ArcelorMittal (MT) CEO Lakshmi Mittal on Q2 2019 Results - Earnings Call Transcript

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About: ArcelorMittal (MT)
by: SA Transcripts
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Earning Call Audio

ArcelorMittal (NYSE:MT) Q2 2019 Results Conference Call August 1, 2019 9:30 AM ET

Company Participants

Daniel Fairclough - VP, Corporate Finance and Head of IR

Lakshmi Mittal - Chairman and CEO

Aditya Mittal - CFO and President

Simon Wandke - CEO, Mining Business

Genuino Christino - Head of Finance

Conference Call Participants

Alain Gabriel - Morgan Stanley

Ioannis Masvoulas - Macquarie

Cedar Ekblom - Merrill Lynch

Luke Nelson - JPMorgan

Myles Allsop - UBS

Rochus Brauneiser - Kepler

Phil Gibbs - KeyBanc

Sergey Golosinskiy - SocGen

Bastian Synagowitz - Deutsche Bank

Operator

Daniel you may go ahead now.

Daniel Fairclough

Thank you very much. Hi. Good afternoon and good morning everybody and welcome to ArcelorMittal's Half Year 2019 Investor and Analyst Call. This is Daniel Fairclough from ArcelorMittal Investor Relations. I’d like to remind everybody first of all that as usual this call is being recorded. Hopefully everybody has had the chance to review our earnings statements, the Q&A document and the presentation with the detailed speaker notes, which were all published on our Web site this morning.

So the idea then of this call is not to present these slides but rather move directly to your questions. That way the whole call should last around 45 minutes [Operator Instructions]. So with that brief opening I will hand over to Mr. Mittal.

Lakshmi Mittal

Thank you. Good day, everyone and can I add my welcome to this call. I am joined today by Aditya Mittal, President and CFO; Simon Wandke, CEO of Mining; Genuino, our Head of Finance and Daniel, Head of IR.

Before we move to Q&A, I would like to make some brief introductory remarks. As always I will start by commenting on our health and safety performance, excluding ArcelorMittal Italia, our loss time injury frequency rate for the first half of the year was 0.66 times, a small improvement on the rate achieved in 2018 which was a record low. Including ArcelorMittal Italia the rate was 1.19 times. This highlights one of the challenges we have in Italy although I would note that its rate have improved over from over 20 times when we assumed control to 12.35 times in the first half of the year.

We are focused on further improving its health and safety performance as quickly as possible and bringing it closer in line with our European average. Before I move to our financial performance, I would like to set some context in terms of the current market environment. The steel industry is inherently cyclical. Market conditions were buoyant for the majority of 2018. However, since October last year we’ve seen a severe market downturn, the speed and extent of which has been surprising and the usual correlation between Chinese and international steel spreads has broken down.

While Chinese spreads remain within their usual historical range these spreads in our core markets today have fallen to very low levels and are well below historical norms. As a result our first half EBITDA of $3.2 billion is lower than the corresponding period last year. I would note however, the performance of our mining business which has contributed almost a $1 billion of EBITDA highlighting the benefits of diversification. As you may recall just over three years ago we launched our Action 2020 strategic plan. The purpose of which was to ensure we delivered positive free cash flow in any market environment.

It is therefore encouraging that despite the highly challenging market and the drag on our business from ArcelorMittal Italia we still generated free cash flow of $900 million in the second quarter. This has enabled us to achieve further deleveraging progress and take a net debt down to our lower ever level. Our focus on further debt reduction continues and our full year free cash flow performance will be supported by a material working capital released in the second half of the year.

However given the extent of the market weakness we have had to make adjustment to our business. In response to our European supply demand imbalance resulting from softening demand and record import levels we have announced annualized flat capacity reduction of 4.2 million tons and more broadly given the need to optimize our cash flow performance. We are managing our capital expenditures really carefully while we continue to progress our high growth potential expansion projects in Mexico and Brazil.

Looking to the second half of the year there have been tentative signs of pricing improvements in the United States recently which is encouraging but conditions in Europe remain very challenging, ensuring that there is a level plane field for local steel producers has an important role to play in restoring market equilibrium. I therefore hope we will soon see the European Commission strengthen the EU safeguard measures so that they achieve the purpose for which they were intended. And I’m encouraged by the increasing support we are seeing for a green border adjustment which is necessary to ensure all steel consumed in Europe is subject to the same carbon levies. Our focus on delivery against our Action 2020 initiative continues as do our efforts to integrate recently acquired assets so they fulfil their full potential.

We also continue to prioritize deleveraging and expect the business to achieve healthy free cash flow this year.

Thank you, now we are happy to take questions.

Question-and-Answer Session

A - Daniel Fairclough

Thanks Mr. Mittal so we’ll take the first question please from Alain at Morgan Stanley.

Alain Gabriel

Yes. Good afternoon gentlemen, two questions from my side. The first one is on the bridges between H1 and H2, you highlighted on slide eight of the presentation that you have incurred losses at the EBITDA level at both in and remedy assets. Do you mind quantifying or giving the range of the losses for the remedy assets as a standalone during the first half. And you’ve also incurred some maintenance stoppages in Q2 in Ukraine, South Africa and Brazil are those supposed to be one-off or temporary factor that would reverse the second half. That’s the first part. The second part of the question is on the asset optimization that you’ve announced potentially we could interpret that the sale of around $2 billion of underperforming assets, can you give us some just more color on that at this stage as much as you can say? Thank you.

Aditya Mittal

So let me start by answering your questions. So, in terms of the remedy assets and the Ilva profitability we have not really broken it down. But I think it's far to assume that the lion's share of the losses that we had in the first half of this year was related to Ilva. So clearly Ilva as you know is a loss making entity when we acquired it since then these spreads in Europe have compressed by a €100 a ton. And so clearly the losses in Ilva has amplified. Having said that, we continue to make good progress in reducing its cost base, we have further accelerated our action plan today we have six teams which have been formed with experts from our ArcelorMittal European sites assisting the existing management team and they have identified 52 projects which they’re working on to dramatically improve the performance of Ilva in the second half and on a going forward basis. Clearly the improvement in Ilva, the idea of the action plan is to achieve breakeven EBITDA with existing market conditions but as you may know no license to operate issues.

In terms of Ukraine, South Africa and Brazil, I think in Brazil the impact in the second quarter was muted was much lower in the third quarter to be greater because we have taken down the blast furnace and it will be down the whole of third quarter. These are primarily marginal slap tons so the impact is not so significant from a profitability perspective, actually should help do business because otherwise we have a negative contribution and higher fixed cost. So it’s a bit like 4.2 million ton program that we have running in Europe. In terms of Ukraine and South Africa these were scheduled maintenance events and I think in the second half the production levels and shipping levels should be better. In terms of the $2 billion plan, these are not assets which are underperforming so to say I think they don’t create value in that environment, these are assets which we think are attractive, by optimizing our portfolio and locking $2 billion of value that’s basically net debt reduction. I'm not suggesting that we’ll be selling core assets but predominantly we’ll be maintaining our strategy and looking as to how we can monetize some of our non-core assets or sell some equity stakes in some of our core assets.

So it’s a combination of opportunities that we have. It’s not that there’s a $2 billion target and now we’ve identified the assets, we’ve identified the assets. There’s no immediate announcement either but this is also not backend loaded so I’d expect us to receive the proceeds of the $2 billion asset optimization plan over the next two years. So other than that I can’t really provide you with more specific color on second half versus first half. I mean we can talk about overall shipments of the group and mining performance if you are interested. But these are just some high level comments.

Alain Gabriel

Okay thank you.

Daniel Fairclough

Thanks a lot. So we’ll move to the next question please from Ioannis at Macquarie.

Ioannis Masvoulas

Thanks for taking my questions. Two questions my side the first is just a follow up on potential asset sales. So does today’s announcement reflect your expectation on somewhat lower organic free cash flow beyond the short term squeeze i.e. for the years to come? And does it also set a soft deadline hitting your $7 billion target by mid-2021?

And the second question just some visibility on Q3 volumes especially in Europe would be helpful, should we assume that the unit volumes offset the loss output from the divested assets and then we need to account for the production cuts you’ve announced or are there more elements to take into account? Thank you.

Aditya Mittal

So it does have the $2 billion value plan not value plan, value release from our portfolio. It’s no different from what we’ve done in the past right. We’ve had portfolio optimization plans and we have raised cash as we divested certain assets and over the years reflected more than $5 billion in assets and so it’s very similar to that plan. What does it achieve clearly it accelerates our deleveraging and that’s a good thing, we've not provided a time scale on when we would achieve the $7 billion target and that remains the case today.

In terms of European volumes so Ilva was there in the whole first half of this year and so were the remedies. Right, so the biggest impact when you look at our European shipments into the second half will be the remedies, and the remedies are about two million tons so you will see that change in our shipment number for Europe in the second half. The rest of the impact will be the seasonal slowdown in consumption in Europe, so you can model as to what your forecast is what is the seasonal slowdown in the second half versus the first half.

Some of the production cuts will have some impact on that but please recognize that the production cuts is relative to our plan and a larger impact of the production cut is also going to be in our inventory as we destock into the second half of this year.

Ioannis Masvoulas

Okay. That’s clear and helpful. And maybe just a quick follow up on your comment around working capital. So you’ve guided to $1.2 billion working capital released in the second half, part of it is I guess is the seasonal unwind. Could you perhaps quantify how much is left than $1 billion structure release of the unplanned investment you did last year?

Aditya Mittal

So, the first half of this year we have invested about $200 million in working capital. So that will unwind in the second half. And on top of it, we have the structure release of $1 billion of working capital. So, the combined cash generation in the second half on working capital should be $1.2 billion assuming existing market conditions and prices. We looked at the working capital efficiency based on this forecast of $1.2 billion and we believe that on a day's basis it’s a good number relative to where we have been on a historical average. To the extent that there is any change in the raw material complex then clearly that number can increase but to the extent that there is no change that $1.2 billion is a good number for the second half.

Ioannis Masvoulas

That's clear. Thank you.

Daniel Fairclough

Thanks. So we’ll move to the next question please from Cedar at Merrill Lynch.

Cedar Ekblom

Hi, I have got two questions. Can you just talk us through the purchase behind the write down in the US business, $600 million seems quite a large write down to simply reflect a squeeze in spreads that’s happened over the last 12 months in that business. So maybe you could just talk us through how we get to $600 million. And then the other question relates to your shipment trends in Europe in the first half. So far this doesn’t seem to be any evidence of your production cuts that you’ve announced in those numbers. When do we start to really see the potential benefits to the market of tons being removed and hopefully prices rising? Thank you.

Aditya Mittal

Okay. So, let’s talk about the US impairment. So, as you know the US impairment follows our regular annual impairment exercise and what we do is we compare the asset value to the present value of expected future cash flow. So we checked this on a quarterly basis for potential figures for revision. In the US given the weaker than anticipated operating environment and this is lower than expected steel prices, lower steel consumption as well as higher raw material costs the cash flow performance in the first half and our forecast for second half 2019 was below our original expectations. So, primarily this impairment deals with that deterioration and cash flow forecast. As such a $600 million impairment on our in USA fixed assets has been taken. Steel prices, when we run our impairment models, we use our, the real estate expectations on all factors but unfortunately it impact on our cash flows related to previous assumptions and that was quite apparent in the second quarter. Hence, we took the impairment. The recent price changes, recent price announcement in terms of steel pricing in the US is not baked into our second half 2019 free cash flow forecast.

Moving to Europe, the 4.2 million ton production cut is designed to be in the second half and as I said earlier it's relative to our plan, significant portion of that is a production cut so it's impacting the levels of inventory so it's a destock and there is some impact in the supply of tons into the second half of the market. But overall I would expect our steel shipments to mirror the apparent steel consumption decline in the second half versus the first half.

Cedar Ekblom

Okay thanks and just a quick follow up question on the US have you made any adjustments to steel price assumptions beyond 2019 or is the impairment simply related to lower profitability this year?

Aditya Mittal

So we have also made changes to first half 2020.

Cedar Ekblom

Okay thank you.

Daniel Fairclough

Thanks Cedar, so we’ll move to the next question from Luke at JPMorgan.

Luke Nelson

Yeah hi guys, my first question is on met coal, can you remind us what your internal specialty is and the split of cost plus tons for each of the divisions and as a follow up just given the recent price declines assuming they do stick how long the inventory cycle is for that to be reflected in your P&L? And then secondly just on the $500 million reduction in CapEx this year, how much of that is growth versus sustaining and whether any of this is just a shift into 2020 and also just your thoughts on where you think your ongoing level of outstanding CapEx is over mid-term? Thanks.

Genuino Christino

Just firstly Luke on the call, and we’re talking met coal, coking coal, if you look at Q2 for example 1.4 million tons of production of that about 50 odd percent is cost plus, goes into the group and in terms of that total consumption the 80% of that coal production is actually consumed in the Group. Slight mirrors most of the year through each quarter.

Aditya Mittal

Okay thank you, in terms of the CapEx, sustaining CapEx was about $3.1 billion $3.2 billion including Ilva. In terms of what we have cut primarily these are gross projects across the board and this is not just the deferral I think we do not want to create a balloon in 2020 in terms of the CapEx amount so what we’ve done is we’ve reviewed it and maintained what we think are the most important strategic gross projects so we’re still going ahead with our Mexican hot strip mill project, we’re still going ahead with what we’ve planned to do in Brazil in terms of the Vega expansion etcetera, etcetera.

In terms of going forward we’ve not provided specific guidance but I would expect that our CapEx number would be around this level, i.e. there is no dramatic increase that we’re forecasting in 2020 and we’re preparing a five year capital plans so that there’s a combination of growth CapEx and build but not exceeding approximately the levels that we’re guiding to you in 2019.

Luke Nelson

Okay, thank you.

Daniel Fairclough

Thanks Luke. So we’re going to take the next question please from Rochus at Kepler.

Rochus Brauneiser

Yes, I thank you for taking the question. First is on Europe, we have seen you’re making these production cuts announcements in May but we haven’t really seen that the market has got like impact to a balance. How do you look at the second half now do you think it is the seasonality who will bring the market in a better shape? And what do you expect to happen in the import side ahead of any safeguard at ArcelorMittal which might not become effective before the 1st of October. And related to that can you give us a bit of an update what is going to happen with your production cuts in Poland where obviously you have delayed the decision and also in Italy obviously people have not been put on temporary leave after strike.

And the second question is on your European spreads. How do you look at the spot spreads? How that might develop in the second half. And what would be your key arguments why those spreads are going to get better in the second half. And the last question is on China, we have seen China steel spreads going up from late last year but this trend has broken since the second quarter. How do you look at the demand and supply and discipline in China record production levels there are suggesting that the capacity hasn’t gone down that much as we saw last year or maybe has gone back up due to these replacements scheme. So any color on that will be very helpful.

Aditya Mittal

So, indirect you have a lot of questions, I’m going to try and go through them in a logical order. So let's just start with China and the global demand supply balance. We saw this high production number in China that 10% growth. We think this is still some unofficial capacity becoming formalized we don’t see that much of growth domestically. We have updated our number for China, but fundamentally we’re seeing apparent steel consumption growth of 0.5% to 1.5%, we were not forecasting. And so therefore we’re not forecasting a dramatic increase in exports so this is really anomaly in the numbers.

In terms of the demand situation in China, demand situation in China is still okay. Clearly the construction sector segment is much stronger than what we see in the automotive space. But fundamentally China is in positive territory both on a real basis and on an apparent basis. In terms of Chinese pricing, you're absolutely right, Chinese prices moved up, moved down but the issue for us is not the base pricing in China. I think the issue that the steel industry in Europe and in North America is facing is prices in Europe for example are lower than Chinese domestic pricing. Prices in the US are lower than in import parity prices. So there is a market price which is built up on China and what we see in these core markets is the prices are lower than that. And that I think is the number one issue right now.

And in terms of the U.S., there have been a recent price increase announcement and we are, there is good evidence on them sticking. In terms of Europe I think there are two or three factors to think about. Number one is what you talked about is an improvement in the safeguard measures which is a September event. Number two, I think at these price levels it’s very difficult at least you can see it in our numbers for anyone to have a decent return. And therefore automatically I would expect supply to reduce. And clearly that implies an improvement in the demand supply balance. We’ve seen that in the past when European prices have achieved this level, I think there is a slide in our presentation on page six, it doesn’t last for long, it’s short lived. So, that gives us confidence that there has to be normalization to what the global price of steel is both in Europe and in North America. In terms of our capacity our production cuts of 4.2 million tons and your question on Poland, I think the key takeaway is that the focus on reducing productive capacity by 4.2 million tons and there could be small changes here and there but that’s fundamentally the plan. And in terms of economic unemployment in Italy our program is still continuing, we call it Chigo and that program has not been postponed.

Rochus Brauneiser

Okay thanks very much.

Daniel Fairclough

Thanks Rochus so we’ll move now to Myles at UBS.

Myles Allsop

Great thank you, I have a couple of questions first on Ilva could you just give us a quick update how the discussions with the government are progressing and if you lose this protection from the 7th of September, is it likely you’ll have to sort of curtail or stop production in that and so quick update on that situation. And then maybe on carbon, so where the price of carbon in Europe, it's obviously gone to the moon and there are changes in the European ETS system. Do you think this is going to be a big driver for the steel industry in Europe and for further restructuring over the next five years and could you remind us all the measures you have taken to but ahead of the backend in terms of addressing this issue? Thank you.

Aditya Mittal

Okay great, so let’s talk about Ilva, so fundamentally and maybe I'm giving a little bit of background but I think it’s important to put the situation in context. The plant has not been in environmental compliance, and that’s why the facility was nationalized and then we privatized. To bring it into environmental compliance is not just about improving operational parameters but it is also about spending CapEx i.e. you cannot fix it in the short term it requires three to five years and an environmental plan has been created to address exactly that.

Under the share purchase agreement we’re offered certain protections, environmental immunity and due to certain law changes in Italy that was revoked. Technically the immunity expires on September 6 midnight or September 7th. We’ve been in discussions with the Italian government which who are working on providing us with legal safeguards so that we are protected in this period. This is not just an ArcelorMittal issue, any operator of that facility would face the same issue because it’s very difficult to operate a facility which is non-compliant if you do not have certain legal protection or legal safeguards.

And I think that issue and based on our discussions we believe that issue will get resolved but obviously no assurances can be given at this point in time. In terms of the price of carbon you’re right, the price of carbon has continued to increase. We have certain slides in our investor presentation towards end of the pack which walks you through some of the ideas that we’re thinking of but fundamentally we have three pathways to reduce our carbon footprint, one is hydrogen, the other is to use [indiscernible], the other is to use Torero etcetera etcetera and we believe that all of these technologies lead the industry and the solutions that we had developed are unique and ahead of the curve.

However to properly deploy all of these technologies and to spend the CapEx and to commit resources you need level playing field. And I think in that regard there is some good news because the new President of the European Union has announced a green border adjustment which implies that any steel that is imported into the EU would have the same carbon costs. If the level playing field is created, I think our ArcelorMittal is well positioned because as you know we have a large R&D budget, we have lot of talent in our organization for example when you look at the automotive business we’re doing inherently well, we’re number on in terms of technology globally and we have an opportunity to also outperform and find solutions so that we can have the lowest carbon footprint. So, that’s just high level on the CO2 environment. If you have further questions happy to answer then.

Daniel Fairclough

In that case we’ll move to next question from Phil at KeyBanc.

Phil Gibbs

Hi. Thanks very much. Question just on NAFTA, I know you have some operational issues in the first quarter and some of the US operations and some downtime in Mexico. And I think with the volume pick up that you saw we would have expected better cost performance and just better results. I know price has an impact. But anything going on there that’s lingering in NAFTA in terms of operational issues and then also please discuss the tariff situation with Dofasco?

Aditya Mittal

So, the official instruction that we had was Q1 was basically Mexico. There was some also in all of those were not there in the second quarter. So to the extent that you see the results are not as strong. From our standpoint, it is primarily in market, we also do have this iron ore which is linked to iodex and so when you look at the iron ore complex it is much more expensive than perhaps some of the other players in the US. So that’s how we look at the results in our NAFTA business in the second quarter no real operational disruption in 2Q. Your question on Canadian tariffs or Dofasco tariffs what exactly you want us to discuss?

Phil Gibbs

I know you had talked about $100 million a quarter of headwinds from that. And I think in mid May they have dropped the tariffs between the US and Canada and just wondering if you saw any release in the quarter or expect that more going forward?

Aditya Mittal

Yeah. We did see some release in the quarter approximately $30 million and the remaining release we'll expect to see in the third quarter. The $100 million number was good for Q1, clearly the price level is lower so 25% on lower prices is not the same amount. So to that did we, the 30 plus 50 is a good number going into Q3 relative to Q1.

Phil Gibbs

Thank you.

Aditya Mittal

Sure.

Daniel Fairclough

Thanks, Phil. So we’ll take the next question please from Sergey at SocGen.

Sergey Golosinskiy

Yes. Thank you very much. I have a very small question on the tariffs. The elimination should presumably provide a boost to your profits in North America. Is it possible to estimate what be the impact on the EBITDA level today second quarter prices and when do you think the full amount the full benefit of this will be felt in Q3 or in Q4?

Aditya Mittal

So the impact of 232 is not there in the second quarter because prices in the US are below import parity and when we look at import parity we are classifying import parity closer to 232. So you’ll start seeing the benefits of 232 when prices in the US were to move back to import parity.

Sergey Golosinskiy

Sorry what I meant is that you incur cost due to shipping steel from Canada and Mexico into the US so…

Aditya Mittal

Yes, so the tariff question we just went through in the second quarter, we had a $30 million pickup relative to Q1 and then we'll have a $15 million pickup in Q3. Those were the tariffs that we're saving.

Sergey Golosinskiy

Okay thank you.

Aditya Mittal

So actually it’s a wash but that’s a different discussion.

Sergey Golosinskiy

Okay, thank you.

Aditya Mittal

Great thank you.

Daniel Fairclough

Great so I think we will now move to our last question which is from Bastian of Deutsche Bank.

Bastian Synagowitz

Hi good afternoon everyone. I’ve got a couple of more questions on Ilva and maybe if you can walk us through each of the challenges you’re facing. Firstly on the constraints that your port logistics when do you expect them to be listed and if they were not to be listed what would be the annualized volume run rate you would be kept at given they all are raw material fleets that’s my first question. Then secondly, on the operating license and has a follow up to what Myles was asking earlier you said that you can’t run the plant without legal immunity and there were some statements today that you may not actually receive the legal immunity by the Italian government.

Do you expect or when do you expect clarity on the situation whether it before the 6 of November date, and if that’s your base assumption that the situation will be resolved and then secondly if you don’t receive a positive response what would be the next steps, and is there a scenario where you would simply walk away from the recent bio-agreement given that Ilva is a liability and probably hit 1 billion direct to your cash flow at this point of cycle? Thank you.

Aditya Mittal

So let me just provide a high level update and then go into more detail on license to operate issues. So as I mentioned earlier the immunity that we had has been lifted, the expected date on the lifting of that immunity is September 6th all right. So that point in time it is very difficult for us to operate the facility further and for that matter I believe it will be very difficult for any other operator to operate that facility.

We are working with the Italian government to institute legal safeguard measures and our expectation is that those measures will be in place before the 6th of September because the deadline is the 6th of September and I think you’ll have in all probability you have a resolution by then. In terms of the other issues that we’re facing we’ve talked about Pier 4 so there is a seizure on Pier 4 however we are developing other alternatives while that pier remains under seizure such as Pier 2. If we were to operate through Pier 2 we are losing about 10,000 tons of raw materials a day which ballpark implies a one-third production cut to Ilva's productive capacity, so if you're looking at 4.5 million to 5 million ton number you’re looking more at 3 million to 3.5 million on a going forward basis. We expect to resolve these issues, we don’t expect the seizure to last indefinitely and we’re working with the authorities to find solutions. To the extent that we don’t find solutions clearly some customer delivery have been affected and that’s why we've issues a forced measure, but we hope that these issues are resolved in the near term as well. Does that provide you with enough color on your Ilva questions?

Bastian Synagowitz

Yeah. We would like to follow up again on sort of like plan B, what is when it comes to the operating license at Ilva and this is 6th of September deadline. So if you were not to get the positive response what would be sort of your options, I mean could you simply just walk away from this you're dragging a $1 billion in cash probably at the current run rate. I mean the EBITDA loss you're probably spending $450 million in CapEx, you have $200 million rent setting that up it’s a large number. And could you please just walk away and so what would be the cost of walking away. Do you have to pay such the full amount and the full rent over the next six to 10 years up front? So, what would be sort of various scenarios in such a case?

Aditya Mittal

Okay. So, look the plan A is what we’re working on. I think we have good assurances from our discussions with the government that they recognize that there is a serious issue here and they're working to resolve. And then in terms of plan A, I walked all of you guys through it that we have 16 - 32 projects and we’re working to minimize the cash losses of Ilva. To the extent that community is not granted, we have several protections in the contract, but I think at this point in time it’s not appropriate to get into that because all of us at ArcelorMittal are focused on plan A.

Bastian Synagowitz

Okay. Okay, perfect. Thanks.

Daniel Fairclough

Thanks, Bastian. And we do have one follow up question from Phil at KeyBanc. Please go ahead, Phil

Phil Gibbs

Thanks very much. Just looking at NAFTA was the weakness we’ve seen in auto particularly like passenger side and then some weakness that we see more recently in the PMI data. I think Chicago PMI yesterday was below 50 solidly. Do you feel good that you have the right footprint right now or any thoughts that you may have to take down some capacity similar to what US Steel's done in the United States. Thanks.

Aditya Mittal

Yeah. We have not brought on capacity in the U.S. and no plans to take down capacity in the U.S.

Phil Gibbs

Thank you.

Lakshmi Mittal

So there being no other questions, thank you for all your questions and your interest. I think it is clear that we are making strategic progress and the efforts we have made to reduce cost and strengthen the business in recent periods were reflected in the results over the first half particular of a healthy free cash flow performance, which I expect to continue. On the final note, I will bring this call to a close and wish everyone a safe and happy summer. Thank you very much.