ArcelorMittal SA (MT) 2003 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Arcelor first half (indiscernible) for 2003 conference call. This call is being recorded. I would now like to turn over the call over to your chairperson today, Guy Dolle, Chief Executive Officer; and Mr. Michael Wurth, Chief Financial Officer. Please go ahead, sir.

Good afternoon, everybody. Before giving the floor to Michael, we will explain our results. I shall summarize these results -- a good result despite the very difficult economic environment, due to our ability to maintain good selling price -- especially in flat carbon steel. And also our ability to deliver cost-cutting we've promised, especially the synergies. So, Michael will take the floor and give you more comments regarding the figures. And after that, some comments regarding the economy and short-term forecast for our market. And after that we shall be available to answer your questions. So please, Michael, go ahead.

Okay. Thank you, Guy. Good afternoon, everybody. And so it's a pleasure for me to give you some explanations about what we consider as being very good results in this first half of the year, despite the reduction of shipments in comparison with the first semester last year. Indeed, shipments decreased by 5 percent in flat carbon, decreased by 3 percent in long carbon, and it was only in stainless were shipments went up by 3 percent. So, why good results? Guy gave already the main answer, I think. That is because prices did not collapse and our policy margins before volumes was the right policy. Number two, synergies are far better than expectations. And, number three, the good results -- or the improvement in results -- are almost exclusively due to the good results we had in flat carbon.

Let's now go on to the more details, maybe. First of all, our key figures which showed these good results. And also an improving balance sheet. In terms of revenues, despite the lower shipments, revenue only decreased by .9 percent. This is mainly due to an exchange rate phenomenon -- a little bit U.S. dollar, but much more Brazil. Because, in comparison with the first half of this year, the Euros we received from Brazil in Reals, there were less Euros for the same number of Reals.

Profitability, EBITDA in total increased by 44 percent to 1.3 billion. 9.4 percent margin is not the highpoint in the cycle. But it is good at this moment of the cycle. 745 million in EBIT, which represents 5.5 percent of sales. I may appear that within these figures, we have roughly 60 million of so-called nonrecurring negative items. I know that in the steel industry it's difficult to speak about nonrecurring, because to some extent nonrecurring is recurring. But I think in it's not -- it covers some smaller restructurings in smaller entities and the social plan we had concerning pre-pensions in Belgium. After that net profit group (indiscernible) is 358 million, which means, in terms of earnings per share, an improvement of 3.4 times what we achieved last year. Concerning our gearing, the status improvement of our balance sheet. And I will come back to this subject, which is obviously a big priority for our group.

If we look at the next slide -- slide three on your memo -- we see the average margins on quarter and on half. First of all, it's obvious that first half of this year was much better than first half of last year. The same applies for quarter two, 2003, which is stronger than quarter two 2002. And we see that quarters two 2003 is approximately at the same level than quarter one. Why that? Because normally quarter one is lower than quarter two. What you have to see is that in quarter two, in comparison with quarter one, our shipments were down roughly 200,000 tons. And our production went down 500,000 tons. So the result is less contribution to fix costs, which explains that despite lower volume, margins remained the same. This is due to internal management gains which were a little bit affected by lower values and, obviously, by some extraordinary events, like two relinings of blast-furnaces, like the strike of subcontractors in Asturias, like the strike of -- in metallurgical industry in Germany, and some weeks of more difficult working in Liege in -- consequent -- subsequent to the announcement of the closure of the (indiscernible) Face there.

On the next page -- on page 6, we come to -- on the next page, we come to the flat products. And I said their results were good in a difficult economic environment. You recall that economic growth was almost 0 in the euro area, which represents three-quarters of our sales. What we can say if we look in flat at our customer segment, we increased our shipments to the automotive industry, which is remarkable in the environment and I think is the proof of the high-quality and the growth partnership we built with this key industry for us. That means that all the negative decrease or all the decreasing shipments came through industrial clients. On the other hand, which was due partly also to much higher imports in, especially, in (indiscernible) parts.

Sales went up by 8.8 percent. This is mainly due to the change in our owner consolidation pyramid that we transformed tinplate activity from BTT to flat carbon. And for that reason a comparable structure sales increase was only plus 2.1 percent. That means, on average, almost a 10 percent price increase, which was much higher for industry and lower for automotive -- a little bit less than 5 percent in automotive. Gross operating profits were -- margins were 11.4 percent, which is key. In terms of depreciation and amortization I would say nothing really abnormal. Maybe some extraordinary depreciations. So that the increase in operating profits explains by themselves the improvement of the whole, absolute results. So that means also that what in good times flat carbon steel can contribute in terms of operating profit and also in terms of cash flow.

In addition -- maybe that -- I would only mention that we started with success the galvanizing line in Brazil and began (indiscernible). We have succeeded in finalizing the disposal of almost all remedies except one, where we have an oral agreement which is already -- and in the meantime our Board of Directors approved the next phase division of the management, in terms of restructuring of the downstream activities in flat carbon.

In terms of margins per quarter, so everything is on the good level. The improvement of next year to a higher exposure of automotive helped, obviously, increasing the margin. And you can see that despite slower shipments in the second quarter, we had the same margins in the first quarter. In the short-term, in the future, we do see a deterioration of absolute EBIT contribution of flex-carbon-steel, mainly due to two reasons -- first of all, seasonality. Seasonality in the third quarter, especially mainland Europe and the south of Europe there is at least one month of holidays. Number two, economic growth, especially with manufacturing basis is very low. So from that point of view -- and we have decided, seeing that inventories went up a little bit, to drastically reduce production in the third quarter. So, we expect the same level -- basically the same level of prices with much lower volumes, so that absolute contributions in flat will go significantly down in the third quarter. For the fourth quarter, it is all the time, not having the best quarter in the year. But visibility is difficult at this moment.

Next slide shows us quite robust results in long products, still in a difficult economic environment. Construction is bad. And in the same time, we had also the increase in scrap prices. So there are two reasons why these robust results are not better than they are. The first one is, scrap prices, which represents, on average, EUR27 per ton of scrap over the first half of this year compared to last year, which is tremendous. And only part of this could be recovered through higher prices because demand was not very strong. The second element is, purely monetary. You remember that our Brazilian loan activities are extremely good. So the Reals we earned, in terms of EBIT and EBITDA, gave less Euros. So that this explains also the reduction of margins, because you know that our margins in Brazil are better than -- are naturally higher than the margins in Europe.

We see that also from, if we look in the next slide, the quarterly reviews. Globally, margins went down from 15 to 12 percent. And for this year margins went down from 12 to 11.2 percent. So, this is not dramatic at all. I would even say that, if we could make a forecast, margins of scrap are improving. So that there should be no further deterioration in results, at least in long carbon. On the other hand, there are some positive elements. We took over, on first of July, a section rolling mill in Italy, optimizing our geographical position with clients in Europe. We took over also, from all legal point of view, finally, Mandajunio (ph) in Brazil through Banco Mineria (ph) before it was renting of these activities, so these have some accounting consequences. And our contributions in Argentina, where Guminera (ph) has a minority stake in Afinda (ph). That was also positive and we are positive for this activity, which ultimately should become a full member of our group.

The third factor is stainless-steel, which on a comparable basis, was decreasing. In the meantime, internally, we have decided to allocate the (indiscernible) rolling mill to this sector, which explains that the sales -- the revenues -- increased globally by 1.3 percent. Gross operating profit is declining from 104 to 86 billion. I think everyone is aware of the difficulties of this sector worldwide. And we are also continuing to suffer. And we will definitely also come back about these problems. That means that, at the end of the semester, operating profit was -- hardly positive in our stainless-steel division.

Why that? And I would like to come back to the next slide, where we see the margins per quarter. The fact is that practices that prices went down in -- during the whole year 2003, while raw materials and scrap also increased, thus making the cost basis more difficult in a sluggish demand. The other thing is that the visibility of our stainless-steel division is not so clear, because it is in-fact and amalgamation of a certain number of different business units where I would recall you that our Board of Directors has approved the strategic orientations for the future in our group. These strategic assets are in stainless-steel too. The first one is Eugene Aged (ph). We have investment in a new steel shop. And the progressive closure of two small steel shops has been decided. And on page 10, you see contribution of Eugene. And then you can see that especially in quarter-two of this year it is represented almost 100 percent of the contribution to this sector. So, this is the first strategic asset for the future. The second one is, Afecita (ph) in Brazil. Afecita, which is an equity consolidated. But from the industrial point of view, I can tell you that the EBITDA margin for Afecita in the first half of this year was 25 percent, probably the best or one of the very top, top stainless-steel plants in the world. The other activities being Thainux (ph) in Thailand, which was doing extremely well; G&L which was doing extremely poorly; the plate business, which is not very good; and long products, as well as alloy business, which is suffering from the bad economic environment. But that means that all these activities had negative contributions. And they will force us to come to action very rapidly. I would say, from a timing point of view, the first one will be G&L, where we will take a decision about the future of G&L somewhere in October. But we're looking at all the other files in the same time.

Next slide is distribution, transformation, and trading. And I think it was -- everyone forecasted that this sector would come a little bit under pressure in a time where we tried to keep prices high. And in fact there were higher prices -- two times price rises -- in the first half of this year. And whereas distribution had to make sure that these prices were accepted by the customers. That meant, first of all, a certain squeeze of margins of this sector. And, on the other hand, given the bad economic outlook, less demand and less contribution to fixed costs in this segment. I think that is mainly the reason why, in stainless operating profit went down from the 91 million to 40 million. I continue to say, first of all, this is not bad results. And it is extremely important in the overall strategy of our overall business. Special events in DTT -- I would say they lie on the side of disposals. You know that we have reached a binding agreement with them for the sale of our small welded tubes. We forecast that this transaction should be closed before the end of the year. We have also put on, since our distribution of plastic products for civil -- for construction and in plastic. And we also forecast that this transaction should be concluded before the end of the year, because there is very strong interest in this performing activity, which is not core to our business. Otherwise, it would be. From a return point of view, I would like to keep it, but it doesn't fit to our business. In addition -- and the reduction of sales is also explained by a reduction of our trading activities, where we consider that the risk-reward profile is not so good and that we should structurally reduce it. This is also, I think, to some small restructuring or realization of synergies, which explains why margins went down in the second quarter, compared to first quarter.

Next slide, concerning synergies. So, this is a very nice slide, because first of all we are far ahead of our own projections and of our objectives, because at the end of June, on a yearly basis we have realized 280 million of synergies. I recall that there was a review of the synergies by our external auditors. So we are absolutely sure to do much better than the 300 million forecasted by the end of the year. And we more than confirm that we will realize the entire program of synergies. Not surprisingly, half of the synergies are realized in flat carbon industrial synergies the (indiscernible) restructuring in the outface in (indiscernible) but also better flow management, logistic optimization, and exchange of best practices -- as well as in purchasing, where we have done very good results. And if we split by category, we see that the two big categories are industrial restructurings and also purchasing. That was exactly what we expected. The fact that 11 percent of synergies go to best practices may be a good indicator also that the group is working well internally and that people from different origins are working very well together.

The next slide concerns working capital emphasis. I can now, in the first explanation of specific items of our balance sheet. So globally, working capital increased by 316 million. This is mainly explained, and I will show you that immediately, due to an economic increase of trade receivables by almost EUR700 million. In fact, because if you look at the figures, you see that inventory has remained stable, which was crucial in time, where there was reduced shipments. And if you want to have economically the trade receivables, we had to add the line of trade receivables with the line of net financing link to securitization. And you realize that we have drastically reduced the financing linked to secretaries. So if you make the sum of the two items, you will see that economically, the trade receivables are almost 700 million higher than they were in last December. Two explanations there -- half of it is that June is a much strong than December. The other half is that payments by customers have been a little bit longer. And hence, we have implemented since the month of June, internally, a strong action plan in order to make sure that, by the end of the year, the variation in working capital between December to December will be at least zero. And eventually positive, thus generating operating cash flow.

The next slide concerns consolidated income statements. I will not, if you allow, explain revenue and gross operating profits. Neither depreciation or amortization, because there are no significant changes. There are some small, extraordinary depreciation of nonrecurrents. I would like to say one word about net financing costs, which was decreasing in comparison with first half of 2003. But that should not -- you should not forget that in the meantime, we do no longer have securitization programs. And the cost of securitization program last year was in net financing costs, whereas today we have implemented the program on face of receivables. This is -- today, the cost of this program is deducted from EBITDA. And the amount is almost 48 million for the first half of the year. So, from that point of view, you have also probably noticed that the financial cost in the second quarter was higher than in the first half. This is mainly due that in the second half, we have done some write-offs of financial assets. For instance, one of the remedies were we had only 50 percent, we made the loss. And as was included in financing costs. From an operational point of view, I can say that we fully take advantage of the low interest rates. And there was no particular -- no special result, concerning hedging or anything else. This gives us an income from associates. It's 50 million. A good contribution from CSP, 37 million, where we have increased our economic ownership to 29 percent by the end -- during the quarter. And then our commercial partners in Spain, (indiscernible) and (indiscernible) et cetera were doing contributing -- were contributing well in these results.

Afecita, from a financial point of view, here, was negative for two reasons. The transaction with CVRD and Arcelor both. The shares from Afecita -- Afecita made a loss. And for this transaction Afecita was seen as a (indiscernible) in our books. And hence the loss of our part was 20 or 30 million euros. And on the other hand, Afecita keeps its books in Reals, whereas in our accounts, it's in the financial currency -- it's US$. And there we had an exchange rate loss of also -- total (indiscernible) elements, making EUR31 million together. Then, profits before tax rate of 33 percent -- I think this is normal. So, I don't explain them. Minority interests, from (indiscernible) and as time also from Stahgreft (ph) to Bremen in Germany, which gives us this result of 358 million.

Now, the next slide is about cash flow and net financial debt. So this is quite important. So first of all you see that we have a net profit of -- before minorities of 434 million. We had, despite changing working capital requirements, from a cash point of view. So this is a figure which is different than the figure that I gave you before, which was bookkeeping. Here, it's only cash movement, which was taking into account -- that means that variations, changes in pyramid and changes in -- exchange rate changes are not considered. And for that reason, the reduction is only EUR260 million, which gives us then, cash flow from operating activities of 785 million.

Investments -- fixed investments represent 595 million. So, there we have achieved basically our target to be at around 1.3, 1.4 million for the whole year. It could be even a little bit less because we are pushing that down. Then there was total financial investments of 190 million. The biggest element is our investment in CST, roughly 100 million, plus investment by Banco Mineria (ph) of Mendejunio (ph) there was in order to acquire legal ownership -- there was an investment of 42 million. And there was -- also we were increasing our shareholding in a Spanish distributor, Velasco. The others are, in-fact, disposals we have done during the quarter. So most of this 156 million or 117 are disposals. We sold some of the remedies. So there was some positive effect of there. Then some fixed assets -- the total making 156 million. I would say a big number of smaller items I was announcing to you last time -- that optimizing our portfolio would not hinder us trying to identify small items where we could dispose of in the different business units. Then, contribution of shareholder's equity of 65 million is in fact a disposal, because we have got a minority shareholder in our copper (ph) (indiscernible) business, who brought in 50 million of fresh equity. And then we had 202 million of dividends paid during the second quarter. I emphasize on this because, if we look at our net financial debt variation in the second quarter, we see that it reduced in comparison with the first quarter by 160 million. If we had the one-time payment of dividends of 200 million, that means that we structurally succeeded to reduce our net financial debt by more than 350 million in quarter-two. I think that's also a hint which can help us -- you, to understand that we definitively state that our objective to reduce, at a minimum, our total net financial debt by 700 million, during the course of this year. We have only achieved 137 by the end of June.

What we will do in the future -- I think I gave already two elements. This working this working capital requirement management, where very good action plans have been implemented. And they will have good success in the second quarter, especially since they will be helped by lower shipments. Number two, we will have some additional disposals, that I was mentioning -- the tube business and supreme plastic business. Number three, we will continue to control strictly CapEx. And fourth, obviously, operations should give us some cash flow, which means that by the end of the year we would like to be at least and 5.3 million of net financial debt.

This net financial debt -- what is its structure? That's the next slide. We can see that, during the first half of this year, we have strongly reduced our short-term debt exposure from 3.8 billion to 2.7 billion. So the structure of our debt has been dramatically improved. On the other hand, we have also completed our liquidity risk management by concluding a syndicated loan, which is accounted for as a reserve of liquidity. And we are -- I would say, with the present structure, we are looking quite okay. We are thoroughly looking at possibly -- or at ways to even improve our repayment -- long-term repayment schedules. But I think that we are absolutely fine, even if the winter will be colder than we expect it to be. And this gives us then a gearing ratio of 71 percent by the end of June, a 75 percent some six months earlier.

I do not want to comment -- next slide -- concerning the details of consolidated balance sheet. I would not like to comment in details on that, unless you will have one of the other questions concerning. I may end with some general remark, concerning our -- the future evolution of our balance sheet. And what I would like to stress is, comment a little bit on the strategic orientations our Board of Directors has taken, during the first half of this year. As I told you what this has been, it has been in flat carbon steel, the decision that in long run Continental plans should be -- the blast furnaces should not be renewed, with the consequence that our place in Wallonia, (indiscernible) should be closed. It has been -- also in flat carbon steel -- a general plan how to effect our overcapacity in cold rolling mills to the realities of the market. And in stainless-steel it has been the decision to build the new steel shop. What are strategic assets and what are not strategic assets. You might now -- and this is also a question we are asking ourselves -- to know what will all these -- if these facts -- or if we see these orientations would be transformed into fact, what would be the consequences on our balance sheet. I do not have the answer, so I cannot give it to you. But, I can give you some elements and tell you a little bit where we are at this moment. First of all, concerning the outface in Liege -- I indicated already that in the opening balance sheet of Arcelor, we have taken into account of this event and we have frozen some bed reel, in order to take into account future losses which may arise with the hot face in Wallonia. We have now to see, once these agreements -- the social agreements -- the social costs will be fully evaluated and agreed with the unions. The question will be, from an accounting point of view, in higher standards -- which is technically complicated -- to use this in order to cover expenses related to this decision. Number two elements is, downstream activities. So we decided after the closure of Beersh (ph), which is fully in our books, we decided to close the cold-rolled -- another cold-rolled in France and to transfer some tinplate production to Lorraine. All this will implement some costs for this. But these, I would say are more small or medium-type units. So that the costs will not be horrendous. I do not have yet an estimation of it. But I would say it's a normal small restructuring dossier, which is typically a nonrecurring event.

And then, number three, in the stainless, that is where we, just before the summer break where our Board decided to take strategic orientations. I think that you understood that we had, from an economic point of view, two issues which are important. The first one is, in IsG&L (ph) in the United States. And the second one is our plate business. For both of these businesses, we are evaluating our strategic options, as it is nicely called. And depending on what the strategic options at the end will be -- taken, the costs may also change. What this would be as a consequence have on our books? It's not possible for me to say, because we are also limited by the fixed rules of international accounting standards, which say that before you can take an eventual cash into your books, you have to have a decision -- an agreement -- which is very closely specified. And then you can translate that only into figures. This is not yet done. So, maybe at next time -- or at least we will be ready to regularly communicate on these issues as soon as we make progress. And then we can discuss with you what it is. From a cash point of view I can say that the hurdle will not be so big. And from that point of view, we think that most of the risk is (indiscernible) risk. I think that's for -- now I think this was a good transition, also, for the question-and-answer session. Thank you very much.

Thanks Michael. I don't think I have to add anything regarding the strategic orientation. I just want to focus my comment about the market and its evolution. This -- especially for flat carbon -- just a short comment regarding stainless. As you know, the markets -- Europe -- was better during the first quarter than we anticipated. It was mainly due to speculation, connected with the legal price evolution. Price and volume has been under pressure during the second quarter in Europe and so we have decided to cut the production around 100,000 tons in the third quarter. And we don't have positively taken any decision, regarding forth-quarter price as decreased. The third-quarter base-price for cold product, between 50 and EUR100. We have to wait a couple of weeks before knowing what exactly will be the fourth quarter and the first half of next year evolution. As you know, there is a huge a surge of nickel price during summer. And normally, it's in the first time positive for the demand of stainless. But of the country, as you know, there is overcapacity and new capacity put online by Gestamp (indiscernible) with strong pressure on all the prices. But as Michael mentioned, the results of the first half of our flat European stainless business was good.

So, like much -- mainly for flat. On top of the consumption level, the final consumption of steel, in the first half of the year in Europe, has decreased 2 percent, and metal consumption has been flat. So that is due to three factors. The first one, of course, is the final demand is very low. And still lower than the low demand of the previous year. The second factor is, the Dollar, which put the European price at the highest level in the world and which has a direct import to Europe. And the third factor is, that during the first quarter, there was some normal or a huge decrease of import in China, so there is a lot of steel available, especially in that country. And this steel or this flat carbon steel has been exported to Europe. To give you figures -- we just have the figures of the first quarter -- for hot (indiscernible) there is an increase of 50 percent of the imports in Europe, mainly for (indiscernible) the 70 percent in the south part of Europe, Italy and Spain. 50 percent increase compared to the previous year, which means that during the first quarter, we have reached a record of imports. We have already reached in the second quarter 2001. And that has been, of course, with the level, of course, of also import in the second quarter. There has been -- that has been one of the reasons of increase of inventory in onstream activities.

Inventory level was low until first-quarter this year, corresponding 2.1 months of consumption. That has been increased to 2.3 and then to 2.7 months at the end of the second quarter. The price has been under pressure. We have resisted, and we have not accepted any price decrease; in fact, we have increased our price during the second quarter, for the industry. And the consequence, mainly starting in June, has been a decrease of our orders and the decrease of our shipments, which has been said by Michael. So, what is the situation today for the third quarter? We have also registered on the price pressure. We have not decreased our price, just a few euros in some of our -- for mix reasons. But we are confronted with a huge collapse of our order -- approximately 20 percent for industry. It's not for car industry, more or less. That you means that we have to decrease our prediction in our less efficient shops during the third quarter. It's a little too early to give comments for the fourth quarter. We have more positive signals, but it's weak signals, coming from outside. The dollar, of course, the international prices, the slabs prices, and also the level of importing in China. But it's clear that during the second half, our shipments of our product will be much lower than during the first, of course. And than during the second half of last year. What will be the situation for next year? Everybody is hoping that there will be a recovery. It's difficult to predict, because we used to be an early signal of recovery. Normally six months before seeing anything downstream. But this cycle is very different from the previous one. We have been able -- and I do believe that we shall be able to protect our price and to still have our prize at good level. So, does it mean that the cycle -- the evolution will be the same as the previous cycle? I don't know. I'm not sure. But we are doing everything in order to be in a position, without making a decrease in our price, to take advantage of the recovery which will take place more or less during next year. That is the comment I want to give you before, with the help of Michael, answering your questions.

(OPERATOR INSTRUCTIONS). Mr. Mark Morgan, Morgan Stanley.

My question relates especially to the -- what is the current book value of the G&L U.S. stainless-steel assets? And secondly, in regards to the cost reductions of EUR280 million -- is there an implementation cost of those initiatives?

We did not fully understand the second part of your question, regarding cost savings.

I see. Is there any cost of implementation, either to achieve those reductions?

This cost-saving, which has been achieved during the first half and which will continue to be achieved during the second half, is mainly due to (indiscernible) on such program, which has been already provisioned in our balance sheet, last year and the year before. So I shall ask Michael to answer the question regarding book value of G&L.

I know only that the equity value of G&L is zero. But there are some assets -- that means that there is an asset value which is -- which exists. So working capital requirements and the drop-line which is -- (multiple speakers)

I shall stay between 250 and 270.

(indiscernible)

Two questions, really. The first one on your numbers -- (indiscernible) position to-date really -- indications is a copy of what you see achievable as a full-year target at the steady (indiscernible) level? And my second question -- could you read the Section 201 at the first review, which soon will be in September -- you must have mentioned the (indiscernible) for imports. I was wondering, what were the scenarios you had in mind regarding the recourse (indiscernible) in the U.S.? And in-turn the resourcing those targets this week, in Europe?

What will be the scenario for the 201 -- you know that we are waiting been final ruling of the (indiscernible) for the end of October. I do not see any possibility of changing the decision which has been already taken. So what will be the position of the U.S. administration, taking into account the pre-election period? If there is no more 201, such as no more export limitation to the U.S., it's a good news for us. And I think that slate of imports to Europe is a little less important than it was two quarters ago, because first, the currency. And, secondly, the increase of price on a world basis. So it will have been very -- more difficult without the same kind of measures taken by the commission. Because, as you know, as soon as a final decision will be accepted by U.S. administration, it is supposed that the commission will down-size the (indiscernible) measure. So I do believe that it will have been much more important during the second quarter, than it will be in the future. Personally, I don't see U.S. administration accepting the conclusion of WTO ruling before elections in U.S..

Regarding the expectation for the year, you know that we cannot give any figures. What we have told is that will be less during the second half than during the first half, for three reasons which has been mentioned by Michael, which is seasonality, achievements, and consequence of our strategic orientation.

Hans Griffithss, Deutche Bank.

I have two or three questions. The first relates to the net debt situation. Can you quantify and translation benefits you had over the six-month period? That's the first question. The second question -- can you give us the working capital comparison for the first half of '02? So without the 260 in the first half of '03, can you give us the comparative number for the first half of '02? Finally could you quantify, broadly, what you expect by way of disposal proceeds?

Okay. First of all, translation benefits in net debt is 18 million for the first half. So that is negligible. Figures for working capital requirements in the first half of last year -- I do not know. I think you have to understand also that, in terms of working capital requirements, the merger has made a lot of trench. In particular, in terms of strategic inventory. And you remember that last year in particular, inventory was drastically reduced, especially for semi-finished product. So, I think that, in terms of working capital requirements, what is more important is where do we expect to be at the end of the year. So we, at minimum, at the level of where we had been last year. And we will achieve that -- we will achieve that partly through better management of customer receivables and of the further reduction of inventories.

Consequence of the disposal -- I think it's fair to say it will be something between 300, EUR350 million. Provided that we will close, let's say, the first transaction -- most of these 300 or 350 will come from the disposal of tube business and of the plastic business. In the event we would not close one of these transactions, it could be less. But it would almost, then, be close to this. But, that is what I think it is fair to think.

So, within your year-end net debt targets figure, then?

Yes. That was -- in the estimated view of 5.3 billion, this included. And we indicate also that we would like to continue to decrease that next year.

Elliot Rustin from (indiscernible)

If you could, could you quantify -- clarify -- the decreases in production expected in the third quarter? By product lines and volumes?

More or less 1 million tons of steel less than the previous year.

Any other product lines expected -- (multiple speakers) ?

I have told 100,000 tons for flat stainless-steel in Europe. So 1 million tons, roughly in flat carbon and 100,000 tons in stainless production. Which is more in the shipments.

Yohan Ball from (indiscernible)

I had my question answered. Thank you.

(OPERATOR INSTRUCTIONS). Brevard (indiscernible) from Corus Line Securities.

I have three questions -- actually, clarifications. One is your figure -- the figure for cash flow -- it's 780 million of acquisition and tangible -- intangible assets. Can you please give us a breakdown between capital expenditure and acquisitions? And the second question is, the typical (indiscernible) you call net servicing of borrowing. I understand that this is a repayment of net debt -- of debt. And another clarifications about your securitization -- the amount of securitized assets. I understand that the -- formerly, you had 1.1 billion of securitized assets. And that has gone down dramatically (indiscernible). This corresponds to a real reduction of debt and not to a shift of on-balance-sheet debt to off-balance-sheet liabilities?

First of all, in terms of investments -- as the 798 represents 595 million, in terms of fixed assets. So this is really traditionally CapEx and 190 million in terms of financial investments. In these 190 million of financial investments, most of it, more than 100 million -- a little more -- slightly more than 100, is our co-investment with CVRD in 50. And we have 42 million, which was an investment Banco Mineria did, in order to acquire (indiscernible). This was the company which was rented before. And now Banco Mineria is the owner of 100 percent of the equity for a cost of 42. And we had -- we bought -- we increased our ownership already before majority ownership in La Mina dos Velascos. That is a Spanish distributor. And I think there the price was EUR17 million. And the sum of this represents almost all of the amount I was mentioning.

Now, the second question was related to -- I would like to come to the securitization question, the third one. And I will let you recall me the second one. In terms of securitization, it is right that securitization dramatically was reduced in quarter-two to 69 million. And at the end of August. There is no longer securitization within Arcelor. What we have concluded on the -- at the Arcelor level was, we have had two sale of receivables -- of customer receivables. This was done with the bank. And these receivables are sold without any risk costs. That means with 100 percent transfer of the risk to this instrument. And this instrument is rated -- it's AA rated. And hence financing costs are very low for this instrument. And this true sale of receivables is fully IRS-compliant. That means that is off-balance-sheet. But it is also off-off-balance sheet. And for that reason, it is really a disposal of assets. And I think that Arcelor has been the first or the second company in Europe to have such an instrument which is very efficient and whose cost for our company is significantly lower than for -- let's say, for the long-term -- the margins we pay for financing of a kind of the same maturity. This agreement is an agreement on five years time. And I tell you so that it is really without any risk costs to our company.

And then the second question was net borrowings. I think your interpretation was right.

(OPERATOR INSTRUCTIONS). Ivan Briarly from Voltair Oshkosh. Please go ahead, sir.

Can you say the amount of truly sold receivables? Is it still 1.4 billion? Or if it has changed from the Q1?

It's still 1.5 billion, so it didn't change.

(OPERATOR INSTRUCTIONS). There are no further questions in the queue at this time.

Thank you very much for attending this conference. We should have our release of the rest of the third quarter on the 13th of November. And we shall organize an analyst conference call at this date. So, thanks a lot. Have a good day.

Thank you for your participation in today's conference call. That will conclude today's conference.