ArcelorMittal SA (MT) 2008 Q4 法說會逐字稿

Forward-looking statements -- this document may contain forward-looking information and statements about ArcelorMittal and its subsidiaries. These statements include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to [future iterations], products and services and statements regarding future performance. Forward-looking statements may be identified by the words believe, expect, anticipate, targets or similar expressions.

Although ArcelorMittal's management believes that the expectations reflected in such forward-looking statements are reasonable, investors and holders of ArcelorMittal's securities are cautioned that forward-looking information and statements are subject to numerous risks and uncertainties, many of which are difficult to predict and generally beyond the control of ArcelorMittal that could cause actual results and developments to differ materially and adversely from those expressed and/or implied or projected by the forward-looking information and statements.

These risks and uncertainties include those discussed or identified in the filings with the Luxembourg Stock Market Authority for the financial market and the United States Securities and Exchange Commission, made or to be made by ArcelorMittal or the entities to which [it is successor], including Mittal Steel Company and [the] Mittal Steel, including Mittal Steel's annual report on Form 20-F filed with the SEC. ArcelorMittal undertakes no obligation to publicly update its forward-looking statements, whether as the result of new information, future events or otherwise.

Good morning and good afternoon, ladies and gentlemen. Welcome to the ArcelorMittal results for the fourth-quarter 2008 and annual results conference call. I will be the operator for today's conference. Throughout the presentation you will be on listen only. However, at the end of the call there will be an opportunity to ask any questions. (Operator instructions). I will now hand you over to the Chairman and CEO of ArcelorMittal, Mr. Lakshmi Mittal.

Thank you. Good morning, good afternoon and welcome to ArcelorMittal's fourth-quarter and annual 2008 results. Today I am joined by my [JMB] colleagues, Gonzalo Urquijo, Michel Wurth, Adit Mittal and Christophe Cornier.

Today, as shown in our agenda, after a brief introduction and overview, we will summarize our achievements since the merger. We will discuss the current environment and the steel market, followed by our updated industrial plan, our Q4 results and financial plan and the performance of our divisions. Finally, we will discuss our guidance for the first quarter 2009.

Before I begin, I would like to make a few comments about the exceptional environment we are facing and our performance. The world is in crisis, and we are probably facing the worst recession since the 1930s, but there are also reasons for optimism. As I will show later, China's steel demand is recovering and is recovering quickly, as we expected. The steel industry appeared to react rapidly to the crisis, with world steel production cut by more than 30% and inventory aggressively reduced.

Finally, even though we are not counting on it, multiple government stimulus programs should have an impact in global economy at a certain stage.

To come back to ArcelorMittal, we have obviously been severely impacted by the crisis and have reported a strong fall in our profitability. However, our performance demonstrates the strength of our Group, the progress made since the merger and the pertinence of our strategy. Despite a faster deterioration than anticipated of the economy, a reduction of 33% of our shipments and 48% of our production, ArcelorMittal has been able to generate record cash flow from operations and to reduce net debt by $6 billion in only three months.

Market conditions are expected to be worse in Q1, due in particular to the full effect of the price decline on our accounts, but we should be able to achieve positive EBITDA really as the industry is expected to report cash losses on [average].

First quarter should clearly represent a trough in terms of profitability, as we are anticipating marked improvement in second-quarter and during the second part of 2009. But, our recovery will also depend on our own initiatives. We will maintain production cuts until destocking has been completed and are accelerating our management game plan. We believe our financial structure is healthy, but debt reduction remains our primary focus.

We begin with a key priority, safety. We're pleased to show continued improvement in our frequency rate. I am gratified by the progress we have made over the last several years. Over the full year 2008 we are publishing a net income of $9.4 billion. Yet, as mentioned in my introduction, we reported a strong decline of our EBITDA in the fourth quarter, due to the exceptional deterioration of the steel markets over the quarter. We also reported a net loss of $2.6 billion in fourth quarter, largely due to post-tax exceptional charges of $3.1 billion related to inventory write-downs and raw material supply contracts, provisions for workforce reductions and litigations.

On the positive side, during the quarter our net debt decreased by $6 billion to $26.5 billion, largely as a result of our strong cash flow generated from operations. Our liquidity improved to $13.4 billion from $12 billion, and our net debt/EBITDA ratio declined from 1.2 times to 1.1 times.

[As an] (inaudible) to our initiatives to address the current economic environment, as initially mentioned during the third-quarter release, we will maintain our production curve until completion of destocking. We're accelerating the $5 billion management games plan to exceptional market condition and plan to achieve $2 billion of savings in 2009. Furthermore, we aim to reduce our working capital rotation days by 15 to 25 days during 2009. We're further reducing CapEx to $3 billion in 2009 from [the original] target of $4.5 billion and to reduce our dividend to $0.75 in 2009 against $1.50. Also, we're pleased to report that we're on track to achieve $10 billion net debt reduction.

Finally, for the first quarter EBITDA is expected to be approximately $1 billion, due to the full impact of price decline and production cost.

Next I would like to go through the major progress and achievements of the Company [in] the creation of ArcelorMittal. In the current environment I believe it is important to keep in mind that the Group is much more solid than it was in 2006.

Let me first give you some more details on health and safety performance, how the Company has improved consistently over the last three years. It was one of the first priorities of the new Group and one of its main successes to date. We have faced painful fatalities, but overall the initiatives and actions taken from the beginning have allowed us to improve our performance in this area. The journey towards zero accidents remains a long one. We will continue our focus here despite the current economic environment.

Value plan -- our second achievement concerns our value plan that was presented at the time of merger. At the time, very few believed we would be able to achieve it, yet our plan has been successfully implemented, resulting in a significant improvement in the underlying profitability of the Group. Thanks to the strength of the steel market we significantly exceeded $20 billion EBITDA target in 2008, and we achieved all our main targets. We expanded some key operations, such as Tubarao in Brazil, Krakow in Poland, Zaragoza in Spain, Acindar in Argentina through internal growth but also captured merger synergies much ahead of schedule.

The successful realization of our value plan not only gave us growth but cost reduction. Over the last three years our profitability improved much more rapidly than our competition. Part of our outperformance was due to our upstream integration and the rise of raw material prices, but clearly our management gains and merger synergies contributed to this performance. In 2008 we believe our cost advantage over the average cash cost of industry was $75 per tonne. As we will present later, despite the potential decline of raw material prices, we intend to maintain this cost advantage over the industry, as it represents the best guarantee of cash flow generation in crisis environment.

I would like to come back to our three dimensional growth strategy directed towards geography, products and value chain and break the thinking of some that ArcelorMittal has overleveraged itself through too many acquisitions. Since the merger, we have been very active in M&A, spending $22.2 billion, but our net debt increased only by $3.2 billion over the period, meaning that 85% of our acquisitions were financed by free cash flow.

Those acquisitions have greatly reinforced the Group. Our main focus has been in purchasing minority interests. We took full control of our operations in Brazil, Argentina, Poland and also successfully implemented our legal merger. Those acquisitions of minorities are proving to be extremely valuable as the ability to circulate the cash among subsidiaries is essential in the current credit-constrained environment.

In parallel, we took several strategic participations in new regions and a long value chain but have not done any major transactions. Finally, we also did a few mining acquisitions over the period, but once again we remain very prudent at the end of the day.

The next item I will discuss the steel market strain in the major geographic regions. But before doing so, I would first like to provide a few comments on the economy and the steel market overall. Facing the worst crisis since second world war, the steel market experienced exceptional weakness of its market, influenced by major destocking from its main customers. This deterioration has been even faster than we were anticipating as you can see now our fourth-quarter volume.

Yet it appears that the steel industry has been the industry which has reacted the most rapidly to this crisis. In front of a dramatic fall in orders the industry has recorded -- has reported record production cuts around the world. Just to give you an example, in December crude steel production was down 28% in Japan, 39% in Europe, 45% in Brazil, 46% in Russia and 52% in the US. Even the Chinese producers in month of December were operating at 75% of capacity.

Clearly, those production cuts surpassed the decline in steel [real] demand, which remains highly correlated to GDP. Consequently, this exceptional reaction has led to an unprecedented steel destocking around the world, which appears near completion in certain regions. While destocking will have to continue [in Europe], the very low level of inventory in the US suggests that it is close to ending there. In certain in emerging markets and specific products, apparent demand increases and price [sizes] suggest that some destocking has been completed. Last but not least, recent strong apparent demand increase in China and domestic price rises are confirming that this key market is starting to restock to catch up with the real demand growth.

First, in China, we are starting to see clear signs of demand improvement as destocking ends. Industrial production is stabilizing, and leading economic indicators are turning positive. Apparent demand is starting to improve and up 15% since October. We expect the positive trend to continue as we approach second quarter and second half of the year.

Production, as you can see on the left-hand side, which was at its lowest level in fourth quarter, has started to show signs of recovery, particularly as Chinese prices rebound to above cash cost. Although CapEx utilization has remained below 80%, we expect production to continue to recover progressively as demand fundamentals improve and various stimulus plans are implemented.

After a rapid fall, exports are remaining low, and represent a third of the level they were last [March]. Even the January numbers, which have just come out, China's export is about [a million] tonnes. In fact, China's prices are now significantly higher than US and European prices. Domestic prices in China have improved by [up to $100] per tonne as apparent demand recovers.

Demand in the US continues to be weak with real demand ending the year down 7% after a 9% decline in 2007. However, apparent demand down [46]% in December is still falling much more rapidly than real demand, highlighting -- real demand highlighting massive destocking. We expect real demand will continue to deteriorate in 2009. However, we shall see improvement in apparent demand as destocking ends.

Production in December was down 52% year-on-year basis and 2008 total production was down 7% versus 2007. Although capacity utilization has rebounded from the lows the last week in December, rates have remained below 50% since the beginning of the year, which is the lowest utilization rates the industry has seen. Production is expected to increase during first quarter, when apparent demand improves.

Inventories are very low, down 20% since peaking in August, and are at the lowest levels in 15 years. Prices have declined dramatically and are now below the average industry cost, as illustrated on the right-hand chart. We expect that, as destocking ends and apparent demand improves, prices should improve in the coming months.

In Europe real steel demand continued to deteriorate in fourth quarter as the economies in these countries became weaker. Apparent demand contracted by 9% during 2008; and, like other regions, massive destocking is taking place with production down 39% year-on-year in EU 27 countries in December. We expect that production cuts will remain in place through the first quarter as this region is slightly behind United States and China with respect to destocking.

Also inventories in Europe, while declining, started at the higher point than US and China, furthering the need for additional destocking here.

Imports have continued to decline due to the continued fall in the price differential versus China and the strong destocking. We expect that Europe will become a slight net exporter in the first quarter as the European prices remains below the global price. On the right-hand side you can see that the prices have declined sharply and are below average industry cash cost. We would expect prices to increase once the global market has improved.

Like the carbon steel market, the stainless steel market is facing strong destocking, resulting from rapid deterioration in real demand. Yet, like in carbon steel, it appears that the industry reacted rapidly to the demand deterioration with a 33% production cut over Q4. However, even though inventory has been declining, more reduction needs to be seen in Europe before normalization. There are a few signs that the market could stabilize soon. First, the stainless-steel price in Asia has started to increase again. Second, since beginning of the year, the price of nickel is no longer falling and has recovered around $1000 per tonne. We expect European base price to remain under pressure in first quarter, but that stabilization could occur in second quarter. However, we will have to continue to monitor the exports from China to Europe.

Now I will discuss the progress of industrial plan 2009 aimed at facing the current market environment. First, we have to continue to reduce inventory and adjust production until destocking has been completed. For instance, we had originally estimated that in the fourth quarter we would have production of approximately 19 million tonnes. As conditions deteriorated throughout the quarter, we made further production adjustments. For the fourth quarter, ArcelorMittal produced just under 15 million tonnes of cold steel. For the first quarter we expect production of around 18 million tonnes, a 12 million tonne reduction from the 30 million tonne quarterly average over the last few years. Yet, like in fourth quarter, we would adapt production to market conditions as appropriate.

Second, in light of the crisis and exceptional market conditions, we had to adapt our five-year management game plan. As you probably remember, our initial management game plan, which was announced last September, was based on certain assumptions in terms of raw material and energy cost. As the crisis changed significantly those key assumptions, our plan had to be adjusted in consequence.

In addition, as crisis accelerated, we had to accelerate our cost saving target to $2 billion by end of 2009. As a consequence, we have launched a new specific fixed cost reduction focused on our unit, which should result in a cost reduction of about $1 billion. As our management game progresses rapidly, we expect to capture $1 billion of management gain and realize by the end of first quarter.

We have decided -- finally, we also decided to further reduce CapEx. In number, we set a target of $4.5 billion in CapEx for 2009. However, this has been revised downward to $3 billion, consisting of $2.5 billion of maintenance CapEx and $0.5 billion of growth CapEx. Growth CapEx will be limited to high-return projects. However, we will not be adding any new steel capacity. Maintenance CapEx reduction is achievable, as we expect engineering and equipment cost deflation as well as volume reduction.

Now I will let Adit discuss our financial performance in fourth quarter and the progress of our financial plan.

Thank you. Good morning and good afternoon as well. I will review the income statement, cash flow, balance sheet and then give you some update on progress we made in terms of our financial plan.

Even though 2008 is a record year from an EBITDA perspective, our results declined in the fourth quarter due to the exceptional market environment. As you heard earlier, EBITDA decreased by 67% in the fourth quarter versus the third quarter, ending the quarter at $2.8 billion.

In terms of EBITDA per tonne, it fell by $171 and ended at $165 per tonne, primarily due to squeezed margins. We also had certain impairment losses in the quarter which amounted to $588 million. $325 million of them were asset impairments, and the rest were reduction of goodwill at our various facilities.

During the quarter we also had a pretax exceptional charge of $4.4 billion. This was a direct consequence of the exceptional market environment and relates to write-down of inventory and raw material supply contracts, which totaled $3.2 billion, provisions for workforce reduction totaling $0.9 billion. This is in relation to the voluntary severance program that we had announced in the fourth quarter and litigation provisions of $400 million.

Net interest expense also increased to $640 million in the fourth quarter, primarily due to higher pension interest expense coming out of the United States, which we expect to continue in 2009, and lower income on cash balances, which we expect to be offset, at least in the first quarter of '09.

Furthermore, we also had losses related to fair value of derivative instruments of about $240 million, and this primarily is due to losses we continued to incur on forward contracts that we have on freight chartering.

We also recorded an income tax benefit of $1.1 billion for the fourth quarter, primarily as a result of operating losses. The higher effective tax rate is primarily due to a change in the geographic mix of our results in the fourth quarter in the sense that we are losing -- or we lost more operational results in areas in which there was a higher statutory tax rate.

Then we move to the cash flow. As you know, our cash flow from operating activities increased to $5.9 billion in the fourth quarter compared to $2.6 billion in the third quarter.

Apart from EBITDA, the Company had $1.6 billion of working capital release and cash proceeds of $2.5 billion from the unwinding of our raw material hedging transactions. However, in rotation days, working capital actually increased, which provides scope for further reduction in 2009.

In terms of capital expenditures, we spent $1.4 billion in the fourth quarter as compared to $1.8 billion in the previous. And as you heard earlier, for '09 our CapEx spend is focused on maintenance, safety and environmental and some growth CapEx, and will approximate $3 billion.

During the quarter we also divested our stake in Dillinger Hutte, collecting over $1 billion in net proceeds. I should say we divested part of our stake in Dillinger Hutte, and we also paid out $0.6 billion to our shareholders. All in all, a record free cash flow quarter.

In terms of the balance sheet, as you know, we have earlier announced, when we announced our third quarter results, a $10 billion net debt reduction target for '09. In the fourth quarter, due to strong operating results and other cash flow benefits, as you saw earlier, our net debt decreased by $6 billion to $26.5 billion by the end of the year; clearly, a very strong achievement. During the quarter our gearing also decreased from 49% to 45%, and net debt to EBITDA ratio reduced to 1.1 times as compared to 1.2 times in the previous quarter.

Let me just quickly review our liquidity, which also improved in the quarter, increasing by $1.4 billion to $13.4 billion versus $12 billion at the end of the third quarter.

In terms of debt maturities, in the first quarter we have about $2.4 billion of commercial paper which we expect to roll over and $1.5 billion of other debt, of which a large portion represents lines and overdraft accounts and local debt in subsidiaries, which we also expect to roll over. In addition, we're particularly pleased to announce that we have secured in principle $4.8 billion worth of forward start facilities. There are two forward start facilities. The first is our $4 billion liquidity line maturing between 2010 and 2011, of which $3.25 billion has been extended for a period of an average of 18 months, i.e., it matures now in 2012. This provides continued enhanced liquidity for the foreseeable period to ArcelorMittal.

Let me now review the other forward start facility. As you know, we also have a $3.2 billion facility maturing in 2010. We approached a select group of our core relationship banks and have secured $1.6 billion in commitments for them. This results in an extension of at least $1.6 billion of maturities until 2012 through the forward start. We intend to approach the other close relationship banks that we have on February 16, in terms of a second phase, and we would expect to close that transaction in mid-March and clearly would expect the amount to increase.

Furthermore, there has been no change in covenant terms as a result of the extension of any of these facilities, and we believe this refinancing strengthens our financial position and lets us address steps to smooth out our maturity profile. As you can see on the chart, we have been able to move some of our debt and we expect more of it to be moved to 2012.

I believe this is also a strong demonstration of the relationship we have with our core relationship banks. Providing $4.8 billion of forward start facilities in this market environment, I think, speaks volumes about their perception of the Company and the relationship that we have with them.

Let me now just come back to our debt reduction target, which clearly remains the center focus of our financial plan. As mentioned in the introduction and as you know, we made significant progress in the fourth quarter. However, we continue to target a significant reduction in working capital. In the fourth quarter we succeeded to release $1.6 billion of working capital in the fourth quarter, but we should be able to do significantly better.

Even though we made progress in the quarter, we believe that our working capital performance in terms of rotation days appears to be historically [poised], as you can see on the chart on the page. We believe we can further reduce our working capital by 15 to 25 days during 2009. This frees up approximately $3 billion to $5 billion of working capital and clearly would be a key aspect of our $10 billion net debt reduction target.

With that overview of our financial plan and our results, I hand it over to my GMB colleague, specifically Michel, to walk through our divisional results.

Thanks, Adit, good day to everyone. I will begin now with this second review, which looks at Flat Carbon Europe, starting, as usual, with safety. And then I'm very pleased to say that we have made significant improvements in terms of frequency and in terms of severity, and in fact Q4 was the best quarter we ever achieved with the frequency rate, which improved from 1.8 to 1.3, whereas the severity rate has improved to 0.13. In the last quarter we have taken some time and the opportunity of the reduced load of our lines to further intensify housekeeping and also to make some safety trainings.

Now, moving on to operations, Q4 had been difficult because steel shipments have gone down by 27% to 6 million tonnes, coming from 8.2 million in Q3, and this was due to the severe decline in demand. Cold steel production was down by much more; in fact, cold steel was down by a significant 46%, the difference between production and shipments being due to significant destocking.

The markets most affected by the downturns were Spain, which is very well-known. The UK was very difficult, as well as central and eastern Europe, where we have the lowest share also in contract sales and where import pressure in particular from eastern European and all [CIS] countries was the strongest.

Average steel selling prices come down from $1125 per ton in Q3 to $956. Also, the majority of this decrease is due to the exchange rate evolution, and in fact in Europe prices have actually been stable. For contracts in particular, retroactive billing of our cost recovery program agreed with customers during Q3 essentially meant that average prices expressed in Euros had even increased.

Looking now at profitability, our EBITDA in Q4 was $956 million, which corresponds to a 48% decrease compared to the very strong result of $1.8 billion we achieved in the previous quarter. This decrease was driven mainly by the significantly lower volumes, but also we were squeezed by rising costs due to the reduction of activity, which was -- only be partly compensated by decreasing cost and by some crash actions we have taken. We also had higher raw material prices and changes to the technical working points of certain tools in order to prioritize cash generation and use of available raw material overcost. Due to these factors, our EBITDA per tonne has decreased from $222 to $159 per tonne.

Now, looking at the outlook, we can say that it has deteriorated [further] and the expectation of recovery of the apparent demand has been postponed from end of Q1 to Q2. So we are definitely living today in the bottom of the cycle. And our customers, which we meet very regularly today -- they have very little visibility at the moment and are buying cautiously.

Price is under pressure, due in particular to Russian import [offers]. In addition to prices, demand will also be weak in Q1, and Flat Carbon Europe expects shipments to remain at least as low as in the last quarter of 2008, as destocking at our different customer segments is -- continues -- continuing.

Many of our industry customers are reporting activity levels of 50% and below normal situation. And in the automotive sector end user activity is very low as well. For example, in January 2009 year-on-year reductions in castings were 42% in Spain, 32% in Italy and 14% in Germany. However, we have some comfort with the fact that we have been quite successful in booking contracts for the first half of 2009, which will provide some price and volume stability.

Now turning to steel solutions and services, also in terms of safety I can report that the frequency rate has only decreased by 10% to 2.8, but over the overall year we have been quite successful because we have divided by 2 our frequency rate, and this was really due to continuous management focus on safety.

Moving to operations, steel shipments in quarter four were 3.7 million tonnes, 580,000 tonnes or 14% below quarter three, which is traditionally low due to the holiday season in Europe. World volumes were impacted by the general slowdown in demand in 2008, thanks to continuous and, in particular, for the steel service center activities which is serving the industry customers.

Steel selling prices decreased to reach $1106 in quarter four, a reduction of $255 or 19% compared to quarter three. As I explained previously, the appreciation of the dollar was the main driver for this reduction. And when expressed in Euros, prices declined only by 8%. Nevertheless, this has had the consequence that EBITDA decreased from $390 million to $187 million in quarter four. The decrease is indeed principally due to inventories. The decrease of our cost of goods sold according to weighted average valuation was lower than the reduction of our selling price, leading to lower margins and, in fact, to windfall losses. This is, in fact, the inverse effect of the windfall gains we have known in some of the earlier quarters.

As a consequence, EBITDA per tonne has been reduced from $91 to $51 per tonnes. In terms of guidance for the next quarter, the outlook for Steel Solutions and Services is consistent with that of its main European markets. That means automotive and construction, which I expect it to slow down further in the first quarter, and hence, will be quite difficult.

I hand it now over to Gonzalo, who will follow with Long Carbon steel.

Thank you very much, Michel. Good morning and good afternoon to everybody. I will start, as always, with health and safety.

First, I have to report four fatalities, two in Brazil, one in Germany and one in Romania. Now, we are working very hard to avoid this. We have many action plans in our journey to zero program. We have action plans ordered that are involving absolutely all the employees we have, and we are promoting and monitor safety standards very closely. It clearly remains our first priority.

Now, there is good figures because our frequency was 490 rate in 2007. It has gone down to 340, which is a very good improvement. But if we see the last quarter, it was at 2.3. So clearly, we have had fatalities but we are achieving much better results in terms of frequency rate.

Now we go to steel shipments. You see 4.55. That is minus 32%. Why? Clearly, we have seen a decrease in demand, an effect of destocking, so we have seen a general slowdown. And we wanted to adapt our production, our shipments, to the demand in the market in order not to force that market. That has resulted in minus 32% in terms of shipments.

If we go to the part of average steel selling price, see we are down 21%. That is around $261 per tonne; it's a lot. Where have we been affected? Basically, in Europe, where bars and rebars practically have been slashed to 50% from $1050 to $560. Also in Europe, wire rods have been affected by a decrease of more than 50%. And if we go to the American continent, we have had some markets that have been deeply affected. That has been, for example, Mexico and North America, with very important decreases in prices.

One other element I wanted to share with all of you was scrap. You know that scrap is fundamental for long as 65% of our production is on the scrap route, the other let's say 30% is the blast furnace and 5% in DRI. And you know that scrap, it has been a very volatile year. In US bundles started at $200, went up to $800, let's say in July, and then they were back to $125, $150 in November. And the same in Europe; we started at EUR200, we went up to EUR424 and then we have been down to EUR150 levels, even though now it's more around EUR180 levels. That clearly has destabilized the market very much. Why? Because, as we saw prices decreasing of scrap in the fourth quarter, many buyers were waiting, as normally our products are linked one way or the other to margin over scrap or to scrap, clearly.

Now, third, EBITDA -- we have seen EBITDA $869 million. That is minus 62%. That is basically due to the shipments that has been accounted for two-thirds of this reduction, and the steel prices have accounted to one-third. Once more, we have been impacted by this decrease in volume and this decrease in prices. Although the margin of EBITDA has been 17% in the fourth quarter and for the full year was practically 21%.

Looking forward and for our guidance, we hope and we expect to increase our shipments in Q1, clearly not where 2008 levels were, but we have seen that February will be better than January, and we hope that that tendency will continue, although we still see some pressure in prices, clearly.

So we don't believe that until the end of the quarter or the second quarter we will be able to achieve the margin over scrap we are accustomed to and stabilize that margin over scrap.

Now let me speak of stainless steel. Clearly, in this difficult environment and context, we have -- our first priority, once more, is safety. I do have good news here because our frequency was, in 2007, 245. It's down to 220, but in the last quarter it was down to 190. So we do see good results there, and I am very happy to announce that in our subcontractors, frequency rates was down from 3 to (technical difficulty).

With respect to our shipments, you see a very important decrease of minus 25%. Clearly, we have been hit very much in basically -- well, in austenitics and in ferritics, in both, and the electrical steel we do in Brazil has been less hit.

Why have we been hit? Clearly, slow -- the demand has been very low. There has been once more destocking, clearly. So we have adapted once more our production and shipments to the market situation. There has been a clear difference between Europe and Brazil, as a reduction in Europe has been around 50% and in Brazil around 25%.

There has been another element that has clearly contributed to this difficult market situation, has been the raw materials. If you remember, nickel price as an average for Q3 was practically $19,000, and in Q4 it was around $11,000. And you have seen what has happened with chrome. There has also been a decrease between Q3 and Q4 and at the beginning of the year also. This has not helped, and on the contrary people have refrained from buying.

We see the average selling prices of stainless steel. Clearly, we have lost here, not only as a total because this includes the surcharge, but also in base prices for austenitics, more than $150; in ferritics, more than $50. So clearly we have lost part of our base price.

Last and` not least, you have seen the EBITDA before, of course, the inventory write-down. And in this case it was 146. Clearly, we have been impacted by the decrease in volumes and the decrease in prices of the base price. Clearly, we have seen also all our customers refrain. The credit constraints has also affected us in every single one of the business, and the European market has been very depressed. As I said before, the Brazilian market has had a different situation and has been much more positive.

Now, looking forward, we hope that the raw materials have stabilized. That will help the market, clearly. We have seen a reduction of the inventories around the customer chain, even though we believe they could be reduced even further. So we do believe that the demand will remain weak and base prices depressed, especially in Europe, where we are clearly not optimistic for the result of stainless in Europe. And we believe that the Brazilians, once more, will perform much better.

Thank you very much. Christophe, I believe the floor is yours.

So let's move to [Africa] (inaudible) month, start by safety. We have done a lot of progress on safety, and the situation is quite acceptable for steel plant and iron ore mine. And even in terms of frequency ratio, better than the average of the Group. But nevertheless, we remain with the issue of coal mine for safety.

This quarter, in Kazakhstan, we had six fatalities, out of which five in the coal mine. As you know, we have a large safety CapEx program currently implemented, and we will continue that as forecasted with also a lot of training and managerial effort to improve the situation.

For performance we have managed the segment to cope with very weak market conditions. This segment has been the first one impacted by the crisis as soon as August and early September.

Our (inaudible) production was reduced by 50% versus Q3 to adapt to economic situation. We have done that by stopping [best] (inaudible) in Ukraine, slowing [those orders] in Kazakhstan and stopping [those orders] (inaudible) in South Africa.

All shipments were lower by one-third, 2.2 million instead of 3.3, due to this lack of demand. It's worth to note that, as problem started in Q3 in this segment, this [one] (inaudible) is much more compared to the real capacity of production of these units. We have taken a lot of action to cut all possible cost, starting by [sense] sufficiency. That is, we have stopped buying coal from outside in Ukraine and Kazakhstan. Kazakh's [unique] sending coal to Ukraine, and Ukraine capable to send iron ore to the Kazakh mill, if necessary.

Our average steel price decreased by $400, which is 40%. And of course, this decrease has been progressive during the quarter, which means that the average sales price in Q1 will be even lower.

Total EBITDA is $281 million, which is much below than in Q3, which was $1.3 billion, mainly due to price and volume reduction. In terms of forecast, we think that Q1 will be slightly lower in terms of EBITDA, but with an improvement during the course of the quarter, generally starting very low. But we feel some improvement in the export market. There has been -- (inaudible) has cut price, which is a main competitor we have for long [production]. And also, of course, our Kazakh and Ukrainian mill will benefit from the local currency devaluation. Now we are much more competitive to compete against Russian mills (inaudible). Thank you.

Thank you, Christophe. Let me walk through the results of Flat Carbon Americas. In terms of safety we maintained our frequency rate of 1.9 times. This we achieved in the preceding two quarters and is lower than the average of 2007, which is a 4. Our severity rate also declined to 0.07 versus the average that we had in 2007 of 0.22. So safety performance was satisfactory and showed continuous improvement.

In terms of 2008, although the whole year was a record year for Flat Carbon Americas, fourth-quarter performance suffered severely due to the onset of the global financial crisis which very quickly permeated into the real economy. In North America and to a lesser extent in Brazil the financial crisis led to sharp reductions in inventory through the supply chain, exacerbating the direct impact of the crisis on the end use markets.

The global slab market, which typically supports around 30% of FCA shipments, was our most severely affected segment. Consequently, fourth-quarter shipments are 43% lower than third quarter levels. With slabs, slabs dropped by 65% accounting for almost half of the total reduction. The drop in steel production was even sharper as all units reduced inventory substantially.

Realized prices were much more stable, falling only 9% in the quarter. We also aggressively focused on reducing cost. Our plan at all of our facilities involved the elimination of contractors, reducing over time, minimizing MRO spend and in certain cases layoffs. In addition, costs are also being optimized through consolidation of operations around lowest-cost facilities, optimization of materials mix and the control of discretionary SG&A spend.

Primarily due to the volume impact and in spite of the cost measures, EBITDA dropped to $433 million, an 82% reduction from the third quarter. This represented a level of $110 per ton of EBITDA on much reduced shipments.

Let me conclude the presentation with our guidance for first quarter 2009. Due to the fact that volumes are expected to remain at very low levels as destocking continues combined with the full impact of expected steel price reductions as well as relatively high costs, we expect our first-quarter EBITDA to be approximately $1 billion. Clearly, costs will benefit from our management gains plan, but due to the reduced production levels overall costs will remain high in the first quarter.

Nevertheless, as we mentioned already, we expect the first quarter to be the lowest in terms of profitability, primarily two reasons. We believe the inventory destocking is ending; so therefore, we will see apparent demand improve. You heard earlier that we believe demand dropped globally for the steel industries 10%, which should point to modest volume recovery -- or, volume recovery from the second quarter onwards.

Secondly, clearly we still have certain high-priced raw materials which will flow through the system in the first quarter. We do not expect to have an exceptional EBITDA charge on it; it would flow through the EBITDA. But clearly, that story is not fully over.

To conclude, our intensified industrial and financial plan demonstrates our commitment to take necessary actions as we navigate the crisis, which will enable us to maintain our leadership position in the global steel industry. We remain ideally positioned at ArcelorMittal to benefit from recovery in global steel demand due to our global, diversified and integrated business model.

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

(OPERATOR INSTRUCTIONS) David Martin, Deutsche Bank.

I wanted to start with two accounting questions, if I may. First, on the FX unwind cash benefit of $2.5 billion, can you explain what the P&L impact was in the quarter was, if any?

And then the other accounting question was just on the inventory write-down, which you did exclude from EBITDA. I'm just curious in the prior quarters whether there were any inventory gains and how those were reported.

In terms of foreign exchange, as you correctly pointed out, we had a cash gain of $2.5 billion. Within the fourth quarter there is a gain of $349 million. The rest of the gain on this would flow through '09, '010, '011, as this is hedge accounting and it's based on our expected purchases of raw materials over the next four years, including '08, and that would be the accounting impact going forward.

In terms of the inventory write-down, we have not taken any inventory write-downs in previous quarters. Basically, as you are aware, there was a dramatic drop in steel prices. And as we valued our inventory through the finished -- through a sale level, we realized that our cost was higher than selling prices. And as a result, we took the exceptional charge in the fourth quarter.

Yes, but I was wondering in prior quarters whether there were any gains realized on inventories.

No, we do not realize any gains because we maintain the inventory at either lower of cost or selling prices. So even if they were below selling prices, they were still maintained at cost, so there was no gain recorded in any previous quarter.

Also a question on Flat Carbon Europe. I believe you stated that on a euros basis, your prices were flat quarter over quarter, down, I believe, about 15% in dollar terms. But I'm just trying to understand the flat quarter-over-quarter in Europe relative to your illustration on page 13, showing European prices.

Should I go? So I think that European prices, what you see on the market is in fact the spot market prices for the most competitive part of European prices. So what is going on there, on page 13, is much more the prices we have seen in south of Europe, Italy and Spain, which are very much import -- where there's a lot of import pressure, but record sales was at these very low prices, in the range of $400 or below were seen in some parts of Eastern Europe, like Poland, Romania, Czech Republic, which are very open to imports in -- from Russia, for example.

On the other hand, on the European market we see some better pricing in the core of Europe. That means Benelux, France and Germany, and there we can say that price is higher. And also, this explains a little bit our overall exposure, you know, is mostly on -- it's most important on these markets as we see them now. I think that's number one.

The second question is in the dollar rate roughly went down from $1.50 to $1.30. So that makes a lot of experience.

And the third point I would like to mention is in fact that in -- FCE contracts were -- represent approximately 30% of our total sales, as these prices were not only stable because these contracts are long-term, but even some of the contract prices went out due to the renegotiation we have done in Q3. And there were even some part of increased pricing of Q3, which were even going on and only accounted for in Q4 because final negotiations only was concluded at that time.

Sylvain Brunet, Exane BNP Paribas.

Three questions, please. First want to get a sense of what is the order book in slabs looking these days. Second question, on the current run rate of deliveries to your auto customers, both in Europe and in the US. And the last question, to know if you have changed views on Stainless Steel, if it still -- if it remains a core business for you.

Okay, in terms of order books in flat, globally we can say that in Q1 we see a similar order book than we have seen -- or a similar level of frequency or even a little bit below what we have seen in Q4. Why is that? Because in Q4, there was still some order overhang which was coming from Q3. So what we are seeing in Europe that is a continuous destocking you say in terms of rotation day inventory at our end customer levels is still relatively high, and that's the reason why we remain cautious for Q1.

Nevertheless, in terms of -- we are in close dialogue with our customers in Eastern Europe, in Western Europe, north and south, everywhere, in order to try to be very close to what their needs are. But we see that, as their visibility is not very good, the supply chain is really reducing. And from that point of view we believe that from a market perspective in Europe, we have reached -- we will reach the bottom in the course of Q1.

Now, in terms of contract prices, obviously I think everyone knows what are the overall projections for automotive production in 2009. There will be a severe cutback in the different regions in the world, and we would say that roughly speaking we will have a proportional decrease in shipments to the automotive industry. And this could reach in the range of 20% compared to '08, if we are -- [and see that] visibility we have today.

In terms of pricing, it is clear that contract prices in this crisis situation remain higher than spot prices are. I think this is normal. They have been below now for the last four years, where contract prices were continuously lagging behind contract prices. So the situation is turning a little bit around. What we can also say that is in our different negotiations there have been the different contractors -- automotive contractors have sometimes taken different attitudes in terms of duration of the contract so that not all pricing for 2009 is already concluded.

To add to what Michel said from a North America and South America perspective, there is no significant change in our order books from what we saw in the fourth quarter, nor is there is a significant change in run rate or deliveries in terms of North America. And then, that is why our guidance remains weak in terms of what we expect to be producing and shipping in the first quarter.

Clearly, though, we do believe that the period of destocking is almost complete and inventories are at 15-year lows in North America. And we would expect to see the apparent demand correction as a result of destocking to end and demand to pick up towards the second quarter of this year.

The bright spot in flat deliveries is Brazil, where we have seen some improvement in January. Automotive production is up 80% compared to December, so all the plants are back up and running. Our shipment level in January is higher than December. Auto inventories in Brazil is a month right now, which is not significant. So clearly, consumer credit is not impacted in Brazil, and it seems right now that the production, automotive production has come back. So that's good news from a South American flat perspective.

With respect to your third question, that was stainless, two things. First, we have done an enormous progress in stainless. We have invested a lot. The results are there. We have had very important cost reduction plans. This is continuing. I think it's an example how we are managing our cost. And when you benchmark it, clearly we are becoming [a reference].

So in a very difficult situation as of today, we are delivering adequate results. That is my first comment.

Second one, we have always said we believe in consolidation in the Stainless Steel industry. Thank you very much.

Michael Shillaker, Credit Suisse.

I've just got a few very quick questions. The first one is, I think in the last quarter you guided to $5 billion, or was it $5.4 billion of working capital reduction, between Q4 and Q1. You have done $1.6 billion. So does that effectively mean you are comfortable with $3.5 billion to $3.8 million in the first quarter, if we are going to put a number on it?

The second question is, I understand you are talking about the Q2 and beyond recovery. But I guess the flip side is that the cut in the dividend, and I guess the effective change in the dividend policy from a $1.50-based dividend to a $0.75, I guess, effective based dividend does suggest that actually, internally, you are actually a lot more cautious.

The third question -- how long do you think you and the industry can maintain utilization rates at these levels? Because, including CapEx, you are going to be effectively in cash loss in the first quarter. If there is no underlying demand recovery in the second quarter but working capital, which is your source of cash flow at the moment, is fully run down, then what is the risk that you and the industry have got to start looking for volume in Q2 against a backdrop of still very weak demand? And what would that do for the cycle in the second half of the year?

Finally, at current utilization rates and raw material output, what is your effective raw material self-sufficiency? I'm just trying to get a handle on your leverage to lower raw material costs. Thank you very much.

Let me begin with a few of your questions and then maybe someone else can also comment on the dividend policy. In terms of working capital, Michael, I'm scratching my head as to where you got the number of $5 billion for the fourth and the first quarter. What we had said was that there is an opportunity to reduce working capital in 2009, and we had made some progress in the fourth quarter. I would not expect to see substantial progress in the first quarter, primarily because we continue to maintain low levels of production, and therefore the bring down of inventory is occurring to some degree but not dramatically. And I would expect more of that to occur as the quarters go by in 2009.

In terms of your third question -- how long can this last? I think that's an excellent question. Clearly, a 45% production cut, which we believe represents the market in which we are operating, is not sustainable. And that reflects inventory destocking because real demand is not down by that much. And therefore, we do expect volume recovery to occur. We also believe that we have a low-cost position both because of our vertical integration and the quality of our assets and the cost reductions we have achieved over the last three years.

Therefore, if we are making marginal EBITDA, clearly I would expect our competitors to be in a worse off situation, which would present to either improving EBITDA through volume recovery or improving EBITDA through some price recovery. And I think some of the groundwork of that is laid, as you heard earlier, because we have seen price improvement in China, which has occurred since November, between $5200, and production which has improved. And therefore you have a base of steel pricing which has begun to creep up.

In terms of raw material, theoretically our self-sufficiency would expand dramatically. The reality is that a lot of these mines are very close to our facilities, and it's very difficult to take the ore to our other facilities. Therefore, our self-sufficiency has not expanded dramatically. We also had to reduce production at various of our own mine sites, and you can see already in the fourth quarter, iron ore production is considerably down compared to the third quarter. And so the best number I have for self-sufficiency in the fourth quarter is 54% for iron ore. That may be a bit higher in the first quarter, but from 47% it has become about 54% in the fourth quarter.

Michael, on the dividend policy, yesterday at the Board we deliberated a lot on this issue. And there are two comments I would like to make.

One, you are right, that this is a cautious approach by the Company because we believe that this is a time when companies should focus on conserving cash and this is a time when the Company should participate in the pain of being with all the other stakeholders.

So here we believe that in today's time horizon, when there is -- not that we're back to normal like 2008, nine months, we should be cautious and we should cut our dividend by 50%. We are prepared to review it when the market situation gets back to normal.

Clearly also, as a family, Mittal family fully supported this dividend cut proposal and they also participated in this view that they should also share the sacrifices.

Just a follow-up to Aditya, I guess, on the third question. Your low-cost position obviously puts you in a strong position. But obviously, with a lot of higher cost producers out there, how firm do you think their discipline will hold if you are making, effectively, a cash loss in the first quarter, if you include CapEx? They will obviously be in a loss as well. So how firm do you think their discipline will hold into Q2 if there's no underlying apparent demand recovery? I completely hear what you are saying on apparent demand recovery; I don't disagree. But in a scenario that doesn't come through, how firm do you think their discipline will hold? Thanks.

It's a good question. I just also want to say that in the first quarter, theoretically, we should not be making a cash loss if you see EBITDA minus CapEx only. Our CapEx run rate -- we are guiding towards $3 billion for the full year, and I would expect first quarter to be less than $650 million. So --

But including interest?

EBITDA minus CapEx, we should still be positive.

Just on your more important question, on competitor action -- this is something that is addressed at every single call, whenever we speak about the consolidation of the steel industry and whether it holds or does not hold. We do believe that we have shown over the last two to three years that generally the competitive forces are rational, and as a result we have a better industry environment than we have had in the past. And I tend to believe that would continue in the second quarter.

Yes, sorry; I was including interest in there as well, in terms of the cash in the first quarter. But that was great. That's the answer. Thanks very much.

If you include interest charges, then you're right.

Andrew Snowdowne, UBS.

I wonder whether you could give us some guidance, first of all, on your shipments in the next quarter. You gave us good guidance in terms of production. I wonder if you can give us the same on shipments.

Another question -- you are guiding to a 10% tax rate. I wonder whether you could talk us through how are you able to achieve such a low number. You did suggest in terms of geographic split and various tax regimes, but maybe a little bit more color on that would be very helpful.

And then maybe one or two other simple questions. The hedging gains coming through the cash flow -- I wonder whether you could give us some sort of color on the extent to which that could be repeated in Q1. And then the inventory write-downs; although they're not included in the EBITDA, I would suspect a lot of that is coming from your distribution as well as stainless division. I wonder if you could give us some sort of feel of the magnitude in those divisions?

And then the final question, the units on Brazilian asset sales just don't seem to want to go away. I know you have put out a press release. I wonder whether you could give us a definitive answer on that in terms of [the stance] with the Brazilian assets in terms of any potential Brazilian acquirer in the region. Thank you very much.

Okay, the easiest is the Brazilian. There is no intention to sell any of our Brazilian assets. These are world-class operations. We value their strategic value, we value the people who work there, we value its close capability, and it's core to ArcelorMittal. So, there is no discussion that we're having at ArcelorMittal to sell our Brazilian assets. So hopefully that stops the rumors. I have a strange or nagging feeling that it still may not. But clearly, we can underline that as the GMB and as the Board of the Company.

In terms of your first question, in terms of shipments, generally shipments are down across the board similar to what you saw in the fourth quarter. On a global basis I think the shipment number that we're forecasting is between 16 million tonnes to 17 million tonnes for the first quarter, and the reductions are similar to what you saw in the fourth quarter.

If you want, we can go through more segment-wise breakdown. In terms of the tax rate, our tax rate in 2008 was also low. It was about 9% ETR, and clearly there are certain activities that we have taken on a global basis apart from the low statutory tax rates that we have, where we earn income that maintains such a low tax rate. I would expect the tax rate to also be low because we did have the inventory charge in the fourth quarter and some impairment write-downs and those are tax effective. And as a result of that, with the NOLs that we have, our effective tax rate would be low in 2009.

In terms of inventory write-down, I think in many ways you have a good sense of where we have taken it if you go through the earnings results, because we provide color on various segments. But in terms of the inventory segment, on a high level, it's across the board. It's not only in our distribution activities. Flat Carbon America's is $0.5 billion, Flat Carbon Europe is $1 billion, Long Carbon is $0.4 billion, Stainless $0.2 billion, Distribution activities is $0.2 billion, and AACIS is $0.2 billion. So that totals up to $2.5 billion of inventory write-down which we took in the fourth quarter. I hope that answers your questions.

Thank you, just one -- sorry, I know it was a long list. The hedging gains coming through the cash flow in Q1 -- any guidance at all on that and the currency hedging?

The amount of hedging gain in the first quarter at this point in time is hard for me to predict. I would expect it to perhaps be similar to what we had in the fourth quarter, but we have not taken full cognizance of that, primarily because it has to do with how we pull down our raw material purchases. It's linked to our external raw material purchases, and it depends really on how Flat Carbon Europe [makes] (inaudible) of foreign raw material purchases. If they are reducing inventory and there's very little foreign raw material purchases, then there would be little income accrued on that account.

Bob Richard, Longbow Research.

Three quick questions. The $2 billion in management gains -- what will be your biggest contributor there? Also, from your perspective, do you find the inventory environment more favorable for long or flat products? Any color there would be helpful. And your $3 billion in CapEx spend -- I appreciate a lot of that is going to be maintenance, but you alluded to some high-return projects that aren't going to add any capacity. Can you provide any color what those could be? And, again, thanks.

Let me begin with the management gain. In terms of the $2 billion, if you recall, in the third quarter earnings results we had announced $1 billion of SG&A cost savings, and this is primarily discretionary spend on SG&A. Our SG&A bill approximates $5.8 million for '08, and we would expect it to reduce by $1 billion at least in 2009. That's well underway.

Then, in the fourth quarter we announced a voluntary severance program, our VSS scheme, which impacts 9000 people on a global basis. We have taken a charge of $900 million on that scheme in the fourth quarter, and I would expect that to also contribute roughly $1 billion as well, as we achieve full benefit.

And so those are the two components, primarily $1 billion of SG&A, roughly $1 billion through the VSS scheme, getting us to $2 billion of sustainable cost savings.

I will add that, within the year there are significantly more cost savings which are occurring across the board. We highlighted a few in the presentation, such as MRO spend, the elimination of contractors, reduction of overtime, et cetera, et cetera. But those are not sustainable in the sense that when production comes back to full levels, we would lose those cost savings. So we do not account for that in our management gains. So the total cost-saving exercise in the organization is larger than $2 billion, and we are making good progress on that. But $2 billion is sustainable.

And lastly, Christophe made the point but I think it's quite important. A lot of our emerging market facilities are in depreciating currency environments, so clearly their overall fixed cost base on a dollar basis is also shrinking, which is another -- if sustained, another cost benefit to the Company on a going-forward basis.

-- [here] to understand from different geographies, how it will behave. But primarily long products should revive faster than the flat products, and because immediately all the stimulus program, infrastructure projects, all of them will start kicking in. A lot of projects which are on hold will start kicking in, and we believe that long products will revive faster than the flat products. And in the flat products, the last one to revive, we believe, is slow, is the auto companies.

On the $3 billion CapEx, $2.5 billion CapEx is for the maintenance, which is necessary to maintain the health and efficiency and productivity of the existing plants. And $500 million of the smaller growth projects, which will help to improve the productivity, which will help to improve the quality, which will help to improve the customer service. So there are smaller, smaller -- many projects in the Company which have a very high return, less than nine months to a year.

So this is how we believe in $2.5 billion, what we have earmarked. We will also achieve these numbers because we also believe that cost of maintaining the plant will also come down during this year, in view of deflationary costing for a lot of services. Thank you.

Mark Parr, KeyBanc Capital Markets.

A question I would like to pose is your thoughts about global steel production for '09 versus '08. We have seen a lot of different estimates regarding the potential for the global marketplace. I would just like to hear your viewpoint on the opportunity here.

There are various views and various predictions about 2009 production versus 2008. At this time, our best guess is between -- a reduction between 8% to 10% over 2008. But we have to remember that it will differ from different geographies. China will have a much less production reduction because we believe that they will like to maintain their GDP growth around 8%, which means at least they will maintain last year's volume or they will cut very small, maybe 1% or 2% or 3%.

If you look at the emerging economies, they will not have a major impact. They still may have between 5% to 6% impact, but the major impact which we are seeing is in America, which could revive faster -- US, which could revive earlier than other developed economies. And they may not have a major impact, if you look at the whole year. But we are more worried about Europe, where the economies are still slower.

So overall, we expect between 8% to 10% downturn, down in the volume over 2008. But emerging economies could have less impact, and the developed economies could have more. But at the same time, you have to remember that we are not including the stimulus impact in our demand predictions. We really do not know how soon and how forceful this impact will come on the real economy. Perhaps if we see that those movement could be faster, those packages could be executed, implemented quicker, the demand could revive faster.

For example, just as Adit said, that in January, Brazil capacity utilization is slightly better than December, which means that economies like Brazil may be impacted less. So we have to still continue to monitor the variable of these economies based on the execution of various stimulus packages. But overall, definitely between 9% to 10% will be our best forecast.

Luc Pez, Oddo Securities.

Two quick questions. One, if I mean, if you could elaborate a bit further on the potential [delayed] cancellation that could affect the project pipeline? And here I'm more concerned about the projects in Liberia and Senegal, and therefore the ramp-up of the vertical integration that you were seeking through the (inaudible) in [12 plants]. So if you could provide a bit of update there, that would be appreciated.

Secondly, with regards to dividend policy, you are suggesting in your press release that, once the debt burden is reduced, you would consider to review this policy. And my question is whether you would consider scrapping the buyback plans and moving to a pure cash dividend policy.

On the dividend policy -- whether you would scrap the buyback and keep -- move to a full cash dividend.

Clearly, all the vertical integration strategy of ArcelorMittal is still valid. But in view of this downturn in the market and in view of the global crisis, we are revisiting the speed of implementing these projects, which means that maybe there could be -- that would [vary] the slowdown in the implementation of the projects in Liberia and Senegal. And once we see the opportunity and once we see that things have started improving, we will accelerate those projects.

Our dividend policy, when we announced results in our Q3 third quarter results in November, we said that, time being, we were suspending our buyback program. And this year we felt that we should cut the dividend. At this time, our clear focus is on reducing our net debt, conserving more cash and to have a very strong -- a much more stronger balance sheet. We will continue to watch the situation, and we will review at the appropriate time. But for the time being, there is no change in what we have said so far.

[Efram Ravi], Morgan Stanley.

Just a couple of quick industry questions. Number one, you say there is a $75 per tonne cost advantage that you enjoy, which you allude to on page number eight. And how does that change with the lower raw material prices and lower freight rate environment that you are going to see going forward? Because I guess most of that advantage comes from your backward integration of business model compared to the rest of the industry and your peers that you illustrate there.

And, again, I guess the message you want to give is that $75 per tonne is -- is the floor EBITDA per tonne that you would make, come what may. But doesn't that change with the lower backward integration, benefits of backward integration that comes through?

The second question is effectively on what threshold EBITDA or net debt level would you feel comfortable going back to your previous floor dividend of $1.50 per share for the year? In the discussions yesterday at the Board, was there a debt level that was discussed as below which you would be going back? Thanks.

Most of our iron ore raw material supplies are coming from our captive mines, which means most of our mines are very close to consumption point. So this freight market does not really change our position. At the same time, we wish to maintain this $75 cash cost advantage over the competition. And we believe that we should be able to maintain the difference -- going down off the iron ore price, maybe this difference could come down by a couple of dollars. But basically, we believe we will continue to have the cost advantage over the competition.

Second, on the debt level, we have not discussed in the Board when we should review. So far, what we have discussed is today's scenario and we have announced our policy for 2009. But clearly, once we see the -- we will continue to evaluate our situation. And whenever we feel appropriate, we will comment to the Board, and the Board should consider when the time is right. But today, at this time, we have not discussed beyond that.

Michael Gambardella, JP Morgan.

A couple of questions. One, in the non-cash charge, the $4.4 billion charge, you mentioned a component of that is related to raw material supply contracts. Is that about $700 million?

Yes, that's right, $700 million.

And what is that related to, specifically, in terms of raw material supply contracts?

It primarily relates to high-priced coal contracts, and as we take those coal contracts and convert them into steel, when we look at the cost of steel, that's higher than the market price; and hence, we have taken the charge. It doesn't mean that this is a total amount. The total amount of higher-priced raw material contracts are probably in excess of $700 million. But this is the amount we can take as a write-off when we have lower cost of market or selling prices. So this eliminates all of our profit and gets to $700 million.

Is this like a termination of a contract, then?

No, it's not a termination of a contract, but it's the recognition that we're having existing raw material contracts which are going to come in 2009 which are higher than the market price. So it's almost like a purchase accounting provision that you take on owners' contracts.

So in the coal side, there has been some articles written that you have canceled contracts on coal. Would that fall under this provision?

Theoretically, yes. So, to the extent that there is a cost of cancellation, that would fall under this provision.

So, if you had contracts for raw materials that were fixed for the year at higher prices than spot, then you took those higher prices of raw materials into this charge, and then you -- in the P&L you booked the lower spot costs or the captive sources costs that are lower?

We do not take the contract price versus the spot price, as we cannot do that. What we have done is we have taken the contractual prices and converted them into finished goods and then looked at the price of inventory. And we realized that the prices is higher than the prevailing market prices as of December 31st. And hence, we have taken a charge of $700 million. There are certain charges within that which have to do with cancellations as well of these contracts.

Okay. And the last question. You mentioned the hedging gain in the fourth quarter of $349 million. Where was that on the P&L?

That's part of EBITDA, so it's cost of goods sold.

So that was in the EBITDA number, the gain? In the first quarter, the $1 billion EBITDA gain -- how much is the gain from the hedging that you're expecting there?

Well, we will find out when we report results. But our expectation is not a significant amount because it has to do with the amount of raw materials we pull under our purchasing contracts.

But you don't have a handle on that right now?

No, I do not.

Hermann Reith, BHF-Bank.

FCE indicated to establish a EUR500 per tonne hot-rolled coil price in Europe. Could you please tell us if you could realize that in the current state in the spot market?

And second question also relates to FCE. Michel, you said that the division faces pressure from Russian exports triggered by the devaluation of the ruble. How will you manage that threat? Because I think we can expect that there will not in the -- [soon] an appreciation of the ruble. So what is your -- as you are exposed with many plants around Russia, you will feel that threat from the (technical difficulty) there.

Okay. First of all, in terms of prices for hot-rolled coil in Europe, what I tried to explain before was that in Q4, we saw quite a big differentiation of realized hot-rolled coil prices, depending on where you were in Europe, starting first off different levels of demand. For example, in Spain, which is normally very open to imports, demand was extremely low because in Spain the economy is even worse.

Italy is also very often for -- submitted to import pressure on the one hand side, and then -- and there, the hot-rolled coil prices were much below the EUR500 you were mentioning and which I might have mentioned before. So there we are at EUR400 or below EUR400.

The same applies also in eastern Europe, in particular I was mentioning Romania, but also Poland, Hungary and so on. And there, the main consequence was that these markets were suffering from some of the imports. And imports were coming from eastern, from CIS countries and in particular from Russia. We see that, due to the devaluation of the ruble, there is some strong competition, I think. On the other hand, you have not to forget that Russia still underlies some import quotas in Europe so that over time this problem will be mitigated.

Now, prices around EUR500 had been negotiated more in the central core of the central -- on the Western European markets; that's mainly in France, Germany and Benelux countries. I would say there the situation is that prices were going closer to -- well, let's say, were around EUR500. Why now is there a possibility of differentiation? I think that it is particularly in these markets, where the customers are going most for high-end specialty or high-quality products and, hence, the base price for hot-rolled coil, up to which we add, then, some extras, it's the most important because their supply is much more restricted, let's say, to high-quality standards and to excellent service from the mills.

Johan Rode, Citigroup.

Can you explain to us the [combination] of the currencies of debt on your balance sheet and the impact of the currency translation on the debt reduction from Q3 from the $1.45 per euro to the $1.30? It seems like there's a big benefit from that movement.

And secondly, can you also talk about your views on the costs? You have talked about the prices moving back up to cash cost, but you have also talked about fixed costs being reduced in all your markets due to currency and exchange rate movements and anticipated raw material costs might move that cash cost lower. So where do you think cash costs will settle in these markets? It seems that there's not that much headroom for prices to bounce up to from these below-cost, cash costs levels.

Finally, you have talked about the CapEx reductions already. But your first-quarter CapEx guidance is for $650 million. It seems that you still have flexibility to reduce that CapEx, because that would imply an annualized number of $2.6 billion. Historically, you have said that you spend more of that CapEx in the fourth quarter, but it seems like you still have flexibility. Can you give us an absolute level of where that CapEx level could settle this year, where could you squeeze it to? Thank you.

Okay, in terms of the debt position, there's a $900 million balance sheet translation benefit due to the forex movement. Recognize that by the end of the quarter the rate was at 1.4, it was back up. So the impact was perhaps not that significant. What we have done in the first quarter, as the debt level moved to 1.3, was we have swapped a lot of our euro debt into dollars now at -- roughly at an average of 1.3, and we have swapped them into their maturity levels. So it's not just an open hedge on the euro/dollar. And we have done about EUR7 billion worth of that between the fourth and the first quarter. And as a result now, almost 70% of our debt, or I would say 75% of our debt is swapped back into dollars. And then the rest is primarily the commercial paper which is outstanding, which is in euros, which has not been swapped.

So out of the total reduction of $6 billion, $5.1 billion is cash reduction and $900 million is as a result of the forex movement, and the closing rate was 1.39. That has marginally improved as, now, we have swapped those debts from dollar to euro.

In terms of CapEx, I personally do not believe there is that much room. First quarter historically is the lowest quarter in terms of CapEx spend, just the way we are configured. And we do believe that our maintenance CapEx level for safety, environmental and making sure that we maintain our assets at world-class levels is $2.5 billion. So there's not much more room to reduce. The growth CapEx that we have, some of it is contractual commitments, and most of it is still having high IRR. So we can intend to complete that as well.

Just on the industry cash costs, and then perhaps also just to finally talk about the growth CapEx, previously you delayed the growth CapEx by one year. Do you stick to this guidance? Some of your subsidiaries in South Africa reported that they have reviewed it, but they haven't given us details of exactly how long it will take before they restart those growth CapEx.

In terms of growth CapEx, right now we have delayed all growth CapEx and we have made sure that we do not have any commitments to restart in 2010. So when we say we are delayed, we have also renegotiated most of our commitments so there is no obligation. So clearly, we would begin to restart this CapEx once we believe the market has improved and it's the best source of our capital.

In terms of our cost of production and the benefit of foreign exchange, I think you have a good sense of where we are operating and what has happened to the rates. I have a global fixed cost number, which I hesitate to give out because I think it can be a very misleading number as there are other costs which also increased.

In terms of the overall cost advantage that we have, you heard the comments earlier. We clearly have the benefit of our vertical integration strategy which remains, as well as the merger synergies and the advantage of having low-cost assets, which is being further augmented by the cost savings that we plan in 2009.

Clearly, the curve that we used to see has flattened because the high-cost facilities, the freight rates, have come down and their cost of acquisition of raw materials has come down, so the curve has flattened. But I do believe that we stand in good position relative to the curve.

Jeff Largey, JP Morgan.

Good afternoon, just a couple of quick questions. The first is, in AM3S, I was curious if you could give us a sense of where absolute inventories or stocks stood in that division, say, at the end of the third quarter, the end of the fourth quarter and where they stand now.

And then, second, I'm sure the improvements in the balance sheet have probably alleviated a lot of the concern about covenants. But just out of curiosity, how do the banks define the EBITDA component of your financial covenant? For instance, how do they treat impairments and inventory write-downs? Thank you.

Should I just begin with the covenant? We have a definition of EBITDA over net debt. Clearly, impairments are excluded, and so are extraordinary items. We believe exceptional is equivalent to extraordinary, because in IFRS extraordinary doesn't exist. And, on that basis, we have been providing certificates to our bank group.

I am looking at the points in terms of -- so what we have today in AM3S, our inventory at the end of Q3 was approximately 2 million tonnes, and this went down by approximately one-third, I would say, in Q4. What we can see today is in terms of shipments, the question is that in terms of shipments we see today a reduction versus normal shipments of around 20%, and we chose in our view also the drop in real consumption we see in -- from our end customers. So I think that's right. So we went down -- I have now the exact figure; we went down from 3 million tonnes to 2 million tonnes, so one-third yes.

Sorry; it was 3 million tonnes at the end of the third quarter, down to -- and what?

And 2 million tonnes at the end of the fourth quarter.

Thank you. Ladies and gentlemen, that was our final question today, so I will now hand you back to your host, Mr. Lakshmi Mittal, to conclude today's conference call.

Thank you very much. Thank you for participating in this fourth quarter call and looking forward to talk to again in the future. Thank you. Have good day.