Okay, Daniel, you can start.
Thank you. Good afternoon and good morning, everybody. This is Daniel Fairclough 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 ArcelorMittal USA. Let me first introduce all of today's participants on the call. We have Mr. Mittal, our Chairman and CEO. We have Aditya Mittal, President and CFO, and we also have Genuino Christino, the Head of Finance. Mr. Mittal 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&A session. Should you wish to ask a question, please do press star one on your keypad to join the queue.
As usual, could we request that you limit yourselves to one question at a time? If you have a follow-up question, you can always rejoin the queue. Finally, before we begin, I'd like to highlight that this call is being recorded and also point you to the disclaimers on page two of the presentation slide deck. With that, I will hand over to Mr. Mittal.
Thank you, Daniel. Good day, everyone, 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 two 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 to strengthen our balance sheet. The boards for both companies have unanimously approved the transaction, we look forward to progressing to close within the fourth quarter 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 Mittal Steel. 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. First 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, AM/NS 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 shareholdings would benefit from the synergies created through this combination. Of course, there's a positive financial impact on ArcelorMittal through the deconsolidation of significant balance sheet liabilities at ArcelorMittal USA. 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. With this overview, I will now hand over to Aditya to go through these points in some more detail. Aditya.
Thank you. Good afternoon and good morning, everyone. For everyone who has downloaded the presentation on our website, I'm actually on slide four, which outlines the specific details of the transaction. Cleveland-Cliffs, as you know, will acquire 100% of the shares of ArcelorMittal USA for a combination of cash and stock at an aggregate equity value consideration of $1.4 billion. Approximately one-third of the consideration will be paid to us in upfront cash, and the remaining two-thirds will be in the form of equity. The equity component is a combination of common stock with a value of half a billion dollars and a preferred stock with a value of $373 million. Lastly, Cleveland-Cliffs will assume the liabilities of ArcelorMittal USA, including net liabilities of approximately half a billion dollars in pensions and OPEBs, which Cliffs values at $1.5 billion. Turning to slide five.
The combination of these two 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, Cliffs' management have announced that they have identified an estimated $150 million 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 ArcelorMittal will retain our R&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 number seven, and explain how this transaction fits with our capital allocation strategy. This deal completes our $2 billion asset portfolio optimization target well ahead of the timeline we had set ourselves. While considering the challenges posed by the COVID-19 pandemic, I believe it is a significant achievement. We receive upfront cash, but the more significant impact from this transaction is the deconsolidation of the associated liabilities from our balance sheet, which is comprising mostly of pension and OPEB liabilities. You will see that post the conclusion of this transaction, that 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 million 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 ArcelorMittal has fully utilized the allocated $500 million. 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 million. Let me now turn to the last slide of our presentation. To conclude, this transaction enables us to achieve three 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 realize a great value for ArcelorMittal USA with significant potential upside through our passive minority shareholding in a highly synergistic combination.
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. We will move to take the first question, please, from Carsten at Credit Suisse.
Thank you very much. The question from my side is this transaction the end of your divestment program, or will you still look to optimize the portfolio through further divestments? 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.
Thank you, Carsten. This is the end of our $2 billion portfolio optimization plan that we'd announced. Going forward, look, we will always review our portfolio and see if there are opportunities to optimize. 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 strengthen our balance sheet. We have improved our credit metrics. We have improved our credit profile. It provides us with an opportunity to kickstart the return of cash to shareholders.
Okay. Thank you. I jump back in the queue.
Thanks, Carsten. We'll take the next question from Seth at Exane, please.
Thanks for taking our questions. Congrats on completing this deal. I have, I guess, a two-part question, sorry, with regards to the buyback. First, can you please confirm whether or not the Mittal family will participate in the buyback and selling back shares? 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 half a billion would actually be net neutral versus the cash you're expecting up front. You're speaking positively about the equity stake on a go-forward basis as well. How should we interpret that with regards to the perception of future cash generation for the business today? Thank you.
Seth. First of all, thank you for your question and your wishes. 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. 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, Seth. We'll take the next question, please, from Rochus at Kepler. Go ahead, Rochus.
Yes. Thanks for taking the question. Key point I'm interested in is, to what extent net working capital is transferred to Cliffs?
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. These environmental ARO, some leases and things like that.
Okay. Understood. Thank you very much.
Sure.
Thanks, Rochus. We'll take the next question, please, from Jason at Bank of America.
Thanks, everybody. I'm just wondering, folks, you're gonna be a fairly large shareholder of Cliffs post this deal. I make it about a quarter of the market cap. 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. In terms of directly, we are a 16% shareholder of Cleveland-Cliffs. 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 tracks 58 million shares, whatever is the value on the time of redemption of that, they either pay us 58 million shares or the equivalent cash value. In terms of the lock-up, we have a 6-month lock-up, we can sell down half of our stake, after 12 months, there is no more lock-up. We have a passive stake. We have no governance rights. We're not represented on the board. At this point in time, we've not taken any decision as to our intentions vis-à-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 questions 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, just an indication on go forward for Mittal group, what the ongoing sustaining CapEx needs are for the business excluding these assets.
Sure. Thank you. Roughly, the way we think about the business is the business has $400 million of cash requirements. This is roughly $250 million-$260 million of CapEx and $130 million-$150 million of benefit expense. When I say benefit expense, I'm referring directly to pension and OPEB liabilities. That would be obviously the cash requirements. 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 five-year average, which we are calling through-the-cycle, it's about $550 million. 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 two would generate about $300 million in free cash flow. 2019 lower than my average of $150 million, and obviously 2018 higher than my average of $150 million. I don't know if that helps answer the question.
Yeah.
Okay, great. In terms of cash requirements for our business, our cash requirements decline as a result by $400 million. Again, it's the same breakdown, $250-$260 CapEx, $130-$150 of other cash costs.
Okay, great. Thank you.
Sure.
Thanks, Luke. We'll move to the next question please from Christian at Soc Gen.
Thank you very much, congratulations for a very 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?
We still retain the rest of our mining assets, right? Flagship mining asset is our facility in Canada, which has 26 million tons of concentrate capacity. As you know, 10 million tons of pelletizing capability, and then obviously with mining assets in Liberia and other parts of the world. We are just divesting the assets which are directly associated with the ArcelorMittal 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.
Well, on NAFTA, on what you retain of NAFTA, there's nothing changing on the remaining plants, the way you integrate them or not within your mining system?
That is correct. The iron ore that was part of the AM USA system was consumed by AM USA. 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 AM USA mines to Dofasco, as an example.
Okay. Thank you very much.
Great.
Thanks. We'll move to the next question, please, from Alain at Morgan Stanley.
Hi. Thanks for the question. One question is on antitrust. What do you see as the biggest risks and considerations when thinking about antitrust? Thank you.
In terms of antitrust, obviously, we're both highly confident that there are no concerns on the regulatory front. At the end of the day, how do I describe it efficiently? This is not the two 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 becoming larger. In terms of the share concentration, I don't believe this fundamentally changes.
Okay. Thank you.
Sure.
We'll take the next question, please, from Miles at UBS.
Great, thank you. It's just thinking about the sort of retirement liabilities. Obviously, Cliffs has a lower valuation than yourselves. The 20th valuation looks very conservative on a relative base. Could you kind of explain what the main driver for that is? Will you revisit the valuations of your other assets? Obviously, you talked about $3 billion, $4 billion of pension and post-retirement liabilities. Are we overestimating them in our enterprise value? Just linked to that as well, will you reconsider the $7 billion net debt target now that the broader liability of the group is lower? Should we see potential for a higher threshold for net debt? Thanks.
Sure. I'll talk about the net debt, and then I'll get Genuino to talk about our balance sheet and the assumptions that underpin it. 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 clear profile is improving. The risk profile is also improving. Profitability per ton improves as well, as an example. We have started the return of cash to shareholders through this buyback. The net debt target remains, but I would look at it more holistically, that overall the liabilities have been reduced. The portfolio optimization program has been achieved, portfolio has been improved as well. Now we have the cash generating capability and the balance sheet capability to begin returning cash to shareholders. Genuino?
Yeah. Sure, Aditya. I can comment on our balance sheet. I believe that Cliffs, in their call this morning, they elaborate on how they have valued those liabilities. I can only comment on in our books, we do not see any opportunity to reduce the size of the liabilities, given that the key assumptions are all defined by the accounting standards. We do not see an opportunity there to change it now going forward before the close of the transaction. I believe you can understand by listening to how Cliffs evaluate the rationale behind it.
I think kind of the question other than that was, essentially on the Mexican and the Canadian assets were up for discussion at all as part of this transaction, or was it just exclusively a U.S. transaction, and if so, why?
Aditya, you might be on mute there. Sorry.
Sorry. Thanks, Daniel. The discussion was just around our ArcelorMittal USA asset base. The reason why, I know it may sound clichéd, but really, in this case it's not, is it's a win-win for both, when just looking at the ArcelorMittal USA asset base. Cliffs is long on iron ore. ArcelorMittal USA is short on iron ore. Cliffs gets scale and synergies from the combination of their recently acquired AK Steel assets within U.S. We retain our position in North America through the existing asset base of Dofasco, Calvert, and Mexico, which as I mentioned, are low-cost, high-quality assets, are able to cater to the most demanding customers. We also retain our R&D.
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, Ephrem. Hopefully, you were satisfied as well with your point on the balance sheet liability. If not, just rejoin the queue and we can let you ask that question again. 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 million-6 million tons of annual automotive contract business. Curious if that was still the case pre-transaction, and whether or not that 5 million-6 million tons includes Calvert.
Yes. Phil, you have a very good memory. Roughly that's in the ballpark, and I think that the changes in that number matches the changes in automotive production. Right? That's roughly a good number when automotive is running full. AM USA represents about 40% of that number. The rest is automotive shipments from both Calvert and Dofasco. Does that help answer your question?
Thank you.
Sure.
Thanks, Phil. We'll move to Grant at Bloomberg Intelligence.
Hi, good afternoon. Thanks for hosting the call. The sale of ArcelorMittal USA simplifies the business quite a lot, particularly in North America. Are there any more opportunities to, let's say, trim head office costs, et cetera? Thanks very much.
Sure. Thank you for your question. I do agree that this strategically positions 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. 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 second quarter into structural fixed cost savings. What we talked about was we'd update all of you, when we'd report our year-end results. 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. We'll take the next question, please, from Timna at Bank of America.
Yeah. 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 Mittal back a decade and a half ago, does this change the thesis of the company being this global enterprise and 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 at a high level about the transaction?
Sure. Timna, 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 it's a strategic repositioning of assets, but not a strategic repositioning of our market presence or product presence or customer presence. 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. 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. As you know, Calvert is, we think at least, the most advanced finishing facility in the U.S.
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. That's how I would characterize it.
Okay. Thank you.
Sure.
Thanks, Timna. I think we've got some follow-up questions now, Aditya Mittal. The first is from Rochus at Kepler.
Yes. Thanks for taking the follow-up. My question refers to just the preceding one. You are going to be half the size you were before in the NAFTA region. Are you envisaging any plans to grow the NAFTA presence from the other hubs in Mexico? Maintain the same strengths with your customers there. And technically, how do you make up for the supplies of the Calvert plant now with the assets being sold? Are you maintaining a longer-term supply link with Cliffs, or are you reconsidering the supply structure?
As you know, we are investing in the asset base in NAFTA, right? We continue to make lots of investments into 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. That's a significant project, almost a billion-dollar project that we're investing to have a stronger automotive presence as well in the Mexican market. In Calvert, we have announced the construction of a EAF facility. The existing assets are growing in terms of both value add capability as well as melt 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 five years.
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. and in the region, would you say that the presence you have and the capabilities you have from there would be sufficient to have an adequate market stance in the NAFTA region?
Yes, that's what we believe. That's why we retained all of our R&D capability in the NAFTA market. As you know, we have a very significant R&D presence globally. That will continue to support our commercial product and process strategy in the NAFTA market.
Okay. Thank you very much.
Sure.
Thanks, Rochus. We'll now go back to Seth at Exane.
Thank you for taking the follow-up question. Just a quick one with regards to the Calvert EAF. Can you please confirm at this stage how that's being developed, whether it'll be consolidated within ArcelorMittal as a part of the JV, so we can better understand the financing and the reporting of that going forward, please? Thank you.
Sure. At this point in time, it's an ArcelorMittal investment, but clearly we're also in discussions with our partner to see their thoughts. Fundamentally, as you know, we are responsible for the slab supply into that facility. I don't see a fundamental change to those economics. 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.
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 billion? I am just curious to see why you have thought that that would be the best course going forward. Thank you.
Sure. There are two reasons. Number one, as I mentioned earlier, I think this transaction, if you think of it from a holistic perspective, achieves what we want it 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 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. At the same time, we don't believe this is the time to reduce exposure because of where we are in the steel cycle to steel equities. We see a very nice synergy in taking the cash that we receive from this transaction and reinvesting it in our own equity. That's the reason for the buyback.
Thank you.
We'll take a follow-up from Jason at Bank of America.
Yep. Thanks for that, folks. Just a detail. 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? I guess with that, would you expect the agencies to revisit ratings?
I don't believe the family or anyone at ArcelorMittal management team, leadership, or employees is running it for debt holders. I think what we're doing is we're running the business for the best interest of all stakeholders. I think what we strongly believe is that to survive in the long run and create value for shareholders is to have a low-gear balance sheet. 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. That's been the focus. Really, I don't believe the balance sheet has been a hindrance in us progressing our competitive strategy. 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.
I think today what we're saying 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?
Yep, I think so. 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. 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. 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.
I think we've got three more follow-up questions. 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, et cetera. I'd just be interested in your thoughts on that. Thank you.
Yeah. Those are all options and opportunities. I think the cleanest way for us was. I think it's also important to have Cliffs agree to something like that, right? It's just not what we want. Cliffs was interested in the opportunity that ArcelorMittal USA 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, and they follow the financial performance of ArcelorMittal. We are very confident on the synergies that can be achieved. We look deeply into this, and that's why we had a slide in our deck as well. We think there are significant synergies in this combination as well. We therefore want to participate in the upside of that as well.
Okay. Thank you.
Yeah. Just to add, I think deconsolidated joint venture and such structures are very complex. They can work with the one partner that we have with Nippon and in the U.S., but to have 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.
We'll go back and take a question from Miles at UBS.
Great. Thank you. Just a quick question. 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 one to two years. 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? The other thing that we've had, there's still a few skeptics out there who think 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. If you were to go back to my slide balance sheet, a more clear policy on exactly how we'll be returning cash to shareholders, whether the dividend is 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. We want it to relate to free cash flow. 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. Those are some of the thoughts.
I would not take any of that as 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.