ArcelorMittal SA (MT) 2007 Q2 法說會逐字稿

(Audio starts in progress) gentlemen, and welcome to the ArcelorMittal results for second quarter 2007. My name is Wendy and I'll be your coordinator for this call. During the presentation you will be on listen only. However, at the end of the call there will be an opportunity to ask a question. (OPERATOR INSTRUCTIONS). I will now hand you over to your first host, Mr. Lakshmi Mittal, President and CEO. Thank you.

Good morning and good afternoon to everyone. I am Lakshmi Mittal from ArcelorMittal and I am joined by my GMB colleagues. To my right I have Malay Mukherjee and Gonzalo Urquijo. To my left I have Michel Wurth and Aditya Mittal.

Now, first of all, welcome you for joining the second quarter [standing] call. And this afternoon we will cover the topics listed in the agenda on page two of the slides. First, we will discuss safety. Then I update you on the progress of synergies and investment plan progress. Next we will discuss our view of the global steel market. Then I will turn to Q2 results, including divisional highlights. And, finally, we will provide guidance for Q3.

Highlights include in the area of safety we had 14% less lost time injuries in Q2 versus Q1 '07. I am going to explain you in detail how it is reduced.

Second, EBITDA increased from -- by 23% from $4.3b in Q1 to $5.3b in Q2 '07. We have captured $973m of synergies in second quarter '07.

We are very pleased with the outstanding historical results of ArcelorMittal for Q2. I think this has been an exemplary performance of the Company. And I am personally thankful to my GMB colleagues and the management teams and the employees of the Company for such an outstanding result for Q2.

Net debt increased by $4.5b during the quarter due to a buyout of Arcelor Brasil minorities and acquisition of Sicartsa. Despite this, our ratio of net-debt-to-EBITDA was (inaudible) 1.2 times at quarter-end as we had a strong operating cash flow during the quarter.

During Q2, there has been a lot of milestones achieved on our investment program. I'll give you a few of them.

First, start-up and commissioning of our projects in Poland and Brazil. Last week we commissioned our hot strip mill investment program for $885m in Poland. And we also completed expansion program in Brazil of total investment of $1.8b started about three years back. We have also approved the hot strip mill project in Brazil to expand capacity from 2.5m to 4m tons. And, during this quarter, we also got further confirmation by Senegal authorities for our iron ore mining project. In addition to this, we have announced two deals to acquire two tube operations in France.

Other items which are also important, which are important in Q2, one is acquisition of minority shareholding for Arcelor Brasil. And, second, last week we also agreed to acquire -- complete the transaction pending with Polish government for our option of 25%. So now ArcelorMittal owns close to 94%, 95% of ArcelorMittal Poland.

First step merger, which is important, is expected to be completed by September 3. All the process is on and we are making good progress. And we are very soon -- very shortly we will announce the disposal of the Sparrows Point facility, as acquired by DOJ in the U.S. as part of remedy process. We have deadline to announce before sixth of this month.

Q3 profitability expected to remain at a high level. Robust performance for Q3 is forecasted, a strong EBITDA between $4.7b to $4.9b in Q3, despite seasonal activity slowdown and deterioration of the stainless steel market.

I give you some detail on safety -- on health and safety performance. As I said, that we have reduced our injury rate -- lost time injury rate by 14%. Here you can clearly see that our lost time injury rate fell to three injuries per million hours in Q3 -- in Q2, against 3.5 injury rate in Q1 -- in Q2, sorry. In Q2, we have reduced injuries to three injuries per million hours, against 3.5 in Q1 and 4.1 in Q1 '06.

Our target for the year has been 3.2 injuries per million hours. And, in that respect, we have made a lot of progress in terms of health and safety. This continued to be our top priority in all the business units, and the management and the employees are spending a lot of time in improving our safety standards.

On the synergies, we have captured, as of June 30, $973m of synergies. Just to remind all of you that we forecasted about $870m of synergies, but we have exceeded it by $100m of our forecast. And, for the third quarter, we forecast $1.28b of synergies out of the total synergies announced or forecast of $1.6b to be achieved by 2008.

If you go into -- if I go into detail of these synergies, we will find that 50% of these synergies have been captured in marketing and trading of the total amount. That means we have largely captured synergies of marketing and trading. 33% of these synergies have come from purchasing. And these -- they are not come -- that has not come only from negotiations with suppliers through our purchasing power, but also in the optimization of logistics for supplies to each point.

We have still to capture more synergies in manufacturing and process optimization which, at this time, is about just 5% of the total synergies what we have achieved. We believe that there are opportunities to capture them into Q3.

Similarly, there are more synergies, potentially. In SG&A, we have done only so far 5%, and we have to capture more synergies in the future.

So the Company is making good progress, has made an excellent progress in terms of capturing synergies. Our target was 2008 and I hope that we will achieve these numbers well before end of 2008.

Talking about the CapEx and investment plan, these are on track. We spent $1.3b for CapEx in Q1 and -- in Q2 and $2.3b in total in the first half of the year. In Q1, we had spent about $1b.

The main projects which we completed during the year is slab capacity increase from 5m to 7m ton, which I just briefed in the beginning. New hot strip mill, as I said, that it has been started up. This is the first major hot strip mill new brown -- or greenfield hot strip mill in Europe in the last 20 years. And we believe that it is the most modern hot strip mill and it will produce the highest-value, highest-quality products. And this new hot strip mill is in place of the old hot strip mill, which will be shut down. And this will have an increased capacity by additional 3,000 (sic - see presentation) tons.

In addition to this, we have also completed a coke oven battery project in Brazil. And, along with this coke oven battery project, we have also completed a power generation plant of 170 megawatts. All these projects for Brazil, we have totaled -- ArcelorMittal has spent since the beginning about $1.8b. And we have successfully commissioned these projects.

There are two major projects which we expect to complete in 2007, one in Acindar in Argentina, additional steel capacity, additional directly reduced iron and additional bar mill. This has been a very profitable operation and, once they are completed, it will create more value for the Company.

In addition to this, this year we want to complete the -- we want to really start up the operations in Volcan mines in Mexico, which would provide 2m tons of iron ore to the Company.

Apart from this, we also want to start work on a few important projects. One is Ukraine-Kryviy Rih in the Ukraine, where we want to increase the liquid steel capacity from 6m to 10m tons. We want to start the work on this project this year.

In addition to this, on the mining side, Liberian iron ore project, we want to start work this year. Now all the licensing and formalities are over, we are on the process of finalizing the vendors.

Saudi Arabia, we also -- as we announced, this project of 0.5m tons we announced in the first quarter, the activities have to begin this year.

In addition to this, there are two projects in Bosnia and in South Africa.

In the last quarter, we approved two projects. Brazil, in -- we want to expand hot strip mill capacity from 2.5m to 4m tons. This project we hope to complete in first quarter of '09. Brazil market is a very important market, a growth market for us, and existing performance of the existing hot strip mill has been outstanding.

And, in Poland, we announced a start-up of a new service center in Krakow.

Starting with an overview of the Chinese market, this is always important to discuss about it. We see a very solid environment, underlying demand very strong, and the good news is that there is a slowdown in production growth. This is the first time we have seen the slowdown in the production growth in China. Year to year it is about 13%, which has been the lowest growth in last five years. Generally it had been at the rate of 20%.

And, in addition to this, we are also seeing that some capacities are getting closed. Chinese government announced 42m tons of capacity closing by 2010. Out of it, 25m tons will be achieved by 20 -- by '07, this year.

So, this is good news. At the same time, we have also seen that Chinese government have introduced a lot of measures to reduce exports. This morning, there was a request by CISA, Chinese association, or forecast by them that second half of this year their exports will be down by 50% over the first half of this year. And total export forecast by them is 55m tons. If you look at the first half, if they would have followed the first half-year trend, the export would have been about 70m tons. But now they are forecasting 55m ton exports against 45m ton of last year.

So this is good news that Chinese government and associations and authorities are fully conscious of consequences of surging exports to various countries. And we are all hearing a lot of information sort of news about various regulatory bodies looking at the surge in exports from China.

In the right side of this chart, we also see the Chinese domestic prices have declined. These Chinese domestic prices have declined because of the recent elimination of the export tax rebate. It's because of this elimination of the tax rebate there has been surge in export, which did not allow domestic prices to go up. We all know very clearly that Chinese costs are going up. Freight rates are also increasing. So, Chinese domestic prices need to go up because of the increasing costs.

However, the Asian -- overall Asian prices are still remaining at a very good level. And recently we have started seeing in the last few weeks that Chinese prices have stabilized. And we expect that either they will remain firm or perhaps increase as capacity growth continues to slow down and inventory to decline.

In the U.S. underlying demand remains quite weak, but both production and inventory levels have fallen, resulting in a healthy supply situation. If we look at the inventory levels, they are at a normal level of three months after record levels reached at the end of 2006 was about 4 -- 4.8 months. There is a good demand from machinery and non-residential, but weak underlying demand from the housing and the consumer products.

We are confident on steel price prospects. Supply is falling and we see positive signals for industrial production pick-up.

We also see that the import levels in the United States are continuing to decline. And we believe that, going forward, the prices will improve in the 2000 -- second half of 2007. We also see that leading indicator -- leading economic indicators are positive. ISM has increased from 49.3 in January to 56 in June.

In Europe, and now I move to next slide, that is number 12, and discuss about Europe. Supply/demand equilibrium in Europe is fundamentally very healthy. Aside from current seasonal slowdown, we believe underlying demand is still very strong due to good growth in Central and East European, where we are the leaders in the production. And we are also seeing solid capital goods markets in Central and Eastern Europe, and also in Europe.

Inventory level is above average due to increase in Chinese imports, but it is not problematic as it remains in line with real demand. Furthermore, we are starting to implement some small production cuts and it appears that the competition is also stabilizing their production.

We have kept our prices stable in Q3, but we may see an opportunity in Q4 to increase the price due to rising raw material costs, continuing economic growth and constrained capacity.

Stainless steel, this is contrary to our view on carbon steel. We remain very cautious on the stainless steel market and expect base price to remain under pressure in the short term. Underlying demand is still good, in our view, but we are facing a strong de-stocking period related to the decline in the nickel price.

Inventory level is high. We estimate over-stocking in Europe of one to two months of sales above the average of three months. The falling nickel price on LME has resulted in buyers delaying stainless steel purchases as they anticipate further drops in price. It is difficult market environment. We have seen some production costs -- production cuts in Q2, but more will be necessary in Q3 and possibly Q4.

On the positive side, we are starting to see a rapid decline in Chinese imports. In total, we are anticipating a difficult second half 2007. Keep in mind -- we have to keep in mind that we, ArcelorMittal, are more resilient than many of our competitors due to our large exposure to ferritic stainless steel.

We are increasing our ferritic percentage of production from 30% to 40% of our capacity. And, second, our relatively high proportion of long-term contracts, which is about 15% of our sales, and the continuing improvement of our competitive positions. So we believe that these three factors are important for our stainless steel business to keep us ahead of competition.

With this, I hand it over to Adit to walk us through the financial results. Thank you.

Thank you. Good morning and good afternoon as well. I will provide a quick overview, and then I will go through some detail in our income statement, balance sheet and then cash flow.

As you heard earlier, we reported record earnings this morning, both from a first-half perspective as well as from a second-half perspective -- a second-quarter perspective.

Our EBITDA is $5.3b in the second quarter versus $4.3b in the first, which is a 23% increase. On a first-half comparison, our EBITDA is up by almost 42%. We recorded higher prices in all of our segments, better demand for our products. As a result, we saw a revenue increase both because of shipments as well as price.

In terms of our net income, a corresponding increase of 21% over the first quarter, net income coming in at $2.7b. Our first half net income reached a new milestone of $5b, which is about 45% above the level of the first half of 2006.

In terms of capital expenditure we spent more; we spent $1.3b. The previous quarter we spent about $1b, $988m to be exact. This is primarily because we are investing more. We see greater opportunities for our Company. We're investing more in terms of improving productivity, increasing volumes and producing more value-added products.

We had strong cash flow from operations, $3.7b of cash was generated, almost $1b more compared to the first quarter. However, our net debt did increase by $4.5b. On a net-debt-to-EBITDA ratio, that's about a 10% increase if you analyze the first-half performance.

Why did the net debt increase so much? Primarily because we made significant investments. We purchased a minority interest in Arcelor Brasil for $3.7b in cash. We acquired Sicartsa for $1.5b. And in the quarter we returned $1b back to our shareholders.

In terms of our guidance, we expect a strong third quarter. Despite the seasonal activity slowdown and the deterioration in the stainless steel market, we expect to earn between $4.7b to $4.9b EBITDA.

If you move to the P&L, I will walk you through, primarily, a comparison between our second quarter 2007 performance compared to the first quarter. And I will not get into much detail on how we did in the second quarter 2006. Needless to say, compared to 2006 second quarter our performance is excellent.

Shipments. In terms of shipments, we shipped 28.7m tons compared to 27m in the first quarter, which is an increase of 6%.

We had strong performance everywhere, and particularly strong performance in the U.S., resulting in an increase in shipments for the SCA division.

In terms of revenue, our revenue increased by 11%. Clearly, shipments are about 6% of this and the rest is price.

If you look at our depreciation and amortization, the EBITDA, as I mentioned earlier, increased by 23% compared to the previous quarter. If you look at our D&A charge, our D&A charge increased by $200m. This is as the result of more property, plant and equipment, as well as amortization of intangibles in line with purchase price accounting and some alignment of definition. Going forward, we expect our D&A charge to be about $1b per quarter. So there was some catch-up of the D&A charge in the second quarter of this year.

This resulted in EBIT of $4.2b versus $3.455b in the first quarter of 2007 of this year. Clearly, you can see our EBIT margin also improved, reflecting strength in our underlying business.

In terms of equity method gains and other income, primarily there are two aspects to this. One is the equity method, income from our equity method. We did better as a result of better performance in all of our businesses. In other income, there's a one-time gain of about $37m and this relates to the disposal of Huta Bankowa. Other than that, the numbers are quite -- there are no other one-time charges in these numbers.

If you move forward, our net financing cost was higher compared to the first quarter. It was $182m of net financial costs compared to a cost of only $10m in the first quarter. If you recollect, in the first quarter we had extraordinary gains in terms of foreign exchange and Canadian dollar swap, which are still there in the second quarter but much less.

Our interest expense for the quarter was $297m. We expect this to increase in the third quarter, primarily because most of the MTO debt came in towards the end of the month. And so, therefore, the average debt during the quarter was not so high and will be higher during the whole of the third quarter.

In terms of the rest of the income, we had a one-time ForEx gain of about $69m and other income of $46m, resulting in roughly a net financing cost of $182m.

Moving forward, our effective tax rate was largely similar to the first quarter. First quarter was 25.8%, and the second quarter was 25.2%.

Minority interest charge largely increased, primarily because of the improved performance of our subsidiaries. In terms of the minority interest, this still includes Arcelor Brasil. In the first quarter and second quarter combined our charge was about $293m and we would not expect to see this continue in the second half of this year.

Net income and EPS, as a result, increased by about 21%.

Moving forward, in terms of the cash flow, clearly we recorded a very strong cash flow. Our cash flow from operating activities was $1b higher compared to what we recorded in the first quarter of this year. Even the working capital was largely constant, and you will see later on how we actually improved the days managed in terms of working capital, eight days reduction.

There was more advances in prepaid expenses. Hence there was a cash out of about $600m in the second quarter.

As I mentioned earlier, we invested more money, $1.3b versus $1b in the first quarter, and significantly more in terms of our investments for Arcelor Brasil, Sicartsa and others, totaling $5.435b.

We paid $1b of -- we returned $1b to our shareholders. This $644m amount that you have here includes dividends paid to the rest of our minorities. The dividend paid to the ArcelorMittal shareholders is $450m out of the $644m. And the others, minus $580m, represents the stock buyback which we have not completed, but largely completed in the second quarter of 2007.

As you recollect, towards the end of the second quarter of 2007 we also announced another stock buyback, and this was a result of the MTO, and that's a $27m share -- stock buyback which remains outstanding.

This provides you a perspective on cash flow. Clearly, very strong cash flow from operating activities. We made lots of investments during the quarter, which we will see benefits us as the year progresses. And, more importantly, we also returned $1b to our shareholders.

In terms of the balance sheet, very quickly, the main change in the balance sheet results is as a result of the Brazilian MTO that we did, as well as the Sicartsa acquisition. That's the main change on a quarterly basis.

The MTO is recorded at $5.7b in the balance sheet, which we expect to be the full consideration. $3.1b is in goodwill and $2.5b is a reduction in the minority interest charge.

In terms of Sicartsa, we have added $0.8b to the goodwill. However, we're still finalizing the purchase accounting for that, and that might undergo change during the year.

The movement in equity is associated with the shares that we issued for the MTO, amounting to $1.7b, offset by the stock buyback of $0.6b.

In terms of the working capital, as I mentioned earlier, we have a net working capital of $18.8b, which represents a 71-day of cash conversion cycle, which was a decrease of eight days. So, clearly, an excellent performance from our segments in managing working capital.

Our net debt increased to $23.2b, which is an increase of $4.5b, but still manageable as our net-debt-to-EBITDA ratio only increased from 1.1 to 1.2 times.

With that, we will turn over to the divisional highlights. Let me begin with Flat Carbon Americas, and then my GMB colleagues will talk about their respective divisions.

In terms of Flat Carbon Americas, let me first begin with safety. We reduced our frequency rate by about 15% as well, from 4.5 per million man hours to 4m man hours. There was a concerted effort at all of our facilities. We saw improvement at most of our facilities. But we need to maintain the momentum through the summer months, where sometimes you see more injuries as people get more relaxed.

In terms of our overall results, clearly Flat Carbon Americas has delivered a satisfactory performance, with a profit increase in spite of very difficult market conditions in North America.

Let me begin with revenue, revenue increased by 16%. Out of that, the volume impact is 8%.

Our shipment increase of 524,000, most of it is in our U.S. operations, which increased by 386,000 compared to the first quarter, and 100,000 tons at Mexico. None of the -- the 2.5m ton project in Brazil was commissioned literally at the end of the quarter, so there was no benefit of that in the second quarter. On the contrary, there was a slight decline in shipments from CST compared to the first quarter.

There was a positive price and mix effect of another 8%, resulting in revenue growing by 16%.

We saw EBITDA. EBITDA increased by 37% in the quarter to $1.1b, $1.2b compared to $812m in the first quarter of this year.

All divisions improved, with most significant results in Canada, Mexico -- with most significant improvements in Canada, Mexico and Brazil. There is some iron ore impact in Canada compared to the first quarter, as QCM has delayed, or difficulty in shipping, all of its iron ore capabilities in the first quarter of the year due to the freezing of the lakes and the logistical restraints.

So, in terms of guidance for the third quarter, very quickly, we expect to see in Flat Carbon Americas flat shipments. EBITDA will be slightly down, primarily because we won't have that improvement in iron ore. Costs will be slightly up. Prices should be stable. And, as a result, a third quarter which will be largely similar to the second quarter of this year, in spite of the market weakness in the U.S.

Thank you.

Okay. Good afternoon. So, for Flat Carbon in Europe, first of all, I'll start also with safety. In terms of frequency rate we had indeed also an improvement compared to last year by approximately [13%]. We were quite flat in safety results in Q2 compared to Q1, and unfortunately we had one fatality in the blast furnace in Liege.

For the rest, I would say Flat Carbon Europe had a fantastic quarter, the best record quarter since ever, compared to last year's. For the first quarter -- second quarter 2006, EBITDA was up by 59%, which was really a great achievement and which shows that everything is going well.

The main positive elements were, of course, a very strong market in Europe. All markets were doing well with a particular positive trend for automotive. We shipped -- our automotive shipments went up in Europe by 7% in the first half. And then plate also was extremely well.

From an operational point of view, we have spoken already a lot about the very successful restructuring in Poland. I think, from an industrial point of view, what has been done there was really fantastic. And it became so obvious last week when we had this grand opening of the hot strip mill, but also the new continuous caster which started. And we've sold already the first slabs in Q2, which explains that the mix deteriorated a little bit, but we were producing more volume.

So things were really going well, and I think this is documented also in terms of revenues, which went up by almost 9% to $8.9b with a volume effect of 6%, these record shipments for Flat Carbon Europe, as well in the East as well as in the West. Price and mix effect was only up by 3%. This was mainly due, as I explained, due to the deterioration of mix. We had the positive trend in prices, as it was announced before.

The only side where we were suffering a little bit was in hot dip galvanized steel. I would say not because of the excellent consumption, but because of the strong import pressure from China. And I think the news we heard this morning, and which were mentioned before by Mr. Mittal, are excellent news so that we can foresee also that later this year, this market where ArcelorMittal is really the market leader and extremely strong in quality will -- we will suffer a little bit, we will suffer less.

In terms of operating results, this gives us $1.2b EBIT, which is extremely good. If we look at the production, you'll see that production went down a bit. That was mainly due to a blast furnace. We had two small blast furnace problems in Gent and in Asturias. But, on the other hand, shipments went up and the consequence was that working capital management was exceptional. And, in terms of free cash flow delivery, the results were quite satisfactory.

Now, for quarter three what will be the highlights? First of all, you know that parts of our customers are unfortunately going on vacation, so we foresee that shipments will go a little bit down. But market demand will remain fundamentally strong, so we will also reduce our supply.

On the other hand, we are preparing, first of all, the relining of the blast furnace in France, which will take place later, let's say, at the edge of the third and the fourth quarter this year, which will reduce a little bit our supply. This will be compensated by the hopeful start-up of the blast furnace in Liege, which will probably start beginning in November.

So we foresee a good market with stable prices. We will supply the market according to demand. And globally we foresee a strong third quarter, compared to a third quarter which compares to the second quarter, which is all the time the strongest quarter in the year, which will be a little bit below in terms of EBITDA.

Thank you. Good afternoon and good morning to all. I'll start with Long Carbon Steel and safety.

Our frequency rate in the third -- sorry, in the second quarter has improved with respect to the first quarter. We are working very hard on this. We are basically focusing on internal transport, handling, subcontractors. And, as Aditya said before, we have to be very careful, we are on vacation and our people tend to forget or to be relaxed. So that is clearly our first priority.

Second, I'm present -- I'm very happy to present here a very good quarter. It is $1.3b of EBITDA, which is a 21% margin. So we are very happy for that.

If we go into the revenues, you'll see our revenues, if we compare Q1 to Q2, we have had an increase of volume of 5%, and of prices of 7%. Prices in Long have performed very well in the second quarter.

Now, if we see it from an EBITDA point of view, that very good EBITDA of $1.3b, what has been the basic reasons for that increase with respect to the first quarter has been in prices $290m. But we've also had an increase in costs of around $140m, but we have had a positive effect of $150m.

On the other hand, shipment-wise, you have seen an increase in shipments. It's a question also of different perimeter, because we have included Sicartsa and [Bota Steel]. So we do have 270,000 tons in round figures out of that. But, for the rest, we have increased our shipments in Long Carbon.

Now, what other elements can I share with you?

As I was saying, now, this EBITDA, $1.3b, practically two-thirds has come from Europe and one-third has come from Long Americas. And, as I said, it's been very positive. Now, when we enter the third quarter, it is -- especially in some areas of the world, in Europe, there will be seasonality. Many of our customers go on vacation, but also we have adapted to that, as we do every year. That means many of our factories on vacation, or we need to do revamping, we have been doing it there. So we will be adapting our supply to the actual demand or to that seasonality we have every year. But we see the market, from -- in Europe, also in South America, and for our products in North America, it is okay. So we are quite favorable for the third quarter, taking into account that, as every year, there will be a seasonality.

Next page, AM3S, our distribution activities. If we go into the first chapter, that is safety, we've worked very hard on safety, especially in the small warehouses where we do have different ratios of safety than in the big ones. So we are working hard on that. Every single installation we have is part of the ArcelorMittal policy of safety, and it is our priority.

As we -- as I said for Long, what we are focusing here is, as we said, vacation, but heavy loads, handling, which is our basic work we do in the distribution activities. So that's our main focus.

Now we go into the figures. Once more, I am very happy to announce a very good EBITDA result for the second quarter of $219m. That is a 5.7%.

Please may I remind you that here we have various activities in AM3S. So we have distribution activities that have given in the second quarter a 6% margin. Then we have the steel centers that are 4% and construction that are closer to 8%. But it's important to say that these figures have been impacted by our ArcelorMittal international. That is international network we have to sell the tons produced in all the Group outside of their domestic market. So this tends to lower the figure of the revenues -- of the margin, I'm sorry.

But, as I said, very good results, $219m, 5.7% margin for the second quarter.

Now, there has been some extraordinary results but very small in the EBITDA, approximately $20m. So the reality would be, if we compare first quarter to second quarter, it's around $160m versus $200m, which is -- so why have we had that positive if we take out those extraordinaries of $40m?

Basically, as you can see, we've been able at the end to basically buy at the beginning of the first quarter and second quarter, price have been increases, so clearly we have benefited from that. You see the volume effect has been plus 9% and the price effect plus 5%.

Now, very important in our activities is the stocks. Now, at present, we are at 76 days of stock. If we compare it to Q2 of last year, we had the same level than we were at the end of the second quarter of last year. And we are very comfortable with the 76 days. Why? Clearly, here, we also will be impacted by seasonality. But, on the other hand, with less -- this level of stocks, we will be able to attend our customers. Our priority here is our customers. That is our business here. So we have enough stock to attend our customers and we are happy with the level of stock.

Now, if we see our third quarter results, as has been said by my colleagues before, we are comfortable with the third quarter because we have a good level of stocks. Demand is there. So we do see that we will be impacted somewhat by the seasonality, but we are comfortable with the third quarter and positive with the third quarter.

Thank you very much.

This is Mukherjee reporting on Asia, Africa, CIS, and then Stainless.

To start off with the safety, which includes also the Stainless sector, it has been a substantial improvement with the frequency rate having come down to 2.78 from 3.35 in quarter one, and the prior year of 2006 at 3.74. Safety is definitely an area where a lot of attention is being paid. And, during the quarter, we did sign an agreement with the [VRB] on a $100m loan in order to improve safety in the coal mining activities in Kazakhstan.

As regards the performance of Asia, Africa and CIS, which is mainly the Carbon Steel sector of this segment, as you would have seen, the revenue increased by 17.7%, out of which the volume effect was 5% and the price mix effect was 13%. And the EBITDA versus quarter one increased by nearly 32%.

We had a higher shipment as compared to quarter one, and also a higher production. And this was in spite of that the largest blast furnace in South Africa was down for a reline for the entire quarter, which resulted in a shortfall in production by virtue of this blast furnace being relined by about 400,000 tons.

We have been able to keep the shipments going in view of the synergies which have arisen through this merger with Arcelor, as the in-house distribution and trading arm of AM3S, AMI, ArcelorMittal International, have been very proactive and flexible in finding new markets when the market in China was not as good as it should have been for the Kazakhstan. We have moved into new markets in CIS in the Middle East. And we do believe that this proactive step of having the in-house distribution and trading arm has enabled the Company to have tremendous synergies in moving from one market to another.

We also have to report that we have had a very good response to the voluntary retirement scheme which was carried out in the Ukraine, where over the first half of the year and mainly in the second quarter there has been a reduction of nearly 9,000 people in our Ukraine operations. This has been done with very little social impact, and in accordance with the agreement which we had with the government.

In terms of the CapEx programs which are continuing in this segment, we have drawn up the priority of the assets base which will be created in Kryviy Rih for the expansion, which Mr. Mittal indicated, from 6m to 10m, and we expect to break ground this year itself. The blast furnace one, which is under reconstruction in Kryvly Rih also, would be available by the fourth quarter of this year. A coke oven battery has also been commissioned in Ukraine. The bar mill in Kazakhstan is also in schedule, and we should be having the first product out of this bar mill by the second quarter next year.

We have, in terms of the guidance for the next quarter, for this as stable. We do believe that we will be able to maintain the volume and pricing in Asia, Africa and CIS segment for the Carbon Steel.

Moving over to Stainless, as you would have heard already from the opening remarks of Mr. Mittal, that quarter two, while in terms of production, in terms of sales and pricing, has been good, the EBITDA margin -- the EBITDA came down to $307m from $429m. And, of course -- and in this $307m it doesn't include a provision of $115m which was taken in view of the high volatility of the nickel prices and to hedge against the inventory valuation.

As was mentioned, that quarter three would be a difficult period for Stainless, in view that there would be reduced apparent demand, because a lot of wait and see will take place from the buyers, looking at how the nickel prices move. And, further, it is a low season demand market in Europe, because of the holiday season in the month of August -- July and August.

However, as mentioned also, ArcelorMittal Stainless will be more resilient because of our ferritic production, which will reach nearly 40% -- is already 40% in June, and we are planning for a higher level, and the contract mix, which has quite an amount of long-term contracts. We do believe that there should be a rebound, although a marginal one, in the fourth quarter, arising from the de-stocking which will take place.

Thank you.

Thank you. Let me, very quickly, walk you through the guidance in slightly more detail for the whole Company.

Clearly, we expect our shipments to decrease, primarily due to seasonal factors and production cuts that happening in Europe. I won't walk you through the divisions, as you heard from my colleagues and myself as to what we expect per division.

Our minority interest charge is expected to be lower as a result of the Arcelor Brasil buyout. As I mentioned earlier, in the second quarter of this year it was [1 51]. Clearly we expect our interest charge to increase by approximately $40m for the third quarter. And that just provides you on an EPS basis how this transaction is also accretive, excluding the share buyback cost, which is not yet factored in.

In terms of our tax rate, we expect it to be approximately 25% for the rest of the year. And our EBITDA with $4.7b to $4.9b.

Just to quickly conclude on the last slide, in terms of the presentation. Clearly, including guidance, for the first nine months we have demonstrated a step change. We talked about this when we did the merger. But if you look at our results, on a combined basis pre-merger ArcelorMittal earned between $14.9b to $16b. Including our guidance we expect to earn between $14.4b to $14.6b in the nine months of 2007, demonstrating the integration benefits, the merger benefits and our unique business model.

We expect our EBITDA to continue to grow from our brownfield and greenfield expansion which was outlined earlier, value-added investments, mining and distribution growth, our cost-reduction management gains, merger synergies, more still to come, and a targeted acquisition strategy.

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

Operator, can we open the floor for questions?

Thank you. (OPERATOR INSTRUCTIONS). Our first question comes from the line of Michael Shillaker from Credit Suisse. Please go ahead.

Yes. Good afternoon and congratulations on what's clearly a fantastic set of numbers. I've just got three questions, if I may. First of all, given your continually beating your synergy forecast, when do you think you are going to be in a position to upgrade the $1.6b target? And have you got any sense where that can actually go to?

The second thing is, given the numbers that you are throwing off at the moment, probably some way above expectations, I guess, even a year ago, how are you now feeling about your $20b EBITDA target for 2008?

And finally, we are hearing that inventories, certainly in Southern Europe, are up above 90 days for carbon steel. How bad could the European market get? And how quickly do you think you can shake off the inventory overhang that we are seeing at the moment? Thank you very much.

We are -- Michael, thank you for your comments. This $1.6b target we are all on way. We are not giving any new synergy targets. But I can assure you that we plan to achieve $1.6b synergies way before 2008 targets. And if we come to new numbers, we will inform you. And we are on $20b EBITDA forecast which we gave you for 2008. We are now on the value plan and we think we are on the track, and we hope to continue to work on this value plan for 2008.

On the European?

I think that what I would like to say about the European market, I think that the European market is fundamentally healthy. You are right, I think, Michael, to say that inventories are, in absolute terms, higher than usual. But this is also the case because consumption is higher. So, in terms of rotation stocks are, let's say, slightly higher than average. And what we foresee that is parallel to a slowdown of imports, we see a normalization in the third quarter. And from that point of view we believe that the markets remain firm and we see that there should be an excellent supply and demand balance later this year. And giving the occasion also to have firm prices and probably even an -- for certain categories higher prices later this year.

Can I follow on? Do you want me -- okay. For Long in Southern Europe we have increased a bit our inventories, but it's only normal. In July and August we stop our factories. As an average, for example, you were asking South of Europe 15 days. Some factories have stopped 30 days. Why? It's vacation. It's also revamping we do. So in that sense we have adapted, as I said before, our production to the demand we believe there is going to be. So we feel very comfortable. There is inventory. But I think it's also due to the seasonality and the closures we are going to have in the majority of the mills in the South of Europe.

Okay. Thank you very much and well done.

Thank you. Our next question is from the line of Michael Gambardella from JP Morgan. Please go ahead.

Yes. Good afternoon. Two questions, one is could you give us a status update on the project in India in terms of building new capacity?

And then two, in terms of your comments on the Stainless segment, I am kind of curious how you were able to increase the component of ferritic so quickly, as a percentage, since I would assume most of your ferritic goes into the automotive business for muffler stock and is on long-term contracts, and how you were able to really jump that percentage up for ferritic and your Stainless mid-year.

I will comment on this project in India. We have identified two states that is one is Jharkhand and the second is Orissa. There we have announced that we intend to have two greenfield projects of 10m to 12m ton capacities in both those states. We have started the preliminary feasibility report. We are working on identifying the land, iron ore mines and looking at the possibility of coal mines for the power generations, etc. The work is moving.

And we are very excited about the prospects in India, and we believe that ArcelorMittal must participate in this growth market of India. At this time their progress is not very exciting in terms of predicting or saying when the construction will begin. But we are making good progress, if we compare with the progress of our competition. And we hope that we are very successful in starting the construction soon.

I would like to (inaudible) question two. Michael, on this ferritics, it's not that we have been just working today. We have since last year, when we saw the nickel prices go up and stainless becoming a difficult product for many categories of customers, we moved over to increasing our ferritics over the year. And it was a target for this year to reach 40% by end of the year. What we have is, seeing how the prices of nickel was moving, and particularly in terms of the customer base which we had and our commitments to them, we expedited this process in order to have it even earlier.

Yes. What percentage of your ferritic goes into automotive?

On a rough guess, means I wouldn't have the exact figure, but it would be approximately about 25%.

That's all?

Yes. Because ferritics is also used in the low-end applications also.

Most producers have a very high component of ferritic in automotive applications.

Yes, but stainless, in terms of the total product which goes to automotive, is also not as high.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Sylvain Brunet from BNP Paribas. Please go ahead.

Good afternoon. This is Sylvain Brunet with Exane BNP Paribas. Congratulations on the results, particularly in North America where you buck all the trends. My first question is a reporting question. Could you please give us a bit more detail on the split of the contribution in flat carbon between Eastern and Western Europe? And similarly, in the Americas in flat carbon, could you give us a sense for what the contribution of CST and Dofasco were?

Second question is on the ramp-up of the slab expansion at CST. Could you give us a guidance for how much volume additional we should expect in H2 this year?

And my last question is on the working capital improvement, what reduction target you have in mind now. I remember during the Arcelor merger that was an area of good surprises. Do you have a new target there? Thank you.

Let me begin with flat carbon Americas, and then I will hand over to Michel to talk about flat carbon in Europe. First of all, Sylvain, thank you very much for your comments. We are also quite pleased with the results we achieved in this quarter.

In terms of the breakdown per facility, we are not providing breakdowns but I can provide you with the general direction of what happened. We increased shipments by 524,000 tons. 386,000 was at our U.S. facility, 18,000 at South America, minus 16,000 at Dofasco. We have another small subsidiary in Canada, called Sidbec-Dosco, which produces flat steel as well. That's plus 32,000. And plus 103,000 at Lazaro. So that provides you with a perspective.

Generally, the EBITDA increase was there across all divisions. Most pronounced increase was at Dofasco. This has to do with the QCM shipments, which were not that great in the first quarter, coming in in the second quarter. And because of improved shipments at Lazaro there was an EBITDA increase there. And then, in CST, primarily as a result of higher selling prices in Brazil. The fourth in terms of nominal change was U.S.A., and that is primarily because of the 386,000 tons shipment growth.

In terms of the project, the project got completed. It is an excellent milestone. It is somewhat delayed from its original expectation, and clearly as the Brazil real has strengthened there is a cost overrun. We started it up in the beginning of this quarter and already I understand in the steel mill shop we are at 64 heats per day, which is a tremendous achievement. So the ramp-up right now is going much better than the final completion of the project. I am there next week and can provide you with a better perspective of how everything is looking in the third quarter results.

Our estimates right now are an increase of about 380,000 tons of shipments at CST in the third quarter compared to the second quarter. And if it's fully ramped up, you should expect about 500,000 to 600,000 tons per quarter from this new facility.

Let me just answer working capital and then I'll hand it over to Michel. I think we have done an excellent job already in terms of working capital. Our working capital measurement in terms of days, compared to the first quarter, is down by eight days, and that's tremendous. That's more than a 10 -- 70 has become 62 days, which is more than a 10% decrease.

The reason why you don't see that impact in the cash flow is because steel prices have been going up, and the cost of our raw materials has been going up. So because of the aggregate price increases, all the days reduction is getting washed out. So I do not expect to see sizeable cash coming through working capital unless we see a correction in the steel industry, which we are not forecasting.

Okay. Thank you, Aditya. Now, for Western -- for Europe you wanted to ask about the split between Western and Eastern Europe. So, in terms of size, you can see that with the consistency we have today, or we had in quarter two, we can say that in flat products Eastern Europe represents roughly a little bit between 20% and 25% in terms of volumes and in terms of sales, and Western Europe 75%.

And, in terms of EBITDA contribution, I would also say that it is going absolutely parallel, so that we can say that roughly EBITDA per ton is, today, very comparable in Eastern Europe than in Western Europe. And I think that is very promising. First of all, obviously, with the growth we have in Eastern Europe we will grow there more rapidly than we will do that in Western Europe. So this productivity will improve. On the other hand, you are also aware that our product mix in Western Europe in flat and in plate is more sophisticated than in Eastern Europe.

Now, over the next years, and with the successful completion of the CapEx programs we have completed, or we have in mind, this will improve, so that there is still a lot of progress to come. But today I would say the results are balanced. Cost is higher in Western Europe than in Eastern Europe. I think that is obvious. But in the second quarter we have had quite a good achievement also in Western Europe in terms of costs, because hot roll coal price remained absolutely flat in comparison to 2006, despite the fact that raw materials, for us, were becoming more expensive iron ore and coal. And as up to now Western Europe does not yet benefit from captive mines in the Group.

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

Good afternoon. Just a couple of quick questions. First of all, I was wondering whether you could quantify for us the management gains which were achieved in the first half, and an idea of the price cost squeeze again, bringing it in line with your value plan for 2008.

A couple of other questions. I noticed your historic reported numbers have been restated in long carbon America, also Asia, Africa and the CIS and flat carbon America. I was wondering whether you could give us some details as to why those restatements.

And then another point. I think, looking at your investments, I wonder if you could give us an idea of the cost for your new hot strip mill in Poland. And the Brazilian hot strip mill expansion, which target markets are you looking at there - in Brazil or are you looking to sell into the U.S. market?

A final point, production cuts in Europe. I wonder whether you could quantify that for us. And just a word of -- a point of clarification with regard to the $4.2b gain in goodwill and intangibles on the income statement in the quarter. Could you give us an idea of how much of this has been allocated in the P&L in the quarter and how much we can expect that to continue going forward? I think you may have answered the depreciation, but if you could please just confirm that. Thank you.

Okay. A lot of questions, Andrew. Let me begin with a few and then, as we go round the table, we will answer all of them. In terms of the goodwill, which was your last question, you are right; $4.2b has been added. $3.1b relates to goodwill in terms of Brazil. $0.8b is as a result of Sicartsa, which is almost a holding pattern because we still have to finalize the purchase price accounting and that may change. The rest is an increase in intangibles.

As a result, our D&A did increase by $200m compared to the first quarter. There is the amortization of intangibles as per PP&A, as well as the fact that we had more property, plant and equipment, and there was some line definitions. Going forward, we expect $1b of depreciation and amortization for the Company.

In terms of the cost of the Brazilian hot strip mill, it's primarily a new reheat furnace and some work throughout the facility, so it's about $100m. We expect to sell a significant part of it within the domestic market - there is growth in the domestic market - and the rest to export. We would expect to maintain the same percentage of domestic and export ratio that we have.

In terms of the value plan, Andrew, we don't review the value plan progress on a quarterly basis. So we do believe we have made significant progress in terms of management gains and the price cost squeeze has been quite harmless in the first six months of this year, i.e. very little relative to our expectations. But we are not reporting on our value plan on a quarterly basis. We would rather do it at the end of the year, where we can review all of the projects and all of the details and then provide you with a complete perspective what we have done in terms of volume, in terms of value-added growth, in terms of productivity gains.

Let me come back to you on the restated numbers. I don't really -- I can't see where we have restated our numbers. Just to clarify, clearly we don't report -- let me come back to you on the restated numbers. In the meantime, I'll get Michel to answer the others.

It's about the supply and demand balance in Europe. So what we foresee in the first quarter -- in the third quarter, I would say, I would answer the question more in terms of supply to the market than in terms of production. And I explain you in one moment why.

So, in terms of supply to the market, we foresee in the third quarter a reduction, let's say, for the whole European scope of roughly 700,000 or 800,000 tons. One-third is due there to lower shipments to the automotive industry, because they are on vacation. And the other one is simply a lower supply of the market. And you can take that into -- in parallel with my comments earlier that we are quite confident that the market will globally balance quite well after the third quarter.

Now, in terms of production, I told you before that in Q2 we have reduced production. Sometimes also we had one -- because we had one -- or we have two blast furnace repairs to do. On the other hand, we still have quite amount -- some amounts of available (inaudible) two quarters. So it might be that we are working for the rest of the year in terms of some arbitrage, producing some more production because we have available capacities. And taking into account the value of C02 permits for 2008, there might be a good occasion to do the right arbitrage. And from that point of view, I would say that our shipments and our reduction in shipments is really what is important in order to have a good feeling about the supply and demand balance.

And I am still not 100% sure which restatement you are talking about. If it's regarding shipments, that's disclosed in the earnings release. It primarily has to do with the non-consolidation of Gallatin. You see in the old accounting standards of Arcelor they would consolidate -- they would do proportional consolidation, which we stopped. So Gallatin in the first half of 2006 export -- shipped about 450,000 tons, which is out of proportion, which is not there in 2007 because we are no longer doing proportional consolidation. And therefore we have readjusted the pro forma numbers.

The other changes do not relate to flat carbon Americas, but there is some change in how we do. AM3S, again, that's disclosed in the results. We are working on steel shipments versus total shipments in terms of reporting procedure. Was there anything else specifically that you are looking for, Andrew?

It may be more useful if I follow up with Julian later on than bog down on something like this. It was just things like the EBITDA in flat carbon Americas I noticed was now at $874m versus another number which you had previously. Then in your long carbon there was a different EBITDA number for Q2 of last year, and so on. So, but again, I think maybe it would be better for me to follow up with IR later.

Sorry, I know it's been a long list of questions, and I thank you very much for this one final one question, which was the capital investment costs, the state of the art hot strip mill in Poland you were referring to.

The total cost was US$380m for the whole project.

Excellent. Thank you very much.

Thank you. I --

Thank you. Our next question comes from the line of Luc Pez from Societe Generale. Please go ahead.

Hi. A quick question with regard to your CapEx trend. Could you give us a bit more color with regard to your CapEx plan going forward, and more specifically looking at what you consider is sustainable or right for the future? Thank you.

Okay. What color do you want on the CapEx? I will give you the sustainable rate. Sustainable rate, we are increasing our forecast. We had previously guided the market to $4.5b to $5b. We now expect it to be in the top end of the range, $5b, primarily because we are investing more, we are seeing more opportunities on a global basis. And as a result the CapEx spend is coming up.

Do you want a segment breakdown of CapEx for the second quarter or what other color? We talked about the main projects and the thrusts that we have on a global basis. Is there anything specific that you are looking for?

Would it be just possible to have a breakdown by division? And secondly, what you consider beyond 2007, I would say? Do you consider the $5b as something which is sustainable until 2010, something like that, because of your respective different expansion plans?

Okay. So let me give you the breakdown per division. Flat carbon Americas is $374m, flat carbon Europe $332m, long carbon $249m. These are all second quarter numbers. Long carbon $249m, Asia/Africa/CIS $245m, stainless $82m, AM3S $37m, and other CapEx of $13m, totaling $1,333m, compared to $988m in the first quarter. Nearly every segment increased their CapEx from the first quarter to the second quarter, and I won't walk through each of those numbers unless you require it.

In terms of CapEx going forward, I think that's an excellent question. At this point in time we expect our CapEx number to remain within $5b for the foreseeable future. There might be some increase, based on what we are seeing in terms of opportunities. The $5b number, though, excludes greenfield investments such as linear projects and Liberia and Senegal, as they would be on top. There is no cost, really, of Liberia, Senegal or any of the greenfield linear projects in this number. So this is really the brownfield CapEx cost, and any greenfield would be on top of that.

And when we break ground, and when we have a project schedule, we will share those details with you so you can appropriately change your CapEx assumptions.

Thank you.

Thank you. Our next question comes from the line of [Van Molatine] from Exane BNP Paribas. Please go ahead.

Good afternoon, gentlemen. I just have two questions, if I may. The first one, I just wanted to better understand why the so-called long-term obligations, including the employee benefits, actually increased by about $1.5b over the course of Q2. So, maybe if you could actually give us the actual number for employee benefit obligations that would be helpful.

And in terms of the vertical integration, not so much on the iron ore because that's progressing rather well, I was wondering whether you have plans to pursue more vertical integration in coking coal, and what sort of areas you would be possibly contemplating to invest in. Thanks.

I will reply on the second question on vertical integration. We have said before that we have got two projects in hand. That is Senegal and Liberia are the new, two projects which we have announced before. They are very major projects, and they are very exciting two projects. Apart from this, we will continue to expand our existing iron ore mines. For example, I said Volcan in Mexico we will be expanding to 2m tons. So we are working on various initiatives to expand our iron ore mining operations as a part of our strategy for vertical integration.

And on the other raw materials, we will continue to look at opportunities. And where we believe that there would be a lot of synergies and value addition for us, we would like to look at those opportunities very seriously. So the Company is continuously looking at opportunities for further vertical integration. Thank you.

In terms of your question, if you noticed, I mentioned earlier that Sicartsa was recorded in goodwill, the asset side and liability side. We have created a PP&A account of $1.2b. So that's the change in other long-term obligations. Other long-term obligations increased from 2.920 to 4.330, and primarily due to Sicartsa. And some increase in purchase price allocation also for Arcelor in terms of intangibles and patents.

In terms of the deferred employee benefits, there was a marginal change. It was 5.262 in the end of the first quarter, increasing to 5.344. It's across the board nothing significant. If you want, I could walk you through what each of the major segments are within that.

I am happy with that. Thank you.

Okay.

Thank you. Our next question comes from the line of Charles Bradford from Bradford Research. Please go ahead.

Good morning or good afternoon, wherever you happen to be. I've got a couple of questions in regard to equity income and other income. Is there anything that is likely to change those numbers very much in the third quarter?

Okay. So let's talk about equity income and other income. Equity income for our Company basically consists of the various joint ventures that we have. The big names that you might have heard are our stake in Dillinger, Macsteel, which is a trading company, Hunan Valin in China, as well as Gonvarri, which is a distributor in Europe and in Brazil.

So, as we do not control any of these companies, they come in through the income from equity investments. Now, clearly there is an increase. This has to do with the fact that these subsidiaries have done better in the first quarter compared to the second quarter. Some of this is steel related. Some of it is one-time.

We do not expect the number of $195m which we reported in this quarter to continue in the third or the fourth quarter. Rather, I would take the average of the six months of -- or the first half number, which is $350m, and use that on a going-forward basis. Clearly Valin, for example, may not do as well as it was doing in the past, etc., etc.

In terms of the other income, that edged up from $21m in the first quarter to $62m in the second quarter. And, as I mentioned earlier, that -- a significant proportion of that is income we received from the disposal of Huta Bankowa in Poland as the result of the E.U. divestiture process, which was $37m. So, again, that's one-time. I would -- the other income fluctuates. If you look at previous years, it's between 0 to $21m per quarter. So I would not ascribe too much on a continuing basis to the other income line.

Thank you.

Thank you.

Thank you. Our next question is from the line of Johan Swahn from Morgan Stanley. Please go ahead.

Thank you so much. Most of my questions, obviously, have been answered. Just one left. Price mix was very strong in the quarter, not least in flat carbon Americas and AA/CIS. I was just wondering if you could give any flavor to what is actually price and what is actually mix, and if there is any currency in there as well? Thank you.

Do you want -- in terms of exact numbers for FCA, give me one minute. I think largely it's price, but let us see -- let me just see if I can verify that.

I think, in the meantime, move on to the next question. We can answer.

Yes. We don't have a good breakdown -- I don't have a good breakdown on price versus mix. Primarily it's price, as far as I can recollect from how the business shaped up between the first and the second quarter of this year.

Okay. Thank you.

Thank you. Our next question comes from the line of Mark Parr from KeyBank Capital. Please go ahead.

Thanks very much. Good afternoon. I had a question, if I could, on the North American market. I was wondering -- you've talked a lot about capital growth projects in South America, in Africa and in Europe. I was wondering, given the weak dollar, your strong metallics position and your very strong presence in North America, if you have any large capital expansion programs that you're considering right now.

In North America, we -- sorry, large capital expansion only in North America was the question, I believe. No, we do not have any expansion plans at this point in time. Our focus is to further improve our asset base in North America in terms of both quality, delivery and most importantly cost. There's a lot of efforts which are ongoing with our counterparts in Europe, with flat carbon Europe, as to how we can twin our facilities and improve our U.S. operations.

Already we are seeing considerable improvement. For example, I can give you the example of Burns Harbor, ex-Bethlehem Steel, ex-Converter Shop, even though the Converter Shop used to operate not more than 40 heats to 42 heats, the record for the last 10 years was about 38 heats. Along with our European counterparts and some investments in improving the productivity of that facility, we are having 46 heats now, and we expect to have 50 heats. So we have growth in our U.S. business, but not through massive greenfield or massive brownfield expansion programs. So, that's the thrust.

Okay. Thank you very much. Congratulations on all the progress you've made.

Thank you.

Thank you. Our next question comes from the line of Ken Silver from ARBS Capital. Please go ahead.

Hi. Good afternoon. It's RBS Greenwich Capital. I just have a question about your corporate structure. Do you have any plans to, I guess so to speak, collapse your corporate structure, and in the process remove the debt of some of your subsidiaries, like ISU subsidiary in the states, and take out the 6.5% bonds?

In terms of the U.S., there is nothing we have in terms of market information. The only simplification structure we have done is in Europe, in which we are focusing on using Arcelor Finance as the external funding vehicle for the Company. Okay?

So I should expect the -- that ISU will remain a separate borrower, and for those bonds to remain outstanding?

Yes. ISU is not a separate borrower, because we did the merger with [inland] steel, so it's the ex-ISU which is now the new ArcelorMittal U.S.A. But, yes, I do believe the bonds will remain outstanding.

Thanks very much.

Thank you.

Thank you. That was our final question, so I will now hand back to Mr. Mittal to wrap up the conference. Thank you.

Thank you very much for participating on the second quarter's earnings conference call, and really looking forward to talking to you again for the third quarter's conference call. Have happy holidays, and see you -- talk to you soon. Thank you.