ArcelorMittal SA (MT) 2003 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's Arcelor third-quarter 2003 financial results conference call. As a reminder, this call is being recorded. I would now like to turn the call over to your host today, Mr. Dolle.

Okay, thanks. Good afternoon, everybody. Thank you for coming to our conference call. As usual, we shall begin by Michel Wurth, who will explain our third-quarter record results. Then I shall give a few comments again with situation of the market and also Arcelor, and after that we shall have our Q&A session. So please, Michel, explain our results.

Good afternoon, good morning to everyone. I think that I'm very pleased to comment for you a little bit our quarter 3 results and to speak also about the outlook for the whole year. Yesterday when we presented these results to our Board we can see that the Board was quite satisfied that despite the very difficult economic environment in Europe was low or no growth we saw inventories and vacation period's the results were quite satisfactory, and this was mainly due to three of Arcelor's actions.

The first one was no oversupply to the market in order to have a balanced supply and demand situation. Number two, big cost consciousness in our company and in general very good results in terms of synergies by the end of quarter three, we have reached on an annual basis now yearly synergies of 320 million ahead of the objective for the full year of 300 million. And finally I would say that also in our results the drop of the value of the U.S. dollar has helped to us quite a lot because globally our raw material costs in flat carbon, the cost increased has been utilized by the devaluation of the U.S. currency.

So I propose for that reason now to come to the first slide, which gives us an introduction into the few figures which are the highlights of our results. I would say the first highlight and the most important one is our debt reduction of 501 million realized in the first nine months of this year, and this figure for those who are not yet aware, do not yet take into account the sales of companies we have just decided in the fourth and which will probably be closed in the fourth quarter about our two businesses, so from the point of view it should be clear for everyone that the debt reduction objective which has been taken by management is now done for 2003.

Second highlight is that the bottom line with profit in third-quarter, 101 million is better-than-expected due to good operating or decent operating results and due to some other elements, in particular finance, which I will explain in one moment.

But I would first go to the next slide, where we have the gross operating results, and see absolute margins on the nine-month basis 2002/2003, and also on a quarterly basis. First of all, if we look at end of quarter 3, 2003, we see that revenues went down globally by 3.5 percent, whereas EBITDA was up by 21.5 percent. This was clearly the result of our pricing policy, a pricing policy which was we had an average in all categories of prices included a price increase of flat by 10 percent of long by 2, and of stainless by minus 2 percent. And from the cost side I think the main impact was the cost-cutting management gains and the good synergies what I was telling you.

On the quarterly basis comparing quarter 3, 2003 versus quarter 2, we can say that in quarter three we had almost stable prices what Guy Dolle had explained to you last time we had our conference call. We had a slight drop in prices in hot or cold, mainly due also to a different mix we started doing some more exports in particular in China, and this will continue in the fourth quarter.

The main negative impact was the volume impact. We shipped 15 percent less in flat, 2 percent less in long, and 23 percent less in stainless in the quarter 3 in comparison to quarter 2, and this gives in financial terms a lack of fixed cost contributions which more than explained the drop in the our results. So this is not a bad position and I will now try to explain that speaking about our four different sectors.

In the next slide you see indeed the main figures of flat carbon steel and you see the volumes in third-quarter was down by 10.6 percent and revenues up by 2.1 percent, compared to the same period of last year. And global operating margin remained constant. What we are pleased to say that our shipments to automotive were constant on a yearly basis despite the difficulties of these sectors in accumulated basis first nine months, we shipped more see the automotive industry than one year before. And in fact if there was a drop in shipments, this was exclusively due to our industrial customers, which was suffering from lower activity and also with much more selective sales policy trying to optimize our margins.

If we look now in the next slide, we see that indeed margins were dropping in quarter 3 because mainly because of volumes. For quarter 4, we see it slightly higher volumes, mainly also would due to more exports, which will have as a consequence that average prices is all inflects taking into account will drop a little bit.

In terms of highlights in the quarter, in the flats I will only briefly with mention to you would the corporation agreement we have completed with Erdemir of Turkey, in particularly template. Then the imminent decision to join the joint venture with Bao Steel and Nippon Steel for automotive sheet in China, and also a closure decision of cold rolling mill in Montataire in France where I will give you some details about accounting consequences in one moment.

Let's now go to Long Carbon Steel, where we were very pleased to see a change in tendency. Overall margins were improving and when we compare the first quarter 3, this year with quarter 3 last year, we had an increase in volume of 2.2 percent and an increase in revenues of 5.6 percent. What is to mention is that this increasing volume was mainly due to an enlargement of the Contri (ph) addition. Since June we consolidate for the first time the section volume we have required from the Fresco group (ph) in the northern part of Italy.

And as I announced last time when we met for our half-year figures I explained to you that there would be a change of trend in results between 13.2 percent of 30.3 percent of margins in flat; in long, we can see that these continues to be a very stabilizing factor for our Arcelor results.

On the yearly comparison, the drop in margins is still Q2 to factors, which I mentioned already last time, slightly higher scrap prices on average on one hand, and the devaluation of the Brazilian currency, which happened in quarter 2 and 3 last year, which means that even with the very good results realized from Banc of America (ph) because the translation into euros was a little bit lower.

The outlook in long carbon probably in the fourth quarter we will see a stabilizing or a little bit lower margins, which maybe higher volumes. You are aware that scrap prices have risen again in that direction, our Long Steel sector is trying to introduce in the market and scrap surcharge pricing element in the future. And as the market leader, we hope and we're confident that we can introduce this which would be a stabilizing factor for our results.

In terms of other highlights and in addition to the enlargement of parameters, I would only mention the very good results and the turnaround of the Belgian Menores (ph) (indiscernible) Company in Argentina, which is doing now extremely well. You know that Belgonarie is in a position to take majority in this company, which will take place either next year or in 2005 by latest.

Third factor is stainless steel, which has been by far the most difficult business during last quarter and the results have been really bad because globally our EBITDA contribution was nil. What was said first of all if the compare quarter 3 to quarter 3 of last year, we had a reduction in shipments of 6.7 percent and in the same time we had a drop in prices at least in Europe it was slipping as a price in Europe approximately also another 7 percent. And this explains also explains the bad results of our Ugine & Alz in the third quarter. In addition to that we have obviously a lack of competitively of certain assets and at the end of my intervention I come back to it.

If we compare end of quarter 3 with the end of nine months of quarter 2002, we can see that the situation is a bit better because quarter 1 was stronger than what we anticipated in flat.

The outlook next slide in stainless steel is I would say not improving because we foresee another price erosion in the works due to oversupply, especially in U.S. and in Europe, and as despite historically high nickel prices, we see also on the mature markets lower real consumption, which is not helping the markets. One highlight is however, the good results of an (indiscernible) an associated company but Acesita even in this difficult worldwide stainless-steel environment had an EBITDA margin for the whole year 2003 of above 20 percent, which is quite good. And then the other highlight which I will mention and Guy will probably also comment also later on will be our decision to accelerate the restructuring of our noncore stainless businesses.

Looking in the next slide at our European flat stainless operations, Ugine & Alz, I would see that from an industrial point of view and given the plan to build there a new steel shop, the competitive situation should not the bad. In the third quarter Ugine & Alz had bad results because it's shipments were 90,000 tons or 24 percent below the ones of Q2 and with this lower shipments it was obviously very difficult to cover fixed costs.

Fourth factor is distribution transformation, and trading. There the overall macroeconomic environment is differently. We compare the first nine months of last year with the first nine months of this year, we were last year in an environment of rising prices, intense inventory and the distribution was at the lower price the market price, and that meant that margins were structurally higher. This year it was in particular in the third quarter, this was no longer the case. The market was fighting to keep prices stable with high input prices. It was clear that are distribution sector was really squeezed, which is quite normal. In addition you have to know that the distribution was also an important element in the our price stability policy throughout Europe.

The results for this was that stainless had in fact at the end of quarter 3, 1.1 million tons of shipments less than last year. This shows also the very low industrial activity in Western Europe.

In the next slide, I would like to speak a little bit, to comment little bit on the outlook. We believe that the bottom point is today is achieved. In the third quarter margins we're not dramatically changed nor improved because we see there in that in that sector some smaller restructurings which will take place and which will have a slight negative impact on the EBITDA.

In terms of highlights, we have continued to expand our Eastern European steel service centers in order to gain some market share, and obviously in this sector also there was a disposal of Pum Plastiques end of our tube (ph) activity, which will probably both will be signed and realized during quarter 4 with the potential reductions this will imply.

I would like now to switch to our balance sheet and as usual start with our working capital analysis. First of all, operating working capital requirements diminished by one billion of € since December 2002 year. This is global working capital requirements, as you can see on the slide, was only reduced by 100 million. The reason for this is at the end of quarter 3, we do no longer have financing through securitization, and hence this is also one of the elements of reduced financial costs.

In the working capital requirements, inventory management is making progress in 2003. We believe that our inventory of metallics has decreased by another one million tons, which means also good management in the plants. On the other hand, trade receivables were reduced mainly due to lower shipments and also there has been some factoring which we proceeded in this domain. And trade payables remained at quite high-level. You have to know that in a low interest rates period it is suitable to try to have longer payment delays with your customers.

Next slide is consolidated income statement. I will not comment each of the lines, but only the lines where I have not yet have the occasion speak about. And first of all net financing costs, which was extremely favorable and which was extremely favorable and which is the major explanation why bottom line is so strong after in Q3. What were the reasons for very good financial results? First of all, there is an environment of low interest rates. Second, is a lower level of debt due to debt reduction which had some positive impact? Third, element is no longer any cost of securitization. Fourth, element is that in the quarter there was slightly positive foreign exchange translation results. It accounted for 19 million, whereas in the third quarter of last year there was a significant negative foreign exchange element.

And then we had other financial results. We had some capital gains in the third quarter with some disposals of some minority share holdings. This accounted for 22 million positive in quarter 3, whereas we had slight capital loss of 19 million in quarter 2, and this will help you to reconcile.

In terms of associates end of September, we are at plus 90 million contribution, which is very favorable since the single most positive item in this line is the contribution from CST out of Brazil, which contributed for 60 million €. Income taxes were at normal level and this gives us then the bottom line of 100 million of profit.

Next slide, net financial debt and gearing. My first comment would be first of all to illustrate this slide by telling you that we had very dynamic debt management program done over the third quarter. That meant first of all there's no longer any further debt to securitization programs. This accounted for reduction of one billion, then we had strong increase in long-term debt, and this was due to our (indiscernible) approach to lengthening our own maturities. We made two operations in quarter 3, first of all, a private placement in the U.S. of $120 billion with maturity of 12 years. And now in September we issued a benchmark bond of 500 million with total cost of 120 basis points, which shows what this (indiscernible) credit rating the market is giving us, and this was really from that point of view considered as a good success. This helps us to have a sharp decrease of net short term liabilities and which will now take place in the fourth quarter.

Second element in our net financial debt is obviously the absolute debt reduction of 500 million in the fourth quarter. There will be some more debt reduction mainly due to the sale of some assets, and you can also see that the debt reduction I will show you in one moment has been really mainly realized through operating, good operating management.

Next slide is consolidated balance sheet. There also I won't go into all the details. I will only want to comment on the most important factors. First of all in this year up to now we had total CAPEX of 921 million €, which is a low-level compared to last year. And lower CAPEX has also contributed to better debt level. And equity investments increased by 161 million. This is mostly due to our increase of our share holdings in CST at the beginning of the year. And other investments decreased by 121 million €. This is a more technical element. We started with full consolidation of Mendos Relico (ph) a subsidiary of Bolga Minera (ph) instead of we had before an agreement of hiring and managing the assets of this company. So it is purely an accounting retreatment concerning current assets, I commented when we have discussed working capital requirements.

If we look at liability side, I think that debt and working capital requirements was already explained, so the main movement first of all shareholders equity, which increased mainly due to the profits of the year. The second important picture is looking at the provision, we see that employee benefits increased by 200 million, whereas at the same moment you can see that long-term provisions decreased by 160 million. The main explanation of the increase of 200 million is that we had an increase of 175 million of provisions for early retirement or let's say early contract terminations, and this is directly linked with the restructuring plans we are now implement and with some restructuring and competitive improvement plans we were implementing in Belgium and Wallonia.

First in (indiscernible) but also in Fidmars (ph) and in Stalvesger (ph) and accordingly we had to transfer restructuring provisions into employee benefits provisions. As we are aware that over the next year there will be continued restructurings and similar movements of this type, I will next time I have asked this today but it was too late to prepare for you a special provision which we could call early termination of labor contract provision in order to make clear and to make a clear division of pension liability and what is much more in the nature of restructuring costs.

Next slide is consolidated cash flow statements, where the biggest contributor of our cash flow is cash flow from operation, which comes at the end of September by 1.5 billion €, whereas 700 million have been achieved in the third quarter 3.

Acquisition of tangible assets was 940 million, so we will be at most at 1.3 billion by the end of the year. I think only two years ago we were at 1.6 billion on average, so we've made also quite a good drop.

Other acquisitions and disposals were almost balanced in the fourth quarter, this will be clearly positive because of disposals I was mentioning before.

Cash flow from investment and cash flow from financing activities was mainly influenced by dividends, which were paid and also by increase in some long-term loans, which I was explaining to you one moment before. And if you add all this, you see that our cash balance at the end of the period went up by almost 500 million €. This will be reduced in the fourth quarter due to a lower cost on the commercial issuing of commercial papers and accordingly also short-term liabilities will go down.

Next slide and concluding slide is now what will be next on the program. First I think in terms of operational results Guy will to you in one moment that we believe that the worst is behind us, at least in terms of volumes, but also in prices. Then in terms of debt reductions, I think I gave you all the explanations and we're very confident that our objective is reached and the third element which I would like now to comment a little bit is what comes next in terms of restructuring charges.

You know that on the international accounting standards we need firm decisions and binding decisions before we can take into account or transform into a provision and management decision we would like to do. I think this is now the case in the year 2003 because our Board of Directors has approved some strategic orientations in flat steel and in stainless steel it has now asked management to implement it. And we will be sufficiently advanced in a big number of (indiscernible) so that accounting consequences will have to be taken.

First of all, in flat steel you remember that the strategic decision has been in upstream not to realign it any longer. And the continental blast (ph) policies, considering from this point of view we have taken some decisions and these decisions had already been asked of the merger process of our company nineteen months ago, and hence it was possible when we opened, when we made the opening balance sheet of Arcelor to isolate some of the bad will which had been generated and to freeze it in order to take into account the restructuring charges of upstream. And I can say today that this should be sufficient at least for the decisions which have been taken up to now including the closure of the Leas Blash facilities.

In terms of downstream I will tell you that we had closed last year's (indiscernible) cold rolling mill. There has been no decision which has been taken to close the second rolling mill in Martique (ph), then to transfer some template activities -- no in Montataire excuse me -- and to transfer a template activity from Martique to Lorraine. So the whole being coupled within competitive plan in Backesh (ph) in the Lorraine and this will be sufficiently defined by the end of year and social consultation will have been done so that we foresee the globally and total impact on our balance sheet of 100 million €. In terms of cash, it will be a little bit less I would say 60 or 70 million which will be spent over the next two years.

Then in terms of stainless I think that you have seen when I was commenting on the results, that the results showed that our stainless division globally was disappointing and that it requires urgent actions and the Board confirmed this yesterday and asked management also to implement rapidly decisions concerning the noncore assets in stainless steel.

Among the noncore assets (indiscernible) in the United States is the most critical company because it's negative EBITDA is very high and its burning of cash is also quite high, and that was the reason why the decision has been taken to fully restructure this company in order to completely divest from J&L (indiscernible) decision in this would be to implement immediately the scenarios, it means closing the upstream in J&L, the liquid phase. This is however only visible from --this gives only a correct financial results provided that the new labor agreement including a reduction of legacy costs can be negotiated successfully with the unions. Otherwise even the closure of the upstream would not be profitable and in such a case the closure of whole J&L would be would be the most likely scenario.

In terms of risk of our company, it is a question of book value. Which is in the range of 250 million. There is no additional cash risk because up to now the group has financed J&L on its proper resources and it is up to them to add as a more financing.

Concerning the other nonstainless businesses, management is very busy either in selling, just discussing with industrial partners or implementing restructurings. Some of these files are already progressing quite positively and we could, if you want, go up later on a little bit more in detail. It could mean that for one or the other file we would be obliged by the end of the year to make some impairment tests concerning these assets, which could give another write-off, which would be much more limited than what we foresee in the case of J&L.

The conclusion of all of this is that management is committed to execute final restructuring of the stainless steel division and to make what will be remaining that means our core assets in the Ugine & Alz and in Acesita very performing assets. And with that I would conclude my intervention. Thank you.

I shall add a few words regarding the situation of the market and our forecast for this quarter and next year. As you know, the third quarter has been very bad as far as shipments are concerned for Flat Carbon Steel and also for Stainless. We have decreased our shipments 15 percent compared to the previous year, of which -23 percent for industry. That has been achieved through a decrease of production of 1.2 million tons of Flat Carbons, which was more or less what we told you three months ago. And it helps us more or less to stabilize the selling price. Of course it is a little easier in the North of Europe than in the South of Europe.

What is the situation today for the fourth quarter? I think the fourth quarter will be (indiscernible) in Brazil, better in volume because we have especially for Europe (ph) a lot of export orders. It would be better in volume or less bad in stainless, especially in Europe, even if it is not good for price because price has decreased around EUR80 during the third quarter and these new improvements during the first quarter.

It will be a little better than expected for Flat Carbon. We anticipate shipments decreasing around nine percent compared to 15 percent during the third quarter. With some decrease in automotive, the automotive industry was flat during the third. We see a decrease of three percent for the fourth quarter and a decrease of something like 12 to 13 percent of industry compared to 23 for the third quarter. And for this we have decided also to control our production, but instead of decreasing our what we call prediction of 1.2 million tons, it will be only 600 to 700,000 tons.

And it's clear that orders are a little better than expected in the north part of Europe, even if not yet the case in south part of Europe because there was a huge surge of imports from third country in July and still high-level during this quarter, after the renewal of the Sagarlusia (ph).

Regarding the year 2004, what are our expectations? For long it was good as far as (indiscernible) was concerned, at least as good or little better than year 2003. For flat carbon we anticipate an improvement, total improvement of shipments of 5 percent compared to this year, but we do believe that the first quarter will still be worse than the first quarter last year, and we are building our budget with a volume decrease of 5 percent of shipments. And also with a decrease of production of around 5000 tons of cold coils. For the price, we do believe that now with the improvement of the market as well in the U.S., as well in China, and beginning in Western Europe, we can also a year or so to the (indiscernible) the price increase, we can now do a price increase of around five percent, between five and seven percent for the first quarter. Depending of the product and depending of the outlet and depending on geographic market, it will be more for Arcelor in the South part of Europe, that was a product of deeper coil in the northern part of Europe. That is more or less what we anticipated for the beginning of next year, so we are reasonably optimistic or less pessimistic than we were three months ago, but we do not believe that we will have a strong recovery in shipments before the second quarter of next year.

Regarding W-2 decisions, nobody is able to predict what Mr. Bush will decide. Of course because it is a political decision we hope that you will conserve the 2001 and that we can recover our market share in the U.S. and we do not believe that there will be too direct influence on the import in Europe because as you know with the new safeguard measures and due to the fact that this annual tonnage limitation for the two or three first quarter of the year we have as much import as we used to have a few quarters ago. So that will be according to us no negative influence on the short-term and after that I do believe that with the improvement of the market there will be no other bad influence.

I don't want to come back to our issue regarding stainless even perhaps if I can say that for J&L as we have promised this edition has been taking now. We have to implement it and we feel as Michel explained you two scenarios. The first one is a case where we found an agreement with the unit which is very difficult to imagine and the second one which has been mentioned by Michel. And for the rest of the disposal in stainless, we have proposal. We have to check that this proposal are acceptable, but it will not be done before next year. I do not know if it will be first or second quarter of next year. That was a general comment I want to give you regarding the situation of our market, and now with Michel, we are ready to answer your questions.

Thank you. (CALLER INSTRUCTIONS) Thomas Fozer (ph) of Merrill Lynch.

I have two questions, one in relation to steel-making raw materials. Is it reasonable to expect that our normal (indiscernible) at least 10 percent for next year? And two, could you provide your insight into the recent move by WNDS (ph) and CVRD on how that could derail or at least put at risk the intent for Arcelor to gain control or full control of CST in maybe four years?

Regarding raw materials, as you know, the demand is very surging. We have not start our discussion with an iron ore company, and we're not in a hurry because we have exercised in our case an option we got last year to at the same price on the 1st of April with CVRD which represents 40 percent of our world supply. It is clear that -- I think it is a possibility that the iron ore company are asking for a huge price increase, but they (indiscernible) to be reasonable in order to avoid new competitors to enter into this business in the medium and long-term. And after discussing with CVRD, I do believe that they are reasonable. We have not for the moment mentioned any price, but as you know, the flat (indiscernible) today more on the freight cost than directly on the iron ore price increase.

Secondly, of course, we do not know for the moment what could be the consequence of the change in the Board of Directors and the shareholder's composition of CVRD. Normally, we have an agreement which enables us to take the control of CST between 2007 and 2009. That means after the completion of the third phase of CST, we don't need see any reason why it will change.

Okay, thank you very much.

Sylvain Brunet.

Sylvain Brunet with Exane. First, I want to give you congratulations on the election of the merger, which has been achieved in this difficult environment. Two questions, first on long carbon, have you got already an indication on your customers' level of acceptance for this scrap mechanism? Second question on long carbon, could you detail basically the outlook between volumes in Europe and volumes in Brazil? And my third question is on stainless steel. Could you give us already an indication of the margin you're targeting post the restructuring measures in investments basically you're making in Europe? Thank you.

For the last question, the positive consequence of the investment of carbon (indiscernible) in Europe will increase EBITDA level by EUR160 million per year. Everything constant there. For long, it appears that we have a decrease 2 percent especially in the northern part of Beams (ph) during the nine months, but as Michel mentioned we have been able to increase dramatically our shipments to Iran and that means that for this year at least we increase shipments coming from Europe and we do believe that it will be next year and we shall take advantage of the improvement in the Long Carbon Steel market in the northern part of Europe.

We anticipate more or less to be constant in the south, in Spain where we are very active, improving in North but will see with that with the improvement of the economy in Brazil, between three and four percent we shall increase our shipments of long in Brazil.

For the first question it is a little to early to say if it is accepted or not. We are pushing to exert acceptance. We have some troubles regarding the definition of the index scraps to be used, but I am fully confident that it will be done -- that it will be accepted by our customers.

Thank you very much.

Christian Georges with Credit Lyonnais.

Two questions, the first one , on the pricing increase you're expecting next year in the early part of the year, given that steel prices especially flat steel prices in Europe, quite high by historical standards, and does not come down like they have in the U.S., what is the reaction of your customers toward your intention to increase prices further?

We are just announcing our price increase. I have seen the papers that said and some others that we already announced. It is clear that as I mentioned for Ottbands (ph) in Italy and Spain I think that there is room to increase prices and it is clear also it will be depend on the pressure coming from import. Clearly the import price -- or the (indiscernible) prices on international basis have increased in the U.S. between 20 and $30 in China, so I don't see any major reason why we shall not achieve this price increase.

But are your customers comfortable with it, or are they unhappy about it?

We have announced that yesterday, so I did not receive any comment, but we have also to explain them how much it is difficult for us with the slight of raw material increase to get prices at the same level and all the competitors more or less at least have the same raw material price increase that we will have.

Okay, my third question is about this tax in the U.S., it is unclear what anyone thinks about what would be in theory the impact if Mr. Bush were to lift those tariffs. I just have seen recently and you're explaining that you expect prices would collapse in North America if the tariffs were lifted. Did you go alongside with this statement?

My comment is the following. There was no relationship between 201 and price increase in the world except in the U.S., and after that as you know, prices collapsed. The main reason price of increase is China. And you can see that because as soon has China imported a little less as in the first quarter this year, there is more pressure coming on the price imports in Europe, so that is the main factor. It is wrong also to say that with the help of 201, there was some consolidation in the U.S. There is some beginning of consolidation at the same time, but the reason is to fair legacy cost from companies under Chapter 11 to administration, that is a fact. I don't believe that especially with the level of the currency there is any threat of further import in U.S. if the 201 collapse.

And third, of course there was no decrease of imports in the U.S. with the 201. There was in change, more imports coming from Canada and Mexico and more imports coming from third countries and less imports coming from developed countries. That is my comment regarding 201.

Okay and my last question is maybe I missed the first. On the tax issues you said that the tax level is unchanged for mainland. I agree. But on the third quarter you have got a possibly lower tax levels about 20 percent. What is the reason for the lower tax level in third quarter?

I have problems to give you an absolute precise answer. I think the problem with our tax charge is as that we have different tax situations in different countries and the final tax result is a consequence of losses you do in one country and booking or not booking deferred tax assets depending on situation, or on the other hand the tax charges you have because in some other parts you are profitable. It stands to reason why technically it is extremely difficult to estimate the absolute tax percentage, I would guess that in this present situation this is the explanation.

Third-quarter last year we had a very abnormal situation regarding tax in Brazil, so when you are comparing tax you have to be aware of that.

Do you think that for the fourth quarter we should go back to a more normalized taxing rate?

I think that is a good hypothesis, yes.

Thank you very much, gentlemen.

John Tumazos with Prudential Financial.

I wanted to be sure that I understood clearly your comments about the J&L division in the U.S. Am I correct in understanding that you are approaching the union for cooperation in reducing costs, headcount, wages, legacy costs, etc.? And depending upon cooperation from the union and/or suppliers, then you'll decide what to do the upstream and downstream?

We have decided to principal of shutdown upstream, the melt.

And receiving black bans coming either from Europe or from Brazil, but even in this scenario, if we don't have decrease of workforce cost, we shall not be profitable enough in the medium and long-term, that is the reason why we have launched immediately discussion with the unions in order to improve, to decrease manpower cost, and if we do not achieve that we have to take another decision and Michel has told you that the only decision possible is either to divest or to shutdown.

Thank you very much.

Dennis Moray (ph) with Cheuvreus.

First a question on the cash flow which was very good in Q3, I would like to know exactly the improvement in terms of working capital requirement in Q3, and if you could give a quick update on your securitization program as well please?

The securitization program is very clear that there was so there is longer any securitization program. There had been for 69 million I think at the end of order 2, so this is absolutely zero. It is also true that this has been partially, not replaced, but we have had some factoring program, which is much lower than the volume of securitization we had used in the past. It was a little bit over one billion at the end of quarter 3. In terms of change in working capital in quarter 3, there was an improvement of 338 million in total, which was mainly due to a reduction of customer receivables and even more important of inventories.

Of the inventory decrease, since the beginning of the year we have decreased our inventory close to EUR300 million. The main reason also of the decrease of the debt.

And we foresee -- we think that we can even do better in working capital requirements, especially concerning receivables. We are confident that we can shorten in maybe next quarter or as soon also as the business cycle improves that we can improve even the payments delays of our customers.

Good. On stainless steel, I am a bit worried with Industeel. If I understood well, losses at Industeel amounted to EUR29 million since the beginning of the year, which is worse then J&L. So I would like to know what you expect to do to improve that and what targets you have for Industeel?

There are two parts of Industeel, France and Belgium. For France, we have announced a few weeks ago a special plan decreasing workforce of more than 200 people, and that is after our disposal of the Fortune (ph) business in the second quarter and after selling our 25 percent of the (indiscernible) of Le Creusot, we anticipate that we shall be back to more less zero net result next year. For Belgium, we are preparing a social plant which means workforce decrease close to 300 people, of which one is coming from top workers, and that will be done in the next few weeks and we're still discussing as it has been mentioned during our last meeting with our subsidiary of Dennigan (ph) in order to transfer them some part of the complete business of Industeel.

Okay. One last question, please on China. You talked about exports to China. Could you quantify them, because something which is pretty new and so could you --?

It had been flat a little more than 200,000 tons for forth quarter.

Okay, thank you.

Michael Geiger with Credit Suisse First Boston.

I have three questions. Two we touched already been maybe a little bit more insight. I have not fully understood on the factoring what the magnitude was. Is that pleas go in there a little? The second was the tax rate. We established there should be a more normal going forward and Mr. Wurth, you also said that the 19 percent is a more normal tax rate. You mentioned it is very difficult for technical reasons to give an estimate, but would you say that a normal tax rate going forward should be in the region of 25 or 30 percent, or what is a decent tax rate we should assume?

The third question would be the Kyoto (ph) metric. We have not touched yet. Can you give us a little insight in that, what you're lobbying in Brussels is doing here on that front? How you reads this? Is this a strike for the European steel industry? And for Arcelor in specific terms? These are my questions, thank you.

Concerning the tax rate I think in the long run the real good rate to take is in the range of 33 to 35 percent, which would be our average tax rate in normal circumstances, providing that the whole group would be profitable. Number two concerning factoring, we have implemented a program of sales of short-term receivable assets to (indiscernible) without any recourse of them, so this has to be considered as a pure sale of assets. The order of magnitude is a little bit more than one billion of Euros, and that means that this is less or significantly less than the average securitization programs we used to have before and which were in the order of magnitude of 1.5, 1.6 billion.

Okay.

Regarding to protocol, you asked to be aware that compared to 1990, Arcelor production of C02 has decreased 70 percent in absolute terms in 2002. That means twice the level of commitment taken by Europe for 2010. So the question now for us is what will be the emission permit system adopted by normally each country, so we're lobbying as well in Brussels as well in each of the countries in order to get at least some part of the saving of C02 we have already achieved, and not to achieve more improvement for the year 2010.

We are concerned because it is very difficult to discuss as well with the commission as well with some countries. They will give emission permit from (indiscernible) that means for us more than 50 plants and in (indiscernible) we have to exchange permit between plants inside some countries or between countries that will be a huge bureaucratic job to achieve. And then we're still another technical problem would not emphasized about who gets the permit. Is it for (indiscernible) the producer of gas or will it be the transformer of gas and electricity?

So it is clear that we have to explain to all of the politicians or administration that Europe is supposed now to be the only country to adopt emissions and to limit that and with some possibility in the future not the short-term with some consequence regarding the localization of production of liquid steel.

You said as well at this point it is impossible to calculate roughly the risk rewards strength on this issue? And what is the time axis when we see clarity here coming through?

Normally nothing will have to be paid before 2005. If we got the emission permit of our production of C02 of today, we shall have normally no permit to buy because in the next five years we shall decrease our production of iron hot metal in Europe, but nobody is aware today of what kind of permit we shall get. That is a key question. Shall we get the permit of our production of today? Shall we get 95 percent? Shall we get the permit of the production of 90 left 8 percent? That is under discussion.

Okay, thank you very much.

(CALLER INSTRUCTIONS) Julien Onillon with HSBC.

I had one question concerning the restructuring plan in stainless steel. You have talked a lot about J&L but you also plan to close Laduas (ph) and Ispague (ph) in France. What are the current plan and timeframe I would say do you expect any costs in 2004 for that, any write-down? And also could you talk about to about Thainox, we understand that you may looking forward to sell, dispose of Thainox, maybe to Posco, any write-down possible on these assets? And that is it, thank you.

Regarding Ugine & Alz that is our flat stainless steel business in Europe, we shall shut down Laduas (ph) in the first half of 2004. That means that there will be some write-off and some social plant costs in our P&L at the end of the year. Normally the (indiscernible) will be shut down in 2006 after the commissioning of the new steel shop, and that will be the result write-off and with some small social plant costs. Regarding Thainox, as we have already mentioned in the past, we are ready to sell, but we are not ready to sell under the book value, and we have two candidates at least with some proposals. They are for us a little too low even if they're close to the book value.

Thank you very much.

I may add maybe two words first of all to say that Thainox at this moment is doing extremely well so we have the EBITDA margins in the range of 13 to 15 percent, so we're very pleased with the results and there is no urgency and for that reason I think. And the second question concerning the restructuring of Aldues (ph) and (indiscernible) Guy was telling in terms of costs it will not be very important. I would estimated gross total costs at around 30 million.

Yes, that is it.

Thank you. Francis Condon of ABN Amro.

Can you update us on the annual contract negotiations with the automotive companies, the white goods and the packaging customers please?

We are asking for 5 percent price increase. For automotive industry we have three annual contracts or multiyear contracts to renew. We will start negotiations and I am not able to tell you any more information regarding that.

But the only for firm information is the 5 percent increase in your packaging?

That is our target. It is not yet --.

Okay, thank you.

Paul Mctaggart of Morgan Stanley.

I just wanted to ask a bigger picture question. Historically as the steel cycle has recovered, we have often seen a blowout in working capital and I am just wondering looking in the year ahead the number of possible write-downs to come on stainless etc. depending what happens. Are you confident that you will be able to be in a position where you can control the balance sheet gearing, that is potentially with some write-offs on the equity side and you'll be able to stop or inhibit an expansion of working capital as the cycle runs up?

Okay, I think there are two things to say. It is clearly this working capital is a little bit cyclical with the level of activity and we take that absolutely into account, but the other question which is much more fundamental and where we are working that is this whole supply chain management where we have to improve and most of our actions are precisely going there, bringing down inventories to a lower level, having better agreements with our suppliers, trying to monitor well our intermediary inventories, semi-finished products in the plants, and it is that where we are working and it is there where the real success is going. So if or when our business is booming, it is clear that working capital requirements will go up, but we are confident that there also Arcelor as a bigger group we can do better inventory management and we can limit the working capital requirements impact more on the receivable side, which is quite strongly linked to total revenues.

And you believe that you'll be able to stop the traditional blowout in gearing that we have seen at that point in the cycle?

That is absolutely our ambition and I think that management has proved that with that having debt under strict control we would probably will continue next year with the first of a debt reduction program.

Thank you.

Fernando Berno (ph) with Manesto (ph) .

Three questions, please. First would be, what is the aggregate annual EBITDA that will be lost from the divestments that have been decided or undertaken this year?

Second question would be on aggregate again what would be the cash cost associated with the restructuring that has been quantified or decided up until now? And how many years will it take to pay them out?

And then the third question would be, what do you spend annually more or less in that freight costs and what is spent prices of freight costs to increase next year? Thank you.

(indiscernible) freight cost total, we pay between -- it depends on the size of the sheet and from where they come. When it is coming for Brazil, we pay between $5 and $6 per ton normally, and we're transporting more or less two tons of raw materials for the steel.

Okay.

I got the figures. 400 million. Roughly 400 million year-by-year.

Okay, thank you.

The cash cost I think what we can say is for this year it will be very limited and for next year it will be below 100 million, so that means that in terms of returns this will be an excellent decisions and on the other hand globally if we look at our portfolio optimization program, net divestitures will be much more important than cash cost of restructuring.

(multiple speakers)

An investment, we confirm that we should be around 1.3 billion for the total year, for total CAPEX.

Actually my first question was, what was -- what would be the aggregate EBITDA blast from divestments have been decided or undertaken during this year?

The target was 40 million year-by-year, when we made the forecast one year ago. I think is more or less what happens. Between 30 and EUR40 million a year, okay.

Perhaps a little less because we're still devaluing (indiscernible) in some of these companies, but it will be complete for next year.

Thank you.

Also you have to take into account the positive positions of assets, it is a drastic difference.

Okay.

(CALLER INSTRUCTIONS) It appears there are no further questions at this time. I will turn it over to our host today for additional or closing remarks. Please go ahead.

Thank you very much for your participation. We shall have the next conference call 18 February, 18 for 19th. I don't know exactly, but we shall send you the information with our full year results. Thank you very much for coming.

That will conclude today's conference. Thank you for your participation and have a good day.