Daniel, you can start now.
Thank you. Hi, good afternoon and good morning, everybody. This is Daniel Fairclough from the ArcelorMittal Investor Relations team. This morning, we published our results for the Q4 and full year 2019 alongside a Q and A document and a detailed presentation with speaker notes. So the intention of today's call is not to go through that presentation again, but move directly to your questions that you may have.
So the whole call today should last about 45 minutes. If you'd like to join the queue to ask a question, With that brief opening, I'll hand over to our Chairman and CEO, Mr. Mittal.
Thank you, Daniel. Good day, and welcome, everyone. I'm joined on today's call by Ajit Patel, President and CFO Simon Wonk, Head of Mining Genveno, Head of Finance and Daniel of Cosimo. Before we answer your questions, I would like to begin with a few remarks. As always, I will start by commenting on our health and safety performance.
Our lost time injury frequency rate in 2019 was 1.21 times, a deterioration compared with 2018, predominantly
due to
the inclusion of arthromethyl Italia. Excluding Arthrometal Italia, the rate was 0.75 times. Our aim is continuous progress, and we will be further strengthening our safety training and initiatives to further improve our performance. Turning to the financials. 2019 was a challenging year.
We faced the headwinds of softening global economic growth, weak automotive demand and supply chain destocking. Demand in our core markets declined, putting pressure on prices and spreads. That we were able to achieve $2,400,000,000 of free cash flow in 2019 demonstrates the progress we have made in recent periods on our Action 2020 plan. And this will continue as we have identified a further $1,000,000,000 of cost improvement opportunities to be captured in the year ahead. We ended 2019 with net debt of $9,300,000,000 its lowest ever level, and are now focused on reaching our target of $7,000,000,000 by end of this year.
2019 also marked the culmination of a 15 year journey to establish a meaningful presence in India. In December, we completed the acquisition of Wissar Steel India in partnership with Nippon Steel. Now the new business is named as ArcelorMittal Nippon Steel India, AMNS, provides us with a large and quality presence in the world's fastest growing steel market. It is already a well run profitable business, but one which we feel we can add value to and grow over the medium term. Looking ahead, there are some early signs of market improvement.
Inventory levels are very low, which indicate the significant destock we witnessed throughout 2019 appears to be ending. This has supported the price rises we have seen in the U. S, European and Brazilian market since the end of last year. Before we move to questions, I also want to provide you with an update on ArcelorMittal Italia. As you may remember, we signed a non binding agreement with the government appointed EVOC commissioners on 20 December to continue negotiations on a new industrial plan for EVA, which would include substantial equity investment by the state.
This is a complex matter that impacts thousands of people, so we should not be surprised that discussions are still ongoing. I do not want to get drawn into answering detailed questions, but I can see that we are making progress and we had a constructive meeting earlier this week with Prime Minister Conte. I would hope that we will make further progress over the course of today before the scheduled court hearing of tomorrow, as I believe we are all focused on finding a sustainable solution. With those remarks, we are now ready to take your questions. Thank you.
Thanks, Mr. Mittel. I think what worked very well last quarter was asking you guys to limit yourselves to one question at a time. You can always go back into the queue if you've got further questions later. So if you do want to join queue, please do press star 1.
We've got a decent queue already. And we'll take the first question from Jason at Bank of America.
Yes, good morning, gentlemen. Thanks for the opportunity. Just on SR, it looks like a very exciting opportunity. And I'm just wondering how should we think about the timeframe for this new joint venture to actually generate a cash return for shareholders? Is it a 5 year cycle of deleveraging and capitalization?
Or is this actually a multi decade thing where we're not going to see any cash flow at all?
I see you from me, Jason, and thank you for your question. In terms of SR, maybe just the big picture first. As you heard, we visited it in December again and have been in constant touch with the team, and everything we have seen has impressed us. The company is on the right track. I mean, in January, it has the production records.
It's run rating at 7,400,000 tonnes. When we started the due diligence, it was run rating at 5,200,000 tonnes. So that's a 40% increase in production with minimal CapEx. Our run rate EBITDA is $600,000,000 which is also higher than December, so above our expectations. And we see some easy wins this year.
There's some commercial synergies that we can achieve in the 1st year of operations and perhaps increase from the record level that we had in January. On a medium to long run basis, the growth story is intact. I know the headlines around India was negative, such as automotive demand declining sharply, but the currency consumption in India actually grew by about 4% in 2019, and we believe it will grow even stronger in 2020. As you know, India is the largest has the 2nd largest population, fastest growing steam market. So we see opportunity to not only improve the value add capability of our facility, I.
E. Automotive, but also in doing brownfield and brownfield expansions at Hazira and potentially at Bharati. In terms of how you should think about it, it's not a deleveraging story. It's a story in which we want to grow as the market grows in India and capture the value that is created. And so I would think of it as the value that is embedded in our Schmittel in owning a 60% equity interest in a world class facility in the world's fastest growing steel market.
And so just to come back to the question, Aditya, if I can push a little, in terms of cash returns to Mittel and then ultimately through to Mittel shareholders, it's not a cash story at all. It's just a growth story.
Every story has cash at the end, right? So I don't think we have cash at all. But I think it's just a matter of balancing. Do you take the cash and return to shareholders? Or do you take the cash and invest in growth?
And as long as the growth story remains intact, then and the returns are better, then I would think that to maintain the quality of the business and the franchise of the business, the focus would be to invest to grow the business.
Okay. Thank you very much.
Thanks, Jason. So we'll move to the next question, please, from Alain at Morgan Stanley.
Yes. Thank you, gents. My question is on the Q1 EBITDA and the building blocks if we were to look at the profit bridge. Do you mind giving us a bit of a qualitative guidance on the individual items that could move your EBITDA into Q1 and the general overview of the market in Europe, given that one of your competitors today said that they have seen a very aggressive restock into Q1. Do you see the same thing?
Or should we think about it differently?
Alan, this is Geno Eno. Let me try to walk you through the major blocks that we have seen for quarter 1. So starting with shipments. So we'll see typically, as you know, seasonally, our quarter 1 shipments are higher quarter on quarter. We will continue to see that in most segments with the exception maybe of Brazil.
In Brazil, as you know, typically in quarter 1, we also restock in our flat business. So I would not expect to see an increase in shipments in Brazil. But in NAFTA, in Europe, we will see an increase in shipments quarter on quarter. And in CIS, we would expect shipments to be relatively flat as we had some higher shipments coming from Kiri this quarter. As we talked about last quarter, we had some cutoff issues.
So that will have
an impact in quarter 1. In terms of prices, so prices, as
you know, prices have moving up recently. So the segments more exposed to spot business will see an increase faster, and that's the case with Brazil, that's the case with CIS. Our European business, you need to take into account the lag impact. And in NAFTA, we would expect our selling prices to be relatively flat quarter on quarter. And then maybe just to finish in terms of cost, the raw material basket, we would expect our costs to continue to move down as we work through the higher cost inventories that we're still carrying on our books.
So costs should continue to go down as well.
Just quickly on the European market. As you know, we had announced a 4,200,000 tonne production cut in the second half that was complete. As we start 2020, we have restarted furnaces in Germany at Bremen and Asturias in Spain. And last Friday, we announced a restart of Krakow. So you're right, we are seeing a restock or the end of the destock.
I think there was a significant destock that occurred in the second half of twenty nineteen. So I'd like to characterize it as the end of the destock of 2019 in terms of what we're seeing in the marketplace at the beginning of 2020 in Europe.
Thank you.
Great. Thanks a lot. So we'll take the next question from Leek from JPMorgan.
Good afternoon. Just on your target to reach the $7,000,000,000 net debt by the end of this year, can you quantify how much of that delta versus the year end 'nineteen level is from M and A? And also whether you assume the full $1,000,000,000 $1,000,000,000 of working capital to be released in that estimate?
So let's start with free cash flow. As you know, we have reduced our cash requirements from €5,000,000,000 to €4,500,000,000 dollars So any debt in excess of $4,500,000,000 will work towards reducing our net debt. The second impact is improved efficiency in our working capital. Assuming current market conditions, we are expecting a release of $1,000,000,000 and there should be some progress in terms of portfolio optimization. As you know, we did about $500,000,000 in 2019.
We have $100,000,000 of that optimization in Q1, and the rest is work in progress. Our $2,000,000,000 plan is when it was announced in the second half or the end of Q2 2019 is a 2 year plan. So it's not necessary that we achieve the full plan in 2020 for us to achieve our $7,000,000,000 net debt target.
Okay. Thank you.
Thanks, Luke. So we'll take the next question from Carsten of Credit Suisse.
One question with regard
to the Asian situation at the moment. We all know that the coronavirus is currently a big discussion point. Do you see any risk to your outlook statement based on the outbreak there? And here, I refer specifically to iron ore, which weakened in recent weeks in a period where we usually see iron ore price increase. What is the risk for your business here in particular?
And could there be a risk on the steel prices going forward? Thank you.
In terms of coronavirus, clearly, the human cost is very significant. We have employees in China. Thankfully, all of our employees are safe. When I look at the level of production in January, it was more or less on plan. Clearly, February will be more difficult, not because we can't produce, we can produce, but there's some concern on outbound logistics.
And there'll be more clarity, I think, as the Chinese New Year ends. In terms of outlook, you were specifically asking regarding iron ore. Last year, iron ore prices moved up, markets were weaker. It was hard for us to pass on the cost increase. There's no reason to think that the opposite could not happen in 2020.
So looking at the marketplace, clearly spreads are already compressed. So to the extent that there's some relief on the raw material basket, that may not be such a bad thing.
Okay, perfect. Thank you.
Thanks, Carsten. So we'll move to Phil at KeyBanc.
Thanks very much. When I look at contracts, automotive or fixed price contracts for Europe and the U. S. This year, How should I think about those in terms of being margin accretive or margin dilutive or holding the course? Just trying to understand because those are big assumptions for you all this year.
Sure. So in terms of automotive, clearly, the pricing of automotive has to also reflect what has happened in the broader marketplace in terms of steep. Nevertheless, as you appreciate, we have a very strong franchise in terms of the products that we sell and the capability that we provide.
Overall,
I would expect that the profitability of automotive would depend primarily on what happens to the raw material basket, because especially in Europe, it's a spread. To the extent that the raw material basket is weaker, then profitability would be similar. To the extent that raw material prices are at present levels, then overall spreads would be weaker than 2019.
Thanks very much.
Thanks, Phil. So we'll move to Seth at Exane.
Good afternoon. Thanks for taking the questions. Just to get a little bit
more color with regards to working capital. Obviously, you've strongly beaten in Q4. Can you give us a little bit more color on what ultimately drove the outperformance versus your own guidance from just last quarter and perhaps dividing that split in seasonal and more structural elements? And then going ahead to 2020, targeting another $1,000,000,000 release, is that achievable if your guidance for recovering apparent demand is ultimately realized and if recent price trends persist? Thank you.
Hi, Seth. So in terms of the results, so the 2.6% we're losing in quarter 4, I think it's important to say that we never really provided a guidance on working capital other than to say that we would return the $1,000,000,000 that we overspent in 2018, right? So we were not surprised with the level of release in quarter 4, given how selling prices evolved during the quarter. So that's regarding the overperformance, let's say. So we believe that it's sustainable, and that's why we are guiding for further release.
So we believe that there is further potential to optimize our position. So in terms of days, we are still a little bit ahead of where we were at the end of 'seventeen and 'sixteen. So there is still some potential, and that's what we are guiding to right now. And also, clearly, we are seeing how the raw material basket is growing. And so we are confident that should raw material basket remain as it is, there should be some upside coming from that as well, from optimization, from base and the evolution of the raw material basket right now.
Okay. Thank you very much.
Thanks, Seth. So I'll move to Alain at Jefferies.
Thank you. Turning to the Mining division, could you please share with us your expectations around volumes for 2020? And also just on the costs there, if you're seeing any pressures, whether inflationary or deflationary?
Thanks, Elaine. Yes, look, essentially we're saying same guidance for 2019 to 2020. We're obviously pushing hard in the current pricing outlooks that we saw last year, which have only just started to collapse in recent days. But there's enough on the supply side to suggest that there may be some shortages, particularly around higher grade products that would force us to see what we can push harder in terms of productivity outputs in 2020. So volume guidance is flat, but efforts are there to push hard where we can, particularly in the higher grade marketable assets, of course.
In terms of costs, not a significant influx in the uncontrollables that we're seeing around the typical oil based and other parts which are coming from typically from steel side in terms of coke consumption in pulp plants, etcetera, not too much above normal and efforts continue. I mean, we're working hard as usual, continuous improvement in productivity gains and squeezing capacity. And that's basically what our goal is as an integrated business with the Steel Group is that we run full throughout the cycles and run above installed capacity where we can.
Okay. Thank you.
Thanks, Alan. So we'll move to the next question from Rojas at Kepler. Yes.
Thanks for taking the question. Briefly on Europe, I guess, you mentioned that your curtailment plans for European steel production has ended and some of the bus furnaces, which were previously idle, have already restarted. How do you think about the market balance going forward? Clearly, we have some restocking now and probably other competitors, they are going to follow in the same direction. So how should we think about the market balance over the course of the year?
I can't specifically comment on what our competitors would do or in terms of market balance. I can just repeat what we're seeing. Clearly, in 2019, there was a significant destock. We see that destock ending. We see, as you know, we published our numbers, 1% to 2% growth in the parent cereal consumption in Europe.
And to achieve that level of demand in for 2020, we felt it was appropriate to restart the furnaces that I had mentioned. Do you also recognize that we do have a large reline in 2020? We have one of our furnaces in Ghent, which is undergoing a reline. So some of this loss furnace production, specifically crack off some of that can be used to build slabs for the upcoming reline in the second half of twenty twenty.
Okay. Got it. And maybe briefly on what is your view on the current review of the European safeguard measures? What kind of improvements shall we expect in the coming months here?
In terms of European safeguards and overall trade, as everyone is aware, the market share of imports continues to rise. So as we have said before, we felt that the safeguards were largely ineffective in Europe because they had the quotas rising in spite of the decline in apparent steel consumption. I think there's some review scheduled on further increase of that. We would expect that to reflect current market reality. And as we know more and as these developments become definitive, we would update you.
Okay. That's clear. Thank you very much.
Thanks, Wilkins. So we'll move to next question please from Myles at UBS.
Great. Maybe just on your CO2 reduction plan that was announced in December. So you're targeting a 30% reduction by 2,030 and turning carbon neutral by 2,050. Is this an aspirational plan? Or is there a clear detail that kind of supports that those targets?
And what does it mean in terms of your met coal consumption by 2,030? Is that 30% reduction driven by technologies that reduce amount of met coal? Or is it driven by carbon capsule? How should we think about how this plays out? And also, what sort of CapEx is needed to achieve that 30% reduction in SIDO2?
Thank you.
Okay. So maybe just a quick broad brush comments and then I'll get into the specifics of your question. So this applies to our European business. It's a target that we have to reduce our CO2 by 30% by 2,030, and the ambition is to be carbon neutral in Europe by 2,050. I think our solution is very well positioned to achieve this.
As you know, we're the technology leader and industrial leader, and we have a large R and D budget, and twothree of our researchers are here positioned in Europe. It's a 3 pronged approach. I won't go into detail because we have published an extensive report, which covers exactly how we want to achieve this. But the headlines are Circular Carbon, it's Smart Carbon, which is circular carbon or smart carbon, and then it is clean energy, which is using hydrogen or renewables. And then obviously, the 3rd is carbon capture and storage.
We have a lot of CapEx in different facilities on pilot stages or development stages to see how we can make further progress. To achieve real success here, you need the combination of a level 3 field, And that's why we have been talking a lot to the European Commission about a border adjustment. I like to call it border equalization. And so that the cost that we have in Europe is the same cost for anyone who wants to trade with us in Europe. And that would provide a basis to enhance the level of CapEx.
Simultaneously, there is a green fund, as you know, that the EU has announced, and that would support. Fundamentally, as you know, the steel industry's capital is short, so there has to be appropriate incentives created for us to invest this CapEx to achieve our target.
What kind of level of CapEx are we talking about on a gross basis before any subsidies from the green fund?
Yes. It's a complex question to answer because it's linked quite directly to the level of support of subsidies that are received from Great Funds. Today in Europe, for new technologies, you can get up to 70% or 80% of funding. So at this point in time, I don't want to get into that detail. I think clearly, it's work in progress.
And as there will be more clarity on border equalization and how the green fund will actually work, we can provide you with more updates.
Okay. Thanks.
Thanks, Miles. So we'll move to Christian at SocGen.
Thank you and good afternoon. On IRVA, and I know you're obviously negotiating at the moment on the subject, but when you give us your estimate for net debt in 2020 €7,000,000,000 year end, do you assume that the amount of losses at EBITDA level from EBITDA, which I think are around €800,000,000 are these equal next year or do you assume they disappear? And then just more second question on Liberia. Is the investment in the mining and the port and the railway in Liberia part of your CapEx guidance?
So just very quickly, on IRVA, clearly, the $7,000,000,000 net debt target assumes IRVA, the continued operation of Zumzilva. I think your loss amount is larger than what we had for 2019. And clearly in 2019, there were one off events, which had a significant impact on the profitability of VELVA. I think there was uncertainty on blast furnace too. We also had the P4 seizure, which prevented full raw material discharge.
So the level of output available was lower than what we would have liked. We see recovery already in January. And as you may know, in January
of this year, we got
a positive reading on blast furnace too, which is good news. And we should be able to increase raw material discharge also by Q1 of this year. So the level of our forecast, at least, for the level of loss of urban life is reduced. And yes, the level of CapEx assumes in case we were to go ahead with Liberia, it's part of our €3,200,000,000 forecast.
Thank you.
Thanks, Christian. So we'll move to the next question please from Bastian at Deutsche Bank.
Yes. Good afternoon, gentlemen. My question is on the updated Action 2020 plan and then also a quick follow-up on NILVA in that context. Could you please let us know how much contribution you have been baking in for IRVA into the Action 2020 plan? And then also in that context, and without going into detail on things like equity contribution, I think if I understood it right, the annualized EBITDA loss at Ilva has been around €800,000,000 at least in the last quarter.
And if we put on top of the CapEx and REN, we're looking at a cash burn of around €1,300,000,000 on that basis. Now there's no doubt that you as a company and as well as shareholders cannot be financing such a cash drain. And there seems to be no quick fix to reverse at least all of that even if you to an agreement with the Italian government and obviously change some of the parameters. Is there a red line which you have drawn for yourself while saying whatever happens, we won't accept that cash drain to exceed a certain level and maybe give us any color on what that red line is? Thank you.
So you asked the right question. Clearly, in our minds, that's on the cash drain because in Q4, there were exceptional events that I spoke about in terms of Pier 4 and Glass Furnace 2. If you remember, we were taking down that furnace because we did not operate that furnace. It was under various court processes, and that got clarified in January. Other than that, also the market situation is better in terms of spreads as well as demand environment.
So I think that's so I don't agree with the overall cash rent amount. Clearly, that's not something I can provide guidance on, just on areas where that will be changing. Simultaneously, clearly, we are in discussions and negotiations with Italian government to find a more sustainable solution. And that may also have a positive impact on the level of cash negotiations. So it's very difficult to comment further, but that's how I will think about it today.
Okay. Thank you. But could you give us any color on like how much is your baked at least into the 2020 number in terms of cost cutting other than the exceptional events and so
Yes, yes. That I can. That's easy. So out of the $1,000,000,000 in terms of Action 2020, onethree is fixed cost and 2 third is variable. Without giving you a breakdown of how much of IRVA is fixed and variable, about 25% of the $1,000,000,000 of Action 2020 is coming from Nova, so about 250,000,000
Got it.
And the variable cost improvements, which are the larger part, as you said, is that basically just the assumption that raw material prices will keep coming down? Or is it actually the efficiency improvement on raw materials, I. E. Better use, better mix and not just basically following the market trend of commodity price deflation?
Exactly. It's the latter, which is improved efficiency, consumption factors, yield, quality and all the processes that we have to improve the efficiency of our operations.
Okay, very good. Thank you.
Thanks. So we'll meet the next question please from Francisco at Bank of Sabadell.
Yes, hello. Good afternoon. Coming back to working capital, well, the performance was impressive, obviously. And I would like to one more thing that when you new facilities and the restructuring comes back, this should increase. But at the same time, given quite a good number even for next year potentially.
So just to understand if there's any specific issue that you have worked on or anything else that you can give us some color on to understand the good performance you haven't. And just a quick one. In your EUR 7,000,000 net debt guidance, is this linked to any assets in 2020 or not? Thank you.
Yes. So maybe talk a
little bit more about Q4 performance. You can see that it's very clear to look at our balance sheet, you will see and look at our average selling price, you can see a significant decline in selling prices this quarter. You can see also that we have reduced shipments were also lower. So that, of course, helped with our working capital. And on top of that, we also did better in terms of collection, particularly in NAFT.
So we collect more. So we reduce also the number of trade receivables. So that is on account of selling prices, lower shipments and better collection. And then, of course, also the decline of our overall cost as we move on to your basket. So going forward, so I think I did not address this point in the first question on working capital.
So we are forecasting for improvement in apparent steel consumption, and that is part of our guidance today. That's our assumption. As demand improves, we will keep our market share, and that is part of the guidance today. And then, of course, the improvements or increases in production that we talked about already are also part of our $1,000,000,000 guidance.
Okay. Perhaps there was a question on the net debt target. So the net debt target has 3 components, as I mentioned earlier, free cash flow, the working capital plus proceeds from portfolio optimization.
Okay. Thank you.
Thanks. So I think we're going to move now to follow-up questions. So thanks, guys, for those that limited themselves to 1 initially. And we'll go back to Carsten at Credit Suisse.
Thanks very much, Daniel. But all my questions have been answered.
Thanks, Gus. And so Alain at Morgan Stanley.
Yes. Thanks, Daniel. So my question is on the CO2 impact on 2021. As we move into the EPS phase, the final phase basically, how should we think about the P and L and the cash flow impact given your position on Tier 2 allowances for 2021 2022 basically? Thank you.
So Alan, so we don't expect any significant impact coming from Phase IV. I mean, as you know, there is a progressive decline. But so for Phase 3, so we have, of course, our hedges in place. And we do not expect any significant impact in from 2021 compared to 2020 at this stage. Of course, Aditya talked about our targets, our reduction targets, so we are focused on achieving that.
So initially, we do not expect any significant impact.
Okay. Thank you.
Great. Thanks, Alan. And back to Phil at KeyBanc.
Thank you. Out of the $1,000,000,000 in incremental savings from Action 2020, you mentioned 25% of that is related to Ilva. Any color in terms of the rest of the 75% in terms of where we may see the segment split?
I don't want to get down into that much of detail, but fundamentally, a large majority of it on the variable cost side is in Europe and NAFTA business, and the fixed cost side is on a global basis.
That's helpful. And one more if I could just for clarity. With your $7,000,000,000 net debt target kind of insight here in the next several months, how much of that is predicated on asset sales. I know you've got $1,400,000,000 left, but how much of that out of that $1,400,000,000 are you suggesting you need to hit to get to that $7,000,000,000 Is it all? Is it part?
That's it for me. Thanks.
Sure.
As I said earlier,
we don't need all of it to hit the $7,000,000,000 net debt target, but it is part of our calculation to achieve the $7,000,000,000 net debt target. I'm afraid I can't get into more detail than that. But as I mentioned earlier, there are 3,000,000 components, free cash flow, working capital at $1,000,000,000 plus proceeds from portfolio optimization.
Thanks. Every story has cash at the end.
Yes.
Thanks, Phil. So we'll go back to Jason at Bank of America.
Yes. Maybe just a little bit of a philosophical one. And I guess Mr. Mittal started the call talking about the challenges of the year and Ilva figure is a big part of the challenges. As an organization, have you done any kind of introspection or self analysis on how you got Ilva so wrong?
And I guess any learnings from Ilva that we might expect to be applied to SR or indeed to any future acquisitions that you might be considering?
I'll give you context that in last couple of years, we have made 4 acquisitions, 1 in Gotorantin, Calvert, Ilva and Vissar. I must say that all three of them have been excellent acquisition. It helped to improve our values, improve the value of the company, bring strength to our business in the region like Brazil market share. In case of Calvert, we not only got the volume, but we also got the quality and we are the leader. And we remain the leader in terms of quality for this team.
Then look, Isar, Adit just explained to you the opportunity growth opportunities and the market and the country as a whole, so everything has been so far, this is all our positive side. Iva, we definitely started with very positive assumptions that we have great assets on a largest market to largest single site production with the modern assets. Then on top of this, it is on the port and it has the market. So all these things are right. Then we got into some of the situations which were not anticipated like the change in the government, government changing the law on immunity, which was never expected in developed market like Europe.
Then there has been some old legal case, which we were which we were confronted of like seizing of Blast Furnace 2 in the sense of closing down the furnace. Then we got into some accident due to unexpected typhoon and everything. So we got into a situation where and the market spread squeezed much larger than we anticipated in 2019. So now we are in a situation where we are we understand these issues and we are trying to address some of we cannot address the market issue, but definitely we can create a ecosystem, which would be very positive. And we believe that, that should bring the sustainability, including our discussions.
One thing which I can said in I said in my speech, including the state participation in our business going forward. So we believe that all these actions should help us to bring sustainability to future of Filva. I must say that it is a good asset, but we need to create an ecosystem, which will help us to bring sustainability and create value. Clearly, you do not anticipate those kind of external situations or the macro situation suddenly come at one point in 1 year to see suddenly that there is a big loss in Elwar.
Okay. Thanks very much for that, Mr. Mittel. I appreciate your thoughts. Great.
Thanks. So we'll move to take a follow-up from Seth at Exane.
Thank you. A question with regards to the European portfolio. As you move to restart some of these assets, can you comment on how that will impact your fixed cost base in the region? Obviously, some of the facilities you took down were higher cost assets relative to peers within the EU. How do you expect to progress moving forward, recognizing that at the same time you do have a cost savings program?
Similarly, what would be the impact on your mix? Is there a risk this is ultimately degrading your mix on a relative basis as you reenter the commodity grade spot market?
Hi, Seth. So as we increase production, so clearly, there will be we'll see a benefit of a better fixed cost absorption. So that will mitigate some of bringing back some of the production there. So benefits cost absorption. And of course, as we have discussed before, we are seeing an improvement in pricing that justify bringing back this capacity.
We also mentioned the green line that is being planned for the second half. So we do not see that this will of course, we will not do it if it would reduce our level of profitability. So that is number 1. And in terms of the mix, we do not we are not expecting any significant change to the mix.
Thank you very much.
Great. So we'll move on to Myles at UBS.
Great. Just going back to M and A and the A part of M and A. Over the last few years, when you seem to start getting closer to a net debt target, there's been a super compelling acquisition opportunity. Is it fair to say now that you're comfortable with the current portfolio, those acquisition opportunities on that? And it's realistic that we will hit that net debt target by the end of the year.
And just in terms of the cash flow from 2020 onwards, we assume now that the vast majority will be returned from shareholders from this time next year?
No, thanks for your question. In terms of M and A, I think what's interesting is the slide that we have posted, which shows that the net M and A spend over 2018 2019 is about $200,000,000 I think it's I'm not sure exactly which page it is in the presentation. And so in spite of spending $1,600,000,000 for SR Steel in India and making the 1st lease installment, we had various portfolio divestment initiatives, which reduced that M and A outspend. Nevertheless, your point is valid. I don't see that much of an M and A in the horizon.
I think, as you know, entering the Indian steel market was something that we were planning for 15 years. It was already started about 5 years ago. When I look out in terms of the landscape and terms of the A in M and A, I don't see that much of activity. So it's fair to say that the cash that we generate would be used to delever the quantum of how much of that cash would be returned to shareholders. Clearly, the discussion that we like to have with all of you this year and then with our Board so that we can match everyone's aspirations appropriately.
Okay.
And the slide that she was referring to is number and number in the presentation deck. So we'll need the last couple of follow-up questions, the first from Alain of Jefferies.
Thank you. Just one more on Ilva. I mean, we talked about the one offs you faced in Q4 and then also kind of the worst safety standards that were recorded there. If you were to remove those one offs and if ILBA had operated in line with your kind of benchmark safety standards across the rest of the portfolio, Do you have a sense how much less of a drag Ilva would have been on EBITDA in 2019?
So we have a slide where we wrote about the delta of Innovac's performance, which is about $600,000,000 in 2019 relative to 2018. Does that help answer your question?
What I'm trying to get at is if Filva had just faced the headwinds from a weakening market last year and not the safety related issues and the one offs you mentioned in Q4? What would the drag have been then?
It's I would I don't want to come out with an estimate like this. I think it would be inappropriate. But I think perhaps you can come up with some numbers if I provide you with the framework. I think the biggest issue has been that we had a seizure in Pier 4. So that's the main peer, which allows for raw material discharge.
That happened in the basically in the summer of 2019. And simultaneously in the Q4, we had issues in terms of blast furnace tooling its operating capability. The easiest way to think about that impact, there was some variable cost impact because that you range raw materials from other ports, but is the volume loss. And roughly, I think you have a sense of how much volume loss occurs in Europe and what that drag is. So roughly, it's 1,000,000, 1,500,000 tonnes of volume loss that occurred as a result of this on an annualized basis, obviously concentrated in 3rd Q4.
On top of it, when you're not able to produce at the right level of capacity and throughput, it's harder to implement all of our turnaround plans. And so that also gets impacted. So I would I don't know if I provided you enough with a framework that it gives you a sense that there was volume issues, which was the lion's share, some variable cost increases associated with not being able to use our main port and clearly a slowdown in our ability to improve the variable cost of that business as our turnaround plans slow down.
Okay. I think I've got enough to get a rough sense. Thanks very much.
Perfect. And so we're going to move to last three questions now, the first of which we'll take from Christian at SocGen.
Thank you very much.
In 2019, you had some costs in NAFTA, which were those tariffs, which were imposed internally on your shipments from Mexico and Canada. I think these have now been removed. And can you give us a feel for how much benefit that is going to be in 2020 versus 2019? And in fact, there was some impact already in the Q4 of 2019. Thanks.
The average, if I remember correctly, but they were removed in May. So the impact you will see so year on year, so up to May, we paid about 30,000,000 to 40,000,000 in tariffs. So that's the benefit that we should see.
Great. So we'll take the proximate question from Orpheus at Kepler.
Yes, thanks. On your global shipments, I think you're guiding for higher parent steel consumption. So I would expect to correspondingly increase on your own shipments. How shall we think about the evolution of crude steel production? Would this be still a bit more flattish in order to get to your EUR 1,000,000,000 working capital release you're aiming for in 2020?
Well, as we said, so there is still potential for some improvements in rotation days and days. So yes, so I would not say flattish, but we're going to be focused on achieving these improvements. And as I said in our guidance, we are forecasting we agree with you to the extent that the demand grows. Our market we would expect at least to keep our market share stable. There will be an improvement in shipment and we would
expect that.
But then we hope that with our improvements and with the movement of the raw material basket, still we get to the $1,000,000,000 reduction.
All right. Great.
Thank you. So we'll take the last question, please, from Bastian Hector.
Yes. Thanks, guys. I'll just have a very quick follow-up on ESSA. As you said, ESSA is basically a growth case, and I guess there are plenty of resources which are not being run as they should, and therefore, you can probably still extract pretty much a lot of growth from those, but still ultimately growth needs capital. What is the CapEx budget, which is drafted basically for 2020 in the SI entity?
And maybe you can also give us the exit run rate for the net debt at the end of the Q4, please?
Okay. I mean, I don't think by entities we're giving individual CapEx numbers. I think it's not appropriate from a competitive standpoint, but I can still provide you with some framework numbers. So as you heard perhaps in the beginning of the call, our run rate EBITDA is about €600,000,000 We've seen some quick wins, commercial synergies and potentially the Indian market would be stronger both from a primarily from a price perspective and what we're seeing in January. So that's basically EBITDA.
Maintenance CapEx is quite low in India. So you do see that in the benefit in terms of labor arbitrage. The outstanding CapEx is actually not that significant. So you very easily see that this company is cash flow positive on a monthly basis. It has been also in the 4th quarter, and our expectation is that it would be cash flow positive on a monthly basis in 2020.
In terms of the growth case, I also want to emphasize that the idea is not to be sending cash to the company as well. We think the company should be able to finance its own growth through its either through its own balance sheet plus its own earnings. So that is how we want to run the facility. And to the extent that we announce specific investments, we would update you and obviously provide you with more color on what exactly is the cash impact of the balance sheet of SR. Today, SR balance sheet has some cash because of the equity injection that we have made.
And I think you have a sense of the level of net debt as well based on our 2:one debt equity ratio.
Thanks for those comments. Let me just follow-up and maybe just ask in a different way. If you look at the current balance sheet versus cash flow, as you pointed out, your composites or your cash flow generative, I guess, still the net debt level against that is maybe still somewhat elevated. I mean, would you in the initial phase, would you accept that, that leverage will go or will continue to go up in the near term because maybe you have to do some initial investments purchase of the slurry pipeline or something like that? Or would you basically keep that fairly balanced and really try to keep it balanced and work it down over time instead of increasing the net position in financial?
Okay. I think that's a good question. I think when you look at the level of net debt, I don't think it's being impacted by slurry pipelines, and we're also in the middle of acquiring a small power plant through Bankruptcy Corp, which is adjacent to the facility and stuff like that. So all of that is part of the plan. The company started with $1,000,000,000 in cash because that's the equity infusion.
It generated some cash through this process, so that number actually grew. These small acquisitions that we're doing in terms of the slurry pipeline or the power plant still keep it in a net cash position very close to that number. Obviously, not as high as $1,000,000,000 but not that far off as well. So the company still has a good level of cash balance post these deals and therefore has the potential to deploy some of that in terms of growth or other strategic actions.
Okay, perfect. Thank you.
There'll be no other question. Thank you for thank you all for your attention today. I think it is clear from today's call that despite the challenges we faced in 2019, we have, as a company, made significant progress. As a management team, we are all focused on continuing that progress in 2020 and fully achieving the targets we have set ourselves. With that, I will bring this call to a close by wishing you all the very best, and thank you very much.