ArcelorMittal, the world’s largest steel company, announced results for the three and six month periods ended 30 June 2012.

Commenting on the results, Chairman and CEO Lakshmi N. Mittal said, "Market conditions in the first half have been very challenging, indeed more challenging than we had expected due to a combination of factors, not least the still unresolved crisis in the eurozone. Against this backdrop the company has delivered a creditable performance, continuing to make progress on the divestment of non-core assets, and reducing net debt below the half year target. Although the global economy remains fragile, we expect operating conditions to remain broadly similar in the second half. Europe remains our biggest concern and the severity of the situation is reflected in the performance of our European operations. Our focus throughout the remainder of the year remains on further improving competitiveness and reducing debt."

Outlook and guidance

In the absence of an economic recovery, steel shipments in 2H 2012 are expected to follow the normal seasonal pattern. Iron ore shipments remain on track to increase by approximately 10% in FY 2012. As a result, group EBITDA per tonne for the 2H 2012 is expected to be similar to the underlying 1H 2012 level.

A further reduction in net debt is targeted by the end of 2012 but this is dependent on further divestments. The Company remains committed to retaining its investment grade credit rating.

2012 capex expected to be approximately $4.5 billion; ArcelorMittal Mines Canada expansion to 24mtpa is on track for ramp up during 1H 2013.

Analysis of results for the six months ended 30 June 2012 versus results for the six months ended 30 June 2011

Total steel shipments for 1H 2012 were marginally lower at 43.9 million metric tonnes as compared with 44.1 million metric tonnes at 1H 2011.

Sales for 1H 2012 decreased by 4.5% to $45.2 billion as compared with $47.3 billion for 1H 2011 primarily due to lower average steel selling prices (-5.9%) and marginally lower steel shipments (-0.5%).

Restructuring charges for 1H 2012 totaled $297 million and consisted largely of costs associated with the implementation of the Asset Optimisation Plan primarily impacting Flat Carbon Europe and Long Carbon Europe operations as well as costs associated with the project to close two blast furnaces, sinter plant, steel shop and continuous casters in Liege, Belgium. Costs related to Liege were recognized following the consultation process with employee representatives. There were no such restructuring charges in 1H 2011.

Operating income for 1H 2012 was $1.8 billion, compared with operating income of $3.7 billion for 1H 2011. Operating income during 1H 2012 was positively impacted by $580 million of one-time impacts: changes to the employee benefit plans at Dofasco led to curtailment gains of $241 million, and the Skyline Steel divestment[4] led to a gain of $339 million.

Operating performance for 1H 2012 was also positively impacted by $295 million of dynamic delta hedge ("DDH") income recognized during the period. Operating performance for 1H 2011 was positively impacted by $308 million DDH income and a non-cash gain of $336 million recorded in the first quarter of 2011 relating to the reversal of provisions for inventory write-downs and litigation.

Analysis of results for 2Q 2012 versus 1Q 2012 and 2Q 2011

Total steel shipments for 2Q 2012 were 21.7 million metric tonnes as compared with 22.2 million metric tonnes for 1Q 2012 and 22.2 million metric tonnes for 2Q 2011.

Sales for 2Q 2012 decreased by 1.0% to $22.5 billion as compared with $22.7 billion for 1Q 2012, and were down 10.5% as compared with $25.1 billion for 2Q 2011. Sales were lower during 2Q 2012 as compared to 1Q 2012 primarily due to lower steel shipment volumes (-2.5%), marginally lower average steel selling prices (-0.4%) and the impact of negative foreign exchange effects.

Operating income for 2Q 2012 was $1.1 billion, as compared with $663 million for 1Q 2012 and $2.3 billion for 2Q 2011. Operating income during 2Q 2012 was positively impacted by $339 million gain from the Skyline Steel divestment. Operating income during 1Q 2012 was positively impacted by changes to the employee benefit plans at Dofasco, leading to curtailment gains of $241 million.

Operating performance for 2Q 2012 and 1Q 2012 was positively impacted by $136 million and $159 million, respectively, of DDH income (unwinding of hedges on raw material purchases) recognised during the quarter. Operating income for 2Q 2011 included a non-cash gain of $189 million relating to DDH income.

Analysis of segment operations

Flat Carbon Americas

Steel shipments for 2Q 2012 were 5.7 million tonnes, 1.1% higher than 1Q 2012.

Sales in the Flat Carbon Americas segment were $5.4 billion for 2Q 2012, a marginal increase of 1.7% as compared to $5.3 billion for 1Q 2012. Sales were impacted by higher steel selling prices in North America with lower dollar prices in South America due to depreciation of Brazilian Real.

EBITDA in 2Q 2012 decreased by 24.8% to $474 million as compared to $632 million in 1Q 2012. EBITDA in 1Q 2012 was positively impacted by changes to the employee benefit plans at Dofasco which resulted in curtailment gains of $241 million[5]. Excluding the curtailment gain effect, EBITDA in 2Q 2012 was 21.2% higher than 1Q 2012. Higher profitability was primarily driven by North American operations due to better selling prices combined with lower input cost, partially offset by lower profitability from South American operations and higher cost.

Flat Carbon Europe
Steel shipments for 2Q 2012 were 6.8 million tonnes, a decrease of 9.2% as compared to 7.5 million tonnes for 1Q 2012. Steel shipments decreased due to lower demand in Europe, following the end of restocking, and lower exports.

Sales in the Flat Carbon Europe segment were $7.2 billion for 2Q 2012, a decrease of 6.4% as compared to $7.7 billion for 1Q 2012. Sales decreased primarily due to lower steel shipment volumes offset in part by higher average steel selling prices (+2.7%) in dollars despite euro currency depreciation.

EBITDA for 2Q 2012 was $381 million as compared to $130 million for 1Q 2012. Higher profitability was primarily driven by higher average selling prices and lower cost (benefit from lower average inventory cost) partially offset by lower steel shipment volumes. EBITDA for 2Q 2012 includes $136 million of DDH income recognized during the quarter as compared to $159 million DDH income for 1Q 2012.

Operating performance in 2Q 2012 was negatively impacted by restructuring costs totaling $176 million associated with the project to close two blast furnaces, sinter plant, steel shop and continuous casters in Liege, Belgium. Operating performance in 1Q 2012 was negatively impacted by restructuring costs totalling $56 million associated with separation schemes primarily relating to Polish entities as part of the implementation of the Asset Optimisation Plan.

Long Carbon Americas and Europe
Steel shipments for 2Q 2012 were 5.8 million tonnes, an increase of 1.8% as compared to 5.7 million tonnes for 1Q 2012.

Sales in the Long Carbon Americas and Europe segment were lower at $5.7 billion for 2Q 2012, as compared to $5.8 billion for 1Q 2012. Sales were impacted by an increase in steel shipment volumes offset by lower average steel selling prices (-2.7%) primarily due to depreciation of local currencies in Europe and South America.

EBITDA for 2Q 2012 was $564 million, a 29.1% increase as compared to $437 million for 1Q 2012. Higher profitability was primarily driven by improved volumes combined with lower input cost, primarily in Europe (scrap prices) and recovery in our Tubular business which was impacted by operational issues in 1Q 2012.

Operating performance in 1Q 2012 was negatively impacted by restructuring costs totalling $46 million associated with the implementation of the Asset Optimisation Plan primarily relating to Spanish entities. Additionally, due to ongoing construction market weakness impairment charges totalling $61 million were recorded during 1Q 2012 associated with the extended idling of the electric arc furnace and continuous caster at the Schifflange site in Luxembourg.

Asia Africa and CIS ("AACIS")

Steel shipments for 2Q 2012 amounted to 3.3 million tonnes, marginally lower by 1.0% as compared to 3.4 million tonnes for 1Q 2012.

Sales in the AACIS segment were $2.7 billion for 2Q 2012, a decrease of 3.9% as compared to $2.8 billion for 1Q 2012, primarily due to marginally lower steel shipments and stable steel average selling prices in CIS and lower average steel selling prices in South Africa impacted by depreciation of South African rand and weaker domestic market.

EBITDA for 2Q 2012 was $120 million, 25.0% lower as compared to $160 million for 1Q 2012. Lower profitability was driven primarily from our South African operations with lower selling prices and volumes combined with higher cost, partially offset by improved profitability from CIS operations.

Distribution Solutions

Sales in the Distribution Solutions segment for 2Q 2012 were $4.3 billion, a decrease of 3.1% as compared to $4.4 billion for 1Q 2012, due primarily to lower steel shipment volumes.

EBITDA for 2Q 2012 was $385 million, as compared to EBITDA of $35 million for 1Q 2012. EBITDA for 2Q 2012 includes a gain of $339 million from the Skyline divestment. Excluding this, EBITDA for 2Q 2012 was $46 million, an improvement of 31.4% as compared to $35 million in 1Q 2012.

Mining
Own coal production (not including supplies under strategic long-term contracts) for 2Q 2012 remained flat compared to 1Q 2012 and 2Q 2011.

EBITDA attributable to the Mining segment for 2Q 2012 was $541 million, 13.2% higher as compared to $478 million for 1Q 2012, primarily due to higher marketable shipments. EBITDA attributable to the Mining segment was $835 million for 2Q 2011.