ARCELORMITTAL
Introduction
AecelorMital is a multinational production company that deals in manufacturing of steel. Its headquarters are in France on Avenue de la Liberte, Luxembourg. It is the world’s largest producer of steel and has an annual production of 97.2million tones. ArcelorMital has the highest number of employees in Luxembourg with over six thousand employees.
AecelorMital offers a large variety of services to its customers including production of prototype steel; this means that they can manufacture a steel product as per the client’s specifications. They have good strategies that enable them to have a high service value that attracts a high number of customers. As mentioned above, they can produce prototypes and have a wide range of steel products which include slabs, hot and cold rolled coils, tin plates, coated steel products, heavy plates among many others. Another competitive advantage of ArcelorMital is that they have become invaluable to their customers by producing steel that is of the highest quality in the world. The company also manufactures very sturdy and aesthetically pleasing steel and steel products. ArcelorMittal has differentiated itself from its competitors in a big way. For example, the company has a single supplier of raw steel, and they can be relied upon by a company for regular supplied of manufactured products. The company also produces sustainable steel that is very hard to imitate.
ArcelorMittal has also invested in extensive research and ways of constantly improving its products. This requires a highly qualified technical team and the adoption of the latest technology. However, the acquisition of the newest technology has proved to be quite expensive and it requires huge capital investments. ArcelorMittal has, however, been able maintain the use of the latest technology. This, therefore, means that the company is economically feasible, and this conclusion can be evidenced by its revenues it makes which amount to 94 billion dollars and a net profit of about 2.3 billion dollars annually.
History
The history of ArcelorMittal is a very interesting one, and it captures the climax of globalization of the steel industry in Europe. What Europe needed as a global steel giant production company, ArcelorMittal provided.
ArcelorMittal was formed in 2006 as a result of a merger between Arcelor and Mittal steel producing companies. The takeover of Arcelor by Mittal started as a long journey that saw the Mittal company rise to become the highest producing steel company. The group of Mr. L. Mittal that kept changing its names climbed amid bigger firms and stiff competition in the steel industry from 1997 - 2005. It was ranked number 11 in 1997 at a gross production of 10 million tons annually among steel producing companies. Mittal and his group were placed fourth in 2000 with 21 million tones. They rose to second position in 2002 with 34.5 million tones. By 2005, they surpassed Arcelor, which was the lead steel production company then, by more than 63 million tones of steel.
The takeover itself was not easy. After the first announcement of the takeover bid by the Mittal Company in January 2006, there was a huge negative reaction by Arcelor which rejected the bid by a unanimous vote from its board of directors. This was on the primary basis that the company will be taken over by a person with a non- European origin. Mr. Mittal is of Indian origin, but this did not prevent him from winning the bid and taking over the company, through the support of his family and his belief in strong production policies and techniques.
The bid went at 40.37 Euros per share, about 34 billion dollars in total. As a result of the high bid Mr. Mittal launched, he was able to outbid a previous bidder who was known as Severstal. The result of Mittal's victory led to the merging of the two companies to become ArcelorMittal which produces about 10% of the world total steel. The market capilization by 2008 was slightly above 30 billion dollars with revenues of approximately 105 billion dollars.
In December 2008, ArcelorMittal closed several production plants to cut down the cost of production and to maximize output in some areas. Among the plants that were closed is New York plant, LTV Steel in Hennepin Illinois and the Bethlehem plant in Lackawanna. In 30th June of the year 2010, ArcelorMittal was fined over 270 Euros by the European Commission because they had ruined a price fixing cartel. There were a total of 17 other steel producing companies along with ArcelorMittal fined.
In the year 2012, due to reduced demand for steel and overproduction by ArcelorMittal, the company found itself in debt of about 22 billion dollars. This caused 9 out of 25 blast furnaces to become idle. After a while, the company shut down two furnaces in Florange, France. In October 31st 2012, the company announced a third quarter loss of 709 million dollars. Comparing that with the same period the previous year, they made a profit of 659 million dollars.
The latest major move ArcelorMital made was in January 2013, where the company made a bid of 1.5 billion dollars in order to acquire ThyssenKrupp AG’s steel company in the United States.
Mission and vision
ArcelorMittal aims to be the company that leads its industry in safety matters by putting in place all the required safety measures that will help to avoid any unexpected accidents and injuries, corporate responsibility and sustainability. The company’s mission is to offer superior, high quality steel products and customer specific solutions. It also aims to offer its customers complete satisfaction and sound solutions for real problems and challenges. The company has also put emphasis on geographical reach and product diversity. The company aims at producing a diversified range of products with efficient distribution systems to enable these products reach the customers. The company is aims to transform tomorrows steel industry. Their philosophy on sustainability and quality asserts that quality results/outcomes depend on quality people and, therefore, the company seeks to attract and nurture/train best people, to come up with superior solutions for their customers.
ArcelorMittal’s strategic goal is to expand its current assets by purchasing more buildings and machinery to increase their operational efficiency. The company also intends to develop industry leading products such as machinery and electronics that are made of steel. ArcelorMittal is working on plans to expand internationally by spreading in developing and underdeveloped countries such as Brazil and many African countries.
Programs and Services
ArcelorMittal is very devoted to making sure that their employees have a safe working environment and to also have a way curbing accidents and unnecessary injuries while at work. They have developed many programs to increase the capability of these employees such as; proper training and orientation, workplace education and the development of occupational health and safety sensitization. The health and safety of their employees is a priority, and this is done by providing teaching and training programs that cover occupational risks due to hazards at the workplace such as burns, heat stress, and respiratory and hearing problems. An example of a major program they have implemented is ‘Journey to Zero’ where the goal is to reduce workplace accidents. This program is highly regarded by the company because it is led by the CEO and owner of ArcelorMittal, Mr. Mittal himself. It reflects the high levels of importance placed on the health and safety of the company’s employees.
ArcelorMittal remains the leading company in steel production with very high-quality products that are unmatched. The product marketing stresses on sturdy and aesthetically pleasing steel that is environmental friendly due to its design by reducing C02 emissions. ArcelorMittal produces and sells to its clientele two types of steel; long carbon and flat carbon steel. Flat Carbon steel is used to make the following products: cold-rolled coil coated steel products, hot-rolled coil, tinplates and heavy plates and slabs. The above products are produced in 15 sites in Europe, and 8 sites in the Americas. Long Carbon steel is used for the making of the following products: billets, blooms, rebars, wire rod, sections, rails, sheet piles, drawn wire, seamless and welded tubular products. These products are found in 15 sites in the Americas and 17 sites in Europe. Three flat and long carbon facilities are found in Africa, Asia, and the Commonwealth of Independent States.
Recruitment for ArcelorMittal's mining and production plants is focused on local labor, which provides many job opportunities for the locals. They also own their logistic networks which makes them cut down unnecessary costs in many ways. They have their production facilities at close proximity to where their mining projects are located. This helps to fasten the transportation of raw materials and also cut down on transport costs. In order to maximize their production operations, they volunteered to upgrade railroads and major roads in areas where infrastructure is poor.
They operate steelmaking industries in over 20 countries. This amounted to 88.2 million tons of steel to be produced in the year 2012 alone, making it a 6% total supply globally. A huge part of the supply comes from Europe at 47%, America 35%, and 18% from other countries like Ukraine, Kazakhstan, and South Africa.
Challenges/ weaknesses
ArcelorMittal has incurred a net loss of about 4 billion dollars in the fourth quarter of 2012 which was caused by the existence of high charges and unfavorable economic conditions in Europe (Forbes, 2013). They had to write down over 4 billion dollars worth of goodwill in European business also in the fourth quarter of 2012 (Forbes, 2013). While the demand for steel went down by about 8% in the year 2012, they were supplying more than what was being demanded (Forbes, 2013). Because of the unfavorable conditions ArcelorMittal was facing, they incurred a very high debt of 22 billion dollars in December 2012 which is slightly below their market capitalization (Forbes, 2013). As a result of this, ArcelorMittal received a very undesirable credit rating that lead to decreased financial flexibility (Forbes, 2013).
They are also strained by the scarcity of resources/ raw materials and the increasing cost of the resources (ArcelorMittal.com, 2013). The scarcity and escalating cost of resources is making the operations of ArcelorMittal increasingly challenging and utterly competitive in the market (ArcelorMittal.com, 2013).
Evaluation
Evaluations and auditing are conducted internally by the Board Risk Management Committee (BRMC) which identifies and manages the risks to which ArcelorMittal is exposed. The executive evaluators are the group management board’s group risk management committee (GRMC). BRMC helps/ assists GRMC in the process of monitoring and reviewing of the group’s risks management structure/ framework.
Arcelormittal improved financially in 2011, but it struggled in the year 2012. In 2011 their transactions increased by 15,948 million dollars while their operating income increased by 1,293 million dollars. The net income went down by 653 million, resulting to a 2.3 billion net profit only. In 2012, the organization struggled with decreasing sales making the company’s net income to reduce to a net loss of 3.7 billion with an operating loss of 3.2 billion. The reasons given by ArcelorMittal for their poor current performance are as follows: drop in average steel prices all over the world, decreasingly lower shipments of manufactured steel, the 4.3 billion write down of goodwill in the European business, reduction in the demand of raw material contracts in Europe, and the economic meltdown in China.
After a detailed analysis of the financial ratios of ArcelorMittal in the 2011 and 2012 fiscal years, it was concluded that the company was performing poorly compared to their previous years. In terms of profits, it is clear that the organization’s performance was wanting. In 2011, the ROIC (Return on Investment Capital) went down to 3.90% from 4.43% that was recorded in the previous years and in 2012 it went down further to 2.83%. This, therefore, means that the company does not nave the ability to use its capital fully/ efficiently to generate its annual returns.
An assessment of the company’s liquidity revealed that the ability of ArcelorMittal’s to turn short-term assets into cash that could be used to pay their debts became worse in 2011 when compared to its ability in 2010. However, ArcelorMittal’s liquidity improved in the year 2012. The quick ratio and the current ratio in 2011 went down to 0.47 and 0.71 respectively and rose to 0.71 and 1.08 respectively in the year 2012. These ratios could be explained by the company’s commercial paper program which enables the company to borrow up to around 3 billion Euros. Another factor that contributed to the improvement of the company’s quick and current ratio was the availability an asset/ facility worth 4 billion dollars that was used for general corporate purposes remained available as of December 31, 2012.
In terms of debt management ratios, ArcelorMittal’s ability to elude a financial distress got worse in 2012. The debt ratio and the debt to equity ratio were at 50.38% and 1.02 % respectively in the year 2011. These ratios went up to 51.82% for debt ratio and 1.08% for debt to equity ratio in the year 2012. This, therefore, gives the company a boost to improve returns/ profits to stockholders in good business years and increase their losses by the same margin in bad years.
In terms of asset management ratios, we can deduce that, in 2012, the cash and cash equivalents went up from 3821 in the year 2011 to 4398, and the receivables dropped from 6452 in 2011 to 5085 in 2012. When comparing the asset management ratios, there has been stability with minimal fluctuations, which demonstrated that the company had notable success in managing assets to generate sales. This happened despite the fact that sales figures had gone down drastically in 2012. Inventory turnover and receivables turnover have gone up in the year 2012, whereas the fixed asset turnover has deteriorated in 2012 maintaining the asset management ratios balanced.
Below is a table summarizing the financial assessment of the company.
The graphs below also help to explain their financial status more vividly.
Structure
ArcelorMittal is a profit making organization. It’s a private company that owned and run by the Mittal family, who also own 40% of the shares. The head of the organization is Mr. Lakshimi Mittal. Mr. Mittal is the CEO and there are four other directors that form the board of directors of the company.
Below is an organizational chart that shows how the company is being managed.
The management philosophy is provisional, sustainable, safe and reliable products. The board of directors takes a major role in problem solving, both internal and external. ArcelorMittal’s major form of communication is through teleconferencing. It is a very bureaucratic organization with the management chain being very long.
Organization Culture
ArcelorMittal is making adjustments in order to become internally in line with their current strategic goals. They insist on being a community friendly organization, and they actively involve this in their awareness campaigns (arcelormittal.com, 2013). This is where their company image is put to test as they were recently in court, in Kyiv, fighting to have the collective bargaining agreement with their employees dropped (Kyiv Post, 2013). In the end, the court ruled against them, and the Collective Bargaining Agreement stands, but taking this kind of action contrary to a contract they had entered into willingly is an inconsistency and sends a poor message.
The company has been internally consistent in their goals to expand; ArcelorMittal has already entered into two Greenfield projects and is now focusing on further development of its existing resources (arcelormittal.com, 2013). Despite the case in Kyiv, they have done a fairly good job in building extensive infrastructure restoration in countries like Liberia, which is in line with their business objectives.
There is a safe and human friendly working environment since their philosophy talks about safety and sustainability. Decision makers are fairly accessible to the front-line workers since ArcelorMittal is a very bureaucratic organization. Their staff are committed to their jobs and work since the morale is boosted by the fact that the working environment is very good.
Conclusion
Given a chance as a director or as any member of the decision making committee, the very first single thing I’ll do to make ArcelorMittal a better organization is eliminate bureaucracy. Bureaucracy limits contact between decision makers and frontline workers. I will do this by shortening the management chain. This will reduce the number of people one has to pass through to get to the top management. This is hard to be adopted though in such an organization where family and business interact.
References
ArcelorMittal (2012). 2012 Annual Report. Retrieved on March 25, 2013. http://www.arcelormittal.com/corp/~/media/Files/A/ArcelorMittal/investors/annual-reports/2012/Annual-Report-2012.pdf.
ArcelorMittal (2013). Various Pages. Retrieved on March 20, 2013. http://www.arcelormittal.com/corp/.
Bloomberg.com (2013). Major World Currencies. Retrieved from http://www.bloomberg.com/markets/currencies/ .
Brooks, K. (2012, April 17). Fundamental Update: What Does China’s Currency Move Really Mean? Retrieved from http://www.ibtimes.com/fundamental-update-what-does-china’s-currency-move-really-mean-438500.
De Smedt, Seraf (2008, February). Integrating steel giants; an interview with the ArcelorMittal Post merger managers.
Financial Times (2012) ArcelorMittal. Retrieved on April 1 2013 from http://markets.ft.com/research/Markets/Tearsheets/Financials?s=MT:AEX.
Forbes. (2013, 03 19). Arcelormittal faces trial by fire as global steel industry wavers. Retrieved from http://www.forbes.com/sites/zacks/2013/03/19/arcelormittal-faces-trial-by-fire-as-global-steel-industry-wavers/.
Kanter, James; Timmons, Hither. (2006, June 25). Arcelor agrees to Mittal’s takeover.
Kyiv Post (2013, March 15). Court Decides not to accept ArcelorMittal Kryviy Rih’s claim asking to cancel some paragraphs of collective agreement. Retrieved from http://www.kyivpost.com/content/business/court-decides-not-to-accept-arcelormittal-kryviy-rihs-claim-asking-to-cancel-some-paragraphs-of-collective-agreement-321760.html.
Wee, S. (2013, March 14). China Completes Second Political Succession Since Communist Party Took Power. Retrieved from http://www.businessinsider.com/xi-jinping-officially-becomes-the-new-president-of-china-2013-3.
