ArcelorMittal SA (MT) 2007 Q4 法說會逐字稿

(Audio starts in progress) regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. Forward-looking statements may be identified by the words believe, expect, anticipate, target or similar expressions.

Good afternoon, ladies and gentlemen, and welcome to the ArcelorMittal conference call. My name is John and I'm your conference coordinator. For the duration of the call, you will be on listen-only. However, at the end of the call, you will have the opportunity to ask questions. (OPERATOR INSTRUCTIONS). I will now hand over to the host of the call, Mr. Lakshmi Mittal, to begin the call.

(Technical difficulty) and I'm joined by my GMB colleagues. I have with me today Malay Mukherjee, Gonzalo Urquijo, Michel Wurth and Aditya Mittal. First of all, let me welcome and thank you for joining the fourth quarter call. Then we have the agenda here and we will follow the agenda as outlined here. First we will discuss about the safety. Then I will update you on the synergies and our investment plan. We will discuss the global steel market. Then we will discuss our Q4 results. And finally, we will provide the guidance for Q1.

To begin with, let me remind everyone that employee safety is a priority for the Company. Unfortunately, we regret that we suffered an accident at our Abaiskaya mine in Kazakhstan on January 11, which resulted in the loss of life of 30 colleagues. The outcome of this investigation into the cause of the accident will be communicated in due course. Yet across the Company our rate of lost time injuries per million workers -- work hours was in line with our targets for the last year.

As far as financial performance is concerned, we had an excellent result for 2007 and for the fourth quarter of -- fourth quarter '07. Due to strong cash generation during the year, we have maintained a very solid balance sheet despite increased CapEx, high returns to shareholders, and we have been very active in M&A activities.

We had heavy M&A activity over the past year, focused on mining, various downstream businesses, carbon and some stainless steel [side] and the buyout of minority positions in Brazil and Argentina. These 2007 earnings allow a commitment to return 30% of our net income to shareholders. We will have a $1b share repurchase program in 2008. This supplements to our $1.50 share dividend. And this buyback of $1b is in addition to our previously announced 44m share buyback. Finally, we expect our EBITDA in Q1 '08 to be in the range of $4.7b to $5b.

Now let's look at the safety. As I said, we are disappointed to report fatalities in mining. However, in 2007 we have improved our frequency rate. Those who are on the website can see that our frequency rates -- our average frequency rate for the year 2007 has been 3.1 against our target for 2007 was 3.2. However, you can see quarter over quarter since quarter one of '06, we have been reducing our frequency rates.

On this tragic and unacceptable accident in Abaiskaya mine, we are investigating the cause. In the meantime, I'd like to remind that we have committed to a $350m investment plan in the year 2006, which is underway. And we already spent $80m in 2007 and we will continue to spend money to make our mining operations safer and there is already expert groups working. We are waiting for their new recommendations. If they have any recommendations to implement to make our mining operations, we will implement them. Similarly, we are going to have our health and safety day on March 6, to continue to create awareness and continue to work to improve behavior patterns in our various steel operations as well.

Here on this slide we achieved a record net -- you can see that we achieved a record net profit of more than $10b, but the steel market environment was not necessarily as good as our results would suggest. Steel demand was very good in Europe, but the market was destabilized by a massive surge in imports from China. In the U.S., apparent demand for steel industry declined by more than 9% in the first -- in the year 2007, due to the housing crisis. And in Asia, the Company faced a low-price environment during the first part of 2007.

Finally, we had to cope with a continuing increase in our raw material costs over the year. Internally, the year was also a challenge as we had to complete our integration and deliver the synergies identified during the merger.

Facing declining demand in the U.S. and import pressure in Europe, we proactively adjusted our volume and pricing policy to the reality of the market with the goal of improving market stability. Here you can see how we have reduced our shipments and we improved our EBITDA margin and we improved our net income.

Our three-dimensional business model through our geography, product and value chain gives us a high level of stability and visibility, but also gave us a unique opportunity for operational improvement. Our successful merger and the synergies we have captured here demonstrates this potential. Nearly half of the increase -- EBITDA increase in the 2007 was related to synergy and management gains and cost control.

In the -- as far as the synergies are concerned, we captured $1.439b of synergies in the year 2007 and we believe that in the first quarter of '08 we would capture $1.6b, which is ahead of the program which we launched by at least nine months. This will conclude our tracking of these synergies separate from our ongoing tracking of management gains.

Turning to the next page, we will see that we have spent $5.4b of CapEx in 2007. There is a list you can see. But I will speak about a few of them which are very important. One is the Brazil-Tubarao, where we expanded our capacity from 5m to 7.5m tones and, second, commissioning of the new hot strip mill in Poland-Krakow, which will also give us an additional 300,000 tonnes of capacity in addition to 2m -- 2.5m tonnes, which is a commissioning of a new hot strip mill in place of old hot strip mill which has been shut down.

Then another significant CapEx -- significant development in terms of value chain is the recommissioning of our 160-inches plate mill in Gary-USA, which was closed and which we started -- which we recommissioned in last year and gives us a plate production of 530,000 tonnes. And we believe that the plate market is really -- is pretty strong.

In the year 2008, we have got several projects to complete. There's a list over here. I will speak about some of the important ones. One is the most important, restart of the Liege blast furnace number six, which will have additional capacity of 1.7m tonnes. Then we are also going to restart a blast furnace in Bosnia-Zenica with 1m tonnes capacity. Then we have, on the value chain, Mexico mining operations will start producing this year with 2m tonnes and then a new rolling mill in Poland-Huta Warsawa with a capacity of 650,000 tonnes. These are two important CapEx to be realized in 2007 (sic).

And on the management gains side, we will be starting our new coke batteries in Poland with a capacity of 734,000 tonnes. And in the year 2008 we plan to spend $7b on CapEx.

As I said in the beginning, that 2007 was a very active year for us in terms of M&A. You can see on this page several M&A transactions and all in all we had 35 M&A transactions in last year. And they are based on our three-pronged strategy on geography, products and value chain, so they are important projects. And if you look at the geography, Sicarsta in Mexico and minority interest buyout in Brazil and Poland, and also acquisition of 28% in China Oriental. On the product side, this merger of our laser-welded tailored blanks with Noble International. On the value chain, acquisition of remainder of Wabush iron ore mine and pellet plant, about 3.5m tonnes capacity. Then there are a few more value chain M&A activities, like agreement to buy shares in a molybdenum company, acquisition of 51% in a distribution center in Turkey.

Then, on the others, you will see that we have completed the legal merger last year and we have also acquired a gas distribution company in Europe, Saar Ferngas.

Though we have initiated these M&A transactions in 2007, some of them will be closed in 2008. That is the minority acquisition of minorities in Argentina, that is 35% shares, and also in Acesita which is the stainless steel company in Brazil. Apart from this, again on the value chain we have signed to acquire three coalmines in Russia and this transaction will be also completed in 2008.

Based on the M&A transactions which we finished -- which we completed in the year 2007, we have $3.7b of M&A engagement to be completed in 2008, based on the transactions done last year.

Now I would like to discuss our view on the steel environment. As you know, over the last five years the global steel industry has experienced a healthy market growth, resulting in the increase of steel consumption of approximately 7% per annum. This environment has been favorable to the industry but we believe that the transformation and consolidation of the steel industry have also been key factors in the creation of a sustainable and profitable steel market. Listening to economists, we may have to face a recession in the U.S. and a significant economic slowdown in the rest of the world, resulting in a potential weaker steel demand in 2008. At the same time, the history -- the industry is facing significant cost pressure, especially from raw materials.

However, as you will see in the next slide, the beginning of the year is showing favorable trends in the steel market that we expect to continue beyond this quarter. This positive dynamic is not so much related to demand in the developed world, but to the radical transformation of the industry.

The first transformation is that of China and the developing economies, which have become the main driver for the global steel market, benefiting from infrastructure growth which would not stop because of a potential U.S. recession. Today, these markets represent 60% of the world production and 10 years back these markets represented only 40%. The Chinese market in the year 2000 was similar to U.S. market, of 120m tons, and today Chinese market is four times larger than the U.S. market. It means that in theory we just need 2% of growth in China to offset 8% volume decline in the U.S.

The second key fundamental is that, despite government effort, the Chinese steel industry has become the largest world steel exporter but it is not a low-cost production base, as Chinese industry needs to import expensive raw materials and energy. Furthermore, China is still operating some of the very high-cost mills which are playing the role of marginal cost producer. There is a very strong production, considering that a large part of the Chinese steel industry would have to close in case of severe downturn.

The last few months are an example of the new dynamic. Facing a difficult pricing environment since 2005, a strong raw material cost increase, the Chinese industry has considerably reduced its capacity expansion program. In the last six months -- in the last five years we have Chinese capacity expansion at the rate of 20% to 30%, but now it has fallen over 15% in the last six months and it has fallen to 10% in the last two months, which is November and December.

And as the real demand continued to grow at a fast pace, inventories have declined, domestic prices increased considerably in China, which means China has reduced -- has started reducing the exports and will continue to reduce exports in this year. At the same time, Chinese government's policy has also been discouraging increase of exports from China. They have introduced export duties in the beginning of the year -- in the middle of the last year they have introduced a withdrawal of certain rebates. Then they introduced the export licensing policies. Now they have introduced export duties on certain products. And there has been a tremendous pressure on the Chinese steel industry by various regulators and various regulators have launched antitrust cases -- trade cases against Chinese steel companies.

Now we talk about U.S. The recent evolution of the U.S. market is also a demonstration of the structural change of the industry. For the last 18 months, we have been seeing a decline in real demand resulting from the construction and subprime crisis. In 2007, apparent steel demand in the U.S. was down by more than 9%. To face this demand drop, the industry cut its production at the end of 2006, by doing so reduced considerably the inventory level. Secondly, over 2007, by implementing a reasonable pricing policy, we have -- the industry has been able to reduce the price difference between U.S. and China, which permits a strong reduction in imports. That means in December we have seen the imports were down 33%.

As a consequence, despite this declining demand, we have been able to maintain an acceptable level of price for our products during 2007 and pass price increases of more than $100 since January 1. Despite a strong interest rate cut and the positive effect of the weak dollar on the economy, we should remain cautious on the U.S. economy. But our ability to adapt supply to demand when it is necessary gives us a reasonable level of confidence for the year.

In Europe, the structural transformation of the steel industry has been also a key factor in creating a new sustainable steel environment. In 2007 the demand has been excellent, but the industry suffered from increase of imports from different countries and especially from China, and built a high level of inventories. To face that, we have been cautious in our production. But more importantly, we took the decision not to raise our prices during nine months. This policy, announced in June 2007, surprised some of our local competition as demand was still strong, but this policy of not increasing the price proved to be very successful. Imports started to fall in late summer and inventory followed very rapidly.

At the end of last year, inventory levels are back to normal and we have been -- at the end of this quarter we believe inventories should be at a lower level. We have announced price increases of 12% to 5% (sic) for flat products on April 1 and we have also announced price increase in various other products, including long products, sections and bars. And we believe that this price increase is sustainable and we will give you our further price increase when we have the clear idea on the raw material price increase, namely of iron ore and raw materials, which are still not finalized and still there is no clarity on the price increase of these raw materials.

On the stainless steel, contrary to carbon steel, the stainless steel industry has not experienced the same transformation and consequently remains more volatile. Saying that, after an exceptional market fall during the summer related in particular to the fall of the nickel price, the situation is progressively improving. We believe underlying demand remains solid and apparent demand should come back into a positive territory in Q1, as we expect de-stocking to end. Production cuts remain in place and imports into Europe have been cut by a factor of four in Q4 2007 versus Q1 2007. Total transactions prices are now stable and the base price is improving. So we believe that there is -- we are in the more stable environment for the stainless steel going forward.

With this, I will hand it over to Adit to speak about the financial and segments.

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

As you heard earlier, we reported record earnings this morning, both from a full-year perspective as well from a fourth-quarter perspective. As mentioned earlier, EBITDA for the year was $19.4b, net income of $10.4b for the year. Roughly, these are 30% increases compared to 2006.

For the year, we have also reported an operating cash flow of $16.5b. This represents almost 85% of our EBITDA for the year, which I believe is an exceptional number within the industry. To give you a quick breakdown, of the $16.5b of cash flow from operations, we spent $5.4b in CapEx, we spent $4.4b in returns to shareholders including share buybacks, and generated $6.7b of cash for other purposes.

Despite our M&A activity of nearly 35 deals, we have maintained a solid balance sheet with net debt over EBITDA remaining at around 1.2 times.

Specific for the quarter, we have achieved an EBITDA of $4.8b, which is in line with our guidance and we expect to generate comparable numbers in the first quarter.

Let me walk you through the P&L highlights as well. I will walk you through, primarily, a comparison between the fourth quarter 2007 performance compared to the third quarter and I will not get into much detail on how we did vis-a-vis the fourth quarter 2006. Needless to say, compared to that quarter our performance is excellent.

Our fourth quarter revenue has been positively impacted by modest selling price improvements. Following the seasonal slowdowns in the third quarter of 2007, shipments are up at 28m tonnes as compared to 26m in the third quarter, and revenue is $28b versus $25.5b.

Depreciation has increased from $1b in the third quarter to $1.6b in the fourth quarter, primarily due to one-time costs as well as impairment expenses from our closure costs at ArcelorMittal Gandrange as well as ArcelorMittal Canada. These one-time expenses in the fourth quarter total $432m. If you look at our D&A charge going forward, we expect our depreciation and amortization charge to be about $1.1b per quarter.

Our net financing costs also increased quite dramatically, to $546m, compared to $189m in the third quarter. Our net financing cost has increased primarily due to a fourth quarter loss on mark to market financial instruments of $53m compared to a gain of $274m in the third quarter of 2007, as well as additional foreign exchange and other costs.

Moving forward, our effective tax rate was lower in the fourth quarter at 11.4% compared to 17% in the third quarter. The decrease in tax is primarily due to the recognition of deferred tax assets, which is the additional 260 in the D&A charge. So we see the benefit in the income tax expense for the increase in the D&A charge which you see above.

Minority interests was clearly lower compared to the third quarter, primarily because of the elimination of minorities at Arcelor as well as Arcelor Brasil, offset by an increase in minority results in ArcelorMittal South Africa. As a result, net income and EPS decreased by about 18%. And on a full-year basis, net income and EPS is up about 29%.

Moving on to the cash flow, clearly we recorded a very strong cash flow from operations. In the fourth quarter, our cash flow from operating activities was $6b, well above third quarter levels. The increase is primarily due to improvement in working capital management. In terms of our full year cash flow, as I mentioned earlier, I believe it is a remarkable result of $16.5b.

To give you a flavor on year-to-year comparison and some guidance, in 2006 CapEx was $4.6b, in 2007 we spent $5.4b and our expectation for 2008 is $7b. In terms of return to shareholders including share buybacks, in 2006 this approximated $2.5b, in '07 it's $4.4b and in 3.1 -- and for 2008 we expect a minimum of $3.1b, based on our dividend policy. In 2007 we generated $6.25b of cash net of -- we had net cash from operations. And our commitment for 2008 in terms of M&A is already $3.7b for '08.

So this provides you with an overall perspective on our cash flow, clearly very strong. We did significant investments during the year, which will benefit us as the year progresses.

Turning on to the balance sheet, in terms of the balance sheet, net operating working capital decreased in the fourth quarter. In terms of rotation days, it improved by about 16 days, which is again an excellent performance. I don't expect it to continue at this rate in the first quarter. I expect it to deteriorate in the first quarter of 2008.

Our net debt has increased by $0.4b to $22.5b. And again, the net debt to EBITDA ratio is excellent and so is the gearing ratio. We're committed to maintaining our strong investment grade rating.

Also, compared to 2006, you will notice a significant decrease in minority interests of almost $3b and a corresponding increase in intangible assets, as that's where we have booked the Arcelor and the Arcelor Brasil minorities.

Liquidity remains strong, at $16.7b, allowing us to pursue our internal and external growth objectives.

With that, I will begin on the divisional highlights and I will start talking about Flat Carbon Americas and then my colleagues at the GMB will talk about their respective areas.

Before I begin -- before I talk about the financial results, let me just talk about safety. Clearly, that is paramount to the Group. At Flat Carbon Americas, or FCA, there was a tremendous improvement in safety, almost 222% improvement in our frequency rate, which went down from 6.27 in 2006 to 2.84 in '07 and the severity rate was also halved from 2006 to 2007.

In terms of overall results, FCA has delivered a generally satisfactory performance, considering the difficult market conditions in North America. With regard to revenue, FCA achieved $6.2b of sales in the fourth quarter, a 9.7% increase versus the third quarter, due to higher shipments in the region. Revenue was also negatively impacted by a slight decrease in prices. There's a positive mix effect but there is actually a decrease in prices across FCA in the fourth quarter.

In terms of shipments, we achieved 7.3m tonnes, which is 441,000 tonnes higher than the third quarter, mainly due to CSD's new blast furnace of 276. In the U.S. we shipped another 137,000 tonnes. And in Lazaro also we shipped another 114,000 tonnes, as we were back to normal following the impact of a gas disruption in the third quarter.

EBITDA was slightly lower in the fourth quarter, at $1b versus $1.1b compared to the third quarter. But out of this there is a pension cost impact due to the Sidbec hot mill closure of $114m. Excluding this, EBITDA is actually flat quarter three to quarter four, which is relatively good performance. So just to recap, on Sidbec there's a D&A charge of about $122m and a COGS charge of $114m, which totals about $226m (sic) in the fourth quarter.

EBITDA for the full year was $4b, a 12% increase over 2006 with strong performance in South America and Mexico.

So, in terms of guidance for the fourth quarter, we expect performance to be better in the first quarter of this year compared to fourth quarter.

With that, I hand it over to Michel. Thank you.

Okay. Thank you, Aditya. Good afternoon, good morning to everyone. So I'm very happy to present to you Q4 results for Flat Europe, which concluded in fact for quite a successful year.

First, in terms of safety, we made in Q4 good improvements, 30% improvement to a frequency rate of 1.8. But unfortunately we had fatal accidents, which is unacceptable, and we were immediately implementing an intensive effort which is still ongoing.

Coming now onto the explanations of our Flat Europe results, I would like to start first with operations, because you can see that our production was quite low in Q4. This was due, first of all, through a relining of our very big blast furnace in Fos in South of France, which started in August and we -- just at the beginning of January this year we restarted the blast furnace. On the other hand, we have done a six-week stopping of the blast furnace in Florange. And in Eastern Europe, due to difficult market conditions, we have decided to reduce production by closing one blast furnace. This obviously had, during the quarter, some kind of impact on fixed costs, which we can see also on the markets.

Indeed, we had higher shipments in Q4 than in Q3, which is quite normal due to the fact that Q3 is the holiday month. I must nevertheless say that, in terms of shipments, the market was quite difficult in Europe. First of all, deterioration in terms of mix because less supply of galvanizing products -- galvanized products due to the surge of imported material. Second, in Eastern Europe we were not following some very aggressive pricing of some of the competitors and instead we decided to go more into the exports with low -- with lower prices.

And thus, expressed in euros, our average price was down by approximately EUR30 per tonne, which is not obvious in U.S. dollar results as we are reported. And in fact, average U.S. dollar price in -- U.S. dollar rate in Q3 was $1.37 versus $1.46 in Q4. And it is thus these weaker prices with the impact on fixed costs due to lower production which is mainly the consequence of the deterioration of our EBITDA margins we had in the quarter. In terms of EBITDA per tonne, we were down from $175 to $146.

Now, nevertheless, this is the last quarter of an excellent year of 2007, because Flat Europe generated in total $5.5b of EBITDA, which is a 40% improvement of what has been realized in 2006.

Now our -- I must say our forecast and our guiding for first quarter is much better. We were quite -- not so optimistic in the month of December, but I think since then we see that the European market demand remains strong. In particular, imports were dropping a lot because in particular Chinese prices to the internal prices have risen much more than European prices and that helps -- has helped us to face strong demand and also to be able to announce a price increase between 12% and 15% starting from April 1 on. This means that Q1 should be really better than Q4 has been and this trend should strongly continue in Q2.

Mainly from an operational point of view, so all our operations now -- all our equipment is in operation. Blast furnace six in Liege will start on February 27, thus giving us on an annual basis an additional capacity of 1.2m tonnes. The Fos realigning also has given us 300,000 tonnes more. And we have two more modern continuous casters which come into operations and which will help us also from a cost basis to be satisfactory.

I think I'll pass over now to Gonzalo, who can speak also about long products in Europe among others. Thank you.

Thank you very much, Michel. Good afternoon and good morning to all of you. I'm pleased to announce these excellent results.

First, in terms of safety for the year, the safety figures for Americas was 10.4 in frequency rate for '06 and it's been half that, 5.18, for '07. In Long Carbon we've gone down in frequency rate Europe, from 4.50 to 3.10. So I think tremendous efforts have been made in safety and we've had tremendous progress. That doesn't mean we're there. We've had fatal accidents and we have to continue working hard. But it has meant a decrease of 50% in frequency rate in Americas and 31 in Europe.

On the other hand, if we go to these yearly figures and start basically with shipments, what has happened in shipments for the whole year? We have, and I think it's important to explain, a change in scope. Why? Because in '06 we had Pallanzeno and we had Stahlwerk Thuringen, who were part of the remedies and we had to sell it out. So we did lose approximately 1.4m tonnes. On the other hand, we have included in 2007 Sicartsa, which is 1.1m tonnes. So clearly there's a change in scope there that gives approximately 300,000 tonnes, which is the difference in shipments.

Now, if we go to the EBITDA, we see an enormous change in EBITDA, from $3.6b in round figures to $4.7b for the whole year. Why have we had this change? Basically, it's on one hand we've had an enormous increase in prices. Our average price has been $777. That is 20% more than the previous year. So we've had an enormous improvement in prices in 2007 versus 2006.

Clearly, we have had increase of raw materials. I would say that one of the most important for us is the scrap, because basically the majority of installations we have electric arc furnaces and we are consuming last year practically 17m tonnes of scrap, and we have seen increases in the European market and in all the American markets.

So we have had there an important increase of raw materials, but compensated clearly with our prices. So that's the biggest item of this $1.1b difference we had between 2006 and 2007.

On the other hand, if we speak of the quarters, we have had an increase in volumes in quarter four versus quarter three in steel shipments. Where does that come from? Basically, 140 comes from Sicartsa. The increase in production, as you know, we had a problem with the blast furnace, so we are producing in the fourth quarter adequately. And then we've had an increase in Europe of 500,000 tonnes. That's from the volume point of view.

From the EBITDA point of view, we have had an improvement in absolute figures. It's $1.080b versus $1.2b. Why? Because we've had more volume. But on the other hand, we have had a squeeze effect because our mix in the last quarter was worse in Europe. We had to sell more in order not to force the European market, we exported more. So we didn't make that progress in prices but we did have increase in costs.

Now, as for the guidance for the first quarter, we are optimistic in the sense we have been able to push increases in prices everywhere, in accordance with the increase we've had in scrap or in other raw materials. So clearly we look in a favorable way the first quarter.

One last element that's been very important for us has been the acquisition of Sicartsa, which has enlarged. And it's a very important asset we have now in Central America for the long strategy.

Go to the next page and we see our distribution, or AM3S. I have to report two things. In terms of safety, we've done a very good -- no fatal accidents, which has been historical in the AM3S activities, and we have decreased frequency rate from 8.5 to 5.4. So we've had a tremendous improvement in safety and we have to work hard to keep it up.

Now, if you see the figures, they are distorted. That applies to Q3, Q4 and also to comparing 2007 and 2006. Why? Because we have basically two activities in AM3S. One of them is international activities, which does all the sales of the Group outside of the domestic markets. And that has been approximately 10m tonnes in the year 2007, and then we've had 12m tonnes that has been the tonnes we have transformed in our distribution activities. So the total tonnes would be 12. But here you have a distortion. We have included them in the fourth quarter. We have not included them in the third quarter. For the future, we will see the total amount of tonnes and I will always give you the breakdown with what is the international network, that is only a sale or trading activities, and what is these transformation activities.

On the other hand, if we see the EBITDA for the year, we made an important progress in the EBITDA for the year, part of it coming from a positive price squeeze and on the other hand from volume. Now, it is important here, because when we see our margins and you see our margins revenue is 4.4%. Now, some people may think that's a small margin. If we take that sales activity, what we call AlcelorMittal international activity, then our margins increase to 5.2%. That is approximately EUR59, in this case, per tonne. So our activities 5.2% with those international activities.

I would say last -- or second to last, very important, from a stock point of view, because I know that is very interesting for all of us. Our stock at the end of the year was around 2.4m tonnes. If we take away the international activities, 2.2. How much? That is, in terms of days, 60 days. So we have the same stock level as we had at the end of 2006 and we are very comfortable with that stock level.

Last and not least, it's been a very important year for AM3S due to all the M&A activities. Why? We've done more than seven transactions in acquisitions and then an enormous growth project. As Aditya was saying before, in Turkey, in the U.K., in Italy, in Austria. So that has been a very important year for the growth and consolidation of our AM3S activities around the world and we will try to continue those activities wherever it makes strategic and financial sense.

Thank you very much.

Thank you, Gonzalo. Good morning and good afternoon to you.

Well, in the Asia, Africa and CIS segment, the President and CEO has already addressed the tragic incident in our coalmines, which occurred despite our efforts and the good progress during the preceding quarters. We are fully committed to our priority on health and safety, not only in mines but across all operations.

The fourth quarter delivered lower EBITDA by $122m compared with the third quarter, arising out of the following factors. Lower shipments impacted by the winter months in CIS; product mix changes arising out of lower sales of tin plate galvanized products due to the seasonal factor; higher export sales; power shortages in South Africa resulting in lower production; higher input cost of coal arising out of substitution of domestic coal in Ukraine by high spot purchases to maintain production levels. However, compared to quarter four 2006, shipments were up by 5%.

From a business perspective, the fourth quarter concluded a successful year for the Asia, Africa, CIS segment. Compared to 2006, the EBITDA increased by 22%, an increase of $671m. Production and shipments were modestly increased despite a planned realigning of the large blast furnace in Vanderbijlpark, South Africa. Sales prices benefited from the healthy and strong demand for our products.

The voluntary retirement scheme which was introduced in [Kaverdi] and Annaba led to a reduction of nearly 9,000 and 1,000 employees respectively, a total of nearly 10,000 people. The pipes and tubes operations were reorganized and geared towards growing market shares.

In addition, in the segment there was a number of activities which were carried out on the project side, mainly related to the projects in South Africa and Ukraine relating to higher steel production, where the pre-engineering was completed. And the groundbreaking in Ukraine for the expansion to 12m tonnes will be starting in the second quarter of 2008. Similarly, there was substantial progress made in the mining project in Liberia. And at -- in the first quarter we already have practically all areas of the project under -- already being worked on by external consultants and contractors.

Moving to stainless steel, compared to 2006 the EBITDA increased by 23% to $1.15b. Shipments were overall below previous year, which had benefited from the increasing stocktaking in the market triggered by the rising nickel prices, whereas half year 2007 showed continued over-optimism and speculation due to an increasing price of nickel from 35,000 to 54,000 a tonne. Q3 saw the correction of nickel prices from 54,000 to 25,000 and a subsequent strong de-stocking, a drop in apparent demand and production cuts nearly half of normal level in austenitics.

Apart from the cycle driven by speculation, the underlying demand is healthy. The final demand for stainless showed a growth of 2% to 5% at various markets between 2005 and 2007. The shipments for the fourth quarter and the base prices show signs of recovery.

We successfully increased the ferritic steel proportion, as required by poor austenitic market conditions, and thereby increasing proportion of ferritics from 32% in 2006 to 40% in 2007. Quarter one 2008 will see improvements of the stainless market and extending at least to quarter two. Finished goods stocks and market have normalized. Chinese competition, hampered by increasing freight rates and anti-dumping investigations in Europe.

Emphasis has been made to strengthen our distribution and service center activities. A service center went on-stream in Colombia. The distribution facilities in China doubled. And the construction work on new centers started in Poland and South Vietnam. In South America, growth activities have been busy, with the acquisition at the year end of Cinter, a tube manufacturer in Uruguay, and Majdalani, the leading center of Argentina.

Thank you, Malay. Now I would like to conclude by giving you our profit and outlook guidance.

As mentioned during my presentation on the steel environment, despite current economic uncertainty, we believe the steel market will remain favorable in 2008. We also believe that Arcelor Mittal is well-positioned to outperform the industry. Structurally, the three dimension of the Group provides a unique capacity to mute the impact of a potential downturn.

First, our geographical diversification provides us with the basis for reduced volatility in our earnings stream related to any of our competition and most any other industrial company.

Second, our extensive product offerings add additional diversification benefits also. These different products are sold into vastly different markets. More than 60% of our shipments are valuated under special products and 20% of our products are sold under long-term contracts.

Third, our value chain strategy, and in particular our vertical integration in iron ore and coal, reduces considerably our raw material risk. And as our level of self-sufficiency rises with so many projects which we have in hand, we will be in a better position always than our competition. Beyond our low-risk profile, we also believe that we have one of the best growth prospects within the industry.

Despite the current economic weakness and constant rise in raw material cost, our expectation for the first quarter for an EBITDA was indicated to you $4.7b to $5b, comparable with Q4 2007. We anticipate shipments will increase overall for the Group. We expect to see improved profitability at our flat carbon operations, both in Americas and Europe, as well as at our long carbon and stainless operations. Profitability at AM3S is expected to be stable, while Africa, CIS, Asia is expected to be down due to operational disruptions, like power shortage in South Africa, mining disruptions in coal mines, mining disruptions in coal mines in Kazakhstan.

However, beyond our low-risk profile, we believe we also have one of the best growth prospects within the industry. Looking into 2008, there will be additional positive impact on earnings from the projects and activities we completed in 2007 and for those which we'll be completing in 2008. In this slide you can see just a few of them, all the major ones.

For example, additional approximately $500m of EBITDA from merger synergies, though we identified $1.4b in '07. But the real impact on the EBITDA will come in 2008. Similarly, full-year impact from Brazil's completion of expansion and new hot strip mill in Poland, Liege starting up of the new furnace end of this month will reflect the results in 2008. And then several significant acquisitions of minority interests in 2007 in Argentina and Brazil, and also early part of -- we will see the impact in 2007 and we will see more results in 2008.

To conclude, the economic environment may prove to be difficult, but we believe the steel industry has been transformed. We are confident that we will be able to further demonstrate the appropriateness of our business model's focus on sustainability, growth and value creation.

Thank you very much. And now I believe it is time for questions and answer session.

(OPERATOR INSTRUCTIONS). The first question was have is from the line of Mr. Michael Shillaker of Credit Suisse. Please go ahead with your question.

Yes. Good afternoon. It's Michael Shillaker, Credit Suisse. I've got three questions, I guess. The first question, you, I guess, have the luxury of bringing back about 2.7m tonnes of old capacity, obsolete capacity, whatever you'd call it. Do you have a vision around the world of how much obsolete capacity your competition and peers have potentially to bring back and how much of that capacity is coming back on-stream in 2008?

My second question is a P&L-based question. Could you just remind us of how much, if any, spot raw materials you consume within the Group? And also can you also remind us of the indexation clauses that you have in annual contracts with autos and other, what percentage of your total annual contracts have indexation clauses?

And finally, just a housekeeping question. In your other line, I think you took around $170m of EBITDA. That's still a fairly big swing from the negative $300m of EBITDA in Q1 and Q2, more or less, and the $17m of EBITDA in the last quarter. Can you just remind us what goes into that and what we should be looking at as a normalized annual number for that, effectively, other EBITDA line? Thanks.

Okay. Michael, thank you for your questions. We do not have the numbers of how many obsolete capacities are coming in the world. But I can tell you that not much is coming in Europe and not much is -- any obsolete capacity is revived. In case of Arcelor Mittal, Liege furnace was shut down. It was in a hot condition and we stopped it. Now we see that there is a strong demand in Europe. Our mills are full and we have decided to start this furnace. I do not believe that there are many capacities which would be -- which are there for revival.

I don't know whether anyone else has to add anything on this point?

But maybe that I can say something too. Michael, it's Michel Wurth speaking. Michael, that is that in fact by increasing capacity in Liege by 1.2m tonnes has an effect of reducing average steel cost in Liege by EUR30 per tonne, because there is almost the same fixed cost. So that means that in terms of marginal additional capacity, this is absolutely the contrary of obsolete capacity.

And on the other hand, the second question is that we have now learnt to operate our blast furnaces in much more flexible ways, minimizing their cost. For example, if demand's going down we can reduce by 10% or 15% and thus giving us an overall much more flexibility and good operation.

Third, I think that compared to the 2002 estimate, when we decided to shut down the Liege blast furnace, European demand has increased by 12m tonnes. So, from that point of view, we face the demand. And I think in particular, almost already from the first quarter on, this will be a good move and it will help us improving our profitability.

Just very quickly in terms of marginal capacity, we don't see any in the Americas either that can come on-stream, and the rest are growth markets which do not really have any marginal capacity. So apart from building brownfield sites or greenfield sites, I doubt the steel competitors have opportunities like Liege.

In terms of your P&L question on spot raw materials, I will just talk about three - ore, coke and coal. As you know, in iron ore we are 45% self-sufficient. Generally, we cover about 35% through long-term contracts, which are up for renewal annually in the second quarter, and 20% to 25% we buy on the spot basis, mainly from the CIS. In terms of coke, we are 90% plus self-sufficient. So the real raw material that we need is coking coal. At this point in time we have 15% of self-sufficiency. As you have seen, we have announced a transaction to increase that in Russia and that would be a focus area for us in 2008. Out of the remaining 85%, 25% to 30% is contract and the rest is spot.

So that's generally the coke and coal environment as we do it. And there could be definition issues on what you mean by spot and contract. It's from the large mining companies, but we consider them spot contracts.

I'm just trying to get a sense of the extent to which your Q4 number would have been impacted by rising costs in primarily coal already, I guess.

In Q4, I will ask Michel to speak specifically and the others to comment, but my understanding is that the main cost increase we have had is because of lower production and, as a result, we have had increases in fixed cost. We have had ferro-alloy cost increases as well. The impact of coal, as far as I see, is not that pronounced.

No, I fully agree with Aditya. I would simply add also that in the euro, the translation cost, obviously, the translation euro/dollar has also an effect in the increase of dollar cost for the European -- euro-denominated parts of the cost. And we can estimate that in Flat Carbon Europe roughly 50% is dollar-related and 50% is euros.

Coming back to your question on other, Michael, I think that's a good question. It's something that we have struggled with internally as well. What -- basically in the fourth quarter there were certain subsidiaries which we were not consolidating in the past and their income came through in the fourth quarter and there were some year-end adjustments. Going forward, I expect that to be a smoother process. I do not have a guidance at this point in time as to what it would be on a quarterly basis, but I expect more stability and not the swings that we saw in 2007.

So if we look at $500m as the annual for last year, is that reasonable to look at annual going forward?

I believe so. We had minus $350m annually in 2006 and $500m -- it increased to minus $500m. So I would think more the '06 number would be similar, but again I have no basis of predicting. But this is what could be used as an estimate.

Okay.

And auto indexation?

Yes. In terms of auto indexation, so basically the big bulk of our contracts is annual contracts, so there is no indexation in it. For 2000 -- and we have two contracts with two major automotive customers which are three-year contracts and where there is an indexation clause on evolution of the main raw material prices. One exception to all of this is that basically the customers decide on the price of the zinc price which is supplied to us, so we close -- the moment when we close our contract we fix the zinc price, so there is a total pass over to the customers.

Last but not least, I would say most of automotive contracts have been negotiated. In Europe everything is done within an average increase of, let's say, roughly 10%. In the U.S. most of the contracts have been done but there are still some automotive contracts which have to be negotiated. I must say it's easier today to negotiate probably than three months ago, when the market was much weaker than it is now.

I'm sure. What percentage are you getting in the U.S., by the way?

We have not officially disclosed what percentage increase we have in automotive. But the U.S. negotiating environment was a tough environment. If you remember, fourth quarter steel prices were going down. There was not a very strong steel environment and we had to negotiate in that -- basically in that environment. So it was not as good as the European outcome.

Okay. That's clear. Thank you very much.

Thank you.

Thank you. The next question we have is from the line of Sylvain Brunet of Exane in Europe. Please go ahead.

Good afternoon, gentlemen. I would start with the first question on reporting, if you could help us evaluate the contribution to the flat carbon operations of Brazil and Dofasco, both at EBITDA level and margins, and same for long products as well, Brazilian contribution at EBITDA level and margin. Similar split between Western and Eastern Europe, if you could, both in flat and long carbon.

Then I have another question for Michel. If we're not mistaken in our numbers, we're finding a $29 per tonne sequential increase in Q4 versus Q3. Just wanted to see if you could help us get the breakdown. You mentioned that the fixed cost had an impact, if you could break that down.

And maybe the last question is obviously on the BHP/Rio Tinto potential pending transaction. Now, we know that they're going to be filing a phase 2 examination at the European Commission. Just wanted to know Mr. Mittal's view on the implication of this deal for ArcelorMittal and for the steel industry, positive or negative. Thank you.

Okay. Sylvain, normally we don't give this information in so much detail. I can provide you with some EBITDA numbers from third quarter to fourth quarter, to give you a flavor. South America EBITDA was higher by approximately $90m, Lazaro by $30m. U.S.A. was down by about $60m. Dofasco was flat. And then the rest of it is primarily the charge that we had as a result of the pension cost at Sidbec.

Michel?

In terms of -- I think, in terms of Europe, there is not a big -- in Q4 there has not been a big difference between Eastern Europe and Western Europe in terms of EBITDA per tonne.

And in terms of a breakdown of cost increase in Q4, I must say I am not really in a position to give you absolute answers. I propose that there is a separate contact with our Investment Relation and to give you some more insight in it. I wanted to give you a qualitative flavor in the sense that, if production goes down by 10% and if you have three major equipments which are down, this has an effect on fixed cost. I give you the illustration also on Liege. By relining -- by opening one blast furnace in fact helps you to reduce the overall cost by EUR30 per ton. Maybe this can give you a guidance. Otherwise, we'll come back to you.

For long carbon, you asked. What we have is two divisions, Long Carbon Europe versus Long Carbon Americas [which includes], and I'll give you a thumb rule, but it works very well, that is for volumes and EBITDA. And it is a 63/30 - 63% for Europe, 37% for Long Carbon Americas.

Thank you.

On the BHP/Rio merger, we are watching the developments very carefully and we can understand the benefit what mining industry is looking for, for BHP/Rio merger is consolidating this sector. But we believe that creation of a duopoly controlling 80% of the world iron ore seaborne market could negatively impact the sustainability of the steel market. And the -- all the steel companies have already started making noise on this issue, Eurofer and the different associations. So we have to really watch and see how this evolves going forward.

Thank you.

Okay. Thank you. The next question we have is from the line of Mr. Andrew Snowdowne of UBS. Please go ahead with your question.

Hi there. Two quick questions. First one, I wonder whether you could give us -- you reported strong earnings from your stainless operation. Could you give us a feel of how much of that came from your Brazilian operations versus the European assets?

And then the second question, given your value plan which was first announced with a target of $20b EBITDA by '08, I was wondering whether you've done the sums in terms of delivery on that so far and give us an indication of delivery by way of management gains and others. And also, given where we are today, comparing the steel environment today versus when you first set that plan, if you could give us an update of where you feel we are relative to that point.

Well, the stainless EBITDA from the Brazilian and European operation has not changed within the quarters, quarter one, quarter two, quarter three, quarter four. The proportion has remained the same, of 60/40, 60 from the Brazilian and 40 from the European.

Okay. In terms of -- yes, hi. In terms of the value plan, fundamentally we have made progress on various fronts, but clearly there's a lot to be done in 2008. We -- in terms of our calculations, very quickly, we have $2.2b of management gains and standalone synergies across the Company. This is the improvement that we have done. Merger synergies impact is about $1b. And we believe our volume and value-added growth has been about $1.5b. The price/cost squeeze has actually been basically zero. And this bridges you between 2005, $15b of EBITDA, to 2007, $19.4b.

The area where we hoped to make more progress was volume. But I believe our determination to reduce volume, both in Flat Carbon Americas as well as in FC in the fourth quarter and in stainless and other areas, allowed us to have a more favorable price/cost squeeze. So in some sense we traded the volume management gain for a more benign price/cost environment. And that's where we are.

In terms of 2008, we're not giving any guidance. Clearly, we're moving forward and executing our value plan on all fronts, which was our plan in our presentation. The price/cost squeeze environment still needs to be seen, depending on the outcome of the negotiations that take place in this period.

Right. Thank you. Given your announcements of increased shipments, would you expect, where you had before the volume offset by price/cost squeeze, would you argue that potentially we have the reverse of that taking place in 2008, i.e. to take more risk on price/cost relative to volume?

I'm not sure what announcement of shipments you're referring to.

Just in terms of the guidance Q1 versus Q4, was that more just from a seasonal pickup perspective?

That is in many ways from a -- it's not a seasonal pickup, but the fourth quarter was clearly a much weaker market in which inventories were being driven down, and we see in the first quarter inventories being replenished. So apart from real demand, there is a change in apparent demand and, as a result, our shipments are increasing.

Understood. Thank you.

Thank you.

The next question we have comes through from the line of Anindya Mohinta of JP Morgan. Please go ahead.

Hi. Good afternoon. It's Anindya from JP Morgan. I have three questions, firstly on the Kuzbass acquisition in Russia. Could you please talk us through your rationale on this deal? It just seems that these are fairly underinvested assets that Severstal walked away from. What -- where do you expect to extract value, where Severstal clearly decided it was not their cup of tea?

Secondly, on China Oriental, could you again discuss your thinking behind that deal? Seems like a fairly -- not a high price necessarily, but just a $2b plus deal in a market where clearly you said that you don't believe there is a great deal of economics in making steel in China.

And lastly, could you share your thoughts on ferrochrome? It seems to be one of the commodities that keeps going up every quarter and, given the situation in South Africa, is likely to keep going up. You have mentioned in the past that you see this as an attractive market but it doesn't seem like there's been any movement from your side on this particular commodity. Could you talk about that a bit? Thanks.

Okay. Let me address the first two and we'll come back on ferrochrome. In terms of our acquisition vis-a-vis Severstal, in which we acquired the Kuzbass coal mines, fundamentally it provides us -- it increases our sufficiency in coking coal, increasing our self-sufficiency from 10% to 15%. Combined reserves are about 186m tonnes. We believe that the transportation lines work for us and it provides us with a competitive advantage in Eastern Europe versus what we can find in the market. So from our perspective, there are synergies, there's value and that is why we are interested. I believe Severstal wanted to use the capital to invest in their other coal mines and clearly this deal makes sense for us.

In terms of China Oriental, I believe we have always felt that the Chinese steel industry is very attractive. We believe it is not attractive on an export basis, simply because it has to import its key raw materials such as iron ore and then to re-export it, and based on the freight market today that is not a viable business. But clearly, owning a steel company in China creates value, as we have seen through Valin, where we can provide management expertise, technology expertise and improve that company's prospects. That is exactly the same plan we have with China Oriental. We believe we have special technologies in terms of heavy sections and beams and we can use our expertise to make it a leading company. From 4m tonnes, the idea is that company will become 6m tonnes in due course. So clearly we see that as an exciting opportunity.

On raw material, we have always said that we will continue to look for opportunities in vertical integration. We have last year, if you recall, we have signed an agreement with Kalahari for development of ferromanganese mines. So we are in lookout for various opportunities to strengthen our vertical integration, like we have signed for another ferroalloys plant in Europe. Then we are also looking at the other raw materials. So we will look for opportunities.

Thank you.

Okay. Thank you. The next question we have comes through from the line of Luc Pez of Oddo. Please go ahead with your question.

Good afternoon, gentlemen. A few questions. First of all, I would like to know if you could update us on the status of your iron ore project in Africa. Is there any risk of delay, cost inflation, etc., as we have seen all around the industry?

The second question would be related to if you could indicate us some kind of budget in terms of volume what you foresee for the year and, perhaps more specifically with regard to Q1, if you could quantify the volume impact on South Africa and Kazakhstan with regard to production disruption.

And the final question would be related to the recent spike in (inaudible) and to what extent it could affect your strategy to increase ferritic share within your stainless mix. Thank you.

As regards the iron ore project in Liberia, that is our first priority. In fact, as I had already mentioned that we have on the ground activities going on, and we do not at the present moment see any reason of concern in either delaying the project or in cost overrun, as was indicated. However, we are also looking at the possibility in the pre-feasibility, pre-engineering which we are doing to keep a provision for increasing the capacity of the Liberia plants.

As regards Senegal, it is still in the pre-engineering stage, pre-feasibility stage, and it is premature at this stage to give any guarantee on when and what quantity and what budget it would be.

The Mauritania project, which is a joint venture, is still to take off. But as already indicated, we do believe we will be able to meet the commitments in terms of raising the -- from 45% to 70% self-sufficiency by the period 2012.

As regards the volume impact in Kazakhstan and South Africa, we have already indicated that there has been -- in terms of the total tonnage, the impact will be more in terms not of the steel production but in the rolling in South Africa, which is suffering from a power restriction of 90% of the requirement. There are -- in terms of Kazakhstan, the issue was in terms of the disruption which took place in nickel. But as compared to quarter two for the CIS thing, it will be a marginal fall in the total shipments for quarter one as compared to quarter four '07.

On regards ferritic, as we have already indicated, we have a plan for increasing our ferritics from 40% to 45% for the year 2008.

Okay. Thank you. The next question we have comes through from the line of Mr. Johan Swahn of Morgan Stanley. Please go ahead.

Yes. Thank you. Just very quickly, most of my questions have been answered. But on the depreciation, you had some non-recurring depreciation charges in the quarter. I think you mentioned what was in the North American business, but could you help me with the others there?

Sure. There were basically three non-recurring -- hello? There were basically three non-recurring charges in depreciation that we recorded. The first was $122m in Sidbec, as we have decided to close the hot strip mill and the cold mill there and invest in a new B mill. Apart from the depreciation charge, I mentioned we also had a COGS charge of $114m. So the total charge of Sidbec is almost $236m in the fourth quarter. We had a $50m charge in Gandrange, where pending union agreement we are focused on closing the hot end in Gandrange and transfer some of the workers from other facilities, both in Luxemburg and in France.

The third charge is a $260m reduction in goodwill. And this arises because as we closed the MTO, the mandatory tender offer, we created additional deferred tax assets so we had to reduce the goodwill. And these deferred tax assets have been recorded -- have been offset against our income tax as well. So the D&A one-time charges were $432m in the fourth quarter. We expect our D&A charge to be $1.1b on a going-forward basis.

Is the $260m visible in any of the divisional numbers or is it --?

No. The $260m is not in the divisional numbers. That's in the corporate. And in the EPS, it's offset because that is the reason why our tax rate is lower for the fourth quarter. But it's not in the divisional numbers. The $122m and the $50m are in the divisional numbers.

And just to follow up on the tax line, then, so the full $260m goes in the tax line and then the tax rate on the rest of the depreciation, basically?

Yes. You could increase the depreciation -- decrease the depreciation by $260m and add it onto the tax line and you get the -- that's basically the accounting entry.

Yes. Thank you. And then finally just on, sorry to come back to it, but the Liege upstart. You sound fairly optimistic, but something you seem concerned about is demand and volumes in 2008. So how is your thinking here on the timing of the Liege start-up?

I think the timing is now excellent, in the sense that what we are feeling today is a very -- it's a healthy demand, I would say, and we forecast that the steel consumption in Europe should go -- should be stable or should go up by 1% or 1.5%. But in addition, what we are facing today is a sharp drop in imports to Europe, so that has a consequence. The consequence is that if imports in Europe are, for example, dropping by 5m tonnes in 2008, the consequence will be that 30% or 35% at least will be for ArcelorMittal, and that means that's even much more than the additional production capacity in Liege. So from that point of view, I think that the beginning is extremely good and we are very happy that we could find -- or that the Walloon government could find a rapid solution so that we can start now.

Roughly where would you reckon that your utilization rate in Europe was in 2007 as a whole?

I think in the first half of the year it was full of available capacity, whereas you will recall that we had a problem in one of our blast furnaces in Ghent. And then in the second half we were dropping down and that was then mainly explained by the explanation I gave before. Especially in the fourth quarter, we had high inventories so we were dropping our productions and here we were helped by the relining of the blast furnace in Fos and by the problem we had in Florange. What you have also to say, that is globally on average we have one relining or one big relining per year in the European scope. And on the other hand, what we have also learned that is depending on the increase or decrease of scrap in the converter, we can -- we are quite flexible in terms of production by plus/minus 10% while keeping our variable costs at a very good rate.

Okay. Thank you very much.

Thank you. The next question is from the line of Johan Rode of Citigroup in London. Please go ahead.

Good afternoon, gentlemen. Just two [seamless] questions, really. Firstly, on the CapEx side, the CapEx number for this year on the balance sheet came in at 5. -- sorry, on the cash flow statement came in at $5.5b versus your guidance in September of around up to $5b. And also your guidance for 2007 seemed to have increased from the September guidance to around $7b from $6.5b, if you extrapolate the graphs at that time. What impact does this have on the 20m tonnes of additional capacity planned? Or is this mostly related to start-ups of Liege and other things? Or can we see this as just a short-term impact or is this something that can be drawn into the new capacity of 20m tonnes that's coming on-stream?

Yes. Let me just address 2007. I think the extrapolation of $6.5b was a stretch. I don't think we had a clear picture of whether it would be $6.5b, $7b or $7.5b and I think our best-case estimate is $7b for the year. In terms of $5b becoming $5.5b, clearly in September when we looked at our CapEx estimates the run rate (technical difficulty) was around $5b and there was more capital spend in the fourth quarter. Some of this catch-up which has occurred during the year has to do with the euro/dollar exchange rate as well, because a lot of the CapEx in Flat Carbon Europe, based on our estimates, would be 30% more expensive. Some of the CapEx spent in Brazil is also more expensive, and Canada.

So from an overall value plan perspective, things are not changing in the sense that there is no acceleration (technical difficulty). Clearly there is an exchange impact. Perhaps some projects are one or two months ahead, some are one or two months behind. But fundamentally the plan, the value plan as well as the growth plan, is on schedule. There has been no (inaudible) of those results.

Can you just explain what (technical difficulty) these results the split between growth CapEx and maintenance CapEx in this year's numbers (technical difficulty)?

In terms of this year's numbers, it's $3.113b is the non-growth CapEx, as we define it, and growth CapEx is $2.31b. (Technical difficulty) was $5.4b. Proportionately, that's about 57% versus 43%. If you look at 2006, the proportion was 61/39 (technical difficulty) $4.638b. So clearly I would expect the proportion to be similar to 60/40ish, perhaps tending towards 50, clearly tending towards much lower numbers as we ramp it up in '08 to $7b. And the $3.113b that we have for '07 would increase to about $3.5b, $3.6b, so it would be 50/50 roughly would be my estimate at this point in time.

And just finally on the effective tax rate, that's not so much in the fourth quarter. How do you decide on the recognition of these deferred tax assets and what exactly was the specific occurrence or which region provided these deferred tax gains in the final quarter?

Okay. It's -- we don't decide as much as we have to account for it. Fundamentally, you look at the mandatory tender offer and we got 100% control of ArcelorMittal Brasil and we created a hold co which had a certain amount of debt from merging Barcelona to Brazil to effect the transaction. And as we merged this debt, it created deferred tax asset credits and that is what we recognized in the quarter. And that's fundamentally it. But as we accounted for it (technical difficulty) entity before we had to adjust the goodwill accordingly and hence the D&A charge went up.

Going forward, in terms of our tax estimates we believe we will have a tax rate of between 20% to 25%. There are two things which are favorable in 2008. One is that many jurisdictions in which we have businesses have actually reduced their tax rates. Germany is one good example, but also the Czech Republic and in other parts of the world. Some of this is offset because we expect a higher income in higher tax jurisdictions in '08. And we also have a [big] project underway which towards the year end will -- we believe will create additional tax benefits.

And just finally on the [renewal] contract structure, you said that you roughly have about 30% of your sales on annual and multi-annual and the balance in shorter-term contracts. Can you perhaps disclose a little more detail on those? How much is spots, quarterly contracts and half-yearly contracts in the shorter-term sales, roughly?

Yes. I think your number is a bit high on 30%. I would say it's more like 20%. So 20% is contract and by contract I mean basically automotive and appliance contracts, which are fixed prices through the year. There are some contracts, for example in North America, which are index-based. So what happens is you charge every quarter based on what the price is on an [SPB] or something like that. And there's one quarter life on that. But otherwise it's literally a spot contract and there's just a one quarter life on the price delta. So it's 20/80 contract versus spot.

Right, so there's no (technical difficulty) contracts at all within that spot proportion, if you like?

I'm sure there are some but nothing significant.

Okay. Thanks very much.

Thank you.

Thank you. The next question is from the line of Mr. David Martin of Deutsche Bank. Please go ahead.

Yes. I had two remaining questions. First, could you give us a little more color on the pick-up in the stainless demand? You're saying in Europe this is just a function of imports slowing. Is it mainly (technical difficulty) demand was so weak in 2007?

And then, on the price recovery you're seeing, can you give us an idea of magnitude of the price recovery you're capturing and on what rates?

And then my second question is you mentioned on coal that you purchased (technical difficulty) contract. Is that effective also in the second quarter?

Do you want to answer?

As you know, if you look at the stainless steel demand in Europe, it was really impacted by the Chinese imports, because at one stage 30% of that demand was being met by the imports. And this has been (technical difficulty) reduced to zero levels now, more arising from the anti-dumping. So to that extent, if you look at the 2005/2007 period, the rapid growth rate of between 2.5% to 3% in Europe, and we do believe that this will continue in 2008.

As you also are aware, that the price of nickel is very much impacted by the -- (technical difficulty) is affected by nickel. And with nickel prices having reduced, there will be a change in also the demand of austenitics versus ferritics, because ferritics demand increased when the nickel prices went up considerably. However, in terms of a general tendency, there is a general tendency of increase of ferritics. And as we have indicated, we are moving from 40% to 45% in our planning for 2008, which again will be subject to the changes which take place in nickel prices and subsequent pricing of austenitic rates.

And in terms of coking coal, I'm not clear in terms of your question. Fundamentally, we -- post the Severstal deal, we should have 15% sel-sufficiency. And roughly we have 25% to 30% contract business which are annual and the rest is spot.

Yes, but when do those contracts renew?

The coking coal contracts?

Well, half of the contracts are already finalized for the year, especially in the United States. And the rest of the contracts will be negotiated now, are being negotiated.

So renew (technical difficulty) in quarter one?

Yes.

Okay.

Okay. Thank you. We have one more question from the line of Vincent Lepine of Exane BNP Paribas. Please go ahead.

Good afternoon, gentlemen. I have two quick questions, please. First of all, I was wondering if you could give us a quantified breakdown of the various issues that have affected the results in Asia, Africa. You mentioned the higher cost of coal pressures in the Ukraine, some power outages in South Africa, some mix effects. I was wondering if you could quantify that a bit, that would be helpful.

And also in your guidance you're pointing towards higher results [than you have] in Q1 on the back of higher volumes and you have not been mentioning the positive impacts that I would have thought you would get from the higher contract rates. So I was wondering why that was.

Michel, do you want to take the second question?

I thank you for the remark because it's absolutely true that improved contract prices will, in particular in Q1, have a positive effect because in Q1 it's clear that the increase in prices will not be offset by increasing (technical difficulty). For the rest of the year we have to see, because Flat Europe is, as you know, totally dependent on iron ore and to purchase iron ore and coal. And as we do not know yet the price increase, we need to see whether this will be totally offset or not. But in the first quarter, you are right, this will be positive and will be one of the reasons why we -- our guidance for Flat Carbon Europe in Q1 is higher than it was in Q4.

In the area CIS, in terms of the change in EBITDA, the impact of various items (technical difficulty). As I have already indicated, there was the issue of the volume and also the mix, which gets affected because in winter you do not have much requirement of tin plate as well as of (technical difficulty). If I look at it from the point of view of a proportion, in terms of what are the items and how it is, it would be that the lower shipments impact is about 10%, the product mix changes and lower sales that is about 10%, and then you have the coking coal which (technical difficulty) in Ukraine we had to buy (technical difficulty).

(Technical difficulty) improved mix as well as better coke selling prices in South Africa. We sell some coke in South Africa through a small company, which accounted for the remaining delta. That's third to fourth quarter. We don't have anything yet, till the quarter is complete, for first quarter '08.

And just about the coal pressures in the Ukraine, obviously coking coal prices are going up but the sourcing issues that you had, is that over now or should we see some more impact of this in Q1? I know it's probably difficult to distinguish that from the higher prices, but --?

In terms of the increases which have taken place in Ukraine, in quarter one the same increases would get carried to the quarter one. In quarter two there should be a reduction in the energy costs, because of the less usage of gas which comes in. And the other aspect of it which will come in is that there is two more coke ovens which will be getting commissioned in Ukraine, which will also reduce the requirement of energy.

Okay. Can I just ask one last question on spot flat carbon prices in Europe? Just an hour ago Thyssenkrupp had their conference call for results as well and they were pointing towards possible spot price increases, I guess, by the end of Q2 of up to EUR100 per tonne. And I was -- obviously you mentioned yourselves when you announced your price increases last week that you could try to push some more if necessary. But given your outlook today on raw materials, and I appreciate you probably don't want to say too much on this, but do you see any need at this point to possibly increase prices by up to EUR100, because I would expect Thyssen to try to recoup some of the possible margin squeeze on the annual contracts on their quarterly volumes?

Interesting point you make. I would say, first of all, what -- we have announced our 12% to 15% price increase depending on the mix, and you know that we are then close or we are approximately at $100 at least for the high-end products. I think that leaves us -- that makes us comfortable for the first half of the year. At that moment we will see what the market is, how strong the pricing, the cost increase has been and we will see whether -- what kind of possibilities we have in Q3 and in Q4.

I think today it's difficult to have a good visibility of additional pricing in Q3, Q4 because it depends on many things. It depends also in particular on the currencies, it depends on the import pressure and it depends on the overall cost situation. The only thing we can say that is our price announcement we have done, I think, fitted well to the needs of the market and what we have understood, also our customers understood well, that it was a need to do so.

Thank you.

Thank you very much for participating in this call and look forward to be talking to you for the first quarter earnings call. Thank you very much. Have a good day.