Arcelor Mittal Reports First Quarter 2007 Results
05/21/2007 - Arcelor Mittal reported net income of $2.3 billion on sales income of $24.5 billion for the three months ended March 31, 2007.
Arcelor Mittal reported net income of $2.3 billion on sales income of $24.5 billion for the three months ended March 31, 2007.
First Quarter Results—The $2.3 billion net income ($1.62 per share) compares with pro forma net income of $2.4 billion ($1.71 per share) for the three months ended December 31, 2006, and net income of $1.6 billion ($1.16 per share) for the three months ended March 31, 2006.
Sales and operating income of $24.5 billion and $3.5 billion, respectively, compare with sales and pro-forma operating income of $23.2 billion and $3.2 billion, respectively, for the three months ended December 31, 2006. Pro-forma sales and operating income for the three months ended March 31, 2006, were $20.9 billion and $2.5 billion, respectively.
Total steel shipments of 27.0 million tonnes compares with steel shipments of 26.7 million tonnes for the three months ended December 31, 2006 and pro-forma steel shipments of 27.9 million tonnes for the three months ended March 31, 2006.
Depreciation increased to $891 million as compared with pro forma depreciation of $875 million for the three months ended December 31, 2006, and $796 million for the three months ended March 31, 2006. Income from equity method investments was $154 million as compared with pro-forma income from equity method investments of $163 million for the three months ended December 31, 2006, and $110 million for the three months ended March 31, 2006.
Net financing costs were $10 million as compared with pro-forma income of $4 million for the three months ended December 31, 2006, and pro-forma expense of $681 million for the three months ended March 31, 2006. Pro-forma net financing costs for the three months ended December 31, 2006, primarily included a gain relating to a Canadian dollar swap, foreign exchange, certain financial instruments partly offset by the conversion cost of Arcelor OCEANEs (convertible bonds). Net financing costs for the three months ended March 31, 2007, primarily include gains relating to certain financial instruments, foreign exchange, and a gain relating to a Canadian dollar swap.
Income tax expense increased to $934 million as compared with pro-forma tax expense of $642 million for the three months ended December 31, 2006. The effective tax rate was 25.8% as compared with 18.6% for the three months ended December 31, 2006. The pro-forma income tax expense for the three months ended December 31, 2006, included the tax benefit of the utilization of certain net operating losses. The pro-forma income tax expense for the three months ended March 31, 2006 was $33 million, with an effective tax rate of 1.7%.
Minority interest was $436 million as compared with pro-forma minority interest of $443 million for the three months ended December 31, 2006, and $305 million for the three months ended March 31, 2006.
Operations Analysis— In the following analysis of operations, which compares first-quarter 2007 results with fourth-quarter 2006 results, 2006 segmental information has been reallocated to conform to the 2007 allocation.
Flat Carbon Americas—Total steel shipments in the Flat Carbon Americas segment were 6.6 million tonnes for the first quarter, as compared with steel shipments of 6.7 million tonnes for the previous quarter (ended December 31, 2006). Sales were flat at $5.1 billion as compared with sales for the three months ended December 31, 2006.
Operating income was $584 million for the three months ended March 31, 2007, as compared with pro forma operating income of $632 million for the three months ended December 31, 2006. Operating results, as compared with the three months ended December 31, 2006, were impacted primarily by lower shipments due to weaker market demand. Average steel selling prices were flat.
Flat Carbon Europe—Total steel shipments in the Flat Carbon Europe segment were 8.7 million tonnes for the first quarter, as compared with steel shipments of 8.4 million tonnes for the previous quarter (ended December 31, 2006). Sales were higher at $8.2 billion, as compared with sales of $7.6 billion for the previous quarter.
Operating income increased to $1.1 billion, as compared with pro-forma operating income of $755 million for the previous quarter. Operating results, as compared to the previous quarter, increased due to improved volumes and average steel selling prices, which were partially offset by higher input costs.
Long Carbon Americas and Europe—Total steel shipments in the Long Carbon Americas and Europe segment were marginally higher at 6.2 million tonnes for the first quarter, as compared with steel shipments of 6.1 million tonnes for the previous quarter (ended December 31, 2006). Sales were higher at $5.5 billion as compared with sales of $5.0 billion for the previous quarter.
Operating income was higher at $947 million, as compared with pro-forma operating income of $879 million for the three months ended December 31, 2006. Operating results, as compared with the previous quarter, increased due to slightly higher volumes and average steel selling prices.
Asia Africa and CIS (“AACIS”)—Total steel shipments in the AACIS segment were higher at 5.1 million tonnes for the first quarter, as compared with steel shipments of 4.9 million tonnes for the previous quarter (ended December 31, 2006). Sales were higher at $4.0 billion, as compared with sales of $3.8 billion for the previous quarter.
Operating income was marginally higher at $744 million, as compared with pro-forma operating income of $727 million for the previous quarter. Operating results, as compared to the previous quarter, increased due to higher volumes and average steel selling prices, which were partly offset by higher input costs.
Stainless Steel—Total steel shipments in the Stainless Steel segment were lower at 498 thousand tonnes for the first quarter, as compared with steel shipments of 543 thousand tonnes for the previous quarter (ended December 31, 2006). Sales were higher at $2.3 billion, as compared with sales of $2.2 billion for the previous quarter.
Operating income was higher at $373 million, as compared with pro-forma operating income of $344 million for the previous quarter. Operating results for the Stainless Steel segment improved, as compared to the previous quarter, primarily due to higher average steel selling prices driven by a steep increase in nickel prices, offset in part by increased input costs and lower volumes.
AM3S2—Total steel shipments in the AM3S segment were higher at 3.8 million tonnes for the first quarter, as compared with steel shipments of 3.7 million tonnes for the previous quarter ended December 31, 2006. (Shipments for the AM3S segment, which are mainly inter-company, are not consolidated in the total shipments of the combined company and are eliminated.)
Sales in the AM3S segment were higher at $3.4 billion as compared with sales of $3.3 billion for the previous quarter. Operating income decreased marginally to $121 million, as compared with pro-forma operating income of $128 million for the previous quarter.
Liquidity and Capital Resources—Arcelor Mittal'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 its operating subsidiaries.
As of March 31, 2007, the company’s cash and cash equivalents, including restricted cash and short-term investments, amounted to $8.3 billion as compared to $6.1 billion at December 31, 2006. Net debt, which includes long-term debt plus short-term debt less cash and cash equivalents, restricted cash and short-term investments, was reduced by $1.7 billion to $18.8 billion as compared to December 31, 2006.
In addition, the company, including its operating subsidiaries, had available borrowing capacity of $9.6 billion at March 31, 2007, as compared with $9.0 billion at December 31, 2006.
Changes in working capital resulted in the use of $653 million in cash during the quarter, compared to cash generated from changes in working capital of $1.0 billion for the three months ended December 31, 2006.
For the three months ended March 31, 2007, net cash provided by operating activities was $2.7 billion, as compared with $4.3 billion for the three months ended December 31, 2006.
Capital expenditures during the quarter were $988 million as compared with $1.6 billion for the three months ended December 31, 2006.
On April 27, 2007, Standard & Poor’s Ratings Services revised its outlook on Arcelor Mittal to positive from stable. At the same time, the “BBB” long-term corporate credit rating on Arcelor Mittal was affirmed.
Recent Developments—On April 20, 2007, Arcelor Mittal finalized the acquisition of Sicartsa, a Mexican integrated steel producer, from Grupo Villacero, for an enterprise value of $1.4 billion, following all required approvals of the transaction, including by US and Mexican competition authorities.
On April 19, 2007, Arcelor Mittal employee representatives and management agreed on the principle of a new combined European Works Council (EWC). This new agreement replaces the EWC agreements that previously existed in both Mittal Steel Co. NV and Arcelor SA prior to the merger and represents a major additional step in the integration process of Arcelor Mittal. The new Arcelor Mittal EWC will be representing over 130,000 employees within the European Union 27.
On September 25, 2006, the Comissão de Valores Mobiliários (the CVM), the Brazilian securities regulator, ruled that, as a result of Arcelor Mittal’s acquisition of Arcelor, Arcelor Mittal was required to carry out a public offer to acquire all of the outstanding shares in Arcelor Brasil not owned by Arcelor or any other affiliate of Arcelor Mittal. Pursuant to the ruling, the value to be offered to Arcelor Brasil’s shareholders is to be determined on the basis of the value of the part of the overall consideration paid for Arcelor by Arcelor Mittal that was attributable to Arcelor Brasil. On April 17, 2007, the CVM granted registration of the offer, which opened on April 27, 2007 and will close on June 4, 2007. The consideration to be offered per Arcelor Brasil share is R$11.70 in cash and 0.3568 Arcelor Mittal class A common shares, subject to certain adjustments. As of April 26, 2007, the total value offered per Arcelor Brasil share would be €18.27 ($24.90). Tendering Arcelor Brasil shareholders may also accept an all-cash option, pursuant to which they would receive cash in an amount equal to the value of the cash and share consideration described above, calculated in the manner set forth in the offering documents. On the basis of the closing price for Arcelor Mittal’s shares on the New York Stock Exchange on April 26, 2007, the maximum amount of cash that may be paid by Arcelor Mittal will be approximately €3.8 billion ($5.3 billion) (assuming 100% acceptance of the cash option). The maximum number of Arcelor Mittal class A common shares that may be issued will be approximately 76 million shares, representing 5% of the share capital of Arcelor Mittal on a diluted basis (assuming 100% acceptance of the mixed consideration option).
Outlook for Second Quarter 2007—The company expects second-quarter 2007 EBITDA to be higher than that in the first quarter. (No quantitative EBITDA guidance is provided due to the pending regulatory filings in connection with the Mittal Steel/Arcelor merger process.) The company expects overall shipment levels to be higher than Q107 levels by approximately 3-5%. Profitability of the Flat Carbon Americas division is expected to improve. Long Carbon Americas and Europe profitability is expected to continue to improve due to strong market conditions. AACIS profitability is expected to improve due to increase in volumes. The profitability of the Flat Carbon Europe and AM3S division is expected to remain stable. The profitability of the Stainless Steel division is expected to decline. The company expects an effective tax rate of approximately 25% for the year.
