ArcelorMittal reports second quarter 2019 and half year 2019 results

Sustainable development and safety performance

Health and safety - Own personnel and contractors lost time injury frequency rate

Health and safety performance (inclusive of ArcelorMittal Italia (previously known as Ilva)), based on own personnel figures and contractors lost time injury frequency (LTIF) rate was 1.26x in second quarter of 2019 ("2Q 2019") as compared to 1.14x in the first quarter of 2019 (“1Q 2019”). Health and safety performance (inclusive of ArcelorMittal Italia) in the first six months of 2019 (“1H 2019”) was 1.19x.

Excluding the impact of ArcelorMittal Italia, the LTIF was 0.68x for 2Q 2019 as compared to 0.66x for 1Q 2019 and 0.71x for the second quarter of 2018 (“2Q 2018”).  Health and safety performance (excluding the impact of ArcelorMittal Italia) improved to 0.66x in 1H 2019 as compared to 0.67x for the first six months of 2018 (“1H 2018”).

The Company’s efforts to improve its Health and Safety record remain focused on both further reducing the rate of severe injuries and preventing fatalities.

Own personnel and contractors - Frequency rate

Key sustainable development highlights for 2Q 2019:

• ArcelorMittal published its first Climate Action report with a stated ambition to significantly reduce its carbon footprint by 2050; ArcelorMittal's European business specifically targets to be carbon neutral by 2050.
  
• ArcelorMittal has become a member of the Energy Transition Commission.
  
• ArcelorMittal hosted a consultation at the ArcelorMittal Orbit in London on the draft ResponsibleSteel™ standard - the steel industry’s first, multi-stakeholder standard for the entire ‘mine-to-metal’ steel value chain.  The standard is due to launch to the market at the end of 2019.
  
• ArcelorMittal won Fiat Chrysler Automobiles' best raw material supplier award, recognizing our commitment to deliver value through innovation, quality and competitiveness. 
  
• ArcelorMittal was named Steel Sustainability Champion by the World Steel Association for the second consecutive year.

Analysis of results for the six months ended June 30, 2019 versus results for the six months ended June 30, 2018

Total steel shipments for 1H 2019 were 44.6 million metric tonnes representing an increase of 3.5% as compared to 1H 2018,
primarily due to higher steel shipments in Europe (+10.1%) due to the impact of ArcelorMittal Italia (following its consolidation from November 1, 2018) and in Brazil (+6.6%), offset in part by lower shipments in ACIS (-4.0%) and NAFTA (-5.3%). Excluding the impact of ArcelorMittal Italia and Votorantim, steel shipments in 1H 2019 were 1.9% lower as compared to 1H 2018.

Sales for 1H 2019 decreased by 1.8% to $38.5 billion as compared with $39.2 billion for 1H 2018, primarily due to lower average steel selling prices (-6.1%) offset in part by higher steel shipments (+3.5%).

Depreciation of $1.5 billion for 1H 2019 was higher as compared with $1.4 billion in 1H 2018. Depreciation charges for 2019 include the depreciation of right-of-use assets recognized in property, plant and equipment under IFRS 16 lease accounting, which were previously recorded in cost of sales and selling, general and administrative expenses. FY 2019 depreciation is expected to be approximately $3.1 billion (based on current exchange rates).

Impairment charges for 1H 2019 were $1.1 billion related to the remedy asset sales for the ArcelorMittal Italia acquisition ($0.5 billion) and impairment of the fixed assets of ArcelorMittal USA ($0.6 billion) following a sharp decline in steel prices and high raw material costs. Impairment charges for 1H 2018 were $86 million related to the agreed remedy package required for the approval of the Votorantim acquisition⁵.

Exceptional items for 1H 2019 were nil. Exceptional charges for 1H 2018 were $146 million related to a provision taken in respect of a case that has been settled⁶.

Operating income for 1H 2019 was lower at $0.6 billion as compared to $3.9 billion in 1H 2018 primarily driven by impairments as discussed above, as well as weaker operating conditions (negative price-cost effect in steel segments) reflecting both the impact of the decline in steel prices since 4Q 2018 and higher raw material costs offset in part by improved mining segment performance.

Income from associates, joint ventures and other investments for 1H 2019 was higher at $302 million as compared to $242 million for 1H 2018. Performance of Calvert and Chinese investee weakened in 1H 2019 as compared to 1H 2018, whilst 1H 2018 was negatively impacted by $132 million impairment of ArcelorMittal’s investment in Macsteel (South Africa) following the announced sale of its 50% stake in May 2018. Income from investments in associates, joint ventures and other investments in 1H 2019 and 1H 2018 include the annual dividend income from Erdemir of $93 million and $87 million, respectively.

Net interest expense in 1H 2019 was slightly lower at $315 million as compared to $323 million in 1H 2018. The Company expects full year 2019 net interest expense to be approximately $650 million.

Foreign exchange and other net financing losses were $404 million for 1H 2019 as compared to $564 million for 1H 2018. Foreign exchange losses for 1H 2019 were $14 million as compared to foreign exchange losses of $237 million in 1H 2018.

ArcelorMittal recorded an income tax expense of $149 million for 1H 2019 as compared to $184 million for 1H 2018. The deferred tax benefit of $340 million in 1H 2018 is the result of recording a deferred tax asset primarily due to the expectation of higher future profits mainly in Luxembourg, following the share capital conversion.

ArcelorMittal’s net loss for 1H 2019 was $33 million, or $0.03 basic loss per common share, as compared to a net income in 1H 2018 of $3.1 billion, or $3.01 basic earnings per common share.

Analysis of results for 2Q 2019 versus 1Q 2019 and 2Q 2018
Total steel shipments in 2Q 2019 were 4.3% higher at 22.8Mt as compared with 21.8Mt for 1Q 2019 primarily due to higher steel shipments in ACIS (+19.5%) due to normalization of production in Temirtau (Kazakhstan), seasonally higher shipments in Europe (+2.2%), higher shipments in NAFTA (+2.2%), primarily due to ramp up of the blast furnace in Mexico, offset by lower shipments in Brazil (-3.3%) due to weaker export conditions.

Total steel shipments in 2Q 2019 were 4.8% higher as compared with 21.8Mt for 2Q 2018 primarily due to higher steel shipments in Europe (+12.3%) due to the acquisition of ArcelorMittal Italia, ACIS (+4.1%) due to operational issues in Ukraine last year offset by lower steel shipments in NAFTA (-6.3%) and in Brazil (-1.6%). Excluding the impact of the ArcelorMittal Italia acquisition, steel shipments were -0.7% lower as compared to 2Q 2018.

Sales in 2Q 2019 were 0.5% higher at $19.3 billion as compared to $19.2 billion for 1Q 2019 primarily due to higher steel shipments (+4.3%) offset in part by lower average steel selling prices (-3.9%). Sales in 2Q 2019 were 3.6% lower as compared to $20 billion for 2Q 2018 primarily due to lower average steel selling prices (-8.8%), partially offset by higher steel shipments (+4.8%).

Depreciation for 2Q 2019 was higher at $766 million as compared to $733 million for 1Q 2019. 2Q 2019 depreciation expense was higher than $712 million in 2Q 2018 primarily due to the impact of IFRS 16.

Impairment charges for 2Q 2019 were $947 million related to the remedy asset sales for the ArcelorMittal Italia acquisition ($347 million) and impairment of the fixed assets of ArcelorMittal USA ($600 million) following a sharp decline in steel prices and high raw material costs. Impairment charges for 1Q 2019 of $150 million related to the remedy asset sales for the ArcelorMittal Italia acquisition. Impairment charges for 2Q 2018 were nil.

Operating loss for 2Q 2019 was $0.2 billion as compared to an operating income of $0.8 billion in 1Q 2019 and an operating income of $2.4 billion in 2Q 2018 primarily driven by impairments as discussed above, as well as weaker operating conditions (negative price-cost effect in the steel segments) reflecting both the impact of the decline in steel prices since 1Q 2019 and higher raw material prices, offset in part by the impact of higher seaborne iron ore reference prices.

Income from associates, joint ventures and other investments for 2Q 2019 was $94 million as compared to $208 million for 1Q 2019 and $30 million for 2Q 2018. 2Q 2019 was impacted by weaker Chinese and Calvert investee performances. 1Q 2019 was positively impacted by the annual dividend declared by Erdemir ($93 million). 2Q 2018 was impacted by $132 million impairment of ArcelorMittal’s investment in Macsteel (South Africa) following the announced sale of its 50% stake in May 2018.

Net interest expense in 2Q 2019 was $154 million as compared to $161 million in 1Q 2019 and lower than $159 million in 2Q 2018.
               
Foreign exchange and other net financing losses in 2Q 2019 were $173 million as compared to $231 million for 1Q 2019 and $390 million in 2Q 2018. Foreign exchange gain for 2Q 2019 was $34 million as compared to foreign exchange losses of $48 million and $309 million, in 1Q 2019 and 2Q 2018, respectively. 2Q 2019 includes non-cash mark-to-market losses of $55 million related to the mandatory convertible bonds call option as compared to losses of $6 million in 1Q 2019 and gains of $91 million in 2Q 2018.

ArcelorMittal recorded an income tax expense of $14 million in 2Q 2019 as compared to an income tax expense of $135 million for 1Q 2019 and an income tax benefit of $19 million for 2Q 2018.

Income attributable to non-controlling interests was $42 million for 2Q 2019 as compared to $36 million for 1Q 2019 and losses attributable to non-controlling interests of $4 million in 2Q 2018.

ArcelorMittal recorded a net loss for 2Q 2019 of $0.4 billion, or $0.44 basic loss per common share, as compared to net income for 1Q 2019 of $0.4 billion, or $0.41 basic earnings per common share, and a net income for 2Q 2018 of $1.9 billion, or $1.84 basic earnings per common share.

Analysis of segment operations

NAFTA

NAFTA segment crude steel production increased by 3.7% to 5.6Mt in 2Q 2019 as compared to 5.4Mt in 1Q 2019. This increase was primarily due to ramp up of the blast furnace in Mexico (which had suffered delays following scheduled maintenance in 3Q 2018).

Steel shipments in 2Q 2019 increased by 2.2% to 5.4Mt as compared to 5.3Mt in 1Q 2019 primarily due to a 21.1% improvement in the long product shipments (mainly in Mexico as discussed above).

Sales in 2Q 2019 were stable at $5.1 billion as compared to 1Q 2019, primarily due to higher steel shipments (+2.2%) offset by a 4.3% decline in average steel selling prices (with both flat and long products down 3.6% and 5.7%, respectively). US prices have deteriorated through 2Q 2019 reflecting weaker demand exacerbated by prolonged customer destocking and increased domestic supply with prices well below import parity.

Impairment charges for 2Q 2019 were $600 million related to impairment of the fixed assets of ArcelorMittal USA following a sharp decline in steel prices and high raw material costs. As a result, there was an operating loss in 2Q 2019 of $539 million as compared to operating income of $216 million in 1Q 2019 and $660 million in 2Q 2018.

EBITDA in 2Q 2019 decreased by 43.4% to $198 million as compared to $350 million in 1Q 2019 primarily due to negative price-cost effect offset in part by higher steel shipment volumes. EBITDA in 2Q 2019 decreased by 75.0% as compared to $791 million in 2Q 2018 primarily due to a negative price-cost effect and lower steel shipments (-6.3%).

Brazil

Brazil segment crude steel production decreased by 6.1% to 2.8Mt in 2Q 2019 as compared to 3.0Mt for 1Q 2019, due in part to the decision to stop ArcelorMittal Tubarão's blast furnace #2 in June, two months earlier than its initial maintenance schedule due to deteriorating export market conditions, as well as lower production in the long business.

Steel shipments in 2Q 2019 decreased by 3.3% to 2.8Mt as compared to 2.9Mt in 1Q 2019, due to a decrease in flat products (-8.0%) primarily due to lower exports.

Sales in 2Q 2019 decreased by 1.4% to $2.1 billion as compared to $2.2 billion in 1Q 2019, primarily due to lower steel shipments as discussed above. Average steel selling prices remained stable as increases in local currency sales prices were offset by currency depreciation.

Operating income in 2Q 2019 marginally declined to $234 million as compared to $239 million in 1Q 2019 and was lower than $369 million in 2Q 2018.

EBITDA in 2Q 2019 increased by 1.2% to $313 million as compared to $309 million in 1Q 2019. EBITDA in 2Q 2019 was 29.3% lower as compared to $443 million in 2Q 2018 primarily due to negative price-cost effect and foreign exchange translation impact.

Europe

Europe segment crude steel production decreased by 2.4% to 12.1Mt in 2Q 2019 as compared to 12.4Mt in 1Q 2019, primarily due to weaker than expected market conditions.

Steel shipments in 2Q 2019 seasonally increased by 2.2% to 11.8Mt as compared to 11.6Mt in 1Q 2019, whilst they were 12.3% higher than 2Q 2018 (due to the scope impact from the ArcelorMittal Italia acquisition which was consolidated from November 1, 2018), the impact of floods in Asturias, Spain and the impact of rail strikes in France in 2Q 2018.

Sales in 2Q 2019 were $10.4 billion, -0.9% lower as compared to $10.5 billion in 1Q 2019, with lower average steel selling prices -3.5% (with both flat and long products declining 3.5% and 3.7%, respectively) offset in part by higher steel shipments, as discussed above.

Impairment charges for 2Q 2019 and 1Q 2019 were $347 million and $150 million, respectively, related to remedy asset sales related to ArcelorMittal Italia. Impairment charges for 2Q 2018 were nil.

Operating loss in 2Q 2019 was $301 million as compared to operating income of $11 million in 1Q 2019 and $853 million in 2Q 2018. Operating results were impacted by impairment charges as discussed above.

Despite seasonally higher steel shipments, EBITDA in 2Q 2019 decreased by -23.7% to $359 million as compared to $470 million in 1Q 2019 primarily due to a negative price-cost effect. EBITDA in 2Q 2019 decreased by -68.7% as compared to $1,145 million in 2Q 2018, primarily due to negative price-cost effect, foreign exchange impact, and continued losses of ArcelorMittal Italia. Assuming existing market conditions and no ongoing license to operate issues, an accelerated action plan has been implemented to significantly reduce ArcelorMittal Italia losses by 4Q 2019.
 
ACIS

ACIS segment crude steel production in 2Q 2019 was broadly stable at 3.3Mt as compared to 1Q 2019 primarily due to normalization of production in Temirtau (Kazakhstan) following an explosion at a gas pipeline in 4Q 2018 offset by lower production in Ukraine due to planned blast furnace repair and in South Africa following a scheduled maintenance.

Steel shipments in 2Q 2019 increased by 19.5% to 3.2Mt as compared to 2.7Mt as at 1Q 2019, primarily due to the improved shipments in all three regions particularly in Kazakhstan.

Sales in 2Q 2019 increased by 15.8% to $1.9 billion as compared to $1.6 billion in 1Q 2019 primarily due to higher steel shipments.

Operating income in 2Q 2019 was higher at $114 million as compared to $64 million in 1Q 2019 and lower as compared to $312 million in 2Q 2018.

EBITDA in 2Q 2019 increased by 37.5% to $199 million as compared to $145 million in 1Q 2019 primarily due to higher steel shipment volumes. EBITDA in 2Q 2019 was 49.7% lower as compared to $397 million in 2Q 2018, primarily due to negative price-cost effect partially offset by higher shipments.

Mining

 (a) Iron ore and coal shipments of market-priced based materials include the Company’s own mines and share of production at other mines

Own iron ore production in 2Q 2019 increased by 4.0% to 14.6Mt as compared to 14.1Mt in 1Q 2019, primarily due to seasonally higher production in ArcelorMittal Mines Canada⁷ (AMMC). Own iron ore production in 2Q 2019 increased by 1.2% as compared to 2Q 2018 primarily due to higher AMMC and Ukraine production offset in part by lower production in Liberia and Kazakhstan and the Volcan mine in Mexico which reached end of life in May 2019.

Market-priced iron ore shipments in 2Q 2019 increased by 7.7% to 9.9Mt as compared to 9.2Mt in 1Q 2019, primarily driven by seasonally higher market-priced iron ore shipments in AMMC offset in part by lower shipments in Liberia and at the Volcan mine in Mexico (as discussed above). Market-priced iron ore shipments in 2Q 2019 were largely stable as compared to 2Q 2018 driven by higher shipments in AMMC and Serra Azul offset by lower shipments in Ukraine. Market-priced iron ore shipments for FY 2019 are expected to be stable as compared to FY 2018 with increases in Liberia and AMMC to be offset by lower volume at the Volcan mine.

Own coal production in 2Q 2019 increased by 18.1% to 1.5Mt as compared to 1.2Mt in 1Q 2019 primarily due to higher production at Princeton (US) and Temirtau (Kazakhstan). Own coal production in 2Q 2019 decreased by 9.0% as compared to 1.6Mt in 2Q 2018 due to lower production at Temirtau (Kazakhstan).

Market-priced coal shipments in 2Q 2019 were stable at 0.7Mt as compared to 1Q 2019 and 2Q 2018.

Operating income in 2Q 2019 increased by 46.2% to $457 million as compared to $313 million in 1Q 2019 and $198 million in 2Q 2018.

EBITDA in 2Q 2019 increased by 35.8% to $570 million as compared to $420 million in 1Q 2019, primarily due to the impact of higher seaborne iron ore reference prices (+22.5%) and higher market-priced iron ore shipments (+7.7%). EBITDA in 2Q 2019 was 86.7% higher as compared to $305 million in 2Q 2018, primarily due to higher seaborne iron ore reference prices (+53.0%).

Liquidity and Capital Resources

For 2Q 2019 net cash provided by operating activities was $1,786 million as compared to $971 million in 1Q 2019 and $1,232 million in 2Q 2018. The cash provided by operating activities during 2Q 2019 reflects in part a working capital release of $353 million as compared to a working capital investment of $553 million in 1Q 2019 and a working capital investment of $1,232 million in 2Q 2018.

Due to a smaller than anticipated release in 4Q 2018, the Group invested more in working capital than expected in 2018 ($4.4 billion versus guidance of $3.0-3.5 billion). The Group expects this additional investment of approximately $1 billion to be released in full over the course of 2019. The 1H 2019 working capital investment of $0.2 billion was significantly less pronounced than in previous years despite seasonally higher shipments and higher raw material prices reflecting the Company’s focus on the structural release of the excess working capital. Given the 1H 2019 working capital investment of $0.2 billion this implies a release of $1.2 billion in 2H 2019.

Net cash used in investing activities during 2Q 2019 was $564 million as compared to $693 million during 1Q 2019 and $556 million in 2Q 2018. Capex decreased to $869 million in 2Q 2019 as compared to $947 million in 1Q 2019 and increased as compared to $616 million in 2Q 2018. Whilst no significant delays to growth investments are expected, the Company has reduced overall expected capex across all segments in FY 2019 by $0.5 billion and now expects FY 2019 capex to be $3.8 billion versus previous guidance of $4.3 billion.

Net cash provided by other investing activities in 2Q 2019 of $305 million primarily includes net proceeds from remedy asset sales for the ArcelorMittal Italia acquisition of $0.5 billion, offset by $0.1 billion partial reversal of the Indian rupee rolling hedge (see below) and by the quarterly lease payment for the ArcelorMittal Italia acquisition ($51 million). Net cash provided by other investing activities in 1Q 2019 of $254 million primarily includes $0.3 billion due to the rollover of the Indian rupee hedge at market price which protects the dollar funds needed for the Essar transaction as per the resolution plan approved by the Committee of Creditors and the National Company Law Tribunal in Ahmedabad, offset in part by the quarterly lease payment for the ArcelorMittal Italia acquisition ($51 million).

Net cash provided by financing activities in 2Q 2019 was $180 million as compared to net cash used in financing activities of $344 million in 1Q 2019 and net cash provided by financing activities in 2Q 2018 of $352 million.

In 2Q 2019, net cash provided by financing activities included a net inflow of $0.5 billion for new bank financing. In 1Q 2019, net outflow of debt repayments and issuances of $136 million includes $1 billion repayment of amounts borrowed in connection with the purchase of the Uttam Galva and KSS Petron debts, $0.9 billion repayment of the €750 million 5-year, 3% bond at maturity; and offset in part by $1.6 billion cash received from the issuance of two new bonds (€750 million 2.25% notes due 2024 and $750 million 4.55% notes due 2026) and $0.2 billion commercial paper issuance. Net cash provided by financing activities in 2Q 2018 of $352 million primarily includes proceeds from a $1 billion short-term loan facility entered into on May 14, 2018 offset by repayment of a €400 million ($491 million) bond at maturity on April 9, 2018.

During 2Q 2019, the Company paid dividends of $204 million mainly to ArcelorMittal shareholders. During 1Q 2019, the Company paid dividends of $46 million to minority shareholders in AMMC (Canada). During 2Q 2018, the Company paid dividends of $101 million to ArcelorMittal shareholders. During 1Q 2019, the Company completed its share buyback programme having repurchased 4 million shares for a total value of $90 million (€80 million) at an approximate average price per share of $22.42 (€19.89 per share).

Outflows from lease principal payments and other financing activities (net) were $84 million in 2Q 2019 as compared $72 million in 1Q 2019 and $21 million in 2Q 2018. The increase is as a result of the first-time application of IFRS 16 effective from January 1, 2019, as the repayments of the principal portion of the operating leases are presented under financing activities (previously reported under operating activities).

As of June 30, 2019, the Company’s cash and cash equivalents amounted to $3.7 billion as compared to $2.2 billion at March 31, 2019 and $2.4 billion at December 31, 2018.

Gross debt increased to $13.8 billion as of June 30, 2019, as compared to $13.4 billion at March 31, 2019 and $12.6 billion in December 31, 2018. As of June 30, 2019, net debt decreased by $1.0 billion to $10.2 billion as compared to $11.2 billion as of March 31, 2019. Net debt as of December 31, 2018, was $10.2 billion.

As of June 30, 2019, the Company had liquidity of $9.2 billion, consisting of cash and cash equivalents of $3.7 billion and $5.5 billion of available credit lines⁸. The $5.5 billion credit facility contains a financial covenant not to exceed 4.25x Net debt / LTM EBITDA (as defined in the facility). As of June 30, 2019, the average debt maturity was 4.7 years.

Key recent developments

• On May 6, 2019, ArcelorMittal announced its intention to temporarily reduce annualized European primary steelmaking production by 3Mt in the 2H 2019. These measures included temporarily idling production at its steelmaking facilities in Kraków, Poland and reduce production in Asturias, Spain as well as the slow down at ArcelorMittal Italia following a decision to optimise cost and quality over volume in this environment. Furthermore, on May 29, 2019, the Company announced additional steps to adjust its European production levels to the current market demand by a further 1.2Mt to take total annualized productions cuts to 4.2Mt in 2H 2019. These include:
  
  
  1. Reduce primary steelmaking production at its facilities in Dunkirk, France and Eisenhüttenstadt, Germany;
  2. Reduce primary steelmaking production at its facility in Bremen, Germany in the fourth quarter of this year, where a planned blast furnace stoppage for repair works will be extended;
  3. Extend the stoppage planned in the fourth quarter of this year to repair a blast furnace at its plant in Asturias, Spain.

ArcelorMittal stated that these actions were taken in light of difficult operating conditions in Europe with a combination of weakening demand, rising imports, high energy costs and rising carbon costs.

• On May 29, 2019, ArcelorMittal published its first Climate Action report in which it announced its ambition to significantly reduce CO2 emissions globally and be carbon neutral in Europe by 2050. To achieve this goal the Company is building a strategic roadmap linked to the evolution of public policy and developments in low-emissions steelmaking technologies. A target to 2030 will be launched in 2020, replacing the Company’s current target of an 8% carbon footprint reduction by 2020, against a 2007 baseline. The report explains in greater detail the future challenges and opportunities for the steel industry, the plausible technology pathways the Company is exploring as well as its views on the policy environment required for the steel industry to succeed in meeting the targets of the Paris Agreement.
  
  
• In June 2017, ArcelorMittal signed an agreement for the lease (for a period up to August 2023) and subsequent acquisition of Ilva’s business assets, providing for total maximum payments of EUR 1.8 billion. The lease period started on November 1, 2018. According to the legal framework in force at the time of signing and closing of the lease agreement, Ilva’s insolvency trustees, as well as the lessee and purchaser of Ilva’s assets, were granted protection from criminal liability related to environmental, health and safety, and workplace security issues at Ilva’s Taranto plant, pending the timely implementation of the EUR 1.15 billion environmental investment program approved by the Italian Government in September 2017. In September 2017 and then August 2018 the Italian State Solicitor-General issued an opinion confirming that the term of the protection coincided with the term of the Company’s environmental plan, namely to August 23, 2023. On June 28, 2019, however, the Italian Parliament ratified a law decree enacted by the Government, which has removed the protection for criminal liability related to public health and safety, and workplace security matters and, as from September 7, 2019, will also remove such protection as it relates to environmental matters. ArcelorMittal considers that the removal of this protection could impair any operator’s ability to operate the Taranto plant while implementing the environmental plan. ArcelorMittal remains in discussions with the Italian authorities on this matter, in view of reaching before September 7, 2019 an appropriate solution compatible with the continued operation of the Taranto plant. No assurance can be given at this stage as to the outcome of such discussions.
  
  In addition, on July 9, 2019 the public prosecutor of Taranto ordered the shutdown of blast furnace No. 2 of the Taranto plant. The order was in the context of a procedure dating from a fatality in 2015, as a result of which the blast furnace was put under seizure and improvements were required to be undertaken by the Special Commissioners as a condition to the continued operation of the blast furnace. The timeline of the shutdown of blast furnace No. 2 remains to be determined and will be set forth in a plan the judicial custodian appointed by the public prosecutor of Taranto is currently preparing and whose implementation would take 60 days. ArcelorMittal Italia is assessing technical aspects and is working with the relevant authorities towards an acceptable solution so that the blast furnace (which has an annual production target of 1.5 million tonnes) may remain operational.

• On July 1, 2019, ArcelorMittal announced the completion of the sale to Liberty House Group (‘Liberty’) of several steelmaking assets that form the divestment package the Company agreed with the European Commission (‘EC’) during its merger control investigation into the Company’s acquisition of Ilva S.p.A. The assets included in the divestment package are: ArcelorMittal Ostrava (Czech Republic), ArcelorMittal Galati (Romania), ArcelorMittal Skopje (Macedonia), ArcelorMittal Piombino (Italy), ArcelorMittal Dudelange (Luxembourg) and several finishing lines at ArcelorMittal Liège (Belgium). The total net consideration (consisting of amounts payable upon closing and subsequently in part contingent upon certain criteria, net of EUR 110 million placed in escrow) for the assets payable to ArcelorMittal is €740 million subject to customary closing adjustments. Of this total amount, €610 million was received on June 28, 2019. The Company has deposited €110 million in escrow to be used by Liberty for certain capital expenditure projects to satisfy commitments given in the EC approval process.
  
  
• On July 4, 2019, ArcelorMittal announced the completion of an issuance of €250 million of its 2.250% notes due January 17, 2024 (the “Notes”), which will be consolidated and form a single series with the existing €750 million 2.250 per cent. notes due January 17, 2024, originally issued on January 17, 2019. At the time of pricing the “tap” issuance, the yield to maturity (representing the actual annual cost of the issuance for ArcelorMittal) was 0.984%. The issuance closed on July 4, 2019. The Notes were issued under ArcelorMittal’s €10 billion wholesale Euro Medium Term Notes Programme. The proceeds of the issuance will be used for general corporate purposes.
  
  
• On July 4, 2019, the National Company Law Appellate Tribunal (“NCLAT”) of India disposed of the various appeals pending before it while approving the Company’s resolution plan for the acquisition of Essar Steel India Limited (“ESIL”). Several appeals have been filed before India’s Supreme Court challenging the NCLAT’s order and on July 22, 2019, India’s Supreme Court further stayed the implementation of the NCLAT’s order pending a hearing of the appeals on August 7, 2019. The transaction closing is now expected 3Q 2019.
  
  
• On July 11, 2019, ArcelorMittal completed the pricing of its offering of US$750 million aggregate principal amount of its 3.600% notes due 2024 (the “Series 2024 Notes”) and US$500 million aggregate principal amount of its 4.250% notes due 2029 (the “Series 2029 Notes”). The proceeds to ArcelorMittal (before expenses), amounting to approximately $1.2 billion, will be used for general corporate purposes including future repayment of existing indebtedness and to partially pre-fund commitments under the Essar acquisition financing facility. The issuance closed on July 16, 2019.
  
  
• On July 30, 2019, ArcelorMittal announced that it has given notice that it will redeem all of the outstanding 5.125% Notes due June 1, 2020 and 5.250% Notes due August 5, 2020 on August 30, 2019. Following prior tender offers, there is currently the following outstanding principal amount of 5.125% Notes and 5.250% Notes, respectively: US$324,229,000 (original issuance of US$500,000,000) and US$625,630,000 (original issuance of US$1,000,000,000).

Outlook and guidance
Based on year-to-date growth and the current economic outlook, ArcelorMittal expects global apparent steel consumption (“ASC”) to grow further in 2019 by between +0.5% to +1.5% (slightly revised down from previous expectation of +1.0% to +1.5% growth). By region:

ASC in US is expected to grow marginally by between +0.0% to +1.0% in 2019, with healthy non-residential construction demand offset by ongoing weakness in automotive demand and a slowdown in machinery demand (a moderation of growth versus +0.5% to +1.5% previous estimate). In Europe, ASC is expected to contract by between -2.0% to -1.0% with ongoing automotive demand weakness primarily due to lower exports (versus -1.0% to 0.0% previous estimate).  In Brazil, ASC growth in 2019 is forecasted in the range of +1.5% to +2.5% (a moderation of growth versus +3.0% to 4.0% previous estimate) as domestic GDP has slowed, as well as impacts of Argentinian recession and delayed growth in infrastructure spend until pension reform is passed. In the CIS, expected ASC growth is unchanged at +1.0% to +2.0% in 2019. Overall, World ex-China ASC is expected to grow by approximately +0.5% to +1.0% in 2019 (a moderation versus previous estimate of +1.0% to +2.0%).
In China, ASC growth forecast has increased to between +0.5% to +1.5% in 2019 (versus previous estimate of +0.0% to +1.0%) as real estate demand remains resilient.

The Group's steel shipments are expected to increase in 2019 versus 2018 due to these demand expectations, the positive scope effect of the ArcelorMittal Italia and Votorantim acquisition (net of the remedy assets sales for the ArcelorMittal Italia acquisition now complete), the expectation that 2018 operational disruptions (both controllable and uncontrollable) will not recur, offset in part by European production curtailments.

Market-priced iron ore shipments for FY 2019 are expected to be broadly stable as compared to FY 2018 with increases in Liberia and AMMC to be offset by lower volume in Mexico (in part due to the end of life of the Volcan mine).

The Company expects certain cash needs of the business (including capex, interest, cash taxes, pensions and certain other cash costs but excluding working capital movements) to be approximately $5.4 billion in 2019 versus $6.4 billion previous guidance. Whilst no significant delays to growth investments are expected, the Company has reduced overall expected capex across all segments in FY 2019 by $0.5 billion and now expects FY 2019 capex to be $3.8 billion (versus previous guidance of $4.3 billion). Interest expense in 2019 is expected to be $0.65 billion (no change) while cash taxes, pensions and other cash costs are now expected to be $1.0 billion (versus previous guidance of $1.5 billion).

As announced with the full year 2018 results in February 2019, the $1 billion excess working capital accumulated in 2018 is expected to be released in full over the course of 2019. Given the 1H 2019 working capital investment of $0.2 billion this implies a release of $1.2 billion in 2H 2019.

The Company will continue to prioritize deleveraging and believes that $7 billion (including impact of IFRS 16) is an appropriate net debt target that will sustain investment grade metrics even at the low point of the cycle.

 ArcelorMittal intends to progressively increase the base dividend paid to its shareholders, and, on attainment of the net debt target, the Company is committed to returning a portion of annual FCF to shareholders.

ArcelorMittal Condensed Consolidated Statement of Financial Position¹

ArcelorMittal Condensed Consolidated Statement of Operations¹

ArcelorMittal Condensed Consolidated Statement of Cash flows¹

Appendix 1: Product shipments by region

Note: “Others and eliminations” are not presented in the table

Appendix 2a: Capital expenditures

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