ArcelorMittal SA (MT) 2006 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to your Arcelor Mittal conference call. My name is Tim, and I will be your coordinator for today's conference call.

[OPERATOR INSTRUCTIONS]

I will now hand over to your host to begin today's conference call. Thank you.

Thank you. Good afternoon, ladies and gentlemen, or good morning. Around this table we have Lakshmi Mittal, Aditya Mittal, Gonzalo Urquijo and myself, Joseph Kinsch.

So we would like to present to you the quarter results and the half-year results of the company. As an introduction, I can tell you that we had quite a strong performance in quarter two on a pro-forma basis. And this was due to the recovery in volumes. We achieved a lot of management gains and, despite a very strong increase in raw material prices, and with the subsequent cost increase, we could present quite good results. In that, we have to add the achievement of synergies in [KVG] in the Ukraine and excellent performances of the long products sector. And we have to announce the turnaround of the stainless activity.

The net profits increased by 12% on a US dollar basis and 7% on a euro basis, always quarter two, compared to quarter one.

The cash flow generated from operations in quarter two amounted to EUR2.1 billion or $2.6 billion US. For the future, we foresee further improvements because the market conditions will remain favorable in all sectors and in all markets. Underlying demand is good, and we can that inventories are, for the moment, at a normal level. So we expect further profit improvement in quarter three, due to already accepted price increases and price increases also announced for quarter four. The EBITDA guidance for 2006 for the combined entity, Arcelor Mittal is confirmed at EUR12 billion to EUR12.5 billion or 15 to $15.6 billion US.

Following the recommended offer by the Arcelor Board of Directors on June 25th, we can say that it was a successful offer - 92% of Arcelor's shares were tendered, and the total number of shares of the new entity will be 1.378 billion shares. 594.5 million Arcelor shares and 19.9 million Arcelor convertible bonds were tendered. 665.6 million Mittal Steel shares and EUR7.77 billion in cash were paid to holders of tendered Arcelor shares and convertible bonds yesterday on August 1st, 2006. The subsequent offer will be that 30 Mittal Steel shares plus EUR150.6 in cash will be paid for 12 Arcelor shares. There is naturally an ability to elect to receive more cash or shares, subject, naturally, to 31% cash and 69% stock paid in aggregate. The closing of the tender offer will be on 17th of August, 2006, and the settlement will be made on the 4th of September, 2006. Then, there can be a mandatory sell-off proceeding. That means that [accretion] of Mittal Steel, consideration will be either same as in the previous offer, with secondary cash offer uncapped or, if Mittal Steel reaches the 95% level, there can be a cash option only at EUR40.4 per Arcelor share. The opening could be on 18th of August, ending at the 17th of November, 2006.

Now, I would like to add one word about the discussions we had during the last day between Lakshmi Mittal and myself about the organization of our combined company for the future. I can tell you that Lakshmi Mittal and myself, we came to an agreement about the future management board of our combined company, Arcelor Mittal, that this management board will comprise six persons, three coming from Arcelor and three coming from Mittal Steel. This proposal, or this agreement, between Lakshmi Mittal and myself will be submitted to a Board of Directors that will take place on Friday of this week. And after the decision of the Board of Directors and the nomination committees, we will announce the names of the members of the new management board of Arcelor Mittal. I pass over the word to Lakshmi Mittal. Please?

Thank you. Thank you, Mr. Kinsch. Good day to everyone on the call. First of all, I would like to thank you very much for your support. Yesterday has been a very important day, when 92% of the Arcelor shareholders tendered their shares, and we have issued Mittal Steel shares instead. And that transaction has been closed as of yesterday. This is a very important, historic day for Arcelor Mittal. The journey which began in January has come to a [first] stop, that is yesterday that both companies have become one, Arcelor Mittal. And during these last five or six months, I received tremendous support from all of the investors and shareholders and that has really made this kind of consolidation and merger possible.

If you really look at the history of both the companies - one day I was just counting. There are more than 50 companies which have been put together in Arcelor Mittal over a period of 15 years. This is the most important, major consolidation in the steel industry. To run such a big company, with businesses in 27 countries, 60 operating plants with 45 different nationalities, we needed a very strong, capable management team. The last couple of days, as Mr. Kinsch said, myself and he worked together on working out a managing board team which will lead this company for its next level of steel industry.

We have agreed for a management team which will comprise of three members from Arcelor and three members from Mittal Steel. And they're the most capable managing board team we have identified. There will be one CEO, who will be coming from Arcelor. And when this team's together, there will be one team of Arcelor Mittal. There will be no distinction or difference between Arcelor and Mittal going forward. Similarly, this managing board, once approved by the Board of Directors, will start quickly functioning on the integration of both the companies because we have already identified a lot of synergies, a lot of opportunities which we have to work together. And I hope that once the Board of Directors of both the companies approve it on Friday, the managing board will start functioning very soon.

There could be a question about my role, so let me also say that, as President of the Board, I will be working very closely with Mr. Kinsch. And I will be fully involved with the strategic direction of the company for its future, for its growth. I will also be involved in all the international affairs of the company. I will be also meeting the shareholders to discuss with you about the future prospects and growth and I will look forward for your continuous support in this direction.

As part of today's presentation, before I talk about the pro forma financials, which we will discuss today, are prepared in accordance with international financial reporting standards. That is, IFRS. They include Mittal Steel and our pro forma for Arcelor results, including both of their 2006 acquisitions, that is Dofasco and Sonasid for the entire period. They also reflect the 92% acceptance of the tender offer, but do not include final purchase accounting. Q2 performance, as Mr. Kinsch just said, was very strong. On the US dollar basis, net profit of the combining entity increased by 12%, and with Mittal Steel increasing by 47%. Combined companies [contributed] a $2.6 billion of cash flow from operations and $1.7 billion of this coming from Mittal Steel operations. For flat products, the stable pricing - stable selling price, increasing volume and better than expected cost reduction in America. In Europe, the strong demand in commodity products but cost related to raw material, zinc, iron ore and coal.

In Asia/Africa, we saw a strong, demand-driven price recovery. For long products, America experienced a stable in the strong prices and volumes. On the other hand, Europe saw increasing volumes and prices in what was helped by exceptional results of our [Kryviy Rih] acquisition. In the quarter one, [Kryviy Rih] had an EBIT of $71 million and in the quarter two, they had an EBIT of more than $220 million. We have already achieved the annual synergies - the synergies what we forecasted. We have exceeded that number, we forecasted synergy of $220 million in the [Kryviy Rih]. We are all exceeded it at $250 million on an annual basis, which is very good news that that means that this acquisition has been very successful

Similarly, we have also achieved - we are on the right path to achieving synergies in our US operations. This gives me confidence that this merger between Arcelor and Mittal, we will very quickly - this managing board will act on achieving the synergies which we have identified, and they will be also able to identify more synergies going forward and will create a plan very soon.

Mittal Steel operations has also experienced a strong rebound in the quarter. That means that we have no idea of a spin-off at this time. We have promised you before that we will revisit the [steel listing] operations, and as this progress continues, there is no urgency or there is no need to look for alternative solutions for [inaudible] steel but we have to look whether we can strengthen this business further.

Our distribution arm saw increasing volumes and margins with inventories remaining at low levels. On the next slide, you'll see the pro forma of Arcelor Mittal. This is the first time that we are presenting with pro forma of the combined entity. But we find that we had material quarter over quarter improvement in every measure, includingrevenues and various profitability measures. Revenuesare up 8% on a US dollar basis. Operating profit increased by 16%, and EPS at $1.20 US is up 12%. This has been an excellent quarter for us to begin our merger of equals between Mittal Steel and Arcelor.

Mr. Kinsch mentioned that we had a very strong cash flow during the quarter of $2.6 billion. And despite recording a $10.6 billion of cash outflow for investments, primarily for Arcelor acquisitions, we ended the quarter with a comfortable $7.3 billion of cash and cash equivalents. Turning to the pro forma balance sheet, this is for again - we are presenting the pro forma balance sheet first time for 30th June 2006. We have a net debt of $23 billion on a pro forma basis after reflecting the cash we have paid out in Q3 for Arcelor. That means yesterday. And our strong cash flow supports this amount of debt with the gaining of 54% and net debt to EBITDA of 1.6 times based on an annualized first half EBITDA. But, going forward, our target has always been a better ratio. And the managing board of the company will be working towards having a much better, efficient working capital management to reduce these working capital funds so that we can improve these ratios by the end of this year.

For example, Mittal Steel has reduced their net debt by $1 billion in Q2. I hope that going forward, we will have a much better and efficient working capital management from both the companies and we will have reduced our net debt levels by end of this year.

With this balance sheet, you can also get a sense of the vast size of the combined company, with assets of about $203 billion and shareholders' equity of $43 billion. I am really excited at this time with this merger completing successfully. And I am also very happy and thankful to all the support which I have received from all of the investor community. And I can assure you that we're going to have the best management team and a very excellent Board of Directors who will direct this company going forward. And I will be deeply involved in the growth and the strategies and the future of this company like before. Thank you.

Thank you. I pass over to Gonzalo Urquijo.

Thank you, Mr. Kinsch. Next slide, thank you. First, the Arcelor results. The first half results of 2006. We believe it has been a very good contribution. Why? We have been suffering an enormous price squeeze in the first semester that has been of 1.8 billion. We'll look into it after. When the increase in prices, especially in flat, we have not yet seen it. We will see it in the third and fourth quarters. The demand has been there. In all, the business units. It has been there for flat. We have seen strong demand and increase in prices, also for long in Europe and in Americas for stainless steel. As Mr. Mittal and Mr. Kinsch was saying before, there has been a complete turnaround that we'll see after in stainless steel and also in the distribution activities. So we have to tell you that there that overall, there has been an important demand and general increase in prices.

Third, management gains beyond 350 million. We believe that is good for the first half. It is in line, as we will see after, with our value plan, which we had estimated at 380. So we are there and we have to keep it up. Last but not least, we have done a continuous management portfolio. We means we are buying and selling. We have acquired, as you know, Dofasco since the beginning of March. Then we have acquired a controlling participation with the Moroccan government in Sonasid, the steel company in Morocco, as you very well know. That has been with us since the 1st of June. We have also done divestures, where we sold the long product division in stainless steel and we've sold, at the beginning of the year, the tube division of Acindar in Argentina.

Next one, please? Now, division by division. First, I want to stop at Dofasco, which I think it's very important because Dofasco has only impacted our results at a bit above EUR90 million. Why? Because the first two months, we did not have Dofasco on one hand and, in the third, fourth, and fifth month, we were impacted by the purchase accounted. Now, if we would have had Dofasco since the 1st of January, the results of Dofasco would have been very good - EUR300 million for the first part of the year. And we expect even better for the second part of the year. The integration is going along very well and we're happy with those results. And if you remember from our value plan, we said we were going to achieve 200 million in management gains on synergies. Our targets now are even higher than that.

Second, in flat, investment in Brazil - you know we are increasing our capacity in Brazil from five in flat products to 7.5 million tons. That investment will at the end of the year, and we think it is going to be an investment that will return a very important amount on this investment. Why? Because it is very profitable. You know they are very low-cost. And we have very good margins in Brazil.

We go to the long sector, we divide it in two areas, Europe has had record results. But not only record - I think there is a very important point in long. They were able to sell with a margin above the raw material that is scrap, so they have very, very stable results, which is very good and very important. Like other steel companies, Arcelor and Mittal will prove that it has much more stable results than other steel companies. On the other hand, in the long carbon activity in Brazil, we have had very good results for the first semester.

Stainless steel - as I said and as we will see after, we have had a very important turnaround in stainless steel from a price point of view, from an industrial, from a volume point of view. And also incorporation of Acesita and additionally to that, we have had an active portfolio with the sale of the long product division in stainless steel.

Distribution has had higher volumes than the previous year. Margins are improving every month. We have to tell you that inventories - which is very significant if we do the analysis and comparison to other distribution activities in distribution and on steel service centers - are not as low at the end of the year, but they're still at normal levels, normal to low levels. Next page, please?

Now, as we see here the P&L of, and key figures of Arcelor. The first comment I have to tell you - when we compare revenues, we've seen there is an important increase in revenues if we compare it to the first half of the year of 2005 and 2006. Why? There has been important changes in [perimeter]. I just spoke before of the incorporation of Dofasco, also of Sonasid, also in Costa Rica. We have also had the divestitures of Urgitech and Arcelor Tubes. But if we also compare it to last year, we also saw in the first part of last year we had the [rebar] business in Spain which we sold, as you all remember. So there has been an important change in [perimeter].

Now, if we go to the EBITDA, we see for example, last year's EBITDA, practically 3.4 and this year, 2,835. As we said at the beginning, we've had a very, very important price squeeze. It has been - cost increase, I am sorry. That has been on one hand, we have had the reduction of prices with respect to last year of 950 million. We have had an increase in raw materials of practically another 900 million. What are the basic chapters in this? It has been on one hand, zinc, where we had an increase of cost of 250 million, number one. As I said before, we haven't been able yet to impact it all to our customers. We will in the third and fourth quarter. Coal, another increase of 250 million. And last and not least, iron ore, where we've had 180 million. So as you have seen here, our impact in EBITDA has been very important in costs, as you have seen, and decreasing prices and in volumes. We have only done more volumes ithas only accounted for 650 million. So we do the net between price and factors and the volumes, at the end we're still losing EUR1.2 billion, which I think is very important.

Additionally to that, we've had non-recurring items. It was the Dofasco stock options of 85 million, the shareholders' plan of 41 million and the Ugitech, which we had in the EBITDA the first five months and as we sold it, valued 1st of January, we have had to take it out. That was 30 million. So we have there around 160 million. Additionally to that, I just want to remind you that in the first quarter, we'll have, and we'll see it later, the impacts of the convertible bonds and taxes.

One more issue that we can say, we put the breakup fee that we will see later as part of the defense costs. Next page, please.

When we look at flat, flat has been the division that has been the most impacted by that cost squeeze. It's been 700 million in prices and 850 in increase of raw materials, and only 400 in volume recuperation. So they have had the hardest part of it, and as I said before and I insist, they have not been able put - we have not been able to see all of the increase in prices that we will see it in the next quarters. So that is very important. Now in the first half, we have seen Europe has accounted to 1,150 million of the EBITDA and Brazil has been around 300 million, which is very important. And we already spoke of Dofasco, where we only had 92 million when on a pro forma basis, you will see it should have been 300 million. Next page, please.

Long. Long, as you can see, I call it is a watch and a very good watch because it is very stable and it always is there. You see very stable results and always increasing results. In Europe, we have had record results, in the first six months, 320 million. Brazil, once more, also exceptional results, more than EUR500 million and in wire drawing, 15 million. So we have been able to - [all] our increases in raw material. In this case, we have been able to transfer them to the customers in our prices because the mechanics there are faster. Now, we compare Q1 and Q2. Want you to see that when you see Q1 better than Q2, we had an extraordinary element there. That was the sale of the tube division in Argentina, that was 52. So you should deduct that. And as I said before, we have incorporated Sonasid since the 1st of June. But it's only contributed to 7 million. We'll see after if we would have had it once more since 1st of January, it would have contributed more than EUR40 million. Next page.

Sainless steel. I am very happy to present now on stainless steel. Why? Because we're seeing the results of the acquisition in Brazil. We had a [inaudible]. Now we have a 55% of total shares. We have more than 90% of the total voting shares. That has given us, in the first semester, more than 160 - approximately EUR160 million in EBITDA on one hand. We see the European division performing much, much better. Why? For two reasons. Better prices, better volumes. But also, we have seen already the startup of the stainless steel shop in Belgium, the Carinox plant that you all very well know, was a very important investment - EUR230 million. So we're very happy with the results of this division. And for the second part of the year, we feel very, very comfortable with these results. Now we know, part of the raw materials have skyrocketed. That has been the nickel, that we have been able to pass that to our customers. So this has become a success story clearly from a results point of view.

Next one. A3S, Steel Solutions and Services. I think, as you know, Arcelor Mittal is a unique company, but also is the only company that has this unique business of this size. And as you've see, we have done a very important amount of volumes in the first semester, 7.5 million tons. So just imagine the growth potential we have in this area with the new Arcelor Mittal. On the other hand, we have seen the progress every month of margins and volume. The market was there. The volumes were there, clearly. Now, you do see we have sourced more externally. We have sourced more externally because did not have availability in our own factories. In the future, that will not be the case. And just remember, we always, given that we do it internally, we always purchase A3S at market prices. So this is performing well, and better and better, as you can see. We are very confident of the second semester of the year.

Income statement. Now, I am presenting you here the whole income statement. Why? Because I do think we should look at basically three extraordinary elements you are going to see in the second column, the first half of 2006. First, net financing costs, 558 million. Well, if you see it by quarters, there is an enormous difference from 322 million to 136 million. Why? If you remember in the first part of the year, we renounced to the convertible bond option that they could convert in cash, and that cost us, before taxes, 300 million. So we should take that out and then you would see a result of 150 million, and not 458 million. That is an extraordinary item and it's a non-cash item. It is just an IFRS accounting item. That would be my first comment.

Second comment - merger costs. We have put in here the merger cost, 182 million. Where does that come from? It has been 140 of the break-up fee to Severstal, which has already been paid about three weeks ago. So I insist 140 million, and then we put 42 million of the defense cost. The rest of the defense cost - it will be higher - will come in the third quarter, and it will be not 40. That could be between 120 and 140 million. We are still finishing negotiations there. So that's my second extraordinary element.

Third, you have seen income from associates. We are very happy we are performing better. That is coming basically from the Dillinger and also from [Gombardi and Hastant] in Spain. Then there is a very important element that is taxes. You can see we are very efficient. We're not only - we do not have a negative line on the taxes but we have positive. Well, two comments on this. On one side, we had - and we spoke in the first quarter - we had two holding companies in Belgium, one that was Sidmar, the other one that was [theirs] basically. We have merged them and the Belgian stock authorities gave us some - at the end, we're getting some tax credits for this - or activating taxes, I am sorry. That is an amount of EUR285 million.

But, additionally to that, fortunately for us, the tax situation in Canada has changed. Ad in two states, the taxes paid before were 35%, and now it's being decreased to 30%. So we have benefited from that and we have another tax assets of 100 million. So those would be the extraordinary, and that's why we have that curious result of plus 64 million in taxes. But I want to tell you the cash payout has really been 104 in the first cash payout in the first quarter and 105 from a cash point of view. It's been 210 million, just a bit below 210 million. But, from an accounting point of view, due to those assets we have activated, that is the result. Next page, please.

Okay, cash flow statement. What can I tell you on the cash flow? You have seen our net results before minority and interests. You see the cash flow from operating activities has been 1.4 billion, as you can see. But we have done very important acquisitions during the - that has basically been, clearly, Dofasco, which has been more than 4 billion, as you can see it here. So we have been heavily impacted, logically, in our cash flow for the cash out for this acquisition. Now, we did pay dividends, as you all very well know and received. That was a total - the biggest part of it is the dividends of Arcelor that were 1,150. So those were the major issues. With that, we see that the debt is 6.8 billion at the end of the semester. Now of course, if you compare it to the 1.2 billion, we are clearly higher. But we have to say that you have to add the 4.1 of Dofasco - the debt Dofasco had plus the dividends, Okay?

Next page, please? The next page is actually the balance sheet. Okay, our balance sheet. There's very important changes in our balance sheet from the end of the year to half year. Why? It's basically been Dofasco. In intangible assets, it's 1,100 due to Dofasco. In property and plant improvement, it's 4.3 billion due to Dofasco. So the major changes here have been in Dofasco. In the inventories - and I will come back to the working capital - it's been 1.1 billion. So the major changes have been due to Dofasco. Next page, please?

On the liabilities side, what can I tell you? You see where we are. From a net worth point of view, we have reduced. We did pay our dividend, clearly. Our debt has changed in function of the payment of Dofasco. So those are the major issues we have in the liability side. Next page, please.

I think this page is extremely important because we are presenting you here, as you see at the left, the results reported for the first half. And that is the real results. But we think what is fundamental here on this page is the pro forma results. Why? Because we have been impacted by the non results of Dofasco, as I said at the beginning. We have only included 91 million of Dofasco and we should have included a total of 300. Now, in Sonasid, we have the adjustments and we have been negatively impacted by 45 million. So if you see the total results on a pro-forma basis from the 1st of January, we're talking EUR3.1 billion of EBITDA in the first part of the year. When I insist we have been heavily impacted by the [prior] cost increase and we haven't seen the price increases or at least, not the big part of them. So we do believe that a 3.1 in what has been this first part of the year has been a good result. If we go to the net result and earnings per share, remember we have been impacted by those extraordinary elements I gave you before. Thank you very much.

Aditya Mittal, please.

Thank you. Good morning and good afternoon. I'm just going to walk you through Mittal Steel results and performance in the second quarter, as well as the outlook for the rest of the year and the third quarter, in particular.

Clearly, at Mittal Steel, we had an excellent quarter, a 43% increase in operating profit under IFRS, 50% under US GAAP. That is higher than the guidance we gave. Our EPS is up 36% in US GAAP from the first quarter and about 47% in IFRS from the first quarter. Our operating profit more than doubled in Europe, including Kryvorizhstal. That was an excellent performance we had in Europe. There is profit recovery in Asia and Africa underway. EBIT was up about 10%, less than what we expected and we forecast further improvements in the second half.

We had improved performance in America, primarily because of the cost-cutting measures that have been put in place. You could see the results of that in the second quarter performance. We had an excellent cash flow generation, as well, in the second quarter, good working capital management, even though prices went up on a global basis. We maintained inventory and receivable levels and, as a result, we could reduce net debt by more than $1 billion, $1.1 billion, in the second quarter. We remain very positive in terms of our outlook. In terms of third quarter specifically, we expect operating profit to increase by a further 25% compared to the second quarter level.

We're confirming our guidance for $7.3 billion EBITDA in dollars for 2006. That is exactly in line with the value plan that we announced about two months ago. And we're very comfortable in terms of this number. We have been achieving the management gains, the cost-cutting measures, the volume increases, and the productivity benefits on a global basis. We have done a good job in terms of realizing synergies. $265 million at Kryvorizhstal and 215 million at ISG. We believe excellent performance and in line with what we expected. In terms of Kryvorizhstal, we also had improved EBIT, substantial improvement, compared to the first quarter, which we reviewed earlier.

Let me now walk you through the highlights on a region by region basis. First, I'll walk you through generally what happened and then specifically what had been the changes on the EBIT level.

In the US and in Americas, we saw an increase in apparent demand and spot price. The selling price was stable. But, as I said earlier, we had better than expected cost reduction. As a result, EBIT increased by 33%. In Europe, strong apparent consumption and price [rights] accelerated in the second quarter. We expect some of that to continue in the third and the fourth quarter. Prices improved in all of our business units and the costs were stable despite raw material price increases. Again, this is due to the cost-cutting measures that we put in place at the beginning of the year.

Our operating income increased by almost 150%, supported by the strong performance in Ukraine. And, excluding Ukraine, we still almost doubled the EBIT performance in Europe. So clearly a fantastic quarter for our European business. And in terms of Asia and Africa, the demand is there. There is strong underlying demand. Clearly, there is a Chinese price recovery underway, which is spreading throughout Asia. It is not as strong as we had anticipated earlier. The strong selling price recovery that we have had in our results is due to spot price increases. But, as a result, EBIT only increased by 10%. But we do forecast better results in the second half for Asia/Africa.

Let me walk you through our key figures. These numbers are in IFRS. If you look at our earnings release, they're in US dollars. There is some noise in some of these results in terms of how they have changed and I'll walk you through the reconciliation on the next page. Primarily, in IFRS, our EBIT, as I mentioned earlier, has increased by 43%. Let me just walk you through the salient numbers - 9.2 billion in terms of revenue, which is a 9.5% increase, $1.7 billion of EBITDA, a margin of 18.4% on revenue. Our depreciation and amortization charge is a bit lower. That's primarily because we have extended the mine life in Kryvorizhstal as we have discovered more reserves than we anticipated earlier. EBIT margin is 14.7%, a 43% increase to 1.359. And our EPS, or net income as a percentage of revenue, is almost 10%. We ended the quarter with $1.27 in terms of EPS.

Let me just walk you through IFRS to US GAAP reconciliation. Primarily, there are three major factors which caused a difference in our results. The first is under US GAAP. We had to record a minimum pension liability. Under IFRS, we do not have to, and that is a $1.4 billion adjustment that you see that has some impact on the income statement. The second major impact is the fact that in IFRS, we have to record assets on fair value. We cannot have negative goodwill. Under US GAAP, we can create that. Therefore, we had to increase the value of our assets. That also results in a higher depreciation charge. That is what you see on the income statement in business combinations, the 152 and 73 in the second quarter. Roughly, the D&A impact is about $300 million for the year as a result in the change in asset valuations and IFRS. So there is no real income change apart from the D&A charge increasing. We believe that the charge, which is [excessive], for what we can do in terms of maintaining our assets and therefore, we prefer the US GAAP D&A charge.

In terms of the other, the minus 30 and the positive 53, that's because in the US, we still have our business under FIFO - sorry, in the U.S., our business is under LIFO. And under IFRS everything has to be under FIFO. So that's just the LIFO/FIFO reconciliation. You'll also notice in the first quarter, interest expense was significantly higher under IFRS. And that is primarily due to a change in the discount rate of our asset retirement liabilities. In the US GAAP, that rate is six.

Moving forward, let me just talk to you a little bit about what we did in the US. You can see our revenues increased by 1.3% and we recorded a margin of 14%, EBITDA of $575 million. We had a positive volume impact, a positive price impact and also positive cost impact in the sense that we reduced costs. This allowed margins to increase, resulting in an EBIT of 456 for the quarter. Shipments were largely flat, as you can see from the page.

Moving to Europe, you can see we had a significantly better quarter. The main driver of this was the volume. Volumes increased by 16%. We also had positive price improvement of about 6% and costs were contained. This resulted in a revenue increase of about 20% on a cumulative basis, coming in at $3.48 billion, EBITDA of almost $920 million, EBIT of 779, which at a margin - we basically doubled the margin to 22.4%.

As you can see, we increased shipments also by almost 1 million tons in Europe. And as I mentioned earlier, Kryvorizhstal performance is captured, and that EBITDA increase from the first quarter 113 to 239. It was a positive improvement of about $125 million.

Let me talk about our Asia/Africa business. Revenues increased by 12%, primarily due to volume and prices. We had a negative cost impact on our Asia/Africa business, primarily in South Africa, where we had to readjust our coal contracts to international coal prices and there was escalation at our captive mines in terms of costs due to new wage agreements. As a result, revenues of 1.7 billion, EBITDA of 450, still very healthy margins of 25.8% and EBIT of 368. Shipments were largely flat, a marginal increase. We expect better results in the second half.

In terms of the overall income statement, this is under IFRS, US dollars. There's also an income statement in the press release, as I mentioned earlier, that we can refer to. But generally, EBITDA is up 30%. This quarter, we have also changed the definition of EBITDA. EBITDA in this presentation is operating income plus depreciation. That is different from the definition we had earlier and this in line with what Arcelor has done. This has the impact of reducing our EBITDA, because we are not capturing the other income and the income from equity and associates that we had historically. But in any case, we still had a great quarter and we still achieved guidance. In terms of EBIT, there was a one-time provision release, which is a Kaiser claim. It was a claim by Kaiser in our Czech Republic operation that we owed them $37 million. We won the court case, so we reversed that provision and that's captured in the EBIT line.

We achieved a normalized tax rate of about 25% in the second quarter, resulting in a net income of $897 million for the quarter. Let me just walk you through the cash flow. As I mentioned earlier, we had very strong cash flow performance. Even though prices increased on a global basis, we maintained inventory and receivable levels, actually generated cash and working capital, resulting in cash from operations of $1.7 billion. We spent about $350 million in maintaining our asset base. We had the benefit of other acquisitions and disposals. We sold the Martin Tower of Bethlehem Steel in the United States.

We paid our dividends of about $100 million. We had [seven] back from exchange rates, resulting in a net change in financial debt of $1.1 billion, i.e., a reduction of $1.1 billion from 6.1 in the first quarter to $5 billion in the second quarter. Let me very quickly walk you through the balance sheet. Again, this is in IFRS. But what is interesting to see here is primarily the increase in cash that has occurred from the first to the second quarter, reflecting the strong cash generation that we had, and again, the good working capital management in the second quarter.

In terms of liabilities on a standalone basis, excluding the impact of the merger with Arcelor, our gearing has dropped from 48% in the first quarter to 37%, and our net debt to EBITDA ratio has dropped from 1.1 times to 0.8 times. So, clearly, on a standalone basis, strong balance sheet performance, strong net debt performance, strong cash flow generation performance.

With that, I will very quickly move to the market outlook and pro forma our guidance for 2006. I will first walk you through the various regions and then give you a global overview and then provide you with the guidance for third quarter and reaffirm the guidance for 2006. In terms of flat products, in America we expect underlying demand to remain solid. We also expect average prices to increase compared to the second quarter. We do anticipate adjusting our production in response to underlying demand in the fourth quarter. In Europe, we expect the second half markets to be much stronger than the first half, and we expect to cut production by 500,000 tons related toblast furnace realign.

Asia and Africa, we expect strong underlying growth to continue. In terms of long products, the overall demand and price is stable in America. And we believe in Europe the effect of a seasonal slowdown is not going to affect long product prices or profitability, as scrap prices are also forecasted to remain firm. Again, we will closely monitor the inventory levels. In terms of stainless, the demand is strong. The inventory position is very low and we expect base price increases in the second half. So globally, what does this mean in terms of the steel industry? Globally, the inventory levels are at average levels, historically. We are forecasting a stable supply and demand situation. We continue to monitor inventory. That is our role as a global company. And, as a result, we are forecasting some production cutbacks in Europe and in the US. But we believe this will ensure a stable price level in the global steel industry and a better demand-supply environment. In terms of guidance in the first quarter on a pro forma basis, we did EUR2.658. That increased to 2.867 in the second quarter, which also includes one-time non-recurring items, which Gonzalo walked all of us through. In the third quarter, we expect to improve that further and are forecasting 3.1 billion to EUR3.3 billion, which translates to about 3.9 to $4.1 billion. And we're reconfirming our guidance for the full year of 12 to EUR12.5 billion, or 15 to $15.6 billion. Again, these numbers are pro forma and are pro forma numbers prepared on a combined balance sheet, and they could be some purchase accounting impacts that we can not foresee at this point in time. Thank you.

Thank you. Ladies and gentlemen, we are open for your questions.

Thank you. [OPERATOR INSTRUCTIONS]

Our first question comes through from the line of Jim Rice from Avenue Capital. Please go ahead with your question.

Hi, guys. Great results. Just a quick question with respect to Dofasco. There was a report out this morning that you guys were potentially considering selling Dofasco now.

With respect to Dofasco. First thing, Dofasco is not an integration issue. That is clear. That is our first comment. Second, as you have seen, we are very happy with the results of Dofasco and we expect, further, very important improvements in Dofasco. Third, it is clear that Mittal Steel, its Board of Directors, its Chairman, all of its management team, have done the best and are still doing their best to try and sell Dofasco. It is the agreement they had with DOJ and with the other hand, if that was like that, offered to sell it to TK. But it is not possible to sell Dofasco. Dofasco is in a Stichtung, in a Dutch foundation. It is governed by three independent members of the board, and they have decided not to sell. So for the next five years or four years and a half, Dofasco - it is not possible to sell Dofasco, even though Mittal has done a lot of efforts and continues to do to try to sell the Dofasco. It is not possible.

Okay. Just one other question with respect to Mittal's performance in Europe. It looks like the Ukraine in particular had a very strong increase in volumes. I guess I'm curious how much further you think it is possible to increase capacity in the Ukraine?

The increase in volumes that occurred in Kryviy Rih has to do with the fact that we could not recognize 600,000 tons in the first quarter. It was stuck in inventory and because we were doing purchase accounting and changing the revenue recognition basis of the company, we did not recognize 600,000 tons. So that is abnormal.

Going forward, we believe the company can do about 6.2 million to 6.5 million tons of long products in the next one or two years. We do have plans to expand this capacity because the [nameplate] capacity of that facility is between 9 to 10 million tons. It has more than adequate iron ore reserves, as well, and it has a steel-making capacity. What it lacks is casting and finishing capacity. And along with Arcelor and Arcelor Mittal combination, we need to make a decision and take a view whether we go into slabs or we go into finished value-added flat products, including hot-rolled and cold-rolled coil. That is a decision we have to take and we should be taking that decision or view by the end of the year, at which point we would communicate it to you.

Great. Thank you.

Thank you. Our next question comes through from the line of John Hill from Citigroup. Please go ahead with your question.

Good day and congratulations on closing the transaction and also assuming such visible leadership in the industry. My question has to do with the merged company looking forward and sensitivities to realize prices. If you could provide some perspectives on EBITDA and earning sensitivities to, let's say, 50 or $100 change in realized prices and then how that sensitivity might change if we look out six months or year?

I think the industry has made tremendous progress in terms of consolidation. And that is one reason why Arcelor Mittal combination makes a very important impact on the steel industry. What does it mean going forward? The industry is getting geared to test their production and volume to maintain the prices. They will - there should not be over supply in the market. The industry has become very conscious and careful on the inventory levels. The industry has shown in the last 1.5 years that whenever there has been high inventory levels, the industry has announced production cuts. So is the policy of Arcelor Mittal. Arcelor has shown in the past, Mittal has shown in the past, and we will continue with this policy. Because both the company and industry believes in maintaining the price to return adequate returns to the shareholders. I think this strategy will continue, and I do not believe that the prices should change 50 or $70, which could impact the returns to the shareholders or earnings of the company to a great extent.

Do you have any views as to - if in a smaller price change, let's say $10 per ton realized? How would that impact margins? Would it flow directly down to the bottom line? Or do you think that there would be offsetting cost savings in raw materials and product mix in other parts of the organization?

Immediately, it does not impact the cost. But if there is a reduction in the sales price, I'm sure the industry will work on reducing the cost of its input. So there could be a time delay, but eventually in such a strong position, we should be able to reduce our cost. It may not be 100% $10, but to a larger part.

Just in terms of the price increase, let's assume there is a $10 price increase - the overall mix of the business is 70% is spot and 30% is contract. So 70% of the business theoretically can benefit from a $10 price increase. Then we need to get into details of how much is flat, how much is long, and whether the price increase is in both product areas. Again, you can get into all the product ranges as well. But, more importantly, which region is the price increase occurring in? If it is a global price increase and it affects both flat and long, clearly we will get $7 of that flowing into our revenue line.

Can I add also that, as Aditya was saying just now, ass we have such a wide portfolio of products, at the end you may say long. Long can be impacted maybe in one part of the world. In another part of the world, as they have a margin of scrap, it is different. Stainless steel may have a different behavior. Distribution activities at the end, they have more of a stable margin. So at the end, you would have to see. I think it is an excellent question, but it is very complex also, due to the geographical -where we are geographically all around the world, but also due to the portfolio of products we have is extremely complex.

Of course. Thank you very much and congratulations.

Thank you. Our next question comes through from the line of Michael Shillaker from Credit Suisse. Please go ahead with your question.

Yes, hello, I have got a couple of questions, if I may, maybe three, actually. I guess the first thing is we all, I think, applaud the fact that you recognize there are risks to the supply/demand balance and you're thinking about taking downtime in Q4. I think we all applauded the way you acted in 2005 in terms of taking down production. But I guess the one problem is that the industry has never actually managed to avoid a pricing slide. It's always been in reaction to a pricing slide with inventories too high. Can you elaborate a little bit on how you plan to manage this cycle a little bit differently? And can you elaborate a little bit more in terms of the actual production outages, maybe especially in the US? I think we know what you're going to do in Europe that you will take in Q4. And beyond that, if necessary.

The second question I've got is regarding the rumors that, of course, you may have to take out the minorities in Brazil. If this was the case, would you be comfortable with the gearing levels that would leave you with? And if not, do you have any contingency plans to bring that gearing down?

And my final question is on zinc. On the annual and multi-year contracts that you're both running, do you have any method by which you can pass on the zinc price this year? Or are we going to have to wait until the annual contract negotiation round next year? Thank you.

Let me answer the first question. Michael, I think you ask a very important and relevant question. And as we have said before in our road shows, both Gonzalo and myself, and at different times, both Mr. Kinsch and Mr. Mittal, it is very important for us to maintain a stable demand and supply balance in the global steel industry. You are right to say, in the past, the industry has been reactive so when there is an oversupply situation or too many inventories, we cut production. We want to anticipate that. That is why early on in August, we are indicating that we might be cutting production in the US. At this point in time, the inventory levels are stable, so we have not quantified what that would be. But our intention is clear that we want to maintain a stable demand and supply environment. In Europe, there is a realign that is being scheduled. We think the most appropriate time to do that realign is in the fourth quarter. Clearly, again, the inventory levels are stable but the trend line is upwards and we want to anticipate inventory buildup.

So from our point of view, we are focused on maintaining a more stable pricing environment and less volatility in the global steel industry, and we are moving to act in that direction. In terms of the minorities in Brazil, I think Gonzalo will take it up as well as on the zinc issue.

Thank you, Aditya. Minorities in Brazil. First, the position of Arcelor Mittal has not changed. We believe there is not a change in control in the company, so we are not obliged to do an MTO of minorities on Brazil. Our lawyers, our financial advisers in the company, we are convinced of this position. That is my first comment.

Second one would be that we have all read what came out 24 hours ago. That was the local stock authority, which their technical department said they believed that we could be obliged to do an MTO. But it was based on the actual number of shares that have tendered into Mittal. That was 92%. Because with those percentages, it is true that the actual Mittal Steel, or the old, ex-Mittal shareholders, have a majority now in the capital. But as you know, we have an offer open now until the 18th of August Then there has to be a decision if there is more than 95 or not, which you obliged or not to do is squeeze-out or not. But the idea is, as has been said since the beginning, to have 100% of Arcelor shares. So, once more, we will fall back to the 50.5, 49.5 so there won't be a change of control. So that argument, we believe, used today will not be valid once we have practically 100% of 100%, once we do a squeeze-out of the shares of the old, ex-Arcelor. That is my - so our position has not changed and we will continue to do that.

Now, your second part of your question was on gearing. Now, we believe we are comfortable with today's gearing. We are seeing, as we just expressed in the presentations, that this new company is going to have a very, very important capacity of generating free cash flow. So we are very confident with the actual level of debt and with the capacity of the company to generate free cash flow in order to reduce the debt. So from here to the end of the year, we will be able to reduce the debt by a very important amount. So we will continue. Our position in Brazil has not changed. We hope not to do that MTO. We are convinced we do not have to. So that is our position. And, as we are generating free cash flow, that is we do have an important margin.

But I insist our position is we do not believe in buying those minorities because there is not a change of control, that we are comfortable with the gearing we have today. We have capacity of generating free cash flow. And even though, if at some very remote stage, we were forced to do something, at the end we do not believe our level of debts or rating with the banks will have no issue because we are generating free cash flow yesterday, today, tomorrow. So we will be able to - we'll have no problem from a leverage point of view.

Now, your third question was on zinc. It is clear that this autumn, the majority of the - a very important part of our contracts will be negotiated. And it is clear that this new zinc situation, which has been so hard on us for this first half of the year, will be negotiated with the people that negotiate in the auto industry, et cetera. Now, for the contracts, we are all for the spot, let's say galvanized. We are negotiating now. It is clear we are passing that to our customers. Now, for the rest, we will have to wait in the next months. But it is clear that Arcelor Mittal is to pass this through to our customers because you have seen the tremendous impact we have had on our P&L with the increase of zinc. That part of it will be -part of it in spots is done now and the rest - or another part will be done when we negotiate those contracts this fall.

Okay, thanks. One very quick final question. Is there another solution for Dofasco, i.e., could you lease it to Thyssen with a put/call option in five years time to sell it to them?

The answer is no. The Board of Directors of the Stichtung is very clear. There is no way to sell it and no way to lease it. So this has to stay in this company for at least five years with the [actual] situation. Thank you.

Thanks.

Thank you. Our next question comes through from the line of Scott Hudson from Morgan Stanley. Please go ahead with your question.

Hi. Good afternoon. I was just wondering in terms of your full-year guidance and in terms of your third quarter guidance of 3.1 billion, am I correct in assuming that you expect the sequential pickup in profitability the fourth quarter to be similar to that in the third quarter?

Not necessarily. It depends exactly what we do in terms of the third quarter. And you are trying to drag me into providing you fourth quarter guidance. But it depends on what we do in the third quarter. I mean, there is a range here of 3.1 to 2.3. As you mean, we come out at the top end of the range, I would expect the fourth quarter to be flat or perhaps even down marginally. So it depends where we come out in the third quarter. We are reaffirming our range for the full year. And, again, I must emphasize that the range, it's 12 to 12.5. Clearly, there have been both accounting impacts and definition impacts in how we characterize the pro-forma EBITDA. We are not adjusting our guidance based on either definition impacts or accounting impacts.

You cannot confirm that there won't be - you don't see any seasonal weakness in the fourth quarter?

There is some seasonal weakness that occurs in December. There's also seasonal weakness which occurs in August. But, overall, we expect a price level to be higher, perhaps, and volumes, as we have indicated, might be a little bit lower in the fourth quarter compared to the third quarter.

Okay. And then just, I suppose, a housekeeping issue. In terms of your depreciation going forward for the pro forma company, are we expecting that to remain at a similar sort of level of about 700 million a quarter?

A lot of it depends on purchase price allocation and where we allocate the purchase price for Arcelor. But if you mean that the balance sheets are just combined, then the depreciation level which you have indicated is correct. But if there's a change in terms of the evaluation of the PP&E, I think clearly those numbers would change. At this point in time, it is premature for me to say that it will be 700. It depends really on the finance team internally as well as on our auditors.

When will we get any sort of further clearance or guidance on what the purchase accounting impact would be?

Normally under US GAAP, at least we have a full year to decide what the purchase accounting impact is. Historically, when we did the ISG integration, we announced it on the next earnings call. Therefore, you would expect that when we announce the third quarter results, we will provide you with what we have done in terms of purchase accounting and what the impact of that will be on the earnings going forward.

That's great. Thanks very much.

Thank you. Our next question comes through from the line of [Tom Wigglesworth] from Citigroup. Please go ahead with your question.

Good afternoon, gentlemen. My first question follows on from Michael's question with regards to kind of the controlling of production. What are you assuming for your other players, both in the US and in Europe, to your - effectively, your desire to kind of slow the production output going forward? Do you think you have enough size now to mean that they are irrelevant in your calculations for controlling the inventory levels both in those two markets? That's my first question.

And then, secondly, just on costs for Gonzalo, in the European flat business for Arcelor, could he talk about some [cost on cost] changes that he's seen in costs between the second and first quarter? And is it right to assume to that he's saying from this point on, there are not going to be any significant cost changes other than those exceptional items he's already spoken of? Thank you.

We cannot comment about other steel companies. We can only comment about what is our situation going forward. I can not comment that in last year, Q2, Q3 2005 and the beginning of this year, generally the industry has shown that whenever there is a high inventory levels and a slowdown in demand, they have tended to adjust the production. I hope the industry is moving towards further consolidation. The industry is becoming stronger and they have become much more shareholders-friendly. I hope that they continue to look at these strategies.

Just to add, I think we are very clear that they are not irrelevant. So they play an important role.

The second question - I think there was a double question in the second one. One was more, let's say, in non-recurring items. I hope now - we will have one that is the second part of the defense costs that we will pay in the third quarter that we are now discussing. The rest, we don't believe, or for the moment, we have knowledge of no other extraordinary costs or items, I'm sorry. Now, you asked for a comparison in cost of Q2, Q1. I will give you some elements that I think will help you. If I understood correctly, what can I tell Q1 and Q2. Now it's basically - first, I will tell you for the group and then I'll tell it for flat because I think you were also asking for flat.

Now, if I compare Q1 and Q2 at 1.427 of EBITDA or 1,408, I'm sorry, for the second quarter. It was a difference in prices versus the first one of plus 300 million. Our loss [is practically] neutral in volume mix. In fact, this versus the first quarter, I had an increase of costs of 220. And I made progress in management gains of 35 and I have a change in scope of 105. But I will give you the comparison, for example, in flat. What has been the impact in zinc? It has been 47 million. And in iron ore, 48. So it's 86 million. And in scrap, 53. So that's why. Now, if you want fully in flat, I have to tell you the change between now only flat, Q1 - Q2 I can give you. It has been 89 increase in prices versus the first quarter. Volume mix, I have lost 30 million in EBITDA and factors an increase of 103 million. That is what I can tell you cost wise for Q1 and Q2 and flat, OK?

Thank you very much.

Thank you.

Thank you. Our next question comes through from the line of Vincent Lepine from Exane BNP Paribas. Please go ahead with your question.

Good afternoon, gentlemen. I have two questions, if I may. One is on the Asia/Africa regions. You say you still expected demand to remain robust and prices to go up in the second part of the year. And I can see prices in China, having dropped already quite significantly and possibly still being on the way down. Do you think that may [inaudible] you region and therefore impact your operations in Kazakhstan and South Africa on top ofHunan Valin?

And then the second question was more of the housekeeping one. You mentioned that in Q1, you had been unable to book about 600,000 tons in Ukraine. Now, if I look at the Q2 numbers, I would have expected that you would have recouped the 600,000 tons and had normal shipments in Q2 and therefore, that the total number would have been closer to 2.5 million tons over the [102] that you reported. So am I missing something here or misunderstanding something? Thank you.

In Africa, first of all, prices are low and they have needed to go up. We have seen this in generally also that there has been a big difference between the prices in China versus the global prices and they tend to go up. And at the same time, recently there has been movement by the Chinese government to reduce export due to rebates, which will perhaps help to improve the prices in the international market, in Asia and Africa. In South Africa and Africa, the domestic demand is stronger than we anticipated, which would perhaps allow us to improve our performance in the African region. Kazakhstan, as you know, is already a very low cost producer, and we are continuously making improvement and progress in Kazakhstan, which will also allow us to maintain or improve our profit margins. 600,000 ton, Ukraine?

Vincent, you ask a good question. You have to look at the run rate in the first half. If you look at the first half, Kryvorizhstal or Kryviy Rih has done 2.2 million tons. If you annualize that, that's 6.6 million tons in terms of shipment. So that's what the company should have done. Perhaps when I said 600,000 tons, it's not a total deduction from what was there in the first quarter. It's what we saw as the effect of the purchase accounting. Some of it obviously is still in the first quarter results and some of it is in the second quarter results. But now we believe the situation has normalized, a one point - if you do 6.6 into four, roughly 1.5 to 1.6 million tons is the number that we expect per quarter for shipments for Kryvorizhstal. It could be slightly higher, depending on the market conditions. It could be slightly lower. But as I said, there's 6.2 to 6.5 is the target we have on an annual basis and the first half performance is 3.3

Thank you.

Thank you. Our next question comes through from the line Luc Pez from Societe General. Please go ahead with your question.

Hi, sirs. I was wondering if you could perhaps emphasize a bit on purchase accounting. I know you can't go into too much detail, but I was wondering to what extent such matters, if I may say so, would have been lower using Arcelor as the main vehicle? So perhaps if you could empathize a bit on this question?

Secondly, with regards to market and price realization over Q2, you said it was difficult to realize [the sort of] euro price increase that [were out] namely, in Europe. Could we have a sense of what was the actual rate of achievement there?

And my final question would be related to the standards review and when do you expect to have the decision taken there? Thank you.

In terms of the first question, if Arcelor were to be the acquiring entity from an accounting purpose, the amount of goodwill that would be created would be greater than if Mittal Steel were the acquiring entity. So from a purchase accounting impact, it would be perhaps more detrimental rather than less. So Mittal Steel acquiring Arcelor clearly makes sense. The pro forma adjustments that we have are the significant ones, which I think you should focus on. First of all, clearly there's about $100 million more of interest expense on a quarterly basis. That's what we have captured in these results.

Number two, we have also adjusted the earnings of Arcelor because at this point in time, Mittal Steel has 92% of the shares of Arcelor, so we have reduced the minority income by 8%. Those are the most significant adjustments, apart from the fact that the whole thing is presented in IFRS, which has adjustments in terms of Mittal Steel results. I'll ask Gonzalo to answer the rest.

Yes, can I come back to the second question? What was your question on pricing? Was it European prices that - for what area was it exactly?

When [inaudible] were talking about increasing prices, they talked about a 7% hike in Q2, which was in the range of [EUR13] but it was for the EU on average for flat. And I was wondering to what extent these price hikes were achieved in that and what time frame within the Q2.

I confirmed that for flat, the price was achieved. But you don't - you know it's always not from today to tomorrow, because you start selling prices before. Some of them you change, you already reached agreements. But I have to tell you all the price increases we've set for second quarter have been achieved without problems. Of course, it's discussion, it's negotiation. But they have been achieved with no problem, okay?

Now [in sist], we've seen part of the increases in the second quarter and we will see more as we have increases in the third and fourth quarter. Plus, you're bringing some prices that were already negotiated before. So you have a lag in those prices, okay?

Thank you. On stainless?

What was the exact question stainless?

When do you think you will be able to provide us with some sense on what you intend to with Arcelor stainless in Acesita?

Okay, good. First point I have on steel stainless, it would have to be the new management board who will have to analyze the situation and present to the new Board of Directors. So it will be the new Board of Directors who will take a decision on stainless steel. That is our first comment.

The second one, you've seen stainless has been performing better and better. We have a jewel, or a jewel of the crown, which is worldwide, I would say one of them that is Acesita. Europe has had an incredible change of performance. Of course, the market has had better industry. We've made an enormous progress, so I have to tell you we are happier and happier that we continue making the study and and all strategic options are open at this stage, and we'll have to discuss them with the new management board and present them to the new Board of Directors. So there's no decision. And I think this fall, or the beginning of the fall, it will be presented, the different options, to the Board of Directors. So they take a decision on this topic. Okay?

Thank you.

Thank you. Our next question comes through from the line of Michelle Applebaum from MAR. Please go ahead with your question.

Hi. I wanted to ask you, trying to reconcile some of the comments about what's going on in China and trying to get more details, since you seem to generally be more knowledgeable about that market than most people. Prices have been coming down pretty quickly the last month, and exports have been up a lot. And you've commented about the export rebate and we've been hearing it's about to come. I know this is directly from China, not from Mittal Steel, for four months now I like, or five months now. And they seem to be not terribly good at keeping secrets. Can you just reconcile the price declines with the export pick ups with your view?

Michelle, we can only say that we are all very concerned in January also this year when the Chinese prices dropped and they started booking orders at the low prices. And we have also seen that all of them were making losses. And I believe that this situation cannot continue because, at these prices, Chinese mills are not making profits. So the price increase has to happen and Chinese - I know that they've been constantly talking about reducing export rebate, to for your information, is right that for four months we've been hearing this. But I believe that prices have to improve and the rebate has to go away.

Also, a question earlier from Vincent on our performance versus what's going on in Chinese prices. And, in fact, on South Africa and I'm not sure if we answered it. But what we have to recognize is that there was a very dramatic price increase which occurred towards the end of the second half in China, and then there was a price decrease. But net-net, the price levels are still higher than where they were in terms of our performance. So when we book orders, we're booking orders in the first quarter, et cetera. And for the third quarter, we're booking - we're recording the price levels in the second quarter, which are still higher than the first quarter. So that lag effect is there. And net-net, there's still a price increase compared to where we were in the first or the second quarter. Clearly, the trend is negative, but, as we said, that's something that the Chinese steel industry goes through and we do not expect it to impact the global steel industry, either in the US or in Europe.

Why don't you expect it to impact?

Primarily because we do not believe the Chinese steel industry can survive on an export basis. They have to import all of the iron ore. The government is very focused on keeping energy within the country and not exporting energy. So steel exports is not strategically viable for them, and that is why they want to reduce the export rebates.

Number two, I think a lot of the products that we are in and a lot of the products that are counterparts in the US and in Europe do not lend itself to imports. There's much more consolidation today than there were before. So, historically, imports would come in and change the price level for the global - for the price in that whole market. I don't think that would happen in this case.

Number three, we're also quite consolidated in terms of tariff action. I mean, you must have seen the ads in the Wall Street Journal a couple of weeks ago in terms of the subsidies that are happening in the Chinese steel industry. So there's always of the threat of countervailing duties that can be imposed on Chinese exports.

Great. Okay. Thank you.

Thank you. Our next question comes through from the line of Alan Coats from HSBC. Please go ahead with your question.

Just a question - if you'd actually paid - I mean, you paid out your dividends already effectively. But what dividend would you pay if you were consolidated group at the interim level? Would you pay an interim dividend? What sort of final dividend would you pay? And one second question, which is you've got a massively complicated business across the world. Would you see yourself simply going into a big period of restructuring with associated restructuring costs? So two questions, dividend, restructuring.

In terms of the dividend policy, we have to come back and clarify what we're going to do on a combined basis because there was a dividend policy at Mittal Steel, which was quarterly. Arcelor has had an annual dividend policy, and we just need to reconcile what is the most appropriate based on the shareholder base in Europe and in the US.

In terms of - sorry? Yes, the new management board clearly will take a view and will communicate in September.

In terms of our restructuring, we've always said these businesses are extremely complementary. There's very little industrial overlap. So we do not forecast any major restructurings, any associated restructuring costs. The merger is built on the pieces of consolidation, the fact that we have commonality in terms of R&D, innovation, technology expertise. We operate in similar markets, but can, again, gain a better franchise with our customer base and growth in other markets, including China and India.

Okay.

Thank you. That concludes this afternoon's conference call. Thank you for joining and you may now replace your handsets.