Analysis of results for the nine months ended September 30, 2014 versus results for the nine months ended September 30, 2013
ArcelorMittal’s net loss for 9M 2014 was $0.1 billion, or $0.08 loss per share, as compared to net loss for 9M 2013 of $1.3 billion, or $0.77 loss per share.
Total steel shipments for 9M 2014 were 2.9% higher at 63.9 million metric tonnes as compared with 62.1 million metric tonnes for 9M 2013.
Sales for 9M 2014 increased by 1.6% to $60.6 billion as compared with $59.6 billion for 9M 2013, primarily due to higher steel shipments (+2.9%) and marketable iron ore shipments (+20.1%), offset in part by lower average steel selling prices (-1.3%) and lower seaborne iron ore reference prices (-23%).
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 has been largely completed. Accordingly, depreciation of $3.0 billion for 9M 2014 was lower as compared to $3.4 billion for 9M 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 each of 2012 and 2013.
Impairment charges for 9M 2014 were nil. Impairment charges for 9M 2013 were $140 million, including $101 million for the costs associated with the discontinued iron ore project in Senegal (Mining) and costs related to the closure of the organic coating and tin plate lines in Florange.
Restructuring charges for 9M 2014 were nil. Restructuring charges for 9M 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 9M 2014 was $2.5 billion as compared with operating income of $1.2 billion for 9M 2013. Operating results for 9M 2014 were negatively impacted by a $90 million charge following the settlement of US antitrust litigation. Operating results for 9M 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 by $92 million of “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 had been fully recorded in the income statement.
Income from investments, associates, joint ventures and other investments in 9M 2014 was $208 million, as compared to income of $11 million in 9M 2013. Income in 9M 2014 includes the annual dividend received from Erdemir, improved performance of Spanish investees as well as the share of profits of Calvert operations. Income earned during 9M 2013 was lower primarily due 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 $1.1 billion for 9M 2014, as compared to $1.4 billion for 9M 2013, following repayment of bonds in 2Q 2013 and 2Q 2014. The Company now expects full year 2014 net interest expense of approximately $1.5 billion rather than the previous guidance of approximately $1.6 billion.
Foreign exchange and other net financing costs were $1.4 billion for 9M 2014 as compared to costs of $1.0 billion for 9M 2013. Foreign exchange and other net financing costs for 9M 2014 include expenses related to the termination of the Senegal greenfield project, non-cash gains and losses on convertible bonds and hedging instruments that matured during the period as well as charges related to the federal tax amnesty plan in Brazil linked with the Siderbras case.
ArcelorMittal recorded an income tax expense of $196 million for 9M 2014, as compared to an income tax expense of $191 million for 9M 2013.
Non-controlling interests for 9M 2014 were a charge of $97 million, as compared to a charge of $59 million for 9M 2013. Non-controlling interests charges for 9M 2014 primarily relate to minority shareholders’ share of net income recorded in ArcelorMittal Mines Canada.
Analysis of results for 3Q 2014 versus 2Q 2014 and 3Q 2013
ArcelorMittal recorded net income for 3Q 2014 of $22 million, or $0.01 earnings per share, as compared to net income of $52 million, or $0.03 earnings per share for 2Q 2014, and a net loss of $193 million, or $0.12 loss per share for 3Q 2013.
Total steel shipments for 3Q 2014 were 21.5 million metric tonnes, comparable to 2Q 2014, despite a seasonal slowdown in Europe and 3.9% higher than 20.7 million metric tonnes for 3Q 2013.
Sales for 3Q 2014 were $20.1 billion as compared to $20.7 billion in 2Q 2014 and $19.6 billion for 3Q 2013. Sales in 3Q 2014 were lower as compared to 2Q 2014, primarily due to lower average steel selling prices (-2.8%), lower market priced iron ore shipments (-4.8%) and iron ore reference prices (-12%). Sales in 3Q 2014 were higher as compared to 3Q 2013 due to improved steel shipments (+3.9%); and higher marketable iron ore shipments (+6.3%), offset in part by lower iron ore reference prices (-32%).
Depreciation was higher at $946 million for 3Q 2014 as compared to $931 million for 2Q 2014 and significantly lower than $1,135 million for 3Q 2013, following increases in the useful lives of plant and equipment (as discussed above).
Impairment charges for 3Q 2014 and 2Q 2014 were nil. Impairment charges for 3Q 2013 were $101 million related to the costs associated with the discontinued iron ore project in Senegal.
Restructuring charges for 3Q 2014, 2Q 2014 and 3Q 2013 were nil.
Operating income for 3Q 2014 was $959 million, as compared to operating income of $832 million for 2Q 2014 and $477 million for 3Q 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 3Q 2014 was $54 million as compared to income in 2Q 2014 of $118 million, and income of $53 million in 3Q 2013. Income from investments, associates, joint ventures and other investments in 2Q 2014 included an annual dividend received from Erdemir.
Net interest expense (including interest expense and interest income) in 3Q 2014 was lower at $338 million, as compared to $383 million for 2Q 2014 and $409 million for 3Q 2013. The decrease in 3Q 2014 was primarily due to savings incurred following the repayment of the $800 million convertible bonds upon their maturity in May 2014 as well as higher interest income.
Foreign exchange and other net financing costs were $657 million for 3Q 2014 as compared to $327 million for 2Q 2014 and $269 million for 3Q 2013. Foreign exchange and other net financing costs for 3Q 2014 were negatively impacted by $315 million foreign exchange losses as compared to a $2 million loss in 2Q 2014, primarily driven by the net impact of 7.9% USD appreciation on deferred tax assets partially offset by its impact on Euro denominated debt positions. In addition, 3Q 2014 includes $161 million expenses related to a federal tax amnesty plan in Brazil linked with Siderbras case settled during the quarter. Foreign exchange and other net financing costs for 2Q 2014 included non-cash gains and losses on convertible bonds, and hedging instruments that matured during the quarter.
ArcelorMittal recorded an income tax benefit of $21 million for 3Q 2014, as compared to an income tax expense of $156 million and income tax benefit of $5 million for 2Q 2014 and 3Q 2013, respectively. During 3Q 2014, the Company recognized $133 million of deferred tax assets for losses of previous years that were utilized in the payment of the tax amnesty in Brazil.
Non-controlling interests for 3Q 2014 represented a charge of $17 million, as compared to a charge of $32 million for 2Q 2014 and a charge of $50 million for 3Q 2013. Non-controlling interests charges for 3Q 2014 primarily related to minority shareholders’ share of net income recorded in ArcelorMittal Mines Canada and the Bekaert partnerships in Brazil, partially offset by losses generated by ArcelorMittal South Africa.
Capital expenditure projects
The following tables summarize the Company’s principal growth and optimization projects involving significant capital expenditures.