Please go ahead, Daniel.
Thank you. Good afternoon, everybody, and good morning to those joining from the U. S. This is Daniel Fekla from Arsenal Metals Investor Relations team. Thank you very much for joining us today on our conference call.
We will be discussing today's announcement. We've announced a number of strategic initiatives, including a planned rights offering and the sale of our interest in Gestamp as well as a new strategic plan, which we're calling Action 2020. The purpose of this call is to discuss the planned rights offering and these related strategic initiatives. Our Q4 and full year 2015 results as well as 2016 guidance will be discussed in detail on a separate call, which is scheduled to begin at 2:15 UK time after this call. So I would ask that you defer any questions about those matters to that separate dedicated call.
So we will have a presentation from Mr. Mittal and Aditya followed by a Q and A session.
Thank you, Daniel, and good day to everyone. Welcome to this call and thank you for joining at a short notice. Today, I'm joined by Ajit Mitchell, Moosehorse Simon, our Head of Mining Devinder, Head of ACIS and Gengino Cristino,
Head of Finance.
We have today launched a $3,000,000,000 capital raise by way of a rights issue and announced the sale of Gaston for $1,000,000,000 Together, this will reduce net debt by $4,000,000,000 This capital raise will right size ArcelorMittal's balance sheet and complete the exercise of reducing the cash requirements of the business. The business now requires $4,500,000,000 of EBITDA to cover its cash requirements. As a result, all operating segments are free cash flow positive in this current price environment. Pro form a net debt is $11,700,000,000 representing 2.2 times of 2015 EBITDA. Liquidity will be further increased to $14,100,000,000 The balance sheet is now sufficiently strong to weather any market environment.
Today, we have also announced an improvement plan called Action 2020. Action 2020 is a detailed plan to get group EBITDA back up to $85 per ton. This represents a $3,000,000,000 improvement and is a substantial expansion of the actions announced in November. Looking ahead, it is clear those steel companies which prosper will have a combination of the right assets, right strategy and the right balance sheet. We are confident ArcelorMittal has this combination and that we are in a strong position to deliver on the targets identified and cement tower position as the world's leading steel company.
Now I move on to the Slide 4. Let me address why we have the right assets and right strategy. Arsu Mittal is the world's leading steel and mining company. 1st and foremost, we are the leader in safety performance. 2 third of the world's safest steel sites belong to ArcelorMittal, even though we have just 6% of the world's steel capacity.
And the core of the business is an industry leading franchise in the developed markets. Approximately threefour our shipments are in Europe and NAFTA. Our assets are well positioned on the global cost curve and highly competitive relative to local competitors. So we own 40,000,000 to 45,000,000 ton of Tier 1 steel capacity. We have demonstrated leadership in our capacity optimization efforts in recent years.
While the transformation exercise in Europe continues, we are now applying these principles to our U. S. Footprint. We are the market leader in steel for automotive. Our reputation and product portfolio is unmatched.
This is reflected by 22 out of 26 European and U. S. OEMs voting ArcelorMittal 1 for technology leadership. Our leadership in automotive and high dead value steel is underpinned by our R and D capability. We have 1300 engineers working across 12 major research centers globally.
We have not cut our R and D spending in recent years, not even in 2016. This represents a very significant competitive advantage and a barrier to any competitor looking to break into this attractive space. We have the leading product portfolio and a reputation for delivering new breakthrough solutions for our customers. Importantly, ArcelorMittal has the industrial capacity to expand volumes as the demand recovery continues. As fixed costs are absorbed, this is a powerful driver for profitability.
Finally, we have an ability to implement unique measures to boost profitability. Without assuming any improvement in steel prices and spreads, our ArcelorMittal Action 2020 plan is a roadmap to generating $2,000,000,000 of annual free cash flow. We are fully committed to ensuring ArcelorMittal delivers on these targets and senior management's incentive are being aligned with this. Moving to Slide 5, I want to recap on the actions the company has taken over the past 3 years to respond to the market challenges and ensure the company achieves free cash flow positive objective. Firstly, we have reduced net debt from $21,800,000,000 at the end of 2012 to $15,700,000,000 at the end of 20 15, and this $6,100,000,000 reduction will increase to $10,100,000,000 following today's announcement.
The reduction in net debt has been a key driver in reducing net interest cost by $600,000,000 over the period, a significant value driver. A major part of the debt reduction has been portfolio optimization. Since the end of 2012, the company has realized $2,500,000,000 in non core assets disposal. Adding the sale of guest stamp announced today brings this total to $3,500,000,000 At the same time, non performing assets have been closed and we have invested in our capabilities in our target markets such as the acquisition of Calvert, the world's leading finishing facility for high end steels. We have differentiated ourselves by leading the industry in cutting costs.
We successfully rationalized our footprint in Europe, leading to annual improvement in excess of $1,000,000,000 This is evident when comparing our margin performance in Europe with the basket of our peers. We have spent less on CapEx also. CapEx in 2015 is $2,000,000,000 lower than 20 12. Our maintenance spend is now $2,100,000,000 at current exchange rates. We are investing over and above this to ensure that our assets remain competitive and we have the capability to produce the solutions our R and D efforts are generating.
Finally, in November, we announced that we are suspending the dividend payment for 2015, which allow a further $400,000,000 of net debt reduction. Overall, since 2012, we have reduced the cash breakeven cost of the business by $3,500,000,000 To sum up this slide, I would say that over the past 3 years, the company has taken significant steps to reduce net debt, improve cost and reduce cash requirements. Today's announcement will complete this journey. Let me now address the market backdrop on Slide 6. Beginning with China, we stated our Q3 results in November and the price levels in China were unsustainable with the average CISA members losing approximately $60 per ton.
Since November, we have seen a number of positive developments relating to the China Steel Industry Out Group. Premier Li is enacting supply side reform targeting zombie companies within industries with excess capacity including steel. I have seen numerous research pieces suggesting that the action plan to tackle excess capacity in the steel industry is more determined and supported by a dedicated fund to provide social support to displaced workers. This also reflects my views post my most recent visit in November. I do believe that capacity will be removed and the industry in China will restructure, But I expect that this will not happen short term and will take time to be effective.
In the interim, though I am also highly confident that the governments now various operating jurisdictions will provide the necessary protection to domestic industries as China makes this transition. I'm expecting continued positive news flow on this theme in both the on the duty theme both in U. S. And Europe as we move through the first half of twenty sixteen. We have seen a rebound of steel spreads in China from the unsustainable lows.
I do not see this is a seasonal, but rather necessary to move back towards a more sustainable level of profitability. Clearly, an improvement in pricing in China is supportive of pricing in our core markets, and we have made positive steps in both the U. S. And Europe over the past 2 months. In terms of the short term demand outlook for our core markets, this remains positive.
I think it is very important to recognize that the weak steel demand environment we saw in the U. S. Last year was due to massive destock rather than a contraction of real demand. Despite rapidly contracting energy markets, real steel demand in the U. S.
Did increase in 2015. As the destock matures, we anticipate stronger apparent demand in the U. S. In 2016. We also anticipate another year of positive demand growth in Europe.
Clearly, the extent to which imports are deterred to duties will influence how much domestic producer shipments and prices can increase. While nothing is certain, I'm optimistic on this front. Now I will hand over this call to Adit to go through our actions in greater detail.
Thank you. Good morning and good afternoon, everybody. Let me begin with 2015 performance highlights, which is on Page 7 of our slide presentation. We reported EBITDA of $1,100,000,000 for Q4 2015 and a full year EBITDA of $5,200,000,000 Our steel performance was negatively impacted by steel prices falling to multiyear lows as well as lower volumes due to destocking towards the end of the year. Our mining business was obviously impacted by lower market prices for iron ore, but this was significantly offset by the 20% reduction in unit cash costs, which exceeded the target we set for the year.
We reported a net loss for the year of $7,900,000,000 primarily driven by impairment charges of $4,800,000,000 dollars exceptional charges of $1,400,000,000 and other non cash impacts such as ForEx and deferred tax assets. Excluding these effects, we would have reported a net loss of $300,000,000 for fiscal year 2015 compared to an adjusted net income of $400,000,000 in 2014. Despite challenging market fundamentals, we maintained strong liquidity of $10,100,000,000 dollars and we delivered progress on our key objective of reducing net debt, which declined to its lowest level since the ArcelorMittal merger. Let me briefly go through what we're planning to do in terms of reducing our cash requirements in 20 16. This is on Slide 8.
Savings are due to our reduced CapEx requirement, lower cash taxes, the suspension of the dividend and the reduction in interest costs. As a result, all segments of the business are expected to be free cash flow positive at current spot steel and raw material prices. This includes our Mining segment, where our free cash flow breakeven price has been further reduced to below $40 through a combination of management actions, lower input prices and exchange rates. All steel segments are also free cash flow positive at current steel spreads. This is a fundamental requirement when we consider our asset portfolio.
The various teams have worked tirelessly to ensure non performing assets have been addressed. If we look across the industry, we're very confident that we're in a position of relative strength. At our 3rd quarter results briefing in November, we stated that we were accelerating our portfolio optimization process. On Page 9, we talk about the success that we have generated in this area. We have delivered on this by announcing the sale of our minority investment in Gaston for $1,000,000,000 Gastonp is a privately held entity involved in stamping, assembly and welded blanks for automotive OEMs.
Our strategic and preferred supplier relationship with Gondvari and Gastonp remains unaffected. We will continue to work together to supply automotive OEMs with world class automotive steel products and will remain on the Board of Gaston. This transaction has no impact on our EBITDA. The impact on cash flows is just a dividend, which was $15,000,000 in 2015 and has been a similar amount historically. This is a great result and unlocks substantial value for our Sur Maple shareholders.
So this is a clear example of our asset sales delivering value to shareholders. Let me turn to Page 10 of our presentation, which addresses how we have rightsized the balance sheet. If you look towards the left hand side of the slide, you can see that we ended 2015 with net debt of $15,700,000,000 the lowest level since the merger. If we reflect the $1,000,000,000 cash we will receive from Gaston sale, the net debt will be $14,700,000,000 and then the proceeds of the right issue will reduce this to less than $12,000,000,000 Pro form a net debt of $11,700,000,000 represents a net debt EBITDA multiple based on 2015 EBITDA of 2.2x. This multiple is approaching 1st quartile in the industry, another point of differentiation, particularly with respect to our key competitors in our core markets.
In terms of liquidity, as you can see on the right hand side of the slide, our liquidity will increase to $14,100,000,000 dollars of which $8,100,000,000 is cash and the rest is undrawn credit lines. This compares very favorably with the bond maturities we have in the coming periods. Now let me turn to Slide 11, which is an extremely important slide of our presentation as it details our SOR Methode's Action 2020 Plan. Following a long term strategic review of performance improvement opportunities, we announced today our plan to structurally improve EBITDA. The Action 2020 plan represents a strategic road map for each of ArcelorMittal's main business segments.
This plan is over and above the company's continuing management gain processes and is therefore expected to deliver real structural improvements unique to our business. As you can see from the slide, the planned targets return to at least $85 per tonne of EBITDA. The plan does not factor in any recovery in steel spreads or raw material prices from current levels. The plan represents a structural EBITDA improvement of approximately $3,000,000,000 On achievement of the plan, the company expects to generate a free cash flow in excess of $2,000,000,000 annually. The difference between EBITDA and free cash flow is increased CapEx and taxes modeled over the period.
What you can see on the slide is how each of the segments will contribute to the overall improvement. We have highlighted some of the key initiatives within each segment. So let's take Europe as an example. The successful asset optimization exercise is continuing as an ongoing transformation plan. This involves continued optimization and the clustering of finishing sites to remove substantial overhead, centralized activities and improve logistics and service.
Together with expected mix and volume gains, this is expected to deliver $1,000,000,000 improvement over the period. In NAFTA, we have begun the downstream footprint optimization in the U. S. And this is expected to yield a minimum $250,000,000 of improvement. We will continue to ramp up Calvert to full capacity over the next couple of years and other projects are expected to boost the HAV mix and generate further improvement.
In bank, which is basically our Brazilian Argentinean business, we will continue to execute on the value plan and anticipate that sales mix will improve with higher margin as domestic volumes recover over the ensuing period. In ASUS, our strategic focus is on the continued operational excellence to deliver the volumes that leverage the new competitive cost base we have in the CIS and execute on the competitiveness plan in South Africa. To reiterate, this plan does not assume any improvement in steel spreads from current levels. To that extent to the extent that spreads improves, this would be clearly accretive to the Action 2020 plan. Let me now turn to Page 12, which is our summary slide.
I think the main takeaway or the main conclusion, and I hope that this presentation makes it clear to all of you that there is inherent value within the ArcelorMittal story, and that is why the Mittal family are taking up their rights in full. Despite the pressures many in our industry are facing, we are in a position where all of our operating segments are free cash flow positive in the current price environment. This shows we have the right assets and the right strategy. We also now have the right balance sheet to weather any market environment. This will allow the management team to fully focus on delivering on its Action 2020 plan.
Top management compensation is strongly linked to its success over the next 5 years. Our store metal has the right assets, the right strategy and the right balance sheet to deliver value to our shareholders through the cycle. That concludes our presentation. And now we'd be happy to take any of your questions. Thank you.
Thank you. And we'll take the first question from Sita at Bank of America Merrill Lynch.
Thanks very much. Two questions from my side, gentlemen. Firstly, on Gestamp, can you just give us a little bit more there in terms of what needs to be met for that deal to complete? And what kind of time frames we could be looking at before the cash is in your bank account? And then secondly, on the cost cutting performance, can you detail the 2 biggest blocks?
We've got some stuff going on in Brazil on mix, and then we've also got some stuff on footprint reduction in the U. S. Could you give us a little bit of color on what you're planning to do there? Thank
you. Thank you, Cedar. So in terms of, I guess, time there are no closing conditions. The closing is expected to happen in the first half of this year, so by June end. So it's a signed agreement, it's binding agreement.
I think maybe since your raise gets down, I would just say a few more sentences on that transaction. There are minimal tax effects as well. And the last point I will make is the structure of what we are doing. So there are 2 companies. There is Gumbari, through which we actually supply the steel and Gounvari supplies finished products on to Gaston.
So we actually don't have a direct supplier relationship with Gaston, it's through Gondvari. At Gondvari, we maintain our shareholding. So that is why the supply relationship of our steel business is maintained to this asset. And on top of it, we remain on the board. In terms of cost cutting, I'm going to get Lou to start on these issues.
Yes, speaking still at a somewhat high level, I would say if I start with the Brazilian business, as you know, there's been a really colossal drop in severe macroeconomic situation and colossal drop in appearance steel consumption there. With what we're expecting for 2016, the drop in consumption is about 30%. Brazil has always been a very attractive market in terms of the margins. The fact that we have that kind of drop in consumption means that first for our long products business, then we've had to cut back on the production and rationalize some of the facilities there, which is an ongoing process. We've been able to maintain high levels of output from our operation in Tuborel, but the mix has shifted strongly from domestic sales and shipments to export sales.
And the spread differential is substantial. We see between this year 2020 some recovery in that market to roughly the situation that we had before this decline began, not beyond that. And that recovery provides us with a significant mix opportunity to shift from those export sales, which are much less financially attractive than the domestic market. So that's an important driver in terms of the improvement in Brazil. In addition, we are pursuing some aggressive programs in terms of looking at fixed cost, looking at the footprint structure in Brazil, the potential to rationalize production and improve production basically by focusing on the lower cost facilities, particularly on the long products side of the business.
If you move then to NAFTA in the U. S, frankly, we continue to be a bit constrained in terms of what we can describe for the footprint program and the asset optimization program in the U. S. Because we still do not have a labor contract result. And this is something that's part of the negotiation process.
But as we've said in the past, it primarily involves now optimization and concentration of production at a smaller number of finishing assets, particularly in the facilities in Indiana. And the reduction in costs that we associate with this, which I think we said was a minimum of 250,000,000 dollars is principally in the fixed cost area, which we'd capture primarily through attrition, given the demographics of our workforce, but also some significant variable cost reductions associated with running a fewer number of assets and running the better assets and running them more full. The program also involves some capital, and therefore, we don't expect to be realizing the full benefits until the end of 2017.
And then, sorry, just one follow-up question on the restructuring program. Should we expect any cash costs in 2016 associated with putting any of these initiatives in place? And if so, can you detail that?
Yes, Klaas. I think if you look at, as I said, there are significant fixed cost gains connected with the asset optimization in North America. But we believe that we can capture all of that through just capturing attrition so that there would not be any meaningful severance costs or restructuring charges being what we've taken already.
Okay. Thank you.
Great. Thanks, Sita. So we'll take the next question from Carsten at UBS, please.
Thank you very much. The first question and somebody has to ask this, Why did you announce the rights issue now? Why not a year or year and a half ago? What forced you or what made you think that's the right time of announcing this rights issue? Because to me, it looks a bit like a step of a loss resort, given where the share price is right now.
But maybe I'm overlooking here something. That's the first one. The second one is on the cash you get in from the rights issue as well as from the disposal. Do you intend to use the cash only for debt reduction? Or do you think also you will use the cash in order to restructure the business?
3rd question on your Action 2020 plan, because you already mentioned the volume recovery in Brazil. If I look at CIS, it looks like there's also a bit of hope of further FX reduction. How much is actually out of this plan up to you to control? And how much do you actually have to rely on the economy or on FX rate? Thank you.
I'll take the first question and I want to take few minutes to explain why we have decided to do this now. It is fair to say that last 3 months indicators for the global outlook have deteriorated. However, at the same time, we are seeing some improvements in the China raw material to finished goods spread. When we spoke last time, at that time, the spread was about $85 Since then, we have seen that Chinese spreads have improved by $35 now it is around $110 And we also said at the time that this spread was not sustainable and the prices have gone up. But in the meantime, we have seen it is around 110, we still expect that it should be in the range of 120 to 130.
That is a good news. But when we look at the macro indicators for the global economy outlook, we felt that it is prudent to raise the right now and this will help us to accelerate our net debt reduction plans, which we have always been talking. But most important that it will strengthen our balance sheet and we can focus the organization can focus on achieving the results arising out of Action 2020 plan.
Hari? Great. Thank you. So in terms of the use of proceeds, I think at this point in time, we're just indicating that it goes to reduce our net debt. At the appropriate time, we can detail exactly how we would use the proceeds of the right issue.
In terms of FX for ASUS, in terms of the strategic plan from 2016 onwards, we have not modeled any FX benefit in the strategy plan. So that assumes constant spreads that exist in the steel business today as well as raw material prices and similar FX environment. In terms of specifically in 2016, there are certain benefits that are occurring predominantly in Kazakhstan, where we feel that the local currency was not in line or not in tandem with the Russian ruble as they're in one market that was creating undue pressure. And as that has moved more in line, those benefits are coming through in the 2016 results.
Okay. Thank you.
Thanks, Carson. So we'll take the next question please from Mike at Credit Suisse.
Yes. Hi. Thanks for taking my questions. Two questions for me then. Firstly, look, a question I'm getting a lot, so I'm going to ask you.
How can you convince the investor base that this time it's enough because obviously this is the 3rd time we've been to market since 2,009. So what is different this time that means that we've really drawn a line under it? And I guess there are two points to this. And A, in terms of the amount you've raised and the debt level, is this now a sort of final level that you're completely comfortable with? And if not, are there any other remedial actions that you could take such as further asset sales if required?
And the second thing in terms of the 2020 plan, can you just give us a bit more granularity on the timing, as well as how comfortable again are you that the €3,000,000,000 is enough given that, a, we've had a whole raft of asset optimization and similar in Europe and the CIS over time, which have got eaten away by the cycle. And I think as Mr. Mittal said, there's still a lot of excess capacity in the world. It's going to take a lot of time for that to come out. So if the cost reductions are back end loaded to 2020, what is the risk that in the next 2 or 3 years that your starting point is eroded again before you actually generate those cost reductions?
Michael, you asked a lot of questions as usual. So I'm going to try and answer all of your comments and questions accordingly. So in terms of is this enough, I think in our remarks we said, this is a journey, this is the end of the journey. So that implies very clearly that from our perspective, it is enough. We did a lot of work on this question.
So when we thought of the number of $3,000,000,000 along with the asset sale that we were contemplating, We looked at 2015, which is clearly low cycle environment and what is net debt to EBITDA. And as I mentioned in our remarks, it's 2.2 times. If we looked at our forecast our guidance we can't talk about guidance, so I can't in this call, so I can review how it looks on a 2016 basis as well. So 2.2x is very compelling. You can run stress models on that as well.
And you find that the net debt to EBITDA levels even under stressed environments, are at levels where the steel industry is normally having a balance sheet at the high cycle environment. If you just look at the absolute level of net debt, I mean, already at the end of 2015, we achieved the lowest level since the merger, and now we're considerably lower than that. It's almost a third of the level where we were compared to 2,008. The other very important point here that I would like to also highlight is the progress we have made in reducing the cash requirements of the business. So this is not just, okay, let's reduce our net debt, but it's also apart from all the actions we've taken on EBITDA is to reduce the cash requirements.
So just using 2012 as a metric as we have a slide on 2012, cash requirements are down $3,500,000,000 So this is a combination of CapEx, lower interest costs, lower taxes, obviously, with lower earnings, but that amounts to $3,500,000,000 which is very significant. So for the first time, we are in a situation where the cash breakeven is $4,500,000,000 including all cash costs up to EBITDA. And I think that is also a level significant progress and you can put that into context with the level of debt we have and come to your own conclusions and I hope the conclusion you come to that this is the right amount. In terms of 2020 structural improvement, this is structural improvement, it's not back end loaded. A significant part of that is actually happening within 2016.
So the $1,000,000,000 we spoke to you about at the end of Q3, which we'll achieve in 2016 is ongoing. And as those plans continue in these various segments, we can see that up to 2020, they add up to an additional $3,000,000,000 of gains. This is at constant spreads, constant raw material prices. So clearly improvement in those in spreads and raw material prices would be accretive. And I think the other important point, I know we have had a lot of discussions on the management gains topic, but this plan is above and beyond what we're doing on management gains.
And I think that is also important to understand in an environment where the steel industry is not as robust as we've seen in the past, there is a danger that we lose management gains to our competitors. All these plans we think are unique to our Sarmittal, they are structural and I'm happy to walk you through each of the segments and explain why we believe that is the case. So Michael, I hope I've tried to answer both your questions in enough detail.
Okay. And just very quickly, the covenant is still 4.25 times, is that right?
Yes, that's correct.
Okay. Thanks very much for the answers. Sure.
Thanks, Mike. So we'll move to the next question from Philip at ABN AMRO.
I have one question actually. It's on the antidumping rulings. You indicated that you're confident that there would you see continued positive news flow in the first half of the year. I remember in the past, you're quite careful or cautious with really having a view on that. I was just wondering what is making you so confident?
Is there any specific reason for that?
So in terms of trade, if you were to go to our other presentation, which is earnings, on the last slide, there is an update. I can't talk about guidance. We will review that in the next call. But in terms of the trade cases, the main difference is that we have had successes. So if you just go through the list, you will see that there have been preliminary duty margins announced in the U.
S. On galvanized as well as antidumping margins on cold rolled. We see that in Europe decisions on cold rolled are imminent. And in December of 20 15, we also filed a hot rolled and a quarter plate case in Europe. So clearly, there is progress in terms of physically getting these cases heard and getting positive rulings in this regard.
So that's the main change. If you look at some other countries as well, which we've not detailed, we issued an update in South Africa where we see a similar positive trend as
well. Okay.
So it's mainly on the trends and the announcement so far?
Yes, that's right.
Okay. Thank you.
Thanks, Oleg. So we'll take the next question from Ionis at RBC, please.
Hi, thank you. Just two questions from me. First, your 2016 EBITDA guidance is based on current pricing conditions, but your outlook assumes further decline in demand in both Brazil and CIS. Do you foresee further margin compression here until you actually deliver on your restructuring cost savings? And just a second question on the CapEx cut for 2016.
Is it just FX? Or have you inferred any end projects? Thank you.
Okay. Ionis, just on the first question, if you can appreciate, we're not allowed to talk about forward looking guidance on this call. So if you can ask that on the next call, that would be appreciated. But I think Aditya will talk to the CapEx question there.
Sure. In terms of CapEx, our maintenance CapEx is about 2,100,000,000 dollars and the reduction from last year has a portion of FX as well and the rest is a reduction in some of our growth projects.
Thank you. Great, thanks. So we'll take the next question please from Alessandra Berenberg.
Just have two questions. On this capital increase you just announced, is there any kind of thoughts also for this privatization of Ilva, whether you can confirm that you're either not interested or you are at the moment? And if so, in this case, I guess, this capital increase might actually cover also some potential cash outflow. The second one is related to the aggressive savings from restructuring. It's about EUR 1,000,000,000.
We just said that the delay in the negotiation in the U. S. Is preventing you from really implementing all the necessary steps. You originally stated it was a credit EUR 1,000,000,000 EBITDA. Is there any change from the last time you announced that?
Thank you.
For the Ilva privatization, you will hear by February 10th, whether we are putting we are showing our interest or not. But Alejandro on this, Adit has said many times that whatever we do, we would like to maintain. We will not deteriorate our credit ratings nor we would like to deteriorate our credit ratios in any kind of a growth similar to Calvert. But today, we cannot comment on Ilva anything. And Luke?
And the footprint, the question was the delay in the labor negotiations limiting the savings there. And I think to date that's not been the case. Clearly, we'd like to have that behind us. I think it's been delayed longer than we expected, but we do expect that we'll be able to resolve that without having any material effect on the initiatives that we undertake as part of the asset optimization.
So would it be plausible to believe that this EUR 1,000,000,000 will be reduced due to this delay in terms of potential impact?
So Alejandro, maybe some confusion. The $1,000,000,000 is the structural improvements, which is across the board. And I'm happy to walk you through in 2016 and there's an additional $3,000,000,000 from 2016 onwards to 2020. Within that whole plan, the $4,000,000,000 plan, the U. S.
AOP is $250,000,000 and so far there is no delay. And the amount in 2016 is a much smaller fraction of the $250,000,000
That is fine.
Great.
Thank you. Thank you.
Thanks. We'll take the next question from Bastian at Deutsche Bank. Okay, operator. So we'll move to the next question then from Luke at Exane.
Sorry, Bastian is in the line now.
Hello. Can you hear me now? Hello?
Yes, please
go ahead. I've got just two questions left. So my first one is on the rationale behind the rights issue and value generation. So it's obviously doing a €3,000,000,000 rights issue on a €7,000,000,000 market cap when still having €5,000,000,000 in JVs and associates. You're implicitly telling your people or people here that equity is still relatively higher value than the book value of the core than the book value of the JV is still higher lower value than your actual core asset.
So why did you decide to do a large size rights issue instead of selling more of the minority stakes, which appears to have been a more rational decision? And does this mean that we face the risk of getting more impairments in the JV and associates line going forward? Then my second question is
just following up on Ilva.
Can you just confirm that the new credit metrics post the transaction and the rights issue are basically the ones you plan to keep? Or do you keep the option of using the funds and proceeds of the rights issue to possibly engage with Iva? Thank you.
Okay. Thank you for your question, Bastian. So maybe there's some confusion here. So let me just start by addressing the big picture and then get into the associates and JV. We have made progress in our portfolio optimization.
You can see that from the Gaston sale. From our perspective, we looked at this closely as there are other asset sales that we can do, but all asset sales today would destroy value relative to the value that shareholders are afforded by the capital raise. The capital raise clearly creates value for shareholders to participate because there is a very strong plan, which creates structural EBITDA improvement. They can still benefit from the associates and JVs that we have on the book. And that is exactly why the family is following its rights and sort of not following its rights because it sees that value creation occurring.
In terms of the specific associates and JV, I think it's the Gastam sale actually demonstrates the opposite. We recorded at, let's say, all the associates and JVs are roughly $5,000,000,000 of book, but Gastam was recorded at a lower amount within that $5,000,000,000 and we will be upon the sale of the transaction recording a profit. The third point I would make is that we actually went through the full impairment process of associates and JVs in this spread environment and in this raw material environment and we did take important write downs in our Q4 results as well. So I would not draw that conclusion that there will be more impairments in associates or JVs, nor would I draw that conclusion that the device issue is value destructive relative to associates and JV. Rather, I think your question demonstrates that we have inherent and latent value within the ArcelorMittal balance sheet as demonstrated by the announcement of the Gaston sale this morning.
In terms of your second question of Ilva, this is on a pro form a basis. We don't intend to deteriorate our pro form a credit ratios through acquisitions.
Okay, perfect. Thank you.
Great, thanks. So we'll move to the next question please from Justine at Goldman.
Good afternoon. My questions are on the bond side of things. And the first question is whether the company would consider going to the unsecured market to deal with some of the near term maturities. Obviously, you've raised enough cash to deal with those maturities. But obviously, I think if the bond market receives the rights offering and the asset sale, well, the company could possibly go and do more unsecured debt to then care of this or leave more of the available liquidity for maturity?
So the first question is, is the company considering that? And then the second question is on the secured debt capacity. And I know that again, the rights issue and the asset sale makes this not necessarily an imminent issue, but we've gotten a lot of questions about it. So could you tell us exactly how much secured issuance capacity the company has per the terms of the credit facility and then per the terms of the bond as well, please?
Sure. Justine, I can't give you much color on what the plans are. I think the question was asked earlier also in terms of use of proceeds. And at this point in time, we're seeing that it's to reduce net debt. In terms of secured debt that we can take on the balance sheet, we allowed 5% of total assets.
Okay. So 5% of total assets. Okay. And that's for the credit facility?
I'm sorry, that's under the credit facility.
Under the credit facility. Okay. Okay. Thank you.
Thanks, Justine. So we'll take the next question please from Luke at Exane.
Hi, gentlemen. Couple of questions, if I may. When I look at your $3,000,000,000 structural EBITDA improvement, I'm a bit lost, I must admit, and I'm trying to see what you would qualify as hardware structuring, what you would qualify as mix or ramp up. So if you could elaborate a bit more, possibly splitting it by the different big divisions. That's my first question.
And the second one is that as part of your additional cash measures, cash management measures for 16, you're further lowering your CapEx. Is there an absolute limit to that? And I'm wondering to what extent you can improve the mix and the value added component of your portfolio while at the same time investing, I would say, solid term, especially relative to some of your smaller peers maybe?
Thank you. Okay. Thank you, Luc. In terms of CapEx, our maintenance CapEx is $1,000,000,000 and we actually just recently, as you may know, extended the life of our assets, which clearly demonstrates that our shipments, we're able to increase our HAV. We continue to produce the most demanding products for the automotive sector and we continue to be ranked number 1 in terms technology capability.
In terms of Action 2020, I'm going to try and provide you with more granularity, which would help you. So I think the first area is if we move on to Europe, I think we're familiar with the AOP plan in Europe that was a success. In Europe, we have a $1,000,000,000 transformation plan. This continues along from the AOP and certain things which are unique to us. So what do we mean by that?
We run a multi site operation, which means we have a lot of finishing operations, which are not in the same location as our upstream facilities. We would through the benefits of technology and other developments in the industry, now cluster them and make them to satellite operations. So cluster the management into the upstream, which means we don't need order planning, engineering, technology and other services in those facilities and they just become pure production facilities. That would clearly drive savings as there'd be less overhead, there'd be less inventory. And we believe this will also improve liability and quality as they would be linked into the systems of the upstream facility.
Now that is possible after we did the AOP because some of the sites used to have upstream assets associated with them. In terms of HEV mix and volume gains, we continue to see growth in Eastern Europe. We have announced a small CapEx in Eastern Europe, where we're growing our capacities in Poland, hot dip and hot strip mill. I don't think there's any other player in Eastern Europe which is doing that and Eastern Europe continues to grow. HAV, I think we're all aware of our unique capabilities in terms of the automotive space.
And as the products become more and more demanding, we continue to do well. So this is used to the next generation used to bore, this the AOP. That's also unique to us. That's $250,000,000 I don't think there's any finishing facility, which is at world class levels in any developed market, which is not running full yet. Calvert is brand new.
It's running closer to 2 thirds of its capacity level than 100%. So its ramp up creates a significant value. But more importantly, as it ramps up, it will cater to more demanding applications that will also be unique to our Svermift bill in terms of providing EBITDA benefit. There are other projects in NAFTA as well. There's a defasco galvanizing line project as well, which will also create HAV benefits.
So that's in some sense, a naphtha bucket. There's also volume growth in naphtha. Our CAGR for naphtha, we have achieved a low level of CAGR of only 1.3%, but that also creates benefits as we're uniquely positioned to capitalize on that. In terms of bank, bank has two aspects to it. Bank is Brazil, Argentina.
There are certain things that we are doing in bank to improve the fixed cost base, the SG and A base. Again, we have multi site operations there. So some things we can do, which others can't do. And here, we would have a domestic volume recovery. Clearly, we are exporting the excess volumes that are being generated because the market is weak.
And as the Brazilian market recovers, that would be an opportunity. The CAGR we have assumed in terms of growth in domestic volumes in Brazil post 2016, because 2016 is a negative year, is only 1.4%. So it's not a significant amount of growth, but clearly creates tremendous value because our Brazilian domestic tons are of high margin. If I move to ASUS, ASUS, a lot of the stuff is being done in 2016. We've spoken extensively about that.
But what will continue onwards is the competitiveness plan in CIS and also achieving the full benefits of all the actions we're taking in South Africa in 2016 into 2017. And then mining has a small benefit of further improving on its cost position. So that is really the long summary of our Action 2020 and why we believe that the $3,000,000,000 EBITDA improvement is unique to us.
Thank you for providing a bit more granularity, Aditya. If I may add just one follow-up. As I understand that there is limited extra restructuring charge associated with this €3,000,000,000 extra EBITDA gain. Can you maybe quantify some of the CapEx, gross CapEx that would be associated with mix improvement, HAV or the likes? Thank you.
So the good thing about the HAV and mix improvement is that historically Calvert has already been built. So you don't need lots of dollars when you already have facilities in place because it is just tweaking the existing finishing lines. And we see that in the European environment where we are making progress on HEV, but you don't need a lot of CapEx. So there's not a lot more there's not a lot of CapEx. This is not heavy in terms of CapEx.
I don't know if you want anything more specific, but normally we guide the market to suggesting we spend $100,000,000 to $200,000,000 in terms of improving our HIV capability on an annual basis.
Thank you. Great. Thanks, Luke. So we'll take the next question from Tony at Cowen, please.
Thanks. It was all my questions have been asked, but I did want to confirm one thing that I think Aditya said. I want to make sure that did you say all other asset sales that you looked at would destroy value?
Yes. I think when we looked at the asset base that we had and the potential that it would generate, we do not believe there was a marketplace which would give us fair value.
Fair enough. I appreciate that, Aditya. I just want to confirm that.
Thank you.
Thanks, Tony. So we'll move quickly on to Alain at SoftGen, please. Sorry, it's just left actually.
He has canceled his question.
Sorry about that. So we'll move on then to Sergey at Adsoch Gen.
Yes. Hi. Thank you very much. I have two questions on the Action 2020 plan. First of all, there are several key areas on which you plan to focus across all divisions, that is volumes and HVA mix.
And apart from that also other measures. Is it possible to give some idea of how this the 3,000,000,000 dollars increase is accounted for by volume, HPM mix and other measures just to have a more granularity on this? And one question on HVA. I think that HVA is the area where not just you, but all other steel companies are going to focus going forward. Do you think there is a risk that increasing competition as a result of that could erase some of the margins in this segment thereby eroding the effect of your plan?
Thank you.
Okay. Thank you very much. So let me talk about volume and then come back to HAV. So 2016, we haven't provided guidance, but the plan assumes a CAGR of about 1 point 2% annually. So it's not that significant in terms of volume growth.
And that just reflects how we see the markets developing and perhaps is airing on the conservative side. In terms of HAV, I think people are trying very hard to enter the HAV segment. I think that's an accurate description, but I think the barriers to entry are continue to be significant. So if you look at the main markets, that's NAFTA and Europe, in terms of HAV, I think we're uniquely positioned, especially when we look at the U. S.
Landscape to continue to invest in R and D. I mean, our R and D budget, as we mentioned earlier, has not actually changed 2015, 2016 or the years before. So we continue to put the same amount of capital, which in a capital constrained environment in 2016, I think, were very difficult for steel companies who are not generating that return from HEV already. When you look at the European landscape as well, I mean, we have a unique advantage. Just look at our scale relative to the other competitors.
And so I would not take that conclusion that you have drawn. If you look at imports, I think imports are getting harder to make on HEV products as well because there's been a case on galvanized steel now in the U. S, which will also restrict the ability of high quality importers. So yes, people are trying on HIV. I agree with you, it's a very attractive segment.
I think that is why we keep on saying that we do believe that we have the right assets and the right strategy at our service. I think Lou also would like to add a few remarks on that.
Yes. Just to give a good color on that because I think it is theme that many people pursue. But to take NAFTA as an example, I think there's 2 main components. 1st, on the flat rolled side, we undertook a major project over the summer, and we've identified about 25 specific market initiatives. All of them are, I would say, relatively small in terms of the size of the markets that we'd be targeting, but very cumulatively a significant movement of our mix to the potential high value added products.
And the key that we looked at there was to take, as Adityan mentioned, the R and D capability and I would say more explicitly, the advanced high strength steel capability that we're developing in the automotive sector and where we believe we're a leader in that application and to say where can we take that those capabilities and apply them in other markets. So it's been done in a very granular level. We still have to execute. But again, we think that's an opportunity that is very specific to the kind of capabilities we can bring to bear. The other smaller but still significant component there has to do with our long products business in Canada, which is primarily DRI based.
So it has certainly the clean steel required to penetrate high value added markets. And today, about 15% of its total long products production is in the form of billets and we're constrained with the downstream capability and we've got modest investment programs, 3 investments, one of which is already underway to be able to move to, let's say, add some new products and increase the finishing capacity where we can then have the same shipment volumes, but move that 15% from billets, which are very low margin into attractive products that are based on the DRI capability we have there. So again, it's not a generic theme for us. I think we've tried to break it down in some very specific programs where we do feel we tough to execute obviously, but where we do have distinctive capabilities.
So to have it up, would it be fair to say that the HV mix improvement would account for say more than half of the expected $3,000,000,000 EBITDA increase?
No, that's too high a number. We at this point in time, we're just providing the breakdowns per region. We will discuss with Daniel whether we want to provide it by idea, I. E. By volume, HAV and others.
And I think we rather this presentation just to maintain some competitive advantage relative to the rest of the steel business.
Understood. Thank you.
Great. So thank you very much, Mr. Mittal, Aditya and Lou and the rest of the team. That will draw this conference call to a close. We do look forward to meeting with our investors in the coming periods to discuss these themes in some more and in greater detail.
But we do have a call in 10 minutes' time, which I would very much encourage you and invite you to join. It has a different PIN number to this call, but the purpose of that call will be to discuss our Q4 and 2015 results, including guidance and outlook. Thank