ArcelorMittal SA (MT) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to today's Arcelor's annual results 2004 conference call. For your information, this call is being recorded. At this time, I would like to turn the call over to your host today, Mr. Guy Dolle and Mr. Michel Wurth. Please go ahead.

Good afternoon and good morning, everybody, and welcome to this conference call. I will first give a few highlights about Arcelor's year, then I will pass the floor to Michel Wurth, who will present you the financial statements and the rest of Arcelor and how we use our cash and then I will be back to give you some currents regarding outlook of the business of Arcelor and where we are regarding our transformation. So first, market trends. Everybody knows that the year 2004 has been a fantastic year for the world economy. I think the best one for the last 15 years at least and even the better one for the steel industry. With growth of 9 percent of the production of the world business, just a little bit less than 5 percent for Europe, but of course this has been led by China where the growth has been close to 22, 23 percent with the consequence on the raw material availability, freight cost and also raw material price and also due to the imbalance between the supply and demand with positive consequence all over the world regarding steel prices.

We are very proud of what we have achieved, which is beyond our progress(ph). First, I will emphasize the huge improvement we have already achieved regarding safety. In three years, Arcelor has decreased the number of accidents with lost time by a fact of three. That means that there are now inside Arcelor coming from 1,500 in 2001close to just 500 accidents with lost time. Secondly, we have multiplied our earnings by share by a factor of close to eight and we have doubled, or close to doubled, our EBITDA. The management gain after three years of Arcelor are close to 1.5 billion Euro on an annual rate and 560 of CST has been already achieved, that means that the site synergy is just representing a little bit less than 40 percent of our cost living and that is of course [Indecipherable] efficiency. We have also continuously managed our portfolio, having disposed close to 700 million Euro of [Indecipherable] through the assets which has been disposed. I remember them, Thainox, J&F, [Indecipherable] shop of Acierie de l'Atlantique and also J&L. Last, but not least, we have been able to take over a huge and strong cash flow. You can see that in the decrease of debt that Michel will present to you.

That means that we have decreased our debt more than 100 Euro per month since the creation of Arcelor. We have been able to control our CapEx in Europe close to the depreciation level and is our target for the future and we have done the accretive acquisition in Brazil for our shareholders. And last but not least, Michel will underline that, we have decided to increase substantially 62 percent our dividend. If we have a look on the first four months of business by business, our long currency business is the star of the year, of course. They have been able to increase immediately the margin for their product. They -- they have been able also to create this crop(ph) surcharge in Europe, which has been very important for the efficiency of the business and of course they took advantage of our IX exposure to South America.

Agrimeralize(ph) one of the two best longer currency companies in the world and of course the acquisition of Acindar is very good for the rest of the long. For DTT, DTT show -- as shown based on results, we are acting very fast to increase price, sitting price and also taking advantage of the inventory at the beginning of the year. Normally-- and you have to keep also in mind that the distribution sector inside Arcelor is buying 30 percent of his steel outside of Arcelor. Flat, flat has improved a lot, specially during the second half of the year, being able to increase spot prices, also being able because it's the most important part of developing synergies and also taking advantage for the last quarter of integration, full integration of CST. And last, but not least, stainless steel business, which has been very disappointing in 2002 and 2003 is performing much better.

Of course taking advantage of the cost saving which has been already achieved in the flat carbon -- in the flat stainless steel, sorry, including the shutdown of northwest plant shop in last July, but also with improvement all deals of business taking advantage as well for the long getech(ph) as well as for the plate business of the improvement of the market and we are now in a position to take advantage for the flat stainless steel business of our strategic orientation with the operation of the new steel shop in Carinox which is scheduled next October and with the shutdown of Isbeck(ph) which is suppose to take place beginning of next year. So that's just the highlight of this year, which is very well performing year for Arcelor. So Michel, please go ahead.

Okay. Good afternoon, good morning, ladies and gentlemen. Obviously this time it's with a great pleasure that I would like to comment for you all of our figures of 2004 which have been excellent as, Guy has mentioned it rightly, and I think there a second reason of satisfaction that was in particular that Q4 was the strongest quarter in the year and which is good because normally quarter 4 is slow because of the -- of the year-end and Christmas break and because of winter. This time it's not the case and this is obviously a very good starting point for 2005. Basically, we can-- we would like to explain in two words the improvement we have done for doubling in EBITDA between 2004 and 2003.

There are two reasons, which mostly half and half. The first half of the reason is that we have increased our margins due to price increases, mostly in long, positive effect 1 billion and then a little bit more than 1 billion is due to our own internal efforts, more saves, synergies, management gains and the consolidation -- the enlargement of the consolidation scope towards Brazil. This is what gives our figures. For the first time we have met-- we have done more than 30 billion of total sales in Euros, in dollars this makes almost $40 billion. We show margin of 14.54 percent, this is quite high and I would like simply to emphasize the margin we have done in quarter 4 at 17.4 percent, which is really historical for our group and please then note that this 17.4 percent is an average value between our four sectors and there is one sector which is the commercial sector, DTT, which is doing only adding value and for that reason in this sector, you cannot compare industrial margins with commercial margins simply to judge the performance of our group. This gives us an operating profit of 3.2 billion and the net result bottom-line of 2.3 billion.

In terms of earnings per share, that makes 4.26 Euros per share and I think the share price today is around 18.80 which means the price earning ratio, which is slightly above 4 and which is obviously in our views extremely low and which can be improved. In terms of gearing, we are with 20 percent below our objective at the peak of the cycle, but I will comment later on on capital allocation and in terms of returns on capital employed with 20.-- 26.6 percent, it's very clear for everyone was that we have created a lot of value for our shareholders in 2004. First sector, 50 percent of the group flat carbon sector, it for the first time since first of October we include the full consolidation of CST with a consolidation rate of 72 percent. So the improvement in flat carbon has been in terms of EBITDA 1.4 billion. There are two explanations out of that.

We had the mix and volume effect of plus 4 percent and in particular we had price effect of 8.8 percent. 8.8 percent represents roughly 45 Euros per ton, but we have to compare that with the increase of our -- of our raw material prices, of our input prices, in flat carbon which represents more than 35 Euros per ton. So that means that most of the improvements also in flat carbon has come through volume and through management gains and through scope. Concerning the non-recurring items, I will comment them later on in one single slide, which I think will help transfer into better understanding of everything. So with an operating margin of 10.6 percent in fiscal year 2004 and with 15.5 percent in quarter 4 2004, we are obviously quite happy.

First time that we published the number is a return on capital employed in the sector flat carbon, this is consistent with the same calculation we have done previously for the whole group. We have reached 25.2 percent this last year against 17 percent the year before, which is also, I think, a good indication about the robustness of the asset values which we have in our balance sheet. Maybe in the next slide on Page 8, you see for your own reference our product mix by origin. If we look at Europe, we can see that our strength in products is galvanizing steel, so this represents almost 50 percent of all our shipments. We hopeful count 30 percent and you know that hopcorn(ph) coal has been extremely profitable last year because these represent mainly spot markets. On the other hand, if we look at Brazil, you see that the big bunch of our production is slabs which gives us a competitive advantage in order to produce cheap and quality steel within CST. If we go to the next slide we see the the flat carbon end user scheme and there we can say that 35 percent is automotive and 6 percent is packaging.

These two products are mainly based on contract basis and this is also in automotive that we will see an huge price increase in 2005 because of the renegotiation of prices at the new conditions and then industry, which includes construction, is 52 percent. This is mainly almost all spot prices where we have had over the last year higher prices. In Brazil it is a little bit different. They got Basule(ph) which is the producer of our sheet for automotive has started extremely well, he's already has been integrated in April and is in bottom-line positive by the end of the year. So huge success of Fig Anderson(ph). Next slide is long cabin steel, as Guy Dolle has called it rightly, because EBITDA increased by 2.6 times in comparison with last time and over the whole year we had an EBITDA margin of 20.7 percent, which is the same that what we achieved in quarter 4. Why was this? First of all, good running of the plants.

Second, increased growing -- growing segment, mostly in Brazil and in Argentina. And thirdly, an huge price effect, but unfortunately this price effect had been largely compensated by an increase in raw material prices because if we compare our script price in 2004 versus 2003 we have an increase of 60 Euros, 60 Euros per ton, which is quite a lot. But despite that contribution to operation profit was more than 1 billion and you can see that in the sector we realized an impressive 39.2 percent return on capital employed, which is obviously very, very positive. Next slide is that you can see our exposure to our different markets. Long steel is mainly focused on construction industry, which has been extremely good in Spain, but less good in different other paths of Europe. Whereas in Brazil, where the market globally was very good our exposure to construction market is a little bit lower because we are -- you know that we are number 1 in wire(ph) producers and we are also number 1 in wire drawing activities in South America, which is an industrial activity.

Third sector now is stainless steel, alloys and specialties. There we can see it's now the starting point of a turnaround because we have had an EBITDA of 258 million Euros against 98 million Euros, against 23 million Euros last year, so it's really a very positive element. You could not argue, yes, but this is only due to a price increase of 16.5 percent. In reality if we look at the figures, we can say that 90 percent, 9-0 percent, of this price increase is simply a compensation of raw material price increases, so that we can say then the big bulk of this improvement is due to the management gains we have succeeded to do in this sector. And that means also that there had been a positive contribution for the whole year in stainless of 117 million and that with these results we have made a return on capital employed of 12.8 percent. You may say this is satisfactory.

I tell you, yes, this is satisfactory, but partly also because of the huge impairments we have done in the past and which give us now a very low book value so that we are looking forward and are quite positive now with the staffing of the new steel shop in Chal(ph) that this sector really can evolve positively also in 2005. Next sector, distribution transformation and trading. An EBITDA of 513 million Euros, which is historical, which you might compare with what has been achieved one year before, 284 million. But for those who know well our figures, they remember that in the 284 million there had been 140 million exceptional positive item, which was the contribution of the sale of our plastic distribution activity, what we called internally bill plastic. But we said we had a very strong positive element path of this positive margin in stainless. It's due to the fact that steel prices were rising over time, which meant that DTT had in its own inventories lower than market price inventories which increased the margins.

But since we defending on the evolution of market prices, this -- this will influence also the margin in the future. In terms of return on capital employed with 24.2 percent, we are very satisfied and the fact that DTT is distributing 70 percent of its 17 million of shipments, is buying it with group companies, shows how strategic this sector is and also how big its contribution is to the group. I come now to the next slide, slide 15, concerning the consolidated income statement. I will not pass over each of the items I have already commented, which are quite obvious, like depreciation and amortization. I may like to emphasize first of all, on net financing because in net financing costs you see particulars that for quarter 4, 2004 we have a net charge of 196 million and you certainly might raise the question how do you reconcile that with the debt which becomes very low. The answer to this question is IFRS 19 in the fact that from a business point of view, management has decided in the fourth quarter to hedge all the raw material purchases, which are budgeted for 2005 and which are paid in U.S. dollars to hedge them forward at the rate of 130.

Now, at the last day of December in 2004, the dollar rate was 136 and according to IFRS 39, we had then an book loss of 180 -- roughly 180 million, the consequence being that we have now hedged almost 3.5 billion US dollars at the rate of 136. The other special or a little bit positive surprising effect in our profit and loss statement is the line income tax where we have had for the whole year in total income charge of 523 million, which represents 17 percent of profits before taxes. Whereas our official calculated tax rate is in the range of 34 percent. So the reconciliation between one and the other, there are certain elements. First of all, we have done some good operations of fiscal optimization, including generating some income, which is -- which is neutralized in terms of tax payments and then second, it's another application of the IS, international accounting standards rules, in the sense that for certain companies where we did not have activated the carry-forward losses that we did not book the deferred tax assets according to carry-forward losses. This Company's made no profits and there was not-- no deferred tax asset on the opposite and this gave us an one shot positive effect.

For the future, nevertheless, I think that for those who are modeling our companies that the real tax rate in the future should be more in the range of 30 percent than of 17 percent even if our fiscal people are trying to optimize what can be done. Taking into consideration these different facts, the bottom-line was 2.3 billion is very satisfactory. Now the next slide is non-recurring items. In total, we can say that the EBITDA line total makes 245 million, whereas at operating result we have 227 million. I would say that this is mostly recurring, non-recurring items. What does it represent? First of all, in flat with 192 million at the EBITDA line, which is mainly the provision we have taken in terms of the restructuring plan we are implementing in Spain. This is a little bit more than 100 million and we have definitely sold all our interest in the liquid phase in Cha(ph), which has also had an additional cost in the year of 50 million.

Now, in stainless steel, the 65 million Euros of non-recurring charges represents mainly some restructuring costs we have had in fees, that is in our long business and in -- is back because we are also from an accounting point of view already preparing the closure of the steel shop in that plant. And in DTT, it's smaller restructuring items. In terms of amortization of goodwill so these are 2 positive effects, which come mainly due to the full consolidation and of the integration of bad will into results from the first consolidation of CST in flat and from Acindar in long. And in depreciation and assets, the total non-recurring write-offs of smaller assets, which I can consider as normal activity. Next slide, we see a lot of numbers and I apologize for them, is the cash flow and the cash flow statement and the link with net financial debt. First of all, I would like to emphasize on cash flow from operating activities, 3.2 billion, this is a very robust number, especially if I compare it with the year before where we had the contribution of 641 million from reduction of working capital requirements.

This year, due to the higher raw material prices, due to higher prices from the shipments to our customers, working capital increased by 726 million. In terms of investing activities, you see that globally we invested 1.4 billion, which is represents 1.4 billion of tangible and intangible assets and I think that Guy will give you later some explanations and some geographical split of these investments, but what we can say is that in Europe we invest what we depreciate, roughly, and we expand like in Brazil various higher investments and on the other hand, the other acquisitions and disposals, this is what we call financial investments. You can see that this is almost calibrated. This is not -- this is what we call portfolio management. We have in the course of last year sold number of assets, Thainox, participation in Gonvarri , our tube activity, steel shop in Acierie de l'Atlantique.

We have sold i.e. we have had minor disposals and the sum of all of this compensates almost for the investments we have done for the acquisition of -- in Brazil and for the acquisition of the minority interest, remaining minority interest in Stahlwerke Bremen and for financing our capital increase in the joint venture with Bao Steel and Whitcomb Steel in China. Then looking at the financing activities, you see that it is positive, the main consequence being the positive element of the capital increase, which we have done successfully in July. So that at the end of the day after some different elements, which our exchange rate scope inclusion of the debt of CST and as loss we have the netted decrease of financial debt of 2 billion Euros.

We can see that now in the balance sheet and also for the balance sheet I will not explain all of the items, but if you have questions, please feel free to call them. But I can say that, first of all, if we look at the essence side of the balance sheet it, had been influenced by the first consolidation of many of CST. The essence we have bought from CST represent in our balance sheet a little bit more than 2 billion and this is then represented in the line non-current asset. For the current assets I will separately comment on the working capital requirement evolution whereas one word about cash and cash equivalents was 4 billion. You may say this is very high, but you have to bring that into relation with short-term debt at this recent maturity of less than 1 year, which equals 2.3 billion Euros. From the liability side, the balance sheet obviously is very much influenced by the strong increase in shareholders equity from 7.4 to 12.3.

Or we look at group share from 6.7 to 10.9 billion. What does that represent? The result of the year, the capital increase and then the allocation of the bad will into equity according to a new IFRS rule, which came into application at the beginning of the-- in terms of non-current liabilities, we are extremely stable and I would say in comparison with the disclosures we have done about pensions and about provisions, there is nothing negative to say. The only positive element to say is that our deferred tax liabilities had strongly increased from 289 to 629 million Euros. And then in the current liabilities, I think that I will comment on them when we are speaking about working capital requirements. Now the next slide gives you a little bit the way which has been driven by our team at Arcelor. We started with net financial debt of 6.5 billion. We are today at 2.5 billion and we have a gearing rate of 20 percent.

This is below our objective of 30 percent in the peak of the cycle, which raises in fact the question of capital allocation, which I will comment in one moment. Before that next slide, we can speak about working capital requirements and there we have to say that obviously we have been influenced by the increase of prices in raw material and in finished goods and that the reason why inventory in terms of -- in monetary terms went up 1.3 billion whereas in terms of tons we are absolutely at the same level of inventory 1 year before than we are at the end of 2004. The same for trade receivables, we are up 500 million Euros, but we have reduced the payment delays, the average payment delays of our customers by 5 day. And trade payables the increase represents obviously higher prices we have to pay to our own suppliers. This increase our operating working capital by 1.1 billion then there're other receivables and payables which are diminishing our networking capital requirements.

What does this mean? This means taxes, this means the fair value adjustment concerning IS 39 I was mentioning before and this means also the variable benefits for all the employees in the group we have because of the good results of 2004, which means that the end -- by the end of the day working capital increases by 580 million Euros. Next slide and there I would like to speak a little bit about capital allocation. This slide is stated new dividend policy because this is what the board of directors wanted to say and more cash to shareholders. What does that really mean or what did really change between the beginning of Arcelor and today? I think two things has changed very much. In the past, the first obligation of Arcelor was to decrease debt.

This has been done and this has been done more than what had been foreseen. And second, what we had to prove was that the structure of profitability of this Company has improvement. I believe that in the comments Guy has given to you and myself, that we are really today in a position to prove that the structural profitability has dramatically increased and it is on the view of these two facts that the board has said that we have to give a strong sign to increase our dividend and in fact to decrease our dividend by 62.5 percent in comparison with last year and to provide for a dividend of -- gross dividend of 65 Euro cents per share to be paid beginning of May 1st, some days after our share holding reason. Graphically, this is what it represents. You can see on the left-hand side of slide 22 how our structural profitability increased in terms of free cash flow and in terms of net earnings and you can also see on the right-hand side with the dividend we have paid that over the three first years of the existence of Arcelor, the payout ratio had been kept at 31 percent.

That means from a practical point of view and if you look today at our balance sheet, two things. First one, as far as the structural profitability improves dividend payments will increase as well and second, we have today the balance sheet which allows us to make further gross, provided that this will increase the profitability for our shareholders. If we cannot achieve that, then obviously in the second stage we would have to think inside Arcelor about other ways to give back money to shareholders, including the way to look at share buybacks, which is not today our first priority. But depending on the outcome of our future growth initiatives, this is something we have to consider. Thank you for your consideration.

Thanks a lot, Michel. What does the outlook for the steel industry? I think that the major long-term, this outlook is very positive. We expect a lot of growth in the next coming years, mainly in the developing countries and also we can say that consolidation isn't a move. And it's very important for the efficiency of the business on a world basis to be less fragmented than we are now. It has strong influence on the market discipline and also on the focus on margin instead of focusing on volume. But of course it will take some years to be achieved, especially because we have now to move from regional consolidation to internal consolidation, which is a little bit more difficult to achieve, taking into account the difference of value of the companies. On the short-term basis, I do believe that of course the consumption growth for this year 2005 on a world basis will be lower, of course, than the terrific results we have achieved in 2004.

Instead of 9 percent the experts believe it will be on a world basis between 3 and 4 percent mainly driven by China, which we come up some 20, 22 percent to something closer to 13 percent. If we ever look on Europe, we believe that the final demand will increase between 2 and 3 percent, which is more or less the same level as we had in 2004, but the upper end demand will be close to be flat because there was a little bit of a inventory buildup during the year 2004. Of course inventory depending between the end user and the distributors inventory a little bit, medium high for end users and just medium for distributors, but it's clear that now there some hesitation for the customer regarding price evolution and speculating, of course, and just decreasing a little bit there. But I am very optimistic that just after a couple of weeks things will become more normal.

We'll have achieve our price increase for flat, we have an answer 1 quarter ago and we are optimistic that we can do also in the second quarter some of the patient(ph) especially for the flat carbon sector on a spot basis, depending on the products and depending on the country and also transferring the remaining part of formidable price increase we have to transfer. The negative consequence of this on this growth on the world basis is in raw materials. It's clear that we have been obliged to accept huge price increase for coking coal between 80 to 100 percent starting first of February and also according to the newspapers, the request of the [Indecipherable] Mining Company is in the range of 90 percent, we have not yet started, in fact, negotiation because we consider even if we are ready to accept higher price increase than last year, cuts the gap between their proposal and what we could accept is too large. So that means the negotiation will take a couple of -- several weeks, I think perhaps two months or three months, before being achieved. If we have a look under what is the evolution of our business by business, of course the resent(ph) of those flat steel sectors for this year will be outstanding. Of course taking advantage of the new payment, nine months more of CST, taking advantage of the report of price for spot product and also taking advantage of the fact that we have -- we have got huge price increase for annual contract, which would present in fact more or less 50 percent of our annual [Indecipherable] contract.

So as we will be able this year also to achieve the same consenting level at least in this year, the results of the flat sector will be very, very good. Regarding long, of course, we will take advantage for much more than the previous year of Acindar in Argentina. Of course we are very confident on the result of Brazil and we have to seek our share [Indecipherable] of the market. It feels that the momentum is a bit weaker for long in Europe due to seasonal effect and due a little bit also to inventory for distributors. But as we are able to -- once the spot price evolution, we are confident for this year for longer steel carbon business. For stainless steel, that is a little bit more pressure on base price during the beginning of the year because there are over capacity and the players wanting to increase their market share in Europe. So, base price a little bit under pressure. And also there's a raise of uncertainty with the level of nickel price and the consequence on the surcharge. But, you know the case, for flat we take advantage of the situation and to starting up of our new assets in Carinox and also the consequence of our cost saving program. Of course for the rest of the [Indecipherable] like TVTs, including [Indecipherable] it will be very good.

For DTT, is seems that DTT cannot achieve during the year 2005 the same results in 2004 because there will not be the positive effect of inventory. But we are able and we -- to control our inventory and I am optimistic for the possibility of DTT, including an enlargement of the PeggiMetre, to give good results. Regarding further price reductions, we will achieve the first shutdown, [Indecipherable], as we have announced a couple of years ago. It is scheduled now normally in July 2005 and of course we will continue to improve our efficiencies for internal benchmark and also taking advantage of the integration of the Brazilian assets as well CST, as well also the increase of capacity due to the ramp up of Vega. Regarding growth perspective, we are investing more and more outside of Europe in order to take advantage of the prospect of growth and also to be able to use this as a basis for exporting to other countries.

And last, but not least, we are ready now with a balance sheet to acquire good companies, of course, we do that only if it's -- if it will be accretive for our saving as the value of this Company has been increasing a lot during the last 2 months. We have many projects. You know that we have already announced that Turkey is one of our priority, but this buys the interest for us. And despite the synergy we could achieve, we are not ready to pay crazy prices in order to get them. So, regarding the performance of Arcelor during the two last cycles, you can see that 2004 is much better than was 2000, which was the last top of the cycle and it's mainly due to the parameters to our ability to control costs and also our portfolio management. If we compare and if we ever look and what is the cash cost of flat just exit of the plant between the CST -- between the Everedge(ph) of our coastal plant in Europe and [Indecipherable] you can see on the slide that even if there is a mix effect which is unsufferable to Europe, but is just a couple of euro but there is more than 50 euro exit the plant between Brazil CST and the coastal plant and up to 880 Euro in our continental plants.

If you compare the percentage of steel produced in the continental plant in 2002 with 2005, it shows the beginning of the story because we left just for us the year, decrease of -- shutdown of Braso Nationale, you can see that we have already decreased 12 percent our exposure to high cost plants and it will speed up in the next coming years. Regarding our breakdown of CapEx, we can say that until 2004 approximately a little less than 20 percent of CapEx was devoted to South America, Brazil and Argentina, that is to growing market, and 80 percent to Europe, which was close to the depreciation level, debit rate between the accounting depreciation level as a depreciation before impairment of asset. For the year 2005, it will -- it will move close to 60/40 taking advantage of costs of the third phase of CST, which has been already ordered. And we now have defined what is the level of CapEx we will achieve in the future for Europe, which is close to the depreciation and decreasing between the 2005 and 2012, taking into account our program of shutting down of a continental upstream phase and sticking all this investment between replacement environment and also our situation.

If we have a look on our optimization of portfolio, I have already mentioned that the 700 million Euro of turnover has been divested in 2004. And of course you see this on this slide the positive consequence on our acquisition of Acindar and CST and also our acquisition for distribution in Germany and Italy for section. The next slide is very important and you have to compare what could have been as a pro forma P&L, with the full consolidation of Acindar and CST for the full year. We have already reported and you can see that if we have been able to consolidate CST and Acindar on the year, the EBITDA would have been close to 5 billion Euro and you see what would have been the improvement of the cash flow and the improvement of the earning by shares, which could have been close to 4.55. That is the reason why we are so confident for the result of Arcelor for the year 2005. And last, but not least, and I think it's very important to get that in mind, that the evolution during the last two years of the synergy, in Euros the target, remember, it was 300 at the end of the year 2003, the year, and 700 at the end of the year 2006 and you have what has been achieved in 2004, for instance, 560.

The cost management saving, which has been achieved without the synergy and what is important is the total, which is close to 1.5 billion Euro by year of cost savings, not taking into account any volume or any external factors and that is in fact what has to be added to the other cost savings we will achieve in the year 2005 and from that amount total in our business to be able year after year to deliver at least 1.7, 8 percent of the turnover in cost savings. You can see on the slide, there is a breakdown of the synergies between sectors, of course flat is the most important part of sector concerned by the synergy and the synergy share mainly one third -- in all situation one third in purchasing and one third for the rest, we -- including transferring Bespartese(ph) and Comaschell(ph) manufacturing. So that's what the message we want to send to you. I think we have shown during this three years, including last year, our ability to buy assets, also at good price, creating value for our Company and being also able to merge very different culture inside Europe and also between Europe and Brazil and that is a very important factor for the future of our Company and of course prospect we have in mind. Now, with Michel, we are ready to answer your questions.

Thank you, sir. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touch-tone telephone . If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star, 1 on your touch-tone telephone to ask a question. We will take our first question from Michael Shillaker of CSFB. Please go ahead.

Yeah, hello. Firstly, well done on the numbers. I've got three questions, if I may. The first question is on the dividend. Given the obvious structural change that we're seeing in terms of the earnings and cash flow capabilities in the group, is it fair to say that this is now an affordable trough level dividend going forward? Second question, is on the Chinese market, we're of course hearing a lot of noise about this sort of net export position out of China at the moment. Can you give us your sense of where you think Chinese market is in terms of its own cycle at the moment and how you think that progresses in 2005? And the final question on I&R, I guess the question everyone's going to be asking is if CVRD do stick at 90 percent, what are your alternatives around that? Thanks very much.

Okay. Michel has already comment what is our dividend policy. We don't want to say officially that this is a trough dividend. It was a dividend which has to be pay at the trough because in this business you can have unpredictable things happening, but in fact is more or less our philosophy. That means that due to our prospects, due to the evolution of the Company, we will be able to pay at least this level of dividend. Regarding China, their situation is very different product by product. In stainless steel, they will still be net importer for the year 2005 and then later on there will be a huge turnaround, perhaps more on coal[Indecipherable] because they need for us to continue to import [Indecipherable] for years. For long, there already strong exporters and they will continue to be strong exporters, mainly inside the [Indecipherable]. For flat carbon steel, they are net importers, less than in 2003 and they will still be net importers in 2005, 6, 7.

Nobody knows for 2008, but there are more and more two kind of markets for flat in China. The market for commodities where they are beginning to be self-sufficient and even sometimes depending on the inventory net exporters with the consequence of this to natural exporters to China, Kafastan(ph), Russia, Kenya, [Indecipherable] and the market of [Indecipherable] where they were stabilized and even increasing the imports over last year coming from Japan, a little bit less coming from Korea and Taiwan and where the price is much higher for the first category and when I do not anticipate them becoming exporter before 2009-2010. That's a good question. That's a good question. It's clear that we have to ask ourself and we're asking this question, what is our interest, what will be our interest to have a yearly contract with a huge benchmark level. I think that is the question we are facing and we have to [Indecipherable] once the negotiation will have taken place.

Okay. Yeah, thank you very much.

Do you agree?

More or less.

Thank you. We will take our next question from Charles Spencer of Morgan Stanley. Please go ahead.

Yes, good afternoon. I have a couple of just financial questions for Michel first and then strategy question following. The first one is the working capital, you did go through your year-on-year comparison, but there was a big jump in inventories in the fourth quarter. Can you expand on why the jump in inventories and perhaps are you sitting on a lot of finish good inventory at the end of the quarter? The second question is your guidance on CapEx, your slide second from the last page makes it look like your CapEx for next year is going to be about 2 billion. Is that correct and has that been raised? And the third question on finances is that just the shares outstanding, can you just review the shares outstanding that you are using to calculate the EPS for the fourth quarter and for the full year?

Okay. So first question is working capital requirements. First of all there is in the fourth quarter. Two effects, one effect is in value effect simply because prices of goods and specially our finished goods have gone up. Secondary is the question of a little bit higher inventories because of preparing some realigning of blast furnace in 2005. And third, we try to expect, but I do not have exactly the number in case, but anticipating some raw material price increase is, I suspect, that the raw material inventories are a little bit higher because it would be some reaction if I would be a plant manager, I would have done it and I know some of our plant managers who have done it.

I cannot-- for seasonal reasons the slabs level inventory is always increasing in December because we don't want to stop our [Indecipherable]. That means we are policing slabs during Christmas vacation results, transforming them to finished product. It was exactly the same, more or less, every years.

In terms of CapEx, you're absolutely right. So the total CapEx will be roughly 2 billion in the new scope with 700 or 800 million given in Brazil and 1100 in Europe. So that is-- so you have to consider in Brazil what is it? It's first of all for 600 million expenses which have been within CST for the expansion of the third phase. And there's a blast furnace and the steel shop enlargement have been already opened and there will be the building of the coking plant facility which will make the group, that means CST and Belgo Mineira and Acesita, self sufficient in coke also in Latin America. And then the addition also mainly in Latin America gross prospects, for instance, Belgo Mineira is building 2 small blast furnaces producing pig iron to feed the electric. That furnace is very profitable investments. So what we could say that even if we are spending 2 billion, this 2 billion and then in the same philosophy than we have spent the year before 1.3 billion and that the difference is really gross investments, with huge profitability levels.

I cannot [Indecipherable] the positive consequence for Brazil of the distribution, which has already taken before our takeover of CST.

And then the third question concerning the shares outstanding, I do not have exactly the numbers here, it's a calculation which has been done. What I can tell you is that we have to date truly shares outstanding on a non-diluted basis of 610 million because we have treasury shares 25 million in our own books. But we will look at this and we will publish it on the web or this information will be available within our investor relation department.

Just for clarification, is the 610 million including the treasury shares?

No.

Okay. The last question I had is really looking at the acquisitions. When you say you're going to be making accretive acquisitions, is that based upon current earnings relative to the financing costs to make those acquisitions, or are you looking at something over the full cycle? And then can you compare acquisitions to your stock trading at four times earnings as was mentioned earlier? Thank you.

It's clear that we will not acquire company at the price which will not be accretive on the short and middle term, taking into account what is our earning per shares.

So if we are making capital allocation discussion that means that if we are making acquisitions, they have to be accretive and they have to be creating value for our shareholders because if that's not the case, everything we have said before is nonsense. And this is what we have to do and each time we are doing such a transaction, we are not looking at the past and we are not looking at our present prices, but we are looking what will be -- what will be the earning per share effect in 2000 this year and next year and we will clearly communicate on that. I think what you have to understand is that the commitment of management is precisely to do -- to do acquisitions which have an industrial rationality, yes? But which have not strategic, simply a strategic corrector and being dilutive in terms of earnings and value creative.

Okay. Thank you very much.

Thank you. We will now take a question from Suzan Bounai of Exonben(ph) pai Pariba.

Good afternoon, gentlemen, and congrats on the numbers again. First question on the closure of Fiel(oh), could you quantify the restructuring costs we should expect to find on that? Second question is for Michel as well, on the tax rate guidance, you sound as should you rightly we should now be using a guidance of 30 percent for the European i.e. Luxembourg tax rate. Could you give us the same kind of advice for the Brazil tax rate. Looking at the CST numbers this afternoon, the tax credit that was off about 616(ph) million real was about equivalent to the taxation on EBIT. So what is the amount of operating losses you should still be able to use in the future? My final question is regarding your project to list the Brazilian subsidiaries. I was getting to an estimated aggravated EBITDA normalized over the cycle of about 2 billion U.S. dollars. Would you agree with that if I take all the Brazilian subsidiaries and what would be the synergies and tax credit you would be using if you combine all the entities together? Thank you.

So first of all, the first question is the easiest one because the answer is zero. So we have already have sufficient provisions to take into account all expected costs including environment costs for the closure of the blast furnace of Vies(ph) That means that fixed assets on zero and social provisions are already covered and have been covered previously before. Second concerning tax guidance, what you say about Europe is a good guidance. I have done -- you have to understand that even in Europe things are complicated because we have some profits which are generated and which are tax exempt. I give you one example where we have the financing subsidiary, which is the condonation center. In Belgium, which finances most of our European groups, this is tax free on the interest we are doing there, so this is one effect. I do not know how long Belgium legislation will allow this, this will come some end to the end.

In Brazil, it's even more complicated and I give you some examples. First of all, for instance, we are trying to pay interest on the capital in terms of dividends because this is-- with the tax exemption and the other, the major difficulty to give you a good guidance in Brazil is the question of the functional currency because in Brazil, the -- the fiscal situation is based on the balance sheet in reals because that is the legal currency of CST. Whereas the function of currency of CST is in dollars and our fiscal situation was in our own books is based on dollar accounts of the Company and concluding that, I think it's more, it's more wise to not to try to take the Brazilian local figures in order to make a tax estimate, but to use our overall guidance and for that reason, a rate just below 30 percent seems to me a prudent and good approach. I add one last consideration, which is the distinction between -- between taxes which we have to book and taxes which mean in a cashout because there is a difference between tax accounting and international accounting standards, accounting and what we are seeing over the next years is that the tax carry-forward losses we have had are on the way to be consumed because of the high profitability of the Company. That means that tax cashout, which had been 200 million in 2004, will increase starting from 2005 on.

Maybe could go to 500 or 600 million depending on the profitability level and this is cashout and this will then negatively impact our free cash flow situation everything equal by the [Indecipherable] Finally, your last question is about our Brazilian subsidiaries. So, what we have done up to now, we have achieved our goal. That is to mean we have now-- we have consolidated CST. CST, we will do the last transaction in the end of month of May because at that moment some put and call agreements with Japanese will come to -- we can exercise them and we will exercise them and we will then-- we will own roughly 75 percent of CST. In the meantime also we had an opportunity to buy 4.5 percent more of the shares of Belgo Mineira so that we own today almost 60, 59, between 59 and 58 percent of the shares of Belgo Mineira. If you may look at the market capsules so when if you would consolidate both of these companies into one Company, with a holding or with no holding, you would merge them, this would mean that our total ownership in this company would be roughly -- would be between 65 and 70 percent depending on the valuation you would do.

Next, it is clear that since we can only exercise the put and call agreements on the CST shares with Brazil, we will not take a decision about the final structure of the Brazilian reorganization before that period. And then comes the third question, which is how do we perform with Acesita. With Acesita, we have also with other minority shareholders, which are part of the shareholders agreements, we have put and call agreements which can be exercised between July this year and December next year. So we have started to discuss with the funds about how to manage the situation, but it is, I think it is very much premature to know how the final step or how the inclusion of, and what kind of in conclusion Acesita in the whole Brazilian entity will be. What I can assure and what we will do, so we will try also for synergy reasons to try to continue and to put into practice the vision we have, that is to consolidate our Brazilian entities, our companies into 1 entity and staffing that surely -- and we have already working group looking at the potential of synergies between Belgo and CST and that would be a listed company, which will have a very high EBITDA.

I fully share this point of view with you but this will be a Company which will have high standards of corporate governance and which will be very profitability, but which will be strongly majority owned by our Company.

Still, but for the pro forma basis, the EBITDA for the total, Waze(ph) and an Argentina subsidiary, will have been but a little bit higher than 2 billion dollar EBITDA 2004.

Okay, thank you very much.

Thank you. We will now move to Julienne Odilon of HSBC.

Yes, good afternoon. Most of my questions have been asked in fact, but I just would like to come back in two specific things. Could you -- you will not do any rustifin(ph) charges for [Indecipherable] but are you expecting for 2005 any other rustifin charges or provision for next -- for this year? And second question, I just would like to come back on the dividend a little. You have increased effectively your dividend significantly with your profit, mentioning that you believe you will have enough strong strands in your cash flow and in your debt position to do it. Metal Steel which has no debt currently has done a dividend policy, which is really, a nuge in narrow, shall we say about 10 percent payout and the explanation is to say that they believe there is a lot of opportunities in the market to make acquisition in the future. You mentioned that you want to do some acquisition, but in a way in the same time you mentioned also that you are not ready to pay, maybe, too high price. Does it mean that you believe you will not do too many acquisition and it will be extremely difficult, you know, making very careful about the acquisition price you will do and is why you make a higher dividend than Mitel(ph) or you believe there is other reason in that? Thank you.

Okay. First of all, the restructuring charge in 2005, I think what we have to distinguish is between normal restructurings and extraordinary restructuring. A group which does move like a slow will have all the time each year -- some normal what I call non-recurring restructuring charges and I think it would be wise if you are modeling this and this is what we are putting into our own budgets, even without knowing before exactly what the items are between 150 and 250 million Euro as normal restructuring charges and in that respect, the year 2004 had been quite a good example. On the other hand, I wanted only to repeat that if you look a little bit at our return from capital employed, which is the mirror of the book values of our assets, you see that concerning the high returns we have that our book values of assets are quite robust and that might also guide you a little bit when you are thinking about price to book ratios.

The second, the question about dividend obviously is the board of directors of Arcelor is not making Mr Mitel's dividend policy. It has another responsibility. We thought that this was the right decision to take and we are sure that this will be welcomed by our shareholders. On the other hand, this does not hinder us to make acquisitions because what I tell all the time my colleagues and what we discuss in the board of directors is if we have good projects and if they are really creating value, we can financing. And I give you one example of how we did that. That was in July of this year. We made the capital increase of 1 billion in order to finance the Brazilian acquisition and this has been very warmly welcome by our shareholders.

Thank you very much.

But, we have projects. And then we have accretive projects.

Just maybe to add that to this question. I mean, taking the case of Fadimer(ph) there is non-beater. Clearly all the steel industries benefit of a very strong price and the balance sheet of all your competitors also improve a lot, so there's many competitors, even competitors you were not expected that which are bidding now for companies they will not have bid, I think, two years ago clearly. Do you afraid that because of this new competition, this trend in the balance sheet the price -- the final price of acquisition of privatization in the future trigger [Indecipherable] or Erdemir will be -- you're afraid about the price at the end of the day of such a bidding process?

Yes, we are. That is the reason why the prices are crazy. We will not beat them.

All right. Thank you very much.

Thank you. We will now take a question from Michael Lucas of Appaloosa. Please go ahead.

I'm still go with some of the comments that you've made about the assets in North America of auto steel production being 5 million tons being interesting. I'm curious as to what assets you think that are out there that have 5 million tons for auto production.

Our priority for excellent growth is not much a market. Why? Because if you every look at the retail capital employee and the value created, it's the most important differential factors between the success and failure. So our main interest is the European countries where there is some opportunity of steel consumption growth. But we are indeed the leader in flat carbon steel for the automotive industry and it's clear that the North American market is the most important in the world, so what we are saying is that despite the maturity of these markets, the thing is NAFTA not just in U.S. An opportunity of something in the range of between 3 and 5 million tons, mainly devoted -- being able to be devoted to the automotive industry, we will be interested in. The thing is no special risk regarding social liability. That is our thinking today. So if we found that, we could be interested to be active in the U.S. in NAFTA. If it is not the case, we will not grow in this region.

Okay. You had mentioned AK Steel. I'm curious--

I never mentioned AK Steel.

Okay.

It's a general comment and I say not U.S., I say NAFTA. And I say 3 to 5 without risk of a social liability. Under the condition it will be accretive. As Michel already mentioned, it's not just a matter of strategy. On the strategy point of view is important for us to be there. But it could be important first to be there, but under a lot of conditions and it's clear our focus is on NAFTA not U.S.

Okay, and I know you answered this question several times today. I was wondering if one more time for my owned edification if you could speak about China and what you thought how well prices are and how that price seems to be rising. And they seem to be de-stocking. What that means in the coming months for steel prices in the world?

Of course same also for us an important factor, we got the world price which is the currency. We do believe that it is important to increase third country prices around $50. It's clear also that more and more as I have already mentioned, even in China, there are two prices for our cars, which is [Indecipherable] 1 and the specialty 1 and of course there's always in China a strong pressure on long carbon steel prices. So that is the situation, but of course we do not have -- we are not directly involved in this market because for summer months we do not export to China. We are very interested because we have already started last December as the first part of our joint venture with Bao Steel and Nippon Steel which is a coal warming mill and the second part will start next March with our decline in order to be able to deliver as soon as possible our top quality product to the automotive industry. So after negotiation, that means that we will be able at the end of the year to deliver in China product to the automotive industry with the level of quality standards we are used to having in Europe.

Thank you.

Thank you. We will now move to Luc Pez with auto securities. Please go ahead.

Hi, sir. I have three questions. First one is related to, if it's possible to have a little bit more detail with regards to the CapEx investment at Belgo Mineira for 2005 and by that timing of course the impact in terms of capacity and have a more precise breakdown [Indecipherable] I would say with regard to that. Second question is regards to forthcoming negotiations with the auto industry, talking about the next auto negotiations. I was wondering what was your thought with regards to implementing formula of passing through raw material prices into these new contracts, so if I could have a comment of this. And finally, I was wondering if you could be perhaps a little bit more precise with regards to the eventual synergy we could expect from the as lot of Brazil creation. Thank you.

Okay. Regarding Belgo Mineira, we have already [Indecipherable] because it's a difference between CapEx and utilization and we have already to rise end of last year investment of new -- of two small charcoal business which we bring as the capacity 360,000 tons a year of pig iron, which is important to be for the charge of our electric ocfanacy(ph). In Brazil you know that there is nothing [Indecipherable] in Brazil. So that is one of the most important investments where Belgo Mineira the year 2005. And we have announced that in the next coming five years, we have an important program that is a medium and long-term plan for increasing production in Belgo. You're also to be aware that we have just been commissioning a new seal plant close to San Pao[Indecipherable] that will be the grand opening of this plant end of next March. Regarding automotive industry we have to [Indecipherable] and of course we have some project for increasing the capacity of diahigh(ph) production in Sedan and also [Indecipherable]. Regarding auto industry, so we have to negotiate the three years contract at the end of this year.

We have already started with the French companies, the two French companies discussion in order to share some of you regarding the kind of contract we will have including formula with raw materials, formula taking into account the market, the spot market and so on, so just at the beginning of the thinking, I do believe that it's moving well. So and at the end we're to choose together, if we keep the three years formula, the three years contract or if we move for something which will be more yearly contract. But it is just a starting point. We still have ten months at least to discuss that. And third, after the Brazil synergies, of course, a working team is in Brazil as he identifies the synergies. There are many synergies as well on the financial costs as well on taxes as well on the administrative costs as well in purchases and so on and so on. So if we are optimistic, I think that we could achieve a lot of many times $10 million of synergies per year.

Thanks.

I don't want to be of a too much precise.

Okay. Thank you.

Thank you. We will now move to Michael Cook of UBS.

Sorry, it's actually Andrew Snide on. Just a quick question that 's relating to your long product division. You mentioned you seen some currency and [Indecipherable] in terms of long product. Most of the time it's expected to remain in exporters product, although you are -- in 2005, although you are suggesting it's primarily to Asia. Wondering if you could give us some more detail of your thoughts, through expectation, the progression of these long steel prices as specifically in Europe.

Due to the value of these long products which are producing in China, which are mainly [Indecipherable] they cannot be sent to country they [Indecipherable] broke from China. So it's not a slot for us, a direct fit. As you know, there has been some increase of important in long carbon steel in Europe, but it's mainly coming from Turkey and from Middle East. It's-- as we consider in Europe, as the cost real as well as for [Indecipherable] as well for section. As we have increased a lot our exposure to sheet buys, which is one of our specialties, I am confident that in fact there will be no negative consequence of any change of imports in Europe for low currency business.

Thank you.

Thank you. I would like to remind you, if you wish to ask a question or if you have a follow-up question, please press star, one to signal. As a reminder, if you are using a speakerphone, please be sure your mute function is turned off to allow your signal to reach our equipment. We will take our next question from Gail Duprey of Societe Generale. Please go ahead.

Yes, good afternoon. You mention in your presentation that higher raw material costs had a negative impact of 450 per ton in 2004, so your flat carbon division. Would it make sense to expect an additional negative impact of around 50 euros per ton in 2005? And my second question was relative to the long carbon division. In Q4 EBIT drew up to by roughly 100 million Euros versus Q3. Is it just a seasonal effect or is it the beginning of a negative trend?

It's clear that when you are taking into account raw material price consequence on the cash costs on the coal, you have to separate average year-on-year and Q4 compared to the average. It's clear that a huge part of our raw material price increase started officially -- start officially in April and due to inventory effect, in fact you just see 60 percent of the effect on the full year. So that means that 2004 compared to 2003, for instance, the-- the cost increase in Q4 compared to average of 2003 is twice the average increase 2004 compared to 2003. For the year 2005, so it's depending on the dollar, of course. And as we have not already conclude for -- for iron ore and if we -- as we don't use a lot spot freight I do believe that it will be for in average much lower than your competitors compared to 2004 and a little bit too high this puts us in Q4 2005 compared to the average 2003. I am clear?

Yes, thanks.

Thank you. We will now move to Roberto Putse os Societe Generale.

Yes, hello, gentlemen. Question from the debt side. Just to make sure I understood correctly, what is the amount of cost savings that you're targeting for 2005?

It's a little bit more than 500 million, 520, around.

All right, and can I ask another quick question?

Including synergies.

Sorry?

Including synergies.

Yeah. And if I may add one question about your CapEx figure, just a clarification on your CapEx figure in 2004, is it a gross or net amount?

You have to look at the cash flow statement and then you can see that there is 1.4 billion, which is in gross amount and then you have financial investments, which is positive contribution I think of 24 million, which is a net amount.

And could you give us the breakdown of the acquisition and disposals of that 40 million? Roughly?

You speak about financial investments.

Well, if I may-- I don't remember the figure exactly, but you have also other acquisition and disposals that netted -- was about a contribution of 40 million, if I remember correctly .

Yes, 42 million. You see that these are much higher numbers because you have there the acquisition of CST net of the cash position of CST, so 400 and something million, you have the acquisition of the additional stake in Belgo. You have the acquisition of the minority in Brim so we are speaking about 750 million acquisitions and 710 million of disposals in this order of magnitudes. So I could be wrong now because I'm speaking about figures I have in mind and some of the disposals, Thainox, Gonvarri, tubes, Acierie de l'Atlantiquem i.e. minority disposals, all of this together also amounts to almost 700 million.

Thank you very much.

Thank you. We will take our next question from Albert Minassian of J.P. Morgan.

Hi, I'd like some volume information, if you can. First of all, are you planning to take any capacity downtime either through planned maintenance over the next couple of quarters and also, just to keep material off the market and also, you know, similar question, what sort of capacity utilization levels you might be working at? So that's on the volume side. And also a bit of a forecast on the scrap price, if you could.

That's two very interesting questions, especially the last one. So it's clear that we have a shutdown of [Indecipherable] blast furnace, we will decrease the capacity normally 1.7 million tons, a little bit less due to the rate of [Indecipherable] of this blast furnace which was stopped four months last year. So that means on a pro forma basis, we have produced 51.2 million tons last year. It will be perhaps a little bit less this year, taking into account the [Indecipherable] and depending of course of the market because we are ready if the market will be a little bit less booming to decrease our volume of production and there is no blast furnace relining in 2004. There will be one in 2006 normally.

Okay. And the scrap price?

Just to -- somebody has to remind me what is our scrap price [Indecipherable] it was more--

Compared to plus 22, on average compared to 2004, but this is what we have budgeted.

Just 22.

But I do not know if it's right and it is not so important -- it's important for flat because it is the cost factor in long, you know, that almost -- in long and stainless all over the script. We have the script surcharge and this simply helps to increase volatility of the market, but it's neutral on results.

Then didn't you [Indecipherable] the low trend element scraps are getting more expensive. There are in fact two markets, market for high quality scraps, which is still increasing and the second market for normal price, which is more or less stable.

Okay. Thank you.

Thank you. We will take our next question from Pascal Spano of Deutsche Bank. Please go ahead.

Good afternoon. A lot has already been answered, but a few more questions. We've seen a very slow start into the year in western Europe with high inventories and a report that leaves steel service centers are very reluctance to place orders. Did you actually cut down on your shipments in the early weeks and have you sort of changed that recently, so in other words as the market recovered from those [Indecipherable] in January? And secondly, just a follow-up question on iron ore, technically, if the CBID negotiations do not sort of conclude before May, let's say, what price are you actually paying then? Is that still the 2004 price and will you have to sort of reimburse the CBID with the higher price once you settle?

For the second question, it will be normally your [Indecipherable] which would be right. It was -- what has been done in the previous year when this happens. Inverse, is a previous price and then correction. I don't know if it will be the case this year. Because our-- because there are some producer with a contract starting first of January, I don't know exactly what is today, the invoice. So regarding -- ?

Is this shipment -- ?

It's clear that in our distribution business we have decided to decrease a little bit our inventories, which means that we will decrease our orders in flat for our distribution business to upstream close to 200,000 tons. And it's only decreased we will have in the flat carbon steel business. It's clear that also for Q1 and Q2 normally, we have a bottleneck with raw materials, which is still valid and surprising, but the queue at the loading of the ships in Brazil and Australia has been increasing and so there are still freight problem as well, of course you know that, but of course afraid to see that big eye level and about availability, which means that in fact we are constrained by the raw material price -- the raw material availability at least for the first half of the year.

Did you manage to get your entire price increase through that was announced at the start of January, I think 7 to 10 on average, or was this recent quote for spot volumes being sort of rather flat January versus December.

No, it's not our vision, of course. It's a mix of annual contract, some ( inaudible) contract and spot contract. For the spot contract accept lots for [Indecipherable] and product and perhaps a little bits of [Indecipherable], we got more or less the price increase we have announced three months ago.

Okay.

For quarter 1.

Thank you.

Thank you. I'd like to remind you once again, if you wish to ask a question, please press star, 1 to signal. If you're using a speakerphone, please be sure your mute function is turned off to allow your signal to reach our equipment. And we'll take our next question from Luciana Avran of Iksis CIB. Please go ahead.

Good afternoon. You say that one of your past priority was to reduce debt. Does it mean that now you're ready to finance your acquisition with debt or do you want to maintain your level of net debt in the coming year?

So what I could tell you is that we have achieved by the end of 2004 a given ratio of 20 percent, whereas our target in the cycle is that this gearing ratio should be between 30 and 50 percent. That we can see that at this moment that our leverage is even too low or that we can finance our -- an acquisition with debt or with available cash. In addition to that is that we clearly are sure that we will deliver some additional substantial free cash flow in 2005, which will even increase this available cash for acquisitions or for other purposes.

Okay. Thank you.

Thank you. Ladies and gentlemen, there are no further questions at this time. I would like to turn the call back over to you for any additional or closing remarks.

So thank you, thank you, thanks a lot for assisting this conference call. We will release our first quarter results second of May. Of course as you have understood, the year 2004 was very good. I did not say excellent because we are fully convinced as the year 2005 will be better. So thanks a lot.

Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation.