Daniel, you can start now.
Thank you very much. Good morning and good afternoon, everybody. This is Daniel Fairclough again from the ArcelorMittal investor relations team. Thank you very much for joining us today for this dedicated conference call to cover the fourth quarter and 2015 results. This morning, we announced that we are planning a rights offering, and we've just discussed that on an earlier call today. For legal reasons, we will not be discussing the proposed offering on this call, and I would refer you to the press release for specific details. This call will be solely focused on discussing our fourth quarter and 2015 results. There has been a presentation available since this morning with the prepared remarks of Mr. Mittal and Aditya, we won't be going through that today. I will hand over the call at this stage to Mr. Mittal.
Thank you, Daniel, welcome once again those who have joined to this call for the fourth quarter 2015 and full year results. As Daniel said that we had pre-recorded our messages for the fourth quarter and 2015 results this morning, most of you had a chance to listen to it. We are not going to repeat that same presentation. Aditya will go through performance and financial highlights for 2015 and also give you guidance for 2016. Just to remind you that I'm also joined in this call, apart from Aditya, with Lou, Simon, Devinder Chopra, and Emiliano Cristino. All of us are here in the room to answer your questions. Thank you. Aditya.
Thank you. In terms of 2015, EBITDA came in at $5.2 billion, and Q4 was at $1.1 billion. The primary driver reduction year-on-year was clearly lower iron ore prices, lower steel prices. Q4 especially was also impacted by lower shipment volumes. If there's any more detail you want on those results, we'll be happy to address it in the Q&A session. I will just turn to guidance now. That has not been addressed yet. In terms of guidance, I guess starting with what we indicated as the third quarter results. The combination of our own actions and known developments are expected to support our EBITDA in 2016 by $1 billion relative to the fourth quarter 2015 annual run rate level.
Due to order book and the time lag required for lower raw material cost to positively impact cost of sales, EBITDA is actually expected to sequentially decline in Q1 2016. Based on the assumption of prevailing raw material costs and spot steel spreads, the company expects 2016 EBITDA to be in excess of $4.5 billion. This guidance does not capture any upside to current market conditions. In addition, given the reduced cash requirements of the business, the company continues to expect to make deleveraging progress during the year. We expect lower capital spend in 2016 of approximately $2.4 billion versus $2.7 billion in 2015. Interest expenses are also expected to be lower in 2016 to be approximately $1.1 billion versus $1.3 billion in 2015.
Together with no dividend in respect of the 2015 financial year and lower pension and taxes, these actions will reduce the cash requirements of the business in 2016 in excess of $1 billion as compared to 2015. In summary, these actions reduce the level of free cash flow breakeven to $4.5 billion and is expected to ensure that the company continues to generate positive free cash flow, reduce net debt, and maintain strong liquidity. With those brief remarks, we are happy to answer your questions.
Thank you, Aditya. If anybody would like to ask a question, could I encourage you to press star one on your keypad, please? We will begin the Q&A session with a question from Alan Spence at Jefferies, please.
Okay. Mr. Alan Spence, may we have your question, please?
Alan Spence from Jefferies. Just a couple of questions. Starting out on the mining side. Mining cost-cutting has come in stronger than expected in the last year. Can you just comment on how this is distributed by region? I know you've flagged in the past success at AMMC in particular. I'd like to better understand what's happening at your vertically integrated operations in NAFTA and ACIS. Are you seeing broadly similar costs there, or is that moving in line with the broader group? Secondly, on the Gestamp sale valuation, the €875 million sales price seems admittedly quite high in light of only about €50 million of attributable EBITDA and income you've seen in the past. Can you just confirm if there's any change in your steel supply agreement with Gestamp that came along with the sale?
If not, are you giving up anything in your long-term arrangements in order to secure this high sales price? Lastly, if I can comment a bit on the outlook for your automotive steel contract negotiations, either in the U.S. or in Europe. Commentary from some of your U.S. peers for earnings season was that pricing came down significantly but better than the spot market. Can you provide a little bit of guidance on what we should be modeling for you? Thank you.
Thanks, Alan. This is Simon speaking. Look, you've seen already that we had a promise, I guess, for the year of 15% year-on-year improvement in costs and mining reported 20% for 2015. It's been a systematic approach to de-bottlenecking. It's not about short-term, it's about sustainable cost reduction. Categorically that exists across all mines. The cost plus mines are as equally important as you referred to as AMMC. That's where the value driver is downstream into the steel business part for ArcelorMittal. The same actions are underway in all mines. That's right from productivity, efficiency, as I mentioned, de-bottlenecking, and also looking at products, product types, product mix, as we've been doing in Canada, looking at reducing the number of pellet grades, and also how do we act more efficiently through continuous improvement of operations. The continuous improvement drivers coming from Canada, we're now winding out those learnings around the next level of taking high-hanging fruit through to the ACIS assets. It's a very broad-based program. We've indicated a 10% promise for 2016. We have every challenge ahead of us to aggressively try and beat that marker.
The continuous improvement drivers coming from Canada, we're now winding out those learnings around the next level of taking high-hanging fruit through to the ACIS assets. It's a very broad-based program. We've indicated a 10% promise for 2016. We have every challenge ahead of us to aggressively try and beat that marker.
Yeah. On the auto contracts, obviously, it's inappropriate for us to be too specific about this. I will say that currently we have about a little over 60% of our auto volumes for 2016 are under contract. We renegotiate contracts really throughout the year. I think traditionally that's been beneficial to both sides, if you will. I'd just put that up. Other than that, I would concur with what you indicated you'd heard on other calls, which is clearly these move with the market to some degree. I think particularly in an environment like the U.S. where we have seen such a sharp drop in spot prices, certainly the contract prices in all segments, including automotive, are stickier than what you see in the spot market.
Maybe very quickly, auto EU and then Gestamp. Auto EU, I think what we need to do is focus on the spread, because clearly in Europe, costs come down with raw materials coming down, iron ore and coal, and others. There is some compression in spreads, but clearly, as mentioned earlier, the overall market in terms of HVA products remains very attractive. In terms of the Gestamp, the good news is there's actually no change in our supply agreement, supply relationship. There's no other value transfer which is occurring. We actually do not have any other contract with Gestamp directly. The contract is actually with the sister company called Gonvarri, which is a service center which supplies service steel into the Gestamp hot stamping network. In terms of valuation, I agree with you that from an equity income perspective, it looks very attractive.
Gestamp is a very fast-growing company as well. It's been very impressive to see its growth. It's a global company. It's not just a Spanish company. It has facilities on a global basis. The sales price reflects its growth, reflects the fact that it is a high technology organization. I will not just look at the equity income and make just that deduction. I do agree with you that it is an excellent result for ArcelorMittal shareholders.
Okay. Thank you very much.
We'll move to the next question, please, from Steven at Goldman Sachs.
Hi.
Hi there. I just had a question related to the guidance. I think you've said in the past, if you hear that in a normal year, the first half in terms of EBITDA is about 5%-10% stronger than the second half. Given that we're going from $1.1 billion in the fourth quarter into a lower Q1, how is the split going to look this year? It feels like we're heading towards a back-end loaded 2016 again, why is that the case?
Yeah. You are right. Normally, that is how the steel industry works, this year should be no different. The first half will be stronger in terms of volumes, the second half will be weaker. We see that in the European results. The thing that will be different, though, this year will be some of the inventory lag that we have and the order book effects that we have. Q1, we're actually shipping steel at prices for Q4, our inventory costs are reflecting higher costs of raw materials as that is still sitting in the inventory. As that eases, you will see improved results going forward post Q1. The second impact is also some of the self-help measures that we're doing in terms of for example, in South Africa, the plan is underway. We just restarted the furnace in December.
We'll get the full benefits of that towards the latter part of this year. Same in Kazakhstan, some of the initiatives that we have in our facilities are coming later. Those are the reasons. From a pure volume perspective, unless markets are much stronger in the second half, it would follow the seasonal pattern.
Okay. With the CapEx guidance now, it's below depreciation, or I don't know if you've given a specific.
Guidance on depreciation for this year. How sustainable is that? How long can you keep running CapEx below depreciation for? Is this just a one or two-year plan while the market is quite depressed?
Historically, we have always run CapEx below depreciation. We did a review to understand the useful life of our assets. We have extended that useful life. Depreciation has come down. Our guidance for 2016 is EUR 3 billion, CapEx is $ 2.4 billion. We're still under depreciation. Maintenance CapEx is actually EUR 2.1, so there's still a delta. When we look at some of our steel peers, maybe the accounting rules in terms of what can be capitalized is different. What is OpEx, what is operational expenses, perhaps you're a bit more conservative. We don't believe that at the levels of EUR 2.1, we see any difference in terms of the ability for us to maintain our asset base. Also, the impact of exchange rates is not as immediate on depreciation schedules as it is in terms of CapEx.
Okay. Thanks very much.
Thanks, Steven. We'll move to the next question, please, from Carsten at UBS.
Thank you very much. I have just one question, because you mentioned the idling of the Spanish plant in Sestao. This is the first time that this plant gets idled, but now it looks like it's at least for the time being idled. The question I have is there any impact on the Asturias plants? If so, what are those? In my view, there might be some from the pre-material deliveries. Could you actually comment on that, please?
Sestao is a electric arc furnace producer, which basically produces hot band.
Losing money, so clearly by indefinitely idling it, we save money. A simple point. Second point is that some of the production of Sestao is going to get transferred to our other facilities. More of that effect will actually be seen in our Fos-sur-Mer facility in France, which caters to the same commodity segment. You will see a healthier and better order book in Fos, which will help Fos' profitability.
But you don't intend to actually close that facility, the Sestao.
At this point in time, we have announced an indefinite idling of Sestao.
Thank you very much.
Sure.
Thanks, Carsten. We'll take the next question, please, from Alain at SocGen.
Hello?
Hi. Yes, please go ahead.
Yes, thank you for taking the question. I would have two questions, please. The first, I was just wondering if you are done with the asset project program, or you're going to contemplate further potential asset sales, if you are able to get a better value. Second question would be for Lakshmi Mittal. I was just wondering if you could share with us your updated view on sector consolidation in the world, ex-China. It didn't take place as you were expecting at the time of the merger with Arcelor. Would you expect it to happen now?
Let me quickly address asset sales. In terms of asset sales, look, we continue to look at opportunities to optimize our portfolio. Clearly from a balance sheet perspective, there is no need or urgency to do any of that. Any such transaction would be contemplated only if it created value for our shareholders, like what we did this morning with Sestao.
Thank you.
I think excluding China, consolidation discussion is very small. The most important consolidation needed is in China for the steel industry. If you look around the world, Japan has already done the consolidation with Nippon Steel and moving on to Europe. Basically, the opportunities are very limited there. We have to see how this rolls out in the Ilva discussion is going on. Tata has done some sale of their assets. We don't know what is their future plan, which we read in the media. In U.S., basically, industries consolidated. We have in Brazil, I do not see any further consolidation opportunities. What I can say from ArcelorMittal point of view, that as far as we are concerned, we have already completed our AOP. That brings us in a very strong position.
Similarly, in the U.S., as Lou was saying that, though we are not discussing much on AOP, they have already shut down two blast furnaces in 2014, 2015, which means that part is already done. They have already idled them, and that is already done. Now what is left, it's the downstream optimization. Basically, lot of action has already been taken ex-China, and we may see something developing in Europe. I really cannot make any comment at this time. You read a lot in media. Most important for me still is China, how this consolidation plays out for the steel industry.
Okay. Thank you very much.
Great. Thank you very much, Mr. Mittal. We have one more question, which is from Philip at KeyBanc.
Yeah, good afternoon once again. Thanks for taking my question. It's just one question left. I was wondering if you could give some details about your receivables program, the sale of receivables. Have you increased them? Have you done any other additional sales of receivables during the year? What's the outstanding amount at year-end 2015?
Sure. Our TSR program went down in 2015 by about half a billion dollars. Approximately the outstanding amount is four and a half billion dollars.
Okay. Will you be looking to increase it going forward, or what's the reason that it went down?
We don't provide guidance on TSR. I won't change that practice today.
Okay. Thanks a lot.
There being no other question, we like to conclude this call. Thank you very much for participating in both the calls, and look forward to talking to you soon. Thank you. Have a good day.
Thank you.