Daniel, you can start now.
Thank you very much. Good morning and good afternoon, everybody. This is Daniel Clackworth again from the R. C. O.
M. Capital Investor Relations team. Thank you very much for joining us today for this dedicated conference call to cover the Q4 and 2018 results. This morning, we announced that we are planning a RICE offering, and we've just discussed that on an earlier call today. So 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 Q4 and 2015 results. We're having a presentation available since this morning with the prepared remarks of Mr. Mittel and Aditya, so we won't be going through that today. But I will hand over the call at this stage to Mr. Mittel.
Thank you, Daniel, and welcome once again those who have joined to this call for the Q4 2015 and full year results. As Daniel said that we had pre recorded our messages for the Q4 and 2015 results this morning and most of you had chance to listen to it and I'm not we are not going to repeat that same presentation. And Ajit 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 Adith with Lou Simon Devanitjuk and Genuino Cristino. So all of us are here in the room to answer your questions.
Thank you. Adit?
Thank you. In terms of 2015, EBITDA came in at $5,200,000,000 and Q4 was at 1 point $1,000,000,000 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 and A session. I will just turn to guidance now.
That has not been addressed yet. So in terms of guidance, I guess starting with what we indicated as a 3rd quarter results, The combination of our own actions and known developments are expected to support our EBITDA in 2016 by $1,000,000,000 relative to the Q4 2015 annual run rate level. Due to order book and the time lag required for lower raw material costs 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 $4,500,000,000 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 CapEx spend in 2016 of approximately RMB2.4 billion versus RMB2.7 billion in 20.15. Interest expenses are also expected to be lower in 2016 to be approximately BRL 1,100,000,000 versus BRL 1,300,000,000 in 2015. Together with no dividend in respect to the 2015 financial year and lower pension and taxes, these actions will reduce the cash requirements of the business in 2016 in excess of RMB1 1,000,000,000 as compared to 2015. In summary, these actions reduced the level of free cash flow breakeven to $4,500,000,000 and is expected to ensure that the company continues to generate positive free cash flow, reduce net debt and maintain strong liquidity. With post brief remarks, we are happy to answer your questions.
And we will begin the Q and A session with a question from Alan Spence at Jefferies, please.
Mr. Alan Spence, may we have your question please?
Rosenbaum, 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 how this is distributed by region? I know you've flagged in the past success of AMMC in particular.
I'd like to better understand what's happening at your vertically integrated operations in NAFTA and ACIS. Are you seeing a single cost there? Is that moving in line with the broader group? And secondly, on the Gazanx sale valuation, the €825,000,000 sales price seems admittedly quite high, might have only about €50,000,000 which are the JV income you've seen in the past. Can you just confirm if there's any change in your steel supply agreement with this fund that came along with the sale?
But we put, are you giving up anything in your long term arrangements in order to secure this high sales price? And then lastly, just wondering if you can comment a bit on outlook for your automotive steel contract negotiations in the U. S. Or in Europe, commentary from some of your U. S.
Peers for earnings season, was that pricing down significantly, but better than the spot market? And can you provide a little bit of guidance
for what we should
be modeling for you? Thank you.
Thanks, Alan. This is Simon speaking. Yes, 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 debottlenecking. It's not about short term, it's about sustainable cost reduction.
And historically that exists across all mines, the cost plus mines are equally important as you referred to as AMMC. That's where the value driver is downstream into the steel business part for us on Mittal. So the same actions are underway in all mines. That's right from productivity, efficiency, dimension debottlenecking and also looking at products and 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 that those learnings around the next level of taking high hanging fruit through to the assets through the ACIS assets.
So 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.
Yes. On auto contracts, obviously, it's inappropriate for us to be too specific about this. But I will say that currently, we have about a little over 60% of our auto volumes for 2016 are under contract. So we renegotiate contracts really throughout the year. I think traditionally that's been beneficial to both sides, if you will.
I just put that up. And other than that, I would concur with the what you've heard what you indicated you've heard on other calls, which is clearly it's moved with the market to some degree, but 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.
So maybe very quickly auto EU and then it's Tom. So 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. And so there is some compression in spreads, but clearly, as mentioned earlier, the overall market in terms of HEV products remains very attractive. In terms of the comp, the good news is that there's actually no change in our supply agreements, supply relationships. So there's no other value transfer, which is occurring.
We actually do not have any other contract with Gisam directly. The contract is actually with the sister company called Gumbari, which is a service center, which supplies service steel into the Gestamp hot camping network. In terms of valuation, I would I agree with you that from an equity income perspective looks very attractive, but Gazprompt is a very fast growing company as well. And has 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. So the sales price reflects its growth, reflects the fact that it is a high technology organization. So I will not just look at the equity income and make just that deduction. But I do agree with you that it is an excellent result for our Soma Tel shareholders.
Okay. Thank you very much.
So we'll move to the next question please from Stephen at Goldman Sachs.
I just had a question related to the guidance. I think you said in the past that you'd hear that in a normal year, the first half in terms of EBITDA is about 5% to 10% stronger than the second half. And given that we're going from $1,100,000,000 in the 4th quarter into a lower Q1, how is this going to look this year? It feels like we're heading towards a back end loaded 2016 again. And why is that the case?
Yes. So you are right. Normally, that is how the steel industry works. And this year will be should be no different. The first half will be stronger in terms of volumes and 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. So Q1, we see that in Q1, we're actually shifting steel at prices for Q4 and our inventory costs are reflecting higher cost of raw materials as that is still sitting in inventory. And 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. So those are the reasons. But from a pure volume perspective, unless markets are much stronger in the second half, it would follow the seasonal pattern.
Okay. And with the CapEx guidance now, it's below depreciation. I don't know if you've given a specific guidance on depreciation for this year, but how sustainable is that? How long can you keep running CapEx below depreciation for? Or is it just a 1 or 2 year plan whilst the market is quite depressed?
So historically, we have always run CapEx below depreciation. And so as so 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 16 $3,000,000,000 CapEx is $2,400,000,000 So we're still under depreciation.
Maintenance CapEx is actually $2,100,000,000 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. But we don't believe that at the levels of 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, David. So 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 Sao. It's not the first time that this plant is idled, but now it looks like it's at least for the time being idled.
The question I have is, is there any impact on the Asturias plants? And if so, what are those? In my view, there might be some from the pre material deliveries. Could you actually comment on that, please?
So, Sao Paulo is an electric car furnace producer, which basically produces hot band, losing money. So clearly by indefinitely idling it, we save money, Simple point. 2nd point is that some of the production of Sestau is going to get transferred to our other facilities. More of that effect will actually be seen in our Fost sur Mer facility in France, which caters to the same commodity segment. And you will see a healthier and better order book in Foss, which will help Foss' profitability.
Okay.
But you don't intend to actually close that spot, the Sasol? At this point in time, we have
announced an indefinite idling of Sasol. Okay.
System. So the next question please from Alain at SoftBank.
Yes, please. 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 deposit program or you're going to support a bit further potential asset sales if you are able to get a better value?
And then second question would be for Mr. Mittal. I was just wondering if you could share with us your ability to view on sector consolidation in the world ex China. It didn't make take place as you were expecting at the time of the merger with Arcelor. And so would you expect it to happen now?
Let me quickly address asset sales. So in terms of asset sales, we continue to look at opportunities to optimize our portfolio. But clearly, from a balance sheet perspective, there is no need or urgency to do any of that. So any such transaction would be contemplated only if it created value for our shareholders like what we did this morning with Gestalt?
I think excluding China, consolidation discussion is very small because the most important consolidation needed is China for the steel industry. If you look around the world, Japan has already done the consolidation with business steel and then moving on to Europe, basically the opportunities are very limited. We are and we have to see how this rolls out in the silver discussion is going on. Then the Tata has done some sale of their assets. We don't know what is their future plan, which we read in the media.
Then in U. S, basically, industries consolidated, we have and Brazil, I do not see any further consolidation opportunities. But what I can say from Oslo Metals 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 we are not discussing much on AOP, they've already shut down 2 blast furnaces in 'fifteen, 'fourteen, 'fifteen, which means that that is already done.
We have already IT and that is already done. Now what is left is the downstream optimization. So basically, a 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.
But most important for me still is China, how this consolidation plays out for the steel industry.
Thank you very much, Mr. Mittel. And Laurent, we have one more question, which is from Philip at Edvardnamoore.
Just one question left. I was wondering if you could give some details about your receivables program, the sales receivables. Have you increased and have you done any other additional sales of receivables during the year? And what's the outstanding amount at year end 2015?
Sure. So our TSO program went down in 2015 by about $500,000,000 and approximately the outstanding amount is 4,500,000,000
dollars Okay. And will you be able to increase the dividend for that? Or what's the reason it went down?
We don't provide guidance. Yes, sorry. I won't change that practice today.
There have been no other question. We like to conclude this call and thank you very much for participating in both the calls and look forward talking to you soon. Thank you. Have a good day.