IFRS 12 paras B12-B18, disclosures for material joint ventures and associates and summary for immaterial JVs and associates

ArcelorMittal S.A.  – Annual report – 31 December 2019

Industry: manufacturing

(millions of U.S. dollars, except share and per share data)
2.4 Investments in associates and joint arrangements (extract)
The carrying amounts of the Company’s investments accounted for under the equity method were as follows:

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1 Individually immaterial joint ventures and associates represent in aggregate less than 20% of the total carrying amount of investments in joint ventures and associates at December 31, 2019 and 2018, and none of them have a carrying value exceeding 100 at December 31, 2019 and 2018.

2.4.1 Joint ventures
The following tables summarize the latest available financial information and reconcile it to the carrying value of each of the Company’s material joint ventures, as well as the income statement of the Company’s material joint ventures:

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  1. The country of incorporation corresponds to the country of operation except for Tameh whose country of operation is also the Czech Republic.
  2. Ownership interest in Borçelik was 45.33% and 50.00% based on issued shares and outstanding shares, respectively, at December 31, 2019; voting interest was 48.01% at December 31, 2019.
  3. The non-current liabilities include 42 deferred tax liability.
  4. Adjustment in Borçelik relates primarily to differences in accounting policies regarding revaluation of fixed assets.
  5. Adjustments in AMNS India correspond to transaction costs incurred to set up the joint venture.
  6. Includes AMNS Luxembourg, AMNS India and intermediate holding entities.

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  1. The country of incorporation corresponds to the country of operation except for Tameh whose country of operation is also the Czech Republic.
  2. Ownership interest in Borçelik was 45.33% and 50.00% based on issued shares and outstanding shares, respectively, at December 31, 2018; voting interest was 48.01% at December 31, 2018.
  3. The non-current liabilities include 43 deferred tax liability.
  4. Adjustment in Borçelik relates primarily to differences in accounting policies regarding revaluation of fixed assets.

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  1. The country of incorporation corresponds to the country of operation except for Tameh whose country of operation is also the Czech Republic and Macsteel whose countries of operation are mainly the United States, the United Arab Emirates and China.
  2. The non-current liabilities include 40 deferred tax liability.
  3. Adjustment in Borçelik relates primarily to differences in accounting policies regarding revaluation of fixed assets.

ESIL (renamed AMNS India)
On December 11, 2019, following the unconditional approval received by the Indian Supreme Court of ArcelorMittal’s acquisition plan (“the Resolution Plan”) for Essar Steel India Limited (“ESIL”) subsequently renamed AMNS India Limited (“AMNS India”) on November 15, 2019, ArcelorMittal and Nippon Steel Corporation (“NSC”), Japan’s largest steel producer and the third largest steel producer in the world, created a joint venture to own and operate AMNS India with ArcelorMittal holding a 60% interest and NSC holding 40% in accordance with the second amended joint venture formation agreement signed as of December 8, 2019. ArcelorMittal and NSC contributed their respective initial equity funding of 1,362 and 891 into AMNS Luxembourg Holding S.A. (“AMNS Luxembourg”), the parent company of the joint venture. ArcelorMittal’s 60% interest is accounted for under the equity method. ArcelorMittal also transferred 360 cash proceeds (of which 293 recognized in 2019 and the remainder in 2018), including through a 193 equity contribution, into the joint venture following hedging programs entered into to hedge the volatility between the Indian Rupee and the U.S. dollar in relation to the acquisition of AMNS India. The total cash proceeds included 353 designated as cash flow hedge gains and the Company reflected in retained earnings NSC’s 40% entitlement in the amount of 141 in accordance with the final joint venture formation agreement.

On December 16, 2019, AMNS Luxembourg completed the acquisition of AMNS India. ArcelorMittal and NSC financed the joint venture for the acquisition of AMNS India through a combination of partnership equity of 2,253 and debt of 3,679 including 2,204 drawn by the joint venture under the 7 billion term facility agreement (see note 6.1.2) and 1,475 shareholder loan from NSC. The joint venture accounted for the acquisition of AMNS India as a business combination. Following the recent closing of the transaction, the acquisition-date fair value of identifiable assets and liabilities of AMNS India has been determined on a provisional basis, in particular with respect to intangible assets, property, plant and equipment, working capital balances, provisions and income taxes at closing date. The joint venture expects to complete its purchase price accounting during 2020.

AMNS India is an integrated flat steel producer, and the largest steel company in western India. AMNS India’s main steel manufacturing facility is located at Hazira, Gujarat in western India. It also has:
– two iron ore beneficiation plants close to the mines in Kirandul and Dabuna, with slurry pipelines that then transport the beneficiated iron ore slurry to the pellet plants in the Kirandul-Vizag and Dabuna- Paradeep systems;
– a downstream facility in Pune (including a pickling line, a cold rolling mill, a galvanizing mill, a color coating mill and a batch annealing plant); and
– seven service centers in the industrial clusters of Hazira, Bhuj, Indore, Bahadurgarh, Chennai, Kolkata and Pune. It has a complete range of flat rolled steel products, including value added products, and significant iron ore pellet capacity with two main pellet plant systems in Kirandul-Vizag and Dabuna-Paradeep, which have the potential for expansion. Its facilities are located close to ports with deep draft for movement of raw materials and finished goods.

The Resolution Plan which was approved for the acquisition of AMNS India included an upfront payment of 6.0 billion towards AMNS India’s debt resolution, with a further 1.1 billion of capital injection into AMNS India to support operational improvements, increase production levels and deliver enhanced levels of profitability. The Company provided a 0.6 billion performance guarantee in connection with the execution of the Resolution Plan, which terminated on December 31, 2019. In addition, the Resolution Plan includes a capital expenditure plan of 2.6 billion to be implemented in two stages over six years.

In the context of the creation of the AMNS India joint venture, the Company transferred the Uttam Galva Steels Ltd. payments (see note 4.6) to the joint venture. ArcelorMittal and NSC financed such payments through a combination of equity contributions into the joint venture of 173 and 115, respectively, and debt of 597 including 367 drawn by the joint venture under the 7 billion term facility agreement and a 230 shareholder loan from NSC. The joint venture used such proceeds to repay the loan granted by ArcelorMittal for an amount of 680 on December 31, 2019.

On February 13, 2020 and pursuant to the follow-on funding requirement in accordance with the second amended joint venture formation agreement, AMNS Luxembourg completed an additional equity injection into AMNS India of 840 mainly through an additional 475 drawn under the 7 billion term facility agreement and a 325 shareholder loan from NSC.

Macsteel
On May 28, 2018, ArcelorMittal announced the sale of its 50% shareholding in Macsteel International Holdings B.V. (“Macsteel”), a joint venture between Macsteel Holdings Luxembourg S.à r.l. and ArcelorMittal South Africa, which provided the Company with an international network of traders and trading channels including the shipping of steel. The Company recorded a 132 impairment to adjust the carrying amount of the investment to the expected sale proceeds partially offset by a 142 gain following the recycling upon closing of the sale on October 31, 2018 of accumulated foreign exchange translation gains from other comprehensive income to income (loss) from investments in associates, joint ventures and other investments. The fair value measurement was determined using the contract price, a Level 3 unobservable input.

VAMA
Valin ArcelorMittal Automotive Steel (“VAMA”) is a joint venture between ArcelorMittal and Hunan Valin which produces steel for high-end applications in the automobile industry. VAMA supplies international automakers and first-tier suppliers as well as Chinese car manufacturers and their supplier networks.

Calvert
AM/NS Calvert (“Calvert”), a joint venture between the Company and NSC, is a steel processing plant in Calvert, Alabama, United States. Calvert had a 6-year agreement to purchase 2 million tonnes of slabs annually from ThyssenKrupp Steel USA (“TK CSA”), an integrated steel mill complex located in Rio de Janeiro, Brazil, using a market-based price formula. TK CSA had an option to extend the agreement for an additional 3 years on terms that are more favorable to the joint venture, as compared with the initial 6-year period. In December 2017 and in connection with the acquisition of TK CSA by Ternium S.A., the agreement was amended to (i) extend the term of the agreement to December 31, 2020, (ii) make a corresponding reduction in the annual slab purchase obligation so that the aggregate slab purchase obligation over the full term of the agreement remained the same and (iii) eliminate TK CSA’s extension option. The remaining slabs for Calvert’s operations are sourced from ArcelorMittal plants in the United States, Brazil and Mexico. ArcelorMittal is principally responsible for marketing the product on behalf of the joint venture. Calvert serves the automotive, construction, pipe and tube, service center and appliance/ HVAC industries.

Tameh
Tameh is a joint venture between ArcelorMittal and Tauron Group including four energy production facilities located in Poland and the Czech Republic. Tameh’s objective is to ensure energy supply to the Company’s steel plants in Poland and external customers in the Czech Republic as well as the utilization of steel plant gases for energy production processes.

Borçelik
Borçelik Çelik Sanayii Ticaret Anonim irketi (“Borçelik”), incorporated and located in Turkey, is a joint venture between ArcelorMittal and Borusan Holding involved in the manufacturing and sale of cold-rolled and galvanized flat steel products.

2.4.2 Associates
The following table summarizes the financial information and reconciles it to the carrying amount of each of the Company’s material associates, as well as the income statement of the Company’s material associates:

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  1. The country of incorporation corresponds to the country of operation except for China Oriental whose country of operation is China.
  2. Other adjustments correspond to the difference between the carrying amount at December 31, 2019 and the net assets situation corresponding to the latest financial statements ArcelorMittal is permitted to disclose as of the reporting dates described in the table above.
  3. The amount for DHS Group includes an adjustment to align the German GAAP financial information with the Company’s accounting policies and is mainly linked to property, plant and equipment, inventory and pension.
  4. Adjustments in Gonvarri Steel Industries primarily relate to differences in accounting policies regarding revaluation of fixed assets.
  5. Adjustments in Baffinland primarily relate to differences in accounting policies regarding revaluation of fixed assets and locally recognized goodwill.

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  1. The country of incorporation corresponds to the country of operation except for China Oriental whose country of operation is China.
  2. Other adjustments correspond to the difference between the carrying amount at December 31, 2018 and the net assets situation corresponding to the latest financial statements ArcelorMittal is permitted to disclose as of the reporting dates described in the table above.
  3. The amount for DHS Group includes an adjustment to align the German GAAP financial information with the Company’s accounting policies, and is mainly linked to property, plant and equipment, inventory and pension.
  4. Adjustments in Gonvarri Steel Industries primarily relate to differences in accounting policies regarding revaluation of fixed assets.
  5. Adjustments in Baffinland primarily relate to differences in accounting policies regarding revaluation of fixed assets and locally recognized goodwill.

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  1. The country of incorporation corresponds to the country of operation except for China Oriental whose country of operation is China.
  2. Other adjustments correspond to the difference between the carrying amount at December 31, 2017 and the net assets situation corresponding to the latest financial statements ArcelorMittal is permitted to disclose as of the reporting dates described in the table above.
  3. The amount for DHS Group includes an adjustment to align the German GAAP financial information with the Company’s accounting policies, and is mainly linked to property, plant and equipment, inventory and pension.
  4. Adjustments in Gonvarri Steel Industries primarily relate to differences in accounting policies regarding revaluation of fixed assets.
  5. Adjustments in Baffinland primarily relate to differences in accounting policies regarding revaluation of fixed assets and locally recognized goodwill.

China Oriental
China Oriental Group Company Limited (“China Oriental”) is a Chinese integrated iron and steel company listed on the Hong Kong Stock Exchange (“HKEx”). On January 27, 2017, in order to restore the minimum free float requirement, China Oriental issued 586,284,000 new shares resulting in a decrease of the Company’s interest from 46.99% to 39.02%. As a result, ArcelorMittal recorded a loss of 67 upon dilution partially offset by a gain of 23 following the recycling of accumulated foreign exchange translation gains from other comprehensive income to income from investments in associates, joint ventures and other investments. The trading of China Oriental’s shares, which had been suspended since April 29, 2014, resumed on February 1, 2017.

In January 2018, China Oriental issued 192 million new shares to fulfill its obligations under its share-based compensation plans. As a result, ArcelorMittal’s interest in China Oriental decreased to 37.02%. ArcelorMittal recorded a loss of 20 upon dilution partially offset by a gain of 8 following the recycling of accumulated foreign exchange translation gains in income from investments in associates, joint ventures and other investments.

DHS Group
DHS – Dillinger Hütte Saarstahl AG (“DHS Group”), incorporated and located in Germany, is a leading producer of heavy steel plates, cast slag pots and semi-finished products, such as pressings, pressure vessel heads and shell sections in Europe. The DHS Group also includes a further rolling mill operated by Dillinger France in Dunkirk (France).

Gonvarri Steel Industries
Holding Gonvarri SL (“Gonvarri Steel Industries”) is dedicated to the processing of steel. The entity is a European leader in steel service centers and renewable energy components, with strong presence in Europe and Latin America.

Baffinland
Baffinland owns the Mary River project, which has direct shipping, high grade iron ore on Baffin Island in Nunavut (Canada). During 2017, ArcelorMittal’s shareholding in Baffinland decreased from 44.54% to 31.07% following capital calls exclusively fulfilled by Nunavut Iron Ore (”NIO”), the other shareholder, and the conversion of preferred shares held by NIO into equity. As a result, ArcelorMittal recognized a loss on dilution of 22, including the recycling of accumulated foreign exchange translation losses of 52, in income (loss) from investments in associates, joint ventures and other investments. During 2018 and 2019 the Company’s shareholding in Baffinland decreased further from 31.07% to 28.76% and 25.70%, respectively, following capital calls exclusively fulfilled by NIO. The Company recognized additional losses in 2018 and 2019 on dilution of 3 and 4 including the recycling of accumulated foreign exchange translation losses of 9 and 12, respectively, in income (loss) from investments in associates, joint ventures and other investments.

2.4.3 Other associates and joint ventures that are not individually material
The Company has interests in a number of other joint ventures and associates, none of which are regarded as individually material. The following table summarizes the financial information of all individually immaterial joint ventures and associates that are accounted for using the equity method:

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During 2019, the Company converted 31 of shareholders loans into equity and made an additional cash injection of 30 to its joint venture ArcelorMittal Tubular Products Jubail (“Al Jubail”) to maintain 40.80% interest in the joint venture in line with shareholding restructuring, which resulted in an increase of carrying amount of the investment from nil as of December 31, 2018 to 26 as of December 31, 2019 including the Company’s share of accumulated net losses, which were recognized against shareholder loans as of December 31, 2018 (as carrying amount of investment was nil). The Company had outstanding shareholder loans given to Al Jubail for 109 and 131 as of December 31, 2019 and 2018, respectively.

2.4.4 Impairment of associates and joint ventures
For the years ended December 31, 2019 and 2018, the Company identified an impairment indicator with respect to its investment and shareholder loans in Al Jubail. Accordingly, it performed a value in use calculation and concluded the carrying amount of the investment and shareholder loans was recoverable. For the remaining investments, the Company concluded there were no impairment triggers.

The Company is not aware of any material contingent liabilities related to associates and joint ventures for which it is severally liable for all or part of the liabilities of the associates, nor are there any contingent liabilities incurred jointly with other investors. See note 9.4 for disclosure of commitments related to associates and joint ventures.

9.4 Commitments (extract)

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*As a result of the adoption of IFRS 16 “Leases” as of January 1, 2019, the Company has recognized right–of–use assets and lease liabilities related to non–cancellable operating leases. See notes 1 and 7.

Purchase commitments
Purchase commitments consist primarily of major agreements for procuring iron ore, coking coal, coke and hot metal. The Company also has a number of agreements for electricity, industrial and natural gas, scrap and freight. In addition to those purchase commitments disclosed above, the Company enters into purchasing contracts as part of its normal operations which have minimum volume requirements but for which there are no take-or-pay or penalty clauses included in the contract. The Company does not believe these contracts have an adverse effect on its liquidity position.

Purchase commitments include commitments given to associates for 592 and 405 as of December 31, 2019 and 2018, respectively. Purchase commitments include commitments given to joint ventures for 1,521 and 2,246 as of December 31, 2019 and 2018, respectively. Commitments given to joint ventures related to purchase of output from Tameh decreased from 1,489 as of December 31, 2018 to 852 as of December 31, 2019 mainly as a result of the sale of ArcelorMittal Ostrava a.s. (see note 2.3.1). Commitments given to joint ventures also include purchase commitments of 649 and 711 related to Enerfos as of December 31, 2019 and 2018, respectively.

Guarantees, pledges and other collateral
Guarantees related to financial debt and credit lines given on behalf of third parties were 158 and 235 as of December 31, 2019 and 2018, respectively. Additionally, nil and 7 were related to guarantees given on behalf of associates as of December 31, 2019 and 2018, respectively and guarantees of 3,836 and 1,079 were given on behalf of joint ventures as of December 31, 2019 and 2018, respectively. Guarantees given on behalf of joint ventures include 288 and 348 for the guarantees issued on behalf of Calvert and 346 and 397 for the guarantees issued on behalf of ArcelorMittal Tubular Products Al Jubail (“Al Jubail”) as of December 31, 2019 and 2018, respectively. The increase in guarantees given on behalf of joint ventures includes 2,571 with respect to the AMNS India joint venture (see note 2.4.1) and 232 (net of 50% counter guarantee from Prime Shipping Investments Limited, an affiliate of DryLog) in relation to outstanding lease liabilities for vessels operated by Global Chartering (see note 2.3.1.). Due to the failure of other shareholders to provide requisite equity funding by December 31, 2018, the Company’s joint venture Al Jubail’s indebtedness became technically in default as of such date. As of December 31, 2019, the technical default remains pending completion of formalities as the joint venture completed the conditions necessary to clear the default, including the capital increase, prior to year end. ArcelorMittal’s guarantee of such indebtedness has not been called by the lenders, and ArcelorMittal does not currently expect it to be called. The technical default relates only to the indebtedness of the joint venture and is not expected to affect the availability or maturity of any borrowings of ArcelorMittal.

As of December 31, 2019, pledges and other collateral mainly relate to (i) mortgages entered into by the Company’s operating subsidiaries and (ii) inventories and receivables pledged to secure the South African Rand revolving borrowing base finance facility for the amount drawn of 81 and ceded bank accounts to secure environmental obligations, true sale of receivables programs and the revolving borrowing base finance facility in South Africa of 64. Pledges of property, plant and equipment were 155 and 225 as of December 31, 2019 and 2018, respectively. Other sureties, first demand guarantees, letters of credit, pledges and other collateral included 356 and 380 of commitments given on behalf of associates as of December 31, 2019 and 2018, respectively and 293 and 154 of commitments given on behalf of joint ventures as of December 31, 2019 and 2018, respectively.

In addition, other sureties, first demand guarantees, letters of credit, pledges and other collateral include 504 as of December 31, 2019 in relation to the Company’s share of the obligation to deliver the follow-on funding for AMNS India in accordance with the second amended joint venture formation agreement.

Other sureties, first demand guarantees, letters of credit, pledges and other collateral included 567 as of December 31, 2018 in relation to a performance guarantee provided by the Company for the execution of the AMNS India resolution plan. The performance guarantee terminated on December 31, 2019.