ArcelorMittal: Don’t Fear the Financials

ArcelorMittal (MT) announced fourth quarter ended December 31, 2015 total sales of $13.98 billion, down 10 percent sequentially from $15.59 billion of net sales in third quarter of 2015 and down 25 percent year-over-year from $18.72 billion in the fourth quarter of 2014.

ArcelorMittal declared fourth quarter of 2015 operating loss of $5.3 billion or $3.72 of basic loss per share compared to operating income of $20 million or $0.40 of basic loss per share in third quarter of 2015 and operating income of $569 million or $0.53 of basic loss per share in the fourth quarter of 2014.

The key steel manufacturing conglomerate reported continued sequential and year-over-year decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment, eating into the margins of the company while forcing it to control all the non-strategic capital expenditures to sustain enough cash to continue with its daily operations profitably.

A closer look  

ArcelorMittal is continuing to deliver attractive EBITDA and free cash flows for the quarter which primarily a result of the company’s ongoing cost-optimization initiatives focused on minimizing non-core capital expenses while sustaining strong operational and free cash flows.
Further, net loss for fourth quarter of 2015 is primarily attributable to the planned write-down and impairments of inventory.

The steel manufacturing company has successfully lowered its net debt for the quarter to $15.7 billion, sequentially from $16.8 billion of total debt during third quarter of 2015 and further, net debt by the end of December 31, 2015 is projected to be $14.7 billion after the impact of the declared sale of ArcelorMittal’s major stake in Gestamp for approximately €875 million.

Total debt declined sequentially mainly due to the strategic release of working capital. In addition, the near-term action 2020 plan is expected to deliver notable enhancement in the company’s key cash flows. The unique plan is additional benefit to the ongoing management benefits initiatives which are targeted towards offsetting industry enhancement initiatives and core inflation. Also, this strategic structural effort is estimated to allow for $3 billion of key enhancements.

The strategic cost-optimization efforts coupled with near-term debt-minimization action 2020 plan together is believed to preserve the company’s much-needed cash flows amid tough global commodity demand and pricing environment and allow it to continue with its daily operations profitably while emerging strongly from the current global market downturn.

A look at the financials  

ArcelorMittal has delivered impressive structural improvements in its balance sheet since the fiscal year 2008 till date, controlling each of the total company debt, average debt maturity in years and percentage of bank debt as constituent of net debt while improving total liquidity position. In addition, ArcelorMittal has strong liquidity lines with nearly $6 billion of refinanced and prolonged till April 2015 key lines of credit comprising of $2.5 billion of maturity till April 2018 and $3.5 billion of maturity till April 2020. The company has net debt-to-LTM EBITDA covenant of 4.25x and average debt maturity of 6.2 years with a robust liquidity position. However, each of the S&P, Moody’s and Fitch global rating agencies have provided BB, Ba2 and BB+ ratings respectively along with a negative outlook.

The global steel manufacturing giant has continued to optimize its total working capital requirements and total debt over the years, which is in line with its continued commitment to continue with its worldwide operations profitably. Moreover, ArcelorMittal has plans to invest strategically in key working capital intense projects, according to the global commodity demand and pricing conditions.

The superior debt maturity and overall liquidity position of ArcelorMittal highlights impressive structural improvements being undertaken by the company all through its global operations which is expected to drive sustainable long-term company growth once the global commodity demand and pricing environment recovers completely.

Although, the manufacturing output for ArcelorMittal is expanding continuously but growth is observed to have stabilized in its major markets with ArcelorMittal PMI of 50.8 during January 2016. In the US, core demand is growing healthily and allowed by significant performance of construction and automotive segments however, the strengthening US dollar and weaker oil prices are negatively impacting energy and manufacturing (PMI~50) sector investments. Further, international apparent steel consumption (ASC) in million tonnes per month continued to get weakened during the quarter and specifically in the US.


Overall, the investors are advised to “Hold” their position in ArcelorMittal considering the company’s significant long-term growth prospects but currently weaker financial position with notable total debt of $19.79 billion against weaker total cash position of $4.00 billion only, restricting the company to continue with its daily operations profitably. The profit margin of -12.50% seems disappointing. Moreover, the PEG ratio of -0.28 signifies no near-term growth but decline compared to somewhat better industry’s growth average of 0.35.
Published on Mar 28, 2016
By Vinay Singh

Copyrighted 2020. Content published with author's permission.

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