Analysis of results for the six months ended June 30, 2014 versus results for the six months ended June 30, 2013
ArcelorMittal’s net loss for 1H 2014 was $0.2 billion, or $0.09 loss per share, as compared to net loss for 1H 2013 of $1.1 billion, or $0.65 loss per share.
Total steel shipments for 1H 2014 were 2.5% higher at 42.4 million metric tonnes as compared with 41.4 million metric tonnes for 1H 2013.
Sales for 1H 2014 increased by 1.4% to $40.5 billion as compared with $39.9 billion for 1H 2013, primarily due to higher steel shipments (+2.5%) and marketable iron ore shipments (+28.4%), offset in part by lower average steel selling prices (-1.6%) and lower seaborne iron ore prices (-19%).
In recent years the Company’s maintenance practices have enabled an increase in the useful lives of plant and equipment. As a result of this development, the Company has determined that it is appropriate to extend the useful lives resulting in a lower charge to the income statement. The full detailed review of useful lives of the assets was largely completed during 2Q 2014. Accordingly, depreciation of $2.0 billion for 1H 2014 was lower as compared to $2.3 billion for 1H 2013. The Company expects the full year 2014 depreciation charge to be approximately $3.8-4.0 billion as compared to $4.7 billion in both 2012 and 2013.
Impairment charges for 1H 2014 were nil. Impairment charges for 1H 2013 were $39 million, primarily relating to the closure of the organic coating and tin plate lines in Florange (Europe).
Restructuring charges for 1H 2014 were nil. Restructuring charges for 1H 2013 were $173 million, including $137 million of cost incurred for the long term idling of the Florange liquid phase (including voluntary separation scheme costs, site rehabilitation/safeguarding costs, and take or pay obligations).
Operating income for 1H 2014 was $1.5 billion as compared with operating income of $756 million for 1H 2013. Operating results for 1H 2014 were negatively impacted by a $90 million charge following the settlement of US antitrust litigation. Operating results for 1H 2013 were positively impacted by a $47 million fair valuation gain relating to the acquisition of an additional ownership interest in DJ Galvanizing in Canada and $92 million related to “Dynamic Delta Hedge” (DDH) income. The DDH income recorded in 1Q 2013 was the final instalment of such income. This gain on the unwinding of a currency hedge related to raw materials purchases was initially recorded in equity in 4Q 2008, and as of 1Q 2013 was fully recorded in the income statement.
Income from investments, associates, joint ventures and other investments in 1H 2014 was $154 million, as compared to a loss of $42 million in 1H 2013. Income in 1H 2014 includes the annual dividend received from Erdemir, improved performance of Spanish investees as well as the share of profits of Calvert operations[10]. Losses incurred during 1H 2013 related primarily to the payment of contingent consideration related to the Gonvarri Brasil acquisition in 2008 and weaker performance of European associates during the year.
Net interest expense (including interest expense and interest income) was lower at $809 million for 1H 2014, as compared to $949 million for 1H 2013, on account of savings incurred following repayment of the EUR and USD bonds in June 2013 and the EUR and USD convertibles in April and May of 2014. The Company expects full year 2014 net interest expense of approximately $1.6 billion.
Foreign exchange and other net financing costs[11] were $707 million for 1H 2014 as compared to costs of $685 million for 1H 2013. Foreign exchange and other net financing costs for 1H 2014 include a payment following the termination of the Senegal greenfield project[12] and non-cash gains and losses on convertible bonds, and hedging instruments which matured during the quarter. Foreign exchange and other net financing costs for 1H 2013 were negatively affected by a 8% devaluation of Brazilian Real versus USD which impacted loans and payables denominated in foreign currency.
ArcelorMittal recorded an income tax expense of $217 million for 1H 2014, as compared to an income tax expense of $196 million for 1H 2013.
Non-controlling interests for 1H 2014 were a charge of $80 million, as compared to a charge of $9 million for 1H 2013. Non-controlling interests charges for 1H 2014 primarily relate to minority shareholders’ share of net income recorded in ArcelorMittal Mines Canada.
Analysis of results for 2Q 2014 versus 1Q 2014 and 2Q 2013
ArcelorMittal recorded net income for 2Q 2014 of $52 million, or $0.03 earnings per share, as compared to a net loss of $0.2 billion, or $0.12 loss per share for 1Q 2014, and a net loss of $0.8 billion, or $0.44 loss per share for 2Q 2013.
Total steel shipments for 2Q 2014 were 21.5 million metric tonnes, as compared with 21.0 million metric tonnes for 1Q 2014 and 20.9 million metric tonnes for 2Q 2013.
Sales for 2Q 2014 were $20.7 billion as compared to $19.8 billion in 1Q 2014 and $20.2 billion for 2Q 2013. The increase as compared to 1Q 2014 was due to improved steel shipments (+2.3%), marginally higher average steel selling prices (+0.9%), and seasonally higher market priced iron ore shipments (+12.5%), offset in part by lower iron ore reference prices (-15%). Sales in 2Q 2014 was higher as compared to 2Q 2013 due to improved steel shipments (+2.5%); and higher marketable iron ore shipments (+28.8%), offset in part by lower average steel selling prices (-1.2%) and lower iron ore references prices (-18.5%).
Following increases in the useful lives of plant and equipment (as discussed above), depreciation was lower at $931 million for 2Q 2014 as compared to $1,080 million for 1Q 2014 and $1,136 million for 2Q 2013.
Impairment charges for 2Q 2014 and 1Q 2014 were nil. Impairment charges for 2Q 2013 were $39 million, primarily relating to the closure of the organic coating and tin plate lines in Florange (Europe).
Restructuring charges for 2Q 2014 and 1Q 2014 were nil. Restructuring charges for 2Q 2013 were $173 million, including $137 million of costs incurred for the long term idling of the Florange liquid phase (including voluntary separation scheme costs, site rehabilitation/safeguarding costs, and take or pay obligations).
Operating income for 2Q 2014 was $832 million, as compared to operating income of $674 million for 1Q 2014 and operating income of $352 million for 2Q 2013. Operating results for 2Q 2014 included a $90 million charge following the settlement of US antitrust litigation.
Income from investments, associates, joint ventures and other investments in 2Q 2014 was $118 million as compared to income in 1Q 2014 of $36 million, and a loss of $24 million in 2Q 2013. Income from investments, associates, joint ventures and other investments in 2Q 2014 included annual dividend received from Erdemir, improved performance from some European investees as well as the share of profits of Calvert operations. Income in 1Q 2014 was primarily the result of improved performance of Spanish entities. Losses incurred during 2Q 2013 related primarily to the payment of contingent consideration from the Gonvarri Brasil acquisition in 2008.
Net interest expense (including interest expense and interest income) in 2Q 2014 was $383 million, as compared to $426 million for 1Q 2014 and $471 million for 2Q 2013. The decrease in 2Q 2014 was due to savings incurred following the repayment of the EUR and USD bonds in June 2013, and the convertibles upon their maturity in April and May of 2014.
Foreign exchange and other net financing costs were $327 million for 2Q 2014 as compared to $380 million for 1Q 2014 and $530 million for 2Q 2013. Foreign exchange and other net financing costs for 2Q 2014 include non-cash gains and losses on convertible bonds, and hedging instruments which matured during the quarter. Foreign exchange and other net financing costs for 1Q 2014 included a provision in relation to the termination of the Senegal greenfield project. Foreign exchange and other net financing costs for 2Q 2013 were negatively affected by a 9% devaluation of Brazilian Real versus USD which impacted loans and payables denominated in foreign currency.
ArcelorMittal recorded an income tax expense of $156 million for 2Q 2014, as compared to an income tax expense of $61 million and $99 million for 1Q 2014 and 2Q 2013, respectively.
Non-controlling interests for 2Q 2014 were a charge of $32 million, as compared to a charge of $48 million for 1Q 2014 and a charge of $8 million for 2Q 2013. Non-controlling interests charges for 2Q 2014 primarily related to minority shareholders’ share of net income recorded in ArcelorMittal Mines Canada, partially offset by losses generated in ArcelorMittal South Africa.
Capital expenditure projects
The following tables summarize the Company’s principal growth and optimization projects involving significant capital expenditures.