Management report amgroup_2011

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Management report amgroup_2011

  1. 1. Message from the chairman and CEO Dear shareholders, At the beginning of 2011 we excellent examples that held a special safety summit at demonstrate what can be achieved. ArcelorMittal Dofasco in Canada. Tubular products has reduced its Thank you for taking This summit concluded with a frequency rate by more than 50% the time to read commitment to embed health from 1.92 to 0.81 – an impressive ArcelorMittal’s 2011 and safety in our core values; achievement. Our mining division adapt our leadership style to better has improved its frequency rate annual report, address employee commitment from 1.63 to 1.18. Tubarão in Brazil ‘Core strengths, and engagement; ensure a stronger now has a frequency rate of 0.25 sustainable returns’. focus on fatality prevention; reduce and Temirtau in Kazakhstan a very contractor injuries and fatalities; impressive 0.17. This shows us that I will start with the result and finally, use leading indicators our overall group target of reaching to implement preventative 1.0 by 2013 can be achieved. So that is most important measures to avoid similar incidents valuable was the Canada meeting to us: health and safety. occurring again. that we held a repeat meeting at the We continue to put great end of the year to discuss how to emphasis on our Journey These commitments proved drive further improvement in 2012. valuable as we succeeded in to Zero program through reducing our LTIFR (lost time injury Although we still have some way to which we are aiming to frequency rate) for the year by the travel on our journey, I am very eradicate injuries and 20% target we set ourselves: from pleased with the progress made fatalities in the workplace. 1.77 to 1.42. Furthermore our throughout the year and must performance in the fourth quarter commend the employees of of 2011 – an LTIFR of 1.2 – was ArcelorMittal and our the best we have reported yet for a subcontractors for their efforts. single quarter. As is to be expected Safety is at the heart of everything in an organization of the size and we do and we truly believe that scale of ArcelorMittal, not all plants having a deeply embedded safety and sites are yet at the same culture can only have a positive standard. But we have some2
  2. 2. Overvieweffect on ArcelorMittal’s Projects temporarily paused include possible we look to find solutions forIn this volatile economic Our businessperformance as a whole. the Monlevade and Vega do Sul everyone affected. But I am certain environment, it is imperative that expansion projects in Brazil. that to be a stronger and therefore businesses have a clear strategy,Turning to the financials, Ebitda Although Brazil has been affected more sustainable business in Europe underpinned by a set of corefor the full year was $10.1 billion, by currency appreciation, inflation we have to adapt to the realities of strengths. ArcelorMittal has manyan improvement of 18.7% and rising wage costs which have the operating environment. strengths but there are five inyear-on-year. Sales were $94.0 decreased competitiveness, it particular that we believe arebillion compared with $78.0 billion remains one of the fastest growing The US, although not without its fundamental to our continuedin 2010 while operating income economies, recently overtaking the challenges, provides a more positive success in responding to evolving Sustainabilityincreased by 36% from $3.6 billion UK to become the 6th largest picture. Demand at the beginning market conditions and deliveringto $4.9 billion. Net income economy in the world. It remains an of this year is strong and is sustainable returns.decreased from $2.9 billion to important market for ArcelorMittal being supported by energy$2.3 billion, due to $1.3 billion and our intention will be to re-start and automotive demand, which These are our quality coreof non-recurring charges which these projects when the economic continues to improve. In February assets; our ability to make costpartially offset an otherwise situation and the market permit. there were 15 million light vehicle improvements; our market-leadingimproved performance. Net sales on an annualized basis in automotive steel; our world-classdebt at the end of the year As we begin 2012, overall the US, the highest since February mining business; and a stronger Performancewas $22.5 billion. global sentiment is improving 2008. Indicators of underlying steel balance sheet. but downside risks remain. Steel demand continue to follow theWriting to you last year, I said will continue to remain a material economy on an upward trajectory ArcelorMittal’s portfolio of highthat we expected to continue to of choice and we expect worldwide supported by rising consumer and quality core steel assets is wellsee a gradual improvement in the demand to grow further. With business confidence. placed in terms of product qualityeconomy and that 2011 would be our global footprint, ArcelorMittal and production costs. The group isa stronger year than 2010. The is well positioned to benefit China has recently announced that well diversified and our productionyear started as we anticipated, from such continued growth. it expects slower GDP1 growth of facilities outside North America and Governancewith a continued albeit gradual Nevertheless, in a challenged approximately 7.5% this year. The Europe generated approximatelyimprovement in the overall environment it is necessary to main risk to the Chinese economy 40% of our steel-based Ebitda ineconomy. However the second make some structural changes is a further downturn in private 2011. As a result, despite lowhalf, and particularly the fourth to strengthen our presence in residential construction as the operating rates, particularly inquarter, was negatively affected weaker markets. This will also government has signaled its Europe, the group generatedby a deterioration of the economy, serve to enhance the positive unwillingness to relax its clampdown Ebitda of $118 a tonne in 2011.most specifically linked to the debt impact of our exposure to on the property market until pricescrisis in Europe. Fears that a collapse stronger regional markets. are more affordable. As a result, Financial statementsof the eurozone could push the China’s end-user demand continuesglobal economy back into recession Europe remains the biggest to remain relatively weak asaffected sentiment globally. challenge. Although the worst manufacturing exports slow andA combination of weak sentiment, case scenario seems to have been new construction in the private realslow underlying demand and falling avoided, demand is still substantially estate market falls, though withraw material prices triggered a below pre-crisis levels and is set some offset from public housingperiod of significant destocking that to remain so for some time. As projects. While industrial output isresulted in apparent steel demand a result, regretfully in 2011 we expected to show improvementsfalling by 5% in the final quarter. took the decision to propose the year-on-year and steel production permanent closure of the liquid is expected to pick up over the nextIn light of the changed phase in Liège. In a move to operate few months, the overall messageenvironment, ArcelorMittal as efficiently as possible, the liquid is that growth has slowed.re-considered its capital phase at a number of other facilities Nevertheless we expect Chineseexpenditure program and decided has also been temporarily idled GDP growth to remain at least into pause all growth projects in the while we concentrate slab line with government estimatessteel business. Capital expenditure production at a smaller number of and steel demand to expand closefor the year therefore, although our most competitive sites. Such to 5% this year.increasing to $4.8 billion compared decisions are always difficult toto $3.3 billion in 2010, was below take, especially due to their socialthe initially planned $5-5.5 billion. impact. ArcelorMittal is committed to strong social dialogue and where ArcelorMittal Annual Report 20111 Gross Domestic Product. 3
  3. 3. Message from the chairman and CEO continued We have always focused Further resilience comes from the In 2011, we separated the financial group’s position as the industry results of our mining business to on cost competitiveness leader in value-added steel. With clearly show the contribution this as an important lever of a 40% share of major automotive segment is bringing to the overall our business. The group steel markets, ArcelorMittal is the business. For ArcelorMittal, our has a strong track record leading supplier to the automotive mining segment is a significant industry. This is a contract-based advantage. It ensures security of of delivering consistent business and compared to more raw materials supply to our steel cost improvements commodity-orientated businesses, business; it enables us to sell to through our management the margins are inherently more a growing list of third party gains program. Since stable and volumes less prone to customers; it allows optimization short-term stocking/destocking of supply and logistics savings 2008, we have identified cycles. This business performed and it provides the group with management gains of well in 2011 despite the volatility diversification and an effective $4 billion with a further in the broader market. We are at hedge against raw material $0.8 billion to be achieved the forefront of steel research and price changes. development, with our spend being before the end of this year. at least twice that of key European Mining is also a major source During 2011 we also and American competitors. We of growth. Production volumes announced a new asset work directly with our customers to increased 20% in coal and 10% in optimization plan, which stay ahead of the curve by offering iron ore in 2011 and this growth steel technologies that go beyond will continue as we remain on-track will deliver an additional the material itself. For example, our to produce 100 million tonnes of $1 billion of Ebitda on an advanced high-strength steels and iron ore by 2015. There are many annualized basis by the ‘S-in motion’ solutions are helping interesting projects underway, but end of 2012. automotive customers balance the the biggest highlight from our demands of improved safety with mining business in 2011 was the reduced fuel consumption. official launch and first shipment of our iron ore project in Liberia The group’s performance in 2011 in September. This project was was boosted by its world-class a major milestone not only for mining business. ArcelorMittal ArcelorMittal, but also for the has always pursued a strategy of country and people of Liberia. In owning our own mines. However, order to reach this stage, we had to we have now transformed from rebuild the entire infrastructure that being the world’s leading steel had been destroyed in the course of company with a strategy of vertical the country’s prolonged turmoil – integration, into the world’s leading including 240km of railway line steel and mining company with a and the port and material handling portfolio of high-quality growth facilities at Buchanan. mining assets that sell to both internal and external customers. The final core strength I would like This combination gives us a unique to highlight is our balance sheet, profile among our peers. which is far stronger today than it was at the onset of the global financial crisis in the third quarter of 2008. We have significantly reduced net debt by $10 billion, more than doubled the debt maturity profile to over six4
  4. 4. Overviewyears and diversified the sources by the French Institute of Internal Finally, I would like to Our businessof funding. We have a plan to Assurance; and we have alsofurther reduce net debt through regained the top spot in the metals thank all ArcelorMittalEbitda growth, ensuring discipline sector in Fortune’s annual list of employees, my colleagueson capex plans, focusing on most admired companies. Again, on the managementworking capital management and these are achievements of which committee, the Groupgenerating cash through non-core the whole company is proud.asset divestments. ArcelorMittal is a company that can Management Board and be admired on a number of fronts: the board of directors, for SustainabilityThe combination of these five for the quality of the products we their support, hard workstrengths makes ArcelorMittal produce; for our dedication to and contribution to thea strong and unique company. finding the best solutions for ourAs a result, despite the ongoing customers; for our contribution company’s performancechallenges in the global economy, to the economies in which we in 2011.we are able to continue to adapt operate; and for our commitmentto the evolving market-place and to produce safe sustainable steel. We are all excited aboutprovide our customers with the high How we do business is as important Performancequality steel and raw materials they as what we do. We publish a 2012 – an Olympic yearrequire – fulfilling our purpose of separate corporate responsibility – when the ArcelorMittalgenerating sustainable returns while report which I would urge you all to Orbit will stand proud ashelping build the infrastructure of read. To mention a few highlights, a symbol of all that ourthe modern world. we retained our membership in the Dow Jones Sustainability and company is capable of.The people of our group are the FTSE4Good indices; implementedfoundation from which we build a human rights policy with over Governanceon our strengths. I have always 147,000 employees trained tobelieved that ArcelorMittal has a date; published a responsible Lakshmi N Mittalworld-class team and this was sourcing code; and significantly Chairman and CEO of ArcelorMittalconfirmed in 2011 when for the strengthened our stakeholderfirst time we featured in the Aon engagement plan.Hewitt ranking of top companiesfor leaders. This accolade is atestament to the quality of our Financial statementsleaders – and indeed all of our261,000 employees. I recognizethat these are challenging timesfor everyone and I would liketo thank all our employees fortheir continued hard workand commitment.This was not the only recognitionwe received during the year. Thereare too many to list them all. But anumber stand out. Our internalassurance team was honored forexcellence in the categories ofBest Internal Audit Contributionand Best Risk Mapping Approach ArcelorMittal Annual Report 2011 5
  5. 5. Financial highlights Knowing your core strengths is important when faced with economic volatility and rapid change. At ArcelorMittal, having five core strengths at the heart of the business has helped to ensure we have effectively responded to evolving market conditions while maintaining a consistent strategy. Aditya Mittal CFO, member of the Group Management Board Financial highlights Sales ($1 million) 2011 93,973 2010 78,025 Ebitda2 ($ million) 2011 10,117 2010 8,525 Shipments (million tonnes) 2011 85.8 2010 85.0 Operating income ($ million) 2011 4,898 2010 3,605 Net income3 ($ million) 2011 2,263 2010 2,916 Basic earnings per share ($) 2011 1.46 2010 1.936
  6. 6. Overview Our business2011 steel shipments by location (thousand tonnes)4Segment TotalFlat Carbon Americas: 22,249 North America 17,084 South America 5,165Flat Carbon Europe: 27,123 Europe 27,123 SustainabilityLong Carbon Americas and Europe: 23,869 North America 4,584 South America 5,660 Europe 12,547 Other5 1,078AACIS (Asia, Africa and CIS6): 12,516 Africa 4,624 Performance Asia, CIS and other 7,892Number of employees6 at December 31, 2011 according to segmentsSegment Total % Flat Carbon Americas 31,566 12 Governance Flat Carbon Europe 62,130 24 Long Carbon Americas and Europe 53,558 21 AACIS (Asia, Africa and CIS7) 57,774 22 Distribution Solutions 16,998 7 Mining 36,873 14 Other activities 1,624 —Total 260,523 100 Financial statementsAllocation of employees6 at December 31, 2011 according to geographic locationRegion Total % EU278 97,619 37 Other European countries9 41,611 16 North America 36,662 14 South America 22,679 9 Asia 41,565 16 Middle East and Africa 20,387 8Total 260,523 100Own annual coal production (million tonnes)10 Own annual iron ore production (million tonnes)10 2011 8.3 2011 54.1 ArcelorMittal Annual Report 2011 2010 7.0 2010 48.9 2009 7.1 2009 37.71 ‘US$’, ‘$’, ‘dollars’, ‘USD’ or ‘US dollars’ are to United States dollars, the official 7 Commonwealth of Independent States. currency of the United States. 8 EU27 includes Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia,2 Ebitda is defined as operating income plus depreciation, impairment expenses Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, and exceptional items. Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden3 Excluding non-controlling interests. and the United Kingdom.4 Shipments originating from a geographical location. 9 Other European countries include Bosnia, Croatia, Macedonia, Norway, Russia, Serbia,5 Includes tubular products business. Switzerland, Turkey and Ukraine.6 Full-time equivalent. 10 Own iron ore and coal production excluding strategic long-term contracts. 7
  7. 7. Steel and raw materials: market analysis Steel is at the core of In 2011, the global steel market late September, apparent steel continued to build on the slow demand remained stable over the infrastructure that recovery in demand witnessed in the second and most of the third surrounds us, completely, 2010, although destocking in quarter – even though leading in all aspects of everyday the latter part of 2011 – most economic indicators such as life. So infrastructure apparent in Europe and China – purchasing managers indices were limited the increase in apparent already turning down in the second growth plans – whether steel demand to 6.4% year-on- quarter in Europe, the US and China. government-backed year. Crude steel production, which or private – impact peaked in the first quarter of the Autumn shift in sentiment on demand for steel. year, increased by 6.8% to 1,527 The end of the third quarter million tonnes. Although this was saw a material shift in sentiment. a new record, average capacity With the eurozone sovereign crisis utilization at the world’s steel plants intensifying and stock markets remains significantly below the in decline, the iron ore price fell levels recorded in 2006 and 2007, sharply. This led to destocking at before the global economic crisis service centers, most markedly in caused world demand to contract Europe where inventories had risen sharply. This is particularly so to levels above historic norms. In in Europe. the US, where steel inventories were some 25% below 2008 peak Movements in raw material prices levels and auto inventories low by played a major role in shifts in past standards, destocking was apparent demand – which more limited – and had started combines both underlying real to reverse on the back of demand and changes in inventory strengthening real demand – over the course of the year. before the end of the year. The first quarter was marked by significant restocking by both steel These contrasting demand patterns service centers and end-users as were reflected in a sharp divergence a continuing increase in iron ore in steel prices between the US and prices, rising to a new peak of over Europe from November onwards. $190 a tonne in February 2011, By the end of the year, the price of 800 raised expectations of a continuing HRC in the US midwest was more rise in steel prices. than $120 a tonne higher than the equivalent steel in Germany. This This process was further boosted was the widest price divergence mt* by severe floods in Australia, which since the first half of 2008. At the inhibited coal production and same time, a number of European China’s estimated installed resulted in a rise of around one third steel producers scaled back on steel capacity in world coking coal prices to more their production. * millions of tonnes. than $300 a tonne. As a result of these factors in the first quarter, Globally, crude steel capacity apparent demand rose around utilization fell in December to its 10% year-on-year for the world, lowest level for two years, at excluding China. 71.7%. That compared with a peak for the year of 83.3% in February. Spot steel prices increased during The principal reason for this sharp Responsible sourcing program ArcelorMittal incorporates social, ethical the first quarter of 2011 to nearly decline was a sizeable cut in and environmental considerations into €630 a tonne for spot hot rolled Chinese production in the second sourcing decisions in order to positively coil (HRC) in Europe and about half of the year. contribute to our goal of producing Safe $970 a tonne in the US, from Sustainable Steel. To this end, we have launched our ‘responsible sourcing program’. €485 and $617 respectively. Despite the difficult end to the This sets out how we will work with our After prices peaked in April and year, apparent steel demand in suppliers and defines our minimum May 2011, all of the early 2011 both Europe and the US built on requirements from our responsible sourcing price gains were lost over the the recovery that started in 2010. principles, such as health and safety and human rights. These responsible sourcing following two quarters. In Europe, apparent demand grew principles will be given systematic by around 6.1% with particularly consideration alongside factors such With substantial purchases of steel strong off-take in Germany and as price and quality. having been brought forward, the Poland. In the US market, there was usual seasonal peak in demand in growth of 11.5%. The strongest the northern hemisphere failed to market of all was the CIS, which materialize in 2011. However, with recorded growth in apparent iron prices fluctuating within a demand of around 13% on the year. narrow range from February to8
  8. 8. OverviewBrazil recorded reduced growth. In the first nine months of 2011, 120 million tonnes compared 2012 outlook Our businessIn 2010, the V-shaped economic China experienced consistent with the June peak. For reference,recovery had sucked in a large growth in apparent demand, a production cut on that scale isvolume of imports to leave the although inventory building peaked the equivalent of removing US and For 2012, we arecountry over-stocked in flat in early March and then leveled out. German production from the world forecasting a furtherproducts. With destocking in In June, domestic steel production marketplace. Despite the cutbacks, improvement in steelprogress through the second reached a new all-time high, Chinese steel production still rosehalf of 2011, apparent demand equivalent to more than by nearly 9% year-on-year. demand, compared withactually fell. 725 million tonnes a year. By 2011. However, that will Sustainability the start of the fourth quarter, Special factors in Japan still leave steel use inChina demand fluctuates however, government initiatives and North Africa the developed worldThe rise of China as the unequivocal to curb inflation and cool an The disruption caused by theleading steel producer is a relatively overheated private real estate Japanese earthquake and tsunami significantly below therecent phenomenon. At the start of market were having a negative in March 2011 caused a fall in pre-crisis level in 2007.the last decade, China was a net effect on underlying demand apparent steel demand in Japan Growth prospectsimporter of steel. In 2005, its steel for steel. over the spring and summer. should be brightestimports and exports were balanced. However, with a strong start to PerformanceBy 2007, it was the largest net Apparent demand fell severely the year and a recovery in the in the developing world,exporter at more than 50 million during the final quarter of the fourth quarter, apparent demand where the recovery hastonnes, having built its production year as economic factors combined stagnated despite production for been strongest andcapacity at breakneck speed. Today, with sharply falling iron ore prices the year falling 1.8%. In the Middle where the medium andChina is believed to have at least to encourage destocking. The East and North Africa, the events of800 million tonnes of installed steel response of many steel producers the ‘Arab Spring’ hit economic long-term outlook is thecapacity and regularly accounts for was dramatic. A number either activity in a number of countries most positive.nearly half the global output cut production or announced and apparent demand across the Governance(the figure for 2011 was 45.5%). production cuts for future months. region finished slightly lowerIn some sectors, such as rebar and By November, crude steel on the year-end.other long products used in the production was running at a levelconstruction industry, its share equivalent to around 600 millionof world production is even higher. tonnes a year – a reduction of Financial statements 1 billion peopleCrude steel production (million tonnes per month) consume 4008070 kg of steel each year on average60504030 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Dec 11 ArcelorMittal Annual Report 2011 China World excluding China Source: World Steel Association 9
  9. 9. Market analysis continued In the US, there are growing In China, the pace of growth has By contrast, steel use in the signs of economic recovery. slowed but underlying demand developing world has recovered Demand for steel in key industries continues to grow, albeit slowly. strongly from the 2008 lows and in is rising, underpinning real demand. There are expectations of a pick-up many regions is at, or approaching, Automotive production continues in steel production by the second a new peak. Apparent demand in to recover. Energy and equipment quarter as the government Central and South America already investment remains strong. Rig continues to gradually relax policy set a new record in 2010. In the counts indicate that activity in the oil to stimulate demand. The property CIS, apparent demand is projected and gas industry is on a rising curve. sector is slowing as real estate to hit a new record in 2012. Service sector inventory, in terms developers suffer from falling prices Despite slowing growth rates in of months’ supply, is marginally and rising inventory of unsold 2011, both China and India are below historic norms. Construction buildings. However, the government expected to continue their upward however, is still depressed. is committed to supporting the trajectory in 2012. social housing program and this In Europe the outlook is more should support growth in steel Steel use in the developed world subdued, with still significant demand close to 5% in 2012 after is expected to show low growth uncertainty surrounding the almost 8% in 2011. to leave underlying demand around eurozone debt crisis and 20% below pre-crisis levels in government austerity measures Developing markets lead the way 20121. In the developing world, weighing on demand. Although For all the recovery in steel use the equivalent figure is 40% or automotive production in Europe witnessed over the past two years, more above pre-crisis levels, driven is helped by exports to emerging there has been a marked divergence mainly by China. As a result of this markets and the US, this is likely between the developed and the divergence, the World Steel to be more than offset by weak developing world. After allowing for Association estimates that domestic demand. In many other projected growth in North America developing economies will account sectors, underlying demand for in 2012, apparent demand will still for 73% of world steel demand in steel in Europe is at best flat but be more than 10% lower than in 2012, compared with 61% steel demand is supported as the 2007 before the credit crisis hit. in 2007. severe destocking that began in European demand will be 20% the final quarter of 2011 has run down on 2007 levels. Japanese its course, underpinning hopes for demand for steel is projected to a slow recovery during the year. be almost 20% lower than pre-crisis levels. ArcelorMittal ranks in 2011 Dow Jones Sustainability World Index After first gaining entry Global apparent steel consumption (million tonnes per month) in 2010, our company is proud to be included into the prestigious Dow Jones Sustainability World 60 Index (DJSI) for the second consecutive year. Scoring highly 55 in all dimensions (economic, environmental and social), 50 ArcelorMittal was recognized for our strong sustainability 45 performance. 40 35 30 25 10 15 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Dec 11 Developing excluding China China Developed Source: local sources (Eurofer, Aisi, Canacero, JISF) and ArcelorMittal estimates 1 Includes North America, EU27, Japan and Oceania.10
  10. 10. OverviewLong-term growth in steel demand In the developed world, roughly By contrast, the rest of the Over the same period, global Our businessThe shift in demand from north one billion people consume an developing world (excluding China), seaborne iron ore consumptionto south and from the Organization average of 400kg of steel each with a population of more than has nearly doubled, to morefor Economic Co-operation (OECD) year. That figure is unlikely to 4 billion people, is today consuming than 1,000 million tonnes ato developing countries is set to steel at around one quarter the increase. Population growth is low year. Again, it is the need tocontinue. The rate of steel and many developed countries arerate of the developed world. In feed an ever-increasing numberconsumption per head of population becoming increasingly service- fast-developing India, the figure is of Chinese blast furnaces thathas long been a reliable indicator of based economies. The challenge even lower – at around 60kg per has driven much of this growth. for steelmakers in these marketshead. The scope for growth in steel China’s domestic production of Sustainabilitya country’s level of development.Steel is a vital element in the building is to add value by providing thedemand in these countries is iron ore has doubled over theof modern infrastructure, a key advanced steels industrial usersimmense. It has been estimated same period, but is nowhereindustrial material and the starting increasingly demand. that, between now and the end near sufficient to meet demandpoint for a host of consumer of the decade, steel demand in and the majority of domesticproducts – from household China and the rest of the developing India could more than double. mining is relatively high-cost.appliances to automotive. Service- world together account for around The ability of seaborne supplybased economies apart, steel use is 85% of the world’s population, and Cost management will be vital of iron ore to meet rising their share of world Gross Domestic for steelmakers demand in China and the rest Performancein many ways a proxy for prosperity. Product (GDP) is growing. Today, The ability to exploit these of the developing world will beAs developing countries invest China already consumes more opportunities will, for all one of the keys to steel marketin their power and transport steel per head of population – more steelmakers, require strict cost dynamics in the medium-term.infrastructure, and progressively than 450kg per head – than the controls. Rising iron ore andindustrialize, so their demand for developed nations’ average, though coal prices in recent years, drivensteel increases. Urbanization is much of that consumption reflects largely by ballooning demandanother driver of steel demand: infrastructure and real estate from China, have significantly construction. altered the balance of steelmaking Governancethe dawning of the 21st centurymarked the first time in history that costs. In 2003, raw materiala majority of the world’s population costs represented 40% of HRCwas living in cities. It is estimated manufacturing costs. Thethat a further 500 million people equivalent figure today iswill move to live in cities during around 65%.the present decade. Financial statements Developing countries will account for 73 % of global steel demand by 2012 according to the World Steel Association ArcelorMittal Annual Report 2011Above South Africa 11
  11. 11. Our fivecore strengths Supported by our We have quality We are leaders in consistent strategy, core assets automotive steel we possess five core strengths that allow Our core steel plants We have around us to generate are cost competitive. one-fifth share of the sustainable returns We have a global global automotive through the economic presence, spanning market. As the automotive cycle. Because of those both developed and industry increasingly looks strengths, we remain developing markets, not for steel providers committed to our with 40% of steel Ebitda but solution providers, growth plans. now generated by our technical know-how Our core projects facilities outside Europe and leading position are not dependent and North America. in advanced high-strength on strong economic Our product range steels leaves us well conditions in order for is broad and we have placed to capitalize on us to create value for an outstanding our strong customer links. our shareholders. distribution network. Our knowledge base is unrivalled.
  12. 12. OverviewWe have a world-class We have a stronger We are delivering Our businessmining business balance sheet cost improvementOur fast-growing Since December 2008, Since 2008,mining business spans we have reduced our managementthe globe. As most of our net debt by around gains program hasour mines are in close 15%. A further reduction delivered $4 billion Sustainabilityproximity to the group’s is planned for 2012. of cost savings,steel plants, having our We have also extended with a further $800 millionown production gives the maturity profile targeted for 2012.us a competitive of our debt from Our asset optimizationadvantage. Increasingly, 2.6 years to 6.3 years plan, announcedwe are marketing our and diversified the in 2011, is aimed Performanceiron ore and coal to sources of our funding. at concentratingexternal customers. ArcelorMittal remains production at ourWith iron ore production committed to maintaining lowest-cost plants toset to increase from its investment grade rating. optimize productivity.65 million tonnes to It is targeted to add100 million tonnes by annual savings2015 (including strategic of $1 billion by the Governancecontracts), mining end of 2012.is a key growth areafor the group. Financial statements ArcelorMittal Annual Report 2011 13
  13. 13. We have qualitycore assets
  14. 14. Overview Our business Sustainability Performance GovernancePerformance 2011 Financial statementsSales ($ million) 93,973Steel shipments (thousand tonnes) 85,757Crude steel production (liquid steel in thousand tonnes) 91,891Our core assets are competitive in terms of cost. This wasamply demonstrated in 2011 when, despite low operating rates,we generated group Ebitda of $118 a tonne of steel shipments.Geographic diversification plays its part. We have a balanced portfolioof assets in both the developed and developing markets and arethe leading steelmaker in the EU, North America, Africa, Latin Americaand the CIS. Facilities outside of Europe and North America accountfor around 40% of our steel Ebitda. We have important productdiversity that enables us to provide solutions to meet customerrequirements and needs, in all markets. We produce a broad rangeof high-quality products, and we operate an outstanding distribution ArcelorMittal Annual Report 2011network. Above all, we have an unrivalled knowledge base, whichallows us to benchmark best practice, and a commitment to researchand development (R&D) which keeps us ahead of the curve.Picture Port-Cartier, Canada 15
  15. 15. Our business ArcelorMittal is the world’s With a total production capacity For many years, the group has of around 125 million tonnes of pursued a consistent strategy leading steel and mining crude steel, ArcelorMittal is a focusing on product diversity, company. With a presence highly efficient steel producer with geographic breadth and vertical in more than 60 countries, a diversified production process. integration, both upstream and we operate a balanced It has industrial operations in downstream. The aim of this 20 countries on four continents, three-dimensional strategy portfolio of cost- producing flat and long steels and is to reduce exposure to risk competitive steel plants tubular products. In January 2011, and cyclicality. across both the developed the group’s stainless steel operations and developing world. were spun off into a separate Our upstream integration, through company, Aperam. ArcelorMittal our investment in iron ore and coal We are the leader in all produced approximately 91.9 mining assets, gives us a major the main sectors – million tonnes of steel in 2011, competitive advantage, provides a automotive, household compared with 90.6 million tonnes measure of security of supply and is appliances, packaging in 2010. an important natural hedge against raw material price volatility. and construction. We are With our ongoing aim to develop also the world’s fourth a world-class mining business, our Our downstream integration, largest producer of iron mining operations have reported through our Distribution Solutions ore, with a global portfolio as a separate segment since segment, enables us to meet a wide January 2011. We produced around range of customer needs in virtually of 16 operating units with 54.1 million tonnes of iron ore and all steel-consuming industries and mines in operation or 8.3 million tonnes of coal (excluding markets. We sell into a total of development. In 2011, supplies under strategic long-term approximately 174 countries. we employed around contracts) in 2011. The exceptional breadth of this market reach improves our market 261,000 people. intelligence and helps us optimize working capital through the better management of our supply chain inventories. Above Port-Cartier, Canada
  16. 16. OverviewSteel Our global footprint also gives furnace route, approximately In long products, we produce Our businessAs a global steel producer us a unique ability to serve our 22.6 million tonnes through the rebars, sections and beams in allwith a diversified product range, multinational customers by electric arc furnace route and sizes and qualities, and have helpedwe service a wide range of providing them with standard around 3.4 million tonnes of build many of the world’s tallestcustomers and markets. In 2011, solutions and consistent quality crude steel through the open structures. We are the biggestapproximately 38% of our steel around the globe. We have built hearth furnace. This gives us producer of the very high-strengthwas produced in the Americas, strong and deep relationships flexibility in raw material and steels needed for wind turbines,46% in Europe and 16% in other with our biggest customers and energy usage and our scale helps and the leader in sheet piles. The frequently work with them in us to optimize plant load factors. world energy industry relies on Sustainabilitycountries such as Kazakhstan,South Africa and Ukraine. committed co-engineering It also increases our ability to ArcelorMittal pipes and tubes. programs. We have a strong meet changing customer needs.With our global market reach and presence in the design centers Our Distribution Solutions businessproduct diversification, we are able of most global automotive In flat products, we are the clear sells both in local markets andboth to reduce risk, and benefit manufacturers and act as a leader in coated steels, from hot through a centralized marketingfrom the fast-growing demand strategic partner for many. dip to electro-galvanized and color organization. The service centersfor steel in developing economies coated. We continue to develop finish steels to suit individual We support this with one of the new grades of light but ultra-high applications, often providing Performance– which currently account foraround one-third of our shipments. largest research and development strength steels for the world customized solutions, and helpWhile demand in the developed budgets in the European steel automotive industry. Our technical the group service its customersworld is weighted towards flat industry, a worldwide network of know-how has given us an 18% more directly.products and a higher value-added laboratories, and a knowledge world market share in automotivemix, demand in the developing management program that actively steels. We also produce the biggestworld is higher for long products shares best practice around the plates in the world.and commodity grades. As these group’s operations. Governanceeconomies develop, their need forhigher value products will increase. We have a diversified productionWith our experience in developed process, producing approximatelymarkets, we are well placed to 65.9 million tonnes of our crudemeet that demand. steel through the basic oxygen Financial statements Left Belval, Luxembourg ArcelorMittal Annual Report 2011 17
  17. 17. Our businesscontinued Mining the group’s own iron ore production Our total metallurgical coal reserves ArcelorMittal has built up a was sold to external customers. are estimated at 323 million tonnes. world-class resource base in The group’s coal mines are located iron and coking coal through In 2011, ArcelorMittal’s own mines in Kazakhstan, Russia and the US. a combination of acquisitions produced 54.1 million tonnes of and internal expansion. Our iron ore1; our own mines and A number of growth projects are geographically diverse portfolio strategic contracts produced under way – most notably in of mining assets gives us the 65.2 million tonnes of iron ore Canada and Liberia. The group is opportunity to supply the which was equivalent to 57%2 of on target to expand annual iron ore developing world as well as our the group’s requirements. A total production (including off-take from own steel facilities. Since January of 28.0 million tonnes was shipped long-term contracts) to 100 million 2011, the mining business has internally and externally at market tonnes by 2015. reported as a separate segment. price3. Production of metallurgical 1 Own iron ore production excluding This has enhanced our ability to coal hit 8.3 million tonnes4; this strategic long-term contracts. maximize returns, optimize the was an increase of 20%. 2 Assuming full production at Peña Colorada allocation of capital and pursue for own use. our growth plans – which involve Our ore reserve estimation 3 Market price tonnes represent amounts a material increase in production and reporting processes are now of iron ore and coal from ArcelorMittal mines that could be sold to third parties and sales to third parties. standardized and reserve estimates on the open market. Market priced tonnes will be updated and reported that are not sold to third parties are All raw materials that can practically annually. Following a full review of transferred from the Mining segment to be sold outside the group are now our life-of-mine plans, ore reserves the company’s steel producing segments at the prevailing market price. Shipments of either marketed to third parties or and mineral resource estimates, our raw materials that do not constitute market transferred to ArcelorMittal facilities iron ore reserves are now put at price tonnes are transferred internally on at market price. Production from 3.8 billion tonnes. Our principal iron a cost-plus basis. captive mines closely linked to one ore mining operations are located 4 Own coal production excluding strategic long-term contract. of our steel facilities is transferred in Canada, the US, Mexico, Brazil, internally on a cost-plus basis. In Algeria, Bosnia and Herzegovina, 2011, approximately 17%1 of Ukraine, Kazakhstan and Liberia. Mining business portfolio Key assets and projects 6 4 17ArcelorMittal is listed on 18 20 5the stock exchanges of 2 3 13 19New York (MT), Amsterdam(MT), Paris (MT), Luxembourg 12(MT) and on the Spanish stockexchanges of Barcelona, Bilbao, 9 1Madrid and Valencia (MTS). 21 22 10 11 7 Non ferrous mine 8 Iron ore mine 15 Coal mine 14 16 Existing mines New projects 1 Mexico Iron Ore 7 Brazil Iron Ore Serra Azul 100% 16 Coal of Africa 15.9% interest Las Truchas & Volcan 100%, 8 Brazil Iron Ore Andrade 17 Ukraine Iron Ore 95% Peña Colorada 50%* expansion 18 Kazakhstan Coal 2 US Iron Ore Minorca 100%, 9 Mauritania Iron Ore 8 mines 100% Hibbing 62.3%* 10 Liberia Iron Ore 70% 19 Kazakhstan Iron Ore 3 Princeton 7 mines 100% 11 Liberia Iron Ore phase two 4 mines 100% 4 Canada Iron Ore 100% 12 Algeria Iron Ore 2 mines 70% 20 Russian Coal 2 mines 98% 5 Canada Iron Ore expansion 13 Bosnia Iron Ore 51% 21 India Iron Ore project (Mont-Wright) 14 South Africa Iron Ore* 22 India Steam Coal 6 Canada Iron Ore Baffinland 70% 15 South Africa Manganese 50% * Includes share of production not controlled by ArcelorMittal.
  18. 18. OverviewOur strategic priorities Our business1 Health and safety 2 Maintain and improve 3 Grow our mining resource our production facilities and Health and safety is our cost competitiveness base sustain R&D and product first priority across all sites, With $4.0 billion of Our mining business currently quality, acquisitions will be countries and levels of the management gains banked since accounts for around 30% of made only selectively and company, and is embedded 2008, ArcelorMittal is targeting group profitability. We have where they are strategically in all our values. We are driven a further $0.8 billion of savings ambitious growth plans important. We are committed Sustainability to create a safe and healthy by end of 2012. These will to increase our supply of iron to maintaining our investment workplace with no accidents come from operational ore to 100 million tonnes grade rating. We are also and fatalities. Journey to Zero, improvements, sales, general (including strategic contracts, considering some non-core our company-wide health and and administrative expenses but excluding the potential asset divestments. safety program to reduce (SG&A) and fixed cost savings. output from Baffinland) by workplace accidents and 2015, including doubling of 5 Execute organic growth occupational diseases, In addition, progress has been our market-priced tonnages opportunities in emerging embodies our health and safety made on the asset optimization over five years. markets Performance goals: to become the safest plan launched in September Although we have temporarily steel and mining company in 2011. By focusing production 4 Preserve balance sheet suspended steel growth the world. on our lowest-cost facilities strength expenditure due to current and better aligning our Since the 2008 crisis, we have uncertainties arising from the footprint to market demand, materially strengthened our eurozone sovereign debt crisis, we target $1 billion sustainable balance sheet, reducing debt depending on local market Ebitda run rate improvement and extending the average conditions and projected global by the end of 2012. maturity of our borrowings. and regional demand trends, we Governance While we will continue to will continue to target growth invest in order to maintain in key developing markets. Financial statements2011 highlightsJanuary group strategy, CTO, September NovemberArcelorMittal’s stainless research and development, ArcelorMittal commences As a first-time entrant toand specialty steels business global automotive and as a commercial iron ore the survey, ArcelorMittalis spun-off into Aperam. member of the investment production from its mining is listed in Aon Hewitt’s allocation committee. operations in Liberia. This European list of ‘TopMarch Christophe Cornier chooses launch is an important Companies for Leaders’ArcelorMittal and Nunavut to retire from the GMB and milestone in the recovery and ranks among theIron Ore Acquisition Inc. assumes the role of advisor of Liberia’s economy, which top seven companiescomplete the acquisition to the CEO and GMB; he was devastated by 14 years in Europe.of Baffinland Iron Mines retires on December 14, 2011 of civil war.Corporation shares as chairman of ArcelorMittal Decemberunder their joint offer France. The management After first gaining entry ArcelorMittal celebrates(70% ArcelorMittal and committee is extended from in 2010, ArcelorMittal its 4th annual International30% Nunavut). 12 to 24 members (more is included into the Volunteer Work Day: details on page 68). prestigious Dow Jones thousands of employeesMay Sustainability World Index volunteer in differentArcelorMittal plans to June (DJSI) for the second activities to improve theexpand its Mont-Wright ArcelorMittal received the consecutive year. lives of the people inmining complex and have Best Process Innovation the community.additional construction October ArcelorMittal Annual Report 2011 award in American Metalat Port-Cartier in Canada Market’s (AMM) 2011 Awards ArcelorMittal is given the(subject to environmental for Steel Excellence for our ‘Life Cycle Assessmentand other regulatory S-in motion concept and Leadership’ award byapprovals). the company’s continuous the World Steel Association commitment to producing the for the quality of the workArcelorMittal’s Group performed by the life cycleManagement Board and most ground-breaking steel for the automotive sector. analysis team of globalmanagement committee research and development,grow. Lou Schorsch joins based in Maizières, France.the GMB with responsibilityfor Flat Carbon Americas, 19
  19. 19. Health and safety: our number one priority Health and safety is At ArcelorMittal, we are committed We sincerely regret the loss of to becoming the safest steel and 27 colleagues (20 in steel and ArcelorMittal’s number mining company in the world. Our seven in mining) in work-related one priority – across group-wide Journey to Zero safety incidents in 2011. While that is a all sites, in all countries program aims to achieve zero one-third reduction on the number and at every level. Our fatalities, accidents and of fatalities from the previous year, occupational illnesses. Launched in every fatality is one too many. We Journey to Zero safety 2008, it was followed by a global have been working hard to drive improvement process has agreement on occupational health the systematic application of our delivered four consecutive and safety with our trade unions, fatality prevention standards at all years of progress. Further setting a precedent in the industry. sites and at the same time focusing on improving contractor safety significant improvement In 2011, our safety performance performance. is targeted year by year. improved for the fourth consecutive year. Based on figures These were two of the key both for our own personnel plus outcomes of a global health and our contractors, our lost time injury safety summit held in Canada in frequency rate (LTIFR) fell from January 2011 involving all of our 1.8 per million hours worked in top management. The purpose 2010 to 1.4 now. Significant of the summit was to strengthen improvement was achieved in our our journey to zero by agreeing Mining operations, in Flat Carbon measures that would achieve a Europe, in Long Carbon Americas quick and sustainable reduction in and Europe, and in Asia, Africa and accidents and replicate the success CIS. The fourth quarter of the year of our top-performing sites across – the best performance achieved the rest of the group. to date – saw a further fall in the LTIFR to 1.2, with improvement in all our operations other than Flat Carbon Americas. Wellness projects In 2011, the group launched fact-finding communities for HIV/AIDS and certain types of addictions. The objective was to gather knowledge on their prevention to then be used to further educate on best practices within the company and therefore help to protect ArcelorMittal employees across other sites. Right Buchanan, Liberia20

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