ArcelorMittal S.A. (NYSE:MT) Q4 2022 Earnings Call Transcript

ArcelorMittal S.A. (NYSE:MT) Q4 2022 Earnings Call Transcript February 9, 2023

Company Representatives: Lakshmi Mittal – Executive Chairman Aditya Mittal – Chief Executive Officer Genuino Christino – Chief Financial Officer Daniel Fairclough – Vice President, Investor Relations

Operator: It’s now my pleasure, and I would now like to turn the conference over to Daniel Fairclough, Vice President, Investor Relations. Please go ahead, sir.

Daniel Fairclough: Thank you, Francie. Hi and good afternoon everybody. This as Francie said is Daniel Fairclough from the ArcelorMittal Investor Relations team. I’d like to welcome everybody to the Fourth Quarter and Full Year ’22 Analyst and Investor Call. I’m joined on this call today by our Executive Chairman, Mr. Mittal; our CEO, Aditya Mittal and our CFO, Genuino Christino. Before I hand over to Mr. Mittal and Aditya, I would like to remind everybody of a few housekeeping items. Firstly, I want to refer everybody to the disclaimers that you can find on slide two of the results presentation we published on our website this morning. I’d also like to remind everybody that this call today is being recorded, and it’s scheduled to last up to 45 minutes. And finally, to repeat Francie’s instructions . And with that, I would like to hand over the call to Mr. Mittal to begin with some opening remarks.

Lakshmi Mittal: Thank you, Daniel. Good day, everyone. Thank you for joining today’s call. I hope you are all keeping safe and well. I’ll be very quick in my remarks. I would characterize 2022 as another year of progress for our ArcelorMittal. The results we have published today demonstrate the greater resilience of ArcelorMittal when facing more challenging market environments, and I believe the worst conditions of this cycle have passed. As a company we have achieved significant progress on many strategic fronts over the past 12 month. Advancing our decarbonization plans, progressing with our investments to grow EBITDA and at the same time buying back over 10% of all equity. The progress is gratifying, and it’s down to the hard work, commitment and dedication of all our people. I expect 2023 to be another good year for the company and all our stakeholders. Adit?

Photo by Stefan Lehner on Unsplash

Aditya Mittal: Thank you, and welcome everyone. In 2022 we have made clear progress in our three strategic priorities: The decarbonization of our footprint; the growth and development of our business; and capital returns to shareholders. On decarbonization we had completed the acquisition of the HBI plant in Texas, allowing us to utilize low-carbon metallics and creating significant optionality for the future. We have acquired four scrap processors in Europe with a total capacity at 1.2 million tons. We have commissioned our €200 million CCU bioethanol project in Ghent Belgium. We are progressing on our DRIEA plant in five countries and a 1 gigawatt renewable project in India is advancing. On growth, we have now received approval for the CSP acquisition, which we’ll complete this quarter, adding highest quality capacity at the bottom of the cost curve, with the added benefit of access to growing sources of competitive renewables and hydrogen.

We’re also progressing our strong pipeline of higher return strategic CapEx projects, including the newly announced Electrical Steels project in France. In total, these projects add $1.3 billion to a normalized earnings power. That assumes long term steel spreads and long term iron ore prices well below today’s levels. So at today’s levels, the impact on profitability would be even greater. We’re making progress to realize the potential of our JVs, including the announcement of a major investment to double our capacity in India, which is also supported by the recently acquired port and power assets. Our capital allocation and return policy is working very well. We’re growing the earnings power of the business. We bought back 30% of our equities in September 2020 and ended the year with record loan net debt.

In terms of outlook, we’ve seen some positive signs recently that suggests we have passed the bottom of the current destock cycle. The customer destock that we spoke of the last quarter has eased, and we’ve seen improvement in steel spreads from the unsustainable lows of the fourth quarter last year. We are forecasting apparent demand growth in all our core markets. We’re well placed to generate positive cash flow and will continue to progress our decarbonization and growth agendas and capital returns program. Genuino, can I now ask you to provide some more detail on our financial performance.

See also 35 Most Expensive Countries in the World and 12 Countries that Produce the Best Tobacco.

Q&A Session

Genuino Christino : Thank you, Aditya. In terms of our financial performance, 2022 was very much a year of two halves. For the first half we operated in strong market conditions and delivered very strong levels of profitability. The second half of the year brought several challenges and saw a marked downturn in the market environment and naturally affected our profitability levels. Full year EBITDA was $14.1 billion, of which $10.2 billion was generated in the first half and $3.9 billion in the second. But our results demonstrate clear resilience. At $100 per ton, the EBITDA in the fourth quarter was double the levels of the previous crises environment. Considering the challenges posed by destocking and relatively high energy costs, this reevaluates the actions we have taken and the improvements we have made to our portfolio in recent periods.

Free cash flow has also been very consistent. Over the past two years we have generated $13 billion in free cash flow. It is this consistence that is allowing us to progress our strategy agenda and as Aditya mentioned, we expect to continue to generate quick levels of free cash flow in the year ahead. With that, I think they can move to your questions.

A – Daniel Fairclough : Thank you, Genuino. Thank you, Aditya. Thank you, Mr. Mittal. We have a queue of questions and we will take the first in the queue, which is Alain from Morgan Stanley. Please go ahead.

Alain Gabriel: Yes, thank you, gentlemen and I have two questions from my side. The first one is on capital returns. I understand that your framework stipulates that only $100 million of buybacks are needed to meet your 50% of the cash flow target for capital returns. But your net debt has come in far below market expectations for Q4 and you still have an authorization to buy back almost 19 million shares. Any reason why you have decided against maintaining the buyback at full steam given where your share price is today? That’s my first question.

Aditya Mittal: Yes, thank you for the question. I’m glad you asked the question, because you should clarify, there is no change in our buyback policy or the speed at which we’re implementing. We still have 19 million shares to acquire and which we will do. I think all we were highlighting in the results is that the $100 million belongs to 2022, because that’s 50% of free cash flow that we have actually bought in January, and the remainder will apply to the 2023 capital return policy.

Alain Gabriel: Okay, thank you, that’s very clear. And my second question is on your EBITDA progression going forward into Q1 and Q2 in terms of the key moving parts. Can you give us some pointers around that? And you stated that we have pasted the bottom of the current destock cycle. Is it fair to assume that we are also past the bottom when it comes to quarterly EBITDA in Q4 last year. Thanks.

Genuino Christino: Let me take this one. So yeah, I think as we’re discussing at the time of our Q3 results, and so we were expecting a very severe level of destock in quarter four. That’s exactly what we saw. Really strong destock happening. It’s hard really to say that the destock is over, but clearly not going to be as significantly as it was in Q4. We got to see certain levels of normalization, and our expectation as we move forward that the appearance to consumption will be closer to the real demand. In 2022, I think it’s important to put that into context. In Europe, if you look at Europe, the real demand was actually okay. So the real demand at the end of the year was €“ we were close to breakeven, slightly positive.