ArcelorMittal Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

Key Takeaways

  • On October 28 the company’s Kazakh coal mine suffered a tragic accident that claimed 46 lives, prompting ongoing support for victims’ families and local communities.
  • ArcelorMittal has signed a preliminary agreement to transfer its Kazakhstan coal operations to the government and is committed to closing the deal as soon as possible to ensure stability for employees.
  • A full review of the group’s health and safety program is underway, and an independent third-party audit will publish key recommendations to prevent future incidents.
  • Q3 results showed an EBITDA per tonne of $136 (9M: $149), net debt reduced to $4.3 billion and liquidity at $11.8 billion, with working capital set to reverse in Q4 and CapEx guidance of $4.5–5 billion unchanged.
  • The company is advancing strategic growth and decarbonisation initiatives, including a H1 2024 start-up of the Calvert EAF in the U.S., the Corpus Christi HBI plant and renewable energy projects in India, Brazil and Argentina.
AI Generated. May Contain Errors.
Earnings Conference Call
ArcelorMittal Q3 2023
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good afternoon, everyone. This is Daniel Fagler from the Oslo Metrol Investor Relations team. Thank you very much for joining us on this call today to discuss the Q3 9 months 2023. Before I hand directly to Mr. Mittel, I would like to refer you to the presentation we published this morning on our website and in particular draw your attention to the disclaimers on Slide number 2 of that presentation.

Operator

I now hand over I now hand over the call to our Executive Chairman, Mr. Mittal.

Speaker 1

Thank you, Daniel. Good day, And thank you for joining us today for this Q3 earnings call. I'm joined today by our Chief Executive, Adit Mittal our Chief Financial Officer, Gennion Ocristino and our Executive Vice President, Brad Davey, whose responsibilities include corporate health and safety. Adit and I would Not normally be present at the Q3, but we wanted to speak with you all given the tragic accident that took place on October 28 our Kostenko coal mine in Kazakhstan that claimed the lives of 46 of our colleagues. The accident was devastating, especially for the families of the victims and also for colleagues of the deceased who have lost friends and for the communities to which they will never return.

Speaker 1

It is naturally with these groups, the families, colleagues and communities where our greatest focus has been since the accident. It goes without saying that it is also a very difficult time for the company. We are a global group, But we are also a community. The pain and the anguish within the company at this terrible accident remains very raw. The outpouring of compassionate support shown by colleagues around the world for our colleagues in Kazakhstan has been a gratifying reminder of the depth of human kindness.

Speaker 1

You will want to know how did this accident happen. We are asking ourselves the same questions and we will make sure we get answers, answers that could help us implement the actions that will enable us to emerge stronger in the future. A full review of our health and safety program, including the progress that has been made in the last 2 years as well as the areas that need to be strengthened and improved is already underway. We will ensure that whatever lessons that can be learned are learned. We will ensure that whatever aspects of our safety processes can be strengthened will be strengthened.

Speaker 1

Kazakhstan has played an important role in the group since we acquired in 1995.

Speaker 2

But over the

Speaker 1

course of this year, We have been in discussions with the government of Kazakhstan about the future ownership of this asset. Before the recent accident, We had signed a preliminary agreement for the government to take over the operations. We are committed to completing this transaction as soon as possible. It is important for thousands of employees that work in Timir Taw and Karganda as well as their families and communities that they have certainty and stability about the future. Our Kazakhstan operations have played an important role in this company's history.

Speaker 1

I sincerely hope they will have a long and successful future. With this, I will hand over now to Ajit to add some additional details on the steps we are taking from here. Thank you.

Speaker 3

As Mr. Mittal already said, 20th October was the saddest day in the history of Varusorum. The families of our 46 colleagues have had their lives devastated. Their grief and loss are shared by all our colleagues and our communities. We know there is no adequate compensation for this loss, but we're doing everything in our power to provide appropriate support.

Speaker 3

Part of this is ensuring we fulfill our basic civic responsibility to properly look after those who have lost loved ones. Even during the process of transferring ownership to the government of Kazakhstan, we will continue to provide support our communities as they navigate this tragedy. I'm sure, like me, you want to understand how this happened. We don't have all the answers today. A special commission has been initiated by the government to conduct the 1st phase investigation.

Speaker 3

We are cooperating fully to assist in this investigation. The commission is still taking evidence and we expect preliminary findings to be published soon. It is only in Kazakhstan that we own and operate coal mines. Nevertheless, it is only appropriate at a time like this To review safety across the group and make whatever improvements are required to ensure that every single one of ArcelorMittal's operations We had already launched a major step change in our safety activities at the start of 2022 when a new strategy focused on the twin pillars of risk management and cultural change was developed our group wide implementation. You will find more detail on that strategy in the presentation and the earnings release.

Speaker 3

We can see that in the steel side of the business, the step change is delivering results. Because of the efforts and commitment of our colleagues globally. This year, we have had no direct employee fatalities outside of CIS. And while we cannot yet say the same when you include contractors, we are nevertheless 40% better and the World Steel Association record. But this was not enough to stop these accidents happening.

Speaker 3

Given where we stand today, I cannot conclude that we have every single aspect covered or that our organization is set up optimally to achieve the transformation as swiftly as we must. We need to do much more. The only appropriate course of action. We will take a hard look inside our group, identify the gaps that exist and strengthen our actions, processes and culture to ensure that an accident of this magnitude Never Happens Again. Therefore, we're also commissioning an independent 3rd party comprehensive global safety audit, whose key recommendations will be published in due course.

Speaker 3

We know that going forward, we will be judged more on what we do then what we say. We are committed to taking all the steps necessary to learn from this tragedy and show it is never repeated and emerge a better, safer company. Giannouino will now make some further remarks.

Speaker 2

Thank you, Aditya. I must also begin by expressing my sincere condolences to the families and friends of our colleagues who died following the accident on the 28th October. The accidents that we have experienced in the coal mines have been deeply troubling to the company and to the Kazakh government. It's fair to say that over the course of the year, we have faced not only an increasingly difficult trade environment, but also an increasingly tense operating environment. You know that on the 22nd October, We signed a non binding agreement with the government of Kazakhstan to transfer the asset to the Kazakh state.

Speaker 2

Discussions had been ongoing for many months already and it became increasingly clear that the government was again interest in owning and operating these assets. To help you understand the performance and financial contribution of Kazakhstan to our group, We have provided some relevant information in today's earnings release and accompanying slide deck. And I hope that you will appreciate that due to the ongoing negotiations, we will not be able to comment further on today's call. As soon as there is a final agreement, it will be communicated via the appropriate channels. As we have today announced our 3Q results, I will also make some comments on the financial performance, although I will keep my remarks brief.

Speaker 2

Our financial performance continues to reflect the structural improvements we have talked about in recent quarters. Despite the impacts of weaker average selling prices and seasonally lower volumes, EBITDA per tonne in quarter 3 was $136 For the 1st 9 months, it was $149 This compares well with the long term history of our group, showing the benefits of our higher graded asset portfolio. But looking at EBITDA alone only shows part of our financial improvement. If you look at our long term history, the average annual net income, pre exceptional items was about $2,000,000,000 Our run rate this quarter was almost double this long term average level. This captures the improvement in EBITDA, the much bigger contribution of our joint ventures, in particular, India and the benefits of our lower cost balance sheet.

Speaker 2

Net debt this quarter declined to $4,300,000,000 and we finished the quarter with excellent liquidity of $11,800,000,000 Our guidance on working capital and CapEx is unchanged After investing $900,000,000 in working capital year to date, we expect this to more than reverse in the final quarter. We expect our CapEx to be in the middle of our $4,500,000,000 to $5,000,000,000 guidance range. Looking forward, quarter 4 will be impacted by the lowest spread levels we have experienced in recent months, but the levels reached in recent weeks unsustainable and supply will respond. And while the real demand environment is weak in aggregate, inventories in the system remain low. And we have seen in recent years that when inventories are low, a shift in sentiment and quickly translate to prices.

Speaker 2

The longer term fundamental picture remains positive. Our strong balance sheet and expectation our consistently positive free cash flow underpins the continued execution of our strategy. We will continue to invest in our operations to improve our safety and environmental performance and supply the growing needs of our customers for low carbon steel solutions. We will continue to advance our strategic growth projects to support higher normalized profitability. And we will continue to implement our defined capital allocation policy, which allows us to advance our strategic and growth agendas, why consistently returning capital to shareholders through our share buybacks.

Speaker 2

With our opening remarks now concluded, We will now take your questions. Daniel, please go ahead.

Operator

Thank you, Geminio. So if I can just reiterate the instructions from the operator. We do have a number of analysts already in the queue, and we will take the first question please from Alain at Morgan Stanley.

Speaker 4

Yes. Good afternoon, everyone. Two questions as well from my side. I'll take them 1 at a time. Firstly, a question on capital allocation to Aditya.

Speaker 4

You seem to have paused your buyback program since August and M and A opportunities may emerge in the current environment. If these opportunities come your way, how do you think about balance sheet capacity and the leverage that you're willing to take on in the context of your capital allocation framework? That's my first question.

Speaker 3

Excuse me, this is the operator. Let me start again. I think I was on mute. Yes. Alain, thank you for your question.

Speaker 3

Let me So I guess you guys can hear me. Operator, can you guys all hear me? So let me start again, Alain. Thank you for your question. We are very proud of our strong balance sheet.

Speaker 3

We remain very focused on retaining an investment grade credit rating. We think they are very important strategically and we think the capital allocation policy that we outlined over the last 2 years has worked increasingly well. In the last 2 years, we have bought back over 30% of the business. We have been able to invest in our strategic CapEx. And at the same time, we've been able to grow the business.

Speaker 3

We acquired a fantastic facility in Texas, in Corpus Christi, as you know, which supports our decarb efforts. We acquired a very well invested facility in Brazil. Both these facilities are performing well, achieving normalized EBITDA the $500,000,000 So we believe that our strong balance sheet, the focus on retaining that along with the capital allocation policy that we have outlined allows us to both grow the business, develop the business as well as return capital to shareholders.

Speaker 4

Thank you. My second question is on Kazakhstan. I guess you mentioned you're constrained, I can say, but my question is more of an accounting one. I'm not sure if We know you can you're able to answer that. But are you able to give us a bit more granularity on the balance sheet impact of a potential deconsolidation of these assets?

Speaker 4

You talked about €1,800,000,000 of Oksanhu. I presume this could be at risk if you give away the assets. And then as an extension to this one, how much provisions and other liabilities are attached the Kazakh assets. Thank

Speaker 1

you. Yes.

Speaker 2

I mean, as we highlighted, we're not going to be in a position as this negotiation is happening with the government. We're not going to be able to comment much. I mean, we try to provide you and with some more numbers for the operations, so that you can better understand what is the contribution of this asset to our consolidated numbers. So you have the book values there, and we will have to wait to see what is the final outcome of the negotiations before we can comment more.

Speaker 4

Understood. Thank you.

Operator

Great. Thanks, Alain. So we'll move to the next question please from Tristan Ed BNP. Go ahead, Tristan.

Speaker 5

Yes. Hi. Thank you for taking my questions. I have 2. The first one is on the U.

Speaker 5

S. Market. I noticed in the slide in your presentation that you paint a pretty a quick assessment of the demand environment there. I think you referred to a 9% upside potential for flat steel demand, Which I think is more than what you have for India. So could you elaborate a bit there?

Speaker 5

It's my understanding that higher spending In the U. S, we'll benefit more long steel products and flat steel except plate. So we'd like to have your thought there. And second, you purchased an HBI facility in textile. You're spending more at Calvert.

Speaker 5

So how attractive is the U. S. Market? And how does that in your capital allocation strategy. I start there.

Speaker 3

Sure. Tristan, thank you for the question. Maybe I'll take the second half of your the second question that you asked, and I'll get Genvino to revert on the first. So in terms of the U. S, I must emphasize that the U.

Speaker 3

S. It's one of our largest single country markets. If you exclude India, it is the largest single country market. And we have an excellent franchise the business we supply to the most demanding customers, not only from our operations in Calvert, Alabama, but from other facilities that we have NAFTA. We continue to invest in the U.

Speaker 3

S. As you are aware, we are finishing our electric arc furnace project at Calvert that we finished in 2024. That will strengthen the facility further and bring significant benefits to our business. As you mentioned, We have acquired an HBI facility in Corpus Christi, Texas. It's doing really well.

Speaker 3

It's a nameplate capacity after struggling for many, many years. It really enables us to move forward in terms of decarbonizing our business because as you're aware, HBI provides low cost green metallics, relatively lower carbon metallics and optionality to Greenet and Different Technologies. So the U. S. Market remains important.

Speaker 3

We are focused on it and I'll ask Jim Reno To talk to you a little bit about the growth forecasts.

Speaker 2

Thank you, Aditya. Tristan, I think some of the numbers that you are quoting, what you see now is slide is really our projection for 2,032. So then you see that we expect the demand in U. S. To grow supported by as you know, we have different programs announced by the government large, very large programs, probably totally more than $2,000,000,000,000 of investments over the next years.

Speaker 2

So that will support demand for steel. But if you see the level of growth in India, it's superior, right? So we are expecting that the demand in India will almost double from where we are today. So that's almost 100,000,000 tons of growth. And that's why we are investing so much in India, trying to double the capacity now from the 7,000,000 to 15,000,000 tons and with some more plans ahead of us.

Speaker 2

So when you have this volumes of investments in the U. S, I mean, with all these investments expected to happen over the next couple of years. I think it's fair to assume that everybody will benefit, not only the loan producers, but everybody will benefit. We'll see more warehouses, more roads, more everything, right? So I would expect that the whole industry will benefit from that.

Speaker 5

All right. That's clear. And if I could just follow-up with also a high topic question. It's on China. I think the demand and export situation in China has been pretty negative this year with the real estate market normalizing.

Speaker 5

Do you believe those production and export trends are here to stay? Or is that just temporary? And how is the situation, in our view, different from 20 2016. And what can you do to limit the negative impact on your operation? And if things were to last, would you contemplate further restructuring in Europe Brazil that's been hard hit by Chinese export.

Speaker 5

Thank you.

Speaker 2

Yes. No, thank you, Tristan. You're right. I think we are seeing, of course, a significant increase in exports from China. We continue to believe that that's not structural.

Speaker 2

If you look at the level of profitability today in China, we believe that only a small a number of companies can actually make money in this environment. Level of spread is extremely low, too low actually. We started to see some production cuts. The September numbers show some progress. And if you see the situation seems some extent pretty much what we saw in the last half of twenty twenty two when production was really running high in the first half And then we saw significant production cuts in the second half of twenty twenty two.

Speaker 2

And then overall for the year, the productions didn't change much. We'll see now what happens remainder of the year. Clearly, in this environment, it's tough, right, for many companies to make money. So we don't believe that China wants to go back to the 2015, 2016 situation. If you recall, that triggered a number of trade actions.

Speaker 2

We will see finally what happens. Our assets, I mean, you mentioned Brazil, our assets of very high quality. They are cost competitive. And I'm sure we're going to be in a position to continue to service those markets.

Speaker 5

All right. Thank you very much.

Operator

Thanks, Tristan. So we'll now move to the next question from Patrick at Bank of America.

Speaker 6

Good day. I just have Two very quick follow-up questions from the previous question. So you did say in terms of balance sheet strength. You want to keep investment grade balance sheet, a strong balance sheet. Just remind us, is there an absolute net debt number?

Speaker 6

Should we still think about $7,000,000,000 is the ceiling there. And then the second follow-up question is just if I look at what the government of Kazakhstan is Saying around the timing of the transfer of that business, they're saying they want to get it done in November. Have you got any comments around the timing? And then I've got one other question after that, but I'll stop for the quick follow ups.

Speaker 3

Sure. Thank you, Patrick. Patrick, I think you heard my comments quite well. So there's a lot much more to add. We're very focused on our balance sheet, retaining investment grade credit rating.

Speaker 3

And at the same time, we're very supportive of our capital allocation policy. It has worked really well. In terms of the net debt target, it depends on what the earning power of the business is fundamentally. To the extent that that changes, we will update our net debt target, but you should assume that we are focused on a strong balance sheet, investment grade credit rating, investment grade credit rating as well as maintaining our capital allocation framework. In terms of Kazakhstan, I think Jim Vino talked a lot about it in opening remarks.

Speaker 3

There's not much more to add. I think all parties are working diligently to expedite the close of this transaction.

Speaker 6

Okay. Thanks very much. And then my, I suppose, new question is, You're saying structurally the business is more profitable and $136 a tonne EBITDA in a very weak market is much better than previous down cycles. I suppose just thinking forward to next year, OTT. Especially in Europe, OTTOS production this year has been really strong.

Speaker 6

And it looks like the backlog of orders is coming to an end and possibly we might see So some contraction in autos production next year. Do you think this could take another leg down in terms of where that trough EBITDA is? In other words, are we being Flattered by very strong autos production this year and that could weaken into next year? Or how are you thinking about the autos market for 2024? Thanks.

Speaker 2

Yes, Patrick. Let me take this one. Well, it's really too early To talk about next year in terms of auto negotiations, in some cases, we have started discussions, but it's still early in the process. Our focus really when it comes to this contract is to make sure that we have a win win negotiation with our customers. We are focused on making sure that we are rewarded by the quality of the products and services that we deliver.

Speaker 2

And that has always been the focus, and I think that's well understood. So I would not be overly concerned about that right now. You're right. So we'll see what happens. I would just point that inventory levels are still low.

Speaker 2

So there can be also opportunity for them to replenish some of the inventories. I cannot speak for them. But this year, it has been good. It has been strong. We have been actually shipped more than what we had anticipated at the beginning of the year, and we'll see how it plays out next year.

Speaker 6

Okay. Thank you very

Operator

much. Thanks, Patrick. So we'll move now to a question from Bastian at Deutsche Bank. Go ahead, Bastian.

Speaker 7

Yes, thanks and good afternoon all. First also, thanks for giving us that color on Temetau. Could you maybe help us with the EBITDA number which Hemetau has been contributing in the course of the Q3, please. That's my first question.

Speaker 2

Sebastian, if you look at our slides, what we have been what we said is we gave you what has been the average contribution of Demitau to the group in terms of EBITDA of about $300,000,000 CapEx about $250,000,000 per year. And we are saying that this year because of a challenging market environment and operational environment that we have faced. The profitability of the business the EBIT of the business is negative. But we're not going to break down the results. You can see, I mean, what is look at 9 months, You will see that we have Ukraine and Kazakhstan negative, offset in part by South Africa.

Speaker 2

But that gives you an indication of the magnitude, but it has been negative this year for us.

Speaker 7

Could you at least tell us and I suppose it's also been negative last quarter, but could you at least give us some direction guidance whether it's been negative last quarter?

Speaker 2

It was negative last quarter as well.

Speaker 7

Okay. Thank you. Then my second question is on the Pollution the act in the earth. And I appreciate that's a very preliminary framework and it's probably very early days. But it would still be great if you could give us your thoughts on it and how it would impacting

Speaker 8

your business.

Speaker 3

Good morning, Jim.

Speaker 7

Yes. My question is on the Pollution Fee Act in the U. S, which I thought was basically I The initiative was published about a week ago and it seems to be a bit of a response to the conversations which have held on the European in U. S. I think green steel and aluminum trade agreement, which apparently has failed.

Speaker 7

And I think that deadline has been Shifted out, but from my understanding, there has been now a new proposal made, I. E. The Pollution Fee Act, which I think is also aiming to basically put a charge on imports or basically try to find a mechanism to basically protect the U. S. Market against material, which is not coping with the emission standards, which the U.

Speaker 7

S. Market has. So just in case you've got any early thoughts on this and how it would be impacting your business Given that you also ship in quite a bit of amount of material from both, obviously, Brazil, Mexico and also Canada, Just in case you've got any early thoughts, that would be great.

Speaker 3

Yes. Thank you. Nothing specific, to be honest with you. I think it's very early days. But clearly, the direction of travel is that leading economies are moving towards a more fair based trading system.

Speaker 3

And what does that really mean? It means to the extent that industries and companies are decarbonizing, how can they ensure that they can compete effectively with other imports. And so there needs to be a level playing field. And I think you see some of that in the C band that has been launched in Europe. It's under trial period and after 2 years there will be costs.

Speaker 3

I believe in the U. S. Also they're examining how best To ensure that there is a level playing field and that we have a fair trading system.

Speaker 7

Okay. Thank you. Maybe just on the European seaben because I saw on your slides you say that there is already penalty relating to the related to the noncompliance with the reporting rules for the CBAM also in the transition period. My understanding was that there is not a financial penalty at this point, but maybe I'm wrong. If maybe you could just briefly provide a bit of color on that as well.

Speaker 2

Yes. Bachchan, our understanding is that you're right. So they will not be paying now of course for these 1st 2 years the CO2 costs. But to the extent that it failed to report, then there can be some financial penalties to be established. We don't know exactly how this is going to work.

Speaker 2

It's still relatively new. And the first at least three quarters, the rules are yet being worked out and the commission and the various states still align on how this is going to happen. But our understanding is that if someone imports and doesn't report, it can then can be subject 2 penalties, but that's not the same as paying for the carbon.

Speaker 7

Okay, great. Thanks, Gino.

Operator

Thanks, Bastian. We'll move now to a question from Max at OTO. Go ahead, Max.

Speaker 8

Yes, good afternoon. So my first question is on Ukraine. Can you share the current utilization rate in iron ore, big iron, semi finished products? And what are the steps actually towards the step up in production? I understand there's a blast furnace now in maintenance, but when it's Don, when it's completed at the end of the year, there could be a significant increase in production.

Speaker 8

So could you give us a bit more color on that?

Speaker 2

Yes, Max, I can. To be honest, the situation has not really changed much. We continue to operate one less finance, only one finance. And we continue to run the mines at about 40%, 45% of capacity. The challenges continue to be logistics to get the raw materials in, to get the finished products out the products that we are producing today.

Speaker 2

In terms of finished products, they are being sold domestically and to some neighboring countries where we still have access to logistics. So that remains really the main challenge and we have to see how it evolves. The situation is still, as we all know, quite fragile. But that's but the good thing is the assets continue to be well kept and we continue to support our employees. And the teams are doing a great job in managing this very, very challenging situation.

Speaker 8

Okay. And the second and last question is on your decarbonization strategy. It's on hydrogen. I've seen that in Brazil, you signed an MoU with a local electricity company to evaluate the feasibility of an H2 plant. So I wonder how far would you be actually willing to insource It will be in production.

Speaker 8

Is it something that you think will be essentially outsourced to external providers? Or that's something that you could do also on your own and for a significant part of your needs in terms of DRI.

Speaker 3

Yes. Thank you for the question. Just very quickly on de carvers big picture. As all of you are aware, our semiconductor is technology leader. We have, phenomenal capability in terms of R and D.

Speaker 3

We have a globally diversified workforce, which I believe is the best in the industry. And along with the fact that we have different pockets of energy and we global asset base. I think we're extremely well positioned to lead the way in terms of how we decarbonize both steel processes as well as steel product. In terms of what we are doing to vertically integrate into the energy space, The focus so far has been on renewable energy. There's a nice slide where we have 3 projects that we have started in India, in Brazil and in Argentina.

Speaker 3

These are excellent projects. When you look through the see through return, the benefit to the steel facility as well as the renewable standalone return. They more than exceed our investment hurdles. In terms of hydrogen and other our sources. I think, look, it's preliminary.

Speaker 3

We're evaluating to the extent that we can meet our investment hurdles and that they create value for us in long run and further support as we decarbonize our business. We will clearly look at them and inform you accordingly.

Speaker 8

Okay, clear. Thank you.

Operator

Thanks, Max. So we'll now move to a question from Timna at Wolfe Research.

Speaker 9

Thanks so much. Hope everyone's doing well. I was hoping for an update on Calvert timing, but also in the context of Calvert and also another large electroback furnace adding capacity. How you're thinking about the scrap market? Certainly, The HBI facility have helped, but seems like a lot of additional scrap demand around the corner.

Speaker 9

Would love your thoughts.

Speaker 3

Sure. Thank you, Timna. Look, the Calvert EAF project is proceeding well. We expect to have a start up by the first half of twenty twenty four. It's an excellent project because It's got a lot of secondary metallurgy and can produce the highest grades and supported by our facility in Corpus Christi in Texas.

Speaker 3

As you mentioned, We will be able to do low carbon, high quality automotive products. So really this will lead the way in terms of the U. S. Steel business And the U. S.

Speaker 3

Steel Industry and really having a low carbon base for high quality exposed automotive occasions. In terms of scrap, I do agree with you that it's harder and harder to find good quality scrap, brine scrap in the United States. And that is why I think our strategy of investing in Texas, making sure that we have that strategic asset Where we have good quality high quality, I should add, low carbon metallics, will pay dividends.

Speaker 9

Okay. Thanks for that. And then if I could one more, what conditions are you thinking about to consider restarting some of the idled assets in Europe. Is it a question of seasonality you think? Or can you give us a little more color on what you're looking for

Speaker 2

Yes, Timna, let me take this one. I mean, what we have right now, we have basically maintenance. 2 of our furnaces, 1 furnace in Germany, it's going to be down for 30 days for maintenance. And then we have a reline in Ghent, in Belgium for about 70 days. And then after that, this financing should be up and running.

Speaker 2

The only furnace that is currently down for market conditions due to market conditions is for us and we will wait a bit more to take a decision to restart the furnace. But other than that and for the maintenance work that will be constraining our production in Q4 as we have highlighted in our earnings release, the order facilities, all of them.

Speaker 9

Okay. I'll leave it there. Thank you.

Operator

Great. Thanks, Timna. So we'll move now to a question from Andrew at UBS. Go ahead, Andrew.

Speaker 10

Hi, gents. I just wanted to touch on the M and A topic again. I think the call you were trying to ask about potential maximum leverage ratios and things like that. And you talked about the earning power of the business. I mean, it's very multiple of EBITDA.

Speaker 10

And also, if you're thinking about acquisitions, I mean, is your would you consider using a significant amount of stock given The fact that obviously it trades pretty below multiple today and we're at a pretty depressed point of the cycle. How do you think about use of stock in M and A? And I guess we've all been tiptoeing around the topics, but And what are you able to tell us about your the links to of yourselves to obviously, some large producer in the U. S. And then also these the Danfel assets in India that have been in the press as well.

Speaker 10

Can you just give us an idea about maybe potential rationale and how you think about those assets. Thank you.

Speaker 3

Yes. Thank you. Look, I don't think you guys are tiptoeing. I think you guys are trying to ask it directly, indirectly many times. But as you are aware, we cannot comment on M and A.

Speaker 3

In terms of your question on capital discipline, I think that's a very good one. I think I said it, but you asked a nuance, so I will elaborate further. We're focused on a strong balance sheet, focused on retaining our investment grade credit rating and focused on our capital allocation policy. As I mentioned, we have bought back more than 30% of the business. So really it would not make sense for us to be issuing shares.

Speaker 3

I think you highlighted the multiple discrepancy. We've also talked about the book value per share. We talked about the growth. We talked about how in this environment the margin per ton remains good. If you look through our net income, it's very, very strong And it's $4.5 in the last 9 months on a per share basis, and that's because we have these excellent joint ventures as well.

Speaker 3

You alluded to India. India is doing really well. It's very strong business. We are growing it. We are investing to double the assets.

Speaker 3

So if you visit, you would see lots and lots of cranes. And the underlying business is very strong because it has a low cost base. We have our own iron ore. We have our own palletizers. Everything is coastal.

Speaker 3

We make high quality products there. We are starting up our automotive capable co rolling and galvanize as well. So I think that's the complete picture on ArcelorMittal and therefore our capital allocation policy in which We take half of free cash flow and return it to shareholders as appropriate. I think it would not be appropriate for us to be issuing shares in this environment.

Speaker 10

That's very clear. And but do you have I mean, you've talked about obviously the €7,000,000,000 in the past as the net debt target. Is there a To keep a strong balance sheet, to keep an investment credit rating, is there a maximum point that you put on it? I mean, if you exceeded, say, Two times EBITDA. Would that be a no go?

Speaker 10

Or would it I mean, what's can you give us any steer around that?

Speaker 3

Yes. Look, I think the focus remains strong balance sheet investment grade to the extent that we develop the business, grow the business, and evaluate that. But really, you should look at this company will be maintaining and retaining its investment grade credit metrics. It's hard for me to be more explicit than that, but I think that provides you with a good framework of what we're trying to achieve.

Speaker 8

Okay. Thank you.

Operator

Great. Thanks, Sandy. So we'll move to the last question actually, which is from Moses at JPMorgan. Thank

Speaker 6

you for taking my question. I just wanted to ask on the working capital. So it was a build here in this quarter. And just trying to understand the reasons for that build, if any of it was to do with building inventories for capacity curtailment. And if so, how much of those inventories are finished goods inventories versus semi finished goods.

Speaker 6

Just to give us a steer on essentially what we can expect to unwind in Q4 given obviously a weak demand environment currently.

Speaker 2

Yes. Hi, Moses. Let me take Guzman. So there are a couple of reasons for the review of inventories in Q3. One is, of course, we had the incidents in the 2 finances in Europe.

Speaker 2

So as a result, we dropped from inventories to supply customers in the first half. So we got to a point where we had to start replenishing our internal inventories. And as I have said in another question, we do have maintenance work in quarter 4 in 2 filances. So it was also important to prepare for that. So most of the replenishment that you see is on the metal stock side.

Speaker 2

And as we have guided up to Q3, we have invested about $900,000,000 in working capital, And our expectation is to more than reverse that in Q4. So that should give you an indication of the potential inflow coming from working capital in Q4. I hope that, that helps.

Speaker 6

That's it. Thank you very much.

Operator

Great. Thanks, Moses. Aditya, that's our last question, so I'll hand the call back to you.

Speaker 3

Okay. Thank you, Daniel. Thank you, everyone, for joining the call today. I just wanted to reiterate That I know it's very difficult time for all of us. The tragedy and the pain of Kazakhstan is very raw.

Speaker 3

We're doing everything we can to support the communities and our colleagues who are deeply impacted. They're absolutely devastated. At the same time, we are working very, very hard. All the leaders in the company are focused on improving our safety practices across the board. We are also going to use the support of a 3rd party independent firm, which will do a comprehensive audit looking at governance practices, looking at policies, processes, what we do on the shop floor, our audits good enough, training exercises, And we will be publishing those recommendations.

Speaker 3

I can assure you we take this very seriously, extremely seriously, And we're all more than committed more than 100% committed on improving our global safety performance. With that, thank you very much for your time

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