ArcelorMittal SA (MT) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to your Arcelor conference call hosted, by Mr. Guy Dolle, Chief Executive Officer. My name is Tim and I will be your coordinator for today's conference call. Throughout the duration of today's conference call, you will be on listen-only. At the end of the call you will have an opportunity to ask any questions. (OPERATOR INSTRUCTIONS)

I'll now (indiscernible) to Mr. Dolle to begin today's conference call.

Good morning and good afternoon, everybody. I am here with my colleagues with the Management Board, and after a short introduction from myself, I will give the floor to Gonzalo, which will present the results, and then, Roland Junck and Michel Wurth will give you a few comments regarding our industrial situation and our growth prospects.

I am very proud and I think that the 95,000 people, employees of Arcelor, are very proud to present you these outstanding results. They are outstanding, but not exceptional, which means there is nothing at the EBITDA level, for instance, which is important and non-recurring improvement.

This fantastic result has been achieved in a difficult steel industry climate, at least for the second half of the year. Spot prices were down in the second half. Volumes were down, and I will give you a few comments regarding that. As you know, raw material price decreased a lot, as well, -- I don't know -- as well coke and coal.

We are very (indiscernible) -- I have been asked to change my microphone, but the second one is not working. Is it okay now? Sorry for the technical problems.

And we are very confident in the future of Arcelor, and (technical difficulty) the Board has proposed yesterday to the shareholder assembly to pay a dividend of EUR1.20 without nothing exceptional.

So turning back to our business, I think that the results of the year 2005 and the evolution of the results between 2004 and 2005, EUR1.3 billion in EBITDA plus EUR1.5 billion in the net profit, show the efficiency of our model. Why this model is efficient? First, let me share this comment -- after all is a successful merger. Four years ago, there was a lot of concern, but we feel that we have always delivered more than what we promised year after year as well -- on the bottom line as well on the synergy savings. And we could today confirm that we have been able to achieve [at least ] EUR700 million (indiscernible) per year, one year ahead of the initial schedule.

Secondly it will prove as evidence of our value versus volume orientation. Just a few figures regarding the year 2005. In 2005, Arcelor has decreased its steel production in Europe with the same [perimeter] -- 3.5 [billion] tons. And according to the [Double I 5] statistics, the total decrease of production of Steel in Europe (indiscernible) has been 4 [billion] tons, which means that Arcelor has achieved 90% of the production decrease, which shows our sense of responsibility compared to some others and which also enables us to keep despite the collapse of the upper-end demand, price and margin at acceptable levels, even as they have (indiscernible).

Third, we have been able to achieve healthy growth and the results of the year 2005 (indiscernible) is bringing also a lot of value, even if Acesita is not bringing anything from purchasing a continuing reason. But Gonzalo will explain that to you.

Fourth, we have been able through these last four years continuously to decrease our costs -- close to EUR2 billion per year in four years, which means an average growth of EUR500 million. That is fundamental in this industry to be able year after year to do that, in order in average to compensate the squeeze effect between cost and price.

Then we show also with this result our less volatility in our exposure in the cycle. Of course, it is mainly linked to our huge part of annual and midyear contract, especially in the Flat Carbon Steel business, but also to our involvement and evolution by my colleagues in distribution.

Last but not least, I think all of this improvement has been achieved without social trouble, which means also the balance we have been able to demonstrate and to achieve in our model between the shareholder interest and all the stakeholder interest.

So for all these reasons, I am very proud to give the floor now to Gonzalo in order to present to you the results, the outstanding results of the year 2005.

Thank you, Guy, and good afternoon, good morning to all of you. It is a pleasure being here with you to present, as you were saying, these really excellent results.

First, you see our turnover has been 32.6 billion. EBITDA of 5.6. Now without EBITDA, I would like to first give you four numbers which I will say at the end. What are those numbers? 30% in increase in EBITDA with respect to the previous year. Now 36% in EBIT and 66 in net income. So I do think that proves excellent results.

Having said that, of the EBITDA 1/3 of it -- less 30% -- is coming from Brazil. The rest from Europe. And I think what is important in this EBITDA is the following. We have had two very different parts of the year. The first part of the year, first and second quarters, where we had EBITDAs of practically 1.7 billion, and to the second semester, which we had EBITDAs of 1.1 billion. What am I trying to say with this? I think with the actual perimeter, we are showing there that if we would have had four quarters like the two first ones, we would have been approximately a EUR7 billion EBITDA.

But I think what is really important is the flow. That is, in two difficult quarters -- that was why? Because you had the month of August and December in the third and fourth. You also had the increased full impact of the raw materials. And we had also the decrease in productions and decrease in prices. When it's that much harder scenario and definitely different from the first semester, we had more than 1.1 billion. So really there we have proven that this company in a difficult situation is a company that generates a lot of EBITDA. So the flow has nothing to do with what it was in previous years. That is clear.

Number two, I want to say also that we have had, as you see here, some extraordinary items, non-recurrent items. The biggest one of them was the sale of the Long products' Rebar in Spain that amounted to practically 50% of this item.

I will come back after to what Guy Dolle said before of the Acesita. As far as the Acesita, as you know, we have had it nine months in participated companies, in equity income, and the last three months fully consolidated. But due to purchase accounting, it had a negative impact. But I will come back to this point because I think it is very important, when I speak of Carinox.

Having said this, our earnings per share, 6.26, so I think very good. What is more important, I think we can continue creating value for our shareholders this year and future years. As Guy was saying, we believe 2006 will be a good year, but I think above all it will be a very good year for Arcelor.

Okay, if we go to the Flat, I think for Flat it has been once more an excellent year. Why has it been an excellent year? Because as Guy was saying before, volumes have been reduced very, very much. We are saying, as Guy just said before, more than 3 million tons reduction in volumes in order to adapt our production to the market. So we had in the second semester impact, as I said before, raw materials, the impact of decreasing prices, and above all, this impact of decrease in volumes. With that, you see that the EBITDA has been 3.6 million, which is a very important EBITDA and stronger than last year's, taking into account that last year we had CST for three months and this year we have had it for 12 months. Okay?

Having said that -- and this is in the honor of my friend Guy -- you see the EBITDA per ton has been 129, when last year we had 81 million EBITDA per ton. Then you see return on capital employed one, which is a very important variable, we have there a 31%. Once more, I would say an excellent result here.

We go to Long; here you see Long. What can I say of long? Excellent business. Why? Due to its stability. You see we have done EUR1.3 billion of EBITDA last year and a bit above that this year. So it is first a very stable business. We have seen that prices have increased, but we also saw that raw materials, especially scrap, had also increased. We have been able to maintain margins here above scrap, so the scrap surcharge, our margin has been maintained. So I think that has been very positive news and we continue in that sense in a very stable business.

Having said this, once more we speak on EBITDA per ton. It's been 111 versus 96. If we go to return on capital employed, it's practically 33%, which is an excellent figure.

Now Stainless Steel, difficult year for Stainless. We had clearly an increase in prices, but at the end we have had an enormous increase of raw materials, nickel and others. Having said this -- and we also had a decrease in volumes. We have not seen the impact yet, which I think is the most important of Acesita. As I said before, the first nine months it has been in equity and the last three it has been fully consolidated.

Having said this, I do think it is important to draw your attention in the sense that once we incorporated to our balance sheet, it was incorporated through the purchasing accounting, and we have to do the mark-to-market of all the assets in the purchasing accounting. Having said that, all the raw materials, finished product and work in progress products had to be put at a mark-to-market.

This has meant for us that (technical difficulty) we've had no EBITDA due to this because as all -- we had to do a mark-to-market of all these products. At the end, we had to sell them with no EBITDA. So what has in the real impact here? For the first nine months, we've had an equity income for a bit less than 50 -- EUR47 million. And for the last quarter, due to the purchasing accounting, minus 5 in our accounts, because we had to add subtract the 53 million.

A3S, Distribution, what has happened with Distribution? The following. It has been a tough year for Distribution. Why has it been tough? We started the year with good prices, high stocks and very high price of our stocks. So at the end, the volume went down on one hand and second, prices also went down. So during the year, we saw an important price squeeze in the A3S activities.

Having said that, I'll leave you with two comments. It has been a very important activity. We have done practically 14 million tons through our A3S activities on one hand. And second, which is very important, the stocks have been reduced to practically of 30%, which I think that has been important in our case, but we have seen that also in our competitors.

So I think that will help us a lot for the year 2006, which we are, I would say, bullish on the year 2006. One of the positive factors, amongst others, we believe that the distribution and steel service centers have reduced very much their stocks, so there will be a demand of our steel centers and distribution activities.

What are the main items in the balance sheet? First we have a non-current assets. We've seen a big difference there of 3 billion. Of course, we have invested 2 billion on one hand. We have had also the depreciations. But also we have had a 1 billion impact -- just a bit below, 950 to be exact -- impact due to the Acesita full consolidation. So we have had there a big impact on the Acesita changing our balance sheet.

Working capital, we have seen an increase in 824 million. Now we are very conscious and try to monitor very carefully working capital. We have had an increase. This increase has not been in finished products, but it has been in raw materials. So why? The prices of raw materials went up and we had an increase due to this.

Third and not least, shareholders' equity. What has happened in shareholders' equity? Clearly, our results -- our excellent results of 3.8 billion have impacted very much that account of shareholders' equity.

Now in provisions, I do want to say that the interchange of 300 million is basically we have externalized complementary provision we had in France for employees of the ex Usinor. So it is a pension there, and that has had an impact of around EUR250 million.

If we see the consolidated income statement with these excellent results for today and we are convinced for the future. I would like to draw your attention in basically two major items, one above all -- that is the taxes. We have seen that for the end of the year, we have had EUR161 million in taxes. So if you allow me now, I think it is important to make a bit of history.

Historically, the steel companies had had losses, so we had losses in many companies. But auditors never let us activate those losses, and that was historically like this. But this has changed fortunately dramatically. Why? Because we have had very good results in 2004, excellent 2005. We are convinced we're going to continue having them in 2006 and the future, so the auditors have revised our tax situation and decided to activate part of our tax losses carried forward. So this has had an enormous impact.

That is why you can see here that in the fourth quarter, we had the effect, which was positive in this case, of 445. It should have been -137, and we had the activation of these losses carried forward at 580 million, so the net was 445.

Having said this, I want to do a couple of comments. First, the auditors are the ones that asked for us why, because they see we are machine of generating good or excellent results last year, this year -- sorry, 2004 and 2006 and the future, so that was a decision, and that is the situation with the factors.

Having said this, I have to tell you that except for Brazil and for a study we are doing now in Belgium, the rest of these tax losses carried forwards, we are at the limit of this situation.

Now one more point -- that is minorities. You see an important number of minorities. That is basically the biggest are the ones of Arcelor Brasil and Acesita.

Net financial debt. What can we say here? We have tried to redo for you here what was the debt at the origin of Arcelor. If you remember, it was created February 18, 2002. So this was at the end of -- December 31, 2001. We were in net financial debt in EUR6.5 billion.

What has happened? Arcelor has proved to generate a very important amount of free cash flow for its shareholders, for investments, for growth, and also we have been able to reduce our debt, as you have seen. May I give you an example, what has been the year 2005? What has happened? You see there a figure of 5.6 billion. The movements increased in working capital you've seen there. Then you have other small items of 110. We have the capital expenditure of EUR2070 million, so the operating free cash flow is EUR2857 million, which is an enormous amount of operating free cash flow.

Now we have had net financial investments -- when we say net, we mean the net between purchases and acquisitions. We also had some taxes, because we have had taxes cash out in the different countries where we are. That figure has been around 405 million for the year. So we did have at the end a free cash flow of 2.8 billion.

Now we have to deduct from that the dividends we paid. It was the dividends you see in this figure we paid and additionally to that, the ones paid [since the] last year also. Then we have a big difference of scope. Once more, that is the companies that have entered into our consolidation scope. So at the end, we have had funds from EUR1200 million, and that is what gives you the debt reduction.

Okay, once more, I have tried -- retreat here to '99 what was the EBITDA of Arcelor doing performance. As you can see here, there has been structural change. This animal is completely different of what it was a couple of years ago. You can see in a very good year, like the year 2000, we did a bit less than 3.5 billion. Then we had more difficult years.

But look where we are now, and I would like to come back to what I was saying at the beginning. This year was 5.6, but what if it would have been a year, we believe, like the year 2000, we would have been closer to 7000. So clearly, we are at a different -- I would say the cap and floor have nothing to do with the Company -- of the cost.

This is a company that is creating value. It has done it. Look, we speak after management gains and all that, and it is a completely different company than the one we saw when we were created. I think we are starting to harvest all the enormous progress in this company.

Now you see up there with my colleagues the structurally stronger company and focus on key strategic objectives. Let me insist once more, even though I may repeat myself with a couple of figures. 30% increase in the EBITDA, 36% increase in EBIT, 66 in net income, and what is very important, in earnings per share, 46%.

To conclude, we're here to create value of our shareholders, not in the past, but clearly in the future. And this model of the company will be able to create it. Thank you.

Thank you very much, Gonzalo. We were saying that this is a very strong company, so when we speak about this, there are factual reasons to it; it's not just a question of coincidence. It's a question of a certain number of elements. And the first element definitely is the product mix. When you look the shipments, we do as well in Flat and in Long, you see, in a very important part of Brazil and South America, which of course gives a strong contribution and a solid contribution to our results due to the fact that those are very competitive assets in a very profitable market.

When you look then a little bit more to Flat, you see that the contract in terms of one year price contracts or multiyear price contracts, they have an important part of our product mix. So that the real part, which is (indiscernible), is less than 40% in flat. And when you additionally note that part of that, an important part, is going through distribution, then you understand that the volatility, even though that spot sales is very low.

For the long-term still, you are in a similar situation, of course, Brazil, and its important stable contribution. But additionally, you have a big part of spot. But in reality, you'll remember that Arcelor has been the first company introducing the scrap surcharge, meaning adapting the sales prices to the increase of raw material costs, allowing us basically to work with a constant transformation margin, which is the main explanation why also in Long Carbon products, our results are nearly independent of the evolution of raw material costs then and contribute in a very stable way all over the years.

Now, the second element, which is important that you have heard this very often, is the policy of price before volume. But of course, you must be in a situation where you can afford to reduce your volume, because if the flexibility of your production assets or the cost structure does not allow you to do that, then of course you can reduce your production in order to get to the price, but you will suffer from the cost increase.

So basically the strength of our production assets were that we could reduce by 3.5 million 10 tons our production in Europe -- as you see, it has been split in the same way practically between Long and Flat products -- without any significant impact on our cost side.

Now again, the third element, which is not necessarily a question of volatility but which is a question of confidence, is management gains and the synergies we have realized all over the years. So we are not -- when you look at the evolution of our management teams, they have been constant, not only in terms of synergies, which we achieved in 2005 already the target of 2006; but even in 2005, after three years of reducing our costs, we have strongly continued this and it will continue over the future.

Now where are the main grounds where we have been working? When you look at the cost reduction that has happened in 2005, it has been done 50% in productivity and on 25% on yield. What does that basically mean? It means that of course we are doing for productivity and for yield improvements, and the only way to do that is with highly efficient assets, and that is one of our investment policies, you know, in terms of CapEx to make sure that we have the state-of-the-art equipment that allows us to do these improvements.

But 2005 has not only been like the years before, the year of successful integration it had been done, but it was also the first significant year we were thinking in terms of growth. Growth, of course, following our strategy of growth, which is not just accumulating volumes, but which is basically a strategy articulated around products and markets.

So of course in this global world, the aspiration to be a global leader in terms of specific strategic market segments like automotive is an important access of our strategy. Of course, the differentiation is going through our (indiscernible) or our technological leadership. And we have, of course, developed a strong footprint not just in Europe but also in North America now, and you will hear more about this later. And also we have developed our support to all different activities of this sector, as well from Brazil to Turkey, Russia, and through China.

The second one is this world and the markets are not all global. The second access of our strategy is, of course, regional leadership in profitable markets, markets with high growth. And this -- with very low-cost assets, this is the minimal concept which can be based on scrap as in Europe, which can be based on the (indiscernible) of pig iron, as it is in Brazil, Argentina.

Last but not least, it was said already, but it is a very important element. Our distribution network, which is not just allowing us to enter into new markets like Central and Eastern Europe or South America, but which is also allowing us basically to reduce the volatility, mainly on volumes.

Thank you. Good afternoon to everyone. I have the pleasure to speak about our real growth project as they have been, and to date, it is very well chosen because, as you know, Investment Canada, the Canadian authorities, have given green light and you know that our offer on Dofasco is still open up to February 20, and we expect at this moment to be the large majority shareholder and to welcome Dofasco within the Arcelor Group family.

So we are very happy with that because we believe that everyone, I think, knows that Dofasco is a wonderful asset. I think the only North American steel company which is an old steel company, but which has all of the time kept state-of-the-art investment, has never been in Chapter 7 nor in Chapter 11, so really a top company.

A top company for serving top automotive customers, because also you know that Dofasco and Arcelor already had a lot of technical exchange. In fact also as of today Dofasco owns our technology concerning automotive sheets and not only in our common platform. So we are very pleased. We believe that this is great news for our global automotive customers. We believe that it is great news also for our shareholders and we might see that in the next slide, where we believe in terms of value for our shareholders this is a good deal.

It is a good deal also because we have identified a lot of synergies. I can tell you that after having done some due diligence we are extremely confident with the level of synergies we have identified. We believe that we can even do much better. Dofasco's results had been disappointing. The management already has taken some actions in order to improve them and to top that there are synergies which we estimate at least as being EUR140 million per year. There once again we did not account for all of the synergies we identified, but only 75% of the identified synergies in order to take care of execution.

With these synergies first of all I would say they are first of all in purchasing and raw materials because if you joined a small company with a big company which has good expertise in purchasing, you can extract a lot of value. Second, there will be a lot of technical synergies due to exchange of best practices and I think the best way to illustrate it look at exchange of best practices we have actually been doing when we created Arcelor, so there is huge room out of this. The third room of technology of synergies is the link we can establish as from now on between CST, who has a lot of slabs and who has even more slabs in the second half of this year and who can shift in order to be rerolled, shipped slabs to be rerolled in (Hemington) up to 800,000 tons per year. So in terms of value chain, a very nice way and fourth I think there will be a lot of commercial synergies because Dofasco will be passed into our global automotive’s worldwide sales organization as well as Arcelor sales in North America will be integrating into Dofasco's normal sales.

So this is a lot and this is why basically why we did the deal, but in addition there is another synergy or at least another risk mitigation factor which is important, that we remind of QCM. QCM has the 13 million tons of pallet facilities, so it gives us a better -- a lower exposure to spot market prices and from that point of view, it is quite a natural hedging for our iron ore. It's good to take the reasonable hedging element and that is the foreign exchange hedging.

You know that our balance sheet today is much more composed of those euros. I think this will give us more [full-out] indicated hedging, which is something we like and we think it's good for our shareholders.

So this is clearly a value-creating deal, and what we expect today that we will fully consolidate it from March 1 (indiscernible) and so that it will contribute to our EBITDA growth for next year.

Next slide will be -- I would like to make the point about our situation in Turkey. In Turkey, nothing has been concluded because we are still ahead of the authorization of the Competition Board of the deal we have negotiated with Oyak. You know that Oyak has invited Arcelor to be the industrial partner in this company, but we have to see whether this is compatible in terms of antitrust because of the strong presence already today of Arcelor in Turkey, which shows our great interest into this market.

What is this interest? Turkish market is a fast-growing market (indiscernible) in terms of global growth and doubling of consumption within the next seven years. Arcelor is a long time committed in Turkey. Last year, we sold more than 1 million tons and we transformed them either through our joint venture in Borcelik or our [Simplex] business, so this is a good country to be and we hope that we can make progress in these negotiations.

Third concrete growth project, that is obviously Brazil. Brazil, which is by far the biggest success story which is being continued. Why is Brazil so good? Brazil, first of all, is a fast-grow market and our experts say that by 2015 there will be an additional 12 million tons which will be consumed. And in the meantime Arcelor, is number one in Brazil due to our unique platform in Length -- in Long, in Flat, and also in Stainless.

We are the leader and the path has been a fantastic success as you can see on the slide because last year the contribution of Brazil to the global EBITDA was EUR1.6 billion. This is very, very good, but it is even better if you consider that there is already a lot of growth in the pipe due to the first phase of CST, which will be completed, let's say, in the late summer. And we will produce on a yearly basis production of 7.5 million in the fourth quarter of this year.

In the Long products, we are also implementing some growth through the prospect [good] and that will mean also additional EBITDA. This has been translated already in value, because today Arcelor Brasil, which is owned 2/3 by our company, has a market value of 8 billion; that means for ourselves almost a little bit more than 5.5 billion. And for those who have a short memory, recall that 5.5 billion is less than the combined market cap of Arbed, of Aceralia and of Usinor prior the announcement of the merger. So I think it is important to say and this story will obviously continue. Thanks.

I do not speak about other growth sites which might come later on in and where we have later on time to comment.

Thank you, Michel. I'll speak of the dividend now. Now, the Board of Directors yesterday approved to propose to the shareholders' general assembly a dividend of EUR1.2 per share. This shows the first point our commitment to shareholders' remuneration. Two, it shows the structural improvement of Arcelor. As we said before, we spoke of a floor there. We spoke of a company committed with value creation, committed to create value for our shareholders through an added return for our shareholders or through growth, and this only reflects that. As I said, it reflects this structural improvement of Arcelor.

Now the idea is to keep increasing this shareholder remuneration year-on-year, reflecting also the gains we are doing and we are going to continue doing year-on-year. Thank you very much, and 1.2 dividend for this year, the general assembly approved it. Thank you.

Thanks, Gonzalo. Just a few comments regarding the year 2006 business-by-business. As usual, it will be more or less stable for long. For A3S, I think it will be positive compared to the year 2005, taking advantage of the less level of inventory and the increase of market price. A question mark for Stainless. There are signals now that we reached the bottom regarding spot prices, and there are some announcements of some price increase in Europe. And of course, when you take advantage of the full consolidation of Acesita.

And last but not least, Flat. It feels that the volumes back in. The account demand now is even a little bit higher than the real demand, taking into account the low level of inventory. And imports are low and even the price of imports are [up], which means that there is room and we are doing -- that most of (indiscernible), there is room for price increase in Europe for quarter two.

And of course, as you know, we have negotiated our multiyear contract or at least two thirds of our multiyear contract this year with some very important price increase and some indexation for the year 2007 and 2008 for two of them on raw materials.

So I am optimistic for the year 2006, which will be for Arcelor a very good year, taking into account, as I mentioned, the full consolidation of Acesita and the consolidation of Dofasco after the purchasing accounting, starting certainly March 1. Regarding -- of course, as you know, we are going to deliver year after year and in the next coming years at least between EUR500 million and EUR600 million of cost-cutting, including synergies.

Regarding capital allocation, I already mentioned that our dividend policy is a recurring one and not an exceptional one, and that whatever we will do regarding growth will be done in a way to create value for our shareholders.

As I have already shared with you, we have started a review of our synergy business. We are taking into account the control of Acesita and also the end of the ramp-up of Carinox, which will improve dramatically the cost position of our reopened Stainless Steel business.

Last but not least, Arcelor will pay a visit to its shareholders starting end of February in order to share with them the detailed information regarding our strategy and to show them and to convince them that we are more creating value in Arcelor (indiscernible) the independence than with any other project.

So that is our vision of the year 2006 and now, with all my colleagues, I am ready to answer your questions.

(OPERATOR INSTRUCTIONS) Paul McTaggart, HSBC.

I had two questions. Firstly, you mentioned that you are sort of the limit now with the tax losses brought forward. I just want to get a sense of the effective tax rate going forward. Are you saying that it is going to stay at these low levels or go back to around a 10% level?

Secondly, regarding Erdemir, I'm no expert on the Turkish steel industry, but what I understand is that they are basically short Flat products production and have excess Long products capacity. How do you see that? Are there opportunities for rationalization across the productline with Arcelor, and what are the potential benefits that could come from that?

I'll answer the first one -- that is the tax rate. It is clear this has been an extraordinary for us and it will not continue. Now, where do we think our tax rate is going to be next year? I want to say a couple of things. That is, first, we are here to try and optimize the tax rate. Now, from the point of view of tax losses carried forward, we are in our limits, except for one country, which we are starting; that is Belgium. So we will have to see if we can be efficient on the Belgium side. If that will be like that, we will see it in 2006.

But if we take that away, we will believe we will come back to a rate that is around 15%, between 10 and 15%, if we continue optimizing our tax efficiency. Having said that, I do want to say that our cashout for 2005 has been EUR405 million of cashout in 2005. Thank you.

Regarding Erdemir, what we could say? Today, Erdemir is just in the two companies or two plants, Erdemir (indiscernible), which is Flat Carbon Steel, runs 3.5 million tons, efficient but where some improvement could be achieved. And Isdemir, which was and is still now a Long Carbon Steel plant, but where Erdemir is investing in order to transform it in the Flat Carbon Steel plant. And I do believe this will be certainly one of the most efficient plants in Europe, in the south part of Europe, taking advantage of the location. So that is the reason of our interest for Erdemir and the interest of so many people for Erdemir.

When we bid for Erdemir three or four months ago, the idea of synergy we had in mind was -- and it was very conservative, without taking into account any slab supply, was in the range of $200 million per year. But don't forget we did not consolidate Erdemir before at least two or three years in our P&L.

Thank you.

Patricia Lopez, JPMorgan.

I do have a couple of questions. The first one is that if you have for the Stainless Steel division an estimate of possible cost gains of the startup of Carinox after the summer? Related to the Stainless Steel business also, can you give us a sense of the profitability of Acesita, even as the contribution to profits this year has been very moderate? What we can expect from Acesita during the 2006.

As far as I remember, the cost savings coming from Carinox is in the range of 60 -- twice 30 -- million euros per year, taking into account the shutdown of (indiscernible) steel shop, which has been announced before the end of the first half of this year.

The profitability of Acesita, I just want to give you. If Acesita had been fully consolidated in 2005, it would have meant revenues of EUR4.8 billion, an EBITDA of EUR424 and an EBIT of 308. You know we have only had it through the equity in the first nine months and then we have had the impact of the purchasing accounting. So that shows you an idea what would have been a full contribution of Acesita in the full year 2005.

Don't forget that Acesita is not just in holdings. It is also the only producer of electrical steel, nonoriented and oriented, and high carbon steel in Brazil.

Sorry. Are there specific commercial or logistic synergies from your European and Stainless Steel business and Acesita? Have you identified some synergies coming from that?

We have already achieved a lot of synergy. And the reason of the improvement of efficiency of Acesita during the last five years has been the transfer of best practice between Ugine and Acesita. But (indiscernible) already Acesita shipped some (indiscernible) product to Europe and in the distribution business of Ugine and (indiscernible). So it is already done.

I don't believe that is still a lot of synergy to achieve between Acesita and the Stainless Steel European business. Perhaps a little bit, but not so important.

Okay. The last question is on the dividend. The dividend per share amount today still represents relatively low payout compared to the EPS reported this year. What is your view on your earnings power over the cycle? What do you think it could be as sustainable to [give a] per share link to it?

You're asking me to predict the future and that is not easy. It is clear that this dividend means payout of around 20%. So with that, we have had -- did want to take (indiscernible) created, which is we distribute between 20 and 30 of our 25 and 30, so that was the original idea.

Now, what do I think? As I said before, it is going to be future dividends? I think our future dividends should clearly grow as it has in the future. We are here to create value, so we are here to generate free cash flow. And that free cash flow is going to be for two things, for the shareholders and for growth.

So I do think if I come back to shareholders, they will receive that in the forms of dividends or other forms that the Board of Directors approved. So I do see clearly a growing dividend as we have done in the past.

Thank you very much.

Sylvain Brunet, Exane.

I (indiscernible) a couple of questions on the operating side. Very simply, could you split the contribution from Arcelor Brasil between the Flat and the Long division?

My second question is on the non-recurring item linked to the Flat Carbon division, the positive impact. Going back to credit, what is that you can carry forward, could you give us the amounts of (indiscernible) operating losses you can still carry forward?

Then I am curious to know if you would have some ForEx sensitivity on the real, now that Arcelor Brasil is fully consolidated that you can give us at P&L level.

Lastly, on operating, you mentioned in the presentation synergies in the coming years. Could you detail among the 500 and 600 the amount that would not be shared with customers?

Okay, I will start with the first one. You asked me, I believe, in the first one what was the contribution between Brazil and non-Brazil. And I'll try to do the breakdown in Long and Flat. First, as I said before, of our total EBITDA, Brazil has been 30%. Okay? So in that form, it has been 1.6 billion on one hand and it has been -- I'll give you in round figures -- 800 of CST in EBITDA and 850 in Belgo Mineira. So once more, excellent results. That's for my first question.

For the second question you asked me, I believe it was in non-recurring items. You told me for Flat, I believe it was. Let me tell you, in Flat we have very, very little non-recurring items, I believe -- very few ones. So that what is important, we did put in Flat, there was some pre-retirements in Sidmar, which had a negative impact of 32.

Now in (indiscernible), we had -15 and we also had the [CO2] that we did put it in non-recurring. In the future, I think -- and I'm hearing my friend Guy Dolle here -- that is not correct. I agree with him. This is an industrial factor. This year, at the end of the year, we have produced less production. So due to that, we have an excess of C02 rights and we have gone out to the market and sold these rights. That is for the second one. For the third --

Just with the (indiscernible) percent of the fixed costs, which means that in fact we have a negative effect in the fourth quarter more than EUR120 of (indiscernible) and we have a positive effect of 60, which is recurring and not non-recurring, regarding CO2 permit sales.

Okay. Now the third one I listed was credit tax. What I tell you? Are we going to have more situations like this? I would have to tell you, sadly, not many more I would have to say. Look, we still have losses that can be used in Brazil, although we have limitations, number one. Now if we are able -- and I think we will succeed in an interesting transaction from a fiscal point of view in Belgium -- we will have an important [tax] losses carried forward that we will be able to use. But for the rest, as I said before, we are on the limit.

Your fourth question was on foreign exchange. May I tell you that foreign exchange for us, in the case of Arcelor Brasil, it is a dollar-denominated asset due to its activities.

And the fifth, Michel?

The last was synergies. I think that we still have EUR300 million of synergies to achieve in mainly Flat Carbon Steel in the [recirculation] of our (indiscernible), which has been already announced and which are not done, except one (indiscernible). So that is the productive consequence of our panel of what has been announced in 2007, 8, 9, and 10, which would be in the 2009 or 2010 around EUR200 million per year.

And that would be net of implementation costs, right?

The costs are already on our balance sheet.

A few questions on strategy, if I may, just to be able to gather in (indiscernible) valuation -- quantify the gross prospects. In Brazil could you give us a number on what you expect (indiscernible) volume growth beyond the third phase at CST?

Second question of strategies on Dofasco, could you give us a sense of how you would split between soft and hard synergies out of the roughly C$190 million?

Lastly, on free cash flow generation, what would you say is the recurring level for Arcelor in its present form -- before Dofasco I mean?

In Brazil, as you know, the first phase will bring 2.5 million tons more, and certainly in the first step. In the second step, with minor investments, will bring more of course and not just slab. We just have to invest -- to have minor investments in our run rate in (indiscernible) in order to more than double the coil capacity.

Secondly, we have -- but we have not yet decided -- we are investigating the idea of increasing the capacity Long in Brazil -- (indiscernible) about the plant, which could increase the capacity of Long 1.5 million tons. But it is not already done and it will be ramping at -- the end of the ramping up could be 2009, something like this. It is a long-term (indiscernible).

Then we have already launched, with some minor investment, an increase of the capacity in Argentina, which will be done step-by-step and which could be in the range of 30, 40%, compared to 1.3 million tons of capacity today.

The second question --

Was on Dofasco.

The synergies we have identified in Canada represent C$200 million per year. But we just took 75% of this synergy when we evaluate the interest of the company. So we did consider that this energy would be achieved in three years. As Michel explained to you, there is something close to 13 per (indiscernible) out of the 200, 45 in benchmark in terms of best practice, 10 in R&D, 10 in mix improvement and 110 in transfer of volume, volume increase, slabs and scrap supply from CST and the improvement.

But that is without and before the cost improvement program Dofasco has already launched. So we identify 200. We put in our valuation 75% of this with a ramp-up of three years.

My last question was on the free cash flow recurring level you feel happy with at Arcelor under its current parameters.

Between 2 and 3. With a two-day parameter, I would say between 2 and 3.5.

Thanks very much.

Without Dofasco.

Okay, thank you.

Hermann Reith, BHF-Bank.

I have two questions, please. The first is regarding the Stainless Steel business. You mentioned that you already own that. What are the reasons for that and what is your aim by doing so?

The second question, Mr. Dolle, you mentioned all these different reasons that you see some potential for spot price increases in the second quarter. Could you please quantify for what increase you are targeting?

It is still that we are investigating what is the value of our synergy business and appreciating it with the market evolution. You know that the market is tough and we do consider that the market will, on all bases, will be tough for the next two years because of overcapacity in China. And we have to investigate as well the value of our Flat and the value of our Long domestic division. Know that we are ready to dispose of Long and we were not pleased with the value which was proposed.

Regarding the spot prices, depending on the product and depending on the geography (indiscernible) result, it will be between 20 and 40 -- could be between 20 and EUR40. But it means that with this price increase, spot prices still lag much behind U.S. prices.

Okay. Perhaps a follow-up question. On Flat Stainless Steel, will your revenue include the readiness also to perhaps to think about a disposal of the Flat Stainless Steel business?

When you have a strategic review, you need to study all the scenarios.

Okay, thank you.

Charles Spencer, Morgan Stanley.

I have two questions related to the Flat Steel division. When I look at the profitability per ton in the fourth quarter, it looked like it fell by about $32 per ton. Can you just expand on that a little bit, what was the decline related to?

Secondly, you talk about lower inventories. When I look at your production of steel for 2005 versus the shipments and then compare it to the year prior, it looks like your production outstripped your shipments by a higher amount in '05 than it did in '04. Can you just help me understand what you mean by lower inventories?

No, I think you're wrong. Our shipment decreased 3 million tons, when the production -- Flat production decreased more or less at the same level. So when you compare the metal inventory, it's the same perimeter end of 2004 compared to end of 2005. There is even a small decrease of 100 or 150,000 tons, which is very important in our distribution business and which is less important in Flat taking advantage of the [slab].

So I have to congratulate all the managers of this company because they have been able -- it is a difficult business to manage inventory at the good level and even at the very low level in distribution.

Okay, and --

Also your first question.

In net profitability, there had been a price decrease in the fourth quarter versus (indiscernible) -- I think around EUR30 per ton, which is the main explanation. The other question was the question of possible reasons. The non-recurring, what Gonzalo was telling you, that the positive CO2 effect was not there in the volume effects because maybe there was the volume effect based on the fact that we not produce as much in the fourth quarter last year.

Can you just repeat what the C02 effect was again for the fourth quarter?

We sold 6 -- for 60 million -- CO2 permits for 60 million -- 65 million tons, which represent much less than the C02, which represents only 50% of the CO2 -- we did not -- 50% of the fixed costs and also much less than the total C02, we did not in it because of our reduction in (indiscernible) production in 2005.

3 million tons, okay.

Thank you.

Michael Gambardella, JPMorgan.

Good afternoon. A question about the Mittal proposal. Have you sat down with the Mittal management to discuss the details of potential synergies between the two companies?

For what company --?

Between Mittal and Arcelor. Have you sat down with Mittal management to discuss the potential?

Sat down with Mittal management? As you know, I just want explain what we did when we decided to merge inside Arcelor. There were three months of discussion with (indiscernible) managers, with [Clinton] exchanging (indiscernible) regarding costs, regarding purchasing costs, regarding efficiency.

After that, we identified very detailed synergies and after three months we were ready to contemplate the huge synergy setting we could achieve and then we spent three months to discuss what was the relative value of the company. But the only way to identify professionally synergies is to do what we did to create Arcelor five years ago.

I'm a little confused then, because if you have not sat down with Mittal management to see what the synergies are, how can you go to your shareholders and say you can create more value alone than with Mittal?

I'm sorry, did you have a look on the synergy presentation of Mittal Steel?

Yes, but I wanted to know if your management and Mittal management have gotten together to discuss the potential synergies in detail, because how then can you compare for shareholders the value creation of being independent versus the value creation of being one company?

We will do this job. We are able to do that with our own knowledge, but I am sorry to say that Mittal Steel announced synergy savings without any discussion with Arcelor.

But do you think that that is probably kind of a low estimate of synergy potential that they are giving because they don't have the details, just like you don't have the details?

I think that we would present to our shareholders when we are going to meet them our vision regarding what would be the positive and the negative synergy.

Say you will show the shareholders Arcelor value creation as an independent entity and then the potential value creation as a consolidated entity with Mittal Steel? I am just wondering how shareholders can choose then what they think is the better value creation for the Arcelor shareholders if --

They are going to choose.

I know they are going to choose, but I am just confused. Why wouldn't you show the consolidated Arcelor and Mittal to your shareholders with detailed -- (multiple speakers)

This is not the subject of the conference today. And I have explained that we are going to pay a visit at the end of the month to our shareholders and we will explain with our shareholders what is the value of Arcelor and what could be the value of Arcelor with Mittal Steel. We have to present that to our shareholders first.

Okay, thank you.

Michael Shillaker, Credit Suisse.

Two, I think, relatively straightforward questions for you. First of all, on the tax loss carryforwards utilized in 2005, could you just give the breakout between the cash element and the non cash element -- or is it a pure cash benefit?

The second question, just in Flat Carbon Steel, it did look as though -- if I have calculated this correctly -- that the cost per ton shipped rose by around EUR12 per ton in Q4 over Q3, which does seem relatively high, given one would imagine that most of the raw material cost impacts came through in the third quarter. Could you comment on that, please?

Okay. I'll start with the first one. Tax losses carried forward. Clearly, as we said before, the cashout has been 405 million to be exact, and the rest are all accounting movements. So that has been our cash payout, cashout in 2005. That was the first one.

For the cost in Flat Carbon in Steel Europe, there has been a cost increase in the fourth quarter by EUR10 per ton compared to the third quarter and the other difference is due to volume effect.

Michel, sorry, on the cost impact of EUR10 a ton, what is that? Is that still raw materials feeding through or is it any other nonspecific costs that we haven't identified?

There is some volume. I do not have the -- I have the (indiscernible), but I do not -- details with respect to nature.

I can follow up. That's fine.

But it's not really about raw materials, because more or less we got in the first quarter the full effect of the raw material price increase.

That's what I was thinking. I was therefore surprised, because (multiple speakers).

(multiple speakers) service orientation. Be aware that we decreased a lot our shipments in quarter 4 and our production in quarter 4 compared to some of our peers.

You have destocked in Q4, so I guess it is an inventory effect on the fixed cost non valuation.

(inaudible) for launching activities.

Okay, thank you very much.

We have no further questions in queue. (OPERATOR INSTRUCTIONS) A follow-up question from the line of Michael (indiscernible) from (indiscernible).

Can you hear me, because the line is very bad here in Germany? This is Michael (indiscernible) from (indiscernible). I have just four minor questions.

The first one is what was the amount of environmental CapEx in 2005? Second question is, taking the orders on hand in Flat Carbon Steel, under which months are your capacities fully utilized this year?

Third question is the German Steel Federation said that China will be net exporter of steel with about 12 million tons in this year. Do you share this view and which are the products where we have to face a tougher competition in Europe?

The final question is can you give me the numbers for the share of minorities for Acesita and Acelor Brazil?

I don't believe that China will be a 12 million tons net exporter in 2006. It is not at all what we saw in the January figures. And if (indiscernible), it will be certainly mainly to the U.S., where the prices are much more attractive. So I don't believe that (indiscernible) of saving, the surge of imports of Flat Carbon Steel in Europe coming from China.

I am sorry, but some of my colleagues will send you the figures regarding environment CapEx because we don't have -- it's approximately [85%] of this EUR2 billion CapEx.

For capacity utilization for the year 2006, we do consider that in the second, third, and fourth quarter will be close to our capacity, except (indiscernible). (indiscernible) will line-in in summer.

We will increase our production in Flat Carbon Steel around 2.5 million tons in Europe compared to the year 2005.

Minority shareholders?

Minorities, as you know, we have two-thirds of the capital, so -- sorry in Arcelor Brasil, it was two-thirds of the capital, so we have one-third of minorities, as I said before. On the other hand, in Acesita, we have around a 50% minorities. We have control today. We have control because, as you know, there's growth in share numbers; I think there's two sorts of shares. So we do have control of the company, but of the total capital we have around 50%.

Okay, thank you.

A follow-up from [Scott Hudson], Morgan Stanley.

I was wondering if you could just give us some guidance on your CapEx, please.

As you know, we have already explained that, on average, our CapEx in Europe will be in the range of 1.2 -- 1.1, EUR1.2 billion. It is normally EUR300 million in average in South America. But as you know, we have to spend the end of the third phase of CST for the year 2006, and with the appreciation of the currency, it costs much more in euros.

I think that the total CapEx in euros for 2006 could be between 2 and EUR2.2 billion -- mainly, as I mentioned, in South America, for (indiscernible) of CST. Which means that in fact for maintenance and small improvement CapEx, it will be in the range of 1.5 and the rest will come from growth for the third (indiscernible) here, which we will decommission next summer, between August and September, depending on the process.

That's good. Thanks.

Sylvain Brunet, Exane.

Final questions on the strategy, please. One thing on Eastern Europe, do you see ways where you could grow by yourselves in Eastern Europe, for instance, via Ukraine, which is a market you looked at already?

My last question is do you see other means than consolidation to limit the cost price squeeze that the industry has been subject to between more concentrated suppliers and customers?

We have already many times explained that we are interested in the [Greek] region, and I've told that (indiscernible) is a promise of (indiscernible), which according to me is not part of Europe, and the Ukraine is not already part of Europe. So for the moment, our interest in -- is just of Eastern Europe, as it was already explained many times.

To be efficient, the consolidation must play on the same level and in the same field. I read with interest a few days ago some article regarding the effect -- or the noneffect of consolidation in the aluminum industry. So please -- it has been written by one of your competitors, but if you have time, read this analysis. It is very interesting for material which is not too far from us.

No more questions?

(indiscernible)

I had one quick question, which was actually related to the level of confidence you have in your ability to achieve [timely] pricewise in Q2. And mainly looking at the, I would say, limited success your producers have had in Q4. And what is actually your level of confidence as we look out for Q1, if you can emphasize a bit?

I am a little bit surprised by your comment. We did our homework. It was the only one to decrease in volume in Q4 in order to get prices. I read some documents from peers where they increased 8% [activities] in Europe when we decreased 4%. That is also an answer to the previous question. I think that it will not add any more discipline in the steel industry because we did what we have to do.

So (indiscernible) take the reference of Q4 in steel, but now we are working at close to full capacity and we will see in the next coming months what are the results or what will be the results of our Flat Carbon Steel business and our Arcelor business.

[Alan Coates], HSBC.

Just simple housekeeping things. When will the dividend be paid? When is the next dividend? And do when the report and accounts are coming out?

The dividend will be paid at the end -- Monday, May 29. That was one point. And the second point, we will have the account in the next month or so. You know the Board will (indiscernible) these accounts in the month of March. That is clearly the 17th. So after that, we will have the next couple of days, a week, and then we will have the accounts available for review. Thank you.

Thanks a lot for assisting our conference call. I think that as we are -- we could just confirm how proud we are of the results we have achieved and the evolution of these results between 2004 and 2005, which is according to us an evidence of our efficiency and the quality of the model of management we have implemented.

I just want to repeat that this management will never do anything which would jeopardize value for our shareholders. Thanks a lot.