Arcelormittal SA

Good afternoon and good morning, everybody. This is Daniel Fairclough from the ArcelMittal Investor Relations team. Firstly, thank you for joining this call today to discuss the results for the third quarter 2020. We published those results this morning alongside a detailed Q&A document and a presentation with detailed speaker notes. So as usual, in order to be as efficient as possible, the intention of this call today is not to go back through that presentation again, but to move directly to your questions. So as a result, we should be able to complete this call in about 45 minutes. If at any time you would like to join the queue to ask a question, please just press star 1 on your telephone keypad. As we've done in the past few quarters, we really would appreciate just taking one question at a time from each analyst, and you can always rejoin the queue later if you have a further follow-up question. And with that brief opening, I will hand over to our Chairman and CEO, Mr. Mittal.

Thank you, Daniel. Good day and welcome, everyone. Thank you for joining today's call. I hope you are all keeping safe and well. I am joined today by Adit Mittal, President and CFO, Simon Wangke, Head of Mining, Genmino, Head of Finance, and Daniel. Before we answer your questions, I would like to begin, as usual, with a few remarks. Despite the ongoing challenges, the third quarter was quite positive for our summit. We prioritized the health, safety, and well-being of our workforce with COVID prevention measures rigorously implemented across all our operations. Our agile response to the changing demand environment and our initiatives to manage fixed costs drove and improved financial performance. Perhaps more important, though, is the fact that we have reached several strategic milestones during the quarter. I would like to highlight only three of them. Firstly, we completed our $2 billion assets portfolio optimization program ahead of schedule following the agreed sale of ArcelorMittal USA last month. Secondly, we achieved Our $7 billion net debt target, which represents a significant milestone for Arso Mittal and triggers a shift in capital allocation towards shareholders. This began with a $500 million buyback just completed. And we will announce a new policy with our full year results in February. And thirdly, We reinforce our commitment to decarbonize by announcing a 2050 net zero target and launched a new green steel offering for our customers. We have succeeded in doing this because of our people. We have always known as we have a great team of people around the world, but the last six months has really enforced that. I've been really struck by how our people have gone the extra mile not just to support the business, but to support one another. I speak for the board, Adit, and the whole management team when I say thank you to the hundreds of thousands of people who work for us. They have been tremendous, a real testament to the spirit and values of Arso Mittal, embracing new ways and enabling us to reach this point of the year with a lot of achievements to be proud of despite the very difficult market conditions. So with that brief opening, Adit and team and I will now be happily take questions you may have. Thank you.

Thank you, Mr. Mittal. So we have a queue of questions already. So we'll move to the first question from Jason at Bank of America. Please go ahead, Jason.

Yep. Good morning, or sorry, good afternoon, everybody, and thanks for the call. Just a question on the cash flow and the cash needs of the business, and I want to make sure I'm understanding your slide 16 correctly. So you've ended off Q3 with net debt of $7 billion. You've since done a $500 million share buyback, and then you're saying, I think it's $1.4 billion cash needs of the business in Q4. plus a potential build in working capital. So I guess, could we end up seeing net debt well above 7 billion by year end, particularly if there's a delay in completing the cliff transaction?

Thank you. Thank you for the question. So yeah, the overall cash requirements for 2020 is 3.7. And in nine months, we have spent 2.3, so that implies $1.4 billion cash needs for the fourth quarter. In terms of the working capital, we have released already 600 million. So our guidance range is 600 to a billion for the year. So theoretically, you could have zero cash from working capital in the fourth quarter or up to an additional $400 million release So I hope I clarified your question, Jason. So this is not for the next three months. This is the full year guidance of 0.62 billion dollars. Now, originally we had guided to a billion dollars of working capital release. We have hit 600 million in the nine months. You may ask, why not a billion for the full year? Well, as you know, shipments are better than we anticipated. We can see it. across the board, but predominantly or specifically in automotive. Price levels are also stronger, and therefore we've moderated our working capital range for the full year, and I think the midpoint is a good estimate.

Sorry, just to make sure, I'm just going to push a little bit here, Aditya, just to make sure I understand. But if we think about this then, so you're saying $1.4 billion cash requirements in the fourth quarter, plus you've done the $500 million share buyback, and then... we might get $400 million, we might get nothing. So you could potentially be starting with a $1.9 billion outflow already. Is that the right way to think about that?

So two things. First, you have to – so just on the $500 million share buyback, clearly we expect our transaction with Cliffs to close in the fourth quarter. And as you know, there's a $500 million cash payment for that. There's also an additional $900 million of equity, but there's $500 million of cash. So I think the share buyback is offset by the AMUSA transaction. So the cash outflow, you begin with zero working capital is 1.4, and then obviously it's zero or plus, i.e. reduction due to working capital, either zero or some reduction, and then obviously EBITDA in the fourth quarter.

Okay. Thank you. Very clear. Appreciate it.

Sure. Thank you.

Great. So we'll move to the next question from Alan at Morgan Stanley.

Yes. Thank you for taking my question. Can you give some color on the price-cost dynamic, but also the sequential progression of shipments going to Q4, and what are the different moving parts that we need to take into account while building our EBITDA forecast?

Thank you. Sure. So I'll talk about Q4 generally. I think you know what the... price dynamics are in all of the markets in which we operate, but I'll address how it impacts us as a company. So I think the first thing about Q4 clearly is an increase in shipments. So we see that trend continuing in spite of the lockdowns that have been announced in various markets in which we operate. We see low levels of inventory. We still see healthy order books. And so we see and we're forecasting increased shipments in Q4 in virtually all of the markets in which we operate. In terms of the impact of that, that's going to be a bit more muted than in the past because, as you know, we have variabilized our fixed costs. So as shipments increase, we have the full fixed cost impact of that shipment increase. So the operating leverage will not be as high, but it's still positive. In terms of prices, I think you know which direction prices are moving. We have some lag effects, obviously, still continuing into Q4 from Q3. And then we have contracts which have fixed pricing elements, and we see the full impact of elevated cost of raw materials in the fourth quarter. So those are some of the key drivers as we look into the fourth quarter. Thank you.

Great, thanks, Alan. So we'll take the next question from Christian at Citibank.

Hi, this is Christian from Sydney. Quick question on the pricing part of it, and I'm responding to that. Given that you had a $40 return of those quote-unquote the pricing, Should we assume that the spread expansion into the fourth quarter should be better than what you had in the third quarter, or should we assume some kind of, you know, cost headings coming through in the quarter?

Sure. Thank you, Rishi. I would not, I'm not going to comment specifically on the level of price or the level of spread increase, but I think it's fair to assume that in the fourth quarter we will have a spread increase relative to the third quarter.

Thank you.

Great. So we'll move to the next question from Seth at Exxon.

Good afternoon. The question, please, on deleveraging and shareholder returns. I understand with Jason's question that Q4 might see something in the opposite direction, but with the $7 billion net debt target reached in Q3 on a go-forward basis, is there further management interest in cutting net debt below $7 billion? Or can you confirm that's really the endgame for deleveraging? I recognize that you'll give us more color on the shareholder returns policy year-end results, but anything to give us an understanding of the range of free cash flow payout ratio would be much appreciated. Thank you.

Sure. Thank you. So, thank you for the question. You're absolutely right. I think we're very excited about this quarter because we have hit our net debt target. As you know, this was a multi-year target, and if you look at it on a 10- or 12-year basis, there has been tremendous progress that has been made. So we thank our shareholders and all of our employees on a global basis. We have said deleveraging is complete. So there may be movements in net debt, not significant, but small movements in net debt up or down. But regardless of those movements, the deleveraging chapter is behind us. So the second thing I would add is a side point, but also very important. Through the sale of AMUSA to Cleveland Cliffs, the balance sheet generally has become much stronger because we have also reduced significant pension and OPEB liabilities, as you know, and some other liabilities. So therefore, we clearly shift or pivot towards returning cash to shareholders. We demonstrated our serious intent by the share buyback program that we announced right after the sale and that's already been completed and that's $500 million share buyback done in Q4. And as Jason asked, that's directly coming from the proceeds from the AMUSA transaction. In terms of providing more color, I think clearly we want to enter into a dialogue with our key shareholders and we will begin to feedback to our board in December and then continue that dialogue with them and conclude and announce to all of you in our Feb 2021 results. But I think it is fair to assume that it should be a significant part of our free cash flow and therefore that is the type of dividend policy slash distribution that you should see from us. Great. Thank you. Thank you.

Thanks, Seth. So we'll move to the next question from Alan at Jefferies.

Thank you. Good afternoon. Regarding automotive demand, you clearly called that out as being beneficial to mixed shift. If we focus just on Europe and North America, how have these trends persisted into October and early November? Where do you expect Q4 auto demand to be compared to either a year-on-year level or normalized?

Yeah, Alain, thank you for your question. Yeah, we are expecting the same in Q4. We're not seeing any demand iteration in automotive either in Europe or in North America. On the contrary, I would expect Q4 volumes in automotive to be higher than Q3.

Okay, thank you. Thank you. Great, thanks. So we'll take the next question from Carsten. Credit Suisse.

Thank you very much. One question on the expansion of the Liberian iron ore mine. Could you remind us about the cash costs in those operations and your assumptions about the iron ore prices behind the decision to actually put the concentrator in now, or until 2023, sorry?

Simon? Yes, thanks, Carson. Look, this is, I mean, you've got to look at the long-term strategies, not change. It's always been to move to a concentrate. So, Nothing particularly new in terms of the long-term high-value strategy, but this will be a low-cost FOB and CFR cost position. It's going to be in the low 20s for a concentrate. And when we look at the impact on that in terms of China break-even costs, it's going to be right up there with the majors. We believe this is a highly competitive completion of a partly completed project. It's a brownfield project, effectively. In terms of price, obviously, we don't give a long-term trend. We're watching a number of key variables at the moment, which is keeping the price up. But I think given the fact that this is obviously the margin is a consequence of price and cost, the cost position is the manageable piece, and we believe in that. And therefore, we believe this project is going to be quite attractive throughout the price cycles.

Just a very quick follow-up on this. How will the

capex of about 800 million dollars be split during the next three to five years yeah so not much next year um it's it's more skewed to the back end of that few years ahead of us um and first concentrate end of 2023 as we named in the release um and then that that capex is back ended 24 20 22 23 24 So, yeah, very light next year, which I think is consistent with our needs for the group. Perfect.

Thank you very much.

Thanks, Carsten. So, we'll move to the next question, please, from Luke at JPMorgan.

Yeah, hi. Good afternoon. Thanks for taking my question. Just a bit of a follow-up there, just in terms of CapEx at the group level, if you could give any sense for the moving parts for 2021 relative to 2020? Obviously, you touched on the Liberia capex being minimal next year, but is there any indication on sustaining capex with likely high volumes across the group and any other capex year on year we should be keeping in mind? Thank you.

Sure. Luke, thank you very much for your question. So some of the key drivers for 2021, I think clearly, as you know, we expect the AMUSA transaction to close in the fourth quarter. So there would be less capex from AMUSA. That's roughly $250 million plus minus on an annual basis. So that reduces the gross capex. Nevertheless, we expect volumes to increase and we expect some normalization of our maintenance capex. So in that sense, CAPEX would be increasing. But I think the takeaway that I would suggest to all of you is that our CAPEX will be more or less in line with our depreciation. So that provides you with some sort of framework. And obviously, our depreciation expense will also decrease next year with the sale of the AMUSA deal.

Great. Thank you.

Thanks, Luke. So we'll move to the next question from Phil at KeyBank. Go ahead, Phil.

Thank you. Aditya, you had some pretty constructive comments on 4Q volumes and spreads, but then in your release, you seemingly were pretty cautious given the second COVID wave. Can you help us kind of balance the qualitative with the quantitative?

Yeah, absolutely. So, Phil, the commentary is general in nature, not related to fourth quarter. So I would think of it as questions for 2021. And clearly the question that we all have in our minds for 2021 is what is the trajectory of this virus? So what does this mean in terms of lockdowns continuing or not? And secondly, what is the size of the stimulus, right? Because what we don't want is the beginning of 2021 consumer sentiment begins to turn negative, then obviously that would impact demand levels and what we see in our end markets. So, so far there's nothing negative into Q4. We don't see that impact. But if the trajectory of virus or policy is not conducive to consumer sentiment, then we should remain cautious into 2021. Clearly, one of the biggest upsides or biggest hopes that everyone is focused on for 2021 is the vaccine. And so clearly that would be a big catalyst to offset any risks on consumer sentiment. Does that help answer your question, the difference between quantitative and qualitative remarks, Phil?

It does. Thank you. And then if I could, a follow-up here. In terms of the AMUSA CLIFS transaction, What makes you guys confident that the deal is going to close here in due course in the next couple months, and what do we need to see from a regulatory perspective? Thanks.

So we are highly confident the deal will close in the fourth quarter. We are awaiting antitrust approval. But as we remain a very strong automotive player in the U.S. marketplace, I do not expect to foresee any issues in terms of antitrust approval. Thank you. Thank you.

Thanks, Phil. So we'll move to the next question, please, from Grant at Bloomberg.

Hi. Good afternoon, everybody, and thanks for taking my question. Just to sort of circle back on EBITDA, I noticed that the sort of balancing component to get to the EBITDA number was quite negative this quarter. Can you just give us some color on why that may be, and is this a one-off, or is it structural? Thanks very much.

Sure, it's one-off, but I'll get Genuino to provide you with more perspectives. Genuino?

Yeah, sure, Aditya. So this is typically the case when we have a rise in, I don't know, prices, you know. I don't know, prices went up quite significantly during the quarter. And also the number of, so this is basically our intercompany property eliminations. So we have two impacts. One is, of course, the iron ore prices. So that means that we have more intercompany profits sitting outside of our mining division, particularly in Europe. And then some more volumes also, I don't know, volumes shipped from our mining division to our steel division. So that's basically the reason why you see these higher intercompany eliminations in quality trades.

So just that I'm clear, so if we have a sort of a steady or perhaps a slightly falling iron ore price as we currently have, that impact should be a lot lower.

Yeah, so then you should see a reversal of that going forward.

Great. Thank you very much.

Thanks, Grant. So we'll move to the next question, please, from Rokas at Kaplan.

Yes, thanks for taking the question. My one is on the electric aquifer furnace project in Calvert. When can we expect a final decision on this? And is there any chance that you consider this to undertake on your own after the withdrawal from your U.S. assets? And can you also talk about the planned capex associated with it?

Sure. Thank you. So in terms of the EAF project in Calvert, as you know, this is a very good project. It reduces the cost of imported slabs and also allows us to be more responsive to the customer and also enables us to achieve the Buy America provisions on a lower cost basis. So this is a great project as far as we are concerned. We're also providing Nippon Steel the opportunity to participate, and it is at their election. And so that's on the EA project. In terms of costs and timeline, I think we're moving quickly. We hope to break ground in the near term, and we should have positive news to report to you in February 2021 results. And at that point in time, we can provide you with more detail of final cost estimates and timeline to get the project completed.

And in terms of the strategic rationale, why not doing it on your own? Because you have now a significantly reduced footprint in the US and one way to have a better cost position in the US is to put steel capacity behind this joint venture, which is significantly bigger than the EAF shop capacity.

Sure. So as you know that in Calvert, we retain the economic benefit of all the slab supply. And so I would think of this project substituting the slab supply. So fundamentally, roughly speaking, we retain all the economic benefit of the EEF project as well.

Okay.

Got it.

Thank you.

Thanks, Rokas. So we'll take the next question, please, from Andreas at UBS.

Thank you very much. Just one question for me. Given the flat steel price rally we've seen in the U.S. in recent months, would you consider ramping up or restarting any idle BOF capacity in the U.S.? Or would you leave that decision to the management of Cleveland Cliffs following completion of the deal? That's the question.

Thank you very much. We're still operating this business, and we'll be operating this business until the end of the fourth quarter. And depending on customer outlook and demand requirements, we will take the appropriate decisions.

That is clear. Thank you very much.

Thank you.

Thanks, Andreas. So we'll move to the next question from Bastian at Deutsche Bank.

Yes, good afternoon. I've got one more question on the asset optimization you're working on. I think you already announced the closure of the Krakow plant as the first part of the action plan for structural cost improvement. Could you maybe share some early color on whether there are any further initiatives you're working on on the upstream side, or will the rest of the program mostly focus more on the downstream side of your operation? Thank you.

So, Thank you for the question. You're absolutely right. We announced the closure of the blast furnace and steel shop in Krakow, Poland, and that enables us to have the same market capacity, but from a lower cost position. So it's like the other AOP programs that we've done in the past and clearly improves our structural cost position. In terms of going forward, I think, look, the whole company has learned a lot post-COVID. We have learned new ways of operating. We have dramatically reduced our costs. As you know, we're quite pleased and proud of the fact that we could variabilize our costs into the second quarter. That variabilization has been continuing into the third quarter and we expect it to continue into the fourth quarter. So those were all temporary cost savings designed to adapt to the lower productive capacity. The focus has been to turn as much as we can of that into structural savings. Krakow is the first example on that. But clearly there's a lot to be done on SG&A, on employee productivity, on how we reorganize some of our assets. Other than that, I cannot provide you with more color at this point in time, but we will provide you with a more detailed briefing when we report results, the full year results in February 21.

Thanks, Aditya. I've got one quick follow-up, if I may, or actually more on a separate topic, just to shift that in. I think you seem to have a slightly different approach in terms of your green steel production strategy and also the marketing approach with some of your peers, which are aiming to fully decarbonize the supply chain on one product versus, I think, taking the group-wide CO2 savings and then taking it to one product. what is the initial feedback which you have from your customers at this point and are they able to fully capture the CO2 savings this way in terms of how they are being looked at by their various stakeholders and maybe also as part of your measures, do you also have a track of production where you basically aim for a full decarbonization of the entire supply chain?

Sure.

Out of this 600,000 ton plan.

Yeah, sure. So... Let's just start from the basis. It's not about the overall carbon that our stromethyl reduces. It's about the carbon that is reduced at a facility, right? So pick a facility, call it Facility A. That facility deploys new technologies. It could be carbolis, for example, which we have deployed in our Ghent facility where we have these microbes eating the CO2 converting to bioethanol. So the CO2 emissions of that facility reduces. and therefore it creates equivalent carbon-free steel tons because the productive capacity is maintained. And we would certify that by a third party, and therefore that steel would be carbon-free. To achieve complete decarbonization of a complete process, I think today if you look at the science, the technology, the capex and the cost, I still think is many years away. And I think the focus has to be for companies and producers of steel to work on already decarbonizing based on their existing processes and having market offerings which are equivalent carbon-free steel tons. Because if you wait for the full process, I think it's going to be a multi-year journey. And what about the progress that we can make today? In terms of customer interaction, look, there's a lot of interest. We're working with our customer base to understand how we appropriately develop this marketplace and how it can be a win-win for everybody.

Okay, thank you. So basically, if I understand correctly, your approach is to really take the measures where you get just most impact on basically your overall portfolio.

No, I didn't say that. I was referring to green steel and how as we make progress and we deploy new technologies, we reduce our carbon emissions footprint and recreate equivalent carbon-free steel tons. We have globally, as you know, we announced a net zero carbon target for 2050. That's a global target. And for European facilities, we will be down by 30% in 2030. We have two technology routes that we are following. One is the hydrogen DRI EF route. We're the first steel company to try and experiment with hydrogen and DRI We're the only company in the world which has a DRI facility actually in Europe, and we are in Germany, and we're actually injecting hydrogen and just seeing how that interacts with the DRI and the filmmaking process. And simultaneously, we have various smart carbon technologies, which basically looks at the integrated DOF route and reviews how it can reduce the carbon footprint of that route. And there we have deployed four technologies. There's a slide in the appendix Carbolist, Torero, Egar, etc., etc., and all of them are working towards reducing the carbon footprint of existing integrated operations. So, no, absolutely not. The focus is to lead the industry to decarbonize, focus on best available technology, which is cost-effective, and to accelerate that as much as possible. Okay. Thank you. Thank you.

Great, thanks. So we'll move to the next question, please, from Jack at Goldman Sachs.

Hi, good afternoon. Thanks for taking the questions. Most of mine have actually already gone, but the question I have is just on actually the regulatory backdrop and how you consider that. You know, from a business perspective and operations perspective, if we think about sort of various tariffs and import duties today, you know, where do you see the biggest risk and what causes you the sort of biggest headaches or considerations?

Sure. Thank you. In terms of the regulatory risk to Arsenal Metal today, I think the focus is Europe and how we create a level playing field and appropriate finance mechanisms to support this decarbonization journey that I was just addressing. So for us, that is the biggest focus in our European business, and since the European business is quite a large segment within our Sromitl, that becomes the area of focus for the whole company. I think we're making good progress because there is a good understanding of what is required, and Europe has a good record, especially in the power electricity sector, where they really supported the power sector to decarbonize, supported renewables, supported a way to finance that transition, and we're looking at similar concepts, how we can create a level playing field so the pollution just does not move outside of Europe, followed with steel production, but rather steel production is maintained in Europe, and we work to decarbonize it in a cost-effective manner.

Okay, so from your perspective, you're getting the right sort of signals from the power to be that they will sort of support you sufficiently to achieve that.

Yeah, I think it's work in progress, but everyone appreciates the key stakeholders, i.e. governments, that the steel industry is important for many, many reasons, not just employment. And number two, they do recognize that if they legislate and create costs, which is very high to produce steel in Europe, then they will not benefit the climate because then steel will be produced elsewhere. Pollution will not be reduced and the steel will just be imported into Europe. So that's a lose-lose situation. And on top of it, and maybe just one last comment, and on top of it, I think there would be a tremendous opportunity lost because headquartered in Europe is Arsur Mittal, right? The world's leading steel company. We have tremendous research capabilities. We have over 1,600 researchers just in Europe. And we are the leaders in terms of technology for automotive and other segments. So creating an appropriate environment for us to experiment on all of these technologies and really lead the way to decarbonize is an opportunity for European industry.

Great, thanks.

Sure.

Thanks, Jack. So we'll move to the next question, please. Actually, we're going to go back to a follow-up from Elaine at Morgan Stanley.

Yes, thank you. Thank you for taking my question. As a follow-up to Carson's question on the iron ore business, so clearly with the DSO expansion, you would increase your output by a net of 10 million tons roughly, right? 15 million cross, 10 million net. How do you think would be the size of your mining business five years out? And will you need to make any major investments to maintain or grow your output from current levels? Thank you.

Thanks, Elaine. Yeah, no, you're right. Just to get the terminology right. So 5 million today of DSO. So that's sort of a Pilbara type spec we're producing from Liberia. And then we switch over to a concentrate will be 100%. So then you move to 15 million tons of premium product. It's playing in the premium price segment through that process.

Can you just repeat the rest of that question, please?

Yes. So again, if we look at 2025, how do you see the size of the iron ore business? Would it be a net increase of 10 million tons or are other parts shrinking? And would you need to make any major investments to maintain or grow the current output?

Yeah, so and then maybe the answer is for marketable because clearly with AMUSA, you've got the departure of Hibbing Menorca through the production, which is captive today and not marketable. But in terms of marketable, this is marketable tons clearly from Liberia and the balance is incremental in other assets. We have a few DFSs looking at for potential expansions again along this high value added But the real effort in the next few years, which your period is, is we're looking at de-bottlenecking current systems and very smart sort of use of capital to increase yield in certain parts of the business, for example, AMMC. So that will be very much incremental growth rather than step change growth.

So just to underline what Simon said, in the next five years, we don't see significant capital to maintain production. uh in in our minds uh so that should be a steady state rather uh we see incremental growth in ammc and other facilities and and clearly this is a net addition of 10 million tons coming from liberia thank you very clear thank you great so we'll uh move back to alan at jeffrey's for a follower go ahead alan

Thanks. Another question on the capex related to Liberia. Can you comment on the condition of the equipment that's been sitting there for the last five or six years, but that wasn't completely constructed? Have you already included some buffer in that 800 million capex figure potentially need to replace some equipment? Or are you happy with its condition and that's not a concern?

Thanks, Elaine. It's a good question. So everything that sat there since 2014 when we had force majeure from the contractors has been under care and maintenance. The first part of the program next year will be to go back and have a look at some of the concrete foundations. But at this point, everything we've looked at is in good shape, particularly an ambiguous kit like the ship loader sitting at the port, stack of reclaimers sitting at the port, some constructed but not connected. And then the rest of it is really making sure that those items are ready, which means as a pre-engineered solution and already, as you saw in the notes, 85% of procurement is done, 60% of civil is done. So in fact, we have allowed a small contingency, which you'd expect just a small contingency for a project at this phase. It's a relatively low risk completion for the project. Thank you.

Perfect. So we'll take the next question, please, from Ephraim at Citi. Go ahead, Ephraim.

Thank you. So the inventories on the balance sheet at $12.3 billion was the lowest in many years. I know prices are high and steel prices at the end of the third quarter were not particularly low. So this indicates that you are keeping your volumes very low at your sites. Have you changed your view on the safety stock that you are planning to keep and is this part of a new strategy going forward? And as a corollary to that, we're also hearing lead times for HRC in the U.S. and Europe at multi-year highs. So are you also sort of in this way contributing to those lead times remaining high?

Sure. Thank you for the question. I think in terms of inventories at 12.327 that we had at the end of September, You also have to add in the AMUS inventory, which is in assets held for sale. So it is low. I accept that, but perhaps not as low as it looks in terms of balance sheet presentation. In terms of efficiency and others, I think clearly there is some level of efficiency that is underway in terms of how we manage our inventories. But fundamentally, there's nothing we're doing to extend lead times or anything like that. I think clearly we are trying to satisfy our customer requirements as best we can. And so as we produce, we're satisfying these orders. So I will not read any more into that. Thank you.

Great. Thanks, Efrem. So we'll take a question from an investor next. So from Heve at Gova.

Hello, gentlemen. Thank you for taking my question. I have a general question about capital allocation and more precisely about the way that you plan on a long term to harmonize your target for return to shareholder and your commitment about sustainability and decarbonization given the very big capex necessary for that even if it's not in the very short term. Am I right to think that shareholder returns come first and the commitment about sustainability comes much later in your mind?

Thank you for the question. We are pivoting towards shareholder returns and as you heard, we will be announcing our full policy in February. We have flagged this in the past that we want to be on a path to deliver and then return cash to shareholders. If you look at Aparam, a sister company, we have a good record in terms of demonstrating how we are returning cash to shareholders. I think in terms of CAPEX to achieve decarbonization aims, I think perhaps that's what you meant by sustainability. Clearly, we have to manage that, but we have to manage that in a competitive environment. And I think that's why I talked a lot in a lot of detail about how we need a level playing field. We need the regulators to also step in and support the financing of how we decarbonize the steel industry. Otherwise, you end up with a much smaller steel industry in Europe. I would look at the capex required to sustain our operations, to maintain our business. within roughly the capex envelopes that we have indicated. I am not expecting those numbers to shoot up in any way form in the next three, five, ten years. And therefore, I do believe we have room and we will have free cash flow to return a significant part of that free cash flow to shareholders. Okay. Thank you very much. Great. Thank you.

Sorry, if I may.

Yes.

It means also that your commitment for 2030 is subject to a lot of consideration.

That is true. I think clearly we have flagged. Yeah, go ahead.

Sorry, which is also a point for, you know, more and more shareholders who are selecting stock depending on their carbon footprint. So don't you think you take the risk to be on an exclusion list because of that?

Sure. So in terms of our 2030 target for Europe, we have the plans in place how to achieve our minus 30% target in our European footprint. I think those plans are well-developed. We have costed that out. We have not highlighted how much capex there is, but if you look at what the EU has indicated, they are providing financing for this capex. We have a pilot project called Carbalist in our Ghent facility, which has also received this type of financing. So we have a very good idea of how much support the EU provides, and we have a clear roadmap on how to achieve our minus 30% by 2030 goal. which we believe that we can finance and still maintain our overall goals for shareholder value creation and have sustainable CapEx levels. We can provide you with more details on that. At this point in time, we have not detailed the full CapEx amounts, but as we develop our projects and conclude financing with the appropriate authorities, we can update you regularly on that.

Great. Thank you very much. I will be very happy to get that.

Absolutely. Thank you very much.

We'll move to the next question from Miles at UBS.

Great. Thank you. Just a couple of things. On ILVA, could you just give us the latest update and from your perspective, is it still EBITDA negative, and what needs to happen for you to retain the interest in the business going forward? What are you looking to achieve with this agreement?

Sure. Thank you for the question. I think we have two scenarios in front of us. The first is to stay. The second is to withdraw. In case we stay, I think that's what your question is. What do we intend to achieve? We intend to achieve a sustainable and viable ILVA. I think then clearly the equity portion that we would retain would have value and it would make sense for all the stakeholders associated with the company. So that remains the focus. If we have confidence that the company under the new framework would be viable and sustainable, then we would like to stay sustainable. If we have doubts on the sustainability, viability based on the new conditions, then obviously we would be withdrawing. As the negotiations conclude, we will update you on what we finally decide.

Is it still EBITDA negative at the moment in Q3?

So the company has made tremendous progress relative to Q2, and EBITDA is much more neutral rather than negative or close to being zero in the second half. relative to what we saw in the first half.

One quick follow-up question from before with Liberia. What's the capacity of the rail? I mean, obviously, there's a load of neighbors who would like to share the rail. Is 15 million tons the maximum, or could it go up to 20, 25 million tons with modest investment? Thank you. Sure.

So as we complete the project, the 15 million tons, we will be utilizing the full capacity of the rail line of the railway in Liberia. I recognize that it's a single track rail line at this point in time. And at 15 million tons, it would be fully utilized.

OK, thank you.

Thank you.

Thanks, Miles. So we will take a follow up from Phil at Quebec.

Thank you. Our model suggests that the third quarter saw a pretty big hit from intercompany profit eliminations, much higher than normal. Was there a true-up in the quarter? Should we expect these third quarter levels to persist?

No, that is not really any true-up. It's just, I mean, as I was explaining earlier on, it's really a function of the higher, I don't know, price. As you know, the price has moved up quite a lot during the quarter. So as a result, we have more intercompany eliminations this quarter. And then going forward, it's really dependent on how prices evolve. To the extent that we see some declining annual price, then you'll see a reversal of debt. To the extent that it stays at the same level, then we are back to the normal charts that we have in segment orders, which should be much smaller.

Thank you. And just a follow-up for me here, too, on... electricity rebates or credits we saw a few of your smaller peers report some some one-time in terms of the year some one-time benefits from some electricity rebates they received in calendar 3q are you also receiving those in in full stead in the third quarter are those spread out over the course of the year thanks

That is nothing really significant to report in terms of rebates, nothing unusual.

Are these in the U.S., Phil, or?

U.S. Steel saw some benefits in their central European operations, and then so did commercial metals in their rebar side in Poland.

Okay, we have not seen the same. We can follow up with you and try and explain the differences.

Thank you.

Thank you.

Thanks. So we'll take another follow-up from Grant at Bloomberg Intelligence.

Yeah, thanks for taking a follow-up question. I just wanted to understand your plans for your Indian JV. Have you developed any further thoughts as to capacity and how that will evolve over time, or is it pretty much as you previously indicated? Thanks very much.

Thank you, Grant. So just a few words on maybe the Indian joint venture for everyone's benefit, and then I'll move to your specific question. So AMNS India has performed well. We have reported nine months EBITDA of $423 million. And as you know, the cash requirements of the business on an annualized basis is 250. Nine months is about $175 million. So the company performed well. I think for the full year, we'll have record production in spite of COVID. And in spite of the lockdown in India, it managed to export a lot of its products. So I think the acquisition, the management team did a very good job in 2020. In terms of moving forward, we're focused on expanding our downstream footprint, which is basically coal rolled and galvanized capability, catering to automotive and higher demanding segments in the marketplace. And we're also looking at upstream expansion, looking at the possibility of taking the facility from 8 to 14 million tons. As I mentioned earlier, the business with cash generative is doing well. we believe the business will finance this growth on its own and will not be requiring further cash injection from its shareholders.

Thanks very much.

Pleasure.

Great. Thanks, Grant. So we'll take a follow-up from Seth at Exxon. Go ahead, Seth.

Thank you very much. Just one follow-up on ILVA, please. Can you please confirm the scale of any lease payments outstanding? My memory that maybe they were paused earlier this year due to the COVID situation and negotiations. So any potential catch-up in lease payments due? And then also, if you can confirm the break fee, were you to walk away? I believe the figure that you've quoted versus the government and the press has differed recently. Thank you.

Jean Reno. Yeah, Seth, so the number is in the range of $1.15 billion outstanding.

Yeah, I think Seth was trying to understand what is outstanding in Q4. So there has been a reduction of the lease payments into Q4. And as you know, roughly, these used to be $180 million a year, and then we managed to reduce it by 50%, divided by four, and those are the lease payments that have been accruing and being paid on a quarterly basis. There was some delay due to COVID, but there's been some catch-up of that lease payment in the second half of this year. In terms of the break fee or withdrawal fee, At this point, I mean, we have indicated that it's a €350 million withdrawal fee. There is also an additional amount which is offset by a receivable, and that's why we talk about a €350 million break fee versus a different number. Both numbers are correct. It's a difference between growth and net. Thank you. Thank you.

Perfect. So we'll take a further follow-up from Rokas at Kaplan.

Thanks for taking the follow-up. Yeah, just a high-level question left concerning your view on the individual businesses and probably also including ILVA in the end. I think when you did the sale of or announced the sale of your US business to Cliffs, you made clear that there's bit of a change in focus that you have a greater emphasis on value creation rather than on technologies. What shall we think about how you look at your portfolio overall in terms of the strictness to pursue this and to make sure that you can create a maximum value from your business footprint?

Sure. I think the actions that we did in terms of AMUSA kind of answers all your points, right? Because through the transaction, we are still present in the NAFTA market. We are present through really high quality and lower cost assets. This is DeFasco, Calvert, and our Mexican business. Our global reach is maintained. We are retaining the R&D in the U.S. We talked a lot about in this investor presentation, the new products that we have launched for the automotive sector. And this transaction creates value while not standing or changing our global strategy. So moving forward, what is our focus? Our focus is clearly post the deleveraging to return cash to shareholders. Number two, it's incremental growth where we see opportunities. And when I say incremental growth, I'm really talking about opportunities we have in Brazil as that's a growing market, completion of the hot strip mill in Mexico, and opportunities like Liberia. But the focus in the other markets is really how do we continue to improve our product range. I think green steel is a very good example. And how do we deploy our capability to decarbonize? Clearly, that is the single biggest opportunity and also the single biggest challenge. But I think we're well positioned as a company. We have the right resources, the right capability, and the right motivation to succeed on that. I don't know if I fully answered your question or if you're looking for something else, but that just gives you a flavor.

I think it mostly answers it. Maybe let me rephrase. So when you have a steel business you're looking at from a performance point of view and you consider strategic options, how crucial is it for you that you have an alternative to maintain the ability to service those markets through other parts of your portfolio?

Yeah. So look, we're not going to stand in the way of shareholder value creation, right? So at the end of the day, it has to create value for our surmittal and value for our surmittal shareholders. So that's how I would address it.

Okay. That's very clear. Thank you very much. Thank you.

Thanks Rokas. So we actually have one final question and I think it's a follow-up from Miles at UBS.

Great, thank you. One thing I was just a bit worried about is the lockdown and we could clearly see a deterioration in demand. If you go back to March, April, how much visibility did you have? What can you say to reassure us that this lockdown is going to be different? and demand is going to be more resilient and we can continue to see margins and stay elevated like they are today. Thank you.

So the only visibility we can provide is what we see in terms of our business. So the visibility in the business is still very good. We see demand coming back in various sectors. In some sectors, like in Brazil, we see full-year demand actually higher in 2020 than 2019. For example, the construction segment in Brazil. If you look at China, China's apparent steel consumption in 2020 is actually higher than 2019. At the end of the day, all of these are closely linked to stimulus measures. as well as consumer sentiment, which is directly affected by virus trajectory. So none of us have a crystal ball, but what we see in our business is reassuring. I think the other thing that we also have to appreciate that governments have recognized that the manufacturing sector, including our SORMITL, did a very good job in protecting its workforce, its employees. from COVID because we all have very strict health and safety practices. You have distancing and manufacturing operations. You have a culture of PP&E, so to add masks and things like that is quite routine for the manufacturing sector. On top of it, offices and workplaces are work from home. And so the risk of maintaining the manufacturing sector going from a supply chain or otherwise from just an infection point of view is rather limited compared to, let's say, the service sector. Not that that answers the question because clearly the biggest driver remains consumer sentiment. But as I mentioned earlier, that's really dependent on virus trajectory, the vaccine, and obviously the stimulus. Okay, thank you. Thank you.

Great. Thanks, Miles. So, Mr. Mittal, that was our last question, so I'll hand back to you for any closing comments and remarks.

No, no. Thank you, Daniel, and thank you, everyone, for your questions and continuing interest. I wish you and your families the best of health. Stay safe, and we will speak soon. Good day.