Okay, Daniel, you can start.
Thank you. Good afternoon and good morning, everybody. This is Daniel Fagler from the ArcelorMittal Investor Relations team. Thank you very much for joining today's call to discuss the transaction we announced this morning, whereby we have entered into a definitive agreement with Cleveland Cliffs, who will acquire 100% of the shares of Arsenal Mittel USA. Let me first introduce all of today's participants on the call.
We have Mr. Mittel, our Chairman and CEO we have Aditya Mittel, President and CFO and we also have Gemino Cristino, the Head of Finance. Mr. Mittel and Aditya will make a brief presentation. The slides that they will be referring to are available on the Investor Relations section of our website.
This brief presentation will then be followed by a Q and A session. So finally, before we begin, I'd like to highlight that this call is being recorded and also point you to the disclaimers on Page 2 of the presentation slide deck. With that, I will hand over to Mr. Mittal.
Thank you, Daniel. Good day, everyone, and thank you for joining us on such short notice. We are pleased to present this transaction between ArcelorMittal USA and Cleveland Cliffs. This transaction brings together 2 of the most important companies in North America. It's a combination that we strongly believe creates significant value for our shareholders.
It enables ArcelorMittal to strategically reposition our North American platform, unlock value for our shareholders and strengthen our balance sheet. The ports for both companies have unanimously approved the transaction, and we look forward to progressing to close within the Q4 of this year. I would like to take this opportunity to thank all the employees of ArcelorMittal USA for everything they have done to build a quality business with a reputation as a trusted quality supplier of steels for the U. S. Economy.
We first acquired Inland back in 1997 and then merged with ISG in 2004 to create metal steel. So we have a long history together, and I'm pleased that we will continue to have a participation, albeit passive, in the new company. Moving to the presentation. As the slide shows, we see multiple benefits to ArcelorMittal from this transaction. 1st and foremost, we are strategically repositioning our North American platform to focus on key attractive segments through our high quality and highly competitive assets, Dofasco in Canada, AMNS Calvert in Alabama and ArcelorMittal, Mexico, while retaining the support of our best in class research and development program and innovation centers.
We are achieving this at a compelling valuation outcome for ArcelorMittal USA. This transaction unlocks the value of ArcelorMittal USA at a very attractive multiple of approximately 6x based on a through the cycle EBITDA and approximately 8x EBITDA based on the last audited financials for the year ending December 2019. Our passive shareholders would benefit from the synergies created through this combination. Of course, there is a positive financial impact on ArcelorMittal through the deconsolidation of significant balance sheet liabilities at ArcelorMittal USA. And as a result of the strengthened financial position, this is an opportunity to return cash to ArcelorMittal shareholders through a share buyback, which we launched today.
So with this overview, I will now hand over to Adit to go through these points in some more detail. Adit?
Thank you. Good afternoon and good morning, everyone. For everyone who has downloaded the presentation on our website, I'm actually on Slide 4, which outlines the specific details of the transaction. Cleveland Cliffs, as you know, will acquire 100 percent of the shares of ArcelorMittal USA
for a
combination of cash and stock at an aggregate equity value consideration of $1,400,000,000 Approximately 1 third of the consideration will be paid to us in upfront cash and the remaining 2 thirds will be in the form of equity. The equity component is a combination of common stock with the value of $500,000,000 and a preferred stock with a value of 373,000,000 dollars Lastly, Cleveland Cliffs will assume the liabilities of ArcelorMittal USA, including net liabilities of approximately $500,000,000 and pensions and OPEBs, which values at $1,500,000,000 Turning to Slide 5, the combination of these 2 highly complementary assets will create significant synergies, which will contribute to long term value creation for our shareholders through our passive stake in the combined company. As you may have heard this morning, Cliff's management have announced that they have identified an estimated $150,000,000 of annual cost synergies. The key areas of synergies include the optimization of the combined footprint, raw material sourcing and supply chain efficiencies and also the integration of corporate functions. Let me move to the next slide.
As you heard right in our opening remarks, the most important aspect of this transaction is the opportunity for us to strategically reposition our footprint in North America to focus on our highly competitive and high quality assets. We have significantly invested in these assets in recent years in order to increase their production volume, quality and cost competitiveness. Today, they represent a strong footprint from which to execute a North American strategy and they position us favorably to compete in this market. Dofasco, as you know, is a world class leading facility, while ArcelorMittal, Mexico provides enviable value add and downstream capabilities. Both of these assets have been recently modernized and are considered amongst the lowest cost producers in the region.
Calvert, which is already amongst the world's most advanced steel finishing facilities, will be further enhanced by the recently announced plan to construct an electric arc furnace to optimize its slab sourcing. I should also highlight the fact that our sulfur metal will retain our R and D program and innovation centers to maintain our constant product and process development. This underpins our leadership position and enables us to remain ahead of the competition as the material and steel manufacturer of choice for our customers. Let me now turn to the next slide, which is Slide 7 and explain how this transaction fits with our capital allocation strategy. This deal completes our $2,000,000,000 asset portfolio optimization target well ahead of the timeline we had set ourselves.
While considering the challenges posed by the COVID-nineteen pandemic, I believe it is a significant achievement. We received upfront cash, but the more significant impact from this transaction is a deconsolidation of the associated liabilities from our balance sheet, which is comprising mostly of pension and OPEB liabilities. So you will see that post the conclusion of this transaction, there has been a strengthening of the group's capital structure and credit metrics. This kick starts the return of capital to shareholders. We intend to redistribute the $500,000,000 of cash proceeds through the share buyback program.
The buyback will commence as of today as per the company's share buyback mandate and will continue until the earlier of 31st March 2021 or when Arsho Mittal has fully utilized the allocated $500,000,000 The deconsolidation of ArcelorMittal USA will also reduce ArcelorMittal's cash needs, which is as some of you may be aware, maintenance CapEx, cash interest, cash taxes and other cash costs by approximately $400,000,000 Let me now turn to the last slide of our presentation. To conclude, this transaction enables us to achieve 3 key outcomes. First and most importantly, we strategically reposition our footprint in North America to focus on our high quality and highly competitive assets. Secondly, we realized a great value for our Pharmaceutical USA with significant potential upside through our passive minority shareholding in a highly synergistic combination. And lastly, we generate shareholder value through a strengthened balance sheet and an opportunity to return cash to shareholders.
With that, we are happy to take your questions. Thank you.
Thanks, Aditya. Thanks, Mr. Mittal. So we will move to take the first question please from Carsten at Credit Suisse.
Thank you very much. The question from my side is, is this transaction the end of your divestment program? Or will you still look to optimize the portfolio through further divestments? As you hinted earlier, there could be still some stakes sold in some of your mining operations. Or do we see a new program being launched very soon?
Thank you very much.
Thanks, Karsten. This is the end of our $2,000,000,000 portfolio optimization plan that we had announced. Going forward, look, we will always review our portfolio and see the opportunities to optimize. But there is no plan to announce any program in the near term nor is there any target that I would think of. I think the key takeaway from this transaction is that we strengthened our balance sheet, we have improved our credit metrics, we have improved our credit profile and it provides us with an opportunity to kick start the return of cash to shareholders.
Okay. Thank you. I'll jump back in the queue.
Thanks, Carsten. We'll take the next question from Seth at Exane, please.
Thanks for taking our questions and congrats on completing this deal. I have, I guess, a 2 part question, sorry, with regards to the buyback. First, can you please confirm whether or not the Mittel family will participate in the buyback and selling back shares? And secondly, recognizing that we're launching the buyback today before any cash has been received and the deal is closed, what does that, I guess, tell us about your perception of cash generation on the horizon? Obviously, the $500,000,000 would actually be net neutral versus the cash you're expecting upfront.
You're speaking positively about the equity stake on a go forward basis as well. So how should we interpret that with regards to the perception of future cash generation for business today? Thank you.
Okay, Seth. First of all, thank you for your question and your wishes. So in terms of the family, the family is not participating in the buyback, which means that our shareholding the family shareholding will accrete in the company. I hope that's clear. In terms of the cash requirements of the business, as you heard, the cash requirements of the business is going down.
And in terms of what the signals in terms of the horizon, I would just say that look, we have confidence that this deal will close. We think it's an opportune time to begin returning cash to shareholders and hence we are starting with the buyback. Seth, have I answered all your questions?
Yes, that's fine.
I'll jump back in the queue. Thank you.
Okay, great. Thank you very much.
Thanks, guys. So we'll take the next question please from Rokos at Kepler. Go ahead, Rokos.
Yes. Thanks for taking the question. Key point I'm interested in is to what extent net working capital is transferred to Cliffs
and yes.
Okay, sure. In terms of the net working capital that is transferred to Cliffs,
Is transferred to Cliffs?
Sure. I think you will have more disclosure when we present our balance sheet towards the conclusion of this transaction. But these are environmental ARO, some visas and things like that.
Okay, understood. Thank you very much.
Sure. Thanks, Lucas. We'll take the next question please from Jason at Bank of America.
I'm just wondering folks, you're going to be a fairly large shareholder of Cliffs post this deal. I make it about a quarter of the market cap. So do you get any board representation? And are you subject to lockup of the shares of Cliffs that you'll be receiving as consideration?
Sure. Thank you, Jason. So in terms of directly, we are 16% shareholder of Cleveland Cliffs. And in case the preferred shares are paid out with common equity, then our shareholding obviously would increase beyond that. If it's paid out in cash, then we'd remain a 16% shareholder.
Maybe a side point, the way the preferred works, it attracts 58,000,000 shares. And so whatever is the value on the time of redemption of that, they either pay us 58,000,000 shares or the equivalent cash value. In terms of the lockup, we have a 6 month lockup and then we can sell down half of our stake and then after 12 months, there is no more lockup. We have a passive stake. We have no governance rights.
We're not represented on the Board. At this point in time, we're not taking any decision as to our intentions vis a vis the stake.
Okay. Thank you, sir.
Thanks, Jason. We'll take the next question please from Luke at JPMorgan. Go ahead, Luke.
Hi, guys. Thanks for the call. Just a question on the cash flow generated from those U. S. Assets.
Obviously, we can back calculate the EBITDA, but an indication of the cash flow associated with them over the last 12 to 18 months? And then also just an indication on go forward for the Mittel Group, what the ongoing sustaining CapEx needs are for
the business, excluding these assets? Sure. Thank you. So roughly, the way we think about the businesses is the business has $4,000,000 of cash requirements. And this is roughly to $260,000,000 of CapEx and $130,000,000 to $150,000,000 of benefit expense.
When I say benefit expense, I'm referring directly to pension and OpEx liabilities. And then that would be obviously the cash requirements. And then the EBITDA numbers, I think there have been some numbers floating around on what has been the EBITDA of this business. If you look at a 5 year average, which we're calling through the cycle, it's about $550,000,000 So that gives you a sense of what is the free cash flow power of this business through the cycle. Clearly 2018 2019, the EBITDA level of this business was much stronger, especially 2018, which was significantly higher than the through the cycle average.
2019 was lower than through the cycle average. The combination of the 2 would generate about $300,000,000 in free cash flow. 2019 lower than my average of $150,000,000 and obviously 2018 higher than my average of $150,000,000 I don't know if that helps answer the question. In terms of our okay, great. In terms of cash requirements for our business, our cash requirements declined as a result by $400,000,000 And again, it's the same breakdown, dollars $250,260,000 CapEx, dollars 130,000 $150,000,000 of other cash costs.
Okay, great. Thank you. Sure. Thanks, Luke. So we'll move to the next question please from Christian at SocGen.
Yes, thank you very much
and congratulations for a good deal indeed. Just one question, What's your new integration in terms of raw materials with the businesses you retain as far as I know and coal is concerned?
So we still retain the rest of our mining assets, right? Flagship mining asset is our facility in Canada, which has 26,000,000 tons of concentrate capacity, as you know, and 10,000,000 tons of pelletizing capability. And then obviously, with mining assets Liberia and other parts of the world, we are just divesting the assets which are directly associated with the AAM USA footprint. The impact on our mining segment is marginal. There's a small impact due to the divestment of Princeton coal mines in the U.
S. But other than that, the impact on mining segment is marginal. The real impact is on our NAFTA segment.
And on NAFTA, how much you retain of NAFTA, there's nothing changing on the remaining plants, the way you integrate them or not within your mining system?
Yes, that is correct. There's because the iron ore that was part of the AM USA system was consumed by AM USA. So AM USA was not selling iron ore to any of our other facilities. I mean, occasionally there'd be swaps and things like that, But fundamentally, the flows were not between AAM USA mines to Dofasco as an example. Okay.
Thank you very much.
Great. Thanks. We'll move to the next question please from Alan at Morgan Stanley.
Hi, thanks for the questions. So one question is on antitrust. What
do you see the biggest risks and considerations when thinking about antitrust? Thank you.
So in terms of antitrust, obviously, we're both highly confident confident that there are no concerns on the regulatory front Because at the end of the day, this is not how do I describe it efficiently. This is not the 2 largest companies in the U. S. Coming together, right? This is one of the largest players in North America divesting its share and a relatively smaller player would be coming larger.
So, to get the share concentration, I don't believe this fundamentally changes.
Okay. Thank you.
Sure.
So we'll take the next question please from Myles at UBS.
Great. Thank you. Just thinking about the sort of retirement liabilities, obviously, Cliffs has a lower valuation than yourselves. So I mean, the 20 F valuation looks very conservative on a relative basis. Can you kind of explain what the main driver for that is?
Will you revisit the valuations of your other assets? Obviously, another $3,000,000,000 $4,000,000,000 of pension and post retirement liabilities. Are we overestimating them in our enterprise value? And then just linked to that as well, will you reconsider the $7,000,000,000 net debt target now that the broader liability of the group is lower? Should we kind of see potential for a higher threshold for net debt?
Thanks.
Sure. I'll talk about the net debt and then I'll get Jean Reno to talk about our balance sheet and the assumptions that underpin it. So in terms of net debt, I think fundamentally as you see from this transaction, we are reducing a lot of liabilities from our balance sheet. The credit profile is improving. The risk profile is also improving.
Profitability per ton improves as well as an example. And we have started the return of cash to shareholders through this buyback. So the net debt target remains, but I would look at it more holistically that overall the liabilities have been reduced. The portfolio has been the portfolio optimization program has been achieved, portfolio has been improved as well. And now we have the cash generating capability and the balance sheet capability to begin returning cash to shareholders.
Yes. And, Gianrino?
Yes, sure, Aditya. So I can comment on our balance sheet. So I believe that Cliffs, in their call this morning, they elaborate on how they have embedded those liabilities. I can only comment that in our books, we do not see any opportunity to reduce the size of the liabilities given that the assumptions, the key assumptions are all defined by the accounting standards. So we do not see any opportunity there to change it now going forward before the close of the transaction.
But I believe you can understand by listening to Outplay's
leverage the rationale behind it? Is this a difference between I think kind of the question other than that was essentially on as part of this transaction or was it just exclusively a U. S. Transaction and if so, why?
Patricia, you might be on mute there, sorry.
Sorry. Thanks, Daniel. The discussion was just around our AMUSA asset base. And the reason why, and I know it may sound cliched, but really in this case, it's not, it's a win win for both. We're just looking at the AMUSA asset base.
Cliffs is long on iron ore. AMUSA is short on iron ore. Cliffs gets scale and synergies from the combination of their recently acquired AK Steel assets with AM US. And we retain our position in North America through the existing asset base of FASCO, Calvert and Mexico, which as I mentioned, are low cost, high quality assets, and are able to cater to the most demanding customers. We also retain our R and D.
So the conversation was just about how do we create a win win for both and this is a strategic repositioning of assets that both companies have agreed to. Does that help answer your question? Thank you. Okay.
Thanks, Efraim. Hopefully, you were satisfied as well with your point on the balance sheet liability. But if not, just rejoin the queue and we can let you answer that ask that question again. But in the meantime, we'll move on to Phil at KeyBanc.
Thanks very much. Aditya, I somehow recall in the past I've heard you guys have about 5,000,000 to 6,000,000 tons of annual automotive contract business. Curious if that was still the case pre transaction and whether or not that 5000000 to 6000000 tons includes Calvert?
Yes. So Phil, that's a you have a very good memory. So roughly that's in the ballpark and I think that the changes in that number matches the changes in automotive production, right. So that's roughly a good number when automotive is running full. AM USA represents about 40% of that number.
So the rest is automotive shipments from both Calvert and Dofasco. Does that help answer your question? Thank you.
Thanks, Phil. So we'll move to Grant at Bloomberg Intelligence.
Good afternoon. Thanks for hosting the call. The sale of Ostler Motel USA simplifies the business quite a lot, particularly in North America. Are there any more opportunities to, let's say, trim head office costs, etcetera? Thanks very much.
Sure. Thank you for your question. I do agree that the strategic repositions our presence in North America. Post the COVID pandemic, we began our efforts on an overall sustainable fixed cost reduction throughout all of our facilities and through our head office as well. Clearly, those efforts continue.
And I think if you looked at our second quarter results, we made a lot of headway in variabilizing our fixed costs. That's what we spoke about then. And I think the effort right now is to make it structural. I think we're making good progress on making a lot of these fixed costs that came down in the Q2 into structural fixed cost savings. And what we talked about was we update all of you when we report our year end results.
So the effort is exactly what you talk about. It's focused on the corporate office, focused on corporate functions across the board, across our facilities. I don't believe this transaction directly impacts it. But clearly, it provides us the ability to look a bit closer and see if there are any other further reductions we should be making.
Great. Thank you.
Sure.
Thanks. And we'll take the next question please from Timna at Bank of America.
Yes. Hey, thanks for including me. I wanted to just ask a high level, having watched you absorb all these different entities and seeing the composition of middle back in a decade and a half ago. Just does this change the thesis of the company being kind of this global enterprise in every region and does this change the thinking about wanting to be a large automotive player? Can you talk a little bit about that?
And is there an opportunity to continue to maintain that presence the same way with your existing assets? Just any changes philosophically that you can comment on a high level about the transaction?
Sure. Thank you for your question. I think it doesn't change that thought process. I think the headline you should take away from our discussion this afternoon is that the strategic repositioning of assets, but not a strategic repositioning of our market presence or product presence or customer presence. So specifically, I think the NAFTA market remains very important.
We have divested a big chunk of our NAFTA market business, but we still retain a significant presence. Roughly half of the shipments have been reduced. But if you look at automotive, it's slightly less than that. We remain a strong regional player with the ability to grow. In Calvert, We have announced the construction of an electric arc furnace.
And as you know, Calvert is the most we think at least the most advanced fishing facility in the U. S. So I don't see this as a change in philosophy or a change in vision or direction. I see this more as a strategic repositioning of our asset base. So that's how I would characterize it.
Okay. Thank you.
Sure. Thanks, Timna. So we'll I think we've got some follow-up questions now, as I said, Mr. Mittal. The first is from Rokos at Kepler.
Yes. Thanks for taking the follow-up. My question first to just the preceding one. So you are going to be half the size you were before in the NAFTA region. Are you envisaging any plans to grow the nephtha presence from the other hubs in Mexico
just to
maintain the same strengths with your customers there? And technically, how do you make up for the supplies of the covered plant now with the assets being sold? Are you maintaining a longer term supply linked with Cliffs? Or are you reconsidering the supply structure?
Sure. So as you know, we are investing in the asset base in NAFTA, right? We continue to make lots of investments in Dofasco to improve its quality and competitive capability, such as work we've done both on the hot strip mill as well as our galvanizing lines. Specifically in Mexico, we're actually building a new hot strip mill. And that's a significant project, almost $1,000,000,000 project that we're investing to have a stronger automotive presence as well in the Mexican market.
And then in Calvert, we have announced the construction of facility. So the existing assets are growing in terms of both value add capability as well as mezz capability. In terms of slab supplies to Calvert, we have an agreement with Cliffs where the slab supplies that exist today between Indiana Harbor and our Calvert facility are maintained for a period of 5 years. So in the medium term, there's no disruption to our slab supply into Calvert.
Okay. Very good. On this structure, as you mentioned, the investments you're doing around the U. S. In the region, would you say that the presence you have and the capabilities you have from there would be sufficient to have an Elgort market stance in the NAFTA region?
Yes, that's what we believe. And that's why we retained all of our R and D capability in the naphtha market. And as you know, we have a very significant R and D presence globally. And so that will continue to support our commercial product and process strategy in the naphtha market.
Okay. Thank you very much.
Sure.
Thanks, Marcus. We'll now go back to Seth at Exane.
Thank you
for taking my follow-up question. Just a quick one with regards to the Calvert EIS. Can you please confirm at this stage how that's being developed, whether it will be consolidated within ArcelorMittal, part of the JV, so we can better understand the financing and the reporting of that going forward, please?
Thank you. Sure. So at this point in time, it's an Australopithecusment. But clearly we're also in discussions with our partner to see their thoughts. But fundamentally, as you know, we are responsible for the slab supply into that facility.
So I don't see how the I don't see a fundamental change to those economics. But we can update you more as these things get finalized. So you can have more specific impacts on our company and what it actually means.
Great. Thank you.
Sure.
And now we'll go back to Alain at Morgan Stanley.
Yes, hi. A quick question on your decision to do a buyback. Do you mind elaborating a bit more why doing a buyback as opposed to continuing the deleveraging process and accelerating the journey to the $7,000,000,000 I'm just curious to see why you have thought that that would be the best course going forward? Thank you.
Sure. So there are two reasons. Number 1, as I mentioned earlier, I think this transaction, if you think of it from a holistic perspective, achieves what we wanted to in terms of credit profile or credit metrics, right, because we are reducing a lot of liabilities from our balance sheet. The second reason is also that we have valued this business on through the cycle type of reference, right. That's the EBITDA basis that we have used to provide you with a sense of what was the transaction multiple.
And at the same time, we don't believe this is a time to reduce exposure because of where we are in the steel cycle to steel equities. And so we see a very nice synergy in taking the cash that we received from this transaction and reinvesting it in our own equity. And so that's the reason for the buyback. Thank you.
And we'll take a follow-up from Jason at Bank of America.
Yes. Thanks for that, folks. So just Aditya, with the family as the largest equity shareholder, could you talk to us about why you're so focused on running the business for balance sheet credit metrics, so ultimately running the business for debt holders? And I guess with that, would you expect the agencies to revisit ratings?
Yes. I don't mean the family or anyone at our store, Mitthild management team, leadership or employees is running for debt holders. I think what we're doing is we're running the business for the best interest of all stakeholders. And I think what we strongly believe is that to survive in the long run and create value for all shareholders is to have a low geared balance sheet, because you don't want your cost of capital to hinder your ability to innovate, to make the strategic moves or to invest in the facilities to improve their competitive performance. And so that's been the focus.
And I really I don't believe the balance sheet has been a hindrance in us progressing our competitive strategy. Really, the focus has been on when do we repay our shareholders with dividends. And so we set a target more to begin the repayment of cash to shareholders. And I think today what we're seeing is that we feel that with the actions we have taken through this transaction and others, we are in a position to do that, hence the buyback announcement. Jason, have I answered the question?
Yes, I think so. And then just on the rating agencies, any thoughts? Is that an active discussion or is that just something that happens over time?
I think that's just something that happens over time. Clearly, we're always in discussions and we're briefing them on this transaction as well. But I think overall, the key message from our side is that look, assets reposition in the U. S. To a stronger place, balance sheet much stronger and now as a result as we always assured all of you, we have begun returning cash to shareholders.
Okay. Thanks very much. Clear.
Okay. Sure. Thanks.
So I think we've got 3 more follow-up questions. So we'll take the first of those from Luke at JPMorgan.
Hi, thanks for the follow-up. Just more generally on the deal structure and given your comments about still being positive on the U. S. And U. S.
Market, how should we square that with a passive equity holding in Cliffs now and no Board seat versus, say, achieving similar outcomes in different structures, for example, non operated JV, where you could still achieve similar outcomes with reductions in deconsolidation of debt, etcetera? Just be interested in your thoughts on that. Thank you.
Yes. I mean, those are all options and opportunities. I think the cleanest way for us was and I think it's also important to have Chris agree to something like that, right? It's just not what we want. But Chris was interested in the opportunity that AMUSA offered to strengthen their business.
We saw that and we see that it makes a lot of logic for them and a lot of logic for us. The shares are passive, but they do appreciate I mean and they follow the financial performance of Pune and Cliffs. We are very confident on the synergies that can be achieved. We look deeply into this and that's where we had a slide in our deck as well. We think there are significant synergies in this combination as well and therefore want to participate in the upside of that as well.
Okay. Thank you. Yes. I mean just to add, I think the consolidated joint venture and such structures are very complex. I mean, they can work with one partner that we have with Nippon in the U.
S, but multiple partners and multiple joint ventures also adds a degree of complexity that I think none of us really desired.
Fair enough. Makes sense. Thank you. Thanks.
And we'll go back and take a question from Myles at UBS.
Great. Thank you. Just a quick question. I mean, given how steel prices are lifting, raw material costs are falling, it looks like you're going to generate lots of cash as we look forward over the next sort of 1 to 2 years. So how should we think about cash returns and the buyback versus dividend decision with the dividend?
I know you haven't announced a new policy yet, but give us a few indicators around that. Will you pay a dividend quarterly or
will it be annual?
And then the other thing that we've had, there's still a few skeptics out there that are saying that now you've got more a stronger balance sheet, you're going to go and buy some other business. How can you give us or address those concerns out there, provide the market with some reassurance that actually cash returns is the way forward now? Thank you.
Sure. I think that's an excellent question. I think we don't talk about it enough. But if you were to go back to my Slide a more clear policy on exactly how we will be returning cash to shareholders, whether it's quarterly or annually. If you're looking for guidance on how that could be structured, I think Aperam is a good example where there's a combination of a base dividend and maybe some share buybacks.
And we wanted to relate to free cash flow. So we have some stability because earnings in the steel industry are more volatile, but we find that free cash flow actually is more stable because when earnings are going up, you invest in working capital and when earnings are coming down, you have a release of cash from working capital. So those are some of the thoughts. I would not take any of that specific guidance, but just as ideas we have been mulling over to the extent that you have specific recommendations, feel free to reach out to us, to Daniel. And obviously, all of this discussion with our Board, which is going to start at the end of this year and then conclude and we'll report to you in February.
Excellent. Thank you.
Thank you.