
|
| (419 | ) |
| (323 | ) |
|
|
| 235 |
|
| |
| December 31, 2017 | | December 31, 2018 |
Hedging Instruments | Nominal amount of the hedging instrument |
| Assets carrying amount |
| Liabilities carrying amount |
| Line item in the statement of financial position where the hedging instrument is located |
| Changes in fair value used for calculated hedge ineffectiveness | | Line item in the statement of comprehensive income that includes the recognized hedge ineffectiveness
| Nominal amount of the hedging instrument | | Assets carrying amount | | Liabilities carrying amount | | Line item in the statement of financial position where the hedging instrument is located |
Cash flow hedges |
|
|
|
|
|
|
| | | | | | | | |
Foreign exchange risk - Option contracts | 4,460 |
|
| — |
|
| (113 | ) |
| Accrued expenses and other liabilities |
| — |
| | n/a | |
Price risk - Option/Commodities forwards | 317 |
|
| — |
|
| (23 | ) |
| Accrued expenses and other liabilities |
| — |
| | n/a | |
Foreign exchange risk - Option/Forward contracts | | 7,465 |
| | 332 |
| | — |
| | Prepaid expenses and other current assets |
Price risk - Commodities forwards | | 350 |
| | — |
| | (124 | ) | | Accrued expenses and other liabilities |
Price risk - Commodities forwards | | 491 |
| | — |
| | (454 | ) | | Other long-term obligations |
Price risk - Energy forwards | | 765 |
| | — |
| | (9 | ) | | Other long-term obligations |
Price risk - Emission rights forwards | | 1,091 |
| | 205 |
| | — |
| | Prepaid expenses and other current assets |
Price risk - Emission rights forwards | 484 |
|
| — |
|
| (37 | ) |
| Accrued expenses and other liabilities |
| (2 | ) | | Financing costs - net | 79 |
| | 112 |
| | — |
| | Other assets |
Total | 5,261 |
|
| — |
|
| (173 | ) |
|
|
| (2 | ) | | | 10,241 |
| | 649 |
| | (587 | ) | | |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
|
| | | | | | | | | | |
| December 31, 2017 |
Hedging Instruments | Hedging gains or losses of the reporting period that were recognized in OCI | | Change in value used for calculating hedge ineffectiveness for 2017 | | Line item in the statement of comprehensive income that includes the recognized hedge ineffectiveness
| | Cash flow hedge reserve |
| |
Cash flow hedges | | | | | | | |
Foreign exchange risk - Option contracts | (198 | ) | | — |
| | n/a | | (141 | ) |
Price risk - Commodities forwards | (1 | ) | | — |
| | n/a | | 18 |
|
Price risk - Emission rights forwards | 62 |
| | (2 | ) | | Financing costs - net
| | 84 |
|
Total | (137 | ) | | (2 | ) | | | | (39 | ) |
|
| | | | | | | | | | | | | | | | |
| December 31, 2018 | | | | |
Hedging Instruments | Cash flow hedge reserve at December 31, 2017 |
| Hedging gains or losses of the reporting period that were recognized in OCI |
| Gains or losses reclassification adjustment and hedge ineffectiveness |
| Basis adjustment |
| Line item in the statement of comprehensive income that includes the reclassification adjustment and hedge ineffectiveness |
| Cash flow hedge reserve at December 31, 2018 |
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange risk - Option/Forward contracts | (141 | ) |
| 284 |
|
| — |
|
| 139 |
|
| n/a |
| 282 |
|
Price risk - Commodities forwards1 | 18 |
|
| (543 | ) |
| 126 |
|
| — |
|
| Sales, Cost of sales |
| (399 | ) |
Price risk - Emission rights forwards | 84 |
|
| 694 |
|
| — |
|
| — |
|
| n/a |
| 778 |
|
Total | (39 | ) |
| 435 |
|
| 126 |
|
| 139 |
|
|
|
| 661 |
|
| |
1. | The price risk - commodities forward balance as of December 31, 2018 shown above has been revised to correct the prior period disclosure decreasing the Hedging gains or losses of the reporting period and the cash flow hedge reserve by 381 for the special payment in the pellet purchase agreement described in note 6.1.5. The revision only impacted the disclosed amount in the maturities table above and this hedge accounting table and otherwise had no impact on the Company’s consolidated financial statements. The Company has evaluated the impact of the revision and determined that it did not have a material impact on any of its prior period annual consolidated financial statements. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Net investment hedge
In December 2014, the Company entered into euro/U.S. dollar cross currency swaps (“CCS”) to hedge ana euro denominated net investment in foreign operations amounting to €303 million, and designated them as a net investment hedge. The euro/U.S. dollar CCS with a notional of 375 were unwound on January 14, 2016. A deferred gain of 83, net of a deferred tax expense of 24, will be recycled to the consolidated statements of operations when the hedged assets are disposed of.
On May 27, 2015, the Company entered into additional euro/U.S. dollar CCS with a notional of 1,000 to hedge ana euro denominated net investment in foreign operations amounting to €918 million, and designated them as a net investment hedge. As of December 31, 20182019 and 2017,2018, the euro/U.S. dollar CCS have a fair value loss of 41, net of a deferred tax of 12, and a fair value loss of 101, net of a deferred tax of 28, and a fair value loss of 157, net of a deferred tax of 44, respectively. Fair value movements have been recorded in the consolidated statements of other comprehensive income. The fair value of the remaining CCS is included in other long-term obligations in the consolidated statements of financial position. The remaining CCS is categorized as Level 2. The euro/U.S. dollar CCS with a notional of 500 were unwound on July 31, 2019. A deferred loss of 16, will be recycled to the consolidated statements of operations when the hedged assets are disposed of.
In March 2018, the Company entered into additional euro/U.S. dollar CCS with a notional of 100 to hedge a euro denominated net investment in foreign operation amounting to €81 million, and designated them as a net investment hedge. The CCS was categorized as Level 2 and the fair value movements were recorded in the consolidated statements of other comprehensive income. The euro/U.S. dollar CCS with a notional of 100 was unwound on June 18, 2018. A deferred gain of 8 will be recycled to the consolidated statements of operations when the hedged assets are disposed of.
In April 2019, the Company entered into additional euro/U.S. dollar CCS with a notional of 200 to hedge a euro denominated net investment in foreign operation amounting to €178 million, and designated them as a net investment hedge. The CCS was categorized as Level 2 and the fair value movements were recorded in the consolidated statements of other comprehensive income. The euro/U.S. dollar CCS with a notional of 200 were unwound on November 26, 2019. A deferred gain of 11 will be recycled to the consolidated statements of operations when the hedged assets are disposed of.
As of April 1, 2018, the Company designated a portfolio of euro denominated debt (€5,1696,922 million as of December 31, 2018)2019) as a hedge of certain euro denominated investments (€7,8048,070 million as of December 31, 2018)2019) in order to mitigate the foreign currency risk arising from certain euro denominated subsidiaries net assets. The risk arises from the fluctuation of the euro/U.S dollar spot rate, which causes the amount of the net investments to vary. The euro denominated debt is designated as a hedging instrument for the change in the value of the net investments that is attributable to changes in the euro/U.S dollar spot rate. As of December 31, 2018,2019, the Company recognized 474109 foreign exchange gains arising on the translation of the euro denominated debt designated as a hedge of the euro denominated net investments in foreign operations in other comprehensive income within the foreign exchange translation reserve. The hedgehedging instrument is categorized as Level 2.
HedgingDerivative hedging instruments in net investment hedges are as follows: | | | | December 31, 2018 | | | | | | | | | | |
Derivatives | | Notional amount | | Date traded | | Fair value at December 31, 2017 | | Change in fair value | | Fair value as of December 31, 20181 | | Notional amount | | Date traded | | Fair value at December 31, 2018 | | Change in fair value | | Fair value as of December 31, 20191 |
CCS 5Y | | 500 | | May 27, 2015 | | (64) | | 29 | | (35) | |
CCS 10Y | | 300 | | May 27, 2015 | | (56) | | 17 | | (39) | | 300 | | May 27, 2015 | | (39) | | 14 | | (25) |
CCS 10Y | | 160 | | May 27, 2015 | | (30) | | 9 | | (21) | | 160 | | May 27, 2015 | | (21) | | 8 | | (13) |
CCS 10Y | | 40 | | May 27, 2015 | | (7) | | 1 | | (6) | | 40 | | May 27, 2015 | | (6) | | 3 | | (3) |
Total | | 1,000 | | | | (157) | | 56 | | (101) | | 500 | | | | (66) | | 25 | | (41) |
| |
1. | The net investment hedges were fully effective. As such, the change in fair value is entirely recorded in other comprehensive income. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
| |
| December 31, 2018 | December 31, 2019 |
Hedging Instruments | Nominal amount of the hedging instrument | | Assets carrying amount | | Liabilities carrying amount
| | Line item in the statement of financial position where the hedging instrument is located
| | Change in value used for calculating hedge ineffectiveness for 2018 | | Line item in the statement of comprehensive income that includes the recognized hedge ineffectiveness | | Cash flow hedge reserve | Nominal amount of the hedging instrument |
| Assets carrying amount |
| Liabilities carrying amount |
| Line item in the statement of financial position where the hedging instrument is located |
| Change in value used for calculating hedge ineffectiveness for 2019 |
| Line item in the statement of comprehensive income that includes the recognized hedge ineffectiveness |
| Foreign currency translation reserve |
Net investment hedges | Net investment hedges | | | | | | | Net investment hedges |
|
|
|
|
|
|
Foreign exchange risk - Cross Currency Swap | 1,000 |
| | — |
| | (101 | ) | | Other long-term obligations | | — |
| | n/a | | 28 |
| 500 |
|
| — |
|
| (41 | ) |
| Other long-term obligations |
| — |
|
| n/a |
| 33 |
|
Foreign exchange risk - EUR debt | 5,931 |
| | — |
| | (5,918 | ) | | Short-term debt and current portion of long-term debt; long-term debt, net of current portion | | — |
| | n/a | | 474 |
| 7,788 |
|
| — |
|
| (7,777 | ) |
| Short-term debt and current portion of long-term debt; long-term debt, net of current portion |
| — |
|
| n/a |
| 567 |
|
Total | 6,931 |
| | — |
| | (6,019 | ) | | | | — |
| | 502 |
| 8,288 |
|
| — |
|
| (7,818 | ) |
|
|
| — |
|
| 600 |
|
| | | | December 31, 2017 | | | | | | | | | | |
Derivatives | | Notional amount | | Date traded | | Fair value at December 31, 2016 | | Change in fair value | | Fair value as of December 31, 20171 | | Notional amount | | Date traded | | Fair value at December 31, 2017 | | Change in fair value | | Fair value as of December 31, 20181 |
CCS 5Y | | 500 | | May 27, 2015 | | 3 | | (67) | | (64) | | 500 | | May 27, 2015 | | (64) | | 29 | | (35) |
CCS 10Y | | 300 | | May 27, 2015 | | (14) | | (42) | | (56) | | 300 | | May 27, 2015 | | (56) | | 17 | | (39) |
CCS 10Y | | 160 | | May 27, 2015 | | (8) | | (22) | | (30) | | 160 | | May 27, 2015 | | (30) | | 9 | | (21) |
CCS 10Y | | 40 | | May 27, 2015 | | (2) | | (5) | | (7) | | 40 | | May 27, 2015 | | (7) | | 1 | | (6) |
Total | | 1,000 | | (21) | | (136) | | (157) | | 1,000 | | (157) | | 56 | | (101) |
| |
1. | The net investment hedges were fully effective. As such, the change in fair value is entirely recorded in other comprehensive income. |
| |
| December 31, 2017 | December 31, 2018 |
Hedging Instrument | Nominal amount of the hedging instrument | | Assets carrying amount | | Liabilities carrying amount | | Line item in the statement of financial position in which the hedged item is located | | Change in value used for calculating hedge ineffectiveness for 2017 | | Line item in the statement of comprehensive income that includes the recognized hedge ineffectiveness | | Cash flow hedge reserve | Nominal amount of the hedging instrument | | Assets carrying amount | | Liabilities carrying amount | | Line item in the statement of financial position in which the hedged item is located | | Change in value used for calculating hedge ineffectiveness for 2018 | | Line item in the statement of comprehensive income that includes the recognized hedge ineffectiveness | | Foreign currency translation reserve |
Net investment hedge | | | | | | | | | | | | | | | | | | |
Foreign exchange risk - Cross Currency Swap | 1,000 |
| | — |
| | (157 | ) | | Other long-term obligations | | — |
| | n/a | | (56 | ) | 1,000 |
| | — |
| | (101 | ) | | Other long-term obligations | | — |
| | n/a | | 28 |
|
Foreign exchange risk - EUR debt | | 5,931 |
| | — |
| | (5,918 | ) | | Short-term debt and current portion of long-term debt; long-term debt, net of current portion | | — |
| | n/a | | 474 |
|
Total | 1,000 |
| | — |
| | (157 | ) | | | | — |
| | (56 | ) | 6,931 |
| | — |
| | (6,019 | ) | | | | — |
| | 502 |
|
Raw materials, freight, energy risks and emission rights
The Company is exposed to risks in fluctuations in prices of raw materials (including base metals such as zinc, nickel, aluminum, tin, copper and iron ore), freight and energy, both through the purchase of raw materials and through sales contracts. The Company uses financial instruments such as forward purchases or sales, options and swaps in order to manage the volatility of prices of certain raw materials, freight and energy.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Fair values of raw material, freight, energy and emission rights instruments categorized as Level 2 are as follows: | | | December 31, | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Base metals | (9) | | 26 | (6) | | (9) |
Freight | — | | — | 7 | | — |
Energy (oil, gas, electricity) | (5) | | — | (92) | | (5) |
Emission rights | 317 | | (37) | 88 | | 317 |
Total | 303 | | (11) | (3) | | 303 |
| | |
Derivative assets associated with raw materials, energy, freight and emission rights | 351 | | 67 | 152 | | 351 |
Derivative liabilities associated with raw materials, energy, freight and emission rights | (48) | | (78) | (155) | | (48) |
Total | 303 | | (11) | (3) | | 303 |
ArcelorMittal consumes large amounts of raw materials (the prices of which are related to the London Metals Exchange price index, the Steel Index and Platts Index), ocean freight (the price of which is related to a Baltic Exchange Index), and energy (the prices of which are mainly related to the New York Mercantile Exchange energy index (NYMEX), the European Energy Exchange (EEX) power indexes, the powernext gas indexes). As a general matter, ArcelorMittal is exposed to price volatility with respect to its purchases in the spot market and under its long-term supply contracts. In accordance with its risk management policy, ArcelorMittal hedges a part of its exposure related to raw materials procurements.
Emission rights
Pursuant to the application of the European Directive 2003/87/EC of October 13, 2003, as amended by the European Directive 2009/29/EC of April 23, 2009, establishing a scheme for emission allowance trading, the Company enters into certain types of derivatives (mainly forward transactions and options) in order to implement its management policy for associated risks. As of December 31, 20182019 and 2017,2018, the Company had a net notional position of 557 with a net positive fair value of 88 and a net notional position of 1,170 with a net positive fair value of 317, and a net notional position of 484 with a net negative fair value of 37, respectively.
Credit risk
The Company’s treasury department monitors various market data regarding the credit standings and overall reliability of the financial institutions for all countries where the Company’s subsidiaries operate. The choice of the financial institution for the financial transactions must be approved by the treasury department. Credit risk related to customers, customer credit terms and receivables are discussed in note 4.3.
Sensitivity analysis
Foreign currency sensitivity
The following tables detail the Company’s derivative financial instruments’instruments' sensitivity to a 10% strengthening and a 10% weakening in the U.S. dollar against the euro. A positive number indicates an increase in profit or loss and other equity, where a negative number indicates a decrease in profit or loss and other equity.
The sensitivity analysis includes the Company’s complete portfolio of foreign currency derivatives outstanding. The impact on the non €/$ derivatives reflects the estimated move of such currency pairs, when the U.S. dollar appreciates or depreciates 10% against the euro, based on computations of correlations in the foreign exchange markets in 20182019 and 2017.2018. | | | December 31, 2018 | December 31, 2019 |
| Income | | Other Equity | Income | | Other Equity |
10% strengthening in U.S. dollar | 132 | | (422) | (104) | | 325 |
10% weakening in U.S. dollar | (148) | | 674 | 113 | | (252) |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
| | | December 31, 2017 | December 31, 2018 |
| Income | | Other Equity | Income | | Other Equity |
10% strengthening in U.S. dollar | (24) | | 497 | 132 | | (422) |
10% weakening in U.S. dollar | 13 | | (511) | (148) | | 674 |
Cash flow sensitivity analysis for variable rate instruments
The following tables detail the Company’s variable interest rate instruments’ sensitivity. A change of 100 basis points (“bp”) in interest rates during the period would have increased (decreased) profit or loss by the amounts presented below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
|
| | | |
| December 31, 2019 |
| Floating porting of net debt1 | | Interest Rate Swaps/Forward Rate Agreements |
100 bp increase | 30 | | — |
100 bp decrease | (30) | | — |
|
| | | |
| December 31, 2018 |
| Floating porting of net debt1 | | Interest Rate Swaps/Forward Rate Agreements |
100 bp increase | 1 | | — |
100 bp decrease | (1) | | — |
|
| | | |
| December 31, 2017 |
| Floating porting of net debt1
| | Interest Rate Swaps/Forward Rate Agreements |
100 bp increase | 11 | | — |
100 bp decrease | (11) | | — |
| |
1. | Please refer to note 6.1.4 for a description of net debt (including fixed and floating portion) |
Base metals, energy, freight, emissions rights
The following tables detail the Company’s sensitivity to a 10% increase and decrease in the price of the relevant base metals, energy, freight and emissions rights. The sensitivity analysis includes only outstanding, un-matured derivative instruments either held for trading at fair value through the consolidated statements of operations or designated in hedge accounting relationships. | |
| December 31, 2018 | December 31, 2019 |
| Income |
| Other Equity Cash Flow Hedging Reserves | Income |
| Other Equity Cash Flow Hedging Reserves |
+10% in prices |
|
|
Base Metals | (1) |
| 19 | 2 |
| 15 |
Iron Ore | — |
| 1 | — |
| — |
Freight | 3 |
| — | — |
| — |
Emission rights | — |
| 149 | — |
| 65 |
Energy | — |
| 75 | — |
| 71 |
-10% in prices |
|
|
Base Metals | 1 |
| (19) | (2) |
| (15) |
Iron Ore | — |
| (1) | — |
| — |
Freight | (3) |
| — | — |
| — |
Emission rights | — |
| (149) | — |
| (65) |
Energy | — |
| (75) | — |
| (71) |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
| | | December 31, 2017 | December 31, 2018 |
| Income | | Other Equity Cash Flow Hedging Reserves | Income | | Other Equity Cash Flow Hedging Reserves |
+10% in prices | | |
Base Metals | 4 | | 30 | (1) | | 19 |
Iron Ore | — | | — | — | | 1 |
Freight | | 3 | | — |
Emission rights | — | | 45 | — | | 149 |
Energy | 1 | | — | — | | 75 |
-10% in prices | | |
Base Metals | (4) | | (30) | 1 | | (19) |
Iron Ore | — | | — | — | | (1) |
Freight | | (3) | | — |
Emission rights | — | | (45) | — | | (149) |
Energy | (1) | | — | — | | (75) |
NOTE 7: LEASES
As a lessee, the Company assesses if a contract is or contains a lease at inception of the contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company recognizes a right-of-use asset and a lease liability at the commencement date, except for short-term leases of twelve months or less and leases for which the underlying asset is of low value, which are expensed in the consolidated statement of operations on a straight-line basis over the lease term.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or, if not readily determinable, the incremental borrowing rate specific to the country, term and currency of the contract. Lease payments can include fixed payments, variable payments that depend on an index or rate known at the commencement date, as well as any extension or purchase options, if the Company is reasonably certain to exercise these options. The lease liability is subsequently measured at amortized cost using the effective interest method and remeasured with a corresponding adjustment to the related right-of-use asset when there is a change in future lease payments in case of renegotiation, changes of an index or rate or in case of reassessments of options.
The right-of-use asset comprises, at inception, the initial lease liability, any initial direct costs and, when applicable, the obligations to refurbish the asset, less any incentives granted by the lessors. The right-of-use asset is subsequently depreciated, on a straight-line basis, over the lease term or, if the lease transfers the ownership of the underlying asset to the Company at the end of the lease term or, if the cost of the right-of-use asset reflects that the lessee will exercise a purchase option, over the estimated useful life of the underlying asset. Right-of-use assets are also subject to testing for impairment if there is an indicator for impairment.
Variable lease payments not included in the measurement of the lease liabilities are expensed to the consolidated statement of operations in the period in which the events or conditions which trigger those payments occur.
In the statement of financial position, right-of-use assets and lease liabilities are classified, respectively, as part of property, plant and equipment and short-term/long-term debt.
Following the adoption of IFRS 16 "Leases" as described in note 1 on January 1, 2019, the Company recognized lease liabilities and right-of-use assets for operating lease contracts with fixed terms and future minimum lease payments as summarized in the following table:
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
|
| | |
Non-cancellable operating lease commitments as of December 31, 2018* | 1,869 |
|
Recognition exemption for leases of low-value assets | (58 | ) |
Recognition exemption for short-term leases | (20 | ) |
Undiscounted operating lease commitments as of January 1, 2019 | 1,791 |
|
Effects of discounting using incremental borrowing rates (weighted average rate of 4.7%) | (632 | ) |
Lease liabilities related to assets held for sale | (23 | ) |
Additional lease liabilities as of January 1, 2019 from leases previously classified as operating leases in accordance with IAS 17 | 1,136 |
|
* As reported in the consolidated financial statements for the year ended December 31, 2018 - note 8.4 |
Following the application of the modified retrospective method at the date of implementation of IFRS 16 on January 1, 2019, whereby right-of-use assets of 1,405were measured at an amount equal to the lease liabilities of 1,136, increased by 77 related to favorable terms of operating leases acquired as part of previous business combinations and 192 related to amounts prepaid for the right of use of land, both reclassified from intangible assets. There was no impact on deferred tax assets and deferred tax liabilities as the corresponding deferred tax assets and deferred tax liabilities attributable to the lease liabilities and right-of-use assets relate to income taxes levied by the same taxation authority within the same legal entity and were therefore offset.
For leases that were classified as finance leases applying IAS 17, the carrying amount of the right-of-use asset and the lease liability at the date of initial application is the carrying amount of the lease asset and lease liability immediately before that date measured applying IAS 17 on December 31, 2018. The carrying amount of finance lease assets and lease liabilities was 363 and 423, respectively as of December 31, 2018. Accordingly, the total right-of-use assets and lease liabilities as of January 1, 2019 were 1,768 and 1,559, respectively.
There were 0 impacts on retained earnings upon implementation of IFRS 16.
The Company's lease contracts relate to a variety of assets used in its operational and administrative activities through several units, such as land, buildings, vehicles, industrial machinery, logistic and commercial facilities and power generation facilities. There are no sale and lease back transactions and no restrictions or covenants are imposed by the Company's current effective lease contracts.
The lease liabilities were 1,127 as of December 31, 2019. The corresponding interest expense for the twelve months ended December 31, 2019, amounted to 98. The portion of the lease payments recognized as a reduction of the lease liabilities and as a cash outflow from financing activities amounted to 320 for the twelve months ended December 31, 2019.
The decrease in the total right-of-use assets and lease liabilities during the year ended December 31, 2019 included the decrease in right-of-use assets and lease liabilities by 390 and 400, respectively, due to the sale of a 50% controlling interest in Global Chartering to DryLog. See note 2.3.1.
The maturity analysis of the lease liabilities as of December 31, 2019, is as follows:
|
| | | | | | | | | | |
| 1 year or less | 2-3 years | 4-5 years | Greater than 5 years | TOTAL |
Lease liabilities (undiscounted) | 279 |
| 369 |
| 209 |
| 513 |
| 1,370 |
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The right-of-use assets as of December 31, 2019 and the depreciation and impairment charges for the twelve months ended December 31, 2019 amounted to 1,235 and 406, respectively, and are shown below by underlying class of asset:
|
| | | | |
| Carrying amount | Depreciation and impairment charges |
Land, buildings and improvements | 854 |
| (118 | ) |
Machinery, equipment and others | 381 |
| (288 | ) |
Total | 1,235 |
| (406 | ) |
The additions to right-of-use assets amounted to 259 for the twelve months ended December 31, 2019.
The Company recognizes the expenses of short-term leases and leases of low-value assets on a straight-line basis over the lease term. The expenses related to short-term leases and leases of low-value assets were 165 and 68, respectively, for the twelve months ended December 31, 2019.
Expenses related to variable lease payments not included in the measurement of lease liabilities were 65 for the twelve months ended December 31, 2019. Such lease payments relate to rental fees that vary based on the actual level of activities or performance of the underlying leased assets such as a percentage of sales of the Company's goods through certain leased commercial warehouses and fixed rental fees per actual unit of output produced or transported by the leased assets.
An estimation of the future cash outflows to which the Company is potentially exposed in relation to those contracts involving variable lease payments, which are not reflected in the measurement of lease liabilities as of December 31, 2019, is as follows:
|
| | | | | | | | | | |
| 1 year or less | 2-3 years | 4-5 years | Greater than 5 years | TOTAL |
Potential variable lease payments | 61 |
| 91 |
| 69 |
| 73 |
| 294 |
|
Also, some of the Company's lease contracts have extension and/or termination options as well as residual value guarantees whose amounts are not reflected in the measurement of the lease liabilities as of December 31, 2019. The potential addition/(reduction) in future cash outflows to which the Company is exposed in case such options are exercised or the guarantees required are as shown in the table below.
|
| | | | | | | | | | |
| 1 year or less | 2-3 years | 4-5 years | Greater than 5 years | TOTAL |
Potential extension options | 1 |
| 8 |
| 13 |
| 16 |
| 38 |
|
Potential termination options | (2 | ) | (2 | ) | (1 | ) | (1 | ) | (6 | ) |
Potential residual value guarantees | 1 |
| 1 |
| 1 |
| — |
| 3 |
|
Undiscounted amounts related to lease contracts not yet commenced and therefore not included in the recognized lease liabilities as of December 31, 2019, to which the Company is committed are described below:
|
| | | | | | | | | | |
| 1 year or less | 2-3 years | 4-5 years | Greater than 5 years | TOTAL |
Leases not yet commenced | 2 |
| 8 |
| 8 |
| 13 |
| 31 |
|
There were neither income from subleasing right-of-use assets nor gains or losses from sales and leaseback for the twelve months ended December 31, 2019.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
NOTE 7:8: PERSONNEL EXPENSES AND DEFERRED EMPLOYEE BENEFITS
7.18.1 Employees and key management personnel
As of December 31, 2019, 2018 2017 and 2016,2017, ArcelorMittal had approximately 191,000, 209,000 197,000 and 199,000197,000 employees, respectively, and the total annual compensation of ArcelorMittal’s employees in 2019, 2018 2017 and 20162017 was as follows: | | | Year Ended December 31, | Year Ended December 31, |
Employee Information | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Wages and salaries | 8,176 |
| | 7,912 |
| | 7,675 |
| 8,380 |
| | 8,176 |
| | 7,912 |
|
Pension cost (see note 7.2) | 264 |
| | 265 |
| | 124 |
| |
Loss/(gain) following new labor agreement in the U.S. (see note 7.2) | 15 |
| | — |
| | (832 | ) | |
Defined benefits cost (see note 8.2) | | 201 |
| | 264 |
| | 265 |
|
Loss following new labor agreement in the U.S. (see note 8.2) | | — |
| | 15 |
| | — |
|
Other staff expenses | 2,004 |
| | 1,791 |
| | 1,591 |
| 1,668 |
| | 2,004 |
| | 1,791 |
|
Total | 10,459 |
| | 9,968 |
| | 8,558 |
| 10,249 |
| | 10,459 |
| | 9,968 |
|
The total annual compensation of ArcelorMittal’s key management personnel, including its Board of Directors, expensed in 2019, 2018 2017 and 20162017 was as follows: | | | Year Ended December 31, | Year Ended December 31, |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Base salary and directors fees | 8 | | 8 | | 12 | 8 | | 8 | | 8 |
Short-term performance-related bonus | 8 | | 7 | | 2 | 9 | | 8 | | 7 |
Post-employment benefits | 1 | | 1 | | 1 | 1 | | 1 | | 1 |
Share-based compensation | 4 | | 3 | | 2 | |
Share-based payments | | — | | 4 | | 3 |
The fair value of the stock options granted and shares allocated based on Restricted Share Unit (“RSU”) and Preference Share Unit (“PSU”) plans to the ArcelorMittal’s key management personnel iswas recorded as an expense in the consolidated statements of operations over the relevant vesting periods.
As of December 31, 2019, 2018 2017 and 2016,2017, ArcelorMittal did not have any outstanding loans or advances to members of its Board of Directors or key management personnel, and, as of December 31, 2019, 2018 2017 and 2016,2017, ArcelorMittal had not given any guarantees for the benefit of any member of its Board of Directors or key management personnel.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
7.28.2 Deferred employee benefits
ArcelorMittal’s operating subsidiaries sponsor different types of pension plans for their employees. Also, some of the operating subsidiaries offer other post-employment benefits, that are principally post-retirement healthcare plans. These benefits are broken down into defined contribution plans and defined benefit plans.
Defined contribution plans are those plans where ArcelorMittal pays fixed or determinable contributions to external life insurance or other funds for certain categories of employees. Contributions are paid in return for services rendered by the employees during the period. Contributions are expensed as incurred consistent with the recognition of wages and salaries.
Defined benefit plans are those plans that provide guaranteed benefits to certain categories of employees, either by way of contractual obligations or through a collective agreement. For defined benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out each fiscal year.
The retirement benefit obligation recognized in the consolidated statements of financial position represents the present value of the defined benefit obligation less the fair value of plan assets. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension obligation. In countries where there is no deep market in such bonds, the market rates on government bonds are used. Remeasurement arising from experience adjustments and changes in actuarial assumptions are charged or credited to other comprehensive income in the period in which they arise. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions to the plan.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Current service cost, which is the increase of the present value of the defined benefit obligation resulting from the employee service in the current period, is recorded as an expense as part of cost of sales and selling, general and administrative expenses in the consolidated statements of operations. The net interest cost, which is the change during the period in the net defined benefit liability or asset that arises from the passage of time, is recognized as part of financing costs net in the consolidated statements of operations.
The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs. The gain or loss on settlement comprises any resulting change in the fair value of plan assets and any change in the present value of the defined benefit obligation. Past service cost is the change in the present value of the defined benefit obligation resulting from a plan amendment or a curtailment. Past service cost is recognized immediately in the consolidated statements of operations in the period in which it arises.
Voluntary retirement plans primarily correspond to the practical implementation of social plans or are linked to collective agreements signed with certain categories of employees.
Early retirementTermination plans are those plans that primarily correspond to terminating an employee’s contract following the decision of the employee before the normal retirement date. Liabilities for early retirementtermination plans are recognized when the affected employees have formally been informed and when amounts owed have been determined using an appropriate actuarial calculation. Liabilities relating to the early retirementtermination plans are calculated annually on the basis of the number of employees that have taken or contractually agreed to take early retirement and are discounted using an interest rate that corresponds to that of high quality bonds that have maturity dates similar to the terms of the Company’s early retirement obligations. Termination benefitsProvisions for social plans are providedrecorded in connection with voluntary separation plans. Voluntary retirement plans primarily correspond to the practical implementation of social plans or are linked to collective agreements signed with certain categories of employees. The Company recognizes a liability and expense when it can no longer withdraw the offer or, if earlier, when it has a detailed formal plan which has been communicated to employees or their representatives.
Other long-term employee benefits include various plans that depend on the length of service, such as long service and sabbatical awards, disability benefits and long-term compensated absences such as sick leave. The amount recognized as a liability is the present value of benefit obligations at the consolidated statements of financial position date, and all changes in the provision (including actuarial gains and losses or past service costs) are recognized in the consolidated statements of operations in the period in which they arise.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The expense associated with the above pension plans and post-employment benefits, as well as the carrying amount of the related liability/asset on the consolidated statements of financial position are based on a number of assumptions and factors such as discount rates, expected rate of compensation increase, healthcare cost trend rates, mortality rates and retirement rates.
| |
• | Discount rates – The discount rate is based on several high quality corporate bond indexes and yield curves in the appropriate jurisdictions (rated AA by a recognized rating agency).jurisdictions. In countries where there is no deep market in such bonds, the market rates on government bonds are used. Nominal interest rates vary worldwide due to exchange rates and local inflation rates. |
| |
• | Rate of compensation increase – The rate of compensation increase reflects actual experience and the Company’s long-term outlook, including contractually agreed wage rate increases for represented hourly employees. |
| |
• | Healthcare cost trend rate – The healthcare cost trend rate is based on historical retiree cost data, near-term healthcare outlook, including appropriate cost control measures implemented by the Company, and industry benchmarks and surveys. |
| |
• | Mortality and retirement rates – Mortality and retirement rates are based on actual and projected plan experience.
ARCELORMITTAL AND SUBSIDIARIES Notes to Consolidated Financial Statements (millions of U.S. dollars, except share and per share data) |
Statements of Financial Position
Total deferred employee benefits including pension or other post-employment benefits, are as follows: | | | December 31, | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Pension plan benefits | 3,034 |
| | 3,067 |
| 3,289 |
| | 3,034 |
|
Other post-employment benefits | 3,600 |
| | 4,140 |
| |
Early retirement benefits | 222 |
| | 280 |
| |
Other post-employment benefits and other long-term employee benefits ("OPEB") | | 3,792 |
| | 3,600 |
|
Termination benefits | | 198 |
| | 222 |
|
Defined benefit liabilities | 6,856 |
| | 7,487 |
| 7,279 |
| | 6,856 |
|
Termination benefits | 126 |
| | 143 |
| |
Provisions for social plans (non-current) | | 64 |
| | 126 |
|
Total | 6,982 |
| | 7,630 |
| 7,343 |
| | 6,982 |
|
This note, including the table above, discloses the following benefit categories:
| |
• | pension plan benefits are pension plans and lump sum benefits that are classified under post employment benefits as required by IAS 19 which are not mandatory by law; |
| |
• | other post employment and other long-term employee benefits, also referred to as, OPEB which includes all other post employment benefits as defined in IAS 19 (e.g. lump sum benefits which are mandatory by law, medical insurance and life insurance) together with all other long-term employee benefits as defined in IAS 19; |
| |
• | termination benefits, which relate to provisions for long term termination benefits as defined in IAS 19 (e.g. early retirement benefits); and |
| |
• | provisions for social plans (non-current) which relate to provisions for social plans in restructuring provisions as required by IAS 37. |
The early retirement benefits and termination benefits are mainly relatedrelate to European countries (Belgium, Spain, Germany and Luxembourg).
Pension plans
This section includes post employment benefits that are pension plan and lump sum benefits which are not mandatory by law. A summary of the significant defined benefit pension plans is as follows:
U.S.
ArcelorMittal USA’s pension plan is a non-contributory defined benefit plan covering approximately 13%12% of its employees. Certain non-represented salaried employees hired before 2003 receive pension benefits which are determined under a “Cash Balance” formula as an account balance which grows with interest credits and allocations based on a percentage of pay. CertainMost wage and salaried employees represented by a union hired before November 2005 receive a monthly benefit at retirement based on a fixed rate and years of service. These plans are closed to new participants.
Represented employees hired after November 2005 and employees at locations which were acquired from International Steel Group Inc. receive defined pension benefits through a multi-employer pension plan that is accounted for as a defined contribution plan, due to the limited information made available to each of the 483485 (as of December 31, 2017)2018) different participating employers. ArcelorMittal USA’s labor agreement with the United Steelworkers (“USW”) on September 1, 2018 increased the contributions to the multi-employer plan to $3.50 per contributory hour from $2.80. Changes to the defined pension plan under the new labor agreement, principally for a higher monthly benefit rate for certain periods of service, resulted in an expense of 25 recorded in cost of sales in the consolidated statements of operations in 2018.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Canada
The primary pension plans are those of ArcelorMittal Dofasco, AMMICAMMC and ArcelorMittal Long Products Canada.
The ArcelorMittal Dofasco pension plan is a hybrid plan providing the benefits of both a defined benefit and defined contribution pension plan. The defined contribution component is financed by both employer and employee contributions. The employer’s defined contribution is based on a percentage of company profits. The defined benefit pension plan was closed for new hires on December 31, 2010 and replaced by a new defined contribution pension plan with contributions related to age, service and earnings.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
At the end of 2012, ArcelorMittal Dofasco froze and capped benefits for the majority of its hourly and salaried employees who were still accruing service under the defined benefit plan and began transitioning these employees to the new defined contribution pension plan for future pension benefits.
The AMMICAMMC defined benefit plan provides salary related benefit for non-union employees and a flat dollar pension depending on an employee’s length of service for union employees. This plan was closed for new non-union hires on December 31, 2009 and replaced by a defined contribution pension plan with contributions related to age and service. Effective January 1, 2015, AMMICAMMC implemented a plan to transition its non-union employees who were still benefiting under the defined benefit plan to a defined contribution pension plan. Transition dates can extend up to January 1, 2025 depending on the age and service of each member.
ArcelorMittal Long Products Canada sponsors several defined benefit and defined contribution pension plans for its various groups of employees, with most defined benefit plans closed to new entrants several years ago. The primary defined benefit pension plan sponsored by ArcelorMittal Long Products Canada provides certain unionized employees with a flat dollar pension depending on an employee’s length of service.
ArcelorMittal Long Products Canada entered into a six-year collective labor agreement during the third quarter of 2014 with its Contrecoeur-West union group. The defined benefit plan was closed to new hires. A new defined contribution type arrangement was established for new hires.
Brazil
The primary defined benefit plans, financed through trust funds, have been closed to new entrants. Brazilian entities have all established defined contribution plans that are financed by employer and employee contributions. On December 28, 2018, the Brazilian Autarchy that oversees pension funds called PREVIC (Complementary Pension National Superintendence) approved a planned settlement of the major defined benefit plans. ThisThe transaction was completed in 2019 and reduced the defined benefit obligation by 169 and fair value of the plan asset by 143. The settlement is expected to be effectivegain of 26 was recognized in 2019.cost of sales and selling, general and administrative expenses.
Europe
Certain European operating subsidiaries maintain primarily unfunded defined benefit pension plans for a certain number of employees. Benefits are based on such employees’ length of service and applicable pension table under the terms of individual agreements. Some of these unfunded plans have been closed to new entrants and replaced by defined contribution pension plans for active members financed by employer and employee contributions.
As from December 2015 new Belgian legislation modifies the minimum guaranteed rates of return applicable to Belgian defined contribution plans. For insured plans, the rates of 3.25% on employer contributions and 3.75% on employee contributions will continue to apply to the accumulated pre-2016 contributions. For contributions paid as from January 1, 2016, a new variable minimum guaranteed rate of return applies. ForFrom 2016 2017 and 2018,through 2019, the minimum guaranteed rate of return was 1.75% and this is also the best estimate for 2019.2020. Due to the statutory minimum guaranteed return, Belgian defined contribution plans do not meet the definition of defined contribution plans under IFRS. Therefore, the Belgian defined contribution plans are classified as defined benefit plans.
On April 25, 2016, the Company agreed with unions in France to cap the annual indexation of the IRUS pension plan until 2026 and to pay a lump sum amount to cover the indexation obligation for subsequent years. These changes resulted in a gain of 96 recorded in cost of sales and selling, general and administrative expenses in the statements of operations.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Others
A very limited number of defined benefit plans are in place in other countries (such as South Africa, Mexico, Kazakhstan, Ukraine and Morocco).
On January 1, 2018, ArcelorMittal South Africa settled its defined benefit plan. This discontinued its participation in the fund and, therefore, ArcelorMittal South Africa no longer has any financial obligation to ensure the funding of the remaining plan. Accordingly, the related benefit obligation, the plan assets and unrecoverable surplus were derecognized from the 2018 consolidated statements of financial position. The only remaining pension plans for ArcelorMittal South Africa are defined contribution pension plans that are financed by employer and employee contributions.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The majority of the funded defined benefit pension plans described earlier provide benefit payments from trustee-administered funds. ArcelorMittal also sponsors a number of unfunded plans where the Company meets the benefit payment obligation as it falls due. Plan assets held in trusts are legally separated from the Company and are governed by local regulations and practice in each country, as is the nature of the relationship between the Company and the governing bodies and their composition. In general terms, governing bodies are required by law to act in the best interest of the plan members and are responsible for certain tasks related to the plan (e.g. setting the plan's investment policy).
In case of the funded pension plans, the investment positions are managed within an asset-liability matching ("ALM") framework that has been developed to achieve long-term investments that are in line with the obligations of the pension plans.
A long-term investment strategy has been set for ArcelorMittal’s major funded pension plans, with its asset allocation comprising of a mixture of equity securities, fixed income securities, real estate and other appropriate assets. This recognizes that different asset classes are likely to produce different long-term returns and some asset classes may be more volatile than others. The long-term investment strategy ensures, in particular, that investments are adequately diversified.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The following tables detail the reconciliation of defined benefit obligation (“DBO”), plan assets, irrecoverable surplus and statements of financial position. | |
| Year ended December 31, 2018 | Year ended December 31, 2019 |
| Total |
| United States |
| Canada |
| Brazil |
| Europe |
| Other | Total |
| United States |
| Canada |
| Brazil |
| Europe |
| Other |
Change in benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of the period | 10,835 |
|
| 3,508 |
|
| 3,481 |
|
| 766 |
|
| 2,990 |
|
| 90 |
| 9,872 |
|
| 3,266 |
|
| 3,001 |
|
| 724 |
|
| 2,716 |
|
| 165 |
|
Current service cost | 136 |
|
| 31 |
|
| 25 |
|
| 3 |
|
| 68 |
|
| 9 |
| 114 |
|
| 26 |
|
| 21 |
|
| — |
|
| 58 |
|
| 9 |
|
Interest cost on DBO | 360 |
|
| 120 |
|
| 110 |
|
| 68 |
|
| 42 |
|
| 20 |
| 367 |
|
| 130 |
|
| 110 |
|
| 58 |
|
| 47 |
|
| 22 |
|
Past service cost - Plan amendments | 25 |
|
| 25 |
|
| — |
|
| — |
|
| — |
|
| — |
| 4 |
|
| — |
|
| — |
|
| 2 |
|
| 2 |
|
| — |
|
Plan participants’ contribution | 3 |
|
| — |
|
| 1 |
|
| — |
|
| 2 |
|
| — |
| 2 |
|
| — |
|
| — |
|
| — |
|
| 2 |
|
| — |
|
Settlements | (76 | ) |
| — |
|
| (61 | ) |
| — |
|
| — |
|
| (15 | ) | (172 | ) |
| — |
|
| — |
|
| (169 | ) |
| (3 | ) |
| — |
|
Actuarial (gain) loss | (290 | ) |
| (159 | ) |
| (72 | ) |
| 50 |
|
| (104 | ) |
| (5 | ) | 1,001 |
|
| 342 |
|
| 277 |
|
| 121 |
|
| 176 |
|
| 85 |
|
Demographic assumptions | 20 |
|
| 9 |
|
| 1 |
|
| — |
|
| 10 |
|
| — |
| 16 |
|
| 2 |
|
| 43 |
|
| — |
|
| (29 | ) |
| — |
|
Financial assumptions | (311 | ) |
| (163 | ) |
| (75 | ) |
| 38 |
|
| (92 | ) |
| (19 | ) | 949 |
|
| 334 |
|
| 213 |
|
| 138 |
|
| 209 |
|
| 55 |
|
Experience adjustment | 1 |
|
| (5 | ) |
| 2 |
|
| 12 |
|
| (22 | ) |
| 14 |
| 36 |
|
| 6 |
|
| 21 |
|
| (17 | ) |
| (4 | ) |
| 30 |
|
Benefits paid | (671 | ) |
| (259 | ) |
| (203 | ) |
| (48 | ) |
| (144 | ) |
| (17 | ) | (652 | ) |
| (261 | ) |
| (201 | ) |
| (42 | ) |
| (127 | ) |
| (21 | ) |
Termination benefits | 6 |
|
| — |
|
| — |
|
| — |
|
| 6 |
|
| — |
| |
Foreign currency exchange rate differences and other movements | (456 | ) |
| — |
|
| (280 | ) |
| (115 | ) |
| (144 | ) |
| 83 |
| 93 |
|
| 2 |
|
| 152 |
|
| (30 | ) |
| (41 | ) |
| 10 |
|
Benefit obligation at end of the period | 9,872 |
|
| 3,266 |
|
| 3,001 |
|
| 724 |
|
| 2,716 |
|
| 165 |
| 10,629 |
|
| 3,505 |
|
| 3,360 |
|
| 664 |
|
| 2,830 |
|
| 270 |
|
| Change in plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of the period | 7,822 |
|
| 2,993 |
|
| 3,167 |
|
| 723 |
|
| 924 |
|
| 15 |
| 6,877 |
|
| 2,676 |
|
| 2,664 |
|
| 655 |
|
| 882 |
|
| — |
|
Interest income on plan assets | 267 |
|
| 92 |
|
| 97 |
|
| 63 |
|
| 15 |
|
| — |
| 256 |
|
| 95 |
|
| 92 |
|
| 54 |
|
| 15 |
|
| — |
|
Return on plan assets greater/(less) than discount rate | (333 | ) |
| (197 | ) |
| (142 | ) |
| 20 |
|
| (15 | ) |
| 1 |
| |
Return on plan assets greater than discount rate | | 808 |
|
| 360 |
|
| 305 |
|
| 79 |
|
| 64 |
|
| — |
|
Employer contribution | 151 |
|
| 42 |
|
| 59 |
|
| 6 |
|
| 44 |
|
| — |
| 77 |
|
| 7 |
|
| 27 |
|
| 2 |
|
| 41 |
|
| — |
|
Plan participants’ contribution | 3 |
|
| — |
|
| 1 |
|
| — |
|
| 2 |
|
| — |
| 2 |
|
| — |
|
| — |
|
| — |
|
| 2 |
|
| — |
|
Settlement | (78 | ) |
| — |
|
| (63 | ) |
| — |
|
| — |
|
| (15 | ) | (146 | ) |
| — |
|
| — |
|
| (143 | ) |
| (3 | ) |
| — |
|
Benefits paid | (550 | ) |
| (254 | ) |
| (203 | ) |
| (48 | ) |
| (45 | ) |
| — |
| (541 | ) |
| (257 | ) |
| (200 | ) |
| (42 | ) |
| (42 | ) |
| — |
|
Foreign currency exchange rate differences and other movements | (405 | ) |
| — |
|
| (252 | ) |
| (109 | ) |
| (43 | ) |
| (1 | ) | 62 |
|
| — |
|
| 133 |
|
| (29 | ) |
| (42 | ) |
| — |
|
Fair value of plan assets at end of the period | 6,877 |
|
| 2,676 |
|
| 2,664 |
|
| 655 |
|
| 882 |
|
| — |
| 7,395 |
|
| 2,881 |
|
| 3,021 |
|
| 576 |
|
| 917 |
|
| — |
|
| Present value of the wholly or partly funded obligation | (8,537 | ) |
| (3,238 | ) |
| (2,988 | ) |
| (723 | ) |
| (1,500 | ) |
| (88 | ) | (9,012 | ) |
| (3,476 | ) |
| (3,345 | ) |
| (663 | ) |
| (1,528 | ) |
| — |
|
Fair value of plan assets | 6,877 |
|
| 2,676 |
|
| 2,664 |
|
| 655 |
|
| 882 |
|
| — |
| 7,395 |
|
| 2,881 |
|
| 3,021 |
|
| 576 |
|
| 917 |
|
| — |
|
Net present value of the wholly or partly funded obligation | (1,660 | ) |
| (562 | ) |
| (324 | ) |
| (68 | ) |
| (618 | ) |
| (88 | ) | (1,617 | ) |
| (595 | ) |
| (324 | ) |
| (87 | ) |
| (611 | ) |
| — |
|
Present value of the unfunded obligation | (1,335 | ) |
| (28 | ) |
| (13 | ) |
| (1 | ) |
| (1,216 | ) |
| (77 | ) | (1,617 | ) |
| (29 | ) |
| (15 | ) |
| (1 | ) |
| (1,302 | ) |
| (270 | ) |
Prepaid due to unrecoverable surpluses | (27 | ) |
| — |
|
| (21 | ) |
| (3 | ) |
| (3 | ) |
| — |
| (30 | ) |
| — |
|
| (25 | ) |
| (2 | ) |
| (3 | ) |
| — |
|
Net amount recognized | (3,022 | ) |
| (590 | ) |
| (358 | ) |
| (72 | ) |
| (1,837 | ) |
| (165 | ) | (3,264 | ) |
| (624 | ) |
| (364 | ) |
| (90 | ) |
| (1,916 | ) |
| (270 | ) |
| Net assets related to funded obligations | 12 |
|
| — |
|
| 9 |
|
| — |
|
| 3 |
|
| — |
| 25 |
|
| 8 |
|
| 13 |
|
| — |
|
| 4 |
|
| — |
|
Recognized liabilities | (3,034 | ) |
| (590 | ) |
| (367 | ) |
| (72 | ) |
| (1,840 | ) |
| (165 | ) | (3,289 | ) |
| (632 | ) |
| (377 | ) |
| (90 | ) |
| (1,920 | ) |
| (270 | ) |
| Change in unrecoverable surplus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecoverable surplus at beginning of the period | (34 | ) |
| — |
|
| (23 | ) |
| (3 | ) |
| (6 | ) |
| (2 | ) | (27 | ) |
| — |
|
| (21 | ) |
| (3 | ) |
| (3 | ) |
| — |
|
Interest cost on unrecoverable surplus | (1 | ) |
| — |
|
| (1 | ) |
| — |
|
| — |
|
| — |
| (1 | ) |
| — |
|
| (1 | ) |
| — |
|
| — |
|
| — |
|
Change in unrecoverable surplus in excess of interest | 6 |
|
| — |
|
| 2 |
|
| (1 | ) |
| 3 |
|
| 2 |
| (1 | ) |
| — |
|
| (2 | ) |
| 1 |
|
| — |
|
| — |
|
Exchange rates changes | 2 |
|
| — |
|
| 1 |
|
| 1 |
|
| — |
|
| — |
| (1 | ) |
| — |
|
| (1 | ) |
| — |
|
| — |
|
| — |
|
Unrecoverable surplus at end of the period | (27 | ) |
| — |
|
| (21 | ) |
| (3 | ) |
| (3 | ) |
| — |
| (30 | ) |
| — |
|
| (25 | ) |
| (2 | ) |
| (3 | ) |
| — |
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
| | | Year ended December 31, 2017 | Year ended December 31, 2018 |
| Total | | United States | | Canada | | Brazil | | Europe | | Other | Total | | United States | | Canada | | Brazil | | Europe | | Other |
Change in benefit obligation | | | | | | | | | | | | | | | | | | | | | | |
Benefit obligation at beginning of the period | 10,054 |
| | 3,627 |
| | 3,053 |
| | 704 |
| | 2,582 |
| | 88 |
| 10,835 |
| | 3,508 |
| | 3,481 |
| | 766 |
| | 2,990 |
| | 90 |
|
Current service cost | 125 |
| | 32 |
| | 26 |
| | 4 |
| | 60 |
| | 3 |
| 136 |
| | 31 |
| | 25 |
| | 3 |
| | 68 |
| | 9 |
|
Interest cost on DBO | 397 |
| | 142 |
| | 119 |
| | 79 |
| | 46 |
| | 11 |
| 360 |
| | 120 |
| | 110 |
| | 68 |
| | 42 |
| | 20 |
|
Past service cost - Plan amendments | 14 |
| | — |
| | 13 |
| | — |
| | 1 |
| | — |
| 25 |
| | 25 |
| | — |
| | — |
| | — |
| | — |
|
Plan participants’ contribution | 3 |
| | — |
| | 1 |
| | — |
| | 2 |
| | — |
| 3 |
| | — |
| | 1 |
| | — |
| | 2 |
| | — |
|
Settlements | | (76 | ) | | — |
| | (61 | ) | | — |
| | — |
| | (15 | ) |
Actuarial (gain) loss | 323 |
| | (28 | ) | | 237 |
| | 40 |
| | 72 |
| | 2 |
| (290 | ) | | (159 | ) | | (72 | ) | | 50 |
| | (104 | ) | | (5 | ) |
Demographic assumptions | (131 | ) | | (130 | ) | | 1 |
| | — |
| | (2 | ) | | — |
| 20 |
| | 9 |
| | 1 |
| | — |
| | 10 |
| | — |
|
Financial assumptions | 418 |
| | 154 |
| | 188 |
| | 22 |
| | 54 |
| | — |
| (311 | ) | | (163 | ) | | (75 | ) | | 38 |
| | (92 | ) | | (19 | ) |
Experience adjustment | 36 |
| | (52 | ) | | 48 |
| | 18 |
| | 20 |
| | 2 |
| 1 |
| | (5 | ) | | 2 |
| | 12 |
| | (22 | ) | | 14 |
|
Benefits paid | (656 | ) | | (265 | ) | | (197 | ) | | (49 | ) | | (130 | ) | | (15 | ) | (671 | ) | | (259 | ) | | (203 | ) | | (48 | ) | | (144 | ) | | (17 | ) |
Termination benefits | | 6 |
| | — |
| | — |
| | — |
| | 6 |
| | — |
|
Foreign currency exchange rate differences and other movements | 575 |
| | — |
|
| 229 |
| | (12 | ) | | 357 |
|
| 1 |
| (456 | ) | | — |
|
| (280 | ) | | (115 | ) | | (144 | ) |
| 83 |
|
Benefit obligation at end of the period | 10,835 |
| | 3,508 |
| | 3,481 |
| | 766 |
| | 2,990 |
| | 90 |
| 9,872 |
| | 3,266 |
| | 3,001 |
| | 724 |
| | 2,716 |
| | 165 |
|
| | | | | | | | | | | | | | | | | | | | | | |
Change in plan assets | | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at beginning of the period | 7,048 |
| | 2,768 |
| | 2,795 |
| | 684 |
| | 777 |
| | 24 |
| 7,822 |
| | 2,993 |
| | 3,167 |
| | 723 |
| | 924 |
| | 15 |
|
Interest income on plan assets | 292 |
| | 94 |
| | 107 |
| | 75 |
| | 15 |
| | 1 |
| 267 |
| | 92 |
| | 97 |
| | 63 |
| | 15 |
| | — |
|
Return on plan assets greater/(less) than discount rate | 468 |
| | 274 |
| | 169 |
| | 16 |
| | 17 |
| | (8 | ) | (333 | ) | | (197 | ) | | (142 | ) | | 20 |
| | (15 | ) | | 1 |
|
Employer contribution | 249 |
| | 117 |
| | 83 |
| | 8 |
| | 41 |
| | — |
| 151 |
| | 42 |
| | 59 |
| | 6 |
| | 44 |
| | — |
|
Plan participants’ contribution | 3 |
| | — |
| | 1 |
| | — |
| | 2 |
| | — |
| 3 |
| | — |
| | 1 |
| | — |
| | 2 |
| | — |
|
Settlements | | (78 | ) | | — |
| | (63 | ) | | — |
| | — |
| | (15 | ) |
Benefits paid | (545 | ) | | (260 | ) | | (196 | ) | | (49 | ) | | (37 | ) | | (3 | ) | (550 | ) | | (254 | ) | | (203 | ) | | (48 | ) | | (45 | ) | | — |
|
Foreign currency exchange rate differences and other movements | 307 |
| | — |
|
| 208 |
| | (11 | ) | | 109 |
|
| 1 |
| (405 | ) | | — |
|
| (252 | ) | | (109 | ) | | (43 | ) |
| (1 | ) |
Fair value of plan assets at end of the period | 7,822 |
| | 2,993 |
| | 3,167 |
| | 723 |
| | 924 |
| | 15 |
| 6,877 |
| | 2,676 |
| | 2,664 |
| | 655 |
| | 882 |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | |
Present value of the wholly or partly funded obligation | (9,352 | ) | | (3,477 | ) | | (3,463 | ) | | (765 | ) | | (1,635 | ) | | (12 | ) | (8,537 | ) | | (3,238 | ) | | (2,988 | ) | | (723 | ) | | (1,500 | ) | | (88 | ) |
Fair value of plan assets | 7,822 |
| | 2,993 |
| | 3,167 |
| | 723 |
| | 924 |
| | 15 |
| 6,877 |
| | 2,676 |
| | 2,664 |
| | 655 |
| | 882 |
| | — |
|
Net present value of the wholly or partly funded obligation | (1,530 | ) | | (484 | ) | | (296 | ) | | (42 | ) | | (711 | ) | | 3 |
| (1,660 | ) | | (562 | ) | | (324 | ) | | (68 | ) | | (618 | ) | | (88 | ) |
Present value of the unfunded obligation | (1,483 | ) | | (31 | ) | | (18 | ) | | (1 | ) | | (1,355 | ) | | (78 | ) | (1,335 | ) | | (28 | ) | | (13 | ) | | (1 | ) | | (1,216 | ) | | (77 | ) |
Prepaid due to unrecoverable surpluses | (34 | ) | | — |
| | (23 | ) | | (3 | ) | | (6 | ) | | (2 | ) | (27 | ) | | — |
| | (21 | ) | | (3 | ) | | (3 | ) | | — |
|
Net amount recognized | (3,047 | ) | | (515 | ) | | (337 | ) | | (46 | ) | | (2,072 | ) | | (77 | ) | (3,022 | ) | | (590 | ) | | (358 | ) | | (72 | ) | | (1,837 | ) | | (165 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Net assets related to funded obligations | 20 |
| | — |
| | 17 |
| | — |
| | 3 |
| | — |
| 12 |
| | — |
| | 9 |
| | — |
| | 3 |
| | — |
|
Recognized liabilities | (3,067 | ) | | (515 | ) | | (354 | ) | | (46 | ) | | (2,075 | ) | | (77 | ) | (3,034 | ) | | (590 | ) | | (367 | ) | | (72 | ) | | (1,840 | ) | | (165 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Change in unrecoverable surplus | | | | | | | | | | | | | | | | | | | | | | |
Unrecoverable surplus at beginning of the period | (34 | ) | | — |
| | (18 | ) | | (3 | ) | | (4 | ) | | (9 | ) | (34 | ) | | — |
| | (23 | ) | | (3 | ) | | (6 | ) | | (2 | ) |
Interest cost on unrecoverable surplus | (1 | ) | | — |
| | (1 | ) | | — |
| | — |
| | — |
| (1 | ) | | — |
| | (1 | ) | | — |
| | — |
| | — |
|
Change in unrecoverable surplus in excess of interest | 2 |
| | — |
| | (3 | ) | | — |
| | (2 | ) | | 7 |
| 6 |
| | — |
| | 2 |
| | (1 | ) | | 3 |
| | 2 |
|
Exchange rates changes | (1 | ) | | — |
| | (1 | ) | | — |
| | — |
| | — |
| 2 |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
|
Unrecoverable surplus at end of the period | (34 | ) | | — |
| | (23 | ) | | (3 | ) | | (6 | ) | | (2 | ) | (27 | ) | | — |
| | (21 | ) | | (3 | ) | | (3 | ) | | — |
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The following tables detail the components of net periodic pension cost:
|
| | | | | | | | | | | | | | | | | |
| Year ended December 31, 2019 |
Net periodic pension cost (benefit) | Total |
| United States |
| Canada |
| Brazil |
| Europe |
| Others |
Current service cost | 114 |
|
| 26 |
|
| 21 |
|
| — |
|
| 58 |
|
| 9 |
|
Past service cost - Plan amendments | 4 |
|
| — |
|
| — |
|
| 2 |
|
| 2 |
|
| — |
|
Past service cost - Settlements | (26 | ) |
| — |
|
| — |
|
| (26 | ) |
| — |
|
| — |
|
Net interest cost/(income) on net DB liability/(asset) | 112 |
|
| 35 |
|
| 19 |
|
| 4 |
|
| 32 |
|
| 22 |
|
Total | 204 |
|
| 61 |
|
| 40 |
|
| (20 | ) |
| 92 |
|
| 31 |
|
|
| | | | | | | | | | | | | | | | | |
| Year ended December 31, 2018 |
Net periodic pension cost (benefit) | Total | | United States | | Canada | | Brazil | | Europe | | Others |
Current service cost | 136 |
| | 31 |
| | 25 |
| | 3 |
| | 68 |
| | 9 |
|
Past service cost - Plan amendments | 25 |
| | 25 |
| | — |
| | — |
| | — |
| | — |
|
Past service cost - Settlements | 2 |
| | — |
| | 2 |
| | — |
| | — |
| | — |
|
Cost of termination benefits | 6 |
| | — |
| | — |
| | — |
| | 6 |
| | — |
|
Net interest cost/(income) on net DB liability/(asset) | 94 |
| | 28 |
| | 14 |
| | 5 |
| | 27 |
| | 20 |
|
Total | 263 |
| | 84 |
| | 41 |
| | 8 |
| | 101 |
| | 29 |
|
|
| | | | | | | | | | | | | | | | | |
| Year ended December 31, 2017 |
Net periodic pension cost (benefit) | Total | | United States | | Canada | | Brazil | | Europe | | Others |
Current service cost | 125 |
| | 32 |
| | 26 |
| | 4 |
| | 60 |
| | 3 |
|
Past service cost - Plan amendments | 14 |
| | — |
| | 13 |
| | — |
| | 1 |
| | — |
|
Net interest cost/(income) on net DB liability/(asset) | 106 |
| | 48 |
| | 13 |
| | 4 |
| | 31 |
| | 10 |
|
Total | 245 |
| | 80 |
| | 52 |
| | 8 |
| | 92 |
| | 13 |
|
|
| | | | | | | | | | | | | | | | | |
| Year ended December 31, 2016 |
Net periodic pension cost (benefit) | Total | | United States | | Canada | | Brazil | | Europe | | Others |
Current service cost | 112 |
| | 31 |
| | 25 |
| | 2 |
| | 50 |
| | 4 |
|
Past service cost - Plan amendments | (80 | ) | | 12 |
| | 4 |
| | — |
| | (96 | ) | | — |
|
Past service cost - Curtailments | (6 | ) | | — |
| | — |
| | — |
| | — |
| | (6 | ) |
Net interest cost/(income) on net DB liability/(asset) | 108 |
| | 47 |
| | 15 |
| | 2 |
| | 35 |
| | 9 |
|
Total | 134 |
| | 90 |
| | 44 |
| | 4 |
| | (11 | ) | | 7 |
|
Other post-employment benefits and other long-term employee benefits ("OPEB")
This section includes post employment employees benefits that are not disclosed above (i.e. includes lump sum benefits which are mandatory by law, medical insurance and life insurance). In addition, this section includes all other long-term employee benefits.
ArcelorMittal’s principal operating subsidiaries in the United States, Canada, Europe and certain other countries, provide other post-employment benefits and other long-term employee benefits, including medical benefits and life insurance benefits, work medals and retirement indemnity plans, to employees and retirees. Substantially all union-represented ArcelorMittal USA employees hired before June 2016 are covered under post-employment life insurance and medical benefit plans that require a level of cost sharing from retirees. The post-employment life insurance benefit formula used in the determination of post-employment benefit cost is primarily based on a specific amount for hourly employees. ArcelorMittal USA does not pre-fund most of these post-employment benefits.
ArcelorMittal’s USA new labor agreement with the United Steelworkers (“USW”("USW") was ratified in 2016. This labor agreement is valid until September 1, 2018. ArcelorMittal performed a number of changes mainly related to healthcare post-employment benefits in its subsidiary ArcelorMittal USA. Also, in accordance with the new agreement, required payments into an existing Voluntary Employee Beneficiary Association (“VEBA”) trust were fixed at 5% of ArcelorMittal USA’s operating income after the first quarter of 2018. The changes resulted in a gain of 832 recorded in cost of sales in the consolidated statements of operations in 2016.
ArcelorMittal’s USA new labor agreement with the USW was ratified in 2018. This labor agreement is in effect until September 1, 2022. There were minor changes for OPEB in the new contract mainly related to healthcare post-employment premiums paid by participants. The changes resulted in a gain of 10 recorded in cost of sales in the consolidated statement of operations in 2018.
ArcelorMittal USA’s labor contract requires payments into a Voluntary Employee Beneficiary Association (“VEBA”) trust based on 5% of AMUSA’s operating income. Contributions can also be withdrawn from the trust to reimburse the company for benefits paid above certain levels. In 2018 and 2019 withdrawals exceeded contributions. The Company has significant assets mostly in the VEBA post-employment benefit plan. These assets consist of 71%69% in fixed income and 29%31% in equities. The total fair value of the assets in the VEBA trust was 451 as of December 31, 2018.2019.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Summary of changes in the other post-employment benefit obligation and changes in plan assets are as follows:
| |
| Year ended December 31, 2018 | Year ended December 31, 2019 |
| Total |
| United States |
| Canada |
| Europe |
| Others | Total |
| United States |
| Canada |
| Europe |
| Others |
Change in benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of the period | 4,686 |
|
| 3,269 |
|
| 679 |
|
| 579 |
|
| 159 |
| 4,098 |
|
| 2,907 |
|
| 591 |
|
| 531 |
|
| 69 |
|
Current service cost | 85 |
|
| 49 |
|
| 10 |
|
| 25 |
|
| 1 |
| 80 |
|
| 40 |
|
| 9 |
|
| 28 |
|
| 3 |
|
Interest cost on DBO | 155 |
|
| 120 |
|
| 21 |
|
| 12 |
|
| 2 |
| 163 |
|
| 124 |
|
| 22 |
|
| 11 |
|
| 6 |
|
Past service cost - Plan amendments | (13 | ) |
| (10 | ) |
| (1 | ) |
| (2 | ) |
| — |
| |
Past service cost - Curtailments | (2 | ) |
| — |
|
| — |
|
| (2 | ) |
| — |
| |
Plan participants’ contribution | 32 |
|
| 32 |
|
| — |
|
| — |
|
| — |
| 29 |
|
| 29 |
|
| — |
|
| — |
|
| — |
|
Actuarial (gain) loss | (395 | ) |
| (365 | ) |
| (32 | ) |
| 3 |
|
| (1 | ) | 129 |
|
| 29 |
|
| 67 |
|
| 26 |
|
| 7 |
|
Demographic assumptions | (11 | ) |
| (14 | ) |
| 2 |
|
| 1 |
|
| — |
| 4 |
|
| (11 | ) |
| 15 |
|
| — |
|
| — |
|
Financial assumptions | (320 | ) |
| (285 | ) |
| (24 | ) |
| (8 | ) |
| (3 | ) | 256 |
|
| 169 |
|
| 53 |
|
| 25 |
|
| 9 |
|
Experience adjustment | (64 | ) |
| (66 | ) |
| (10 | ) |
| 10 |
|
| 2 |
| (131 | ) |
| (129 | ) |
| (1 | ) |
| 1 |
|
| (2 | ) |
Benefits paid | (266 | ) |
| (188 | ) |
| (34 | ) |
| (41 | ) |
| (3 | ) | (242 | ) |
| (170 | ) |
| (31 | ) |
| (37 | ) |
| (4 | ) |
Foreign currency exchange rate differences and other movements | (184 | ) |
| — |
|
| (52 | ) |
| (43 | ) |
| (89 | ) | 37 |
|
| 17 |
|
| 30 |
|
| (13 | ) |
| 3 |
|
Benefit obligation at end of the period | 4,098 |
|
| 2,907 |
|
| 591 |
|
| 531 |
|
| 69 |
| 4,294 |
|
| 2,976 |
|
| 688 |
|
| 546 |
|
| 84 |
|
| Change in plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of the period | 546 |
|
| 538 |
|
| — |
|
| 8 |
|
| — |
| 498 |
|
| 491 |
|
| — |
|
| 7 |
|
| — |
|
Interest income on plan assets | 17 |
|
| 17 |
|
| — |
|
| — |
|
| — |
| 20 |
|
| 20 |
|
| — |
|
| — |
|
| — |
|
Return on plan assets greater/(less) than discount rate | (33 | ) |
| (32 | ) |
| — |
|
| (1 | ) |
| — |
| 37 |
|
| 37 |
|
| — |
|
| — |
|
| — |
|
Employer contribution | (3 | ) |
| (3 | ) |
| — |
|
| — |
|
| — |
| (25 | ) |
| (25 | ) |
| — |
|
| — |
|
| — |
|
Plan participants’ contribution | 32 |
|
| 32 |
|
| — |
|
| — |
|
| — |
| 29 |
|
| 29 |
|
| — |
|
| — |
|
| — |
|
Benefits paid | (63 | ) |
| (61 | ) |
| — |
|
| (2 | ) |
| — |
| (57 | ) |
| (56 | ) |
| — |
|
| (1 | ) |
| — |
|
Foreign currency exchange rate differences and other movements | 2 |
|
| — |
|
| — |
|
| 2 |
|
| — |
| |
Fair value of plan assets at end of the period | 498 |
|
| 491 |
|
| — |
|
| 7 |
|
| — |
| 502 |
|
| 496 |
|
| — |
|
| 6 |
|
| — |
|
| Present value of the wholly or partly funded obligation | (589 | ) |
| (528 | ) |
| — |
|
| (61 | ) |
| — |
| (575 | ) |
| (531 | ) |
| — |
|
| (44 | ) |
| — |
|
Fair value of plan assets | 498 |
|
| 491 |
|
| — |
|
| 7 |
|
| — |
| 502 |
|
| 496 |
|
| — |
|
| 6 |
|
| — |
|
Net present value of the wholly or partly funded obligation | (91 | ) |
| (37 | ) |
| — |
|
| (54 | ) |
| — |
| (73 | ) |
| (35 | ) |
| — |
|
| (38 | ) |
| — |
|
Present value of the unfunded obligation | (3,509 | ) |
| (2,379 | ) |
| (591 | ) |
| (470 | ) |
| (69 | ) | (3,719 | ) |
| (2,445 | ) |
| (688 | ) |
| (502 | ) |
| (84 | ) |
Net amount recognized | (3,600 | ) |
| (2,416 | ) |
| (591 | ) |
| (524 | ) |
| (69 | ) | (3,792 | ) |
| (2,480 | ) |
| (688 | ) |
| (540 | ) |
| (84 | ) |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
| |
| Year ended December 31, 2017 | Year ended December 31, 2018 |
| Total |
| United States |
| Canada |
| Europe |
| Others | Total |
| United States |
| Canada |
| Europe |
| Others |
Change in benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of the period | 5,400 |
|
| 4,183 |
|
| 592 |
|
| 492 |
|
| 133 |
| 4,686 |
|
| 3,269 |
|
| 679 |
|
| 579 |
|
| 159 |
|
Current service cost | 100 |
|
| 58 |
|
| 9 |
|
| 26 |
|
| 7 |
| 85 |
|
| 49 |
|
| 10 |
|
| 25 |
|
| 1 |
|
Interest cost on DBO | 226 |
|
| 181 |
|
| 23 |
|
| 11 |
|
| 11 |
| 155 |
|
| 120 |
|
| 21 |
|
| 12 |
|
| 2 |
|
Past service cost - Plan amendments | 4 |
|
| — |
|
| 1 |
|
| 2 |
|
| 1 |
| (13 | ) |
| (10 | ) |
| (1 | ) |
| (2 | ) |
| — |
|
Past service cost - Curtailments | | (2 | ) | | — |
| | — |
| | (2 | ) | | — |
|
Plan participants’ contribution | 29 |
|
| 29 |
|
| — |
|
| — |
|
| — |
| 32 |
|
| 32 |
|
| — |
|
| — |
|
| — |
|
Actuarial (gain) loss | (942 | ) |
| (1,005 | ) |
| 45 |
|
| 7 |
|
| 11 |
| (395 | ) |
| (365 | ) |
| (32 | ) |
| 3 |
|
| (1 | ) |
Demographic assumptions | (153 | ) |
| (168 | ) |
| 2 |
|
| 3 |
|
| 10 |
| (11 | ) |
| (14 | ) |
| 2 |
|
| 1 |
|
| — |
|
Financial assumptions | (680 | ) |
| (728 | ) |
| 40 |
|
| 9 |
|
| (1 | ) | (320 | ) |
| (285 | ) |
| (24 | ) |
| (8 | ) |
| (3 | ) |
Experience adjustment | (109 | ) |
| (109 | ) |
| 3 |
|
| (5 | ) |
| 2 |
| (64 | ) |
| (66 | ) |
| (10 | ) |
| 10 |
|
| 2 |
|
Benefits paid | (258 | ) |
| (177 | ) |
| (32 | ) |
| (42 | ) |
| (7 | ) | (266 | ) |
| (188 | ) |
| (34 | ) |
| (41 | ) |
| (3 | ) |
Foreign currency exchange rate differences and other movements | 127 |
|
| — |
|
| 41 |
|
| 83 |
|
| 3 |
| (184 | ) |
| — |
|
| (52 | ) |
| (43 | ) |
| (89 | ) |
Benefit obligation at end of the period | 4,686 |
|
| 3,269 |
|
| 679 |
|
| 579 |
|
| 159 |
| 4,098 |
|
| 2,907 |
|
| 591 |
|
| 531 |
|
| 69 |
|
| Change in plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of the period | 599 |
|
| 592 |
|
| — |
|
| 7 |
|
| — |
| 546 |
|
| 538 |
|
| — |
|
| 8 |
|
| — |
|
Interest income on plan assets | 22 |
|
| 22 |
|
| — |
|
| — |
|
| — |
| 17 |
|
| 17 |
|
| — |
|
| — |
|
| — |
|
Return on plan assets greater/(less) than discount rate | 17 |
|
| 15 |
|
| — |
|
| 2 |
|
| — |
| (33 | ) |
| (32 | ) |
| — |
|
| (1 | ) |
| — |
|
Employer contribution | (44 | ) |
| (44 | ) |
| — |
|
| — |
|
| — |
| (3 | ) |
| (3 | ) |
| — |
|
| — |
|
| — |
|
Plan participants’ contribution | 12 |
|
| 12 |
|
| — |
|
| — |
|
| — |
| 32 |
|
| 32 |
|
| — |
|
| — |
|
| — |
|
Benefits paid | (61 | ) |
| (59 | ) |
| — |
|
| (2 | ) |
| — |
| (63 | ) |
| (61 | ) |
| — |
|
| (2 | ) |
| — |
|
Foreign currency exchange rate differences and other movements | 1 |
|
| — |
|
| — |
|
| 1 |
|
| — |
| 2 |
|
| — |
|
| — |
|
| 2 |
|
| — |
|
Fair value of plan assets at end of the period | 546 |
|
| 538 |
|
| — |
|
| 8 |
|
| — |
| 498 |
|
| 491 |
|
| — |
|
| 7 |
|
| — |
|
| Present value of the wholly or partly funded obligation | (757 | ) |
| (689 | ) |
| — |
|
| (68 | ) |
| — |
| (589 | ) |
| (528 | ) |
| — |
|
| (61 | ) |
| — |
|
Fair value of plan assets | 546 |
|
| 538 |
|
| — |
|
| 8 |
|
| — |
| 498 |
|
| 491 |
|
| — |
|
| 7 |
|
| — |
|
Net present value of the wholly or partly funded obligation | (211 | ) |
| (151 | ) |
| — |
|
| (60 | ) |
| — |
| (91 | ) |
| (37 | ) |
| — |
|
| (54 | ) |
| — |
|
Present value of the unfunded obligation | (3,929 | ) |
| (2,580 | ) |
| (679 | ) |
| (511 | ) |
| (159 | ) | (3,509 | ) |
| (2,379 | ) |
| (591 | ) |
| (470 | ) |
| (69 | ) |
Net amount recognized | (4,140 | ) |
| (2,731 | ) |
| (679 | ) |
| (571 | ) |
| (159 | ) | (3,600 | ) |
| (2,416 | ) |
| (591 | ) |
| (524 | ) |
| (69 | ) |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The following tables detail the components of net periodic other post-employment cost: |
| | | | | | | | | | | | | | |
| Year ended December 31, 2019 |
Components of net periodic OPEB cost (benefit) | Total |
| United States |
| Canada |
| Europe |
| Others |
Current service cost | 80 |
|
| 40 |
|
| 9 |
|
| 28 |
|
| 3 |
|
Net interest cost/(income) on net DB liability/(asset) | 143 |
|
| 104 |
|
| 22 |
|
| 11 |
|
| 6 |
|
Actuarial (gains)/losses recognized during the year | 8 |
|
| — |
|
| — |
|
| 8 |
|
| — |
|
Total | 231 |
|
| 144 |
|
| 31 |
|
| 47 |
|
| 9 |
|
|
| | | | | | | | | | | | | | |
| Year ended December 31, 2018 |
Components of net periodic OPEB cost (benefit) | Total | | United States | | Canada | | Europe | | Others |
Current service cost | 85 |
| | 49 |
| | 10 |
| | 25 |
| | 1 |
|
Past service cost - Plan amendments | (13 | ) | | (10 | ) | | (1 | ) | | (2 | ) | | — |
|
Past service cost - Curtailments | (2 | ) | | — |
| | — |
| | (2 | ) | | — |
|
Net interest cost/(income) on net DB liability/(asset) | 138 |
| | 103 |
| | 21 |
| | 12 |
| | 2 |
|
Actuarial (gains)/losses recognized during the year | 7 |
| | — |
| | — |
| | 7 |
| | — |
|
Total | 215 |
| | 142 |
| | 30 |
| | 40 |
| | 3 |
|
|
| | | | | | | | | | | | | | |
| Year ended December 31, 2017 |
Components of net periodic OPEB cost (benefit) | Total | | United States | | Canada | | Europe | | Others |
Current service cost | 100 |
| | 58 |
| | 9 |
| | 26 |
| | 7 |
|
Past service cost - Plan amendments | 4 |
| | — |
| | 1 |
| | 2 |
| | 1 |
|
Net interest cost/(income) on net DB liability/(asset) | 204 |
| | 159 |
| | 23 |
| | 11 |
| | 11 |
|
Actuarial (gains)/losses recognized during the year | 2 |
| | — |
| | — |
| | 2 |
| | — |
|
Total | 310 |
| | 217 |
| | 33 |
| | 41 |
| | 19 |
|
|
| | | | | | | | | | | | | | |
| Year ended December 31, 2016 |
Components of net periodic OPEB cost (benefit) | Total | | United States | | Canada | | Europe | | Others |
Current service cost | 100 |
| | 59 |
| | 7 |
| | 27 |
| | 7 |
|
Past service cost - Plan amendments | (851 | ) | | (844 | ) | | (3 | ) | | (4 | ) | | — |
|
Net interest cost/(income) on net DB liability/(asset) | 223 |
| | 177 |
| | 25 |
| | 12 |
| | 9 |
|
Actuarial (gains)/losses recognized during the year | 1 |
| | — |
| | — |
| | 1 |
| | — |
|
Total | (527 | ) | | (608 | ) | | 29 |
| | 36 |
| | 16 |
|
The following tables detail where the expense is recognized in the consolidated statements of operations: | | | Year ended December 31, | Year ended December 31, |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Net periodic pension cost | 263 |
| | 245 |
| | 134 |
| 204 |
| | 263 |
| | 245 |
|
Net periodic OPEB cost | 215 |
| | 310 |
| | (527 | ) | 231 |
| | 215 |
| | 310 |
|
Total | 478 |
| | 555 |
| | (393 | ) | 435 |
| | 478 |
| | 555 |
|
| | | | | | | | | | |
Cost of sales | 212 |
| | 220 |
| | (725 | ) | 142 |
| | 212 |
| | 220 |
|
Selling, general and administrative expenses | 34 |
| | 23 |
| | — |
| 30 |
| | 34 |
| | 23 |
|
Financing costs - net | 232 |
| | 312 |
| | 332 |
| 263 |
| | 232 |
| | 312 |
|
Total | 478 |
| | 555 |
| | (393 | ) | 435 |
| | 478 |
| | 555 |
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Plan Assets
The weighted-average asset allocations for the funded defined benefit plans by asset category were as follows: |
| | | | | | | | | | | | |
| December 31, 2019 | |
| United States | | Canada | | Brazil | | Europe | |
Equity Securities | 40 | % | | 44 | % | | 6 | % | | 2 | % | |
- Asset classes that have a quoted market price in an active market | 13 | % | | 34 | % | | 6 | % | | 2 | % | |
- Asset classes that do not have a quoted market price in an active market | 27 | % | | 10 | % | | — |
| | — |
| |
Fixed Income Securities (including cash) | 43 | % | | 48 | % | | 88 | % | | 73 | % | |
- Asset classes that have a quoted market price in an active market | — |
| | 42 | % | | 88 | % | | 73 | % | |
- Asset classes that do not have a quoted market price in an active market | 43 | % | | 6 | % | | — |
| | — |
| |
Real Estate | 3 | % | | 6 | % | | 1 | % | | — |
| |
- Asset classes that have a quoted market price in an active market | — |
| | — |
| | 1 | % | | — |
| |
- Asset classes that do not have a quoted market price in an active market | 3 | % | | 6 | % | | — |
| | — |
| |
Other | 14 | % | | 2 | % | | 5 | % | | 25 | % | |
- Asset classes that have a quoted market price in an active market | 5 | % | | — |
| | 5 | % | | 5 | % | |
- Asset classes that do not have a quoted market price in an active market | 9 | % | | 2 | % | | — |
| | 20 | % | 1 |
Total | 100 | % | | 100 | % | | 100 | % | | 100 | % | |
|
| | | | | | | | | | | | | |
| December 31, 2018 | | |
| United States | | Canada | | Brazil | | Europe | | |
Equity Securities | 35 | % | | 42 | % | | — |
| | 3 | % | | |
- Asset classes that have a quoted market price in an active market | 12 | % | | 33 | % | | — |
| | 3 | % | | |
- Asset classes that do not have a quoted market price in an active market | 23 | % | | 9 | % | | — |
| | — |
| | |
Fixed Income Securities (including cash) | 46 | % | | 50 | % | | 78 | % | | 72 | % | | |
- Asset classes that have a quoted market price in an active market | — |
| | 44 | % | | 78 | % | | 67 | % | | |
- Asset classes that do not have a quoted market price in an active market | 46 | % | | 6 | % | | — |
| | 5 | % | | |
Real Estate | 5 | % | | 6 | % | | 1 | % | | — |
| | |
- Asset classes that have a quoted market price in an active market | — |
| | — |
| | 1 | % | | — |
| | |
- Asset classes that do not have a quoted market price in an active market | 5 | % | | 6 | % | | — |
| | — |
| | |
Other | 14 | % | | 2 | % | | 21 | % | | 25 | % | | |
- Asset classes that have a quoted market price in an active market | 4 | % | | 2 | % | | 21 | % | | 4 | % | | |
- Asset classes that do not have a quoted market price in an active market | 10 | % | | — |
| | — |
| | 21 | % | 1 | |
Total | 100 | % | | 100 | % | | 100 | % | | 100 | % | | |
1. The percentage consists primarily of assets from insurance contracts in Belgium. |
| | | | | | | | | | | | | | |
| December 31, 2017 |
| United States | | Canada | | Brazil | | Europe | | Others |
Equity Securities | 53 | % | | 56 | % | | — |
| | 3 | % | | 41 | % |
- Asset classes that have a quoted market price in an active market | 26 | % | | 47 | % | | — |
| | 3 | % | | 41 | % |
- Asset classes that do not have a quoted market price in an active market | 27 | % | | 9 | % | | — |
| | — |
| | — |
|
Fixed Income Securities (including cash) | 34 | % | | 42 | % | | 97 | % | | 71 | % | | 49 | % |
- Asset classes that have a quoted market price in an active market | 4 | % | | 33 | % | | 97 | % | | 67 | % | | 49 | % |
- Asset classes that do not have a quoted market price in an active market | 30 | % | | 9 | % | | — |
| | 4 | % | | — |
|
Real Estate | — |
| | 2 | % | | 1 | % | | — |
| | 2 | % |
- Asset classes that have a quoted market price in an active market | — |
| | — |
| | 1 | % | | — |
| | 2 | % |
- Asset classes that do not have a quoted market price in an active market | — |
| | 2 | % | | — |
| | — |
| | — |
|
Other | 13 | % | | — |
| | 2 | % | | 26 | % | | 8 | % |
- Asset classes that have a quoted market price in an active market | 4 | % | | — |
| | 2 | % | | 3 | % | | 8 | % |
- Asset classes that do not have a quoted market price in an active market | 9 | % | | — |
| | — |
| | 23 | % | 1 | — |
|
Total | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| |
1. | The percentage consists primarily of assets from insurance contracts in Belgium. |
These assets do not include direct investments in ArcelorMittal stock of approximately 1, but not in property or other assets occupied or used by ArcelorMittal.ArcelorMittal bonds. These assets may also include ArcelorMittal shares or bonds held by mutual fund investments. The invested assets produced an actual return of 1,121 in 2019 and a loss of 82 in 2018 and a return of 799 in 2017.2018.
The Finance and Retirement Committees of the Boards of Directors for the respective operating subsidiaries have general supervisory authority over the respective trust funds. These committees have established asset allocation targets for the period as described below. Asset managers are permitted some flexibility to vary the asset allocation from the long-term investme
investment strategy within control ranges agreed upon.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
nt strategy within control ranges agreed upon. | | | December 31, 2018 | | December 31, 2019 | |
| United States | | Canada | | Brazil | | Europe | | United States | | Canada | | Brazil | | Europe | |
Equity Securities | 38 | % | | 49 | % | | — |
| | 3 | % | | 38 | % | | 45 | % | | 6 | % | | 3 | % | |
Fixed Income Securities (including cash) | 45 | % | | 44 | % | | 78 | % | | 72 | % | | 44 | % | | 48 | % | | 88 | % | | 72 | % | |
Real Estate | 3 | % | | 6 | % | | 1 | % | | — |
| | 3 | % | | 6 | % | | 1 | % | | — |
| |
Other | 14 | % | | 1 | % | | 21 | % | | 25 | % | 1 | 15 | % | | 1 | % | | 5 | % | | 25 | % | 1 |
Total | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | |
| |
1. | The percentage consists primarily of assets from insurance contracts in Belgium. |
Assumptions used to determine benefit obligations at December 31,
| | | Pension Plans | | Other Post-employment Benefits | Pension Plans | | Other Post-employment Benefits |
| 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
Discount rate | | | | | | | | | | | | | | | | | | | | | | |
Range | 1.75% - 16.00% | | 1.50% - 15.00% | | 1.60% - 16.00% | | 1.75% - 9.50% | | 1.30% - 7.65% | | 0.90% - 7.65% | 1.00% - 10.50% | | 1.75% - 16.00% | | 1.50% - 15.00% | | 1.00% - 7.25% | | 1.75% - 9.50% | | 1.30% - 7.65% |
Weighted average | 3.80% | | 3.45% | | 3.92% | | 3.98% | | 3.60% | | 4.19% | 2.90% | | 3.80% | | 3.45% | | 3.06% | | 3.98% | | 3.60% |
Rate of compensation increase | | | | | | | | | | | | | | | | | | | | | | |
Range | 2.00% - 10.00% | | 1.80% - 9.00% | | 1.80% - 10.00% | | 2.00% - 4.80% | | 2.00% - 4.50% | | 2.00% - 32.00% | 1.90% - 10.00% | | 2.00% - 10.00% | | 1.80% - 9.00% | | 1.60% - 4.80% | | 2.00% - 4.80% | | 2.00% - 4.50% |
Weighted average | 2.85% | | 2.81% | | 3.11% | | 3.24% | | 3.32% | | 3.38% | 2.80% | | 2.85% | | 2.81% | | 2.95% | | 3.24% | | 3.32% |
| | | Other Post-employment Benefits | Other Post-employment Benefits |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Healthcare cost trend rate assumed | | | | | | | | | | |
Range | 1.80% - 8.00% | | 1.80% - 5.00% | | 1.80% - 5.60% | 1.80% - 5.00% | | 1.80% - 8.00% | | 1.80% - 5.00% |
Weighted average | 4.46% | | 4.48% | | 4.51% | 4.42% | | 4.46% | | 4.48% |
Cash contributions and maturity profile of the plans
In 2019,2020, the Company expects its cash contributions to amount to 194269 for pension plans, 231153 for other post-employment benefits plans, 116110 for defined contribution plans and 6785 for United States multi-employer plans. Cash contributions to defined contribution plans and to United States multi-employer plans sponsored by the Company, were respectively 123120 and 6585 in 2018.2019.
At December 31, 2018,2019, the weighted average duration of the liabilities related to the pension and other post-employment benefits plans were 12 years (2017:(2018: 12 years) and 1415 years (2017:(2018: 14 years), respectively.
Risks associated with defined benefit plans
Through its defined benefit pension plans and OPEB plans, ArcelorMittal is exposed to a number of risks, the most significant of which are detailed below:
Changes in bond yields
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings.
Asset volatility
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets underperform this yield, this will create a deficit. In most countries with funded plans, plan assets hold a significant portion of equities, which are expected to outperform corporate bonds in the long-term but contribute to volatility and risk in the short-term. As the plans mature, ArcelorMittal intends to reduce the level of investment risk by investing more in assets that better
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
match the liabilities. However, ArcelorMittal believes that due to the long-term nature of the plan liabilities, a level of continuing equity investment is an appropriate element of a long-term strategy to manage the plans efficiently.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Life expectancy
Most plans provide benefits for the life of the covered members, so increases in life expectancy will result in an increase in the plans’ benefit obligations.
Assumptions regarding future mortality rates have been set considering published statistics and, where possible, ArcelorMittal’s own experience. In 2017, ArcelorMittal USA updated the company specific tables it uses to value most of its postretirement liabilities. These tables were projected forward using the most recent projection scales issued by the Society of Actuaries. Use of these new mortality assumptions resulted in reducing the 2017 pension and OPEB liabilities by 95 and 51, respectively.
The current longevities at retirement underlying the values of the defined benefit obligation were approximately 22.
Healthcare cost trend rate
The majority of the OPEB plans’ benefit obligations are linked to the change in the cost of various health care components. Future healthcare cost will vary based on several factors including price inflation, utilization rate, technology advances, cost shifting and cost containing mechanisms. A higher healthcare cost trend would lead to higher OPEB plan benefit obligations.
In 2017, the Company changed its provider of insured coverage of Medicare eligible participants in the United States. This resulted in significantly lowering the premiums and resulted in reducing the OPEB defined benefit obligations by 1,061. In 2017, the healthcare cost trend rate assumption in the United States was adjusted, which resulted in increasing the OPEB defined benefit obligations by 117.
Sensitivity analysis
The following information illustrates the sensitivity to a change of the significant actuarial assumptions related to ArcelorMittal’s pension plans (as of December 31, 2018,2019, the defined benefit obligation for pension plans was 9,872)10,629): | | | Effect on 2019 Pre-Tax Pension Expense (sum of service cost and interest cost) | | Effect on December 31, 2018 DBO | Effect on 2020 Pre-Tax Pension Expense (sum of service cost and interest cost) | | Effect on December 31, 2019 DBO |
Change in assumption | | | | | | |
100 basis points decrease in discount rate | (42) | | 1,204 | (54) | | 1,321 |
100 basis points increase in discount rate | 33 | | (987) | 42 | | (1,081) |
100 basis points decrease in rate of compensation | (14) | | (173) | (13) | | (178) |
100 basis points increase in rate of compensation | 15 | | 177 | 14 | | 180 |
1 year increase of the expected life of the beneficiaries | 11 | | 250 | 10 | | 302 |
The following table illustrates the sensitivity to a change of the significant actuarial assumptions related to ArcelorMittal’s OPEB plans (as of December 31, 20182019 the defined benefit obligation for post-employment benefit plans was 4,098)4,294): | | | Effect on 2019 Pre-Tax OPEB Expense (sum of service cost and interest cost) | | Effect on December 31, 2018 DBO | Effect on 2020 Pre-Tax OPEB Expense (sum of service cost and interest cost) | | Effect on December 31, 2019 DBO |
Change in assumption | | | | | | |
100 basis points decrease in discount rate | — | | 610 | (3) | | 682 |
100 basis points increase in discount rate | 2 | | (487) | 2 | | (536) |
100 basis points decrease in healthcare cost trend rate | (27) | | (407) | (29) | | (450) |
100 basis points increase in healthcare cost trend rate | 39 | | 506 | 39 | | 566 |
1 year increase of the expected life of the beneficiaries | 9 | | 142 | 7 | | 162 |
The above sensitivities reflect the effect of changing one assumption at a time. Actual economic factors and conditions often affect multiple assumptions simultaneously, and the effects of changes in key assumptions are not necessarily linear.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Multi-employer plans
ArcelorMittal participates in one material multi-employer pension plan in the United States. Under multi-employer plans, several participating employers make contributions into a pension plan. The assets of the plan are not limited to the participants of a particular employer. If an employer is unable to make required contributions to the plan, any unfunded obligations may be borne by the remaining employers. Additionally, if an employer withdraws from the plan, it may be required to pay an amount based on the underfunded status of the plan. As of December 31, 2017,2018, which is the latest period for which information is available, the multi-employer pension plan had a total actuarial liability of 5,2725,504 and assets with market value of 4,7584,504 for a funded ratio of about 90%82%. ArcelorMittal represented approximately 30%31% of total contributions made to the plan in the past three years.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
7.38.3 Share-based payments
ArcelorMittal issues equity-settled share-based payments to certain employees, including stock options, RSUs and PSUs. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant.grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a graded vesting basis over the vesting period, based on the Company’s estimate of the shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. For stock options, RSUs and PSUs, fair value is measured using the Black-Scholes-Merton pricing model and the market value of the shares at the grant date of the grant after deduction of dividend payments during the vesting period, respectively. Where the fair value calculation requires modeling of the Company’s performance against other market index, fair value is measured using the Monte Carlo pricing model to estimate the forecasted target performance goal for the company and its peer companies. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations. In addition, the expected annualized volatility has been set by reference to the implied volatility of options available on ArcelorMittal shares in the open market, as well as, historical patterns of volatility. For the RSUs and PSUs, the fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight line method over the vesting period and adjusted for the effect of non market-based vesting conditions.
On May 22, 2017, ArcelorMittal completed the consolidation of each three existing shares in ArcelorMittal without nominal value into one share without nominal value. As a result of this reverse stock split, the outstanding number of stock options, PSUs and RSUs per employee has been recast for prior periods.
Stock Option Plans
Prior to the May 2011 annual general shareholders’ meeting of shareholders ("AGM") adoption of the ArcelorMittal Equity Incentive Plan described below, ArcelorMittal’s equity-based incentive plan took the form of a stock option plan known as the Global Stock Option Plan.
Under the terms of the ArcelorMittal Global Stock Option Plan 2009-2018 (which replaced the ArcelorMittal Shares plan that expired in 2009), ArcelorMittal may grant options to purchase common shares to senior management of ArcelorMittal and its associates for up to 100,000,000 (33,333,333 shares after reverse stock split) shares of common shares. The exercise price of each option equals not less than the fair market value of ArcelorMittal shares on the grant date, with a maximum term of 10 years. Options are granted at the discretion of ArcelorMittal’s Appointments, Remuneration, and Corporate Governance and Sustainability ("ARCG"ARCGS") Committee, or its delegate. The options vest either ratably upon each of the first three anniversaries of the grant date, or, in total, upon the death, disability or retirement of the participant. |
| |
Date of grantGrant date | Exercise prices (per option) |
August 2010 | $91.98 |
August 2009 | 109.14 |
No options were granted during the years ended December 31, 2019, 2018, 2017, and 2016.
2017. The compensation expense recognized for stock option plans was nil for each of the years ended December 31, 2019, 2018 2017 and 2016.2017.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Option activity with respect to ArcelorMittal Shares and ArcelorMittal Global Stock Option Plan 2009-2018 is summarized below as of and for each of the years ended December 31, 2019, 2018 2017 and 2016:2017: | |
| Number of Options |
| Range of Exercise Prices (per option) |
| Weighted Average Exercise Price (per option) |
| Number of Options |
| Range of Exercise Prices (per option) |
| Weighted Average Exercise Price (per option) |
Outstanding, December 31, 2015 | 5,730,800 |
|
| 63.42 – 235.32 |
| 148.06 | Outstanding, | |
Expired | (1,048,266 | ) |
| 91.98 – 235.32 |
| 125.17 |
| |
Outstanding, December 31, 2016 | 4,682,534 |
|
| 63.42 – 235.32 |
| 153.19 | Outstanding, | 4,682,534 |
|
| 63.42 – 235.32 |
| 153.19 |
Expired | (1,397,659 | ) |
| 63.42 – 235.32 |
| 170.40 |
| (1,397,659 | ) |
| 63.42 – 235.32 |
| 170.40 |
Outstanding, December 31, 2017 | 3,284,875 |
|
| 63.42 – 235.32 |
| 145.86 | Outstanding, | 3,284,875 |
|
| 63.42 – 235.32 |
| 145.86 |
Expired | (1,295,500 | ) |
| 63.42 – 235.32 |
| 215.77 |
| (1,295,500 | ) |
| 63.42 – 235.32 |
| 215.77 |
Outstanding, December 31, 2018 | 1,989,375 |
|
| 91.98 – 109.14 |
| 100.33 | Outstanding, | 1,989,375 |
|
| 91.98 – 109.14 |
| 100.33 |
Expired | | (1,084,985 | ) |
| 91.98 – 109.14 | | 107.29 |
Outstanding, December 31, 2019 | | 904,390 |
|
| 91.98 | | 91.98 |
| Exercisable, December 31, 2016 | 4,682,534 |
|
| 63.42 – 235.32 |
| 153.19 | Exercisable, | |
Exercisable, December 31, 2017 | 3,284,875 |
|
| 63.42 – 235.32 |
| 145.86 | Exercisable, | 3,284,875 |
|
| 63.42 – 235.32 |
| 145.86 |
Exercisable, December 31, 2018 | 1,989,375 |
|
| 91.98 – 109.14 |
| 100.33 | Exercisable, | 1,989,375 |
|
| 91.98 – 109.14 |
| 100.33 |
Exercisable, December 31, 2019 | | 904,390 |
|
| 91.98 |
| 91.98 |
The following table summarizes information about total stock options of the Company outstanding as of December 31, 2018:2019: |
| | | | | | | | | | |
Options Outstanding |
Exercise Prices (per option) |
| Number of options |
| Weighted average contractual life (in years) |
| Options exercisable (number of options) |
| Maturity |
$91.98 |
| 1,021,058 |
|
| 1.59 |
| 1,021,058 |
|
| August 3, 2020 |
109.14 |
| 968,317 |
|
| 0.59 |
| 968,317 |
|
| August 4, 2019 |
$91.98 - $109.14 |
| 1,989,375 |
|
| 1.11 |
| 1,989,375 |
|
|
|
|
| | | | | | | | | | |
Options Outstanding |
Exercise Price (per option) |
| Number of options |
| Remaining contractual life (in years) |
| Options exercisable (number of options) |
| Maturity |
91.98 |
| 904,390 |
|
| 0.59 |
| 904,390 |
|
| August 3, 2020 |
Long-Term Incentives: Equity-Based Incentives (Share Unit Plans)
On May 10, 2011, the annual general meeting of shareholdersAGM approved the ArcelorMittal Equity Incentive Plan, a new equity-based incentive plan that replaced the Global Stock Option Plan. The ArcelorMittal Equity Incentive Plan is intended to align the interests of the Company’s shareholders and eligible employees by allowing them to participate in the success of the Company. The ArcelorMittal Equity Incentive Plan provides for the grant of RSUs and PSUs to eligible Company employees (including the Executive Officers) and is designed to incentivize employees, improve the Company’s long-term performance and retain key employees. On May 8, 2013, the annual general meeting of shareholders approved the GMB PSU Plan, which provides for the grant of PSUs to GMB members (and is now applicable to the CEO Office). Until the introduction of the GMB PSU Plan in 2013, GMB members were eligible to receive RSUs and PSUs under the ArcelorMittal Equity Incentive Plan. In 2016, a special grant was approved in order to align the grant with the Action 2020 plan put in place by ArcelorMittal.
The maximum number of PSUs (and RSUs previously) available for grant during any given year is subject to the prior approval of the Company’s shareholders at the annual general meeting. The annual shareholders’ meeting on May 4, 2016 approved the maximum to be granted until the next annual shareholders’ meeting. For the period from the May 2016 annual general shareholders’ meeting to the May 2017 annual general shareholders’ meeting, a maximum of 30,000,000 PSUs (10,000,000 PSU's after the reverse stock split) may be allocated to eligible employees under the ArcelorMittal Equity Incentive Plan and the GMB PSU Plan combined.AGM. The 2017 Cap for the number of PSUs that may be allocated to the CEO Office and other retention based grants below the CEO Office level was approved at the annual shareholders' meetingAGM on May 10, 2017 at a maximum of 3,000,000 shares. The 2018 Cap for the number of PSUs that may be allocated to the CEO Office and other retention based grants below the CEO Office level, was approved at the annual shareholders’ meetingAGM on May 9, 2018 at a maximum of 1,500,000 shares. The 2019 Cap for the number of PSUs that may be allocated to the CEO Office and other performance based grants below the CEO Office level, was approved at the annual shareholders' meeting held on May 7, 2019 at a maximum of 2,500,000 shares.
ArcelorMittal Equity Incentive Plan
RSUs granted under the ArcelorMittal Equity Incentive Plan are designed to provide a retention incentive to eligible employees. RSUs are subject to “cliff vesting” after three years, with 100% of the grant vesting on the third anniversary of the grant contingent upon the continued active employment of the eligible employee within the Company.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The grant of PSUs under the ArcelorMittal Equity Incentive Plan aims to serve as an effective performance-enhancing scheme based on the employee’s contribution to the eligible achievement of the Company’s strategy. Awards in connection with PSUs are subject to the fulfillment of cumulative performance criteria (such as return on capital employed ("ROCE"), total shareholders return ("TSR"), earnings per share ("EPS") and gap to competition) over a three year period from the date of the PSU grant. The employees eligible to receive PSUs are a sub-set of the group of employees eligible to receive RSUs. The target group for PSU grants initially included the Chief Executive Officer
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and the other GMB members. However, from 2013 onwards, the Chief Executive Officer and other GMB members (and in 2016, the CEO Office) received PSU grants only under the GMB PSU Plan instead of the ArcelorMittal Equity Incentive Plan.per share data)
Conditions of the 20182019 grant were as follows:
| | | | CEO Office | | Executive Officers and other qualifying employees | | CEO Office | | Other Executive Officers |
2018 Grant | l | PSUs with a three year performance period |
| PSUs with a three year performance period
| |
|
|
|
| |
l | Value at grant 100% of base salary for the CEO and the President and CFO |
|
| |
l | Vesting conditions: | | Vesting conditions | |
| | Threshold | Target | | |
| Target | |
| TSR/EPS vs. peer group
| 100% median | ≥120% median | | ROCE |
| 100% target 100% vesting | |
| TSR vs. S&P 500
| Performance equal to Index
| ≥Performance equal to Index + 2% outperformance | | Gap to competition (where applicable) |
| 100% target 100% vesting | |
| Vesting percentage
| 50% | 100% | | | |
2019 Grant | | l | PSUs with a three year performance period | l | PSUs with a three year performance period |
| l | Value at grant 100% of base salary for the CEO and the President and CFO |
|
|
| l | Vesting conditions: | l | Vesting conditions |
| | | Threshold | Target | | |
| Target |
| | TSR/EPS vs. peer group
| 100% median | ≥120% median | | ROCE |
| 100% target 100% vesting |
| | TSR vs. S&P 500
| Performance equal to Index
| ≥Performance equal to Index + 2% outperformance | | Gap to competition (where applicable) |
| 100% target 100% vesting |
| | Vesting percentage | 50% | 100% | | |
Awards made in previous financial years which have not yet reached the end of the vesting period
The Company's Long-Term Incentive Plan for senior management including Executive Officers follows the Company's strategy.
In 2014 and 2015, the Company's goal was to achieve ROCE and Mining volume for the Mining segment and therefore the target was based on these performance measures.
In 2016, in order to ensure achievement of the Action 2020 plan, ArcelorMittal made a special grant (“Special Grant”) to qualifying employees (including the Executive Officers), instead of the standard grant. The value of the Special Grant at grant date is based generally on a specified percentage of the base salary depending on the position of the employee at grant date. The vesting is subject to continued active employment within the ArcelorMittal group and to yearly performance of ROCE targets and other strategic objectives within the business units.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The plans in 2018, 2017 2016 and 20152016 are summarized below: | | | | CEO Office | | Other Executive Officers | | CEO Office | | Other Executive Officers |
2015 Grant | l | PSUs with a three-year performance period | l | RSUs with a three-year vesting period (2015 grant vested in December 2018) | |
l | Performance criteria: 50% TSR (½ vs. S&P 500 and ½ vs. peer group) and 50% EPS vs. peer group | l | PSUs with a three-year performance period | |
l | Value at grant: 100% of base salary for the CEO and 80% for the President and CFO | l | Performance target: mainly ROCE and mining volume plan for the Mining segment | |
| | l | One PSU can give right to 0 up to 1.5 share | |
l | Vesting conditions: | l | Vesting conditions: | |
| | Threshold | Target | Stretch | | Performance | Threshold | Target | Stretch | |
| TSR/EPS vs. peer group | 80% median | 100% median | ≥120% median | | Performance | 80% | 100% | ≥120% | |
| TSR vs. S&P 500 | Performance equal to 80% of Index
| Performance equal to Index | ≥Performance equal to Index + 2% outperformance | | Vesting | 50% | 100% | 150% | |
| Vesting percentage
| 50% | 100% | 150% | | | |
2016 Special Grant | l | PSUs with a five-year performance period, 50% vesting after three-year performance period and 50% after additional two-year performance period | l | PSUs with a five-year performance period, 50% vesting after three-year performance period and 50% after additional two-year performance period | l | PSUs with a five-year performance period, 50% vesting after three-year performance period and 50% after additional two-year performance period | l | PSUs with a five-year performance period, 50% vesting after three-year performance period and 50% after additional two-year performance period |
l | Performance criteria: 50% TSR (½ vs. S&P 500 and ½ vs. peer group) and 50% EPS vs. peer group | l | Performance criteria: ROCE and Gap to competition in some areas one target grant: a share will vest if performance is met at target one overperformance grant: a share will vest if performance exceeds 120% | l | Performance criteria: 50% TSR (½ vs. S&P 500 and ½ vs. peer group) and 50% EPS vs. peer group | l | Performance criteria: ROCE and Gap to competition in some areas one target grant: a share will vest if performance is met at target one overperformance grant: a share will vest if performance exceeds 120% |
l | Value at grant: 150% of base salary for the CEO and the President and CFO | l | Vesting conditions: | l | Value at grant: 150% of base salary for the CEO and the President and CFO | l | Vesting conditions: |
l | Vesting conditions: | | | l | Vesting conditions: | | |
| | | Threshold | Target | | Performance | | 100% | ≥120% | | | | Threshold | Target | | Performance | | 100% | ≥120% |
| TSR/EPS vs. peer group | | 100% median | ≥120% median | | Target award vesting | 100% | 100% | | TSR/EPS vs. peer group | | 100% median | ≥120% median | | Target award vesting | 100% | 100% |
| TSR vs. S&P 500 | | Performance equal to Index
| ≥Performance equal to Index + 2% outperformance | | Overperformance award (=20% of target award) | - | 100% | | TSR vs. S&P 500 | | Performance equal to Index
| ≥Performance equal to Index + 2% outperformance | | Overperformance award (=20% of target award) | - | 100% |
| Vesting percentage
| | 50% | 100% | | | | Vesting percentage | | 50% | 100% | | |
2017 Grant | l | PSUs with a three-year performance period | | l | PSUs with a three-year performance period | | l | PSUs with a three-year performance period | | l | PSUs with a three-year performance period | |
l | Performance criteria: 50% TSR (½ vs. S&P 500 and ½ vs. peer group) and 50% EPS vs. peer group | l | Performance criteria: TSR and Gap to competition in some areas | l | Performance criteria: 50% TSR (½ vs. S&P 500 and ½ vs. peer group) and 50% EPS vs. peer group | l | Performance criteria: TSR and Gap to competition in some areas |
l | Value at grant: 100% of base salary for the CEO and the President and CFO | | | | l | Value at grant: 100% of base salary for the CEO and the President and CFO | | | |
l | Vesting conditions: | | l | Vesting conditions: | | l | Vesting conditions: | | l | Vesting conditions: | |
| | Threshold | Target | | | | Threshold | Target | | | Threshold | Target | | | | Threshold | Target |
| TSR/EPS vs. peer group
| 100% median | ≥120% median | | TSR vs. peer group
| 100% median 50% vesting | ≥120% median 100% vesting | | TSR/EPS vs. peer group
| 100% median | ≥120% median | | TSR vs. peer group
| 100% median 50% vesting | ≥120% median 100% vesting |
| TSR vs. S&P 500
| Performance equal to Index
| ≥Performance equal to Index + 2% outperformance | | Gap to competition (where applicable) | - | 100% target 100% vesting | | TSR vs. S&P 500
| Performance equal to Index
| ≥Performance equal to Index + 2% outperformance | | Gap to competition (where applicable) | - | 100% target 100% vesting |
| Vesting percentage
| 50% | 100% | | | | | Vesting percentage
| 50% | 100% | | | |
2018 Grant | | l | PSUs with a three year performance period | l | PSUs with a three year performance period | |
| l | Value at grant 100% of base salary for the CEO and the President and CFO |
| | |
| l | Vesting conditions: | l | Vesting conditions | |
|
| | Threshold | Target |
|
| Target |
|
| TSR/EPS vs. peer group
| 100% median | ≥120% median |
| ROCE | 100% target 100% vesting |
|
| TSR vs. S&P 500
| Performance equal to Index
| ≥Performance equal to Index + 2% outperformance |
| Gap to competition (where applicable) | 100% target 100% vesting |
|
| Vesting percentage | 50% | 100% |
|
| |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The following table summarizes the Company’s share unit plans outstanding as of December 31, 2018:2019: | | At Grant date | At Grant date |
| Number of shares issued as of December 31, 2018 | At Grant date |
| Number of shares issued as of December 31, 2019 |
Grant date |
| Type of plan |
| Number of shares |
| Number of beneficiaries |
| Maturity |
| Fair value per share |
| Shares outstanding |
| Shares exited |
| Shares forfeited |
| Type of plan |
| Number of shares |
| Number of beneficiaries |
| Maturity |
| Fair value per share |
| Shares outstanding |
| Shares forfeited |
December 16, 2019 | | | PSU | | 1,760,350 |
| | 517 |
| | January 1, 2023 | | 18.57 | | 1,760,350 |
| | — |
|
December 16, 2019 | | | CEO Office | | 172,517 |
| | 2 |
| | January 1, 2023 | | 14.89 | | 172,517 |
| | — |
|
December 20, 2018 |
| PSU |
| 1,358,750 |
|
| 524 |
|
| January 1, 2022 |
| 21.31 |
| 1,358,750 |
|
| — |
|
| — |
|
| PSU |
| 1,358,750 |
|
| 524 |
|
| January 1, 2022 |
| 21.31 |
| 1,298,550 |
|
| 60,200 |
|
December 20, 2018 |
| CEO Office |
| 134,861 |
|
| 2 |
|
| January 1, 2022 |
| 16.58 |
| 134,861 |
|
| — |
|
| — |
|
| CEO Office |
| 134,861 |
|
| 2 |
|
| January 1, 2022 |
| 16.58 |
| 134,861 |
|
| — |
|
December 20, 2017 |
| PSU |
| 1,081,447 |
|
| 527 |
|
| January 1, 2021 |
| 18.42 |
| 1,046,816 |
|
| — |
|
| 34,631 |
|
| PSU |
| 1,081,447 |
|
| 527 |
|
| January 1, 2021 |
| 18.42 |
| 958,082 |
|
| 123,365 |
|
December 20, 2017 |
| CEO Office |
| 90,084 |
|
| 2 |
|
| January 1, 2021 |
| 22.85 |
| 90,084 |
|
| — |
|
| — |
|
| CEO Office |
| 90,084 |
|
| 2 |
|
| January 1, 2021 |
| 22.85 |
| 90,084 |
|
| — |
|
June 30, 2016 |
| PSU II |
| 3,472,355 |
|
| 554 |
|
| January 1, 2021 |
| 13.17 |
| 3,105,045 |
|
| — |
|
| 367,310 |
|
| PSU II |
| 3,472,355 |
|
| 554 |
|
| January 1, 2021 |
| 13.17 |
| 2,751,076 |
|
| 721,279 |
|
June 30, 2016 |
| CEO PSU II |
| 153,268 |
|
| 2 |
|
| January 1, 2022 |
| 16.62 |
| 153,268 |
|
| — |
|
| — |
|
| CEO PSU II |
| 153,268 |
|
| 2 |
|
| January 1, 2022 |
| 16.62 |
| 153,268 |
|
| — |
|
June 30, 2016 |
| PSU I |
| 3,472,355 |
|
| 554 |
|
| January 1, 2019 |
| 13.74 |
| 3,105,045 |
|
| — |
|
| 367,310 |
| | CEO PSU I | | 153,268 |
| | 2 |
| | January 1, 2020 | | 10.68 | | 153,268 |
| | — |
|
June 30, 2016 |
| CEO PSU I |
| 153,268 |
|
| 2 |
|
| January 1, 2020 |
| 10.68 |
| 153,268 |
|
| — |
|
| — |
| |
December 18, 2015 |
| PSU |
| 295,935 |
|
| 322 |
|
| January 1, 2019 |
| 11.49 |
| 223,323 |
|
| — |
|
| 72,612 |
| |
Total |
|
| 10,212,323 |
|
|
|
|
| $10.68 – $22.85 |
| 9,370,460 |
|
| — |
|
| 841,863 |
|
|
| 8,376,900 |
|
|
|
|
| $10.68 – $22.85 |
| 7,472,056 |
|
| 904,844 |
|
The compensation expense recognized for RSUs and PSUs was 31,NaN, 31 and 1331 for the years ended December 31, 2019, 2018 2017 and 2016.2017.
Share unit plan activity is summarized below as of and for each year ended December 31, 2019, 2018 2017 and 2016:2017: | |
| RSUs |
| PSUs | RSUs |
| PSUs |
| Number of shares |
| Fair value per share |
| Number of shares |
| Fair value per share | Number of shares |
| Fair value per share |
| Number of shares |
| Fair value per share |
Outstanding, December 31, 2015 | 1,320,654 |
|
| 28.78 |
| 1,370,675 |
|
| 33.32 | |
Outstanding, December 31, 2016 | | 650,254 |
|
| 21.00 |
| 8,039,494 |
|
| 15.08 |
Granted 1 | | — |
|
| — |
| 1,199,338 |
|
| 19.25 |
Exited | | (303,550 | ) |
| 30.69 |
| (204,855 | ) |
| 43.34 |
Forfeited | | (40,699 | ) |
| 20.32 |
| (437,141 | ) |
| 18.33 |
Outstanding, December 31, 2017 | | 306,005 |
|
| 11.49 |
| 8,596,836 |
|
| 14.83 |
Granted 2 | — |
|
| — |
| 7,252,814 |
|
| 13.46 | — |
|
| — |
| 1,577,865 |
|
| 21.32 |
Exited | (564,679 | ) |
| 38.24 |
| (19,816 | ) |
| 37.11 | (288,721 | ) |
| 11.49 |
| (412,893 | ) |
| 28.98 |
Forfeited | (105,721 | ) |
| 26.12 |
| (564,179 | ) |
| 37.76 | (17,284 | ) |
| 11.49 |
| (391,348 | ) |
| 16.41 |
Outstanding, December 31, 2016 | 650,254 |
|
| 21.00 |
| 8,039,494 |
|
| 15.08 | |
Granted 2 | — |
|
| — |
| 1,199,338 |
|
| 19.25 | |
Outstanding, December 31, 2018 | | — |
|
| — |
| 9,370,460 |
|
| 15.34 |
Granted 3 | | — |
|
| — |
| 2,018,176 |
|
| 17.96 |
Exited | (303,550 | ) |
| 30.69 |
| (204,855 | ) |
| 43.34 | — |
|
| — |
| (2,677,011 | ) |
| 13.49 |
Forfeited | (40,699 | ) |
| 20.32 |
| (437,141 | ) |
| 18.33 | — |
|
| — |
| (1,239,569 | ) |
| 14.25 |
Outstanding, December 31, 2017 | 306,005 |
|
| 11.49 |
| 8,596,836 |
|
| 14.83 | |
Granted 1 | — |
|
| — |
| 1,577,865 |
|
| 21.32 | |
Exited | (288,721 | ) |
| 11.49 |
| (412,893 | ) |
| 28.98 | |
Forfeited | (17,284 | ) |
| 11.49 |
| (391,348 | ) |
| 16.41 | |
Outstanding, December 31, 2018 | — |
|
|
|
| 9,370,460 |
|
| 15.34 | |
Outstanding, December 31, 2019 | | — |
|
| — |
| 7,472,056 |
|
| 16.76 |
| |
1. | Including 56,606 over-performance shares granted for the targets achievement of the PSU grant September 17, 2014 and 27,648 of the GMB PSU grant June 30, 2015
|
| |
2. | Including 27,807 over-performance shares granted for the targets achievement of the PSU grant September 27, 2013 in 2017 (1,567. |
| |
2. | Including 56,606 over-performance shares granted for the targets achievement of the PSU grant March 29, 2013 in 2016).September 17, 2014 and 27,648 of the GMB PSU grant June 30, 2015. |
| |
3. | Including 85,309 over-performance shares granted for the targets achievement of the PSU grant December 18, 2015. |
NOTE 8:9: PROVISIONS, CONTINGENCIES AND COMMITMENTS
ArcelorMittal recognizes provisions for liabilities and probable losses that have been incurred when it has a present legal or constructive obligation as a result of past events, it is probable that the Company will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a financing cost. Future operating expenses or losses are excluded from recognition as provisions as they do not meet the definition of a liability. Contingent assets and contingent liabilities are excluded from recognition in the consolidated statements of financial position.
Provisions for onerous contracts are recorded in the consolidated statements of operations when it becomes known that the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Assets dedicated to the onerous contracts are tested for impairment before recognizing a separate provision for the onerous contract.
Provisions for restructuring are recognized when and only when a detailed formal plan exists and a valid expectation in those affected by the restructuring has been raised, by starting to implement the plan or announcing its main features.
ArcelorMittal records asset retirement obligations (“ARO”) initially at the fair value of the legal or constructive obligation in the period in which it is incurred and capitalizes the ARO by increasing the carrying amount of the related non-current asset. The fair value of the obligation is determined as the discounted value of the expected future cash flows. The liability is accreted to its present value through net financing cost and the capitalized cost is depreciated in accordance with the Company’s depreciation policies for property, plant and equipment. Subsequently, when reliably measurable, ARO is recorded on the consolidated statements of financial position increasing the cost of the asset and the fair value of the related obligation. Foreign exchange gains or losses on AROs denominated in foreign currencies are recorded in the consolidated statements of operations.
ArcelorMittal is subject to changing and increasingly stringent environmental laws and regulations concerning air emissions, water discharges and waste disposal, as well as certain remediation activities that involve the clean-up of soil and groundwater. ArcelorMittal is currently engaged in the investigation and remediation of environmental contamination at a number of its facilities. Most of these are legacy obligations arising from acquisitions.
Environmental costs that relate to current operations or to an existing condition caused by past operations, and which do not contribute to future revenue generation or cost reduction, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the cost can be reliably estimated based on ongoing engineering studies, discussions with the environmental authorities and other assumptions relevant to the nature and extent of the remediation that may be required. The ultimate cost to ArcelorMittal is dependent upon factors beyond its control such as the scope and methodology of the remedial action requirements to be established by environmental and public health authorities, new laws or government regulations, rapidly changing technology and the outcome of any potential related litigation. Environmental liabilities are discounted if the aggregate amount of the obligation and the amount and timing of the cash payments are fixed or reliably determinable.
The estimates of loss contingencies for environmental matters and other contingencies are based on various judgments and assumptions including the likelihood, nature, magnitude and timing of assessment, remediation and/or monitoring activities and the probable cost of these activities. In some cases, judgments and assumptions are made relating to the obligation or willingness and ability of third parties to bear a proportionate or allocated share of cost of these activities, including third parties who sold assets to ArcelorMittal or purchased assets from it subject to environmental liabilities. ArcelorMittal also considers, among other things, the activity to date at particular sites, information obtained through consultation with applicable regulatory authorities and third-party consultants and contractors and its historical experience with other circumstances judged to be comparable. Due to the numerous variables associated with these judgments and assumptions, and the effects of changes in governmental regulation and environmental technologies, both the precision and reliability of the resulting estimates of the related contingencies are subject to substantial uncertainties. As estimated costs to remediate change, the Company will reduce or increase the recorded liabilities through write backs or additional provisions in the consolidated statements of operations. ArcelorMittal does not expect these environmental issues to affect the utilization of its plants, now or in the future.
ArcelorMittal is currently and may in the future be involved in litigation, arbitration or other legal proceedings. Provisions related to legal and arbitration proceedings are recorded in accordance with the principles described above.
Most of these claims involve highly complex issues. Often these issues are subject to substantial uncertainties and, therefore, the probability of loss and an estimation of damages are difficult to ascertain. Consequently, ArcelorMittal may be unable to make a reliable estimate of the expected financial effect that will result from ultimate resolution of the proceeding. In those cases, ArcelorMittal has disclosed information with respect to the nature of the contingency. ArcelorMittal has not accrued a provision for the potential outcome of these cases.
For cases in which the Company was able to make a reliable estimate of the expected loss or range of probable loss and has accrued a provision for such loss, it believes that publication of this information on a case-by-case basis would seriously prejudice the Company’s position in the ongoing legal proceedings or in any related settlement discussions. Accordingly, in these cases, the Company has disclosed information with respect to the nature of the contingency, but has not disclosed its estimate of the range of potential loss.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
In the cases in which quantifiable fines and penalties have been assessed, the Company has indicated the amount of such fine or penalty or the amount of provision accrued that is the estimate of the probable loss.
These assessments can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. The assessments are based on estimates and assumptions that have been deemed reasonable by management. The Company believes that the aggregate provisions recorded for the above matters are adequate based upon currently available information. However, given the inherent uncertainties related to these cases and in estimating contingent liabilities, the Company could, in the future, incur judgments that have a material adverse effect on its results of operations in any particular period. The Company considers it highly unlikely, however, that any such judgments could have a material adverse effect on its liquidity or financial condition.
8.19.1 Provisions overview |
| | | | | | | | | | | | | | | | |
| Balance at December 31, 2018 |
| Additions1 |
| Deductions/ Payments |
|
| Effects of foreign exchange and other movements |
|
| Balance at December 31, 2019 |
Environmental (see note 9.3) | 1,228 |
|
| 97 |
|
| (95 | ) |
|
| (156 | ) | 2 |
| 1,074 |
|
Emission rights (see text below) | — |
|
| 481 |
|
| — |
|
|
| 3 |
|
|
| 484 |
|
Asset retirement obligations (see note 9.3) | 422 |
|
| 28 |
|
| (10 | ) |
|
| 38 |
|
|
| 478 |
|
Site restoration | 141 |
|
| 3 |
|
| (5 | ) |
|
| (3 | ) |
|
| 136 |
|
Staff related obligations | 201 |
|
| 65 |
|
| (64 | ) |
|
| (17 | ) |
|
| 185 |
|
Voluntary separation plans | 38 |
|
| 30 |
|
| (13 | ) |
|
| (8 | ) |
|
| 47 |
|
Litigation and other (see note 9.3) | 369 |
|
| 65 |
|
| (91 | ) |
|
| (31 | ) |
|
| 312 |
|
Tax claims | 120 |
|
| 5 |
|
| (14 | ) |
|
| (30 | ) |
|
| 81 |
|
Other legal claims | 249 |
|
| 60 |
|
| (77 | ) |
|
| (1 | ) |
|
| 231 |
|
Commercial agreements and onerous contracts | 34 |
|
| 29 |
|
| (16 | ) |
|
| (1 | ) |
|
| 46 |
|
Other | 101 |
|
| 148 |
|
| (30 | ) |
|
| 10 |
|
|
| 229 |
|
| 2,534 |
|
| 946 |
|
| (324 | ) |
|
| (165 | ) |
|
| 2,991 |
|
Short-term provisions | 539 |
|
|
|
|
|
|
|
|
|
|
|
|
| 516 |
|
Long-term provisions | 1,995 |
|
|
|
|
|
|
|
|
|
|
|
|
| 2,475 |
|
| 2,534 |
|
|
|
|
|
|
|
|
|
|
|
|
| 2,991 |
|
|
| | | | | | | | | | | | | | | | |
| Balance at December 31, 2017 |
| Additions1 |
| Deductions/ Payments |
|
| Effects of foreign exchange and other movements |
|
| Balance at December 31, 2018 |
Environmental (see note 8.3) | 815 |
|
| 24 |
|
| (90 | ) |
|
| 479 |
| 2 |
| 1,228 |
|
Asset retirement obligations (see note 8.3) | 427 |
|
| 26 |
|
| (11 | ) |
|
| (20 | ) |
|
| 422 |
|
Site restoration | 40 |
|
| 117 |
|
| (13 | ) |
|
| (3 | ) |
|
| 141 |
|
Staff related obligations | 183 |
|
| 75 |
|
| (46 | ) |
|
| (11 | ) |
|
| 201 |
|
Voluntary separation plans | 79 |
|
| 3 |
|
| (56 | ) |
|
| 12 |
|
|
| 38 |
|
Litigation and other (see note 8.3) | 328 |
|
| 79 |
|
| (76 | ) |
|
| 38 |
|
|
| 369 |
|
Tax claims | 126 |
|
| 13 |
|
| (14 | ) |
|
| (5 | ) |
|
| 120 |
|
Other legal claims | 202 |
|
| 66 |
|
| (62 | ) |
|
| 43 |
|
|
| 249 |
|
Commercial agreements and onerous contracts | 24 |
|
| 14 |
|
| (20 | ) |
|
| 16 |
|
|
| 34 |
|
Other | 126 |
|
| 19 |
|
| (32 | ) |
|
| (12 | ) |
|
| 101 |
|
| 2,022 |
|
| 357 |
|
| (344 | ) |
|
| 499 |
|
|
| 2,534 |
|
Short-term provisions | 410 |
|
|
|
|
|
|
|
|
|
|
|
|
| 539 |
|
Long-term provisions | 1,612 |
|
|
|
|
|
|
|
|
|
|
|
|
| 1,995 |
|
| 2,022 |
|
|
|
|
|
|
|
|
|
|
|
|
| 2,534 |
|
| | | Balance at December 31, 2016 | | Additions1 | | Deductions/ Payments | | | Effects of foreign exchange and other movements | | | Balance at December 31, 2017 | Balance at December 31, 2017 | | Additions1 | | Deductions/ Payments | | | Effects of foreign exchange and other movements | | | Balance at December 31, 2018 |
Environmental (see note 8.3) | 745 |
| | 64 |
| | (57 | ) | | 63 |
| | 815 |
| |
Asset retirement obligations (see note 8.3) | 358 |
| | 60 |
| | (9 | ) | | 18 |
| | 427 |
| |
Environmental (see note 9.3) | | 815 |
| | 24 |
| | (90 | ) | | 479 |
| 2 | | 1,228 |
|
Asset retirement obligations (see note 9.3) | | 427 |
| | 26 |
| | (11 | ) | | (20 | ) | | 422 |
|
Site restoration | 43 |
| | — |
| | (9 | ) | | 6 |
| | 40 |
| 40 |
| | 117 |
| | (13 | ) | | (3 | ) | | 141 |
|
Staff related obligations | 168 |
| | 48 |
| | (41 | ) | | 8 |
| | 183 |
| 183 |
| | 75 |
| | (46 | ) | | (11 | ) | | 201 |
|
Voluntary separation plans | 79 |
| | 22 |
| | (44 | ) | | 22 |
| | 79 |
| 79 |
| | 3 |
| | (56 | ) | | 12 |
| | 38 |
|
Litigation and other (see note 8.3) | 413 |
| | 64 |
| | (173 | ) | | 24 |
| | 328 |
| |
Litigation and other (see note 9.3) | | 328 |
| | 79 |
| | (76 | ) | | 38 |
| | 369 |
|
Tax claims | 211 |
| | 11 |
| | (109 | ) | | 13 |
| | 126 |
| 126 |
| | 13 |
| | (14 | ) | | (5 | ) | | 120 |
|
Other legal claims | 202 |
| | 53 |
| | (64 | ) | | 11 |
| | 202 |
| 202 |
| | 66 |
| | (62 | ) | | 43 |
| | 249 |
|
Commercial agreements and onerous contracts | 26 |
| | 18 |
| | (22 | ) | 3 | | 2 |
| | 24 |
| 24 |
| | 14 |
| | (20 | ) |
| | 16 |
| | 34 |
|
Other | 115 |
| | 39 |
| | (37 | ) | | 9 |
| | | 126 |
| 126 |
| | 19 |
| | (32 | ) | | (12 | ) | | | 101 |
|
| 1,947 |
| | 315 |
| | (392 | ) | | 152 |
| | | 2,022 |
| 2,022 |
| | 357 |
| | (344 | ) | | 499 |
| | | 2,534 |
|
Short-term provisions | 426 |
| | | | | | | | 410 |
| 410 |
| | | | | | | | 539 |
|
Long-term provisions | 1,521 |
| | | | | | | | 1,612 |
| 1,612 |
| | | | | | | | 1,995 |
|
| 1,947 |
| | | | | | | | 2,022 |
| 2,022 |
| | | | | | | | 2,534 |
|
| |
1. | Additions exclude provisions reversed or utilized during the same year. |
| |
2. | Other movements primarily relate to the provisions in connection with environmental remediation obligations in Italy (see note 8.3)9.3). |
| |
3. | Deductions and payments for commercial agreements and onerous contracts reflect the increase in raw materials and steel prices.
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
As described in note 6.1.5, the Company uses derivative financial instruments to manage its exposure to fluctuations in prices of emission rights allowances. The expense associated with the provision above was offset by recycling of hedging reserves in 2019 and will be largely offset again in 2020. See note 6.3 for the details of the cash flow hedging in place for emission rights. The Company also receives indirect compensation through rebates on its energy tariffs.
There are uncertainties regarding the timing and amount of the provisions above. Changes in underlying facts and circumstances for each provision could result in differences in the amounts provided for and the actual outflows. In general,
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
provisions are presented on a non-discounted basis due to the uncertainties regarding the timing or the short period of their expected consumption.
Environmental provisions have been estimated based on internal and third-party estimates of contaminations, available remediation technology, and environmental regulations. Estimates are subject to revision as further information develops or circumstances change.
Provisions for site restoration are related to costs incurred forin connection with the dismantling of site facilities, mainly in France. In the fourth quarter of 2018, the agreement between ArcelorMittal and the French government regarding a six year idling period of the Florange liquid phase expired. The Company will proceed with the definitive closure of the facility and recorded accordingly aprovisions of 113 provisionas of December 31, 2019 and December 31, 2018 for the dismantling of the facility.
Provisions for staff related obligations primarily concern the United States and Brazil and are related to various employees’ compensation.
Provisions for voluntary separation plans primarily concern plans in Spain, Czech Republic, Belgium and the United States which are expected to be settled within one year.
Provisions for litigation include losses relating to a present legal obligationobligations that are considered to be probable. Further detail regarding legal matters is provided in note 8.3.9.3.
Provisions for commercial agreements and onerous contracts concern primarily onerous contracts recognized in the United States and Brazil.
Additions in other provisions include 126 related to the indemnification arrangement between the Company and Global Chartering (see note 2.3.1). Other mainly includes provisions forcomprise as well technical warranties and guarantees.
8.29.2 Other long-term obligations
| | | December 31, | Balance at December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Derivative financial instruments | 708 |
| | 344 |
| |
Payable from acquisitions | 1,506 |
| | 35 |
| |
Derivative financial instruments (see note 6.1.5) | | 238 |
| | 708 |
|
Payable from acquisition of financial assets | | 1,340 |
| | 1,506 |
|
Unfavorable contracts | 217 |
| | — |
| 203 |
| | 217 |
|
Income tax payable | | 251 |
| | 184 |
|
Other | 588 |
| | 584 |
| 486 |
| | 404 |
|
Total | 3,019 |
| | 963 |
| 2,518 |
| | 3,019 |
|
Derivative financial instruments include 124included 138 and 454 as of December 31, 2019 and 2018, respectively, relating to the pellet purchase agreement that contains a special payment in the U.S. (see note 6.1.5). As of December 31, 2018, derivative financial instruments also included 124 relating to the fair value of the put option granted to ISP in the framework of the acquisition of IlvaArcelorMittal Italia (see note 2.2.4) which was reclassified to current liabilities as of December 31, 2019 (see note 4.8).
Payable
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
As of December 31, 2019 and 2018, payable from acquisitions includeacquisition of financial assets included 1,032 and 1,245, respectively, relating to the non-current portion of the consideration payable with respect to the acquisition of IlvaArcelorMittal Italia and 265 and 253, respectively, relating to the financial liability with respect to the acquisition of VotorantimAMSF (see note 2.2.4).
Unfavorable contracts includeof 203 and 217 as of December 31, 2019 and 2018, relatingrespectively, mainly related to the acquisition of Votorantim SiderurgiaAMSF (see note 2.2.4).
As of December 31, 2019, income tax payable mainly related to income tax contingencies (including unasserted claims) and withholding tax.
8.39.3 Environmental liabilities, asset retirement obligations and legal proceedings
Environmental Liabilities
ArcelorMittal’s operations are subject to a broad range of laws and regulations relating to the protection of human health and the environment at its multiple locations and operating subsidiaries. As of December 31, 2018,2019, excluding asset retirement obligations, ArcelorMittal had established provisions of 1,2281,074 for environmental remedial activities and liabilities. The provisions for all operations by geographic area were 930772 in Europe, 132136 in the United States, 135127 in South Africa and 3139 in Canada. In addition, ArcelorMittal and the previous owners of its facilities have expended substantial amounts to achieve or maintain ongoing compliance with applicable environmental laws and regulations. ArcelorMittal expects to continue to expend resources in this respect in the future.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
United States
ArcelorMittal’s operations in the United States have environmental provisions of 132136 (exclusive of asset retirement obligations) to address existing environmental liabilities, of which 1512 is expected to be spent in 2019.2020. The environmental provisions principally relate to the investigation, monitoring and remediation of soil and groundwater at ArcelorMittal’s current and former facilities. ArcelorMittal USA continues to have significant environmental provisions relating to investigation and remediation at Indiana Harbor, Lackawanna, and its closed coal mining operations in southwestern Pennsylvania. ArcelorMittal USA’s environmental provisions also include 33,36, with anticipated spending of 2 during 2019,2020, to specifically address the removal and disposal of asbestos-containing materials and polychlorinated biphenyls (“PCBs”).
All of ArcelorMittal’s major operating and former operating sites in the United States are or may be subject to a corrective action program or other laws and regulations relating to environmental remediation, including projects relating to the reclamation of industrial properties. In some cases, soil or groundwater contamination requiring remediation is present at both currently operating and historical sites where ArcelorMittal has a continuing obligation. In other cases, ArcelorMittal USA is required to conduct studies to determine the extent of contamination, if any, that exists at these sites.
ArcelorMittal USA’s Indiana Harbor facility was party to a lawsuit filed by the United States Environmental Protection Agency (the “EPA”) under the United States Resource Conservation and Recovery Act (“RCRA”). An ArcelorMittal USA predecessor company entered into a Consent Decree, which, among other things, requires facility-wide RCRA Corrective Action and sediment assessment and remediation in the adjacent Indiana Harbor Ship Canal. ArcelorMittal USA entered into a Consent Decree Amendment defining the objectives for limited sediment assessment and remediation of a small portion of the Indiana Harbor Ship Canal. The provisions for environmental liabilities include 78 for such sediment assessment and remediation, and 54 for RCRA Corrective Action at the Indiana Harbor facility itself. Remediation ultimately may be necessary for other contamination that may be present at Indiana Harbor, but the potential costs of any such remediation cannot yet be reasonably estimated at this time.
An approximately 489-acre portion of ArcelorMittal USA’s properties in Lackawanna, New York areis subject to an Administrative Order on Consent with the EPA requiring facility-wideResource Conservation and Recovery Act RCRA Corrective Action. The Administrative OrderRCRA Corrective Action requires the Company to performcomplete a Remedial Facilities Assessment ("RFA"), a Facility Investigation (“RFI”("RFI"), and a Corrective Measures Study to implement appropriate interim and final remedial measures, and to perform required post-remedial closure activities.("CMS"). The New York State Department of Environmental Conservation ("NYDEC" ) and the US EPA conditionallyRegion 2 approved the RFA and RFI. ArcelorMittal USA has executed Orders on Consent to perform certain interim corrective measures while advancingcompleted implementation of Interim Measures at eleven of the Corrective Measures Study. These includemost significant former solid waste management locations including installation and operation of a ground water treatment system, and dredging of a local waterway known as Smokes Creek. A Corrective MeasureCreek, and containment of certain onsite wastes at a historic onsite landfill. The CMS was performed by ArcelorMittal USA under a Consent Order with the NYDEC. The CMS assessed the need for additional remedial actions and recommended post- closure activities at 20 additional solid waste management locations on Consentthe site. The CMS was executed for other site remediation activities.completed
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
and accepted as final in 2019 by NYDEC. The NYDEC is currently preparing a draft Remedial Action Plan that selects final comprehensive measures subject to comments from the public and ArcelorMittal USA. ArcelorMittal USA’s provisions for environmental liabilities include 2931 for anticipated remediation and post-remediation activities at this site. The provisioned amount is based on the extent of soil and groundwater contamination identified by the RFI and the CMSupon remedial measures likely to be required,recommended in the CMS, including excavation and consolidation of containment structures incontaminated soil and fill into an on-site landfillcontainment facilities, as well as expansion and continuationcontinued operation of groundwater pump and treatment systems.
ArcelorMittal USA is required to prevent acid mine drainage from discharging to surface waters at its closed mining operations in southwestern Pennsylvania. ArcelorMittal USA entered into a revised Consent Order and Agreement outlining a schedule for implementation of capital improvements and requiring the establishment of a treatment trust, estimated by the PaDEP to be the net present value of all future treatment cost. ArcelorMittal USA has been funding the treatment trust, which reached the target value in 2017. This target value is based on average spending over the last three years. The trust had a market value of 45 as of December 31, 2018. ArcelorMittal can be reimbursed from the fund for the continuing cost of treatment of acid mine drainage.drainage, which was done during 2019 for the prior year (2018 operating costs). The trust had a market value of 49 as of December 31, 2019. ArcelorMittal USA’s provisions for environmental liabilities include 3233 for this matter.
In 2011, the United States EPA Region V issued Notices of Violations ("NOVs") to Indiana Harbor, Burns Harbor and Cleveland alleging operational noncompliance based primarily on self-reported Title V permit concerns. Comprehensive settlement discussionsA comprehensive Settlement was reached with the United States EPA and affected state agencies involving all NOVs are ongoing and a comprehensive settlement with the United States EPA and affected state agencies, which is anticipated to encompass self-reported non-compliance through September 30, 20182018. This settlement was finalized pending approvals by the government parties which are anticipatedand awaits issuance from the federal court in early 2019.the Northern District of Indiana. The settlement will include payment of penalties and injunctive relief. Liabilities associated with this comprehensive settlement are estimated at 7.
In 2014, the ArcelorMittal Monessen coke plant was re-started after having been idled since 2008. Since re-start, state regulatory authorities (“PADEP”) issued numerous NOVs, the majority of which concerns Clean Air Act violations. United States EPA Region 3 also issued an NOV and, in addition, issued an information request seeking detailed testing and
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
information concerning air compliance related issues. PADEP issued a proposed penalty assessment of 1 for alleged violations occurring from April 2014 through May 2015. Penalties were finalized as part of comprehensive Consent Decree negotiations with PADEP and United States EPA enforcement officials and with Penn Environment, a local environmental group which filed a Citizen Suit under the Clean Air Act in 2015. The litigation was stayed in 2016. A Consent Decree was executed on February 2, 2018 requiring civil penalty payment and injunctive relief. The total payment of 2 was paid and injunctive relief requirements, including a caustic scrubber demonstration, are being performed.
Europe
Environmental provisions for ArcelorMittal’s operations in Europe total 930772 and are mainly related to the investigation and remediation of environmental contamination at current and former operating sites in France (74)(72), Belgium (229)(230), Luxembourg (47)(43), Poland (25)(27), Germany (25)(26), Italy (523)(366) and Spain (7)(8). This investigation and remediation work relates to various matters such as decontamination of water discharges, waste disposal, cleaning water ponds and remediation activities that involve the clean-up of soil and groundwater. These provisions also relate to human health protection measures such as fire prevention and additional contamination prevention measures to comply with local health and safety regulations.
France
In France, there is an environmental provision of 74,72, principally relating to the remediation of former sites, including several coke plants, and the capping and monitoring of landfills or basins previously used for residues and secondary materials. material.
The remediation of the coke plants concerns mainly the Thionville, Moyeuvre Grande, Homecourt, Hagondange and Micheville sites, and is related to treatment of soil and groundwater. At Moyeuvre Petite,Thionville coke plant, the recoveryremediation process is ongoing. At Moyeuvre-Petite, the operation of covering the slagsludge basins is ongoing andunderway. ArcelorMittal is responsible for closure and final rehabilitation of the rest of the site.site, that is to say the former Conroy and Pérotin slag-heaps, from which the administrative procedure for cessation of activity is underway. The year 2020 will be devoted in particular to the development of the detailed remediation project. At other sites, ArcelorMittal France is responsible for monitoring the concentration of organic compound and heavy metals in soil and groundwater. Following the official closure at the end of 2018 of the liquid phase in Florange, ArcelorMittal France has started the studies to dismantle the site and recorded a site restoration provision of 113 related to such activity (see note 9.1).
ArcelorMittal Atlantique et LorraineFrance has an environmental provision that principally relates to the remediation and improvement of storage of secondary materials, the disposal of waste at different ponds and landfills and an action plan for removing asbestos from the installations and mandatory financial guarantees to cover risks of major accident hazard or for gasholders and waste storage. Most of the provision relates to the stocking areas at the Dunkirk site that will need to be restored to comply with local law and to the mothballing of the liquid phase in Florange, (prior to the dismantling of the facility see note 8.1), including study and surveillance of soil and water to prevent environmental damage, treatment and elimination of waste and financial guarantees demanded by Public Authorities. The environmental provisions also include treatment of slag dumps at Florange and Dunkirk sites as well as removal and disposal of asbestos-containing material at the Dunkirk and Mardyck sites.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
ArcelorMittal Atlantique et LorraineFrance also has an environmental provision that principally relates to the remediation and improvement of storage of secondary materials, the disposal of waste at different ponds and landfills: the stocking areas at the Dunkirk site need to be restored to comply with local law.
Industeel France has an environmental provision that principally relates to ground remediation at the Le Creusot site and to the rehabilitation of waste disposal areas at the Châteauneuf site.
Belgium
In Belgium, there is an environmental provision of 229230 of which the most significant elements are legal site remediation obligations linked to the closure of the primary installations at ArcelorMittal Belgium (Liège). The provisions also concern the external recovery and disposal of waste, residues or by-products that cannot be recovered internally on the ArcelorMittal Gent and Liège sites and the removal and disposal of asbestos-containing material.
Luxembourg
In Luxembourg, there is an environmental provision of 47,43, which relates to the post-closure monitoring and remediation of former production sites, waste disposal areas, slag deposits and mining sites.
In 2007, ArcelorMittal Luxembourg sold the former Ehlerange slag deposit (93 hectares) to the State of Luxembourg. ArcelorMittal Luxembourg is contractually liable to clean the site and move approximately 400,000 cubic meters of material to other sites. ArcelorMittal Luxembourg also has an environmental provision to secure, stabilize and conduct waterproofing treatment on mining galleries and entrances and various dumping areas in Mondercange, Differdange and Dommeldange. In
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
addition, ArcelorMittal Luxembourg has secured the disposal of laddle slag, sludge and certain other residues coming from different sites at the Differdange dump for a total volume of 1,300,0001,400,000 cubic meters until mid 2023. A provision of 4035 covers these obligations.
ArcelorMittal Belval and Differdange has an environmental provision of 78 to clean historical landfills in order to meet the requirements of the Luxembourg Environment Administration and to cover dismantling and soil cleaning costs of the former PRIMOREC installation.
Poland
ArcelorMittal Poland S.A.’s environmental provision of 2527 mainly relates to the obligation to reclaim a landfill site and to dispose of the residues which cannot be internally recycled or externally recovered. The provision also concerns the storage and disposal of iron-bearing sludge which cannot be reused in the manufacturing process under the new environmental law; waste storage time cannot exceed 1 year.
Germany
In Germany, the environmental provision of 2526 essentially relates to ArcelorMittal Bremen’s post-closure obligations mainly established for soil remediation, groundwater treatment and monitoring at the Prosper coke plant in Bottrop.
Italy
In Italy, ArcelorMittal Italia has environmental provisions of 523.366.
A provision of 309155 relates to remediation activities to be carried out in the site of Taranto derived from obligations on the previous operator that have been transferred to ArcelorMittal Italia through the environmental permit, the most significant elements being the waterproofing of certain areas to confine historical pollution, the removal of historical accumulation of process materials mainly consisting of blast furnace ("BF") and basic oxygen furnace ("BOF") dusts and sludges and scales, an action plan for the removal and disposal of asbestos-containing materials present on site, the dismantling of several installations no longer in operation, the dredging of the discharge channel and disposal of the sludge removed, the decontamination of high depth groundwater in the primary yards area and the capping of an exhausted landfill.
Provisions of 214211 are allocated to the implementation of preventive measures, permanent safety measures and clean up measures in relation to historical pollution of soil and groundwater, not derived from obligations in the environmental permit, but that ArcelorMittal Italia undertook to implement as a contractual obligation vis-a-vis the previous operator.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Spain
In Spain, ArcelorMittal España has environmental provisions of 78 due to obligations of sealing landfills basically located in the Asturias site and post-closure obligations in accordance with national legislation. These obligations include the collection and treatment of leachates that can be generated during the operational phase and a period of 30 years after the closure.
South Africa
AMSA has environmental provisions of 135127 to be used over 1816 years, mainly relating to environmental remediation obligations attributable to historical or legacy settling/evaporation dams and waste disposal activities. An important determinant in the final timing of the remediation work relates to the obtaining of the necessary environmental authorizations.
A provision of 3742 relates to the decommissioned Pretoria Works site. This site is in a state of partial decommissioning and rehabilitation with one coke battery and a small-sections rolling facility still in operation. AMSA transformed this old plant into an industrial hub for light industry since the late 1990s. Particular effort is directed to landfill sites, with sales of slag from legacy disposal sites to vendors in the construction industry continuing unabated, but other remediation works continued at a slow pace as remediation actions for these sites are long-term in nature due to a complex legal process that needs to be followed with authorities and surrounding landowners.
The Vanderbijlpark Works site, the main flat carbon steel operation of AMSA, contains a number of legacy facilities and areas requiring remediation. The remediation entails the implementation of rehabilitation and decontamination measures of waste disposal sites, waste water dams, ground water and historically contaminated open areas. 19 of the provision is allocated to this site.
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Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The Newcastle Works site is the main long carbon steel operation of AMSA. A provision of 2021 is allocated to this site. As with all operating sites of AMSA, the above retirement and remediation actions dovetail with numerous large capital expenditure projects dedicated to environmental management. In the case of the Newcastle site, the major current environmental capital project is for air quality improvements.
A provision of 5138 relates to the environmental rehabilitation of the Thabazimbi Mine. On November 1, 2018, the Thabazimbi mine was acquired from Sishen Iron Ore Company (Pty) Ltd, enabling AMSA to control the environmental rehabilitation process. In terms of the sales agreement, AMSA is liable for all environmental remediation obligations. The acquisition did not have a significant impact on the environmental obligations of AMSA as it has always been contractually responsible for the majority of the rehabilitation cost relating to the Thabazimbi Mine. As part of the acquisition, AMSA acquired an asset in the form ofholds an environmental trust which holds investments for a value of 22. These investments25 that will be used for rehabilitation purposes.
The remainder of the obligation of 87 relates to Vereeniging site for the historical pollution that needs to be remediated at waste disposal sites, waste water dams and groundwater aquifers.
Canada
In Canada, ArcelorMittal Dofasco has an environmental provision of 2739 for the expected cost of remediating toxic sediment located in the Company’s East Boatslip site, of which 511 is expected to be spent in 2019.2020. ArcelorMittal Long Products Canada has an environmental provision of 42 for future disposal of sludge left in ponds after the flat mills closure at Contrecoeur.
Asset Retirement Obligations (“AROs”)
AROs arise from legal requirements and represent management’s best estimate of the present value of the costs that will be required to retire plant and equipment or to restore a site at the end of its useful life. As of December 31, 2018,2019, ArcelorMittal had established provisions for asset retirement obligations of 422,478, including mainly 4259 for Ukraine, 121148 for Canada, 8087 for the United States, 5763 for Mexico, 1514 for Belgium, 3738 for Germany, 1418 for South Africa, 12 for Spain,Brazil, 13 for Brazil, 12 for Kazakhstan and 1722 for Liberia.
The AROs in Ukraine are legal obligations for site rehabilitation at the iron ore mining site in Kryvyi Rih, upon closure of the mine pursuant to its restoration plan.
The AROs in Canada are legal obligations for site restoration and dismantling of the facilities near the mining sites in Mont-Wright and Fire Lake, and the accumulation area of mineral substances at the facility of Port-Cartier in Quebec, upon closure of the minemines pursuant to the restoring plan of the mines.
The AROs in the United States principally relate to mine closure costs of the Hibbing and Minorca iron ore mines and Princeton coal mines.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The AROs in Mexico relate to the restoration costs following the closure of the Las Truchas, El Volcan and the joint operation of Pena Colorada iron ore mines.
In Belgium, the AROs are to cover the demolition costs for primary facilities at the Liège sites.
In Spain, the AROs relate to the discontinuance of the activities of various assets within the upstream installations.site.
In Germany, AROs principally relate to the Hamburg site, which operates on leased land with the contractual obligation to remove all buildings and other facilities upon the termination of the lease, and to the Prosper coke plant in Bottrop for filling the basin, restoring the layer and stabilizing the shoreline at the harbor.
The AROs in South Africa are for the Pretoria, Vanderbijlpark, Saldanha, Newcastle as well as the Coke and Chemical sites, and relate to the closure and clean-up of the plant associated with decommissioned tank farms, tar plants, chemical stores, railway lines, pipelines and defunct infrastructure.
In Brazil, the AROs relate to legal obligations to clean and restore the mining areas of Serra Azul and Andrade, both located in the State of Minas Gerais. The related provisions are expected to be settled in 2024 and 2029, respectively.
In Kazakhstan, the AROs relate to the restoration obligations of the iron ore and coal mines.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
In Liberia, the AROs relate to iron ore mine and associated infrastructure and mine related environmental damage and compensation. They cover the closure and rehabilitation plan under both the current operating phase and the not yet completed Phase 2 expansion project.
Tax Claims
ArcelorMittal is a party to various tax claims. As of December 31, 2018,2019, ArcelorMittal had recorded long term obligations related to income tax contingencies of 72 (see note 9.2) and provisions for other tax claims in the aggregate of 120 for tax claims81 in respect of which it considers the risk of loss to be probable. Set out below is a summary description of the tax claims (i) in respect of which ArcelorMittal had recorded a provision as of December 31, 2018,2019, (ii) that constitute a contingent liability, (iii) that were resolved in 20182019 or (iv) that were resolved and had a financial impact in 20172018 or 2016,2017, in each case involving amounts deemed material by ArcelorMittal. The Company is vigorously defending against the pending claims discussed below.
Brazil
In 2003, the Federal Revenue Service granted ArcelorMittal Brasil (through its predecessor company, then known as CST) a tax benefit for certain investments. ArcelorMittal Brasil had received certificates from SUDENE, the former Agency for the Development of the Northeast Region of Brazil, confirming ArcelorMittal Brasil’s entitlement to this benefit. In September 2004, ArcelorMittal Brasil was notified of the annulment of these certificates. ArcelorMittal Brasil has pursued its right to this tax benefit through the courts against both ADENE, the successor to SUDENE, and against the Federal Revenue Service. The Federal Revenue Service issued a tax assessment in this regard for 451 in December 2007. In December 2008, the administrative tribunal of the first instance upheld the amount of the assessment. ArcelorMittal Brasil appealed to the administrative tribunal of the second instance, and, on August 8, 2012, the administrative tribunal of the second instance found in favor of ArcelorMittal Brasil invalidating the tax assessment, thereby ending this case except for 6, which is still pending a final decision. On April 16, 2011, ArcelorMittal Brasil received a further tax assessment for the periods of March, June and September 2007, which, taking into account interest and currency fluctuations, amounted to 163 as of December 31, 2018. In October 2011, the administrative tribunal of the first instance upheld the tax assessment received by ArcelorMittal Brasil on April 16, 2011, but decided that no penalty (amounting to 77 at that time) was due. Both parties have filed an appeal with the administrative tribunal of the second instance. In February 2018, the administrative tribunal of the second instance found in favor of ArcelorMittal Brasil and, in June 2018, the Federal Revenue Service filed an appeal with the administrative tribunal of the third instance. In January 2019, the administrative tribunal of the third instance found in favor of ArcelorMittal Brasil. No further appeal was filed by the Federal Revenue Service within the time limit so the case is closed definitively in favor of ArcelorMittal Brasil.
In 2011, ArcelorMittal Brasil (at the time SOL Coqueria Tubarão S.A.) received 21 separate tax assessments from the Revenue Service of the State of Espirito Santo for ICMS (a value-added tax) in the totalan amount of 30which totaled 31 relating to a tax incentive (INVEST) it used. The dispute concerns the definition of fixed assets. In August 2015, the administrative tribunal of the first instance upheld the 21 of theseparate tax assessments. In September 2015, ArcelorMittal Brasil filed appeals with respect to each of the administrative tribunal’s decisions. As of December 31, 2018, there have beenwere final unfavorable decisions at the
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
administrative tribunal level in 15 of the 21 cases, each of which ArcelorMittal Brasil has appealed to the judicial instance. In March 2018, the administrative tribunal of the third instance found in favor of ArcelorMittal Brasil sending the six6 other cases back to the administrative tribunal of the second instance. After the administrative tribunal of the second instance issued a partially favorable ruling on these 6 cases in December 2019, related only to the recognition of the limitation period of May 2005, a further appeal to the administrative tribunal of the third instance will be filed.
In 2011, ArcelorMittal Brasil received a tax assessment for corporate income tax (known as IRPJ) and social contributions on net profits (known as CSL) in relation to (i) the amortization of goodwill on the acquisition of Mendes Júnior Siderurgia (for the 2006 and 2007 fiscal years), (ii) the amortization of goodwill arising from the mandatory tender offer (MTO) made by ArcelorMittal to minority shareholders of Arcelor Brasil following the two-step merger of Arcelor and Mittal Steel N.V. (for the 2007 tax year), (iii) expenses related to pre-export financing used to finance the MTO, which were deemed by the tax authorities to be unnecessary for ArcelorMittal Brasil since the expenses were incurred to buy shares of its own company and (iv) CSL over profits of controlled companies in Argentina and Costa Rica. The amount claimed totals 524.518. On January 31, 2014, the administrative tribunal of the first instance found in partial favor of ArcelorMittal Brasil, reducing the penalty component of the assessment from, according to ArcelorMittal Brasil’s calculations, 266 to 141 (as calculated at the time of the assessment), while upholding the remainder of the assessment. The Federal Revenue Service has appealed the administrative tribunal’s decision to reduce the amount of the original penalty. ArcelorMittal Brasil has also appealed the administrative tribunal’s decision to uphold the tax authority’s assessment (including the revised penalty component). In September 2017, the administrative tribunal of the second instance found largely in favor of the Federal Revenue Service. In January 2018, ArcelorMittal Brasil filed a motion for clarification of this decision. In February 2018, the motion for clarification was rejected and, in March 2018, an appeal was filed to the administrative tribunal of the third instance.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
In 2013, ArcelorMittal Brasil received a tax assessment in relation to the 2008-2010 tax years for IRPJ and CSL in relation to (i) the amortization of goodwill on the acquisition of Mendes Júnior Siderurgia, Dedini Siderurgia and CST, (ii) the amortization of goodwill arising from the mandatory tender offerMTO made by ArcelorMittal to minority shareholders of Arcelor Brasil following the two-step merger of Arcelor and Mittal Steel N.V. and (iii) CSL and IRPJ over profits of controlled companies in Argentina, Costa Rica, Venezuela and the Netherlands. The amount claimed totals 457.456. In October 2014, the administrative tribunal of the first instance found in favor of the Federal Revenue Service and ArcelorMittal Brasil filed its appeal in November 2014. In September 2017, the administrative tribunal of the second instance found in favor of the Federal Revenue Service. ArcelorMittal Brasil filed a motion for clarification with respect to this decision, which was denied, and thereafter filed an appeal to the administrative tribunal of the third instance.
In April 2016, ArcelorMittal Brasil received a tax assessment in relation to (i) the amortization of goodwill resulting from Mittal Steel’s mandatory tender offerMTO to the minority shareholders of Arcelor Brasil following Mittal Steel’s merger with Arcelor in 2007 and (ii) the amortization of goodwill resulting from ArcelorMittal Brasil’s acquisition of CST in 2008. While the assessment, if upheld, would not result in a cash payment as ArcelorMittal Brasil did not have any tax liability for the fiscal years in question (2011 and 2012), it would result in the write-off of 249 worth239 of ArcelorMittal Brasil’s net operating loss carryforwards and as a result could have an effect on net income over time. In May 2016, ArcelorMittal Brasil filed its defense, which was not accepted at the first administrative instance. On March 10, 2017, ArcelorMittal Brasil filed an appeal to the second administrative instance, which was rejected in May 2019. ArcelorMittal Brasil filed a motion for clarification which was denied in November 2019 and thereafter filed an appeal to the administrative tribunal of the third instance.
In December 2018, ArcelorMittal Brasil received a tax assessment for 151 forof 151with respect to the 2013-2014 tax years, principally in relation to the amortization of goodwill resulting from Mittal Steel’s mandatory tender offerMTO to the minority shareholders of Arcelor Brasil following Mittal Steel’s merger with Arcelor in 2007. In January 2019, ArcelorMittal Brasil filed a defense in the first administrative instance, which issued an unfavorable decision in JanuaryJune 2019. An appeal to the second administrative instance was filed in July 2019.
In 2013, ArcelorMittal Brasil filed a lawsuit against the Federal Revenue Service disputing the basis of calculation of a tax called additional freight for the renewal of the Brazilian Merchant Navy ("AFRMM"), amounting to 5565. The dispute is related to the inclusion of the unloading and land transport costs of the imported goods after landing to calculate AFRMM. In June 2013, ArcelorMittal Brasil obtained a preliminary decision allowing the Company not to pay such amount until a final decision was rendered. In February 2017, ArcelorMittal Brasil obtained a favorable decision at the judicial first instance but this decision is subject to further mandatory review.which was upheld by the Federal Court of Appeals in February 2019. In July 2019, the Federal Revenue Service filed appeals with the Superior Court of Justice and the Supreme Court. In November 2018, a related tax assessment was received from the Federal Revenue Service claiming 22 as a penalty for alleged failure to comply with formal requirements in the import declarations delivered by the Company in the years 2013-2018, which were the subject matter of the preliminary decision of June 2013. In
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Notes to Consolidated Financial Statements
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December 2018, ArcelorMittal Brasil presented its defense in the first administrative instance. In Februaryinstance, which in June 2019 the Judicial Court of Appeals upheld the favorable first instance decision. Thedecided in ArcelorMittal Brasil’s favor. This decision is subject to appeal. A further appeals.related tax assessment was received in September 2018 from the Federal Revenue Service claiming 0.3 as a penalty for alleged failure to comply with formal requirements in the import declarations delivered by the Company in the period between September and November 2013. In October 2018 ArcelorMittal Brasil presented its defense in the first administrative instance, and a decision is pending.
For over 1820 years, ArcelorMittal Brasil has been challenging the basis of the calculation of the Brazilian COFINS and PIS social security taxes (specifically, whether Brazilian VAT may be deducted from the base amount on which the COFINS and PIS taxes are calculated), in an amount of 4. ArcelorMittal Brasil deposited the disputed amount in escrow with the relevant Brazilian judicial branch when it became due. Since the principal amount bears interest at a rate applicable to judicial deposits, the amount stood at 49 as of December 31, 2018.. In March 2017, the Supreme Court decided a separate case, not involving ArcelorMittal Brasil, on the same subject in favor of the relevant taxpayers. Such separate Supreme Court decision, which is of binding precedential value with respect to all similar cases, including those of ArcelorMittal Brasil, is being appealed by the Federal Revenue Service.Brasil. In July 2018, the second judicial instance found in favor of ArcelorMittal Brasil after applying the Supreme Court’s precedent. In December 2018, the Federal Revenue Service brought an appeal of the second judicial instance’s decision to the Supreme Court. In June 2019, the Federal Revenue Service’s appeal was dismissed in a final and unappealable decision in favor of ArcelorMittal Brasil.
In the period from 2014 to 2018, ArcelorMittal Brasil received four6 tax assessments from the Federal Revenue Service in the amount of 5152 disputing its use of credits for PIS and COFINS social security taxes in 2010, 2011 and 2013. The dispute relates to the concept of production inputs in the context of these taxes. In 2017, in the first and second cases,case, the administrative tribunal of secondthe first instance found partially in favor of ArcelorMittal Brasil,Brasil. The decision was upheld in the administrative tribunal of the second instance and ArcelorMittal Brasil filed an appeal to the administrative tribunal of the third instance which ruled partially in favor of ArcelorMittal Brasil in May 2019. In January 2020, the case was sent back to the Federal Revenue which is verifying the extent of the administrative tribunal of the third instance’s decision in order to proceed with the write-off of amounts due. The remaining amount (yet to be defined) will be discussed in the judicial level. In the second case, the administrative tribunal of the first instance found partially in favor of ArcelorMittal Brasil and an appeal has been filed to the administrative tribunal of the second instance. In the third case, the administrative tribunal of the first instance upheld the tax assessment, and ArcelorMittal Brasil appealed to the administrative tribunal of the second instance. In the fourth case,and fifth cases, ArcelorMittal Brasil has filed a defense in March 2018.its defenses to the administrative tribunal of the first instance. In the sixth case, the administrative tribunal of the first instance upheld the tax assessment, and ArcelorMittal Brasil appealed to the administrative tribunal of the second instance. In March, 2018, the Superior Court decided a leading case, not involving ArcelorMittal Brasil, that established that the restrictive concept of inputs adopted by the tax authorities is illegal and that credits over inputs must be accepted on the basis of the criteria of essentiality or relevance towards the production process of each taxpayer. In September 2018, the Federal Union published an internal orientation for its attorneys, expressing a restrictive view of the Superior Court’s decision and determining that each individual case would be analyzed in order to decide whether the items are essential or not.
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Notes to Consolidated Financial Statements
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In that sense, ArcelorMittal Brasil’s cases will be submitted for review by the Federal Union Attorney’s office before further decisions are taken.
In May 2014, ArcelorMittal Comercializadora de Energia received a tax assessment from the state of Minas Gerais alleging that the Company did not correctly calculate tax credits on interstate sales of electricity from February 2012 to December 2013. The amount claimed totals 51.41. ArcelorMittal Comercializadora de Energia filed its defense in June 2014. Following an unfavorable administrative decision in November 2014, ArcelorMittal filed an appeal in December 2014. In March 2015, there was a further unfavorable decision at the second administrative level. Following the conclusion of this proceeding at the administrative level, the Company received the tax enforcement notice in December 2015 and filed its defense in February 2016. In April 2016, ArcelorMittal Comercializadora de Energia received an additional tax assessment in the amount, of 58, after taking account of a reduction of fines mentioned below of 57, regarding the same matter, for infractions which allegedly occurred during the 2014 to 2015 period, and filed its defense in May 2016. In May 2017, there was a further unfavorable decision at the second administrative level in respect of the tax assessment received in April 2016. In June 2017, ArcelorMittal Comercializadora de Energia filed an appeal to the second administrative instance. This appeal was rejected in August 2017. In October and November 2017, the Company appealed in relation to both tax assessments to the judicial instance. In November 2017, the Company received a notice from the tax authority informing it of the reduction of the fines element by 18, due to the retroactive application of a new law. In February 2019, due to the retrospective application of a new law, a reduction of the fine element of 9 was finalized in the first case.
In the period from May to July 2015, ArcelorMittal Brasil received nine9 tax assessments from the state of Rio Grande do Sul alleging that the Company, through its branches in that state, had not made advance payments of ICMS on sales in that state covering the period from May 2010 to April 2015. The amount claimed totals 88. The administrative tribunal of the first instance upheld the tax assessments in each of the nine9 cases, and ArcelorMittal Brasil appealed each of the administrative
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Notes to Consolidated Financial Statements
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tribunal’s decisions. Each case was decided unfavorably to ArcelorMittal Brasil at the administrative tribunal of the second instance, and ArcelorMittal Brasil has appealed the cases to the judicial instance.
On May 17, 2016, ArcelorMittal Brasil received a tax assessment from the state of Santa Catarina in the amount of 138 alleging that it had used improper methods to calculate the amount of its ICMS credits. ArcelorMittal Brasil filed its defense in July 2016. In December 2016, ArcelorMittal Brasil received an unfavorable decision at the first administrative level, in respect of which it filed an appeal. In March 2018, the administrative tribunal of the second instance found against ArcelorMittal Brasil and, in April 2018, ArcelorMittal Brasil filed an appeal to the administrative tribunal of the third instance. In December 2019, the tax assessment was upheld by the administrative tribunal of the third instance. In January 2020, ArcelorMittal Brasil filed a motion for clarification.
FranceMexico
Following audits for 2006, 2007 and 2008 of ArcelorMittal France and other French ArcelorMittal entities, URSSAF, the French body responsible for collecting social contributions, commenced formal proceedings for these years alleging that the French ArcelorMittal entities owe 69 in social contributions on various payments, the most significant of which relate to profit sharing schemes, professional fees and stock options. Proceedings were commenced in relation to the 2006 claims in December 2009. Proceedings were commenced in relation to the 2007 and 2008 claims in February and March 2010, respectively. In three decisions dated December 10, 2012, the arbitration committee hearing the matter found that social contributions in an amount of 17, 11 and 5 are due in respect of profit-sharing schemes, stock options and professional fees, respectively. These amounts cover the audits for 2006, 2007 and 2008. In March 2013, the Company filed appeals against the decisions relating to the profit-sharing schemes and stock options.
Following audits for 2009, 2010 and 2011 of ArcelorMittal France and other French ArcelorMittal entities, URSSAF commenced formal proceedings in December 2012 for these years alleging that these entities owe 150 in social contributions (including interest and late fees relating thereto) on various payments, the most significant of which relate to voluntary separation schemes, profit sharing schemes, professional fees and stock options. In its decision dated April 24, 2013, the arbitration committee reduced the amount claimed by 29. The dispute then entered into a judicial phase before the Tribunal des Affaires de Sécurité Sociale (“TASS”). At a hearing on January 12, 2017 before the TASS, the parties signed a conciliation agreement settling the audits covered by the above two cases.
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Notes to Consolidated Financial Statements
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Mexico
In 2015, the Mexican Tax Administration Service issued a tax assessment to ArcelorMittal Mexico, alleging that ArcelorMittal Mexico owes 160182 with respect to 2008, principally due to improper interest deductions relating to certain loans, and unpaid corporate income tax for interest payments that the tax authority has categorized as profit.dividends. In November 2015, ArcelorMittal Mexico filed an administrative appeal in respect of this assessment, which was dismissed by the tax authority. In November 2017, ArcelorMittal Mexico filed an annulment complaint before a Federal Administrative and Tax Justice Court, which has not been determined.
With respect to 2007 and 2009, the Mexican Tax Administration Service also challenged the interest deduction related to the aforementioned loans and issued tax assessments to ArcelorMittal Mexico for 2123 and 25,28, respectively. In November 2018, a Federal Administrative and Tax Justice Court ruled against the annulment complaint filed by ArcelorMittal Mexico in relation to the 2007 tax assessment and in December 2018, ArcelorMittal Mexico filed an appeala constitutional claim before the Collegiate Tribunal For Administrative Matters.Matters, which was rejected in June 2019. A review appeal was filed in July 2019 and rejected in August 2019. An extraordinary appeal of constitutional review was filed against this decision in September 2019 before the Supreme Court of Justice for consideration. In November 2019, the Court dismissed the extraordinary appeal of constitutional review confirming the earlier decision in favor of the tax authorities, although this decision has not yet been officially notified. No further appeal is possible. With respect to the 2009 tax assessment, in November 2016 ArcelorMittal Mexico filed an administrative appeal before the Administrative Authority on Federal Tax Matters, which has not been determined.decided.
In 2013, the Mexican Tax Administration Service issued a tax assessment to ArcelorMittal Las Truchas, alleging that ArcelorMittal Las Truchas owes 6387 in respect of (i) non-payment of withholding tax on capitalized interest, (ii) non-deduction of accrued interest regarding certain loans, and (iii) reduction of assets taxthe taxable basis of assets in 2007. In 2015, ArcelorMittal Las Truchas filed an administrative appeal in respect of the aforementioned assessment, which the tax authority dismissed. In October 2015, ArcelorMittal Las Truchas filed an annulment complaint before the Federal Administrative and Tax Justice Court, which ruled partially in favor of ArcelorMittal Las Truchas in October 2018. The tax authority filed an application for judicial review in January 2019. ArcelorMittal Las Truchas also filed a nullity lawsuit to challenge the ruling in respect of items (ii) and (iii).
In October 2018, the Mexican Tax Administration Service issued a tax assessment to ArcelorMittal Las Truchas, alleging that ArcelorMittal Las Truchas owes 8592 with respect to 2013 due to: (i) improper interest deductions relating to certain loans and (ii) non-deduction of advanced rent payments. In November 2018, ArcelorMittal Las Truchas filed an administrative appeal before the Administrative Authority on Federal Tax Matters.Matters, which was partially rejected in June 2019 and is being appealed.
Ukraine
Competition/Antitrust ClaimsIn October 2019, ArcelorMittal Kryvyi Rih received a tax order from Ukrainian tax authorities covering the findings of a tax audit for the period from 2015 through the first quarter of 2019 which claimed the Company owes additional taxes of 313 for that period. ArcelorMittal Kryvyi Rih appealed this order to the tax authorities resulting in a significant reduction of the amounts claimed. In January 2020, ArcelorMittal Kryvyi Rih filed 3 legal actions with the Kyiv District Administrative Court seeking to cancel the remaining additional charges amounting to 145.
Competition/Antitrust Claims
ArcelorMittal is a party to various competition/antitrust claims. As of December 31, 2018,2019, ArcelorMittal had not recorded any provisions in respect of such claims. Set out below is a summary description of competition/antitrust claims (i) that constitute a contingent liability, (ii) that were resolved in 20182019 or (iii) that were resolved and had a financial impact in 2018 or
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
2017, or 2016, in each case involving amounts deemed material by ArcelorMittal. The Company is vigorously defending against each of the pending claims discussed below.
Brazil
In September 2000, two construction trade organizations filed a complaint with Brazil’s Administrative Council for Economic Defense (“CADE”) against three3 long steel producers, including ArcelorMittal Brasil. The complaint alleged that these producers colluded to raise prices in the Brazilian rebar market, thereby violating applicable antitrust laws. In September 2005, CADE issued its final decision against ArcelorMittal Brasil, imposing a fine of 58.61. ArcelorMittal Brasil appealed the decision to the Brazilian Federal Court. In September 2006, ArcelorMittal Brasil offered a guarantee letter and obtained an injunction to suspend enforcement of this decision pending the court’s judgment. In September 2017, the Court found against ArcelorMittal Brasil. In October 2017, ArcelorMittal Brasil filed a motion for clarification of this decision, which was dismissed. In December 2017, ArcelorMittal Brasil filed an appeal to the second judicial instance.
There is also a related class action commenced by the Federal Public Prosecutor of the state of Minas Gerais against ArcelorMittal Brasil for damages in an amount of 6265 based on the alleged violations investigated by CADE.
A further related lawsuit was commenced in February 2011 by four4 units of Sinduscons, a civil construction trade organization, in federal court in Brasilia against, inter alia, ArcelorMittal Brasil claiming damages based on an alleged cartel in the rebar market as investigated by CADE and as noted above.
Romania
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
In 2010 and 2011, ArcelorMittal Galati entered into high volume electricity purchasing contracts with Hidroelectrica, a partially state-owned electricity producer. Following allegations by Hidroelectrica’s minority shareholders that ArcelorMittal Galati (and other industrial electricity consumers) benefited from artificially low tariffs, the European Commission opened a formal investigation into alleged state aid in April 2012. The European Commission announced on June 12, 2015 that electricity supply contracts signed by Hidroelectrica with certain electricity traders and industrial customers (including the one entered by ArcelorMittal Galati) did not involve state aid within the meaning of the EU rules. In March 2017, the European Commission's decision was officially published. As no challenge was filed within two months of publication, the decision has become definitive.
South Africa
In February 2007, the complaint previously filed with the South African Competition Commission by Barnes Fencing, a South African producer of galvanized wire, alleging that ArcelorMittal South Africa, as a “dominant firm”, discriminated in pricing its low carbon wire rod was referred to the Competition Tribunal. The Competition Commission sought an order declaring that ArcelorMittal South Africa’s pricing in 2000-2003 in respect of low carbon wire rod amounted to price discrimination and an order that ArcelorMittal South Africa cease its pricing discrimination. In March 2008, the Competition Tribunal accepted the claimants’ application for leave to intervene. In November 2012, a second complaint alleging price discrimination regarding the same product over the 2004 to 2006 period was referred by the Competition Commission to the Competition Tribunal. ArcelorMittal is unable to assess the outcome of these proceedings or the amount of ArcelorMittal South Africa’s potential liability, if any.
On September 1, 2009, the South African Competition Commission referred a complaint against four producers of long carbon steel in South Africa, including ArcelorMittal South Africa, and the South African Iron and Steel Institute to the Competition Tribunal. The complaint referral followed an investigation into alleged collusion among the producers initiated in April 2008, on-site inspections conducted at the premises of some of the producers and a leniency application by Scaw South Africa, one of the producers under investigation. The Competition Commission recommended that the Competition Tribunal impose an administrative penalty against ArcelorMittal South Africa, Cape Gate and Cape Town Iron Steel Works in the amount of 10% of their annual revenues in South Africa (in the year preceding any final decision) and exports from South Africa for 2008. ArcelorMittal filed an application to access the file of the Competition Commission that was rejected. ArcelorMittal appealed the decision to reject the application, and applied for a review of that decision and a suspension of the obligation to respond to the referral on the substance pending final outcome on the application for access to the documents. The appeal was upheld by the Competition Appeals Court (CAC) and the matter was referred back to the Competition Tribunal for a determination of confidentiality and scope of access to the documents. The Competition Commission appealed the decision of the CAC, and, on May 31, 2013, the Supreme Court of Appeal dismissed the appeal of the Competition Commission and confirmed the decision of the CAC. In 2014, ArcelorMittal South Africa requested the documents from the Competition Commission, which provided an index thereof. On July 7, 2011, ArcelorMittal filed an application before the Competition Tribunal to set aside the complaint referral based on procedural irregularities but this application was withdrawn by notice dated August 7, 2014.
In March 2012, the South African Competition Commission referred to the Competition Tribunal an allegation that ArcelorMittal South Africa and steel producer Highveld acted by agreement or concerted practice to fix prices and allocate markets in respect of certain flat carbon steel products over a period of 10 years (1999-2009) in contravention of the South African Competition Act.
In August 2013, the South African Competition Commission referred a complaint against four scrap metal purchasers in South Africa, including ArcelorMittal South Africa, to the South African Competition Tribunal for prosecution. The complaint alleged collusion among the purchasers to fix the price and other trading conditions for the purchase of scrap over a period from 1998 to at least 2008.
In relation to all these cases, following an extensive engagement, ArcelorMittal South Africa reached an agreement on an overall settlement with the Competition Commission for an amount of 1.5 billion South African rand (approximately 110). In October 2016, Barnes Fencing filed an application with the Competition Tribunal to review and set aside the said settlement agreement in respect of the Barnes matters. In addition, Barnes filed an objection to the settlement agreement and an application to stay. The settlement agreement, as amended to exclude the Barnes case referred to above, was approved, subject to minor amendments, by the Competition Tribunal, on November 16, 2016.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Germany
In the first half of 2016, the German Federal Cartel Office carried out unannounced investigations of ArcelorMittal Ruhrort GmbH and ArcelorMittal Commercial Long Deutschland GmbH following alleged breaches of antitrust rules. ArcelorMittal Ruhrort GmbH and ArcelorMittal Commercial Long Deutschland GmbH cooperated with the German Federal Cartel Office in its investigation and, in July 2018, as a result of a settlement process, the Company and the Federal Cartel Office reached agreement as to a 146 fine to be paid by ArcelorMittal Commercial Long Deutschland GmbH. The fine was paid in August 2018 ending the investigation as concerns the ArcelorMittal entities.
In August 2017, the German Federal Cartel Office carried out unannounced investigations of ArcelorMittal Bremen, ArcelorMittal Eisenhüttenstadt GmbH and ArcelorMittal Berlin Holding GmbH principally relating to alleged breaches of antitrust rules concerning (i) an agreement between flat steel producers regarding extras from June 2006 - March 2016 (ii) impermissible exchanges of sensitive information between competitors from 1986 - 2016 and (iii) an agreement to continue market and price structurestructures introduced by the European Coal and Steel Community from 2002-2016. ArcelorMittal has not, to the date of this annual report, received subsequent communications from In February 2020,the German Federal Cartel Office in this respect.notified the said companies of the formal closure of the investigation with no action being taken.
Other Legal Claims
ArcelorMittal is a party to various other legal claims. As of December 31, 2018,2019, ArcelorMittal had recorded provisions of 249231 for other legal claims in respect of which it considers the risk of loss to be probable. Set out below is a summary description of the other legal claims (i) in respect of which ArcelorMittal had recorded a provision as of December 31, 2018,2019, (ii) that constitute a contingent liability, (iii) that were resolved in 2018,2019, or (iv) that were resolved and had a financial impact in 20172018 or 2016,2017, in each case involving amounts deemed material by ArcelorMittal. The Company is vigorously defending against each of the claims discussed below that remain pending.
Argentina
Over the course of 2007 to 2018, the Argentinian Customs Office Authority (Aduana)(“Aduana”) notified Acindar, the Company's Argentinian subsidiary, of certain inquiries that it was conducting with respect to prices declared by Acindar related to iron ore imports. The Customs Office Authority was seeking to determine whether Acindar incorrectly declared prices for iron ore imports from several different Brazilian suppliers and from ArcelorMittal Sourcing originally on 39 different claims concerning several shipments made between 2002 and 2014. The investigations are subject to the administrative procedures of the Customs Office Authority and are at different procedural stages depending on the filing date of the investigation. In March 2018, the Customs Office Authority issued a general instruction that orders customs to withdraw current claims related to the difference between import prices in Argentina and export prices of iron ore when exiting Brazil. This will haveBrazil, which has led to a material impact onreduction in the number of claims madeand amounts claimed against Acindar although the exact impact cannot be quantified at this stage.Acindar. As of February 2019,January 2020, the aggregate amount claimed by the Customs Office Authority in respect of all iron ore shipments is 13993 in 2619 different cases. Of these 2619 cases, 84 are still in the
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
administrative branch of the Customs Office Authority and the other 1815 cases, in which the administrative branch of the Customs Office Authority ruled against Acindar, have been appealed to the Argentinian National Fiscal Court.
Brazil
CanadaIn 2015, the SINDIMETAL (employees’ union) filed a lawsuit against ArcelorMittal Brasil to annul all the collective labor agreements related to 12-hour work shifts. In 2018, at the Labor Court of Vitória/ES, the case was dismissed. SINDIMETAL subsequently appealed to the Regional Labor Court of Appeals, which in 2019 reversed the ruling of the first judicial instance and ordered the payment of overtime wages, based on the argument that the 12-hour working day was unconstitutional. In September 2019, ArcelorMittal Brasil filed an appeal with the Superior Labor Court on the grounds of (i) the constitutionality of collective labor agreements; (ii) ArcelorMittal Brasil was obliged to maintain the 12-hour work shift in the period between November 2011 and November 2012 by another judicial decision; and (iii) the Supreme Court has ordered the suspension of legal proceedings in which there is a discussion about the validity of collective labor agreements due to a pending decision in a case not involving ArcelorMittal Brasil with binding precedential value on similar cases. This decision impacts a group of approximately 2,500 employees.
In April 2017, a shareholder in Siderúrgica Três Lagoas (“SITREL”), commenced an arbitration against Votorantim Siderurgia S.A. (which subsequently merged into ArcelorMittal Brasil) and SITREL with the Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada (CAM-CCBC). The dispute concerns a provision in SITREL’s joint venture agreement relating to the formula used to determine the selling price for steel billets supplied by ArcelorMittal Brasil to SITREL from January 2013 onwards. The shareholder has alleged that the steel billets were overpriced and is seeking compensation for overpaid amounts on both a retrospective and prospective basis, with the initial amount claimed totalling 42. The case is currently at a pre-hearing stage, where evidence is being collected. In November 2019, an expert report on accounting questions was presented and an expert report concerning economic questions is pending conclusion.
Canada
In April 2011, a proceeding was commenced before the Ontario (Canada) Superior Court of Justice under the Ontario Class Proceedings Act, 1992, against ArcelorMittal, Baffinland, and certain other parties relating to the January 2011 take-over of Baffinland by ArcelorMittal, Nunavut Iron Ore Holdings and 1843208 Ontario Inc. The action alleges that the tender offer document contained certain misrepresentations and seeks damages in an aggregate amount of 734764 (CAD 1 billion) or rescission of the transfer of the Baffinland securities by members of a class comprised of all Baffinland securities holders who tendered their Baffinland securities, and whose securities were taken up, in connection with the take-over between September 22, 2010 and February 17, 2011, or otherwise disposed of their Baffinland securities on or after January 14, 2011. The class certification hearings were held in January 2018, and the court certified the class in a decision dated May 18, 2018. The court also certified the statutory circular misrepresentation, insider trading, unjust enrichment and oppression claims. The court included in the class persons who tendered their Baffinland securities to the take-over bid and, for purposes of the oppression claims only, persons who sold their Baffinland securities in the secondary market after January 13, 2011. The court excluded from the class those persons who disposed of their Baffinland securities pursuant to a court ordered plan of arrangement.
ARCELORMITTAL AND SUBSIDIARIES
Notes In June 2019, the parties entered into a settlement agreement in which the defendants agreed to Consolidated Financial Statementspay 5 (CAD 6.5 million) to the class subject to the approval of the court. The settlement contained a threshold for opt outs which, if exceeded, gave any of the defendants the right to terminate the settlement. The settlement was approved by the Ontario Court in September 2019 and, following the expiry of the period for any appeal, is now final.
(millions of U.S. dollars, except share and per share data)
Italy
In January 2010, ArcelorMittal received notice of a claim filed by Finmasi S.p.A. relating to a memorandum of agreement (“MoA”) entered into between ArcelorMittal Distribution Services France (“AMDSF”) and Finmasi in 2008. The MoA provided that AMDSF would acquire certain of Finmasi’s businesses for an amount not to exceed 106,104, subject to the satisfaction of certain conditions precedent, which, in AMDSF’s view, were not fulfilled. Finmasi sued for (i) enforcement of the MoA, (ii) damages of 16 to 27 or (iii) recovery costs plus quantum damages for Finmasi’s alleged lost opportunity to sell to another buyer. In September 2011, the court rejected Finmasi’s claims other than its second claim. The court appointed an expert to determine the quantum of damages. In May 2013, the expert’s report was issued and valued the quantum of damages in the range of 4742 to 68.67. ArcelorMittal appealed the decision on the merits. In May 2014, the Court of Appeal issued a decision rejecting ArcelorMittal’s appeal. On June 20, 2014, ArcelorMittal filed an appeal of the Court of Appeal’s judgment with the Italian Court of Cassation. On April 11, 2018, the Court of Cassation rejected the appeal on the merits and upheld the Court of
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Appeal’s decision. On December 18, 2014, the Court of Milan issued a decision on the quantum of the damages and valued the quantum of damages in the sum of 27 plus interest. In June 2015, both parties served appeals of the decision on the quantum, with ArcelorMittal also seeking the suspension of the enforceability of the decision. On July 1, 2015, Finmasi formally notified to AMDSF the declaration of enforcement of the decision of December 18, 2014. On July 28, 2015, AMDSF filed an appeal against such declaration with the Court of Appeal of Reims in France. At a hearing on December 1, 2015, the Italian Court of Appeal accepted the suspension of the enforcement of the decision of December 18, 2014, following the agreement of AMDSF to provide a guarantee for its value. In March 2016, on the joint application of the parties, the Court of Appeal of Reims ordered the suspension of the proceedings. On July 19, 2018, the Court of Appeal upheld the Court of Milan’s decision on quantum dated December 18, 2014. In September 2018, ArcelorMittal filed an appeal to the Court of Cassation. In January 2019, Finmasi called on the AMDSF guarantee issued in the context of the enforcement proceedings that were suspended in 2015.
On November 4, 2019, after the law adopted by the Italian Parliament which removed the legal protection necessary for AM InvestCo to implement its environmental plan without the risk of criminal liability became effective, AM InvestCo sent to the former Ilva business’ legal representatives (i.e. the commissioners in Ilva’s extraordinary administration insolvency procedure, the “Commissioners”) a notice to withdraw from, or terminate, the agreement for the lease and subsequent conditional purchase of the former Ilva business and certain of its subsidiaries. On November 5, 2019, AM InvestCo served the Commissioners with a writ of summons to, inter alia, ascertain and declare the lawfulness and validity of its withdrawal and termination of the agreement. The Civil Court of Milan scheduled the first hearing for May 6, 2020. On November 15, 2019, the Commissioners filed suit in the same court seeking an injunction to prevent AM InvestCo’s withdrawal from, and termination of, the agreement and require AM InvestCo to stop the implementation of its plan to suspend the operations and to continue the maintenance and operation of the leased business units. The Commissioners also requested that the court require AM InvestCo to pay 1,123 (€1 billion) in the event that it fails to comply with an adverse decision on the Commissioners’ application for interim injunctions. Moreover, following a complaint filed by the Commissioners, in mid-November 2019 prosecutors in Milan and Taranto opened investigations into potential violations of numerous criminal laws. The hearing to discuss the Commissioners’ application for interim measures was originally set for November 27, 2019, pending which AM InvestCo suspended the implementation of its plan to suspend the operations at ArcelorMittal Italia. At the hearing, the court granted the request by the Commissioners and AM InvestCo for postponement (to December 20, 2019) in order to allow the development of ongoing negotiations, on the basis that AM InvestCo assure the maintenance of the normal functioning of the plants and guarantee production continuity pending such negotiations. On December 20, 2019, ArcelorMittal announced that AM InvestCo had signed a non-binding agreement with the Commissioners that forms a basis to continue negotiations on a new industrial plan for ArcelorMittal Italia, and in light thereof, the Civil Court of Milan granted the parties’ request to further postpone the hearing until February 7, 2020 and on that date until March 6, 2020. Under the agreement, AM InvestCo has posted a performance bond of 101 (€90 million). ArcelorMittal expects to continue to consolidate ArcelorMittal Italia, as it has retained power over the relevant activities and continues to be exposed to the losses incurred by the subsidiary, unless and until the control of the assets is transferred to the Commissioners or other changes in power or exposure to variable returns occur. ArcelorMittal continues to monitor its risk of criminal liability pending the implementation of its environmental plan for ArcelorMittal Italia and, at this time, is unable to assess the likelihood of any proceedings or the amount of any potential ensuing liability.
On February 27, 2020, the Mayor of Taranto adopted an order addressed to ArcelorMittal Italia and Ilva related to certain emissions events that appear to have occurred in August 2019 and February 22 and 23, 2020 and that allegedly concern the Taranto plant. The order requires ArcelorMittal Italia to identify the responsible installations within 30 days, to eliminate any anomalies at such installations causing such emission events within 60 days or, if necessary, to shut down certain installations related to such emissions events. The Mayor of Taranto also alleges that it did not receive adequate responses from the Italian Ministry of the Environment with respect to such emissions events. ArcelorMittal Italia considers the order to be unfounded and will appeal it. Following the order, the Ministry of the Environment requested additional information from the Mayor of Taranto about the events (including the type of emissions and how the events can be connected to the Taranto plant) and has also requested information from certain other industrial companies in Taranto, as to any anomalies, accidents or events that may have occurred on February 22 and 23, 2020. ArcelorMittal Italia is preparing its responses to the request for information from the Ministry of the Environment, which will also be provided to the Mayor of Taranto.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Luxembourg
In June 2012, the Company received writs of summons in respect of claims made by 59 former employees of ArcelorMittal Luxembourg. The claimants allege that they are owed compensation based on the complementary pension scheme that went into effect in Luxembourg in January 2000. The aggregate amount claimed by such former employees (bearing in mind that other former employees may bring similar claims) is 68.66. Given the similarities in the claims, the parties agreed to limit the pending proceedings to four4 test claims. In April 2013, the Esch-sur-Alzette labor court rejected two2 of these test claims. The relevant plaintiffs are appealing these decisions. In November 2013, the Luxembourg city labor court rejected the two2 other test claims, which are also being appealed.
France
Certain subsidiaries of the ArcelorMittal group are parties to proceedings, dating from 2010, against Engie and Engie Thermique France which claim damages in the amount of 156162 or alternatively 165153 for an alleged wrongful termination of a contract for the transformation of steel production gas into electricity. The ArcelorMittal subsidiaries have filed a counterclaim in the amount of 139.137. The contract had been entered into in 2006 for a term of 20 years. ArcelorMittal Méditerranée terminated it in July 2010 on the basis that Engie was solely responsible for the delay in the commissioning of the power plant (which suffered from significant malfunctions) constructed for the transformation of steel production gas into electricity. Engie claims that ArcelorMittal was in breach of the contract at the time of the termination due to certain alleged issues with the furnishing and quality of its steel production gas, and therefore unable to terminate the contract based on the sole breaches of Engie. The case iswas heard before the Commercial Court of Nanterre. In November 2019, the Appeals Court of Versailles determined (having been asked to decide whether a decision by the Commercial Court of Nanterre was in fact an official, formal judgment) that the earlier decision of the Commercial Court of Nanterre was the official first instance decision of the court. As a result, ArcelorMittal is vigorously defending itself in this matter and vigorously pursuing its counterclaim.ordered to pay damages of 3 plus interest. The decision is subject to appeal.
Retired and current employees of certain French subsidiaries of the former Arcelor have initiated lawsuits to obtain compensation for asbestos exposure in excess of the amounts paid by French social security (“Social Security”). Asbestos claims in France initially are made by way of a declaration of a work-related illness by the claimant to the Social Security authorities resulting in an investigation and a level of compensation paid by Social Security. Once the Social Security authorities recognize the work-related illness, the claimant, depending on the circumstances, can also file an action for inexcusable negligence (faute inexcusable) to obtain additional compensation from the company before a special tribunal. Where procedural errors are made by Social Security, it is required to assume full payment of damages awarded to the claimants. Due to fewer procedural errors made by Social Security, changes in the regulations and, consequently, fewer rejected cases, ArcelorMittal has been required to pay some amounts in damages since 2011.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The number of claims outstanding for asbestos exposure at December 31, 20182019 was 367337 as compared to 404367 at December 31, 2017.2018. The range of amounts claimed for the year ended December 31, 20182019 was $35,000 to $745,000. The aggregate costs and settlements for the year ended December 31, 2019 were 7.77, of which 0.15 represented legal fees and 7.6 represented damages paid to the claimant. The aggregate costs and settlements for the year ended December 31, 2018 were 7.67, of which 0.27 represented legal fees and 7.4 represented damages paid to the claimant. The aggregate costs and settlements for the year ended December 31, 2017 were 6.4, of which 0.25 represented legal fees and 6.1 represented damages paid to the claimant.
Minority Shareholder Claims Regarding the Exchange Ratio in the Second-Step Merger of ArcelorMittal into Arcelor
ArcelorMittal is the company that results from the acquisition of Arcelor by Mittal Steel N.V. in 2006 and a subsequent two-step merger between Mittal Steel and ArcelorMittal and then ArcelorMittal and Arcelor. Following completion of this merger process, several former minority shareholders of Arcelor or their representatives brought legal proceedings regarding the exchange ratio applied in the second-step merger between ArcelorMittal and Arcelor and the merger process as a whole.
ArcelorMittal believes that the allegations made and claims brought by such minority shareholders are without merit and that the exchange ratio and merger process complied with the requirements of applicable law, were consistent with previous guidance on the principles that would be used to determine the exchange ratio in the second-step merger and that the merger exchange ratio was relevant and reasonable to shareholders of both merged entities.
Set out below is a summary of ongoing matters in this regard. Several other claims brought before other courts and regulators were dismissed and are definitively closed.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
On January 8, 2008, ArcelorMittal received a writ of summons on behalf of four hedge fund shareholders of Arcelor to appear before the civil court of Luxembourg. The summons was also served on all natural persons sitting on the Board of Directors of ArcelorMittal at the time of the merger andincluding Mr. Lakshmi Mittal, as well as on Mrs. Usha Mittal, among other parties.the Significant Shareholder. The plaintiffs alleged in particular that, based on Mittal Steel’s and Arcelor’s disclosure and public statements, investors had a legitimate expectation that the exchange ratio in the second-step merger would be the same as that of the secondary exchange offer component of Mittal Steel’s June 2006 tender offer for Arcelor (i.e., 11 Mittal Steel shares for 7 Arcelor shares), and that the second-step merger did not comply with certain provisions of Luxembourg company law. They claimed, inter alia, the cancellation of certain resolutions (of the Board of Directors and of the Shareholders meeting) in connection with the merger, the grant of additional shares, or damages in an amount of 216.216. By judgment dated November 30, 2011, the Luxembourg civil court declared all of the plaintiffs’ claims inadmissible and dismissed them. The judgment was appealed in May 2012. By judgment dated February 15, 2017, the Luxembourg Court of Appeal declared all but one of the plaintiffs’ claims inadmissible, remanded the proceedings on the merits to the lower court with respect to the admissible claimant and dismissed all other claims. In June 2017, the plaintiffs filed an appeal of this decision to the Court of Cassation. The Court of Cassation confirmed the Court of Appeal’s judgment on May 18, 2018. The proceedings remain pending before the lower court with the admissible claimant who claims inter alia, the cancellation of certain resolutions (of the Board of Directors and of the Shareholders meeting) in connection with the merger, the grant of additional shares, or damages in an amount of 25.
On May 15, 2012, ArcelorMittal received a writ of summons on behalf of Association Actionnaires d'Arcelor (“AAA”), a French association of former minority shareholders of Arcelor, to appear before the civil court of Paris. In such writ of summons, AAA claimed (on grounds similar to those in the Luxembourg proceedings summarized above) inter alia damages in a nominal amount and reserved the right to seek additional remedies including the cancellation of the merger. The proceedings before the civil court of Paris have been stayed, pursuant to a ruling of such court on July 4, 2013, pending a preparatory investigation (instruction préparatoire) by a criminal judge magistrate (juge d’instruction) triggered by the complaints (plainte avec constitution de partie civile) of AAA and several hedge funds (who quantified their total alleged damages at 282), including those who filed the claims before the Luxembourg courts described (and quantified) above. The dismissal of charges (non-lieu) ending the preparatory investigation became final in March 2018.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
8.49.4 Commitments | | | December 31, | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Purchase commitments | 24,594 |
| | 24,734 |
| 19,697 |
| | 24,594 |
|
Guarantees, pledges and other collateral | 5,527 |
| | 5,021 |
| 7,815 |
| | 5,527 |
|
Non-cancellable operating leases | 1,869 |
| | 1,311 |
| |
Non-cancellable operating leases* | | — |
| | 1,869 |
|
Capital expenditure commitments | 697 |
| | 878 |
| 448 |
| | 697 |
|
Other commitments | 3,516 |
| | 1,206 |
| 3,201 |
| | 3,516 |
|
Total | 36,203 |
| | 33,150 |
| 31,161 |
| | 36,203 |
|
*As a result of the adoption of IFRS 16 "Leases" as of January 1, 2019, the Company has recognized right–of–use assets and lease liabilities related to non–cancellable operating leases. See notes 1 and 7.
Purchase commitments
Purchase commitments consist primarily of major agreements for procuring iron ore, coking coal, coke and hot metal. The Company also has a number of agreements for electricity, industrial and natural gas, scrap and freight. In addition to those purchase commitments disclosed above, the Company enters into purchasing contracts as part of its normal operations which have minimum volume requirements but for which there are no take-or-pay or penalty clauses included in the contract. The Company does not believe these contracts have an adverse effect on its liquidity position.
Purchase commitments include commitments given to associates for 405592 and 520405 as of December 31, 20182019 and 2017,2018, respectively. Purchase commitments include commitments given to joint ventures for 2,2461,521 and 1,5502,246 as of December 31, 20182019 and 2017,2018, respectively. Commitments given to joint ventures include 1,489 and 1,481 related to purchase of the output from Tameh decreased from 1,489 as of December 31, 2018 and 2017 respectively,to 852 as of December 31, 2019 mainly as a result of the sale of ArcelorMittal Ostrava a.s. (see note 2.3.1). Commitments given to joint ventures also include purchase commitments of 649 and 711 related to purchase of the output from Enerfos as of December 31, 2018.2019 and 2018, respectively.
Purchase commitments include commitments given by Ilva remedies classified as held for sale for 910 as of December 31, 2018.
Guarantees, pledges and other collateral
Guarantees related to financial debt and credit lines given on behalf of third parties were 235 and 266 as of December 31, 2018 and 2017, respectively. Additionally, 7 and 13 were related to guarantees given on behalf of associates as of December 31, 2018 and 2017, respectively. Guarantees of 1,079 and 1,022 were given on behalf of joint ventures as of December 31, 2018 and 2017, respectively. Guarantees given on behalf of joint ventures include 348 and 406 for the guarantees issued on behalf of Calvert and 397 and 382 for the guarantees issued on behalf of Al Jubail as of December 31, 2018 and 2017, respectively. Due to the failure of other shareholders to provide requisite equity funding by December 31, 2018, the Al Jubail joint venture’s indebtedness became technically in default as of such date. ArcelorMittal’s guarantee of such indebtedness has not been called by the lenders, and ArcelorMittal does not currently expect it to be called. ArcelorMittal is working with the other shareholders in the joint venture to resolve the situation through their contribution of the requisite equity and currently expects the technical default to be cured in the near term. The technical default relates only to the indebtedness of the joint venture and is not expected to affect the availability or maturity of any borrowings of ArcelorMittal.
Pledges and other collateral mainly relate to inventories and receivables pledged to secure the South African Rand revolving borrowing base finance facility for the amount drawn of 21, ceded bank accounts to secure environmental obligations, true sale of receivables programs and the revolving base finance facility in South Africa of 122 and mortgages entered into by the Company’s operating subsidiaries. Pledges of property, plant and equipment were 225 and 282 as of December 31, 2018 and 2017, respectively. Other sureties, first demand guarantees, letters of credit, pledges and other collateral included 380 and 419 of commitments given on behalf of associates as of December 31, 2018 and 2017, respectively. Other sureties, first demand guarantees, letters of credit, pledges and other collateral included 154 and 164 of commitments given on behalf of joint ventures as of December 31, 2018 and 2017, respectively.
In addition, other sureties, first demand guarantees, letters of credit, pledges and other collateral included 567 in relation to a performance guarantee provided by the Company for the execution of the ESIL resolution plan as of December 31, 2018.
Other sureties, first demand guarantees, letters of credit, pledges and other collateral include commitments given by Ilva remedies classified as held for sale for 18 as of December 31, 2018.F-120
F-115
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Non-cancellable operating leasesGuarantees, pledges and other collateral
Guarantees related to financial debt and credit lines given on behalf of third parties were 158 and 235 as of December 31, 2019 and 2018, respectively. Additionally, NaN and 7 were related to guarantees given on behalf of associates as of December 31, 2019 and 2018, respectively and guarantees of 3,836 and 1,079 were given on behalf of joint ventures as of December 31, 2019 and 2018, respectively. Guarantees given on behalf of joint ventures include 288 and 348 for the guarantees issued on behalf of Calvert and 346 and 397 for the guarantees issued on behalf of ArcelorMittal Tubular Products Al Jubail ("Al Jubail") as of December 31, 2019 and 2018, respectively. The Company leases various facilities, landincrease in guarantees given on behalf of joint ventures includes 2,571 with respect to the AMNS India joint venture (see note 2.4.1) and 232 (net of 50% counter guarantee from Prime Shipping Investments Limited, an affiliate of DryLog) in relation to outstanding lease liabilities for vessels operated by Global Chartering (see note 2.3.1.).
Due to the failure of other shareholders to provide requisite equity funding by December 31, 2018, the Company's joint venture Al Jubail’s indebtedness became technically in default as of such date. As of December 31, 2019, the technical default remains pending completion of formalities as the joint venture completed the conditions necessary to clear the default, including the capital increase, prior to year end. ArcelorMittal’s guarantee of such indebtedness has not been called by the lenders, and ArcelorMittal does not currently expect it to be called. The technical default relates only to the indebtedness of the joint venture and is not expected to affect the availability or maturity of any borrowings of ArcelorMittal.
As of December 31, 2019, pledges and other collateral mainly relate to (i) mortgages entered into by the Company’s operating subsidiaries and (ii) inventories and receivables pledged to secure the South African Rand revolving borrowing base finance facility for the amount drawn of 81 and ceded bank accounts to secure environmental obligations, true sale of receivables programs and the revolving borrowing base finance facility in South Africa of 64. Pledges of property, plant and equipment under non-cancellable lease arrangements. Future minimum lease payments required under operating leases that have initial or remaining non-cancellable termswere 155 and 225 as of December 31, 2019 and 2018, respectively. Other sureties, first demand guarantees, letters of credit, pledges and other collateral included 356 and 380 of commitments given on behalf of associates as of December 31, 2019 and 2018, respectively and 293 and 154 of commitments given on behalf of joint ventures as of December 31, 2019 and 2018, respectively.
In addition, other sureties, first demand guarantees, letters of credit, pledges and other collateral include 504 as of December 31, 2019 in relation to the Company's share of the obligation to deliver the follow-on funding for AMNS India in accordance with the second amended joint venture formation agreement.
Other sureties, first demand guarantees, letters of credit, pledges and other collateral included 567 as of December 31, 2018 and 2017 accordingin relation to maturity periods are as follows:
|
| | | | | |
| December 31, |
| 2018 | | 2017 |
Less than 1 year | 322 |
| | 315 |
|
1-3 years | 414 |
| | 412 |
|
4-5 years | 262 |
| | 252 |
|
More than 5 years | 871 |
| | 332 |
|
Total | 1,869 |
| | 1,311 |
|
Non-cancellable operating leases include time charter arrangementsa performance guarantee provided by the Company for shipping activities and usufructthe execution of land in Poland.the AMNS India resolution plan. The operating leases expense was 564, 542 and 521 in 2018, 2017 and 2016, respectively out of which 77, 42 and 98 are related to contingent rents. The non-cancellable operating leases commitments atperformance guarantee terminated on December 31, 2018 are related to plant, machinery and equipment (778), buildings (181), land (871) and other (39).2019.
Capital expenditure commitments
Capital expenditure commitments mainly relate to commitments associated with investments in expansion and improvement projects by various subsidiaries.
In 2016, AMSA committed to an investment program in connection with the competition commission settlement. The remaining capital expenditure commitment was 139 and 171 as of December 31, 2018.2019 and 2018, respectively.
Capital expenditure commitments also include 250 and 413 as of December 31, 2019 and 2018, respectively, for the 1,000 three-year investment program at the Company's Mexican operations announced in 2017, which is focused on building ArcelorMittal Mexico’s downstream capabilities. The main investment will be the construction of a new hot strip mill with capacity of approximately 2.5 million tonnes.
Other commitments
Other commitments given comprise mainly commitments incurred for gas supply to electricity suppliers.
As of September 21, 2018 an Environmental Commitment Agreement ("ECA") has been executed between ArcelorMittal Brasil, local government and the Brazilian environmental authorities. ArcelorMittal Brasil committed to carry out, over the next 5 years, a series of environmental operational and capital investments with the aim to reduce atmospheric emissions from the Company's Tubarão site. To comply with the ECA requirements, ArcelorMittal Brasil may need to acquire new equipment and change some of its current operating methods and processes. The underlying costs to implement those investments are still being estimated by ArcelorMittal Brasil and the outcome of this estimate could be material. The non-compliance with ECA would lead to fines amounting to a maximum of 26.26 as of December 31, 2019 and 2018.
The agreementARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
As of December 31, 2019, capital expenditure commitments relating to the Ilva acquisition includes 1,439include 1,311 industrial capital expenditure commitments over a seven-yearremaining six-year period focused on blast furnaces, steel shops and finishing lines (1,439 as of December 31, 2018) and 917688 environmental capital expenditure commitments.commitments (917 as of December 31, 2018).
Commitments to sell
In addition to the commitments presented above, the Company has firm commitments to sell for which it also has firm commitments to purchase included in purchase commitments for 201215 and 286201 as of December 31, 20182019 and 2017,2018, respectively, and mainly related to natural gas and electricity.
NOTE 9:10: INCOME TAXES
The current tax payable (recoverable) is based on taxable profit (loss) for the year. Taxable profit differs from profit as reported in the consolidated statements of operations because it excludes items of income or expense that are taxable or deductible in other years or are never taxable or deductible. The Company’s current income tax expense (benefit) is calculat
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
edcalculated using tax rates that have been enacted or substantively enacted as of the date of the consolidated statements of financial position.
Tax is charged or credited to the consolidated statements of operations, except when it relates to items charged or credited to other comprehensive income or directly to equity, in which case the tax is recognized in other comprehensive income or in equity.
Deferred tax is recognized on differences between the carrying amounts of assets and liabilities, in the consolidated financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the statements of financial position liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are generally recognized for all deductible temporary differences and net operating loss carry forwards to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the taxable temporary difference arises from the initial recognition of non-deductible goodwill or if the differences arise from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the profit reported in the consolidated statements of operations.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, except if the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be sufficient taxable profits against which the benefits of the temporary differences can be utilized and are expected to reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted at the consolidated statements of financial position date. The measurement of deferred tax assets and liabilities reflects the tax consequences that would result from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
The carrying amount of deferred tax assets is reviewed at each consolidated statements of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to enable all or part of the asset to be recovered. The Company reviews the deferred tax assets in the different jurisdictions in which it operates to assess the possibility of realizing such assets based on projected taxable profit, the expected timing of the reversals of existing temporary differences, the carry forward period of temporary differences and tax losses carried forward and the implementation of planning strategies. Due to the numerous variables associated with these judgments and assumptions, both the precision and reliability of the resulting estimates of the deferred tax assets are subject to substantial uncertainties. In case a history of recent losses is present, the Company considers whether convincing other evidence exists, such as the character of (historical) losses and planning opportunities, to support the deferred tax assets recognition.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, when they relate to income taxes levied by the same taxation authority and when the Company intends to settle its current tax assets and liabilities on a net basis.
Uncertain (income) tax positions are periodically assessed by the Company based on management’s best judgment given any changes in the facts, circumstances and information available and applicable tax laws. When it is probable that the tax authorities will not accept the position taken, the Group establishes provisions based on the most likely amount of the liability (recovery) or weighted average of various possible outcomes to reflect the effect of the uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates, to the extent that a reliable estimate can be made.
9.110.1 Income tax expense (benefit)
The components of income tax expense (benefit) are summarized as follows: |
| | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
Total current tax expense (benefit) | 928 | | 583 | | 255 |
Total deferred tax expense (benefit) | (1,277) | | (151) | | 731 |
Total income tax expense (benefit) | (349) | | 432 | | 986 |
|
| | | | | |
| Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
Total current tax expense | 786 | | 928 | | 583 |
Total deferred tax benefit | (327) | | (1,277) | | (151) |
Total income tax expense (benefit) | 459 | | (349) | | 432 |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The following table reconciles the expected tax expense (benefit) at the statutory rates applicable in the countries where the Company operates to the total income tax expense (benefit) as calculated: | | | Year Ended December 31, | Year Ended December 31, |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Net income (loss) (including non-controlling interests) | 5,330 |
| | 4,575 |
| | 1,734 |
| (2,391 | ) | | 5,330 |
| | 4,575 |
|
Income tax expense (benefit) | (349 | ) | | 432 |
| | 986 |
| 459 |
| | (349 | ) | | 432 |
|
Income (loss) before tax | 4,981 |
| | 5,007 |
| | 2,720 |
| (1,932 | ) | | 4,981 |
| | 5,007 |
|
Tax expense (benefit) at the statutory rates applicable to profits (losses) in the countries1 | 1,043 |
| | 1,407 |
| | 677 |
| (468 | ) | | 1,043 |
| | 1,407 |
|
Permanent items | (421 | ) | | (522 | ) | | (5,940 | ) | (993 | ) | | (421 | ) | | (522 | ) |
Rate changes | — |
| | (94 | ) | | 593 |
| 340 |
| | — |
| | (94 | ) |
Net change in measurement of deferred tax assets | (1,301 | ) | | (281 | ) | | 5,344 |
| 1,201 |
| | (1,301 | ) | | (281 | ) |
Tax effects of foreign currency translation | (47 | ) | | (157 | ) | | 73 |
| 14 |
| | (47 | ) | | (157 | ) |
Tax credits | (17 | ) | | (66 | ) | | (21 | ) | (9 | ) | | (17 | ) | | (66 | ) |
Other taxes | 151 |
| | 90 |
| | 126 |
| 160 |
| | 151 |
| | 90 |
|
Others | 243 |
| | 55 |
| | 134 |
| 214 |
| | 243 |
| | 55 |
|
Income tax expense (benefit) | (349 | ) | | 432 |
| | 986 |
| 459 |
| | (349 | ) | | 432 |
|
| |
1. | Tax expense (benefit) at the statutory rates is based on income (loss) before tax excluding income (loss) from investments in associates and joint ventures. |
ArcelorMittal’s consolidated income tax expense (benefit) is affected by the income tax laws and regulations in effect in the various countries in which it operates and the pre-tax results of its subsidiaries in each of these countries, which can change from year to year. ArcelorMittal operates in jurisdictions, mainly in Eastern Europe and Asia, which have a structurally lower corporate income tax rate than the statutory tax rate as enacted in Luxembourg (26.01%(24.94%), as well as in jurisdictions, mainly in Brazil and Mexico, which have a structurally higher corporate income tax rate.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Permanent items | |
| Year Ended December 31, | Year Ended December 31, |
| 2018 |
| 2017 |
| 2016 | 2019 |
| 2018 |
| 2017 |
Tax deductible write-downs on shares and receivables | (498 | ) |
| (652 | ) |
| (5,971 | ) | (922 | ) |
| (498 | ) |
| (652 | ) |
Juros sobre o Capital Próprio (“JSCP”)
| (73 | ) |
| (4 | ) |
| (2 | ) | (32 | ) |
| (73 | ) |
| (4 | ) |
Non taxable gain on bargain purchase | (60 | ) |
| — |
|
| — |
| — |
|
| (60 | ) |
| — |
|
Taxable income (tax loss) of AMTFS | 47 |
|
| (34 | ) |
| 20 |
| (8 | ) |
| 47 |
|
| (34 | ) |
Taxable dividends | — |
|
| 65 |
|
| 19 |
| 11 |
|
| — |
|
| 65 |
|
Other permanent items | 163 |
|
| 103 |
|
| (6 | ) | (42 | ) |
| 163 |
|
| 103 |
|
Total permanent items | (421 | ) |
| (522 | ) |
| (5,940 | ) | (993 | ) |
| (421 | ) |
| (522 | ) |
Tax deductible (taxable reversals of) write-downs on shares and receivables: in connection with the Company's impairment test for goodwill and property, plant and equipment (“PP&E”), the recoverability of the carrying amounts of investments in shares and intragroup receivables is also reviewed annually, resulting in tax deductible write-downs, or taxable reversals of previously recorded write-downs, of the values of loans and shares of consolidated subsidiaries in Luxembourg.
Juros sobre o Capital Próprio (“JSCP”): Corporate taxpayers in Brazil, which distribute a dividend can benefit from a tax
deduction corresponding to an amount of interest calculated as a yield on capital. The deduction is determined as the lower of the interest as calculated by application of the Brazilian long term interest rate on the opening balance of capital and reserves, and 50% of the income for the year or accumulated profits from the previous year. For bookaccounting purposes, this distribution of interest on capital is regarded as a dividend distribution, while for Brazilian tax purposes it is regarded as tax deductible interest.
Non taxable gain on bargain purchase: in 2018 ArcelorMittal recognized a 209 gain on bargain purchase upon acquisition of IlvaArcelorMittal Italia (see note 2.2.4).
Taxable income of AMTFS: ArcelorMittal Treasury Financial Services S.à r.l. (“AMTFS”), a subsidiary of ArcelorMittal Treasury Americas LLC (“AMTAUS”), is a limited liability company organized under the laws of Luxembourg
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
subject to taxation in Luxembourg on its worldwide income. AMTFS has filed an election to be treated as a disregarded entity for United States federal income tax purposes.
Taxable dividends: the dividends received from some of the ArcelorMittal subsidiaries are subject to tax in the receiving countries with the corresponding (foreign) tax credits available.
Rate changes
The 2019 tax expense from rate changes of 340 is mainly due to the impact of the decrease in the future income tax rate on deferred tax assets in Luxembourg.
The 2017 tax benefit from rate changes of (94) is mainly due to the impact of the decrease in the future income tax rate on deferred tax liabilities in Belgium (60), France (31), Argentina and USA.
The 2016 tax expense from rate changes of 593 is mainly due to the impact of the decrease in the future income tax rate on deferred tax assets in Luxembourg resulting in tax expense of 647, partly offset by a tax benefit of (50) in France.
Net change in measurement of deferred tax assets
The 2019 net change in measurement of deferred tax assets of 1,201 mainly consists of non-recognition of deferred tax assets on write-downs of the value of shares of consolidated subsidiaries in Luxembourg and other non-recognition and derecognition of deferred tax assets in certain tax jurisdictions, partially offset by an additional recognition of deferred tax assets of previous years of 0.6 billion due to increase in projections of future taxable income in Luxembourg driven primarily by the lower external borrowing costs.
The 2018 net change in measurement of deferred tax assets of (1,301) primarily consists of tax benefit of (1,842) due to additional recognition of deferred tax assets for losses and other deductible temporary differences of previous years, and a tax expense of 541 due to non-recognition and derecognition of other deferred tax assets in other tax jurisdictions. In 2018, the Company recognized 1.3 billion of previously unrecognized deferred tax assets relating to the LuxembourgArcelorMittal S.A. tax integration.integration in Luxembourg. The recognition in Luxembourg includes a 0.8 billion increase in projections of future taxable income in
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Luxembourg driven primarily by the higher operational and financial income, and 0.6 billion effect of the elimination of the current USD exposure of Luxembourgish deferred tax assets denominated in euro.
The 2017 net change in measurement of deferred tax assets of (281) primarily consists of tax expense of 652 due to the unrecognized part of deferred tax assets on write-downs of the value of shares and loans of consolidated subsidiaries in Luxembourg, tax expense of 364 due to non-recognition and derecognition of other deferred tax assets in other tax jurisdictions, partially offset by an additional recognition of deferred tax assets for losses and other deductible temporary differences of previous years of (1,297). In 2017, the Company recognized 1.1 billion of previously unrecognized deferred tax assets relating to the LuxembourgArcelorMittal S.A. tax integration.integration in Luxembourg. The recognition in Luxembourg includes a 0.3 billion increase in projections of future taxable income in Luxembourg driven primarily by the improved market conditions of the steel industry and higher financial income mainly from further reduction in the forecasted interest expense following improved credit rating.
The 2016 net change in measurement of deferred tax assets of 5,344 primarily consists of tax expense of 5,971 due to the unrecognized part of deferred tax assets on write-downs of the value of shares and loans of consolidated subsidiaries in Luxembourg, tax expense of 285 due to non-recognition and derecognition of other deferred tax assets in other tax jurisdictions, partially offset by additional recognition of deferred tax assets for losses and other deductible temporary differences of previous years of (912). In 2016, the Company recognized 0.4 billion of previously unrecognized deferred tax assets relating to the Luxembourg tax integration. The recognition in Luxembourg includes a 0.8 billion increase in projections of future taxable income in Luxembourg driven primarily by the improved market conditions of the steel industry and higher interest income from favorable foreign exchange rate relating to the funding of the Group subsidiaries as well as further reduction in the forecasted interest expense following debt repayment. This recognition is partially offset by a derecognition of 0.7 billion related to revised expectations of euro denominated deferred tax assets recoverability in U.S. dollars terms.
Tax effects of foreign currency translation
The tax effects of foreign currency translation of 14, (47), (157) and 73(157) at December 31, 2019, 2018 2017 and 20162017 respectively, refer mainly to deferred tax assets and liabilities of certain entities with a different functional currency than the currency applied for tax filing purposes. The 2018 effect is impacted by the elimination of the currency exposure on the deferred tax assets in ArcelorMittal parent company following the change in the currency denomination of the tax losses. In 2017, the effects are mainly due to the depreciation of the U.S. dollar against the euro.
Tax credits
The tax credits are mainly attributable to the Company’s operating subsidiaries in Brazil, Mexico and Spain. They relate to credits claimed on foreign investments, credits for research and development and tax sparing credits.
Other taxes
Other taxes mainly include withholding taxes on dividends, services, royalties and interests as well as mining duties in Canada and Mexico, and state tax and Base Erosion and Anti-Abuse Tax ("BEAT") in the United States.States, and Cotisation sur la Valeur Ajoutée des Entreprises ("CVAE'') in France.
Others |
| | | | | | | | |
| Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
Tax contingencies/settlements | 225 |
| | 183 |
| | 7 |
|
Prior period taxes | (20 | ) | | 21 |
| | (7 | ) |
Others | 9 |
| | 39 |
| | 55 |
|
Total | 214 |
| | 243 |
| | 55 |
|
In 2019 and 2018, tax contingencies/settlements consist of uncertain tax positions (see note 10.3) respectively for 225, mainly related to North America and ACIS countries, and 183, mainly related to Europe.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Others |
| | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
Tax contingencies/settlements | 183 |
| | 7 |
| | 149 |
|
Prior period taxes | 21 |
| | (7 | ) | | (18 | ) |
Others | 39 |
| | 55 |
| | 3 |
|
Total | 243 |
| | 55 |
| | 134 |
|
In 2018 and 2016, Others of 243 and 134 primarily consist of uncertain tax positions respectively for 183, mainly related to Europe, and 149, mainly related to Europe and North America.
9.210.2 Income tax recorded directly in equity and/or other comprehensive income
| | | | Year Ended December 31, | | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 | | 2019 | | 2018 | | 2017 |
Recognized in other comprehensive income on: | | | | | | | | | | | | |
Deferred tax expense (benefit) | | |
| | |
| | |
| | |
| | |
| | |
|
Unrealized gain (loss) on derivative financial instruments | | 380 |
| | (77 | ) | | (1 | ) | |
Gain (loss) on derivative financial instruments | | | (244 | ) | | 380 |
| | (77 | ) |
Recognized actuarial gain (loss) | | (228 | ) | | (42 | ) | | (1 | ) | | 32 |
| | (228 | ) | | (42 | ) |
Foreign currency translation adjustments | | (106 | ) | | (90 | ) | | 27 |
| | (35 | ) | | (106 | ) | | (90 | ) |
| | 46 |
| | (209 | ) | | 25 |
| | (247 | ) | | 46 |
| | (209 | ) |
Recognized directly in equity on: | | | | | | | | | | | | |
Deferred tax expense (benefit) | | | | | | | | | | | | |
Others | | — |
| | 9 |
| | — |
| | — |
| | — |
| | 9 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Total | | 46 |
| | (200 | ) | | 25 |
| | (247 | ) | | 46 |
| | (200 | ) |
9.310.3 Uncertain tax positions
The Company operates in multiple jurisdictions with complex legal and tax regulatory environments. In certain of these jurisdictions, ArcelorMittal has taken income tax positions that management believes are supportable and are intended to withstand challenge by tax authorities. Some of these positions are inherently uncertain and include those relating to transfer pricing matters and the interpretation of income tax laws applied in complex transactions. The Company periodically reassesses its tax positions. Changes to the financial statement recognition, measurement, and disclosure of tax positions are based on management’s best judgment given any changes in the facts, circumstances, information available and applicable tax laws. Considering all available information and the history of resolving income tax uncertainties, the Company believes that the ultimate resolution of such matters will not have a material effect on the Company’s financial position, statements of operations or cash flows (see note 8 “Provisions, contingencies9).
10.4 Deferred tax assets and commitments”).liabilities
The origin of the deferred tax assets and liabilities is as follows: |
| | | | | | | | | | | | | | | | | |
| Assets | | Liabilities | | Net |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Intangible assets | 22 |
| | 29 |
| | (720 | ) | | (744 | ) | | (698 | ) | | (715 | ) |
Property, plant and equipment | 177 |
| | 271 |
| | (4,445 | ) | | (5,098 | ) | | (4,268 | ) | | (4,827 | ) |
Inventories | 261 |
| | 286 |
| | (209 | ) | | (251 | ) | | 52 |
| | 35 |
|
Financial instruments | 47 |
| | 124 |
| | (98 | ) | | (424 | ) | | (51 | ) | | (300 | ) |
Other assets | 157 |
| | 460 |
| | (408 | ) | | (572 | ) | | (251 | ) | | (112 | ) |
Provisions | 1,350 |
| | 1,728 |
| | (243 | ) | | (512 | ) | | 1,107 |
| | 1,216 |
|
Other liabilities | 469 |
| | 461 |
| | (70 | ) | | (331 | ) | | 399 |
| | 130 |
|
Tax losses and other tax benefits carried forward | 9,984 |
| | 10,384 |
| | — |
| | — |
| | 9,984 |
| | 10,384 |
|
Tax credits carried forward | 76 |
| | 104 |
| | — |
| | — |
| | 76 |
| | 104 |
|
Untaxed reserves | — |
| | — |
| | (1 | ) | | (2 | ) | | (1 | ) | | (2 | ) |
Deferred tax assets / (liabilities) | 12,543 |
| | 13,847 |
| | (6,194 | ) | | (7,934 | ) | | 6,349 |
| | 5,913 |
|
Deferred tax assets | | | | | | | | | 8,680 |
| | 8,287 |
|
Deferred tax liabilities | | | | | | | | | (2,331 | ) | | (2,374 | ) |
The deferred tax assets recognized by the Company as of December 31, 2019 are analyzed as follows:
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
9.4 Deferred tax assets and liabilities
The origin of the deferred tax assets and liabilities is as follows: |
| | | | | | | | | | | | | | | | | |
| Assets | | Liabilities | | Net |
| 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Intangible assets | 29 |
| | 63 |
| | (744 | ) | | (869 | ) | | (715 | ) | | (806 | ) |
Property, plant and equipment | 271 |
| | 235 |
| | (5,098 | ) | | (5,334 | ) | | (4,827 | ) | | (5,099 | ) |
Inventories | 286 |
| | 291 |
| | (251 | ) | | (179 | ) | | 35 |
| | 112 |
|
Financial instruments | 124 |
| | 129 |
| | (424 | ) | | (559 | ) | | (300 | ) | | (430 | ) |
Other assets | 460 |
| | 203 |
| | (572 | ) | | (336 | ) | | (112 | ) | | (133 | ) |
Provisions | 1,728 |
| | 1,577 |
| | (512 | ) | | (424 | ) | | 1,216 |
| | 1,153 |
|
Other liabilities | 461 |
| | 359 |
| | (331 | ) | | (225 | ) | | 130 |
| | 134 |
|
Tax losses and other tax benefits carried forward | 10,384 |
| | 9,381 |
| | — |
| | — |
| | 10,384 |
| | 9,381 |
|
Tax credits carried forward | 104 |
| | 127 |
| | — |
| | — |
| | 104 |
| | 127 |
|
Untaxed reserves | — |
| | — |
| | (2 | ) | | (68 | ) | | (2 | ) | | (68 | ) |
Deferred tax assets / (liabilities) | 13,847 |
| | 12,365 |
| | (7,934 | ) | | (7,994 | ) | | 5,913 |
| | 4,371 |
|
Deferred tax assets | | | | | | | | | 8,287 |
| | 7,055 |
|
Deferred tax liabilities | | | | | | | | | (2,374 | ) | | (2,684 | ) |
|
| | | | | | | |
| Gross amount | | Total deferred tax assets | | Recognized deferred tax assets | | Unrecognized deferred tax assets |
Tax losses and other tax benefits carried forward | 105,937 | | 26,504 | | 9,984 | | 16,520 |
Tax credits carried forward | 693 | | 693 | | 76 | | 617 |
Other temporary differences | 15,793 | | 3,799 | | 2,483 | | 1,316 |
Total | | | 30,996 | | 12,543 | | 18,453 |
The deferred tax assets recognized by the Company as of December 31, 2018 are analyzed as follows:
|
| | | | | | | |
| Gross amount | | Total deferred tax assets | | Recognized deferred tax assets | | Unrecognized deferred tax assets |
Tax losses and other tax benefits carried forward | 110,769 | | 28,642 | | 10,384 | | 18,258 |
Tax credits carried forward | 722 | | 722 | | 104 | | 618 |
Other temporary differences | 16,923 | | 4,117 | | 3,359 | | 758 |
Total | | | 33,481 | | 13,847 | | 19,634 |
The deferred tax assets recognized by the Company as of December 31, 2017 are analyzed as follows: |
| | | | | | | |
| Gross amount | | Total deferred tax assets | | Recognized deferred tax assets | | Unrecognized deferred tax assets |
Tax losses and other tax benefits carried forward | 111,880 | | 28,569 | | 9,381 | | 19,188 |
Tax credits carried forward | 778 | | 778 | | 127 | | 651 |
Other temporary differences | 17,417 | | 3,978 | | 2,857 | | 1,121 |
Total | | | 33,325 | | 12,365 | | 20,960 |
As of December 31, 2018,2019, the majority of the deferred tax assets not recognized relates to tax losses carried forward attributable to various subsidiaries located in different jurisdictions (primarily Germany, Luxembourg, Spain, South Africa and the United States) with different statutory tax rates. As of each reporting date, ArcelorMittal considers existing evidence, both positive and negative, including the earnings history and results of recent operations, reversals of deferred tax liabilities, projected future taxable income, and planning strategies, that could impact the view with regard to future realization of these deferred tax assets. Given the current and anticipated future earnings of the ArcelorMittal U.S. operations, there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow ArcelorMittal to reach a conclusion that a significant portion of the unrecognized deferred tax assets of the U.S. operations, related to tax losses and temporary differences, may be recognized.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The amount of the total deferred tax assets is the aggregate amount of the various deferred tax assets recognized and unrecognized at the various subsidiaries and not the result of a computation with a given blended rate. The utilization of tax losses carried forward is restricted to the taxable income of the subsidiary or tax consolidation group to which it belongs. The utilization of tax losses carried forward may also may be restricted by the character of the income, expiration dates and limitations on the yearly use of tax losses against taxable income.
As at December 31, 2019, the total amount of accumulated tax losses in Luxembourg with respect to the ArcelorMittal S.A. tax integration amounted to approximately 83.3 billion, of which 34.8 billion is considered realizable, resulting in the recognition of 8.7 billion of deferred tax assets at the applicable income tax rate in Luxembourg. As at December 31, 2018, the total amount of accumulated tax losses in Luxembourg with respect to the main tax consolidation amounted to approximately 80.6 billion, of whichthis amount 34.1 billion was considered realizable, resulting in the recognition of 8.9 billion of deferred tax assets at the applicable income tax rate in Luxembourg. As at December 31, 2017, the total amount of accumulated tax losses in Luxembourg with respect to the main tax consolidation amounted to approximately 80.8 billion, of this amount 30.8 billion was considered realizable, resulting in the recognition of 7.6 billion of deferred tax assets at the applicable income tax rate in Luxembourg. Under the Luxembourg tax legislation, tax losses generated before 2017 can be carried forward indefinitely and are not subject to any specific yearly loss utilization limitations. The tax losses carried forward relate primarily to tax deductible write-down charges taken on investments in shares of consolidated subsidiaries recorded by certain of ArcelorMittal’s holding companies in Luxembourg. Of the total tax losses carried forward, 28.821.6 billion may be subject to recapture in the future if the write-downs that caused them are reversed creating taxable income unless the Company converts them to permanent through sales or other organizational restructuring activities.
The Company believes that it is probable that sufficient future taxable profits will be generated to support the recognized deferred tax asset for tax losses carried forward in Luxembourg. As part of its recoverability assessment the Company has taken into account (i) its most recent forecast approved by management and the Board of Directors, (ii) the likelihood that the factors that have contributed to past losses in Luxembourg will not recur, (iii) the fact that ArcelorMittal in Luxembourg is the main provider of funding to the Company’s consolidated subsidiaries, leading to significant amounts of taxable interest income, (iv) the implementationexpected lower interest expenses in Luxembourg driven by the targeted reduction of an Industrial Franchising Arrangement betweenthe Group net debt level in the short-term, (v) the industrial franchise agreement ("IFA") whereby ArcelorMittal S.A. licenses its business model for manufacturing, processing and numerous worldwide operatingdistributing steel to group subsidiaries, and (v)(vi) other significant and reliable sources of operational income earned from ArcelorMittal’s European and worldwide operating subsidiaries for centralized distribution and procurement activities performed in Luxembourg. In performing the assessment, the Company estimates at which point in time its earnings projections are no longer reliable, and thus taxable profits are no longer probable. Accordingly, the Company has established
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
consistent forecast periods for its different income streams for estimating probable future taxable profits, against which the unused tax losses can be utilized in Luxembourg.
At December 31, 2018,2019, based upon the level of historical taxable income and projections for future taxable income over the periods in which the deductible temporary differences are anticipated to reverse, management believes it is probable that ArcelorMittal will realize the benefits of the deferred tax assets of 8.38.7 billion recognized. The amount of future taxable income required to be generated by ArcelorMittal’s subsidiaries to utilize the deferred tax assets of 8.38.7 billion is at least 3234.8 billion. Historically, the Company has been able to generate sufficient taxable income and believes that it will generate sufficient levels of taxable income in the coming years to allow the Company to utilize tax benefits associated with tax losses carried forward and other deferred tax assets that have been recognized in its consolidated financial statements. Where the Company has had a history of recent losses, it relied on convincing other evidence such as the character of (historical) losses and planning opportunities to support the deferred tax assets recognized.
For the period ended December 31, 20182019, ArcelorMittal recorded approximately 8079 (December 31, 2017: 59)2018: 80) of deferred income tax liabilities in respect of deferred taxation that would arise if temporary differences on investments in subsidiaries, associates and interests in joint ventures were to be realized in the foreseeable future. No deferred tax liability has been recognized in respect of other temporary differences on investments in subsidiaries, associates and interests in joint ventures because the Company is able to control the timing of the reversal of the temporary difference and it is probable that such differences will not reverse in the foreseeable future. The amount of these unrecognized deferred tax liabilities is approximately 938.899.
9.510.5 Tax losses, tax credits and other tax benefits carried forward
At December 31, 2018,2019, the Company had total estimated tax losses carried forward and other tax benefits of 110.8105.9 billion.
This includes net operating losses and other tax benefits of 8.5 billion primarily related to subsidiaries in Basque Country in Spain, Liberia, Luxembourg, Mexico and the United States, which expire as follows: |
| | | | | | |
Year expiring | | Recognized | | Unrecognized | | Total |
2020 | | 25 | | 144 | | 169 |
2021 | | 3 | | 656 | | 659 |
2022 | | 2 | | 659 | | 661 |
2023 | | 6 | | 469 | | 475 |
2024 | | 3 | | 212 | | 215 |
2025 - 2039 | | 354 | | 5,934 | | 6,288 |
Total | | 393 | | 8,074 | | 8,467 |
The remaining tax losses carried forward and other tax benefits for an amount of 97.4 billion (of which 39 billion are recognized and 58.4 billion are unrecognized) are carried forward for unlimited period of time and primarily relate to the Company’s operations in France, Germany, Luxembourg, Spain and South Africa.
At December 31, 2019, the Company also had total estimated tax credits carried forward of 693.
Such amount includes tax credits of 610 (of which 26 recognized and 584 unrecognized) and primarily attributable to subsidiaries in Basque Country in Spain which expire as follows: |
| | | | | | |
Year expiring | | Recognized | | Unrecognized | | Total |
2020 | | — | | 3 | | 3 |
2021 | | — | | 2 | | 2 |
2022 | | — | | 2 | | 2 |
2023 | | — | | 1 | | 1 |
2024 | | — | | 1 | | 1 |
2025 - 2039 | | 26 | | 575 | | 601 |
Total | | 26 | | 584 | | 610 |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
This includes net operating losses and other tax benefits of 7.5 billion primarily related to subsidiaries in Basque Country in Spain, Liberia, Luxembourg, Switzerland and the United States, which expire as follows: |
| | | | | | |
Year expiring | | Recognized | | Unrecognized | | Total |
2019 | | 32 | | 68 | | 100 |
2020 | | 46 | | 268 | | 314 |
2021 | | 4 | | 872 | | 876 |
2022 | | 2 | | 628 | | 630 |
2023 | | 6 | | 490 | | 496 |
2024 - 2038 | | 90 | | 5,021 | | 5,111 |
Total | | 180 | | 7,347 | | 7,527 |
The remaining tax losses carried forward and other tax benefits for an amount of 103.3 billion (of which 39.3 billion are recognized and 64 billion are unrecognized) are carried forward for unlimited period of time and primarily relate to the Company’s operations in Brazil, France, Germany, Luxembourg and Spain.
At December 31, 2018, the Company also had total estimated tax credits carried forward of 722.
Such amount includes tax credits of 568 primarily attributable to subsidiaries in Basque Country in Spain of which 49 recognized and 519 unrecognized, which expire as follows: |
| | | | | | |
Year expiring | | Recognized | | Unrecognized | | Total |
2019 | | — | | 5 | | 5 |
2020 | | — | | 3 | | 3 |
2021 | | — | | 2 | | 2 |
2022 | | — | | 2 | | 2 |
2023 | | — | | 1 | | 1 |
2024 - 2038 | | 49 | | 506 | | 555 |
Total | | 49 | | 519 | | 568 |
The remaining tax credits for an amount of 15483 (of which 5550 are recognized and 9933 are unrecognized) are indefinite and primarily attributable to the Company’s operations in Brazil Spain and the United States.Spain.
Tax losses, tax credits and other tax benefits carried forward are denominated in the currency of the countries in which the respective subsidiaries are located and operate.operate, except for Luxembourg where the tax losses are mainly denominated in U.S. dollar. Fluctuations in currency exchange rates could reduce the U.S. dollar equivalent value of these tax losses carried forward in future years.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
NOTE 10:11: EQUITY
10.111.1 Share details
On May 22, 2017, ArcelorMittal completed the consolidation of each three existing shares in ArcelorMittal without nominal value into one share without nominal value. As a result of this reverse stock split, the number of issued shares decreased from 3,065,710,869 to 1,021,903,623 and all prior periods have been recast in accordance with IFRS.1,021,903,623.
The Company’s shares consist of the following: | | | December 31, 2016 | | Movement in year | | December 31, 2017 | | Movement in year | | December 31, 2018 | December 31, 2017 | | Movement in year | | December 31, 2018 | | Movement in year | | December 31, 2019 |
Issued shares | 1,021,903,623 |
| | — |
| | 1,021,903,623 |
| | — |
| | 1,021,903,623 |
| 1,021,903,623 |
| | — |
| | 1,021,903,623 |
| | — |
| | 1,021,903,623 |
|
Treasury shares | (2,407,480 | ) | | 420,644 |
| | (1,986,836 | ) | | (6,348,529 | ) | | (8,335,365 | ) | (1,986,836 | ) | | (6,348,529 | ) | | (8,335,365 | ) | | (1,488,837 | ) | | (9,824,202 | ) |
Total outstanding shares | 1,019,496,143 |
| | 420,644 |
| | 1,019,916,787 |
| | (6,348,529 | ) | | 1,013,568,258 |
| 1,019,916,787 |
| | (6,348,529 | ) | | 1,013,568,258 |
| | (1,488,837 | ) | | 1,012,079,421 |
|
On January 15, 2016, following the maturity of the mandatorily convertible notes (see 10.2 below), the Company increased share capital by €570 million (622) from €6,883 million (10,011) to €7,453 million (10,633) through the issuance of 137,967,116 (45,989,039 after reverse stock split) new shares fully paid up. The aggregate number of issued shares issuedwere 1,021,903,623 at December 31, 2017, 2018 and fully paid up increased to 1,803,359,338 (601,119,779 after reverse stock split).
Following the extraordinary general meeting held on March 10, 2016, ArcelorMittal decreased share capital by €7,273 million (10,376) from €7,453 million (10,633) to €180 million (257) through a reduction of the accounting par value per share to €0.10 without any distribution to shareholders, the balance being allocated to additional paid-in capital.
On April 8, 2016, ArcelorMittal completed an equity offering with net proceeds of 3,115 (net of transaction costs of 40) by way of the issuance of 1,803,359,338 (601,119,779 after reverse stock split) non-statutory preferential subscription rights with a subscription price of €2.20 per share at a ratio of 7 shares for 10 rights subsequently to the adoption of enabling resolutions by the extraordinary general meeting of shareholders on March 10, 2016. The Company increased share capital by €126 million (144) from €180 million (257) to €306 million (401) through the issuance of 1,262,351,531 (420,783,844 after reverse stock split) new shares fully paid up. The aggregate number of shares issued and fully paid up increased to 3,065,710,869 (1,021,903,623 after reverse stock split).2019.
Authorized shares
At the Extraordinary General Meeting held on May 8, 2012, the shareholders approved an increase of the authorized share capital of ArcelorMittal by €643 million represented by 156 million shares (52 after reverse stock split), or approximately 10% of ArcelorMittal’s outstanding capital. Following this approval, which is valid for 5 years, the total authorized share capital was €7.7 billion represented by 1,773,091,461 (591,030,487 after reverse stock split) shares without par value.
At the Extraordinary General Meeting held on May 8, 2013, the shareholders approved an increase of the authorized share capital of ArcelorMittal by €524 million represented by 223 million shares (74 after reverse stock split), or approximately 8% of ArcelorMittal’s outstanding capital. Following this approval, which is valid for five years, the total authorized share capital was €8.2 billion represented by 1,995,857,213 (665,285,738 after reverse stock split) shares without par value.
At the Extraordinary General Meeting held on March 10, 2016, the shareholders approved a decrease of the authorized share capital of the Company by €8,049 million through a reduction of the accounting par value per share to €0.10 and a subsequent increase by €3 billion. Following the completion of the equity offering on April 8, 2016, the Company’s authorized share capital was decreased by €2.9 billion. As a result of the approval given by the shareholders on March 10, 2016 and which is valid for five years, the total authorized share capital was €337 million represented by 3,372,281,956 (1,124,093,985 after reverse stock split) shares without par value.
At the Extraordinary General Meeting held on May 10, 2017, the shareholders approved a reverse stock split and an increase of the authorized share capital to €345 million. Following this approval, on May 22, 2017 ArcelorMittal completed the consolidation of each three existing shares in ArcelorMittal without nominal value into one share without nominal value. As a result, the authorized share capital increased with a decrease in representative shares from €337 million represented by 3,372,281,956 ordinary shares without nominal value as of December 31, 2016 to €345 million represented by 1,151,576,921 ordinary shares without nominal value.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
At the Extraordinary General Meeting of shareholders held on May 16, 2018, the shareholders approved the change of currency of the Company's share capital from euro to U.S. dollar. Following this approval, the authorized share capital amounts to 411 represented by 1,151,576,921 ordinary shares without nominal value. As a result of this change, the issued share capital amountsamounted to 364 as of December 31, 2018, based on the exchange rate published by the European Central Bank on May 15, 2018. The difference has beenwas transferred to additional paid-in capital. There was no change in the aggregate number of shares issued and fully paid up which continuescontinued to amount to 1,021,903,623 as1,021,903,623.
The number of authorized shares were 1,151,576,921 at December 31, 2017, 2018 and December 31, 2017. 2019.
Share buyback
On March 26, 2018, ArcelorMittal completed a share buyback program under the authorization given at the annual general meeting of shareholders held on May 5, 2015. ArcelorMittal repurchased 7 million shares for a total value of €184 million (226) at an average price per share of €26.34 (equivalent to $32.36).
On February 15, 2019, ArcelorMittal completed a share buyback program and repurchased 4 million shares for a total value of €80 million (90) at an average price per share of €19.89 (equivalent to $22.42).
The buyback shares as part ofacquired through the buyback program are accountedrecognized as the parttreasury shares.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of the treasury share.U.S. dollars, except share and per share data)
Treasury shares
ArcelorMittal held, indirectly and directly, 8.39.8 million and 2.08.3 million treasury shares as of December 31, 20182019 and December 31, 2017,2018, respectively.
10.211.2 Equity instruments and hybrid instruments
Mandatorily convertible notes
Mandatorily convertible notes issued by the Company were accounted for as compound financial instruments. The net present value of the coupon payments at issuance date was recognized as a long-term obligation and carried at amortized cost. The value of the equity component was determined based upon the difference of the cash proceeds received from the issuance of the notes and the net present value of the financial liability component on the date of issuance and was included in equity.
On January 16, 2013, ArcelorMittal issued mandatorily convertible subordinated notes (“MCNs”) with net proceeds of 2,222. The notes had a maturity of 3 years, were issued at 100% of the principal amount and were mandatorily converted into ordinary shares of ArcelorMittal at maturity unless converted earlier at the option of the holders or ArcelorMittal or upon specified events in accordance with the terms of the MCNs. The MCNs paid a coupon of 6.00% per annum, payable quarterly in arrears. The minimum conversion price of the MCNs was set at $16.75 (prior to reverse stock split), corresponding to the placement price of shares in the concurrent ordinary shares offering as described above, and the maximum conversion price was set at approximately 125% of the minimum conversion price (corresponding to $20.94, prior to reverse stock split). The minimum and maximum conversion prices were subject to adjustment upon the occurrence of certain events, and were, as of December 31, 2015, $15.98 and $19.98, respectively (prior to reverse stock split). The Company determined the notes met the definition of a compound financial instrument and as such determined the fair value of the financial liability component of the bond was 384 on the date of issuance and recognized it as a long-term obligation. The value of the equity component of 1,838 was determined based upon the difference of the cash proceeds received from the issuance of the bond and the fair value of the financial liability component on the date of issuance and was included in equity.
During the fourth quarter of 2015, the Company delivered 2,275,026 treasury shares (758,342 after reverse stock split) against 1,817,869 notes converted at the option of their holders. As a result of such voluntary conversions, the carrying amount of MCNs decreased by 38. On January 15, 2016, upon final maturity of the MCNs, the remaining outstanding 88,182,131 notes were converted into 137,967,116 new common shares (45,989,039 after reverse stock split). Accordingly, share capital and additional paid-in-capital increased by 622 and 1,178, respectively and the carrying amount of MCNs decreased by 1,800.
Mandatory convertible bonds
On December 28, 2009, the Company issued through Hera Ermac, a wholly-owned subsidiary, 750 unsecured and unsubordinated bonds mandatorily convertible into preferred shares of such subsidiary. The bonds were placed privately with a Luxembourg affiliate of Crédit Agricole (formerly Calyon) and are not listed. The Company has the option to call the mandatory convertible bonds until 10 business days before the maturity date. Hera Ermac invested the proceeds of the bonds issuance and an equity contribution by the Company in notes issued by subsidiaries of the Company linked to the values of shares of Erdemir and China Oriental. On April 20, 2011, the Company signed an agreement for an extension of the conversion date of the mandatory convertible bonds to January 31, 2013. On September 27, 2011, the Company increased the mandatory
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
convertible bonds from 750 to 1,000. The Company further extended the conversion date for the mandatory convertible bonds on December 18,in 2012, and January 17, 2014, to January 31, 2014 and January 29, 2016, respectively.
On November 20, 2015 the conversion date of the 1,000 mandatory convertible bonds was extended from January 29, 2016 to January 31, 2018. The other main features of the mandatory convertible bonds remained unchanged. The Company determined that this transaction led to(resulting in the extinguishment of the existing compound instrument and the recognition of a new compound instrument including non-controlling interests for 880 (net of cumulative tax and fees) and other liabilities for 106. The derecognition of the previous instrumentinstrument), 2016 and the recognition at fair value of the new instrument resulted in a 79 expense included in financing costs-net in the consolidated statement of operations and a 20 decrease in non-controlling interests.latest on December 14, 2017.
On December 14, 2017, the conversion date of the 1,000 mandatory convertible bonds was extended from January 31, 2018 to January 29, 2021. The other main features of the mandatory convertible bonds remained unchanged. The Company determined that this transaction led to the extinguishment of the existing compound instrument and the recognition of a new compound instrument including non-controlling interests for 797 (net of cumulative tax and fees) and other liabilities for 184. The derecognition of the previous instrument and the recognition at fair value of the new instrument resulted in a 92 expense included in financing costs-net in the consolidated statement of operations and a 83 decrease in non-controlling interests.
On March 29, 2019 and December 18, 2019, the Company repaid notes issued by subsidiaries which were linked to the value of the shares of Erdemir. As of December 31, 2019, the remaining notes were linked to the value of the shares of China Oriental (see note 6.1.5).
10.311.3 Earnings per common share
Basic earnings per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Net income (loss) attributable to ordinary shareholders takes into consideration dividend rights of preferred shareholders such as holders of subordinated perpetual capital securities. Diluted earnings per share is computed by dividing income (loss) available to equity holders by the weighted average number of common shares andplus potential common shares from share unit plans and outstanding stock options as well as potential common shares from the conversion of certain convertible bonds whenever the conversion results in a dilutive effect.
On April 8, 2016, the Company issued 1,262,351,531 (420,783,844 after reverse stock split) new shares at a subscription price of €2.20 (prior to reverse stock split) per share representing a 35% discount compared to the theoretical ex-right price (“TERP”) of €3.40 (prior to reverse stock split) based on the closing price of ArcelorMittal’s shares on Euronext Amsterdam on March 10, 2016. In accordance with IFRS, such a rights issue includes a bonus element increasing the number of ordinary shares outstanding to be used in calculating basic and diluted earnings per share for all periods before the rights issue.
On May 22, 2017, ArcelorMittal completed the consolidation of each three existing shares in ArcelorMittal without nominal value into one share without nominal value. As a result of this reverse stock split, the number of outstanding shares for the prior periods have been recast in accordance with IFRS.
The following table provides the numerators and a reconciliation of the denominators used in calculating basic and diluted earnings per common share for the years ended December 31, 2019, 2018 2017 and 2016.2017. | |
| Year Ended December 31, | Year Ended December 31, |
| 2018 |
| 2017 |
| 2016 | 2019 |
| 2018 |
| 2017 |
Net income (loss) attributable to equity holders of the parent | 5,149 |
|
| 4,568 |
|
| 1,779 |
| (2,454 | ) |
| 5,149 |
|
| 4,568 |
|
Weighted average common shares outstanding (in millions) for the purposes of basic earnings per share | 1,015 |
|
| 1,020 |
|
| 953 |
| 1,013 |
|
| 1,015 |
|
| 1,020 |
|
Incremental shares from assumed conversion of restricted share units and performance share units (in millions) | 6 |
|
| 4 |
|
| 2 |
| — |
|
| 6 |
|
| 4 |
|
Weighted average common shares outstanding (in millions) for the purposes of diluted earnings per share | 1,021 |
|
| 1,024 |
|
| 955 |
| 1,013 |
|
| 1,021 |
|
| 1,024 |
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
For the purpose of calculating earnings per common share, diluted weighted average common shares outstanding excludes 7 million potential common shares from share unit plans for the year ended December 31, 2019 and 1 million, 2 million and 3 million potential common shares from stock options outstanding for the years ended December 31, 2019, 2018 and 2017, respectively, because such share unit plans and stock options are anti-dilutive.
10.411.4 Dividends
Calculations to determine the amounts available for dividends are based on ArcelorMittal’s financial statements (“ArcelorMittal SA”S.A.”) which are prepared in accordance with IFRS, as endorsed by the European Union. ArcelorMittal SAS.A. has no significant manufacturing operations of its own and generates its own profit mostly from financing activities and the management fees / fees/industrial franchise agreements withinwith Group Companies. Accordingly, it can only pay dividends or distributions to the extent it is entitled to receive cash dividend distributions from its subsidiaries’ recognized gains, profit generated by its own activities, from the sale of its assets or records share premiumpremiums from the issuance of common shares. Dividends are declared in U.S. dollars and are payable in either U.S. dollars or in euros. |
| | | | | | | |
Description | Approved by | | Dividend per share (in $) | | Payout date | | Total (in millions of $) |
Dividend for financial year 2016 | Annual general shareholders' meeting on May 4, 2017 | | — | | — | | — |
Dividend for financial year 2017 | Annual general shareholders’ meeting on May 9, 2018 | | 0.10 | | June 13, 2018 | | 101 |
Dividend for financial year 2018 | Annual general shareholders’ meeting on May 7, 2019 | | 0.20 | | June 13, 2019 | | 203 |
On May 7, 2019 at the annual general meeting of shareholders, the shareholders approved the Company’s dividend of $0.20 per share. The dividend amounted to 204 (203 net of dividends paid to subsidiaries holding treasury shares), and was paid on June 13, 2019.
F-126Given the resilient cash flow and progress towards the Company's net debt target, the Board proposed a base dividend of $0.30 per share for 2020 (in respect of 2019) which will be proposed to the shareholders at the annual general meeting of shareholders' on May 5, 2020.
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Dividends are declared in U.S. dollars and are payable in either U.S. dollars or in euros. |
| | | | | | | |
Description | Approved by |
| Dividend per share (in $) |
| Payout date |
| Total (in millions of $) |
Dividend for financial year 2015 | Annual General Shareholders’ meeting on May 4, 2016 |
| — |
| — |
| — |
Dividend for financial year 2016 | Annual General Shareholders’ meeting on May 4, 2017 |
| — |
| — |
| — |
Dividend for financial year 2017 | Annual General Shareholders’ meeting on May 9, 2018 |
| 0.10 |
| June 13, 2018 |
| 101 |
The Board has agreed on a new dividend policy which will be proposed to shareholders at the annual general meeting in May 2019, dividends will begin at $0.20 per share in 2019 (paid from 2018 results).
10.511.5 Non-controlling interests
10.5.111.5.1 Non-wholly owned subsidiaries that have material non-controlling interests
The tables below provide a list of the principal subsidiaries which include significant non-controlling interests at December 31, 20182019 and 20172018 and for the years ended December 31, 2019, 2018 2017 and 2016.2017. | | Name of Subsidiary | | Country of incorporation and operation | | % of non-controlling interests and non- controlling voting rights at December 31, 2018 | | % of non-controlling interests and non- controlling voting rights at December 31, 2017 | | Net income (loss) attributable to non- controlling interests for the year ended December 31, 2018 | | Non-controlling interests at December 31, 2018 | | Net income (loss) attributable to non- controlling interests for the year ended December 31, 2017 | | Non-controlling interests at December 31, 2017 | | Net income (loss) attributable to non- controlling interests for the year ended December 31, 2016 | | Country of incorporation and operation | | % of non-controlling interests and non- controlling voting rights at December 31, 2019 | | % of non-controlling interests and non- controlling voting rights at December 31, 2018 | | Net income (loss) attributable to non- controlling interests for the year ended December 31, 2019 | | Non-controlling interests at December 31, 2019 | | Net income (loss) attributable to non- controlling interests for the year ended December 31, 2018 | | Non-controlling interests at December 31, 2018 | | Net income (loss) attributable to non- controlling interests for the year ended December 31, 2017 |
AMSA | | South Africa | | 30.78% | | 30.78% | | 29 |
| | 170 |
| | (124 | ) | | 195 |
| | (103 | ) | | South Africa | | 30.78% | | 30.78% | | (98 | ) | | 74 |
| | 29 |
| | 170 |
| | (124 | ) |
Sonasid1 | | Morocco | | 67.57% | | 67.57% | | 2 |
| | 107 |
| | 3 |
| | 107 |
| | (5 | ) | | Morocco | | 67.57% | | 67.57% | | — |
| | 103 |
| | 2 |
| | 107 |
| | 3 |
|
ArcelorMittal Kryvyi Rih | | Ukraine | | 4.87% | | 4.87% | | 15 |
| | 182 |
| | 10 |
| | 164 |
| | 5 |
| | Ukraine | | 4.87% | | 4.87% | | (5 | ) | | 185 |
| | 15 |
| | 182 |
| | 10 |
|
Belgo Bekaert Arames ("BBA") | | Brazil | | 45.00% | | 45.00% | | 28 |
| | 136 |
| | 25 |
| | 146 |
| | 23 |
| | Brazil | | 45.00% | | 45.00% | | 28 |
| | 141 |
| | 28 |
| | 136 |
| | 25 |
|
Hera Ermac2 | | Luxembourg | | — | | — | | — |
| | 797 |
| | — |
| | 797 |
| | — |
| | Luxembourg | | — | | — | | — |
| | 801 |
| | — |
| | 797 |
| | — |
|
AMMIC3 | | Canada | | 15.00% | | 15.00% | | 91 |
| | 484 |
| | 91 |
| | 479 |
| | 28 |
| |
Arceo4 | | Belgium | | 62.86% | | 62.86% | | 4 |
| | 158 |
| | 4 |
| | 168 |
| | 5 |
| |
AMMC | | | Canada | | 15.00% | | 15.00% | | 114 |
| | 486 |
| | 91 |
| | 484 |
| | 91 |
|
Arceo | | | Belgium | | 62.86% | | 62.86% | | 3 |
| | 154 |
| | 4 |
| | 158 |
| | 4 |
|
ArcelorMittal Liberia Ltd | | Liberia | | 15.00% | | 15.00% | | (2 | ) | | (268 | ) | | (11 | ) | | (266 | ) | | (5 | ) | | Liberia | | 15.00% | | 15.00% | | 18 |
| | (250 | ) | | (2 | ) | | (268 | ) | | (11 | ) |
Other | | | | | | | | 14 |
| | 256 |
| | 9 |
| | 276 |
| | 7 |
| | | | | | | | 3 |
| | 268 |
| | 14 |
| | 256 |
| | 9 |
|
Total | | | | | | | | 181 |
| | 2,022 |
| | 7 |
| | 2,066 |
| | (45 | ) | | | | | | | | 63 |
| | 1,962 |
| | 181 |
| | 2,022 |
| | 7 |
|
| |
1. | Sonasid - ArcelorMittal holds a controlling stake of 50% in Nouvelles Sidérurgies Industrielles. ArcelorMittal controls Nouvelles Sidérurgies Industrielles on the basis of a shareholders’ agreement which includes deadlock arrangements in favor of the Company. Nouvelles Sidérurgies Industrielles holds a 64.86% stake in Sonasid. The total non-controlling interests in Sonasid of 67.57% are the result of ArcelorMittal’s indirect ownership percentage in Sonasid of 32.43% through its controlling stake in Nouvelles Sidérurgies Industrielles. |
| |
2. | Hera Ermac - The non-controlling interests correspond to the equity component of the mandatory convertible bonds maturing on January 29, 2021 (see note 10.2)11.2). |
| |
3. | AMMIC - On March 15, 2013 and May 30, 2013, a consortium led by POSCO and China Steel Corporation acquired a 15% non-controlling interest in joint venture partnerships holding ArcelorMittal’s Labrador Trough iron ore mining and infrastructure assets.
|
| |
4. | Arceo - On June 1, 2015, the Company signed an agreement with Sogepa, an investment fund of the Walloon Region in Belgium, to restructure the research and development activities of their combined investment in Arceo, an investment previously accounted for under the equity method by the Company. On June 11, 2015, Sogepa made a capital injection into Arceo, decreasing the Company’s percentage ownership from 50.1% to 37.7%. Following the signed agreement to restructure the activities of Arceo, the Company obtained control and fully consolidated the investment, which resulted in an increase in non-controlling interests by 148. Additionally, on December 13, 2016, Sogepa made a capital injection into Arceo, decreasing the Company's percentage ownership from 37.7% to 37.1%.
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
The tables below provide summarized statements of financial position for the above-mentioned subsidiaries of financial position as of December 31, 2019 and 2018 and 2017 and the summarized statements of operations and summarized statements of cash flows for the yearyears ended December 31, 2019, 2018 2017 and 2016.2017.
Summarized statements of financial position | | | December 31, 2018 | December 31, 2019 |
| AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMIC | | Arceo | | AM Liberia | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
Current assets | 1,307 |
| | 194 |
| | 1,408 |
| | 240 |
| | 251 |
| | 1,144 |
| | 93 |
| | 113 |
| 997 |
| | 188 |
| | 1,557 |
| | 225 |
| | 905 |
| | 1,434 |
| | 129 |
| | 155 |
|
Non-current assets | 672 |
| | 100 |
| | 2,947 |
| | 158 |
| | 2,492 |
| | 3,113 |
| | 166 |
| | 114 |
| 618 |
| | 102 |
| | 3,530 |
| | 148 |
| | 1,193 |
| | 3,083 |
| | 122 |
| | 123 |
|
Total assets | 1,979 |
| | 294 |
| | 4,355 |
| | 398 |
| | 2,743 |
| | 4,257 |
| | 259 |
| | 227 |
| 1,615 |
| | 290 |
| | 5,087 |
| | 373 |
| | 2,098 |
| | 4,517 |
| | 251 |
| | 278 |
|
Current liabilities | 1,056 |
| | 106 |
| | 535 |
| | 109 |
| | 84 |
| | 331 |
| | 2 |
| | 1,816 |
| 907 |
| | 101 |
| | 1,130 |
| | 98 |
| | 298 |
| | 457 |
| | 1 |
| | 1,739 |
|
Non-current liabilities | 372 |
| | 34 |
| | 308 |
| | 28 |
| | 335 |
| | 539 |
| | 1 |
| | 41 |
| 468 |
| | 39 |
| | 446 |
| | 14 |
| | 76 |
| | 591 |
| | 1 |
| | 46 |
|
Net assets | 551 |
| | 154 |
| | 3,512 |
| | 261 |
| | 2,324 |
| | 3,387 |
| | 256 |
| | (1,630 | ) | 240 |
| | 150 |
| | 3,511 |
| | 261 |
| | 1,724 |
| | 3,469 |
| | 249 |
| | (1,507 | ) |
Summarized statements of operations | | | December 31, 2018 | December 31, 2019 |
| AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMIC | | Arceo | | AM Liberia | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
Revenue | 3,440 |
| | 396 |
| | 2,497 |
| | 771 |
| | — |
| | 2,396 |
| | — |
| | 132 |
| 2,864 |
| | 366 |
| | 2,420 |
| | 761 |
| | — |
| | 2,655 |
| | — |
| | 257 |
|
Net income (loss) | 95 |
| | 4 |
| | 340 |
| | 59 |
| | (555 | ) | | 636 |
| | 6 |
| | (12 | ) | (319 | ) | | (1 | ) | | (100 | ) | | 63 |
| | 144 |
| | 766 |
| | 5 |
| | 115 |
|
Total comprehensive income (loss) | (40 | ) | | 5 |
| | 331 |
| | 62 |
| | (555 | ) | | 642 |
| | 6 |
| | (12 | ) | (312 | ) | | — |
| | (141 | ) | | 64 |
| | 144 |
| | 761 |
| | 5 |
| | 115 |
|
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Summarized statements of cash flows | | | December 31, 2018 | December 31, 2019 |
| AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMIC | | Arceo | | AM Liberia | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
Net cash provided by / (used in) operating activities | 69 |
| | 22 |
| | 313 |
| | 47 |
| | 38 |
| | 735 |
| | 10 |
| | (18 | ) | (35 | ) | | 9 |
| | 163 |
| | 76 |
| | 857 |
| | 1,045 |
| | 9 |
| | 84 |
|
Net cash provided by / (used in) investing activities | 132 |
| | (5 | ) | | (346 | ) | | (14 | ) | | (38 | ) | | (134 | ) | | 14 |
| | (29 | ) | (79 | ) | | (5 | ) | | (270 | ) | | (12 | ) | | (114 | ) | | (332 | ) | | 17 |
| | (18 | ) |
Net cash provided by / (used in) financing activities | (260 | ) | | — |
| | 50 |
| | (27 | ) | | — |
| | (579 | ) | | (9 | ) | | 47 |
| 97 |
| | (6 | ) | | 68 |
| | (62 | ) | | (743 | ) | | (683 | ) | | (7 | ) | | (65 | ) |
Impact of currency movements on cash | (10 | ) | | — |
| | (4 | ) | | — |
| | — |
| | — |
| | (1 | ) | | — |
| 5 |
| | — |
| | 8 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cash and cash equivalents: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At the beginning of the year | 141 |
| | 38 |
| | 60 |
| | 5 |
| | — |
| | 158 |
| | 13 |
| | — |
| 72 |
| | 55 |
| | 73 |
| | 11 |
| | — |
| | 180 |
| | 27 |
| | — |
|
At the end of the year | 72 |
| | 55 |
| | 73 |
| | 11 |
| | — |
| | 180 |
| | 27 |
| | — |
| 60 |
| | 53 |
| | 42 |
| | 13 |
| | — |
| | 210 |
| | 46 |
| | 1 |
|
Dividend to non-controlling interests | — |
| | — |
| | — |
| | (18 | ) | | — |
| | (87 | ) | | (7 | ) | | — |
| — |
| | (4 | ) | | — |
| | (18 | ) | | — |
| | (102 | ) | | (5 | ) | | — |
|
Summarized statements of financial position | | | December 31, 2017 | December 31, 2018 |
| AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMIC | | Arceo | | AM Liberia | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
Current assets | 1,457 |
| | 181 |
| | 1,228 |
| | 220 |
| | 210 |
| | 1,050 |
| | 56 |
| | 107 |
| 1,307 |
| | 194 |
| | 1,408 |
| | 240 |
| | 251 |
| | 1,144 |
| | 93 |
| | 113 |
|
Non-current assets | 1,047 |
| | 108 |
| | 2,801 |
| | 190 |
| | 3,350 |
| | 3,135 |
| | 213 |
| | 93 |
| 672 |
| | 100 |
| | 2,947 |
| | 158 |
| | 2,492 |
| | 3,113 |
| | 166 |
| | 114 |
|
Total assets | 2,504 |
| | 289 |
| | 4,029 |
| | 410 |
| | 3,560 |
| | 4,185 |
| | 269 |
| | 200 |
| 1,979 |
| | 294 |
| | 4,355 |
| | 398 |
| | 2,743 |
| | 4,257 |
| | 259 |
| | 227 |
|
Current liabilities | 1,399 |
| | 100 |
| | 598 |
| | 93 |
| | 67 |
| | 316 |
| | 2 |
| | 1,783 |
| 1,056 |
| | 106 |
| | 535 |
| | 109 |
| | 84 |
| | 331 |
| | 2 |
| | 1,816 |
|
Non-current liabilities | 470 |
| | 34 |
| | 266 |
| | 21 |
| | 616 |
| | 555 |
| | 1 |
| | 35 |
| 372 |
| | 34 |
| | 308 |
| | 28 |
| | 335 |
| | 539 |
| | 1 |
| | 41 |
|
Net assets | 635 |
| | 155 |
| | 3,165 |
| | 296 |
| | 2,877 |
| | 3,314 |
| | 266 |
| | (1,618 | ) | 551 |
| | 154 |
| | 3,512 |
| | 261 |
| | 2,324 |
| | 3,387 |
| | 256 |
| | (1,630 | ) |
Summarized statements of operations | | | December 31, 2017 | December 31, 2018 |
| AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMIC | | Arceo | | AM Liberia | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
Revenue | 2,926 |
| | 371 |
| | 2,486 |
| | 698 |
| | — |
| | 1,943 |
| | — |
| | 56 |
| 3,440 |
| | 396 |
| | 2,497 |
| | 771 |
| | — |
| | 2,396 |
| | — |
| | 132 |
|
Net income (loss) | (403 | ) | | 6 |
| | 209 |
| | 52 |
| | 1,130 |
| | 617 |
| | 6 |
| | (71 | ) | 95 |
| | 4 |
| | 340 |
| | 59 |
| | (555 | ) | | 636 |
| | 6 |
| | (12 | ) |
Total comprehensive income (loss) | (421 | ) | | 4 |
| | 210 |
| | 52 |
| | 1,130 |
| | 613 |
| | 6 |
| | (71 | ) | (40 | ) | | 5 |
| | 331 |
| | 62 |
| | (555 | ) | | 642 |
| | 6 |
| | (12 | ) |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
Summarized statements of cash flows | | | December 31, 2017 | December 31, 2018 |
| AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMIC | | Arceo | | AM Liberia | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
Net cash provided by / (used in) operating activities | (119 | ) | | (7 | ) | | 194 |
| | 63 |
| | (12 | ) | | 947 |
| | 10 |
| | (69 | ) | 69 |
| | 22 |
| | 313 |
| | 47 |
| | 38 |
| | 735 |
| | 10 |
| | (18 | ) |
Net cash provided by / (used in) investing activities | (193 | ) | | (3 | ) | | (234 | ) | | (9 | ) | | 12 |
| | (301 | ) | | 3 |
| | (63 | ) | 132 |
| | (5 | ) | | (346 | ) | | (14 | ) | | (38 | ) | | (134 | ) | | 14 |
| | (29 | ) |
Net cash provided by / (used in) financing activities | 330 |
| | (4 | ) | | — |
| | (61 | ) | | — |
| | (656 | ) | | (8 | ) | | 132 |
| (260 | ) | | — |
| | 50 |
| | (27 | ) | | — |
| | (579 | ) | | (9 | ) | | 47 |
|
Impact of currency movements on cash | 13 |
| | 1 |
| | (2 | ) | | — |
| | — |
| | — |
| | 1 |
| | — |
| (10 | ) | | — |
| | (4 | ) | | — |
| | — |
| | — |
| | (1 | ) | | — |
|
Cash and cash equivalents: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At the beginning of the year | 110 |
| | 51 |
| | 102 |
| | 12 |
| | — |
| | 168 |
| | 7 |
| | — |
| 141 |
| | 38 |
| | 60 |
| | 5 |
| | — |
| | 158 |
| | 13 |
| | — |
|
At the end of the year | 141 |
| | 38 |
| | 60 |
| | 5 |
| | — |
| | 158 |
| | 13 |
| | — |
| 72 |
| | 55 |
| | 73 |
| | 11 |
| | — |
| | 180 |
| | 27 |
| | — |
|
Dividend to non-controlling interests | — |
| | (2 | ) | | — |
| | (26 | ) | | — |
| | (98 | ) | | (5 | ) | | — |
| — |
| | — |
| | — |
| | (18 | ) | | — |
| | (87 | ) | | (7 | ) | | — |
|
Summarized statements of operations | | | December 31, 2016 | | | | | December 31, 2017 | | | | |
| AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMIC | | Arceo | | AM Liberia | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
Revenue | 2,228 |
| | 300 |
| | 2,068 |
| | 627 |
| | — |
| | 1,472 |
| | — |
| | 56 |
| 2,926 |
| | 371 |
| | 2,486 |
| | 698 |
| | — |
| | 1,943 |
| | — |
| | 56 |
|
Net income (loss) | (335 | ) | | (7 | ) | | 98 |
| | 53 |
| | 402 |
| | (66 | ) | | 7 |
| | (29 | ) | (403 | ) | | 6 |
| | 209 |
| | 52 |
| | 1,130 |
| | 617 |
| | 6 |
| | (71 | ) |
Total comprehensive income (loss) | (349 | ) | | (8 | ) | | 106 |
| | 49 |
| | 402 |
| | (74 | ) | | 7 |
| | (29 | ) | (421 | ) | | 4 |
| | 210 |
| | 52 |
| | 1,130 |
| | 613 |
| | 6 |
| | (71 | ) |
Summarized statements of cash flows | | | December 31, 2016 | | | | | | | | | | | | | | | | | | | | |
| AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMIC | | Arceo | | AM Liberia | December 31, 2017 | | | | |
| | | | | | | | | | | | | | | | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
Net cash provided by / (used in) operating activities | 11 |
| | 28 |
| | 159 |
| | 63 |
| | 28 |
| | 279 |
| | 4 |
| | (45 | ) | (119 | ) | | (7 | ) | | 194 |
| | 63 |
| | (12 | ) | | 947 |
| | 10 |
| | (69 | ) |
Net cash provided by / (used in) investing activities | (149 | ) | | (6 | ) | | (156 | ) | | (15 | ) | | (28 | ) | | (283 | ) | | (78 | ) | | (73 | ) | (193 | ) | | (3 | ) | | (234 | ) | | (9 | ) | | 12 |
| | (301 | ) | | 3 |
| | (63 | ) |
Net cash provided by / (used in) financing activities | 80 |
| | (32 | ) | | — |
| | (50 | ) | | — |
| | (24 | ) | | 80 |
| | 117 |
| 330 |
| | (4 | ) | | — |
| | (61 | ) | | — |
| | (656 | ) | | (8 | ) | | 132 |
|
Impact of currency movements on cash | 29 |
| | — |
| | (5 | ) | | 2 |
| | — |
| | — |
| | — |
| | — |
| 13 |
| | 1 |
| | (2 | ) | | — |
| | — |
| | — |
| | 1 |
| | — |
|
Cash and cash equivalents: | |
| | |
| | |
| | |
| | |
| | |
| | | | | |
| | |
| | |
| | |
| | |
| | |
| | | | |
At the beginning of the year | 139 |
| | 61 |
| | 104 |
| | 12 |
| | — |
| | 196 |
| | 1 |
| | 1 |
| 110 |
| | 51 |
| | 102 |
| | 12 |
| | — |
| | 168 |
| | 7 |
| | — |
|
At the end of the year | 110 |
| | 51 |
| | 102 |
| | 12 |
| | — |
| | 168 |
| | 7 |
| | — |
| 141 |
| | 38 |
| | 60 |
| | 5 |
| | — |
| | 158 |
| | 13 |
| | — |
|
Dividend to non-controlling interests | — |
| | (6 | ) | | — |
| | (25 | ) | | — |
| | (30 | ) | | — |
| | — |
| — |
| | (2 | ) | | — |
| | (26 | ) | | — |
| | (98 | ) | | (5 | ) | | — |
|
10.5.211.5.2 Transactions with non-controlling interests
Acquisitions of non-controlling interests, which do not result in a change of control, are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognized as a result of such transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in thei
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
rtheir relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the parent.
Transactions with non-controlling interests in 2018 were as follows:
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
On November 9, 2018, ArcelorMittal completed the acquisition of Marcegaglia's 15% non-controlling interest in AM InvestCo and 11% non-controlling interest in BRE.M.A Warmwalz GmbH & CoCo. KG for a 28 and 40 consideration, respectively. The Company recorded a decrease of 55 directly in equity.
Transactions with non-controlling interests in 2016 were as follows:
AMSA
On January 15, 2016, AMSA completed a rights offering fully underwritten by ArcelorMittal. The total cash proceeds amounted to ZAR 4.5 billion. ArcelorMittal subscribed the capital increase through repayment of an outstanding intragroup loan of ZAR 3.2 billion and an additional cash injection of ZAR 0.5 billion. As a result of the rights issue, ArcelorMittal’s shareholding in AMSA increased from 52% to 70.55% and non-controlling interests decreased by 80.
Effective October 17, 2016, ArcelorMittal’s interest in AMSA decreased to 69.22%. In the framework of AMSA’s transformation initiatives in order to maximize its score under the Broad-Based Black Economic Empowerment (“B-BBEE”) Codes of Good Practice, it launched on October 1, 2015 an employee share ownership plan following which the Ikageng Broad-Based Employee Share Trust obtained an ownership interest of 1.33% in AMSA to be attributed to qualifying employees upon vesting date of the plan.
In addition, on September 28, 2016, AMSA announced that it had entered into agreements to implement a transaction which includes the issuance of a 17% shareholding in AMSA using a new class of notionally funded shares to a special purpose vehicle owned by Likamva Resources Proprietary Limited (“Likamva”). Likamva has undertaken to introduce broad-based social and community development organizations as shareholders to hold an effective 5% interest (of the 17%, leaving Likamva with a 12% shareholding) within 24 months. The transaction also includes the issuance of a 5.1% shareholding in AMSA using another new class of notionally funded shares to the ArcelorMittal South Africa Employee Empowerment Share Trust for the benefit of AMSA employees and AMSA management. All the shares have certain restrictions on disposal for a period of 10 years thereby promoting long-term sustainable B-BBEE in AMSA. The shares were issued on December 7, 2016. The Company concluded that the transaction does not correspond to a share issue but qualifies as an in substance option (resulting in the recognition of an expense of 63, which is recognized in financing costs - net and corresponds to the fair value at inception). The shares give the holders rights to notional dividends which will be used to repay the notional funding and voting rights for up to 10 years, resulting in a decrease of ArcelorMittal's voting rights to 53.92%. The Company will recognize non-controlling interests at the end of the 10 year period depending on the value of the shares based on a pre-defined formula. |
| | | |
| 2016 |
Non-controlling interests | 80 | |
Purchase price (selling price), net 1
| (56 | ) |
Adjustment to equity attributable to the equity holders of the parent | 136 | |
| |
1. | Amount paid in by non-controlling shareholders in AMSA following the rights issue
|
Transactions with non-controlling interests include also the mandatory convertible bonds (see note 10.2)11.2).
NOTE 11:12: RELATED PARTIES
The related parties of the Group are predominately subsidiaries, joint operations, joint ventures, associates and key management personnel (see note 7.1)8.1) of the Group. Transactions between the parent company, its subsidiaries and joint operations are eliminated on consolidation and are not disclosed in this note. Related parties include the Significant Shareholder, which is a trust of which Mr. Lakshmi N. Mittal, Mrs. Usha Mittal and their children are the beneficiaries and which owns 37.4% of ArcelorMittal’s ordinary shares.
Transactions with related parties of the Company mainly relate to sales and purchases of raw materials and steel products and were as follows:
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
11.112.1 Sales and trade receivables | | | | Year Ended December 31, | | December 31, |
| Year Ended December 31, |
| December 31, |
| | Sales | | Trade receivables |
| Sales |
| Trade receivables |
Related parties and their subsidiaries where applicable | Category | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | Category |
| 2019 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
Calvert | Joint Venture | | 2,207 |
| | 2,030 |
| | 1,400 |
| | 33 |
| | 13 |
| Joint Venture |
| 2,518 |
|
| 2,207 |
|
| 2,030 |
|
| 5 |
|
| 33 |
|
Gonvarri Steel Industries1 | Associate | | 2,022 |
| | 1,666 |
| | 1,210 |
| | 78 |
| | 92 |
| Associate |
| 1,728 |
|
| 2,022 |
|
| 1,666 |
|
| 42 |
|
| 78 |
|
Macsteel4 | Other | | 470 |
| | 521 |
| | 399 |
| | 2 |
| | 38 |
| |
ArcelorMittal CLN Distribuzione Italia S.r.l. | Joint Venture | | 511 |
| | 472 |
| | 414 |
| | 38 |
| | 18 |
| Joint Venture |
| 483 |
|
| 511 |
|
| 472 |
|
| 57 |
|
| 38 |
|
Borçelik | Joint Venture | | 536 |
| | 426 |
| | 240 |
| | 20 |
| | 11 |
| Joint Venture |
| 474 |
|
| 536 |
|
| 426 |
|
| 20 |
|
| 20 |
|
Bamesa | Associate | | 383 |
| | 397 |
| | 371 |
| | 27 |
| | 35 |
| Associate |
| 365 |
|
| 383 |
|
| 397 |
|
| 32 |
|
| 27 |
|
I/N Kote L.P. | Joint Venture | | 329 |
| | 321 |
| | 346 |
| | 10 |
| | 7 |
| Joint Venture |
| 321 |
|
| 329 |
|
| 321 |
|
| 2 |
|
| 10 |
|
C.L.N. Coils Lamiere Nastri S.p.A. | | Associate |
| 247 |
|
| 265 |
|
| 233 |
|
| 10 |
|
| 6 |
|
AM RZK | | Joint Venture |
| 225 |
|
| 136 |
|
| 235 |
|
| 13 |
|
| 5 |
|
Aperam Société Anonyme ("Aperam") | Other | | 278 |
| | 262 |
| | 189 |
| | 29 |
| | 32 |
| Other |
| 172 |
|
| 278 |
|
| 262 |
|
| 16 |
|
| 29 |
|
AM RZK | Joint Venture | | 136 |
| | 235 |
| | 163 |
| | 5 |
| | 15 |
| |
C.L.N. Coils Lamiere Nastri S.p.A. | Associate | | 265 |
| | 233 |
| | 203 |
| | 6 |
| | 5 |
| |
Tuper S.A.2 | Joint Venture | | 155 |
| | 154 |
| | 13 |
| | 45 |
| | 45 |
| |
WDI3 | Associate | | 148 |
| | 127 |
| | 151 |
| | 1 |
| | 4 |
| |
Tuper S.A. | | Joint Venture |
| 147 |
|
| 155 |
|
| 154 |
|
| 43 |
|
| 45 |
|
Tameh | Joint Venture | | 110 |
| | 67 |
| | 51 |
| | 4 |
| | 3 |
| Joint Venture |
| 109 |
|
| 110 |
|
| 67 |
|
| 8 |
|
| 4 |
|
WDI 2 | | Associate |
| 105 |
|
| 148 |
|
| 127 |
|
| 1 |
|
| 1 |
|
Al Jubail | Joint Venture | | 115 |
| | 66 |
| | 38 |
| | 1 |
| | 11 |
| Joint Venture |
| 25 |
|
| 115 |
|
| 66 |
|
| — |
|
| 1 |
|
Macsteel 3 | | Other |
| — |
|
| 470 |
|
| 521 |
|
| — |
|
| 2 |
|
Other | | 594 |
| | 526 |
| | 446 |
| | 67 |
| | 77 |
|
| 523 |
|
| 594 |
|
| 526 |
|
| 49 |
|
| 67 |
|
Total | | 8,259 |
| | 7,503 |
| | 5,634 |
| | 366 |
| | 406 |
|
| 7,442 |
|
| 8,259 |
|
| 7,503 |
|
| 298 |
|
| 366 |
|
| |
1. | Gonvarri Steel Industries includes ArcelorMittal Gonvarri Brasil Productos Siderúrgicos which is a joint venture. |
| |
2. | The joint venture Tuper S.A. was acquired on October 6, 2016.
|
| |
3. | WDI includes Westfälische Drahtindustrie Verwaltungsgesellschaft mbH & Co. KG and Westfälische Drahtindustrie GmbH. |
| |
4.3. | Macsteel was sold on October 31, 2018. |
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
11.212.2 Purchases and trade payables
| | | | Year Ended December 31, | | December 31, |
| Year Ended December 31, |
| December 31, |
| | Purchases | | Trade payables |
| Purchases |
| Trade payables |
Related parties and their subsidiaries where applicable | Category | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | Category |
| 2019 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
Tameh | Joint Venture | | 344 |
| | 286 |
| | 236 |
| | 2 |
| | 45 |
| Joint Venture |
| 273 |
|
| 344 |
|
| 286 |
|
| 22 |
|
| 2 |
|
Baffinland1 | Associate | | 28 |
| | 142 |
| | 75 |
| | 16 |
| | 22 |
| |
Aperam | Other | | 85 |
| | 94 |
| | 65 |
| | 6 |
| | 11 |
| |
Calvert | Joint Venture | | 107 |
| | 65 |
| | 15 |
| | 23 |
| | 11 |
| Joint Venture |
| 127 |
|
| 107 |
|
| 65 |
|
| 41 |
|
| 23 |
|
CFL Cargo S.A. | Associate | | 59 |
| | 60 |
| | 58 |
| | 9 |
| | 13 |
| Associate |
| 63 |
|
| 59 |
|
| 60 |
|
| 17 |
|
| 9 |
|
Al Jubail | | Joint Venture |
| 53 |
|
| 42 |
|
| 2 |
|
| 4 |
|
| 22 |
|
Exeltium S.A.S. | Associate | | 54 |
| | 53 |
| | 71 |
| | — |
| | — |
| Associate |
| 52 |
|
| 54 |
|
| 53 |
|
| — |
|
| — |
|
Sitrel | | Joint Venture |
| 49 |
|
| 41 |
|
| — |
|
| 1 |
|
| 3 |
|
Aperam | | Other |
| 47 |
|
| 85 |
|
| 94 |
|
| 7 |
|
| 6 |
|
Baycoat Limited Partnership | Joint Venture | | 43 |
| | 42 |
| | 41 |
| | 5 |
| | 5 |
| Joint Venture |
| 47 |
|
| 43 |
|
| 42 |
|
| 8 |
|
| 5 |
|
EIMP2 | Other | | — |
| | 36 |
| | 310 |
| | — |
| | — |
| |
Gonvarri Steel Industries3 | Associate | | 35 |
| | 19 |
| | 146 |
| | 31 |
| | 51 |
| |
Gonvarri Steel Industries 1 | | Associate |
| 22 |
|
| 35 |
|
| 19 |
|
| 15 |
|
| 31 |
|
Baffinland 2 | | Associate |
| 16 |
|
| 28 |
|
| 142 |
|
| 1 |
|
| 16 |
|
Other |
| | 361 |
| | 236 |
| | 373 |
| | 109 |
| | 102 |
|
| 343 |
|
| 278 |
|
| 270 |
|
| 135 |
|
| 84 |
|
Total |
| | 1,116 |
| | 1,033 |
| | 1,390 |
| | 201 |
| | 260 |
|
| 1,092 |
|
| 1,116 |
|
| 1,033 |
|
| 251 |
|
| 201 |
|
| |
1. | Gonvarri Steel Industries includes ArcelorMittal Gonvarri Brasil Productos Siderúrgicos which is a joint venture. |
| |
2. | Baffinland was classified as an associate as of October 31, 2017 (see note 2). |
| |
2. | In addition to trade payables and purchases with related parties as defined by IAS 24, the Company also discloses this information for EIMP due to the close relationship with this entity. The Company's 21% stake in the EIMP was disposed of on August 7, 2017.
|
| |
3. | Gonvarri Steel Industries includes ArcelorMittal Gonvarri Brasil Productos Siderúrgicos which is a joint venture. |
11.312.3 Other transactions with related parties
At December 31, 2018,2019, subsequent to the ArcelorMittal's sale of a 50% controlling interest in Global Chartering to DryLog (see note 2.3.1), the Company signed a 10 year freight contract with Global Chartering, whereby ArcelorMittal agreed to provide cargo up to 16.8 million tonnes annually for shipping, representing 80% of the current capacity of Global Chartering. As of December 31, 2019, the Company also had an outstanding short-term loan of 127 granted to Global Chartering, which is expected to be repaid following the sale-and-lease back of three vessels owned by Global Chartering.
At December 31, 2019, the shareholder loans granted by the Company to Al Jubail, with various maturity dates, had a carrying value of 131109 (see note 2.4.3).
As of March 13, 2017, the Company granted a credit facility to AMTBA bearing compound interest (Libor 3 months + margin) maturing on February 28, 2018 for a maximum aggregated amount of 35. The facility was fully repaid during the year.
As of December 3, 2014, ArcelorMittal Calvert LLC signed a member capital expenditure loan agreement with the joint venture Calvert and as of December 31, 2018,2019, the loans amounted to 149162 including accrued interest. The loans bear interest from 3% to 3.95%4.77% and have various maturity dates rangeranging from less than 1 to 25 years.years.
In May 2014, ArcelorMittal entered into a 5-year off take agreement with its associate Baffinland (the "AM Sourcing Contract"), whereby it will buy the lesser of 50% of the annual quantity of iron ore produced by Baffinland or 2 million tonnes of iron ore per year. The AM Sourcing Contract has been extended to December 31, 2021 and the maximum quantity shall increase to the lesser of 50% of the annual quantity of iron ore produced by Baffinland or 4 million tonnes per contract year, after completion of the Rail Expansion project. The purchase price includes a premium to reference prices based on high iron ore content. ArcelorMittal paid advances to Baffinland for an amount equivalent to the value of iron ore stockpiled by Baffinland outside the salable season until August 31, 2017. From September 1, 2017 to December 31, 2021, ArcelorMittal will not pay advances to Baffinland anymore as payments for the purchases will occur upon loading on vessel for shipment at port of Milne.
In May 2014, ArcelorMittal also entered into an additional contract with Baffinland whereby it agreed to act as a sales agent (“Marketing agreement”) for all of Baffinland’s iron ore (excluding the shipments subject to the offtake agreement mentioned above). The Company also entered into an agreement to advance 80% of the lesser of 50% of the annual quantity of iron ore produced by Baffinland or 1.5 million tonnes of iron ore per year. The contract expired on the extended maturity at April 30, 2016. On August 24, 2016,November 8, 2019, Baffinland entered into an agreement with a bank to finance an amount which does not exceed the lesser of 50% of iron ore stockpiled by Baffinland outside the salable season and 2.3 million tonnes in any contract year. This agreement expired on the extended maturity at October 20, 2017. On December 1, 2017, Baffinland entered into a new agreement with a bank to finance up to 4 million tonnes at 78% of the value of the iron ore produced and hauled to the por
ARCELORMITTAL AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(millions of U.S. dollars, except share and per share data)
t by Baffinland (the "EXW Purchase Contract"). The EXW Purchase Contract matured on October 20, 2018. Under this agreement, the bank purchased product from Baffinland up to 50% which was then sold to ArcelorMittal under a separate back-to-back contract (“AM Purchase Contract”). ArcelorMittal contracted with third-party steel mills for onward sale of the product purchased from the bank under the AM Purchase Contract. The remaining 50% of product purchased by the bank under the EXW Purchase Contract was sold to ArcelorMittal under the AM Sourcing Contract as a result of Baffinland assigning its rights under that contract to the bank on December 22, 2017. On December 4, 2018, Baffinland entered into a new agreement with a bank to finance up to 6 million tonnes at 78% of the value of the iron ore produced and hauled to the port of Milne Inlet by Baffinland up to a limit of 400.
NOTE 12: SUBSEQUENT EVENTS
On March 2,450. ArcelorMittal's shared operator rights terminated on June 30, 2018 and the Company retained marketing rights until December 31, 2019. ArcelorMittal signed a joint venture formation agreementis working with NSSMC in relation to its offer to acquire ESIL, which was subsequently amendedNunavut Iron Ore and restatedBaffinland on January 22, 2019. On April 2, 2018, ArcelorMittal submitted an offer inthis transition of the re-bidding process for ESIL. The offer has faced various legal challenges at the National Company Law Tribunal and more recently at the National Company Law Appellate Tribunal ("NCLAT"). marketing activities.
OnFollowing the Indian Supreme Court ruling dated October 26,4, 2018, ArcelorMittal announced that ESIL Committeecompleted a series of Creditors (‘CoC’)payments to the financial creditors of KSS Petron to clear overdue debts (see note 4.6). AMNS India has votedthe right to approveenforce the Company’s acquisition of ESIL. ESIL’s Resolution Professional,KSS Petron debt on behalf of the CoC, issued the Company with a Letterfor an outstanding amount of Intent (''LOI'') stating that the Company has been identified136 as the ‘Successful Applicant’. Further to ArcelorMittal being named the H1 Resolution Applicant (the preferred bidder) on October 19, 2018, ESIL’s CoC approved the Company’s acquisition plan for ESIL (the "Resolution Plan"), with the ''LOI'' identifying it as the ‘Successful Resolution Plan’. The Resolution Plan set out a detailed industrial plan for ESIL aimed at improving its performance and profitability and ensuring it can participate in the anticipated growth of steel demand in India. It includes an upfront payment of 42,000 crore rupees (approx. $5.7 billion) towards ESIL’s debt resolution, with a further 8,000 crore rupees (approx. $1.1 billion) of capital injection into ESIL to support operational improvement, increase production levels and deliver enhanced levels of profitability. December 31, 2019.
The process to restore ESIL would involve a multi-staged approach: initial steps would be to stabilize the operations and increase production of finished steel goods to 6.5 million tonnes per annum in the medium-term followed by an increase to 8.5 million tonnes per annum by the end of 2024 and ultimately have long-term aspirations to produce between 12-15 million tonnes per annum.
In line with ESIL’s corporate insolvency process, ArcelorMittal’s Resolution Plan must now be formally accepted by India’s National Company Law Tribunal (“NCLT”) before completion. The NCLT has completed hearing the CoC's application for the approval of the Resolution Plan, as well as objections and challenges from different parties, including creditors of ESIL and the current shareholder. While it is difficult to predict the timing of an NCLT approval, a decision is expected in the first quarter of 2019 and the amounts of debt payment and capital injection specified in the Resolution Plan would become payable promptly after such approval is obtained.
On February 19, 2019, ArcelorMittal announced the completion of its share buyback program on February 15, 2019 (the "2019 Program"). The Company repurchased 4 million shares for a total value of approximately 90 (€80 million) at an approximate average price per share of €19.89 ($22.42) pursuant to the 2019 Program that was announced on February 7, 2019. The 2019 Program was completed under the authorization given by the annual general meeting of shareholders held on May 5, 2015 and applicable market abuse regulations. The shares acquired under the 2019 Program are intended to meet ArcelorMittal's obligations arising from employee share programs.F-136