ArcelorMittal Plans USD 1 Billion Fixed Cost Reduction Program
ArcelorMittal announced that a fundamental part of the Company's response at the onset of the COVID-19 pandemic was to align costs to the lower activity
ArcelorMittal announced that a fundamental part of the Company's response at the onset of the COVID-19 pandemic was to align costs to the lower activity level. The comprehensive measures taken to variabilise fixed costs were critical to protecting profitability and cash flows. Throughout this period, the Company sought to identify and develop options for structural cost improvements to appropriately position the fixed cost base for the post-COVID-19 operating environment. These savings implemented are expected to limit the increase in fixed costs as activity and production levels recover, thus leading to lower fixed costs per-tonne. In total, USD 1.0 billion of structural cost improvements are identified within the program, with the majority of savings expected in FY 2021, and fully realized in FY 2022 relative to scope-adjusted FY 2019.
The Company has already implemented a footprint optimization, including the permanent closure of a blast furnace and steel plant in Krakow (Poland), the permanent closure of the Florange coke oven battery and the closure of the Saldanha facility in South Africa. Productivity and logistics are expected to provide approximately 40% of the retained savings through continuous improvement programs, improvements in productivity and maintenance efficiency and the rationalization of support functions. Actions in repairs and maintenance are expected to provide approximately 35% of the savings, as the Company reduces contractors through insourcing and the reallocation of internal resources. Selling, general and administrative expenses is expected to account for approximately 25% of the savings, including a 20% reduction in corporate office headcount, digital transformation and leveraging of shared services and centers of excellence.
These improvements will augment those achieved under the Action2020 program, which was superseded at the onset of the COVID-19 pandemic.