ArcelorMittal SA (MT) 2004 Q1 法說會逐字稿

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Good day ladies and gentlemen and welcome to today's Arcelor 2004 First Quarter Results Conference Call. For your information, this call is being recorded. At this time I would like to turn the floor over to your host today, Mr. Guy Dolle and Mr. Michel Wurth. Please go ahead gentlemen.

Yes, good morning for everybody. Michel will present very shortly the results of the first quarter. I will after that just share with you the outlook for next [quarter] and after that we will be able to answer your questions. Now please Michel, go ahead.

Okay, good morning [inaudible] everyone. I would like to just say and to summarize our results I would say there are three elements, which has been opened. The first one, we believe that our results are quite good but they have been realized in [Thianox] environment in terms of pricing of raw material costs. Number two, we have succeeded in improving once again dramatically our balance sheet, minus 400 million of debt and 1 billion more equity, so that our gearing today is well below 50%. And third, during the course of this first quarter, we have continued actively to manage our portfolio, Thainox has been sold, [Gendel] will be closed before the end of the second quarter, in Long we have sold [Minimial] in France and we are-- we just have concluded taking majority of Acindar in Argentina through Belgo-Mineira and in DTT the sales of our tube business is continuing and the expansion of our distribution capabilities in Eastern Europe is continuing.

May be that we should go now to the first slide of my presentation, which summarizes four important accounting highlights of this first quarter results. First of all, is what I announced to you last time is that we decided on January 1 to take negative for goodwill and to recognize it as equity. This is the total impact of almost EUR700 million in equity and in profit and loss the consequence is that we no longer depreciate negative goodwill, which will reduce it -- all our [results] in the first quarter last year the positive effect, which have been 22 million.

Second, we called our one of the convertibles in 2006 convertible, this as the consequence to reduce our net financial debt by 277 million and to increase our net equity so that today our [inaudible] share, which are still available at the end of March has accounted for 41.6 million instead of 55 million shares before.

Third important element is that we successfully made buy out of Aceralia minority interest. Today Aceralia is no longer listed in the Madrid Stock Exchange and Arcelor is owning 99% of this company, which is totally de-listed unfortunately in Spain as well as in Luxembourg for Arbed. There is still no possibility to buy out the shares.

And the fourth element, which is important, is the disposal of Thainox, the total configuration was EUR138 million, I would say almost no effect on results at the different levels.

Next slide is to speak about our key figures; first of all, we can see that our total revenues increased on the same consolidation -- on the comparable consolidation perimeter by 3.5%. In the meantime, the perimeter has changed, remember last year we sold the Pum Plastiques and we sold also the non-ferrous trading company, Considar and [inaudible] Thainox was de-consolidated from 1st of March.

On second gross operating result, this is the first time that since the creation of Arcelor that we've reached a gross operating margin in access of 10%, so it is worthwhile noting even if that does not yet match the final aspirations of this management team. Nevertheless, these good results are due to higher shipments on an average 3% mainly in Long and I will show you that in one moment.

Second, quite a good volume, in fact, had a good impact on overall costs and operations of the plants and the third element is that the synergies are still in line, which what we have been forecasted at the end of the quarter one, we are at the annual synergy level of EUR430 million and still largely in advance of what had been achieved.

Concerning depreciation and amortizations, big impact is that there is no longer depreciation of negative goodwill. We come then at an operating result of 409 million and at the net result, the group stake of 234 million, which represents 3.4% of the total revenues in terms of earnings and shares. This makes almost 50% of share, so if we multiply this by 4, it would give us a EUR2 per share profit on an annualized basis.

Coming a little bit into detail first of all Flat Carbon Steel revenues went down a little bit on a comparable basis by 1.7%. Main reason for this is that prices for our goods to industrial customers in comparison with the first quarter last year decreased by 3% whereas sales to automotive only slightly increased. Second, volumes compared to first quarter of last year was almost equivalent, there is a very little difference in shipments, this is totally due to [fluctuations] because of finished products, the shipments were exactly the same.

In terms of gross operating profit you may see that its 11% and 400 million. We are slightly below the results of last year. This is due, mainly due to continued [inaudible] in the first quarter we had first of all an [18] million restructuring charge concerning productivity improvement plan we are doing in Spain and last year on the opposite side we did an reevaluation of some inventories in one of our plants which had a positive effect of 12 million. So, we would say from strictly comparable basis we would say that Q1 [for us] is at least as good as it had been the year before.

Now for the next quarter I think this will be a good discussion later on, what we can see is the prices now are going up very rapidly. On the other hand we are also having some increasing prices of raw material [inaudible] we comment on this in one moment.

Second sector is Long Carbon Steel you see a huge increase in the total revenues, 17.7% we would say half of this is due simply to the mechanical effect of the scrap surcharge. You know that scrap prices increased dramatically since beginning of the year. These -- charges have been implemented in higher prices and mechanically these expense half of the price -- of the revenue increase. The other increase is due to [inaudible] over the last year we bought the interest of July 1, rolling mill sections in Italy so that the total [sales] of this section mill is included in these prices and I would say that [inaudible] as well as in parts of Europe and in Brazil our shipments were quite positive. And we can see that also in terms of -- without the results of [inaudible] absolute level then in the same period last year, margins totally decreased but if you [simply look] mechanically because the price of raw materials or scrap price increased and hence the margins in terms of percentage points decrease.

Now for the next coming quarters we expect a strong increase in results in Long Steel as well in Europe as in Brazil. We see today that operating margins also going up and we will substantially [inaudible] we will analyze our results next time with some [inaudible] in addition to that the consolidation of [inaudible] on 1st of June on [inaudible] we give a seven months of contribution to Arcelor. We believe that for Arcelor this will be an excellent opportunity because of the balance sheet the net impact will be [in terms] of cash and cash out of an increase of financial debt of 14 million of U.S. dollars and we estimate that in the present parameter [Arcelor] is generating an annual EBITDA which is in the range between EUR100-150 million on an annual basis. Our huge success in terms of restructuring which has been done by the [management] team of [inaudible] has positive impact on our future results.

Third sector is Stainless Steel Alloys and Specialty Plates, I would say that [inaudible] improved to some extent even [in terms the steel] volume has partly decreased due to the consolidation with [inaudible] since 1st of [June] and you know that in the process of [inaudible] of our production [inaudible] we have seen base price decrease [inaudible] by 6.5% and the huge price increases in alloy, in the nickel in particular we did succeed in putting that on the client. And that is the result -- that is the main result why our result in stainless steel is let's say at the similar level despite [price increases] in long steel and plates and also alloys is also improving compared to the [inaudible].

First of all I would say, first of all as [inaudible] suffering from higher scrap prices as well nevertheless [actually] I think that our stainless steel business is improving and the strategic [plan] which has been decided last year by management [inaudible] in place. On [the other hand] I am very pleased to see that our [inaudible] results, [which are] on equity consolidated are [inaudible] and we have a lot of success [inaudible]. Whole sector is a distribution, transformation, and trading. And as a result of this, this quarter has been excellent despite the change [inaudible] you remember that [inaudible] has been the [inaudible] no longer in the [inaudible] as well as the [inaudible] in fact our distribution succeeded in increasing its shipment by 3% and margins have increased and customer [inaudible] decreased. Why dud margins increased, as at the end market prices are going up and average [inventory] prices were lower in our [inaudible]. Concerning depreciation and amortization, you see that in the first quarter this year we had 20 million high [inaudible] as the same period last year this is due firstly due to the [inaudible] supplied that we are [inaudible] distribution and then there is some non recurring [inaudible] of assets as well as [inaudible] in the future [inaudible] to be a positive evolution of distribution [it is initially] taking advantage of the distribution have been implemented between the old [inaudible] organizations of [inaudible] and since it is not a very positive second [inaudible].

Next slide, slide 8 is consolidated [cash flow] statements, I will only comment to give you around three [lines], there will be some amortization of goodwill to the relative impact of 22 million last year, that you know because of change of our accounting rules. Second element I would like to say what is about [amortizing] cost and [inaudible] clearly for you as a price for financing cost increased from 63 million to 92 million I would say at this moment, it is nothing abnormal there but there is certain number of exceptional elements which comes there, I suppose [inaudible] the conversion of the convertible [inaudible] negative impact of this of course by EUR11 million. There was some write off of loans which had been [inaudible] also impacting this line by some 16 million that has been negative effect also of 10 million of application of fair value application under [inaudible] [S-9] rule which is a fair value financial instrument and it explains the one [inaudible] financial charge which is higher [loan] which had been may be anticipated between interest rates obviously and from down because that financial [inaudible] that is less important. Then income from [inaudible] associates very satisfactory with [inaudible] during the term every company completely; first of all [inaudible] was very positive [inaudible] contribution of [inaudible] had also contribution [inaudible] equity financing of [inaudible] mainly, but 50 million then our join commercial ventures in [inaudible] as well as in Korea there has also very positive contributions.

In terms may be one word about income tax [inaudible] rate is normal. It can be [inaudible] between two parts [inaudible] what we refer to tax and the other part is real payment of current tax. The minority interest is [inaudible] is also partly [inaudible] you're your European companies after some of that agreement, where we have a minority shareholder.

Next slide is about working capital [inaudible] we look at the bottom [inaudible], which is the total working capital only increases by EUR73 million, which is a very satisfactory result. This is mainly due to an excellent investment [inaudible] because during the course of the [quarter] we succeeded in reducing in terms of performance in the metallic volumes inventory by [inaudible] funds and it was [inaudible] which made this confident -- this figure.

Trade receivables increased by 553 million, I think, this is [consolidated] because it's not due to longer payment delay, but it is due because of business is not improving in results and then what is [saved] little for working capital, we'll see [inaudible] as some part of receivables and to [inaudible] [receivables] to some extent [inaudible] to [inaudible] and interest which was not being paid and which is [inaudible] on a debt [inaudible] accounts, total accounts of EUR200 million is a variation of receivables, change of [scope], sale of deferred charges, etcetera, etcetera which has had this impact on this account.

Next slide is about net financial debt. I mean it's a very pleasant [slide] because we can see that net financial debt increases by [477] million and I will explain this in one moment in next slide. On the other hand shareholders' [equity] increased by EUR1.2 million, 700 million is that you -- it was 600 -- 700 million, which is a change of the allocation of [inaudible] then we have a convertible -- of which had been converted into equity and we had next financial -- the next result of the quarter which expense is plus 1 or 2 billion and at the end the result of it has to be our given income based on the spectacular rate from 46 -- 45% to 46% on net financial debt, which one year ago was still, 6 billion is to be 4 billion of [inaudible]. Consolidated benefit, as in almost [inaudible] the Slide number 11, which will show about the first line which tangible assets which had been stated to equity fund for the rest if you had some of the [inaudible], I would be pleased to give you necessary details. In liability side, from [inaudible] shareholder's equity which increased by [inaudible]. Next, I will give you the results in the terms of nonrecurring liabilities. We have the risk of long-term debt. It is convertible and then we have the second convertible which will be due for reimbursement on the [service] of next year and which represents more than 500 million so this had been restated in to short-term interest bearing slight ability to increase -- you can see by [inaudible] million and the other non-payables is the explanation I give for in the when I was [inaudible] working capital requirements with some system defects salaries effect.

Last slide, which is self-explaining slide, is slide 15 about cash flow and net financial. So during the quarter we generated cash operating activities for 454 millions, it is significant and why do you think that working capital requirements have increased by 105 million, so that 's one of the reasons why management is so pleased with these results. On the other hand we have cash flow from [inaudible] activities, which is only 141 million. This is now because we have stopped -- in fact, we are continuing investing in assets in level of our depreciations, but the portfolio management has thus divest from financial non-core assets and particularly from financing activities which is 177 million which represent a conversion of our convertible [inaudible] minority interest of 85 million at the end of the period our net financial debt is exactly at 4 billion. I think that has few essences of these figures, which is explanation [inaudible].

In short Michel, just a few comments regarding previous quarter. It's clear but in previous quarter the squeeze between price, that was an excellent [inaudible] the mix of [inaudible] other sectors and the positive evolution of [inaudible] first quarter last [inaudible] as when do to prevailing [inaudible] energy and a split as Michel has already mentioned upon recurring items. What you listen [inaudible] today and what is expected for the next coming quarter?

We are [inaudible] our flat to product business. We are facing in some shortage of [inaudible] iron roll now, that means that we can produce [inaudible] in the second quarter that we produced if we had quantify of coke. We produced 80% of coke in our plant. We buy approximately 11% with long-term [inaudible] like with the value of 8% to 9% on short-term basis. This is basis which is lacking for us. Regarding effect on raw material on our cost, especially were flat. Though we have made our calculations and it's little more than what we expect when it grew [inaudible] due to coke [cost] and due to increase of [inaudible]. First quarter was flat more as flat compared to last year. The second quarter would have been [inaudible] and certain [inaudible] instead of EUR20 will be [inaudible] as of last year will be closer to EUR30. Regarding the market and business [inaudible] were flat. We are completely booked for the quarter of course and we will see 2-3% more than the previous year, which was on export basis, which was approximately 60% of our shipments. Net average price increase between EUR30 and EUR40, get in first quarter for of course would have increased our surcharge but we have also increased a [lot] base price and that the margin for Long would be much more higher in consecutive months after months than the last quarter. For Stainless shipments will be little higher [inaudible]. So for Stainless shipment would be flat and price increase would be between [inaudible] euro and a huge part of that we be base raw material. Increase as well we get as on [inaudible].

Going on to the first quarter we've just opened [other book] two weeks ago. We are perfectly in line with what we expected. You remember last year our shipments in the first quarter in fact was literally was a [inaudible] we decided to decrease our shipments to [inaudible], keep between 10% and 15% raw material and was a [inaudible] at any program to achieve a huge price increase which is between depending on the stock [employees], between EUR70 to EUR100. So long we are optimistic for launching as well for [inaudible] volume at Stainless so we will shut down our [inaudible] end of June that means we will be facing some small shortages of steel for our flat -- flat stainless business. And during the third quarter we decreased a little and we don't expect any more price increase which has been already [inaudible].

We're still very positive regarding our margin and feel very positively about the market. Of course on the Europe [inaudible] we have, I'm focusing on Europe that is why our normal business they are [inaudible] in volume because they want to have a low volume that we can deliver to them. In fact we are low and they are high [inaudible], all the price increase we [inaudible]. Its too early of course to give some forecast for the first quarter, but we don't see for the moment any reason to [inaudible] in the first quarter. Outlook of the market and now we are ready to [inaudible].

Thank you. Question and answer session will conducted electronically. If you would like to ask a question please do so by pressing "*" key followed by the digit "1" on your touchtone telephone. If you're using a phone with a mute function, please make sure your mute function is turn off, so your signal can reach our equipment. [inaudible] we take as many questions as time permits. Once again please press "*" "1" on your telephone pad to ask a question. If your question has been answered, we can remove yourself by pressing [inaudible]. We will pose just a moment to [inaudible].

We'll now take our first quarter from [inaudible] of BNP (ph.). Please go ahead sir.

Good afternoon, I am [inaudible] just wanted to get some highlights on your hedging strategy, Forex-hedging strategy. You had planned to have buy some [inaudible]. Second question on Latin America, could you give us some color on the level of [inaudible] and also it's a growth potential and with Latin America [inaudible] on your strategy Acesita in stainless and of course the last one on CST? Thank you.

Concerning with the hedging what we have done in the first quarter obviously was [inaudible] hedged and we have achieved an average exchange rate of approximately 1.25 which has been our objective. This was also our objective for the second quarter which we did not fully achieve because the dollar rate was lower than what they have been expected to be. Today we can see than [inaudible] our you purchasers is that we have touched our first quarter [inaudible] not yet touched our [inaudible] we were expecting -- we were observing what that [inaudible] have been, on the other hand, we used in the past to net our hedging positions from sales and purchases. This is a question that they considering to some extent because sales are much more volatile and especially we have seen a [inaudible] we have reduced very much our exports and that's the reason why we are continuously [inaudible] more hedging virtually from one side at the rate which we consider as [inaudible] we are now waiting for the [inaudible] which is close in the 122-123 range for the rest of year and then hedging our sales once we decide whether it is a good decision to take our -- to make sales [inaudible] the other hand concerning our balance sheet. I can [inaudible] first of all our balance sheet [inaudible] including our interest in [inaudible] as it is fully hedged on the [inaudible] line. [Inaudible] there is no exchange rate risk. We remain [inaudible] depending our assets -- our net assets of Belgo-Mineira to [inaudible] functional currency is between [Riaz] and we do not have the appropriate financial supplement to hedge this balance sheet position at a very reasonable [cost]. The purpose of this is that today that [inaudible] of Belgo is very low and though return on this asset is more than 40-45% [range] because of such a low value of our assets.

Can you give us a few comments [inaudible] figures of Acindar?

[inaudible] Acindar, so Acindar is mainly possessing -- is roughly possessing 1 million [inaudible] is to be [inaudible] restructured from -- over the [inaudible] is working with an EBITDA margin which [inaudible] of 40%. And so that the contribution of all different [inaudible] EBITDA is very positive. On the other hand if we look at the balance sheet of Acindar, Acindar today -- at the end of May [inaudible] financial debt equal to zero. So, that EBITDA is we have [inaudible] taxes and lower depreciation [inaudible] functional currency is the Argentina pesos, which has been strongly evaluate and [inaudible] asset base is very [inaudible] excellent opportunity and as good growth opportunity in America and excellent [inaudible].

Put me [inaudible] that is a company, you think, [inaudible], positioning your [inaudible], and also of course today taking advantage of low gas price [inaudible] you mentioned. I think Brazil. That what -- that was medium and long term, our vision, [inaudible] controlling after all something like [inaudible] 55%, the rest will be leased -- as will be leased, and but some probably will [inaudible] and this that is our vision, this [holding] company, [inaudible] 100% [inaudible] each of our four business [inaudible]. In Brazil which means [inaudible] loan [inaudible] for flap long term achieve after discussion with shareholders first with shareholders [inaudible] and this shareholders in [inaudible], but we consider that the sooner will be the better for our company and the shareholders.

Thank you.

Thank you. Our next question is from Michael (ph.) [inaudible]. Please go ahead sir.

[inaudible] gentlemen, and two questions one was already answered. First of all congratulations to reasonable results, they are [inaudible] quite better than consensus and the questions I have are based on the stock market pricing regarding the smaller suppliers to the auto industry who have from these increases; is it possible that they [inaudible] price rises without the hotel industry paying up massively or [inaudible] they have problems with this or do you expect the automotive industry also picks the high prices from these smaller suppliers that's a first question. The second question there was a lot of negative information in the market concerning the Chinese government cooling down of the economy may be you can give us some more points, [inaudible] what your personal view is on that issue. I assumed that the GDP in China [inaudible] to decent levels and also India will need some excess steel so if we see any negative impact on that side, as well as the this to be a non event going forward? Thank you.

Well regarding the first [inaudible] our shipments, [inaudible] just we [inaudible] there are two kinds of shipments. There is shipped [inaudible] to OEM to present 50% our volume and over our volume ultimately is [inaudible] automotive industry is one-third for sheet flat carbon steel shipments and 50% which are for firstly and secondly [inaudible]. [inaudible], we have [inaudible] all of which [inaudible] for we have we cannot ask and we have not asked for any price increase, for [certain] player which are [inaudible] part of the industry, they have to [inaudible] as a price increase we have already announced and they are facing some difficulties with their customers, but we [inaudible] anything more they are asking, and looking at this free to accept, we're pleased with even to our automotive to disclose some more information regarding [inaudible] specific, but we cannot do anything more.

And you were tough on that. You push that through.

It's a very good question. The decision which has been taken by Chinese [inaudible] isn't a very good decision. It's not sustainable to have other 20% of consumption and projection increase in 2003, but it will be facing the 25% [heaviness] in the first quarter. So, it appears that this industry there has been good [inaudible] that is what [inaudible] that we will have positive affect regarding raw material [inaudible] less [negative] regarding raw material because it is clear that the --it does not mean that there will be some decrease of steel consumption in China [though] there may be less increase in terms of previous year and that 6%, 7%, 8% of consumption increase for China. So a positive effect on the short and medium term [inaudible] was indirectly for scraps. I know that that was skeptical and I am concerned because there would be no effect [inaudible] regarding cooking coal and coke for the next 18 to 24 months. I am a little more optimistic to it regarding the 21 sequence of the recovery [inaudible] regarding steel consumption and we begin to see some early signal of improvement still in Europe regarding final demand and apparent demand for it. I do believe that this decision will look as a negative consequence in the short and medium term on what we said.

So, you will be optimistic into the rest of the year?

I guess.

Let's see.

Thank you. We take our next question from [inaudible].

Yes. I have two questions. First, just regarding shutdown in June in the sales capacity if you could again talk a little bit about the extent of the shutdown and the [amount] of large volumes that are being impacted? And then the second question is in regards to the percentile with the metals and [inaudible] if you could just talk a little bit about that?

Regarding the shutdown of [inaudible] throughout the [inaudible] provisioning there would be no effect on that [inaudible].

Okay.

Yeah. And regarding these [metallic] space contractors mostly regarding shipments of the [black bands] and [inaudible] product in China -- stainless steel product in China. So as far as [inaudible].

Okay and in terms of, I know there is [inaudible] but just in terms of total volumes of stainless?

[inaudible] if you could compare with the previous quarter because we have no Dynox [ph] consolidated [inaudible] we will ship [black band] [inaudible] absolutely not have anymore [G&A] steel that's between 1st of July this year and sum of [2005] we will be facing [inaudible] in the stainless steel slabs availability because of course of the [inaudible] that leads us to buy some slabs, [inaudible] shipments of stainless steel projects we will decrease even in our stainless steel business.

Okay, thank you very much.

The nest question comes from [inaudible], please go ahead.

Yeah. [Inaudible] gentlemen, couple of questions. At first, [inaudible] you just said that don't [foresee] major risk of [inaudible] prices in fourth quarter of this year. Could you tell us if it's likely, if we could likely see farther increases in the forth coming year? And the second question coming back to the Chinese issue. Even though let's say the [inaudible] it looks like it's going to be [inaudible] 2004, do you think China's steel imports are going to keep increasing [inaudible] in 2004?

What is your question Evan Lee [ph], is it consumption or --?

Rather steel imports? I mean given the --

[inaudible] just import of and then roughly to say that 140 million tons.

Yeah.

We are not completely sure because [inaudible] 75% [inaudible] have been coming from Taiwan, Japan, and [London], Korea. And I do believe that [inaudible] every quarter there is no [swap] on this import. And there is one [product] [inaudible] once you get a 10 million ton coming [inaudible] from Russia, [inaudible] Romania, and [inaudible], there is some step by step is increase of capacity of the Flat Carbon Steel in China. As you know for these three countries, [inaudible] limitation agreements [inaudible] at least into the end of [inaudible].

I don't anticipate [inaudible]. Regarding price increase for flat for the first quarter I don't believe that after this huge price increase we are achieving for this first quarter, I don't believe there will be a significant profit due in the first quarter. [inaudible] for the year 2005 [inaudible] with this increase in [coking coal] and coke as I mentioned [inaudible] this effect on our cost our automotive industry.

One final question on supply, [inaudible] of the supply constraints that we see [inaudible] imply any kind of problems for what seems to be the second half of this year [inaudible]

Yes I -- essentially [inaudible] to buy coke [inaudible] so that ends up [inaudible] which would decrease our [inaudible] and so for our ability to implement any scenario where we could achieve [inaudible] in spite of the fact that we try to find [inaudible]

Okay. Thank you very much.

Thank you, our next question comes from [inaudible] please go ahead.

Yeah [inaudible] well I got four questions if I may, first question concerns [inaudible] what is [inaudible] such requirements, would you participate in [inaudible] of 1 million tons. Second question is the post ex sales [inaudible] so and does this mean we will perform in the coming year quarters. Third question comes on stainless [inaudible] declined from June 1, does it mean you can raise the margin, fourth question is concerning the [inaudible] expecting over supply of 1 million tons [inaudible] in the steel market [inaudible]. Thanks

[inaudible] okay and the last one piece, can you repeat the last one.

Yeah and the two weeks ago the [inaudible] maybe a meeting and then probably there is been a over supply of 1 million tons in stainless steel 2005 can you share this view?

[inaudible] I am [inaudible] about the stainless steel market in the long term. According to me the [inaudible] 2004-2005 with these interest [inaudible] coming in steel in China, [inaudible] West Europe in the U.S. despite with what we done between Alleghany and GNO [ph], China will be less and less [inaudible] Stainless, but [inaudible] more in 2006 I think [inaudible]. [inaudible] market volume is not so good [inaudible] now, but I think they need to be much better at the end of this year -- last year there was some price [inaudible] in 2003 and now [inaudible] is a little better in price but we need margin.

For [inaudible] I think you are speaking about the coke availability for steel industry.

[inaudible].

Revenue has [inaudible] the particular but I think [inaudible]. It is true that globally the lack of availability in coke [inaudible] supplies to some extent [inaudible] and it was in that context that there are [discussions] with [inaudible] in order to see how the future of the availability of existing of [inaudible] will be shared with traditional clients during the [inaudible] that most of these clients [inaudible] we are [also shareholders in [inaudible] we had negotiating team. This compares [inaudible] the proposal we put on the table whether it would be different from economic point of view to expand this [inaudible] we have asked [inaudible] to make us study group in order to see whether it will [inaudible] investment and environmental problem. It seems that, that could be the best way to rule that out in the [inaudible].

[Regain] the surcharge. First of all, I don't see surcharge in [inaudible] it stays up there. We can possibly shown [inaudible] it will increase and with arrangements we know that when surcharge is decreasing, [inaudible] more pressure on the [inaudible]. For the moment there is a good order book for the [inaudible] quarter. I think the [inaudible] is going to see some reluctance for [inaudible] or the [inaudible] quarter. We discussed rating [inaudible] related to what will be the surcharge that we explained once.

Okay. Thanks.

Thank you. Your next question comes from [inaudible].

Good afternoon, [inaudible]. Regarding production, I would -- question twice if I just one time, given the lack of [inaudible] what is the maximum increase that comes through production and shipments -- image too and in forces to [inaudible]?

[inaudible]. Well, the first quarter was flat compared to the first quarter last year, [inaudible] will be [53%]; sub quarter which was negative through out the year could be between plus 12 and plus [55]. And I don't have [inaudible] of yet.

And regarding shipments flat in the second quarter, could you please [explain] this increase of [inaudible] between automotive industry please?

I agree with what you say shipments to be flat and that means the increase is obviously.

Okay. Thank you.

Thank you. Our next question comes from [inaudible] from Morgan Stanley. Please go ahead.

Hello. Hi, good afternoon [inaudible] the first one regarding the admission, you mentioned that on of the reasons for [inaudible] this quarter has to do with [inaudible] between stocks consumed and pricing. Does it mean that the strong results which [inaudible] are not strictly sustainable results during the next quarter?

This is good question. I think that for the [next] quarter it could be clear as you know in the [inaudible] at least for this solution [inaudible] six months after months we acted more faster -- faster that for this project. [inaudible] squeezes, but this [inaudible] I think looks like [inaudible] at the first quarter, but it was thought that it could be for the second [quarter].

Okay, on the last question, what's your target under the debt reduction for the year end?

It will depend of excellent growth. We have said two months ago, that our target was to decrease debt. It had [inaudible] compared to the [inaudible]. That is still our target except [inaudible] but the two [inaudible] growth is proving together.

Okay. Thank you very much.

Thank you. We will now take a question [inaudible].

[inaudible]

We'll take our next question from [inaudible].

Gary [inaudible], we know that our [inaudible] against European directed from Greenhouse gas emission rights [inaudible] that was last considered these directives being [inaudible] for the steam industry. Can you brief us [inaudible] status?

For more information last week of June [inaudible] but we do not have right to appear against this. So we will know exactly how much fuel [inaudible] decision.

Okay. I understood that the impact on the P&L would be considerable if European directives remains in place could this mean for your P&L in between [your euros]?

No -- there would be no [inaudible] in the coming five years. This is a slight [inaudible] after 2007 or perhaps [inaudible] this damage will decrease as we have to buy -- from damage -- from fuel to damage. I mentioned last year our net profits last year of Q2 was close to [EUR34] [inaudible] negative footage [inaudible] but it is a long-term problem and not a short-term problem.

Thank you Dolle.

You know these negatives [inaudible] two or three countries live with the [inaudible] allocation plans and most of the governments now realize that it is not very useful to make kind of carry this steel industry and [inaudible] we've [inaudible] with the [inaudible] but we don't need, as well as in election which held in the two countries, is right now announced their allocation [inaudible] allocation and as Guy has said in short-term there is no risk of [inaudible] to be paid and I think that you still politicians to be realize them the government ends to support the production outside the [inaudible] countries in the [inaudible]

Thank you very much.

Thank you. [inaudible] if you would like to ask a question press "*" "1" now. We will take our next question Richard [inaudible] from HSBC. Please go ahead.

Yes good afternoon. I just might have two questions containing Brazil and [inaudible]. You just bought volume [inaudible]. I think you're planning [inaudible] your different participation. What's your current thinking about CST as [inaudible], how you'll working down to the long term or maybe more in short-term to organize as a different [inaudible]? My second question is concerning the [inaudible] I think that your belief to think whether that's [inaudible] is interested but you are also interesting altogether, and [inaudible] rolled steel, could you tell us little more of it?

Yes, we in Brazil I did forget just at the begin of meeting to consider [inaudible] if we are prudent coal option with some there in 2009 we see the regarding CST and we're still -- our shareholder agreement is got to finish at the end of May 2005. We see that [inaudible] so that means that in our vision the best solution will put through some thing like [inaudible] the Brazil, which will be listed at San Paulo Stock Exchange with the their liquidity will be running 40%-45% of the share and this company coming at least 65% to us alone. We will hold 100% of our assets inside Brazil and inside of America, that's our vision for the [inaudible] to proceed as soon as possible, that is -- but we are discussing now with some of them regarding [inaudible]. You know that we have a partner with [inaudible] and we consider that this partner is now placed to do some thing in [inaudible] and they have asked us to join them in the possibility of taking [inaudible]. I need to be partner of them as [inaudible] shareholders, which could represent around 30%, they are the leader.

Thank you.

Thank you. As a reminder, if you would like to ask a question please press "*" "1" now. We'll take our next question from Mr. Pascale Spinor [ph] from Deutsche Bank. Please go ahead.

Yeah. Good afternoon gentlemen. I really has to come back to the raw material, should you clarify on what you've been thinking, either raw material [inaudible] Q2 and Q3. You mentioned 15 euros, 30 euros for Q3, what are the given impact of the sequential [inaudible]? Yeah, in fact loss for the second quarter is close to 125 and what that if it drives the Q3 in fact as a [inaudible] in April what is their constrain [inaudible]?

[inaudible] your question for given for Q3. Thank you [indiscernible] Q3, may that euros give us sort of 15 euros during the end of second quarter, sort of would be extent reason in the third quarter coming from. It is coming mainly from cooking coal and for spot coke price.

Like because we have some countries, which were finishing only on 1st of April.

First quarter is [inaudible] cooking coal and [inaudible].

And I wanted to say you are buying a long-term contract unless then if you coked. This is long-term volume contract and the price been [inaudible] [inaudible] that understand.

There was I think a different formula taking into account, what is the cooking coal price?

[inaudible] for this long-term contract.

Okay, but this is not changing but -- sort of the market move in any way.

Unfortunately, based on change with the Polish coke supplier.

Okay. I can't quantify that.

And that is some explanation of this [inaudible] price increase.

Okay. Right.

No questions.

There are no questions at this time, so we would like to turn the conference back over to Michel Wurth.

Thank you very much we will release our third quarter of end of July.

31st July.

31st July and we are suppose to have a confirmed call on 31st afternoon of July, so see you all having new achievements. Have a good end of the day. Thanks a lot.

Thank you.

Thank you for your participation.