ArcelorMittal SA (MT) 2006 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Arcelor Mittal fourth quarter and annual results 2006 conference call. Your first host will be Lakshmi Mittal. My name is Wendy and I'll be your coordinator for today's call. Throughout the duration of the call you will be on listen only. However, at the end of the call you will have an opportunity to ask a question. [OPERATOR INSTRUCTIONS]. I will now hand you over to your first host, Mr. Lakshmi Mittal. Thank you.

Good day, everyone. I am Lakshmi Mittal, CEO and President of the Board of Arcelor Mittal. Joining with me today is Aditya Mittal, CFO of the Company, and Gonzalo and Michel Wurth, members of the Group Management Board. I welcome you to this earnings call and this is the annual earnings call for 2006 as well as for Q4 of 2006.

In today's call, first I will give you the overview of Q4 and 2006 results. Then I will discuss the progress we have made on the industrial plan and on the synergies from the merger. Finally, I will discuss the steel market environment. Then I will turn it over to Aditya, who will take you through our performance for the fourth quarter and full year 2006. And this will be followed by a brief presentation by each of the GMB members on his business segment. After this, we will open for questions and answers.

If we move to the page number five, we provide a list of highlights for 2006. As you can see, that the Q4 and 2006 earnings are in line with guidance and also which has resulted in significant debt reduction in 2006. Pro forma of -- EBITDA pro forma is $4.1b in Q4 and $15.3b in 2006, which is in line with guidance. And net debt reduced by US$2.3b in Q4.

I am very pleased that the integration is progressing very well and synergies are being realized as planned. The new combined team has been put in place. We have announced the organization a couple of months back. And I am very pleased with this new organization and I believe that we have the best management team in the steel industry.

At the end of 2006, we have captured $269m of annualized synergies and we expect to have annualized synergies of $500m in Q1 2007. We reaffirm that we will be achieving more than EUR1.6b of synergies by 2008.

Our ongoing investment program continues to be an engine for the growth of our Company. We recently announced the acquisition of Sicartsa for $1.4b in Mexico. There has been a lot of brownfield and debottlenecking and value-added projects we have launched in growth markets like Brazil and Poland, and we believe these projects will contribute to earnings in 2007. For 2007, we have also identified new promising industrial projects and those will be initiated in this year, which I will get -- give you the details later.

In the year 2006 we spent $4.6b on CapEx, and we believe that in 2007 we will be investing between $4.5b and $5b. We announced a 30% payout of our earnings last -- in September of last quarter, and as part of this announcement we have -- reconfirmed the base dividend of US$1.3 per share to be paid in fourth quarter. And we also announced share buyback program of $590m in the year 2007.

Finally, looking at -- looking forward, our guidance for Q1 is between $4b to $4.2b of EBITDA, about the same level of profitability as we had in the quarter just ended. Finally, for the year 2007 we expect a stronger performance in terms of EBITDA than $15.3b we had in 2006.

Now, trying to discuss so far progress on the industrial plan and on synergies on page seven. We show you here a bridge between 2005 pro forma EBITDA with -- of $15b and $15.3b realized in 2006. We have made excellent progress on industrial plan, which is worth about $2.9b from our initiatives before reflecting the price cost squeeze which we experienced in 2006 at 3.3%, against we were hoping that it would be in the range of 2.5%. So price cost squeeze in 2006 has been higher than our expectation.

On page eight, we have a brief discussion on each element of the bridge. I spoke about the brownfield and production growth. You'll see that we have increased volume by 7.6 metric million tons of volume. That has given an increase -- average margin of $175 per ton. And there has been a contribution from low cost brownfield. And debottlenecking expansion was not enough because the project has not been fully complemented -- completed and we have not seen the results of those projects in 2006.

We had a limited impact in 2006 of value-added growth projects because these projects were basically completed late in the year.

We had a gain of management gains and standalone synergies. That has been worth $1.3b, in which manpower reduction is about 15,000 [sic -- see Press Release] through voluntary retirement plans and natural attrition. We have -- I am very happy to inform that we realized the full impact of synergies generated alone from 2005 acquisitions of Kryvorizhstal in Ukraine and ISG in U.S.A. There has been a trend of yield improvement and other cost reductions that has also contributed to management gains in 2006.

There has been a lot of projects in mining areas, but there has not been major impact in 2006 results over 2005 because the projects have not completed fully.

As announced, merger-related synergies had only modest impact on 2006 results. That is on average basis about $269m, which you see in the next slide that in the first -- in the fourth quarter, we had only $269m and which is mainly arising out of marketing and trading. And we estimate about $500m in the first quarter of this year, which will have marketing and trading and also purchasing, and very small benefit in manufacturing and process optimization and SG&A.

But we have made a lot of progress in marketing and trading. For example, we have consolidated slab sales in Americas to one point instead of Brazil and Mexico selling of their own. We have improved our pricing through higher service levels and quality to customers in long products. And third, we have also improved market dynamics and recognition of value provided by the Group in the global automotive and flat European carbon industry market. And, most important, we have launched 'one face to customer'. And we have been very successful in launching this initiative and we see that, going forward, we will achieve more synergies out of this initiative.

In purchasing, we expect to have significant impact beginning in Q2. The renegotiation and global sourcing synergies have started coming in.

On manufacturing and process optimization, we have -- we believe that we will have benefit -- large benefit will start coming in the second half of this year. We are working on reducing costs and we believe that we will have synergies expected to be captured progressively through 2007 and 2008 in this area.

In this next slide you see the industrial plan for 2007 and growth projects. You will see that there are a lot of projects which will be completed in 2007. For example, Brazil slab capacity increased from 5m to 7.5m tons in Q2. This project is slightly delayed, but now it is ready to be -- ready to start production in Q2. Similarly, we have finished this hot strip mill installation in Krakow in Poland, and it will start producing also in second quarter.

Then there are several other projects in South Africa, like blast furnace relining in Argentina, Lazaro Cardenas. And this last one is important, that is the iron ore project in Volcan in Mexico. So we hope that we will start up -- have the first iron ore coming out in the fourth quarter of this year.

These are the projects to be completed in 2007. Then we have initiated new projects which are -- some of them are very large. For example, Ukraine Kryviy Rih project is large one, increasing the capacity from 6.5m tons to 10m tons. We believe that this is a very excellent project for the Company. Ukraine is one of the lowest-cost producers and it is the highest EBITDA contributor for the Company. So we want to expand its capacity, not only in the steel making but also in the iron ore mining area.

Similarly, we have announced the signing of a new project with Liberia a couple of weeks back. That mining development activity will begin by third quarter or fourth quarter of this year. We have also announced last week MOU signed with a private industrial group in Saudi Arabia to construct 500,000 tons of seamless tube mill plant. The -- there is a strong demand of seamless product in Middle East and we must participate in this kind of growth.

Apart from this, there are two other projects in Bosnia and South Africa.

Now I will give you some update on merger-related follow up. We have -- part of E.U. remedy program, we have disposed of three units, one in Germany, Italy and third one is in Poland. And we have -- these transactions will be closed -- all these transactions will be closed within Q1. We are not happy with the disposal of some of the units, but it was required as a part of E.U. remedy program.

We have heard yesterday, all of us have heard yesterday, the Final Judgment and Separate Order issued by DoJ. Now that Separate Hold and -- Hold Separate Order is over, now we are able to integrate Dofasco with Arcelor Mittal. But, at the same time, we will have to divest or dispose of Sparrows Point facility instead of Weirton, which we wanted. But now, since the DoJ has given the decision, we are working on the next step for disposal of Sparrows Point facility. We are disappointed about this decision but we will have to follow the direction.

We have also received a ruling from CVM in Brazil about MTO. We are not happy with the methodology what has been followed by CVM in valuing the Arcelor-Brazil. We will work with them, we will have to work with CVM. If we cannot come to a settlement, we will have to look into options available to us.

There is no delay on the legal merger of the Company. All the actions are being taken. There is a delay because of the regulator's requirement, because of the technical process what is involved in such a merger. And we believe that instead of second quarter merger, this merger could take -- this merger, legal merger, would be over by July 2007.

Now I will talk a little bit on this market environment. We believe that, in China, real demand and production growth rate remains strong and balanced. Inventory levels remain low despite beginning of restocking. In the last year at this time, in January 2006, the inventory level was about 6 -- 10m tons. Now we see that it is around 6.5m tons. Sorry, in 2006 was 8.5m tons. Now it is about 6.5m tons. That de-stocking has taken place and that's why there is a better balance between demand and supply. And we also see that the premium between the spot price in China and in Asia has started going up for steel.

All the time, there is always a discussion about the Chinese exports. The good news is that the Chinese producers have announced that net export in the year 2007 will be down by 10m tons. And, at the same time, we also see that their costs are going up and their domestic prices are going up in China. And that is one of the reasons why the premium in U.S. and Europe versus China domestic price is narrowing down, which you can see on the right-hand side of the slide.

Everyone is also hoping that Chinese will further cut in their export VAT rebate. At the same time, this elimination of 10% -- implementation of 10% tariff on semi-finished export products has started distancing the pricing on the semi-finished products.

In U.S., there was a softness in the U.S. in the last quarter of last year and rising out of this softness there have been a couple of factors. One, that producers announced production cut. Second development has been there has been falling levels of imports from China and other countries. There has been relatively good demand and now, in view of this balance situation in production and the supply and demand, we see the price has started going up. Two steel companies have already announced prices increase from the beginning of second quarter. And this is a good scenario that industry is becoming more sustainable and it has been able to withstand the softness in the market in a proper way.

In Europe, we were expecting that mills would be resorting to production cuts, but the markets have been strong. So there was no new -- there was no production cut needed in Europe in fourth quarter of last year like United States. And, at the same time, we are seeing the prices remain stable and prices started moving up in the beginning of this year. All the mills have announced a price increase in Q1. Markets are strong in sections; markets are strong in rebar, hot roll coil. So the situation in Europe is pretty strong.

With this, I will hand it over to Aditya to walk you through the financial results.

Thank you. Good afternoon and good morning. As you saw from our press release this morning, Arcelor Mittal had a very good, very solid year. It's five months since the merger. Not only are we capturing integration benefits, but the business is running smoothly. I think we can see that with the results.

Our fourth quarter EBITDA is $4.1b, which is exactly in line with guidance, despite the significant production cut that we took place in -- that took place in the U.S., as well as the seasonal slowdown. And some of the cost increases were offset by marginal improvement in prices. We also had strong performance in the stainless segment in the fourth quarter.

Our EBITDA for the full year is -- for 2006 is $15.3b, which is also better than [2005]. Net profit is up 9% for the quarter to $2.4b. Earnings per share $1.72, again higher than the third quarter.

The other good news that we experienced in the fourth quarter was our strong net debt reduction. Working capital was reduced by $1b, which led to $4.3b of cash flow generated from operations within the quarter. As a result, net debt decreased by $2.3b to $20.4b, representing net financial debt to EBITDA of 1.3 times. Our gearing is also down to 41% compared to 48% in the third quarter.

We are reaffirming guidance for the first quarter at between $4b to $4.2b. We believe it will be closer to the upper end of that range rather than the lower end of that range. And the EBITDA increase for 2007 is also confirmed.

On the next slide we can see the pro forma P&L. The pro forma P&L assumes Arcelor and Mittal were merged as of January 1, 2005. It includes Dofasco, Kryvorizhstal and other acquisitions for that same date as well. I'll first walk you through the key differences between fiscal year 2005 compared to fiscal year 2006.

Revenues are up by $8b, primarily due to prices and increase in shipments. Shipments are up from 102.8m metric tons to 110.5m metric tons. In 2006, Arcelor produced -- had a crude steel production of 118m tons as well.

EBITDA is marginally up from $14.959b to $15.272b. However, EBITDA margin is down. It's down by 1.5% compared to 2005. When we look at the year, we saw a significant price cost squeeze effect, larger than what we had anticipated. Even though we had a volume effect which was positive $1.3b, management gains and synergies of $1.3b, the price cost squeeze was almost $2.6b. The EBITDA increase was primarily due to merger synergies as well as improvement in our value added or product mix.

As a result, EBIT is marginally higher but the margin is lower. Our net financing costs were different compared to fiscal year 2005, primarily due to ForEx losses and certain bank charges.

The other difference -- the other significant difference compared to 2005 is the tax rate. 12.6% was the effective tax rate in 2005 and in 2006 it's 14.9%. As a result, even though EBITDA is higher, our net income is down compared to 2005 and we came in at $7.973b of net income, or $5.76 per share. In line with the dividend policy that the Company had announced in September, there's a distribution of 30% of that net income, $1.30 per share in cash, and a $590m buyback, translating into a distribution of about $1.73 per share.

If you move on to the third and the fourth quarter, we have a similar picture. Revenues up, driven primarily by prices. However, EBITDA is down. As I mentioned earlier, this was primarily due to the slowdown in the United States and other factors. We will walk through each division later on, so I won't try and bridge the reason why our EBITDA margin is lower in the fourth quarter compared to the third quarter.

We also have a significant change in our net financing cost. We have a positive $4m. This was primarily due to a gain of $450m on account of a Canadian dollar swap on Dofasco, which we unwound in the fourth quarter of 2006. I think the presentation in the morning said 360. That's in euros. It's actually $450m, which implies that our net interest, or net financial cost, actually went up in the fourth quarter 2006. This is because in the third quarter we had a ForEx gain of $39m in South Africa and in the fourth quarter we have a ForEx loss of $50m in South Africa. Going forward, we believe the interest expense for the Company in the first quarter of '07 will be around $350m.

Our tax rate was marginally lower in the fourth quarter, 18.6%, resulting in an improved net result of $2.371b or $1.72 per share. Primarily the increase, even the EBITDA, is down is because of the interest -- the Canadian swap, as well as the lower tax expense. Going forward, for 2007 we're guiding towards a tax rate of 20 to 27 -- 20 to 25%, even though the full year of '06 was 15%.

Moving on to the next page, here we have the pro forma versus legal adjustments. Primarily, they had to do with the fact that legal has Arcelor for five months and the pro forma has it for the full year. Apart from those changes in revenue and EBITDA, there is also an inventory step-up and emissions of $1.2b.

So, just focusing on the EBITDA for one minute, $5.5b. $4b of that is seven months of Arcelor EBITDA. $0.3b of that is Dofasco and Sonasid EBITDA. And $1.2b is the inventory step-up, which is $1.1b, and emissions, which are $100m.

The net financing cost is higher simply because of the $20b or so of debt and related interest, as well as Arcelor's own seven-month interest of $0.2b. Minority interest is Arcelor's minority as well as the minorities of Arcelor. And that basically explains all the significant adjustments between the legal 2006 account and the pro forma 2006 account.

In terms of the fourth quarter, legal versus pro forma very quickly. The fourth quarter legal is $3.495b. To that, you add the $520m for inventory step-up which took place in the fourth quarter, $103m for the C02 emissions, and you get to $4.118b, which is a pro forma number. We have completed the inventory step-up. We do not expect any changes in terms of the C02 emissions right as well going forward. And, as a result, the next quarter, assuming no other changes to purchase price accounting, we'll be support -- we'll be reporting legal numbers.

If I just talk very quickly on the cash flow for 2006. Cash flow from operating activities was $10.3b. We consumed, within 2006, $1.4b in terms of working capital. Cash flow from investing activities was slightly higher than we anticipated. Excluding acquisitions and disposals, it was $4.638b. Going forward, we expect in 2005 CapEx to be between $4.5b to $5b as we accelerate our investments, both on brownfield as well as on greenfield aspects of the Company. The net debt reduction for fiscal year 2006 is $3.237b [sic - see documentation].

If we compare the third quarter to the fourth quarter in terms of cash flow from operating activities, the main difference is the working capital. In the third quarter, the Company consumed or increased working capital by $1.8b. And in the fourth quarter it reduced working capital by $1b. That explains the big change. CapEx clearly was higher and this was as a result of various contracts were closed out or paid out during the end of the year at $1.6b. Net debt reduction was $2.3b for the quarter.

If I just quickly talk you through the balance sheet; this is the actual balance sheet, it's not a pro forma balance sheet. The intangible assets include the Arcelor goodwill, as well as Kryvorizhstal and the emission rights. The investments and others has declined, and so -- and the trade receivables and others have increased. Actually we have moved $1.2b of assets which were earmarked for disposal into current assets, and that's why you see the significant change.

Other than that, as I have mentioned earlier, net debt -- net financial debt was $20.4b, net working capital of $17.3b, which represents 82 days of cash conversion cycle, which is a decrease of five days from the third quarter. The Sicartsa and remedies are not reflected in the balance sheet. They will be reflected in the first quarter of 2007.

Let me now turn to the divisional highlights. I will talk about Americas and then Michel and Gonzalo will talk about their respective areas. The first news, I guess, in Flat Carbon Americas is the fact that Arcelor Mittal can now welcome Dofasco to the family as the Hold and Separate Order has been removed. The negative news is that we're disappointed that we have to dispose of Sparrows Point instead. That process will now begin.

The other major development in Flat Carbon Americas is the fact that we are completing the expansion of CST, the upstream expansion of CST from 5m to 7.5m tons of slabs. The restart is slightly delayed. It's coming on stream on April 20 instead of end of March. This is a significant project and then, clearly, value enhancing.

Other than that, we had a tough quarter, Flat Carbon Americas. But I think our results reflected our resilience. EBITDA is down. It's down by 9%. We had a production cut of 2.2m tons compared to the third quarter across our Americas division. 1.8m was in the U.S. and the rest at Imexa and CST. Shipment decline was less. Shipment decline was 0.5m ton. And so, clearly, we reduced inventories as well.

The cost performance, though, was quite impressive. Even though we had significant production cuts in our U.S. facilities, we did better than the competitors in containing our costs, managing our fixed costs and managing how we bring down these furnaces. Overall, all the EBITDA loss actually occurred at Flat U.S.A. and there were some ups and downs between the other three subsidiaries. But the rest were primarily flat.

With that, I turn it over to Michel to talk about Flat Carbon Europe.

Okay. Good afternoon, good morning to everyone. First of all, fortunately for Flat Carbon Europe, quarter four was the best in the year. So there was really a different evolution than in the U.S. because we had increased shipments of 8.4m tons in quarter four, versus 7.7m in quarter three, the reason -- the main reason being that the market remains much stronger despite the higher imports coming in, in particular from China and the other reason being more seasonable. You know that Europeans go more in vacation in August and, for that reason, there is -- our customers are consuming less steel.

In terms of for the whole year, 2007 -- 2006 showed quite a good growth because we shipped 33.1m tons in that scope, versus 30.7m tons one year earlier, most of this being increasing shipments from Flat Carbon Western Europe, where I remind you that the second half of 2005 had been extremely difficult and -- in order to have -- to match supply and demand.

In terms of revenues, there also, fortunately, we had some increase in prices in Q4 which are partly due to mix effects, but partly also due to real market effects. And, in particular, we succeeded also to hand over to our customers the huge zinc price, the zinc increase, price increase, which was quite important. On average, our prices increased by almost EUR20, which gives us then a total revenue evolution for year 2006 which grows from EUR24.6b [sic - see documentation] to EUR27.6b [sic - see documentation].

In terms of EBITDA, quarter four has been the best quarter of the year and we are very pleased with that result because we go up from $947m to $1.1b. For the whole year, we are falling a little bit down, from $4.2b to $3.9b. What was the reason? Mainly the cost squeeze we had because, in our scope, raw materials went up quite dramatically. Iron ore prices by 19%, coal was up and then zinc price more than doubled, and that gave us a cost squeeze of more than 1 point -- of 1.3b, which was really significant and which could only be offset by very nice management gains and synergies which were absolutely in line with the value plans of the two companies. And we showed that integration is really going well. So, from that point of view, we were pleased and we think also that the outlook will be positive.

Operating results are similar than EBITDA, so I will not comment them specifically. Maybe that I take one more minute to give you some of the headlines of what happened during the second half of last year, or first half or fourth quarter. First of all, in terms of commercial integration, we can say that this is already done. We are ready today. There is one face to the customer. We have one organization. And from April 1 on, we will have one single price list throughout Europe.

Second, in terms of synergies and integration, it works quite well. We have implemented the concept of sister plants between Eastern European and Western European plants. So we are really pleased. A lot of good ideas which are going on, considering also the plate market for [gallat], which is good because you know plate market is, today, the best market in flat products.

And then, from industrial opportunities, 2007 will be a great year because the new slab caster in Poland just came on stream and did its first slab on December 30 last year. And we will have, at the end -- or let's see, April probably is the start up of the new hot strip mill in Poland as well, which will give us huge opportunities to build up a new industrial plant for our European bases, specializing plants and boosting.

So I'm very optimistic about our part of the synergies. And I think it will be really a good thing also to participate in the growth market in Europe because the good news is that, due to the strong economic recovery, in particular in Germany, in particular in the construction markets, steel demand was going up. And we want to take our full place in that, which motivates also the -- what we are working today is trying to find a way to keep longer on operations our blast furnaces in Lorraine, which would give us some extra capacities.

Finally, from organizational point of view, one last word about global automotives. So the organization is in place. We have one common catalog. We have global key account managers for our global customers. And I am sure that we can give much better service now even to these very big and sophisticated customers, to whom we are fully dedicated throughout the world. And we are also working to renew our alliance with Nippon Steel, which is also a big and important part of our global automotive strategy. And I hope that next time that we can come to a positive conclusion of this alliance.

Okay. Good morning and good afternoon to all. Speak now of the Long Carbon sector.

If we see the figures, Q3 versus Q4, the first comment is volumes have gone up around 200,000 tons. On the other hand, we have had improvement of prices in the fourth quarter. It's around $27 improvement. But costs have increased. We have had higher inputs in our costs. But, all in all, if we take, because there's been also some accounting impact, the EBITDA of the -- we take that away, the EBITDA of the third and fourth quarter would be similar but with higher volumes in the fourth quarter.

Now, if we compare what has been the year, it has been a good year in general for Long. We have increased our shipments in 1.7m tons. We're practically up to 25m tons. On the other hand, it's important prices have increased very much. I'll give you a figure. Our average prices, from first quarter to fourth quarter, has gone from $600 to $717 per ton, which is an important increase. Now, of course we have had increases in our input prices, but not as much. Now scrap, which are one of our most important raw materials, has increased for the year. In Europe, for example, $27 per ton. So, if we compare this year versus the previous year, it has been a year of clear improvement and our EBITDA has clearly improved.

If we go into integration, integration is working well. It's working well and going very smooth and fine in the Americas and in Europe.

Now, challenges for this year, we have many. First one, of course, is safety. Then we have to accomplish the management gains and synergies. Additionally to that, in cost reduction and SG&A we are working in two streams. One, we are comparing all our factories on one hand. And, on the other hand, we are benchmarking with the external world. And that's proven to be positive in the sense we are aware that we have room to improvement. So, clearly, there will be cost reduction and SG&A reduction.

From a commercial point of view, the integration is done. We have one pace -- one face to the customer and everybody's under one roof in our commercial organizations of Long. From an industrial optimization, we are already optimizing our different brands and products.

So, clearly we see, if you allow me, how do we see the market now? We are optimistic at present with the market in Long. If you allow me, that is for Europe and U.S., the beam market is good. I would say even better than good. Very good, if you allow me, with the information we have today. On the other hand, if we go to rebars, the market is good. Wire rod, which was dragging a bit behind, has improved very much and we have succeeded in increasing prices. So, at present, we are positive with the market.

If we go to our special Long products, that is rails, sheet pipe, the market is also not good but very good. So we do have a positive outlook for, with the information we have, for the next quarter at least, if not the next two quarters.

Next page please. If we go to the AM3S or distribution activities, first if we compare Q4 to Q3, we have had higher volumes in Q4. So, around 500,000 tons. But the average selling price, the mix, we haven't been that good. Why? Because we've sold products through our international network, so we sold products where there was less margin because just to recall you that in AM3S we have very different activities. We have all the international network. We have the distribution, the steel service centers, the construction and foundations. So, of course, depending of what you are selling more quarter by quarter, you may have more or less, in this case, EBITDA. But if we are comparing on a homogenous basis, the fourth quarter has been similar to the third quarter, that is.

And if we compare to the previous year, our volumes have increased quite a lot. We are in 14.3m tons. That is 600,000 tons more than the previous year. And our average price is $780 versus $881 per ton. Once more, I'll leave you with a figure here. Our average price in AM3S has gone up from $770 a ton to $870. So we have increased our prices there $100 per ton.

Now, the EBITDA with respect to the previous year clearly has increased more than 35%. Once more, we have important and interesting challenges - safety, synergies. We will continue with our reduction of costs and on SG&As.

We have two very important challenges, that is the development of AM3S in Central Europe and Central Eastern Europe. We have already done different -- we've developed already different activities there. For example, a steel service center in Krakow. We are looking at other developments.

The developments will come through developing existing facilities or doing greenfield. And if there's any possibilities of acquisitions, clearly we will look into them. That not only applies to Central and Central East Europe. In other Western European or other Americas, if there's opportunities in AM3S, we will invest in AM3S. This has become a key and strategic area for Arcelor Mittal, so we will continue focusing on this.

Additionally, and last, in the international activities in 2006 we have been selling 4m tons. This year we will be selling more than 12m tons. So it has become the big selling network of all the Group.

Now, if you'll allow me, just to end, a bit of the market. Like in Long I have to tell you with information we have, we see the market well. Clearly our activities are very small in Europe as of today for AM3S. Not like that in the future. It'll have to be all around the world. And the feedback we have is very good. The market is good in Flat and in Long Products. And we see there is a demand of our customers. So we look at the market in a very favorable way.

Thank you very much.

Mr. Mukherjee could not be here because of other work commitments. As a result, I'll just walk you through very quickly the performance at Asia, Africa and CIS. This is primarily our operations in Ukraine, Kazakhstan and South Africa, as well as other smaller subsidiaries like Bosnia and Algeria.

The big surprise that occurred in Asia, Africa, CIS was the drop in shipments compared to the third quarter. We shipped 0.5m tons less. 5.392m became 4.894m [sic - see documentation]. If you look at the line above, which is production, the production drop was not that significant, 5.343m versus 5.125m.

The reasons of the shipment drop is across the board. In South Africa we had logistical issues in serving the domestic market in terms of rail infrastructure as well as a seasonal slowdown in December which occurs. 100,000 tons in Ukraine from material in transit, 100,000 in Kazakhstan, primarily production-related, and 100,000 the rest.

In terms of the EBITDA margin, the EBITDA margin was primarily impacted by the volume effect. Cost control was relatively good in Asia, Africa, CIS. And as a result EBITDA dropped from $244 [sic - see documentation] to $805m.

The good news in Asia, Africa, CIS has been the turnaround of Krivorozhstal. We now have it for 13 months. And if you looked at the EBITDA on date of acquisition, 2005, it was around less than $500m and we recorded 2006 greater than $1b. We have achieved our synergy plan. We have increased production, reduced costs, completed the [coke] modernization. And we intend to invest more in Krivorozhstal and grow it as we see tremendous opportunities and tremendous potential and investment in Ukraine.

So Krivorozhstal was excellent. Overall, due to loss of shipments, EBITDA did decrease in Asia, Africa and CIS.

If we move to Stainless, I would say excellent or outstanding results, primarily driven by the market. I wish it could be because of our performance. Perhaps in 2007 we will see benefits of performance as well. Roughly, shipments increased. You can see 481,000 tons to 543,000 tons, which is a 13% increase. And we had a price improvement of about 18% compared to the third quarter, resulting in EBITDA of $397m versus $246m for the third quarter. Most of the increase has occurred at our European facilities. Acesita was flat, largely flat; 122 the third quarter to 125. And U&A went up from 124 to 272.

We continue to see potential to improve our operations. We're still in the ramp-up phase of Carinox. We just completed a couple of weeks ago a changeover in the layout of the arc furnace and hopefully productivity and production will improve. As a result, we will have some cost benefit and production benefit as well.

Because of the volume impact and the price impact, we had an EBITDA increase of 61% in the fourth quarter.

Let me turn to outlook and guidance. I think you have heard through the call the guidance and an outlook. Let me just reaffirm the guidance. $4b to $4.2b for the first quarter. Primarily, as I said earlier, at the top end of that range. Shipments are expected to remain stable. The big change in profitability will occur on Flat Carbon America, where we will have a drop, a significant drop, compared to the fourth quarter. And this is due to the prices and the de-stocking environment which is occurring. The good news in the U.S. is that price improvement has started and we expect to benefit from that in the second quarter of 2007.

Flat Carbon Europe performance is expected to remain solid. You heard from Gonzalo all the bullish statements on Long prices. And you will see that benefit in the first quarter as well. Stainless profitability to remain strong. And Asia, Africa, CIS will do better as well. The other segments' performance, such as AM3S and others, we expect to remain stable. The tax rate for the year we're guiding at 20 to 25%.

In conclusion, let me just try and summarize the presentation of my colleagues. We're on track in terms of the value plan. We had good volume increase, good management gains and synergy achievement. We were surprised a bit by the price/cost squeeze. Hopefully that will not continue beyond a 2006 phenomenon.

We are on track in terms of synergies. We had $50m of synergies in the income for the fourth quarter. That was good. We're forecasting the marketing synergies to increase in the first quarter as well as in purchasing synergies. If you think about synergies, first we're tackling the marketing synergies which are quick wins, moving on to purchasing, and then we will see the technical and operating synergies come through. So we are on target to achieve $1.6b in the next three years.

In terms of the market, you have heard from everyone. We feel confident about 2007. In terms of our Company, clearly for the last two years we've earned $15b in income -- of EBITDA approximately. But the most interesting thing that we noticed was the second half of 2006, our EBITDA for third and fourth quarter was added up at about $8.472b. So clearly we are making progress as a Company and we expect to have a stronger year in 2007 compared to 2006.

With that, we open the floor to your questions. Thank you.

[OPERATOR INSTRUCTIONS]. The first question comes from the line of Andy Mohinta from JP Morgan. Please go ahead.

Hi. Good afternoon. I have about four questions, so I'll try and keep them one on one and you can answer them as we go along. The first question is really probably for Aditya. I just wanted to just sum up the exceptionals again for my own reference. So we had $120m from the carbon credits, $500m from the inventory step up and about $400m from the FX gain. Is that correct?

Yes. We just have to compare apples to oranges -- I mean apples to apples, not to oranges, excuse me. The exceptionals are the pro forma versus legal. Right? And that's the $1.2b during the second half of 2006. In the fourth quarter we had exactly $539m in EBITDA. Sorry, that's the third quarter. $520m in terms of inventory in the fourth quarter, as well as $103m for emissions. So that brings your legal in line with pro forma.

Both the pro forma and the legal had the benefit of the Canadian swap, which is $450m in the fourth quarter. Offsetting that is, to some degree, the OCEANE charge, which was in the first quarter of 2006 if you're thinking of the full-year financial interest expense.

Does that answer the question?

It does. Thank you. And Aditya, the second question for you as well. It's really on the depreciation in Flat Carbon Americas. It seems to have moved quite meaningfully. Are there any exceptionals in there or should we assume, say, 250 to 270 depreciation going forward?

In terms of the depreciation, we're guiding to about $3.5b. The reason why it came down was primarily because of Dofasco and that's a one-off. It had Dofasco at a higher depreciation second and third quarter and lower in the first and the fourth. And I think that just has to do with timing differences. We can't -- because of the Hold and Separate Order, we could not review the depreciation schedules yet. We will do that now and hopefully it will be more steady during the year.

Okay. And just the last two questions, one is can you give us some more detail on what actually comprised the excess price/cost squeeze?

Yes. Lots of things. I'm not sure how much detail we're giving. Let me just -- well, we have raw material cost impact, which is very significant across the board. Labor costs. SG&A costs which went up. Some of the SG&A costs which have gone up is also exchange-related. A lot of the SG&A we have in Arcelor is euro-denominated. And since we're a dollar company the base of SG&A has gone up. And all of that resulted in a significant price/cost squeeze.

Okay. And my last question is on this -- in the press conference earlier on today there was talk about preliminary talks at Sesa Goa. I'm just trying to understand, is this something that you are looking at on top of the captive mines you might get in Jharkhand, or is it the case that since SAIL is also interested in the same mines this is a possible sort of replacement kind of capacity you're looking at?

And also just -- the reason I'm asking this, from what I know of Sesa Goa you have -- it's not exactly the best quality iron ore. It's depleted or it doesn't have a long life ahead of it. It does have a couple of projects, but it's not basically the greatest iron ore asset out there. So I'm just trying to get some more color on that.

Yes. It's a difficult question without revealing too much about our strategy. At the end of the day, we are not buying mines to be a mining company; we're buying them for captive use. And that would be the long-term plan.

Okay. Thank you.

Thank you.

Thank you. The next question comes from Johan Rode of Deutsche Bank. Please go ahead.

Good afternoon, gentlemen. Just four questions from our side. Just in terms of the operating performance, you've seen a very good cost performance across the board. Can you explain, perhaps, after the changes to the asset values, if there was any goodwill impairments passed in the operating profit in 2006?

No, there was no goodwill impairment passed in 2006. There was a small charge in the U.S. in the fourth quarter regarding Weirton impairment, but that's about it. That's $41m.

Okay. And then in terms of the depreciation increase versus the asset value increase that we've seen after the acquisition of Arcelor and plus the Q3 adjustment, why is the depreciation charges not increasing as much as the asset value increases?

Useful life. We have extended the -- we have done a lot of work and we have concluded that the useful life of the assets is greater than what was accounted for before. So the increase -- the asset value increase gets compensated by the increase in useful life. And this is the same useful life that we had at Mittal Steel, so it's conforming with our depreciation schedules.

So if I look at the increase in depreciation of around $60m compared to the $11.5b asset value increase, is that a wrong way to look at it? Do I need to look across the rest of the assets because, on that asset base, the useful life is almost 190 years?

You have to look at Mittal Steel depreciation in 2006 versus Arcelor depreciation in 2006. And the pro forma adjustment itself is $1.15b. And our legal 2006 already includes five months of depreciation for Arcelor. So I would estimate, I don't have the exact number but we're depreciating about $1.6b to $1.8b for Arcelor and a similar amount for Mittal Steel assets.

Okay. Thank you. And then in Q3 you mentioned that the merger cost for the transaction was not yet included. Is that the same for these pro forma numbers or are the merger costs, bank-related charges, etc., for the Arcelor acquisition already included in these numbers?

The merger costs are part of purchase accounting. They're not included in these results. Some of the bank charges, because we're refinancing, are there in the third quarter. As you know, we did a big refinancing and we cancelled various acquisition debts, the bridge debts. The $17b so far refinancing that we did and those bank charges are part of the third and fourth quarters.

Thank you. And then just a final question on the outlook. You said, or your South African subsidiary is also saying this, that net exports from China will decline quite significantly in 2007. Do you share this view and where do you base this on? We have seen a year-on-year increase in import licenses coming into Europe.

We took these based on the announcement from CISA that net exports will be down by 10m tons in 2007. This is also -- I think this is a correct statement, maybe this is possible statement, though we heard what you heard, that import licenses have gone up. But we have to really see how it plays out for the rest of the year.

The domestic -- the premium on the domestic price of China was a premium -- is really narrowing down. The European premium price and the U.S. premium price versus China domestic price, this gap is narrowing down. The Chinese costs are increasing. So we believe that for them to export in a large volume may not be very beneficial to them.

And, at the same time, the Chinese government is becoming very conscious of all the complaints filed by U.S. government and the Mexican government in last weeks in WTO for their subsidies. So there is a lot of discussion going on on the VAT debate to getting eliminated, then implementation of export tax on semis. All these actions, I think, are in the direction that net export from China should be reduced. They say 10m tons, and let us hope that they do it.

Let's hope so. Certainly demand is strong in Europe, so good luck with your price increases for the next quarter.

Thank you.

Thank you. The next question comes from Michael Shillaker from Credit Suisse. Please go ahead.

Yes. Hi. I've got three questions, if I can. The first one, just on Stainless. I know you talked about a very strong Q1. But obviously we're hearing quite a lot of noise about prices falling in the second quarter. Can you give us your outlook for Stainless beyond the first quarter?

And also, if you do have a significant downturn in Stainless in the second part of the year, does this delay or inhibit your ability to -- with your strategic options regarding a potential sale and IPO -- or IPO of the Stainless division?

The second question is just on the cost/price squeeze, which was obviously higher than you thought. Is there a risk, I guess, that this remains higher for the next few years? And if that's the case, what would this do to your target $20b of EBITDA in 2008?

And the final question, just I guess I'm struggling to get my head around the fact that with U.S. inventories still so high after four months of deep production cuts, what is your conviction level of getting price hikes through in March? Thanks very much. 1 hour of audio -- stopped auditing here.

We believe that Stainless Steel business is steady. The demand is strong. We have seen the performance in Q4 of '06 and Q1 the situation looks strong. And there is -- I have heard a lot of discussion about Q2 going soft but we believe that, given the market dynamics, the market should be steady. And, like all other businesses, the producers have to make sure that they're proper balancing demand and supply.

We have no idea of going for IPO of Stainless Steel business. We said during our merger that we will evaluate the business and since the merger Stainless Steel business has done excellent. Performance has been very good for Q4 and we believe that there are opportunities for us to continue in this business. However, if there are any opportunities to consolidate the business, we will really look at it.

Sure. I'll just add on Stainless, I think. The performance is becoming more of a keeper and the only other option we look is consolidation.

In terms of the price/cost squeeze, you are right. We are surprised. What does it do to the $20b target? We are on track in terms of volume increase, management gains, synergies. We will be on track in terms of value added, volume growth as well. As long as the price/cost squeeze doesn't surprise us again, we should hit the $20b. But if we have surprises in terms of other cost environment and steel industry, then clearly it does make that goal a bit more difficult.

In terms of the U.S. market, the reason why we believe we can drive price improvement is primarily because imports have fallen off. And the delta between an export ton and the U.S. base price was significantly compressed, and as a result there has to be a price increase in the U.S. And then that's primarily the situation. We're not bringing up all of our furnaces, so production cuts are continuing. And, as is expected, we're also not losing market share. We're matching on price. But we do believe energy situation will correct. But the immediate catalyst for the price rise improvement is imports, lack of imports.

Okay. I suppose just one quick follow-up question. Have you been a little bit surprised by the lack of inventory drop in the U.S. market so far, given the remedial action you've taken in production cuts and the drop off in imports that we've already seen?

Yes, a little bit. And I think that has to do with the fact that there is more inventory in the pipeline than we forecast. You look at inventory in the service center, but generally we're not seeing any change in the demand environment, etc., etc. And then we believe it's a short-term issue and will resolve itself in the second quarter.

And I think that, finally, the behavior of the U.S. producers will discourage imports in the United States. I think this last quarter behavior has clearly demonstrated that U.S. steel companies do not encourage increasing imports into the United States.

Okay. Thanks very much. Well done.

Thank you. The next question comes from Michelle Applebaum of Michelle Applebaum Research. Please go ahead.

Good morning. You've been quite vocal, more than most, about frustration that many of us share with you about your valuation, both your own stock as well as the valuation of the sector, given the fairly dramatic changes in the last couple of years. Can you talk about your thoughts about where valuation, you think, should be? And what's the basis of some valuation thoughts, since we're in fairly uncharted territory in terms of the industry fundamentals?

It's a very difficult question because I have all the time been saying that the steel industry is underrated and it needs to be re-rated. And now at least, after Arcelor Mittal merger and more consolidation activities in Europe, with Tata Corus, with production companies in North America, a lot of other companies announcing their greater presence in consolidation, better participation in consolidation activities. Even a county like China has recently announced greater consolidation. And I was in China a couple of weeks back and I heard that at least one company, like Baosteel, want to become 100m-ton companies. So all these actions.

And secondly, the resilience of producers in the downturn of the market and their healthy balance sheets, their suffering through the last downturn, all these things have made the industry more stronger than ever.

Now, all these three companies are turning a lot of cash -- positive cash flows; they have very low level of debt. They have excellent agreement with the unions. Level -- with the contracts with the automotive companies, all are getting better. Long-term supply contracts are getting better. Industry's consolidating in a very positive way.

So I believe that the industry needs to be re-rated. What should be the comparison with the industry is yet to be decided. I think the two quarters have really shown a good performance of the industry and I think that we should have a better multiple going forward. I don't know at what level it should be, but it has to have a better multiple going forward.

Okay. If I can ask a second question, there's already been a lot of noise in Maryland about the Sparrows Point situation. And I was wondering if you had explored all opportunities to possibly shift around product mix or even eliminate your tin plate operations at the Point in order to comply.

Michelle, thank you for your question. And we sympathize with everyone at Maryland because we feel the same disappointment and the same anguish. The unfortunate thing is that the consent decree is quite black and white and it requires divestiture of the whole facility. By shutting down tin capacity we're exacerbating the issue because, from the Justice Department standpoint, they want another strong competitor in the tin market, not a reduction of capacity.

We are going to try our level best to see if there are any other creative options, based on agreement with the DoJ. But at this point in time the situation looks quite grim.

Okay. Thank you very much.

Thank you. Thank you. The next question comes from the line of Sylvain Brunet from Exane. Please go ahead.

Good afternoon, gentlemen. I'll start with a question on Dofasco, if you could update us on the synergies you see there, now it's part of the family.

Second question is on the famous cost/price squeeze. If we look at what's happening to costs at the moment, we've got coking coal down between 15 and 18% if you talk to the miners. Zinc prices are down 10% versus December. If you accept the ForEx, now you've renegotiated contract prices up some 10% or so, I don't see where the surprise would come from on the costs side. Do you share that view?

And lastly, that's for Mr. Mittal, if you could update us on how quickly you want to grow the Company and the asset base. I think it's a useful tool for portfolio managers to assess how much of the values are missing in your current Company, because you don't value the projects that are coming beyond 2007 and '08, where you've given us some guidance. So how quickly should we expect the Company to reach 150m tons or more?

In terms of your first question on Dofasco, I wish I could give you a better response but the reality is the Hold and Separate Order was removed yesterday. It's very difficult for us to ask questions to Dofasco because even if we asked a question, like why is your tin price so low, the moderator would object to something like that. So we cannot analyze the numbers and understand really how much is synergies and how much is not. Also, synergies was limited because it was under a whole separate order. So we cannot really transfer much know-how. What was done was done in the first half of 2006.

So I'd like to get back to you on that question as to what Dofasco will add to the Group. Needless to say, the value plan already includes the synergies of Dofasco. So there's no further upside to the $20b that we have been discussing.

In terms of the price/cost squeeze, yes, the environment right now shows that raw material prices are a bit down, recognizing that steel market was historic -- was also a bit down in the first quarter, at least in the U.S. and in other parts. We need to see what happens during the duration of 2007. Clearly, as you know, iron ore prices are up and then there could be other wage pressure. At this point in time, it's very difficult to predict where the price/cost squeeze is. The historical trend would point to 2.5%, and that's perhaps what we should expect.

Firstly, we never said that we will be 200m-tons company. I always say that there should be at least one company who should be in the range of 150m to 200m tons. However, as far as Arcelor Mittal is concerned, we have a lot of growth initiatives within the organization which is organic growth in terms of the projects which we have just said.

I think at least we have some brownfield projects, expanding capacity in some of the low-growth, low-cost and growing markets like Africa, Ukraine, Kazakhstan, America -- South America, where we want to increase through our brownfield expansion. So we expect that in the next three to four years' time we will have another 10m, 12m tons growth in these brownfield projects.

We are not only looking at the tonnage as such, but we are looking at the various value-creating initiatives in the organization. One is the vertical integration that means we are working on the mining operations in Liberia. We are in discussions with Senegal. We are looking at various opportunities to increase our existing mining operations.

So these are the value-creating initiatives which we are working on with on the downstream. Gonzalo spoke about expanding the distribution business. And we have announced MOU with Saudi Arabia. So there will be an industrial house for its industrial plant. We are looking at greenfield projects in India. We are also looking at our second joint venture in China.

So we have different initiatives. Then we are looking at how to work on our downstream business, not only distribution, service centers, project business, construction business. So we are looking at various value additional -- value addition initiatives in the organization.

So this is our model. In the same time, if there are opportunities to have growth through acquisitions, we will keep our eyes open. Invariably it makes a lot of sense for us, like what we did last year in Sicartsa when we acquired in the fourth quarter in Mexico. That volume is very important for the synergies between Imexa -- Mittal Steel operations and Sicartsa.

So we'll continue to look at various opportunities. We have no target that we will reach 200m tons by this day and this year. But we think that the way we are moving we will continue to create value. This is no more a cyclical company. It is more a steady business with a lot of initiatives, with a lot of -- well, look at this last year's performance, when we -- we are a global company. The U.S. market was soft. But we got benefited by the European market. We got benefited by the growth markets.

So Arcelor Mittal is slightly different than other steel companies. We have product diversity. We have geographical diversity. So that we will continue to grow on geographies, we will continue to grow on products, we will continue to grow on vertical integration, and we will continue to grow on our downstream products. So all these initiatives will continue to be implemented in the organization, which will continue to create value for the shareholders.

Thank you.

Thank you. The next question comes from the line of Thomas Wrigglesworth with Citigroup. Please go ahead.

Thank you very much. Two areas of questioning, the first on the mining business. What's the level of integration in mining today and where are you expecting that to be by the end of this year, 2007? And what kind of cost increases in terms of the mining costs are you seeing across the board?

In terms of the vertical integration, excluding captive contracts, it's 48m tons is what we have in terms of our own production. Captive is another 25m tons. That provides you with the total iron ore that we have. One of the captive contracts which is successful is based on an index. That's 11m tons. So you can treat that as market-related.

In terms of expansion in 2007, the primary area that we're seeing the expansion is going to be in Mexico, where we complete the Volcan project. And its merger combination with Sicartsa, which should yield further production. That's another 2m to 3m tons.

As you know, we're delayed by [a year] in Liberia, otherwise we would have seen Liberian iron ore in 2007. We were delayed because we had to renegotiate the agreement with the government, which took a year. And that just got completed in December of last year. We have begun work in Liberia, but we would expect to see the first tonnages only in 2008.

In Ukraine we're doing some work to expand. And we should see another couple of million tons coming out of Ukraine during 2007. That's primarily the expansion in terms of mining.

In terms of the price/cost squeeze, not as significant in mining. Clearly the price rise is greater in terms of what we're seeing in our business. There is quite a lot of pressure in South Africa, which we noticed at Kumba. But other than that, quite stable. That's our perspective on the mining.

Okay. Thank you very much.

Thank you.

A second question, if I may. Is it possible for you to tell us how your contract prices, which would have been negotiated at the end of 2006, have increased for -- and how that might impact Q1 2007?

Moreover, if we are anticipating an increase in contract prices and your guidance is pretty much flat in Q1 '07 EBITDA versus Q4, is that to imply that -- am I supposed to conclude that there's still a little bit of softening expected from those businesses that are more quarterly/commodity orientated steels?

Okay. Maybe that I can give you some of the prospects of our contract prices for 2007. First of all, we did not renegotiate all of the contracts but most of them. And what we did was, first of all, we recuperated all of the zinc price increase and even more of it. And we got on average a little bit higher volumes -- higher volumes globally than we had in 2006 so that we foresee, indeed, a significant increase in EBITDA contribution from the automotive contracts, which have been a little bit disappointing in 2006 because we had many commodity prices or spot prices which -- spot products which gave us higher margins than the very sophisticated high-demanding service level automotive products. So we could say that, on average, we go more than $50 up on average per ton and hence a good contribution.

Just to continue what Michel said, why we are saying Q1 similar to Q4, because there's still -- there has been price softness in U.S. market which will continue in Q1. The price announced -- price increase announcements are effective only in the second quarter of this year.

The only other thing I would add to what has just been said is in the U.S. we just need to be careful because some of the price rises that have been achieved have been done based on the '05/'06 contract. And we adjusted that in purchase accounting because we had unfavorable contracts in the U.S. of $4m in 2006.

So now you will not necessarily see the same thing, step up in EBITDA, but you will see the same step up in cash. So I just don't want everyone to go think that there's a massive EBITDA increase which is occurring. We had adjusted mainly because of the purchase accounting for ISG, the fact that some of the automotive contracts were below market. That was about $4m impact in 2006.

Okay. Thank you very much.

Thank you. The next question comes from Charles Bradford from Bradford Research. Please go ahead.

Good morning, or afternoon your time. Could you talk a bit about the profitability of Sparrows Point, with an EBITDA figure or an operating income?

At this point in time, we're not ready to release any details on Sparrows. If you're an interested buyer, write us a letter and then we'll let you know.

Good question. Could you also give some guidance on minority interests? I know the issue has to do with the Brazilian purchase of the minorities. But for the first quarter at least, it's pretty clear you're going to still have those entities.

Yes, yes, absolutely right. And I don't see a significant difference between the fourth and the first quarter in terms of minority charge.

Thank you.

Thank you.

Thank you. The next question comes from the line of Kartik Swami from Cazenove. Please go ahead.

Good afternoon, gentlemen. This is Kartik Swaminathan from Cazenove. I just wanted to clarify if you had any net debt guidance for the full year '07.

No. At this point in time, we have no net debt guidance for 2007. We don't even have any EBITDA guidance for 2007.

Okay. And could I also ask the senior Mr. Mittal if he has any visibility, perhaps, on how soon the Chinese may act to remove their VAT rebates, etc.?

I'm asking this question to everyone. There's a lot of news that they should be announce -- they would announce something after the Chinese New Year holidays. We don't know yet. But there have been a lot of rumors.

Okay, right. Thank you very much.

Thank you. The next question comes from the line of Andrew Snowdowne from UBS. Please go ahead.

Hi, good afternoon. Just three quick questions, if I may. The first one relates, first of all, to the pricing that you've achieved in your Flat Carbon Americas division. I think it may have to do with the interdivisional shipments. But if I was just to take your reported revenue, divide it by shipments, it shows Q4 $754 per ton versus $736 in Q3. Now, I'm quite surprised by that, given the fall that you've seen there. I think this will maybe clarify the extent to which long-term contracts helps there. Maybe if you could just talk us through that progression. Is there a bit of a time lag that you can expect coming through on that actual achieved revenue per ton?

The Flat Carbon Americas includes CST, Mexico and Dofasco as well. Dofasco has iron ore and we have seen an increase in EBITDA in Dofasco, from the third to the fourth quarter. This has to do with rate of shipments more than anything. I think they ship out much more in the fourth quarter because in the first they can't ship as much because of the winter months issue. So that contributes to the higher revenue per ton.

And the second benefit we have had in the fourth quarter in Flat Carbon Americas is slab sales out of CST. You see, historically, it [makes logic] to better service to the customers, etc., at an average realization which was higher than CST slabs. And as we have created a central selling organization through Imexa's leadership, we have seen an improved price level at CST relative to the third quarter. And that's primarily why you might see this increase in revenue per ton.

And in the U.S. revenue per ton is also largely flat, as we took down our production and we had some orders were at higher levels. You'll see the real price impact in the U.S. in the first quarter. And that's why I'm suggesting that Flat Carbon Americas was low in the first quarter compared to the fourth quarter.

Right. Thank you. The second quick question is if you could maybe just fill us in, in terms of the total volume impact from disposals, i.e. Sparrows Point or [three] E.U. remedies. Now, you have detailed the expansions coming on, but just how much that's offset by the actual disposals as such?

The sections is 1.5m tons of capacity. And shipments in 2006, Gonzalo, do you know?

Yes. Approximately it's 900 plus 400. It's a bit below that. It's around 1.4, 1.35. That was the shipments.

And Sparrows has a capacity of 3.6m tons and ships about 3m tons. So you're looking at 4m tons to 4.2m tons -- 4.4m tons as a result of the divestments across the board. There is growth that is occurring within the organization. You have the CST slab caster and the blast furnace coming online. Michel spoke earlier about what's happening in Poland in terms of the new hot strip mill and new caster. So I think, depending on the markets, end markets, at the end of the day, this should be offset by internal growth initiatives.

Great, thank you. Aditya, the final question is more balance sheet related and accounting. You've written up your inventory by 1.1b. Now, I was just wondering at which point will this actually be reflected in the P&L, in which quarter, the actual timing of this and how can we expect this to be introduced? What sort of impact will this ultimately then have on the reported P&L, because at this stage it's not reported in the pro forma accounts?

It will never have an impact on the pro forma accounts. The pro forma accounts have eliminated the inventory step up. But the full inventory step up is reflected in the legal. And that is why, when you compare the legal EBITDA which is there in the press release, you see a difference compared to the pro forma EBITDA.

There are other differences as well between the legal EBITDA and the pro forma EBITDA. The other main difference is the $4b of Arcelor EBITDA which we do not account for, because Arcelor became a controlled subsidiary as of August 1, '06. And other Arcelor subsidiaries which -- such as Dofasco, which we began from January 1, 2006, which is $0.3b. So the inventory step up is fully reflected in the legal accounts. We do not expect to see anything in 2007. And therefore, in 2007 first quarter, we will be reporting our legal accounts.

Right. Thank you very much.

Thank you. The next question comes through from Rochus Brauneiser from Kepler Equities. Please go ahead.

Good afternoon, gentlemen. Just a few follow-up questions, if I may. Following the decision of the DoJ on Sparrows Point, what is your current stance on -- your options on the Weirton facility, where you've obviously entered into discussions about the disposal?

On the seamless plans, you were mentioning that you're seeing the seamless business as quite an attractive market, one of the reasons to enter this JV in Saudi Arabia. Do you have any further plans for this kind of market segment? Could you also imagine to grow there externally?

On the distribution business, regarding your potential options to move to the Americas, how can -- how would this work as a captive or as a [multi] distributor, while the U.S. business typically is independent? What is your thought on that one?

And maybe to clarify your view how you see the Chinese business at the moment. This de-stocking process and this better market balance, is this now coming from better demand in China? Or has this de-stocking been progressed at volumes which should have gone to China, went elsewhere because of better prices in foreign markets?

In terms of your first question on the MOU with Esmark for Weirton, the MOU is no longer valid because it's conditional on DoJ using that to satisfy its competition concerns. At this point in time, as Michel said earlier, we're focused on developing a global packaging strategy and Weirton will be part of that. We want to focus on seeing whether we can improve its profitability, retain that business and develop its prospects.

Gonzalo, you want to talk on distribution?

Yes. On distribution in the U.S.A., it is true that historically, for example, Europe had many distributors linked to factories or factories which participated. In the U.S. it was different, independent. Some people would say that was due to labor situation but it was basically there was a big -- in order to avoid labor -- salaries from the steel industry and unions in the distribution. But it is a fact that, as of today, they are separate.

Now, we are -- we cannot give very many details at this stage but we are contemplating the different opportunities there. [One more] we can grow it as an internal organic growth and it could be acquisitions. And we're looking at every possibility at this moment that could be interesting for us, that is to grow through organic or possible acquisitions at some stage. But we have to also take into account that it's not always easy; the multiples of distribution companies sometimes are higher than ours. So we have to take that into consideration in order not to destroy the earnings per shares of our shareholders.

I think I'll just add to what Gonzalo is saying. What he is saying that -- what they're trying to say is that the Arcelor Mittal has enough capability and capacity to include the distribution business in [our real estate, buying them], because we clearly have been very successful in Europe. And, however, if there are any opportunities which could accelerate our distribution business in the United States, we will look into this.

Second, on the seamless business, Arcelor Mittal is already a producer of seamless pipe. We have facilities in three places - in South Africa, in Romania, in Czech Republic. And we believe that we have the knowledge and the experience and the capability to expand this business in a growing market. And that is one of the reasons why we have chosen Saudi Arabia as one of the growth opportunities for us in the downstream.

As I have said before, Arcelor Mittal has product diversity not only in the seamless but in other downstream business. And we are largest -- within the first three or four largest player in many of the downstream business. And as a company, we will look into the opportunities of growing those businesses.

Chinese, I think the Chinese prices were domestically very low and that has not encouraged exports to China. That is very clear. And now the Chinese costs are going up and there has been lot of pressure on China not to encourage exports. And Chinese government is also very aware that they cannot continue to use high-cost resources to produce steel, which does not give them a lot of benefit.

So I think the policy is changing, the attitude is changing of the Chinese producers, with the pressure from various governments, outside and inside. And we believe that there would be at least better balance between demand and supply in China.

All right. Maybe just one follow-up question, could you give us some idea about the production cuts for the first quarter in North America? And which facilities are at this point still idled?

I don't want to get into production costs for a quarter which is not closed. We have three blast furnaces which remain idled in our U.S. operations.

Okay, great.

We'll take two more questions. We'll take two more questions please.

Thank you. The next question comes through from Aldo Mazzaferro from Goldman Sachs. Please go ahead.

Hi, good afternoon. A question on the Americas, where I believe you had a quite impressive reduction in inventory, if it's true that all the difference in the shipments versus production was an inventory reduction. I'm wondering if you could say how you feel about your inventories right now in North America, in terms of whether they're normal or still too high.

Aldo, we feel good in terms of the inventory level. They're not too high at all. And if the markets remain strong as they are in terms of what we are forecasting, in terms of demand and the fact that we believe inventories will come down, we should in March, or early part of April, restart two of the three blast furnaces.

It seems that AK Steel and Newcor, at least those two overnight raised their price for the April period by $30 to $40 on hot roll coil. Did you also go along with that price?

We have a price increase as well in the U.S. But from our standpoint, I just have to figure out a way to explain this. We were maintaining a price level and I think some of the price increases was coming up to our price level. And that's what's happening in the U.S. So there's not anything substantial which we will see in our results, at least in the first quarter. And it's still to be seen what impact it will have in the second quarter.

Great. And then, Aditya, just a general question, if I -- I sympathize with you. I agree it seems like a draconian solution to the tinplate business to make you sell all of Sparrows Point. But I'm wondering, if that does occur and going forward, do you feel your position in tinplate is a core position for the company, where it's something you'd be, for example, restarting the Weirton furnace at some point and making tin from scratch? Or is Weirton still something that you might think of as a sale candidate down the road?

I think what we're realizing is that the balance between the tin manufacturers and the tin customers is not healthy from an industrial standpoint. There's too much of excess capacity. We're seeing that in Europe; we're seeing that in the U.S. So we do forecast some restructuring of the business but, post that restructuring, we do believe that fundamentally the business is profitable.

Weirton can be supplied through slab, so the question of whether we restart the furnace is in some sense independent of what we do vis-a-vis the tin business. At this point in time, Aldo, I think what we're going to do is focus on the unfortunate divestment of Sparrows and then get focused again on what we can do in terms of Weirton and improving its profitability over the medium to long run.

Okay, great. If I could just ask one final one. On your comment about the first quarter in Americas being down from the fourth quarter, if you exclude the impact of the iron ore sales at QCM, which I believe would be almost zero in the first quarter, does that impact the -- pretty much the entire delta that you're thinking about, first quarter versus fourth? Or is there other impacts?

No, it's all -- it has to do -- we don't have a good forecast for QCM or Dofasco in the first quarter, again, as a result of the Hold and Separate Order. So we have basically assumed a stable EBITDA compared to the fourth quarter for Dofasco, because we do believe they'll do better on the steel side because of Gallaton.

The reason why the EBITDA drops, most of it is at the U.S., where we're seeing the orders that we booked in December at lower prices. Yes, some of it is being offset by the contract price increases but not all of it. The furnaces are still down, so shipments are still lower compared to a good run rate.

Secondly, slab prices are lower as well in the first quarter compared to the fourth quarter, which will have some impact on the results of both CST and Imexa. And slab prices are lower because we were able to maintain a high level of slab prices from third to fourth quarter. But as we were booking slab orders in December for first quarter delivery, at that point the steel market in the U.S. was low and prices were down about $40. So that's primarily the reason why EBITDA in Flat Carbon Americas will be lower compared to the fourth quarter.

Well, thanks very much and congratulations and good luck going forward.

Thank you. The final question comes from Vincent Lepine from Exane. Please go ahead with your question.

Good afternoon, gentlemen. I have two questions, please. I just wanted to come back on the production discipline in the West, particularly in the U.S. in January. This [inaudible] production discipline was strong in Q4 but, just looking at the January production number yesterday, it seems that there was a kind of a big increase, particularly in the U.S. And I was wondering to what extent you contributed to that? And if you haven't contributed too much, what you thought of what others might have done in the market?

And then the second question is more in terms of housekeeping and to help us do some good modeling. Could you give us a bit of a breakdown on sales profitability and shipments within Flat Europe, between Eastern and Western and also within the Long division between the various regions? Thank you.

Let me answer, Vincent, your first question and then Michel and Gonzalo will provide you some more information.

In terms of the U.S., I think to some extent the fact that the other steel producers announced ramp ups in production was a bit premature because the steel [service] inventory levels were high. We did not do that immediately. Simultaneously, I do not believe we will be losing market share.

The good news, in some sense, as to why it worked was because imports began to decline. So the market got balanced and, as you look forward, people are talking of significant price rises. You heard earlier on the call what Newcor and AK are saying; I've even heard numbers of a price change of $50 to $60 compared to the lows we reached in the first quarter.

Now, as demand is picking up and as the inventory levels are declining, we also intend to restart production. But to some degree you're absolutely right. Perhaps there was no need to restart those furnaces and increase production in January of this year.

Thanks.

In terms of activity in between Eastern and Western Europe, first of all I recall the numbers in terms of shipments because for Flat Europe it gives you a good proportion of what is going on. So for the whole year of 2006 we had 26m tons of shipments in the West and we had 6.5m tons in Eastern Europe. So that means that overwhelming part of profitability is coming from -- and also in terms of profitability, overwhelming contribution is coming from the West.

In the West, you have to realize that contract business is higher than in the East. So that, from that point of view, there will be more an improvement in 2007. We can say that, in terms of EBITDA, if I take the fourth quarter, it's roughly one quarter comes from the East and three quarters comes from the West.

But more and more I think that the difference between East and West will become insignificant because more and more we want to specialize and to look at the whole European scope as one big market for one series of customers. So the separation will be less interesting.

Okay. In terms of Long, it's approximately, for last year, Europe is 16.8m tons and what we call the Americas is - that includes from Canada to Argentina - is around 8m tons. On the other hand, if you go to EBITDA, you could approximately keep that proportion.

Okay. Thank you very much for participating in this call and looking forward to speak to you again in three months' time. Have a good day. Bye-bye.