In an update for the October-December quarter of 2020 and full year 2020, ArcelorMittal said the USD 1 billion structural fixed cost-reduction plan aims to maintain competitiveness in the post COVID-19 environment.
The plan includes 20 per cent reduction in corporate office headcount, reducing contactors, reallocation of resources etc, the company said.
At the onset of the COVID-19 pandemic, a fundamental part of the company’s response 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 actions, the company said, were necessary to protect profitability in an exceptionally low volume environment. It is these actions, and the learnings from them, that underpin the company’s new USD 1 billion structural fixed cost-improvement plan.
“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,” it said in the update issued on Thursday.
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.
Actions in repairs and maintenance are expected to provide approximately 35 per cent of the savings, as the company reduces contractors through insourcing and the reallocation of internal resources.
“Selling, general and administrative expenses (SG&A) is expected to account for approximately 25 per cent of the savings including a 20 per cent reduction in corporate office headcount, digital transformation and leveraging of shared services and centers of excellence,” the company said.
Productivity and logistics related actions are expected to provide approximately 40 per cent of the retained savings through continuous improvement programmes, improvements in productivity and maintenance efficiency and the rationalization of support functions, it said.
ArcelorMittal further said as activity levels normalize and volumes recover, these structural improvements will have a net benefit to the company’s fixed cost base and lead to gains in fixed cost per tonne.