ArcelorMittal SA (MT) 2011 Q4 法說會逐字稿

Good afternoon, everybody, and welcome to ArcelorMittal's fourth quarter and full year results for 2011.

Just a couple of housekeeping items. We will be taking questions at the end of Mr. Mittal and Aditya's presentations, but those will be limited to two questions per analyst or investor. And, if you would like to ask a question, please, do press, star, one on your telephone.

And so, with that, I would like to hand over to our Chairman and CEO, Mr. Lakshmi Mittal.

Good day to everyone, and welcome to the ArcelorMittal fourth quarter 2011 results call. I'm joined on this call today by my full Group management board.

Before I begin the presentation, I would like to take -- make a few introductory remarks. As you know, Europe moved to recession, and the impact on steel demand was exacerbated by significant destocking in the final quarter of 2011. China's steel consumption also dropped significantly, impacting on raw material prices. So, to have achieved the EBITDA guidance that we set back in June is a commendable performance. I believe this reflects the diversification of our business and its core strength.

Secondly, the ability of this business to generate cash is evident. If we exclude the effects of working capital, then, during 2011, continuing operations generated $5.8 billion in cash.

While I'm not satisfied by the level of profitability in fourth quarter, I'm pleased that we have been able to reduce net debt through a focus on working capital and the divestment of our stake in MacArthur. This is consistent with our objective to retain our investment-grade credit rating.

Thirdly, I want to make the point that the picture today is clearly better than it was when we reported our third quarter results back November. Many leading indicators have rebounded, and crude steel sentiment in Europe has improved. Our iron ore prices have recovered somewhat, and the steel prices have moved higher, led by the recovery in the US.

So, overall, while risks certainly remain and the situation in Europe is a light concern, I'm confident that ArcelorMittal will make progress on its objectives in 2012.

Moving to the agenda, on slide number 2, I will begin today's presentation with a brief overview of our results for the fourth quarter 2011. I will then spend time on the outlook for our markets before I hand over to Aditya to go through the results and our guidance in more detail.

Now I'm on slide 3, starting with safety. I'm pleased to report that our health and safety performance improved for the fifth year in a row. Early in the year, I brought my top management together for a safety summit to share ideas and best practice and reinforce our objective of becoming the safest mining and steel company. I'm pleased to see that this had a clear impact in 2011. Our lost time injury frequency rate decreased to 1.4 from 1.8 the previous year. In the final quarter, the rate was 1.2, which tells me we are on track for our 2013 target of below 1. I want to assure investors that ArcelorMittal's journey to zero harm remains the ultimate goal -- that safety is the number-one priority of the Group.

Turning to fourth quarter 2011 performance, shown on slide number 4, despite the challenging fourth quarter, we posted a solid result for the 12 months ended 2011. EBITDA of $10.1 billion for 2011 was 19% higher than the previous year, despite shipments being essentially the same. In large part, the improvement was driven by our mining segment. During 2011, the mining business achieved its targets of a 20% increase in coal output and a 10% increase in iron ore output. The fourth quarter performance showed the progress we have made, with iron ore production up 20% year on year and shipments at market price up 27%.

In fourth quarter, we reported a net loss, but this is due to noncash effects that Aditya will go through later. Stripping these noncash effects out, the net income in the fourth quarter would have positive. Similarly, stripping out these noncash effects, the net income for the full year 2011 would have been $3.2 billion rather than the $2.3 billion that we reported.

Fourth quarter was positive from a cash flow standpoint. We generated operating cash flow of $2.9 billion. We also completed the MacArthur divestment earlier than expected. So, instead of the expected cash out, we actually received a net $800 million cash in from MacArthur.

So I'm pleased to see a reduction in our net debt, which ended the year at $22.5 billion. Net debt reduction is a priority of the Group, and we expect to achieve this in 2012 through EBITDA generation, a continued focus on working capital management, and the potential divestment of noncore assets.

Moving to guidance, we are now providing guidance on a six-month basis. We expect first half 2012 EBITDA likely to be lower than first half 2011 but higher than second half 2011 was.

On slide 5, capital expenditure increased to $4.8 billion in 2011 as compared to $3.3 billion in 2010. This was below the initially planned $5 billion to $5.5 billion target levels. Back in third quarter, we suspended all steel growth projects in light of the uncertainty of the (inaudible) situation and its potential impact on global demand.

We did, however, continue to fund our mining group CapEx. We are making progress on our plan to take iron ore production from all of our mines from 54 million tonnes in 2011 up to 84 million in 2015. In fourth quarter, we completed phase one of our Liberia iron ore project. We are now running a targeted 4-million-tonne [average]. The team is also progressing well with the investments at our existing mining operations in Canada. There, we are on track to increase production from current 16 million tonnes annual rate to 24 million tonnes in 2013.

Now I will talk about the market outlook, and I am on slide 7. Looking at 2011 as a whole, global apparent steel consumption increased by 6.3%, driven by a 7.7% increase in China, a 9.7% increase in US, and 6.1% increase in Europe. However, this marks a particularly challenging period for the steel industry during the fourth quarter, when global apparent demand fell by 5.2% from the third quarter level. China apparent demand saw the most significant decline in the fourth quarter, dropping by 10.2%. The economy de-accelerated. In the US, apparent steel consumption decreased by 4.2% in fourth quarter versus third quarter. This is a normal, seasonal effect, as underlying demand remained robust. In Europe, we would normally expect a seasonal rebound in fourth quarter. But economic uncertainties prompted significant destocking, and apparent demand decreased by 3.4% compared with the third quarter level.

On slide 8, you can see the chart showing global leading indicators. In terms of sentiment, we have come a long way since the October/November period of last year. Global leading indicators have picked up recently, particularly in the US, but, also, they have recovered in Europe. 12 of the 16 key manufacturing PMI indexes released globally last week show that improvement in January over December. Improvements included in US, euro zone, China, Brazil, Russia, and India.

So, rather than a picture of a global slowdown, we can now be more positive. In the US, demand is strong and is being supported by the energy and water demand. In January, there were 14.2 million light vehicle sales on an annualized basis in the US, the highest since May 2008. In Europe, the outlook is for a recession rather than the crisis which many feared at points during the second half of last year. While there are still clear risks, I am hopeful that Europe will climb out of a mild recession during the second quarter.

On slide 9, moving to construction, it goes without saying that, in the western world, the steel industry has been suppressed by a very weak construction market for the past three years. Given that construction demand represents 1 tonne of steel consumption in the developed world, this has been a significant constraint on our steel capacity utilization rates. It has meant that our volumes remain some 20% below pre-crisis levels, and this has had our margins down.

The good news is that, in Europe, things are not getting any worse, while, in the US, there are initial signs for some optimism. The PMI has been above 50 now for two months. Normally, it's a six- to nine-month lag to nonresidential construction. Even residential construction is showing a more positive outlook, based on the improving permit data in recent months. This is less steel-intensive construction than nonresidential but is a positive sign nonetheless. We have said all along that some sort of recovery in construction was the missing link to get utilization rates back to where they need to be to consistently support the levels of (inaudible) profitability we expect on a normalized basis.

Coming to slide 10 on China, we do expect a soft landing in China, with GDP growth this year of about 8% and steel demand growth of about 5%. In China in December, the steel output was 52.2 million tonnes, compared to the average of the year 56.9 million tonnes and peak in June of 60 million tonnes. (Inaudible) China steel consumption in 2012 to be flat versus 2011, and production will still need to increase rapidly from the current levels. We expect this to happen during the second quarter of this year.

An increase in China's steel production will clearly support better steel margins than the very thin levels today in China. Increased production could also put some upward pressure on raw material prices to the benefit of our mining segment.

Net exports have been a positive indicator in this period of weaker domestic demand. Given weaker domestic demand, some commentators would have expected a flood of exports to maintain utilization rate. But production has been disciplined, and net exports have not increased, nor have there been any government support measures put in place like (inaudible). I take this positively.

On slide 11, we show a global inventory situation. I think stock levels were an issue as we went through third quarter. Fourth quarter was a period of significant destocking, most pronounced in Europe. Global inventory levels are now at more favorable levels, perhaps with the exception of Brazil. But, in Brazil, economic momentum is recovering after a very weak second half 2011, so the inventory overhang should continue to be worked down as seasonal demand picks up in first half 2012.

So to summarize our outlook for 2012, in slide 12, our base case assumes a technical recession in Europe but low GDP growth as well. Under these scenarios, apparent steel demand in Europe declines slightly next year but grows in all other regions. Globally, we estimate that 2012 apparent steel consumption would grow between 4.5% to 5% in 2012, with China still growing about 5%, NAFTA about 5.5%, and the rest of the world 5.7%. The risk to this outlook is if Europe moves in a crisis-type environment, driving GDP down year over year. Under this scenario, we could still see low, double-digit decline in European apparent steel consumption and knock-on impact on the US and other important markets.

I would like to finish this section with slide 13 and prices. US prices have rebounded from the unjustifiably low levels in November. Prices are now approximately $750 short term, compared to around $600 to $620 in middle of fourth quarter. These levels are well supported, both by demand and cost parameters. Scrap prices moved higher in December and January. Since then, [unseasonally] warm weather has relieved pressure on scrap supply and demand. So, as a result, I think it's fair to say that there is some downside risk to (inaudible) cost support for (inaudible) prices. However, I do not see this a significant risk.

Destocking in Europe has kept prices down, but, since the new year, prices have increased by around EUR50 per tonne. Prices could move higher, as there is still no domestic premium on import parity, and the gap to US price is over $100 per tonne. I expect this gap to narrow as we move through the first half of the year.

Chinese prices have been lagging, but there are suggestions that, in the short time, most of the Chinese (inaudible) prices will rebound. This could provide support to the US and, more importantly, to Europe, which is a more important, sensitive [resource].

So, on this note, I'll hand it over the call to Aditya, who will discuss the financial results and guidance in more detail.

Beginning with slide 15, here you can see the bridge to explain the decrease in EBITDA from $2.4 billion in the third quarter to $1.7 billion in the fourth quarter. The primary impact is the price/cost squeeze of $673 million as a result of higher raw material costs along with a 6.2% decrease in steel prices. EBITDA also fell as a result of changes in volume and mix, reflecting the lower shipment volumes, down 2.5%, which is the opposite of the normal trend in our business compared to the third quarter. The adjustments of others relates primarily to $93 million sale of CO2 income, together with $34 million income due to differences in DDH, dynamic delta hedging, between Q3 and Q4. These two positives were offset by a FX loss of $40 million.

Moving to slide 16, we will focus on the chart in the upper half of the slide, which shows Q4 results, but comparative figures are there for the previous quarter in the lower half. I will point out the key differences below the EBITDA line. Impairment charges for the fourth quarter totaled $228 million, including $151 million for the Madrid electric arc furnace facility. This was a long product facility producing sections; namely, capacity is 880,000 tonnes relating to the flat carbon European business, since this is primarily finishing lines. One of the lines is half finished, so it's a brand-new line. No work is associated with it, but we do not see the market coming back for that product.

During the quarter, we also booked restructuring charges, which totaled $219 million, due to the implementation of the asset optimization plan. These charges mainly impacted flat and long carbon Europe and our distribution segment. This relates primarily to social costs of employee separation in jurisdictions like Spain and the Czech Republic.

The other key difference this quarter was the tax expense line. As you know, we recorded income tax expense of $833 million for the fourth quarter. This expense includes a $929 million deferred tax expense, largely relating to Luxembourg, Belgian tax law change, and timing limitations in Spain. As a result, our effective tax rate for 2011 was 33%. However, removing the one-time items in terms of Belgian and Spanish effects, the adjusted ETR would have been 19%. Therefore, I expect our medium-term tax guidance to remain at 15% to 20%.

Lastly, if we strip out the impairment and restructuring charges, which are all noncash, then our net result would have been positive for the quarter, approximately $376 million and for the full year would have been $3.2 billion.

Turning to slide 17 and the waterfall taking us from EBITDA to free cash flow, cash flow provided by operating activities for the fourth quarter included a $1.8-billion release of operating working capital. Rotation days decreased to 67 days during the fourth quarter compared to 73 days in the third quarter, primarily a reduction of inventories. The average rotation days for 2011 was 69 days. While CapEx for fourth quarter was still high, at $1.5 billion, free cash flow for the quarter was $1.4 billion.

If we turn to the next slide, on page 18, we can show how this free cash flow impacted our movement in terms of net debt. Here we can see net debt at September 30 of $24.9 billion, free cash flow of $1.4 billion, and a net M&A inflow of $830 million, which included the proceeds from the sale of our stake in MacArthur and the sale of our 12% stake in Baosteel in the Arcelor metal automotive joint venture. There was also a positive $332 million due to the depreciation of the euro, which (inaudible) good in the quarter. As a result of these factors, our net debt decreased by $2.4 billion to $22.5 billion. As you know, we have achieved this target six months ahead of schedule, as, originally when we outlined our plan in September, our net debt target of $22.5 billion was for middle of 2012.

Let me now finish my presentation by discussing our guidance, which is on slide 20. The main message in terms of guidance is that our EBITDA in the first six months of 2012 is expected to be lower than the first half of 2011 but above the level achieved in the second half of 2011.

We also expect steel shipments in the first half of 2012 to be at a similar level to the first half of 2011. And mining production is expected to be higher than the first half of 2011, in line with plans to increase full year 2012 iron ore and coal production by approximately 10%. However, mining profitability is expected to be lower due to lower average selling prices, assuming flat prices from today's level, as incremental tonnes do not add the same margin characteristics.

In terms of CapEx, we continue to focus on core growth CapEx, primarily in mining, with postponement of all steel growth CapEx, as we heard earlier. And, as a result, we expect that 2012 CapEx will be between $4 billion to $4.5 billion.

Lastly, further reduction in net debt through the year is anticipated due to working capital management and noncore asset divestments. This is also consistent with our stated objective to retain our investment-grade credit rating.

With that, we're now ready to take your questions. Thank you.

Thanks, Aditya, and thanks, Mr. Mittal. Can I remind everybody to press star, one on your telephone keypad if you'd like to ask a question? But we will start with our first question that will come from Mike Shillaker at Credit Suisse.

Three questions, if I may. Question number one. On the guidance, obviously it's a change of guidance. That's fine in terms of the way you do it. Can you just give us a little bit more in terms of run rates Q1 versus Q2? And I understand you may be reluctant to do that. But, when I look at the last two years, Q2 has been around a billion higher than the first quarter. Given what we know about rising prices, the run rate of raw materials, and volumes seasonally stronger in Q2, is there any reason to believe that this year on a run rate basis would be different; i.e., Q2 wouldn't be a billion higher than the first quarter?

The second question is -- you very correctly over the last two years forecast a stronger seasonal H1 and a weaker H2. There's always seasonality in that. But I think H2 has been worse than seasonal the last couple of years. Is there anything to make you believe that your numbers are going to deviate from that trend in the coming year?

And my third question, just on the balance sheet. Can you give us a little bit more detail on remedial actions in terms of (a) the magnitude of net working capital reduction you're likely to take down and (b) the sort of quantity that you have in terms of asset sales in mind? Thanks very much.

In terms of our guidance, I think the idea of the guidance is (technical difficulties) discussed with everyone in the past, of providing half yearly guidance. We did that after our second quarter results in 2011. And I think that was quite successful, considering the destock that occurred in Europe in Q4.

The basis of the guidance is quite simple. What we're seeing in terms of the steel market, both in terms of volumes and prices, is better than what we saw in the second half of 2011, and, hence, we think we will do better than the second half of 2011. What we are not seeing compared to the first half of 2011 is the same level of prices in iron ore. Recognize that iron ore prices are almost $3 lower in terms of where we were in the first half of 2011 compared to where we are in the first half of 2012. And so that's basically the basis of the guidance; i.e., we should do better than the second half of 2011 but not as good as what we achieved in the first half 2011.

I do not really want to get drawn onto a quarterly comparison. I think we should focus on a half yearly basis to evaluate because we do have a lot of volatility on a quarterly basis. But, if you strip that out, you see that half yearly results are a bit more stable.

In terms of seasonality, you're right. 2010 and 2011 we have seen second half results are lower than the first half. In 2009, however, second half was stronger than the first half, the key difference being that, in 2009, clearly, there was a stronger recovery underway. And the same level of recovery was not witnessed either in 2010 or 2011. So, to that extent, it depends a lot on what happens to the underlying macro situation and the strength of the recovery. So, clearly, if there is a strong recovery in all markets, then there's a potential for the second half to be stronger than the first half.

In terms of the balance sheet, as I mentioned earlier, we did reduce our working capital days to 67 days. However, we have room there. That is not necessarily what we believe is the best we have achieved in the past; nor is it the best that we can achieve. So that should have some positive impact. Secondly, there's positive impact on price because, if you see, raw material prices are slightly lower, and that should feed through the system. And there should be a price-related release in working capital. So those will be the positives on working capital in 2012.

In terms of our asset disposals, we have not outlined a number. What we have said in the past and remains true today is that we have significant assets which are not in the EBITDA line; for example, in Q4, we had equity income of $177 million. The majority of these assets are core to our business. But there is a significant minority which is not core, and we would look to optimize our portfolio to further drive down net debt reduction. As you saw in the fourth quarter, we reduced our net debt, and we had $1 billion worth of asset disposals.

Having hit your guidance or your target for Q2 net debt already, have you actually officially or unofficially -- that you're prepared to give us a revised debt target for the year?

At this point in time, Michael, we are just saying that we're focused on retaining our investment-grade rating. And we have asset optimization plans, management gains, as well as working capital and asset divestments as leverage to achieve that.

Okay. All right. Thank you.

The next question we'll take is from Alessandro at J.P. Morgan.

Most of my questions have been already answered. But just as a follow-up, on the guidance of [$4.16] billion (inaudible), basically, a most optimistic view, it's a significant swing. Can you give us a little bit more color on the division where most of the potential upside for the implied $4.1 billion EBITDA trough may come from if, let's say, the most optimistic scenario will be materializing for H1 2012?

And the second one is just related to your H1 2012 (inaudible) industries -- if there is still a stake that needs to be renegotiated when, now, prices in Europe are getting better. Thank you.

I missed the second part of your question. Maybe Daniel caught it.

Sorry. I missed the second part as well.

Okay. I will repeat. Referring to H1 2012 contests with the automotive and white good industries, some of your peers have been holding back some material that is going to be negotiated under new contests now when the pride is basically picking up in Europe. What is your situation related to the H1 2012 contests in terms of volume and prices with the automotive and white good industries, if there is something that still has to be negotiated? Thank you.

Sure. In terms of the European automotive landscape, most contracts for the first half have been done already. And they're satisfactory as far as we are concerned, both from a volume and price perspective.

In terms of guidance, I think I said earlier when Michael asked the question on the basis of our guidance -- and, unless you have a specific question on a division, I'm not able to provide you with a perspective on what the upside and the downside may be. Clearly, the main drivers of our business remain global sentiment on steel and global prices on iron ore and coal.

Okay. Thank you, Aditya.

Okay. The next question we'll take is from Vincent at Barclays Capital.

I had a couple of questions, please, on the mining division. It does look like that, in Q4, COGS per tonne increased quite a bit, and I suspect some of that is due to the ramp-up of operations in Liberia. So I was wondering if you could confirm for us and, if that's the case, if you could sort of give us a sense of what cost inflation was in Q4 versus Q3 on a like-for-like basis.

Also, again, still in the mining division, you indicated that the incremental tonnage that you have in the coming year will have a lower profitability than the one you had recently on average. Could you sort of give us a more precise guidance as to how much lower that could be on these incremental tonnages?

And then lastly, if I can, on, again, auto contract or steel contracts with the OEMs, now that you've got this change in the iron ore price formula, how are you going to make sure that you don't have a mismatch between, again, the iron ore costs and the six-month contract with OEMs?

Sure. On the profitability of mining from the fourth quarter relative to the third quarter, profitability actually dropped a little bit from the (technical difficulties). It was mostly -- primarily price related. Shipment volumes increased substantially in the fourth quarter, but they were offset by pricing. So we had marginal drop in profitability in the fourth quarter. There was -- third and fourth quarter were pretty similar on the call side.

Would you mind repeating what your second question for me was, please?

Yes. Actually, can I just follow up on the first part, because, if -- I obviously realize that the average price in Q4 was lower than in Q3 in mining. But, if you just take the sales as you reported and you do sales minus EBITDA, which would give you your COGS in the division, and you divide that by the volumes, it did seem to me that this had gone up quite a bit in Q4 versus Q3 on a per tonne basis. And so that was my question. Again, am I mistaken? But it's a fairly simple calculation. And so what could have driven that increase in COGS per tonne?

The second question was just on the profitability on the incremental volumes that you expect this year. I think Aditya said that its profitability would come down. So I was just wondering if you could give us a more precise sense of how much lower that could be.

The pricing mechanism changed in the fourth quarter because, until third quarter, there was a lag system. In the fourth quarter, it becomes the spot average of the current quarter, which (inaudible) has driven these utilization down. That is why our sales price in the fourth quarter is lower. And it, post, has not really changed much. It is the sales price which has come down. If we take out sales price minus costs, then you see the lower EBIT. That is, I think -- is this your question?

Yes. That's okay. I'll follow up with Daniel afterwards because it just -- Yes. I think there's a cost thing. But I'll follow up, again, afterwards.

Vincent, I can just give you very quick numbers. Clearly, the two biggest drivers are reduction in price which is greater than the volume increase. We had some cost increases, as well, in Q4 in iron ore division. Primarily, they were in the Ukraine. And maybe Peter can get back on the cost inflation. I don't have a number on the cost inflation.

In terms of lower profitability, that has to do with the fact that, as we increase our shipments from places like Liberia, (inaudible), or even Ukraine, the margin per tonne is lower than the margin per tonne we have in Canada, the reasons being, first of all, the (inaudible) shipped out of Liberia is at 59% (technical difficulties) discount. The logistics are not as efficient as what we have in Canada, which is a capsize port. In Liberia, it's a panamax port. And so those are the cost and price limitations. And so, when we see the incremental volume come through in the first half, the profitability will be less than what we have had historically from some of our market price tonnes. So those are the main drivers of the mining business.

In terms of your question on automotive, you're right. There is an index -- contract index does not apply to all contracts. Increasingly, what we're finding is the automotive producers prefer to do just straight half-year deals on a fixed-price basis. They also -- and so there is a portion of contracts which remain on the index, but there's also a significant portion of contracts which are just straight prices for the first half.

So, on those that are on fixed price for the entire half, how are you going to make sure that you don't get too much volatility from one quarter to the next, given you don't have that six-month visibility now on iron ore costs.

We have never announced that we've moved all of our contracts to the spot basis. So, we have a portion of our iron ore contract business which remains on lag.

Okay. Thank you.

Great. We'll take the next question from Alex at Cheuvreux.

I have two questions; first of all, on the asset optimization program. I think, in September, you indicated some saving of $400 million. Can you give us more insight? Is it more second half loaded, or can we expect already first gains in the second quarter?

And the other question is on flat carbon Americas and South America. Can you provide us more details when we can really expect that volumes, as well as profits, will come back? Is it more a fact of the second quarter or the second half already? Thank you.

In terms of the asset optimization program, the benefits are second half loaded, and, more so, the run rate exiting 2012 should be $1 billion. Once you announce an intention to close an asset, the social dialogue can take six to nine months to achieve. And, after that social dialogue is closed, you have actually succeeded. And so the process is time consuming. We are making progress, as you can see. We have announced our intention to close the primary of Liege, and we have also extend the idle (inaudible). We have extended idling of our long facilities in Spain. So that reflects the progress we're making on the AOP. But the savings are more run rate in 2012.

On the question of Brazil, as I understood it, the question was when we can expect kind of full volumes at those facilities. Basically, we've been running since the first half of 2009 with two of our three blast furnaces there. The one that has been idled is the smallest of the three, and it represents about 20% of the total capacity. That's a business that, at full operation, exports about 40% of its output either in terms of bands or, primarily, in terms of slabs. And, frankly, that has not been a very attractive business since that time. So we've had the ability to operate those facilities. We have not seen a sustained recovery to operate the third blast furnace. We've not seen a sustained recovery to say the economics support it. But we're prepared to bring that back at any point when those conditions are met.

Another wrinkle on that situation this year is that we are undertaking a reline of the number-one furnace, which is the largest one at the site. That furnace, I think, has had a record campaign life, 28 years by the time we've brought it down. And that will come down, be idled. In April, we'll begin a three-month reline for that. At that point, we'll bring the number-two furnace, so the smaller one -- the smallest one back. And I think we have the option -- if the market does support the exports on an economic basis, then we could run that -- run all three blast furnaces when the number-one furnace is repaired. But, you know, this is a business, particularly the slab export business, that runs quarter to quarter. And it's really very difficult to say when we would bring that back. We've been trying to manage our fixed costs in that environment to be able to operate profitably at the lower level. But, again, we're prepared to bring it back when the market situation supports it.

Okay. Thank you. (Inaudible) one, quick, follow-up question on (inaudible) in Europe. I mean, in the fourth quarter, basically, you made a zero on EBITDA level or slightly negative. I mean, we know we have seen the price/cost squeeze, as well as material destocking by the end of the quarter. Do you think this should be done in one quarter, meaning that we can see slight improvements in the first quarter already? Or is it more second quarter related, then, when we get the full benefits from higher prices? Or is there anything which has structurally changed in the market here?

I don't want to get too specific on quarterly comparisons on pricing at this point in time. What I can say is that we reached the low point in November/December in the European steel sector. Since then, we have seen a rebound both in shipments and in prices. As you know, a significant portion of our business in Europe is done on a quarterly basis, particularly so because we have an elongated -- we have a significant exposure to contract business, as well as, in the northern European market, is primarily a quarterly market. And so any changes down or up in price have a time lag associated with it.

Excellent. Many thanks.

Good. We'll take the next question from Bastian at Deutsche Bank.

Two quick questions. Firstly, just to come back quickly on working capital, do I understand correctly that the working capital reduction delivered in Q4 is actually sustainable in Q1 and Q2, and we actually do see scope to lower that even further, which probably would mean that your free cash flow underlying, ex any disposal of noncore investments, will remain positive?

And then, secondly, could you, please, provide a quick update on the timeline for (inaudible) and maybe also confirm that the budget will remain in line with the level you mentioned on the capital markets day?

Maybe, also, if you would have to decide between the further expansion of QCM (inaudible), which of the two projects would you actually go for? Thank you.

In terms of working capital, our expectation is that that's a sustainable number into the first half. And the focus internally is to optimize further, which means that, through the year, we should do an improvement on the days we recorded in the fourth quarter. And so that's on the working capital.

On (inaudible), we remain on track to complete our review of the feasibility study by the end of April. The study itself is complete, but we're looking at a number of optimizations on that. And, once that's complete at the end of April, then, of course, we'd make a decision on what the next steps would be and on the implementation program.

You asked about whether we would -- how we would consider (inaudible) versus further expansion of QCM. Look, we're committed to the current program at Mine Canada, and we're equally committed to developing (inaudible) in an appropriate timeframe. I think they are two very, very different projects and two very, very different products. So the question that has to be evaluated is the market mix or the product mix and the markets. That is something that we would examine once we have the results in on our review of (inaudible) and once we have improved numbers on QCM's further expansion. But, at this point, it's very difficult to say that we would choose one above the other. They're very, very different projects.

Thank you. Just to follow up on (inaudible), the first indication is it's more turning towards a 12-month operation for (inaudible). Or is it lower than that? Thank you.

I'm sorry. I didn't (technical difficulties).

I understand that, I guess, a big question mark also for the CapEx budget was to whether the whole (inaudible) project has been planned on a 12-month operational basis or whether you basically skip part of the winter months.

We're busy assessing the complete feasibility study. And the decision will be made once we've looked at all of those options.

Okay. Perfect. Thank you.

Okay. We'll take the next question from Nate Carruthers at Steel Market Intelligence.

I was wondering if you guys could explain the meaningful entries in income from equity investments during the quarter. And, then, have you given any further thought about including any of that income in your EBITDA calculations?

The main change that has occurred in our equity income has to do with the fact that, in the third quarter, we took an impairment charge on the sale of our MacArthur stake. That was noncash because, from a cash basis, (technical difficulties) cash neutral. And so, therefore, you see the dramatic shift from the third to the fourth quarter.

At this point in time, the main area of focus for our equity method investments remain to optimize our portfolio. So we are focused on optimizing that portfolio and assets which we don't think are core to our strategy. We're looking for disposals. So, at this point in time, there is no plan to make it part of EBITDA in 2012.

Okay. Now, I mean, even stripping out the MacArthur, the sequential improvement was, I think, still $52 million. Do you have any explanations for that driver? What drove that?

Yes. I think the main change came from our operations in China in Hunan Valin, which had the most -- the loss became positive, and it was circa the amount you're suggesting; i.e., $50 million change. And they had some sales that they did. They did some land and asset disposals on which they collected some gains in cash. And that flipped their net loss into a net income from Q3 to Q4.

Thank you very much.

Okay. The next question we'll take is from Cedar at Bank of America Merrill Lynch.

Most of my questions have been answered. I've just got one short follow-up on that asset optimization plan. Can you disclose the total capacity that you've now taken out with regards to Liege and your Spanish models?

And then, also, if we look at where we are in terms of utilization rates now sort of low 70s and we look at the sort of growth in global steel demand that you've painted in your presentation, are we looking at significantly more tonnes coming out of Europe in order to get to an 85% utilization rate at the end of 2013? And is that realistic, considering the pushback that obviously comes from unions? Thank you.

At this point in time, we have not outlined what exactly is our (inaudible) utilization, frankly, to focus on shipment changes within our (inaudible). And we are, as you know, optimizing our footprint. Liege has a capacity base of 2.6 million. It's a flat facility which has been -- for which we've announced an intention to close. And, if you look at our long products facility in Spain, which is (inaudible), as I mentioned earlier, it has a (inaudible) capacity of 80,000 tonnes. Clearly, as we go through the asset optimization program, we should improve our capacity utilization. And, as the markets improve in 2012 compared to where they were in the fourth quarter in 2011, we should see us operating more facilities at a higher operating rate than we were in the past, which, at the end of the day, translates into the cost savings which I've identified in our asset optimization program of $1 billion run rate.

Okay. And then just one follow-up on that. So, is it fair to say that you don't have a stated utilization target or, rather, that you have not disclosed that to the market?

I think we have a clear plan. So we can predict where the asset utilization numbers are. But I think, at this point in time, we are guiding the market to focus on our shipment data and shipment changes.

Okay. Thank you.

Okay. The next question we'll take is from Rochus at Kepler.

Maybe just a few brief follow-ups on the mining side to get a better understanding of the erosion of EBITDA profits in the mining side. Could you give us a sense on what was the proportion of zero lag contracts or the ones on the average quarterly price in the fourth quarter? How much was that portion, and how much will it be now in the first quarter? And can you give a figure for iron ore and coal as well?

Could you also give us a bit of a better sense on the EBITDA per tonne in the iron ore and coal business in the fourth quarter?

Regarding the shipment guidance you've given, is it possible to provide us with any sense on the utilization rate of (inaudible) steel production in the first quarter? Would this figure still point to some inventory you are taking out of the channels, or would the crude production be at least in line with your increase in shipments on a quarter-to-quarter basis?

And, maybe finally, just more of a generic question. When I look at the raw material prices at the moment, it appears that, obviously, scrap is on a relatively higher basis compared to iron ore and coal. And I guess Lakshmi mentioned that this might be partially weather related. Do you have any sense on where the scrap price should end up relative to the other two materials over the next couple of months or whether that can stay at this elevated level? Thanks.

Maybe I'll just start on the mining side. I think you have very good and very detailed questions. But there is a mining (inaudible) that Daniel is organizing end of the month, I understand, and I think that will be a great place to get very specific on all of these factors and all of these trends.

But the main headline information is that a portion of our ore contracts have moved from lag to spot but not all. And the same is true for our internal mining business. So a portion of our mining business has moved from spot to -- from contract -- from lag to spot but not all. And therefore, in Q1, we will see the full impact in the mining business of the spot change that has occurred.

In terms of raw material pricing, we saw a low level of iron ore pricing in the fourth quarter of last year (inaudible) that was due to the global economical -- global is really negative, and the Chinese productions were also very low. Now we see that, looking at the (inaudible) to production for this year, we project 4.5% growth, and we see that demand is still strong. And we believe that these prices should range between $140 to $150 during the course of this year.

On the scrap prices, we have seen some softening due to two reasons. One is due to weather related. It has (inaudible). And the second reason is due to exports to Europe have come down from (inaudible). So there are an extra couple of (inaudible), which force the scrap prices to go down. We also see some scrap prices down in euro. But we believe that these (inaudible) back up and should improve as we go forward in the economy and as we see the much better indicating numbers in terms of demand and (inaudible).

And maybe on the final question I had regarding the spread between iron ore and coal and the utilization rate in the first quarter?

In terms of scrap or -- ?

No. The utilization -- I was asking about -- based on your first half guidance, can you give us any sense on the crude steel utilization?

-- whether we are producing or selling from inventory. Right?

Yes. Exactly.

Exactly. I think it's a mixed picture globally. But, in the European sector, I can comment on SCE. I think we would be selling slightly more than what we would produce for the first time, and this is in line with the fact that we want to -- we are reducing working capital compared to where we were in Q4. And, as we achieve that in the first half, inventories will come down, so level of production is expected to be similar or slightly lower than what we end up selling.

So what you're saying is there is this inventory drawdown that's more focused on Europe that -- all other divisions will be rather neutral on inventory.

No. I think we have similar effects in some other divisions, which is why the overall inventory is coming down. But I think it's more pronounced in North America and in Europe.

Okay. Fair enough.

The seasonal effect on iron ore (inaudible) in North America. But, just with the location of the plants and the closing of the transportation (inaudible) both.

Yes.

Okay. We'll take the next question from Kevin Cohen from Imperial Capital.

Just a couple of housekeeping items. I guess, in terms of any potential cash restructuring outlays as it relates to the ambitious cost-savings programs, what should we be expecting in 2012?

That's a very good question. In terms of cash outlays, the cash outlays are not significant, the reason being is, when we estimate the costs, there are various components of the costs. Right? There are impairment charges. We have restructuring charges which are social. We have take-or-pay contracts, as well as clean-up costs on the land associated with these facilities. If you just think about these four buckets of cost, clearly, impairment is largely noncash. If you think of the social costs, as I mentioned, there's a time process before the costs are incurred, and not necessarily everything is paid out. Take-or-pay contracts is a negotiated item. It can be over the duration of the contract or a lump sum up front. And clean-up costs, by definition, take time.

So, from our perspective, we are not forecasting significant cash outlays. I think it's premature to speculate what it is. But it is not significant for 2012. It is a portion of -- a much smaller portion of the total costs that we will announce in 2012.

And then a follow-up question. I guess, with regard to the common stock dividend, certainly, the company has done well to delever the balance sheet. Would there be any thought at all to reducing the dividend, though, to further accelerate that process? Or do you think you maintain the dividend at the current rate and more slowly delever? How do you guys kind of weight those two sort of competing alternatives?

During the crisis of 2008, if you recall, we already reduced our dividend by 50%. And, since then, I do not think that we have (inaudible) 2008 (inaudible) improving. The signs are good. The Company's fundamentals are becoming stronger. Balance sheet is better. It's stronger than before. And we see the underlying strength in our different businesses - mining and in our different segments. So we have not -- the Board has not (inaudible). The Board has decided to continue this (inaudible).

And then, lastly, I guess, in terms of the maintenance capital, I know, previously, the Company had mentioned that, at the midpoint, it's about $3 billion. What is that number, I guess, as you sort of look ahead with the mining side ramping up? Where does that number move to?

The maintenance CapEx (inaudible) remains $3 billion, including our mining facilities. So, if you think of 2012, we have guided CapEx to $4 billion to $4.5 billion, out of which $3 billion is maintenance CapEx for steel and mining and $1 billion to $1.5 billion is growth. And, as you know, we talked about growth being primarily on the mining side.

Great. That's very helpful. Nice quarter, guys.

Good. We'll take the next question from Alexander at Mainfirst.

Just a quick follow-up on European spot price development. What do you expect here to see going forward over the next couple of months? Do you think there will be more price hike announcements, and/or do you think they will stick? Or do you see any chance that there is some kind of a need for digestion of the market of these price hikes? Thanks.

So, in terms of the European price environment, I think to venture out on price forecast is highly speculative. I think we all understand the parameters. Clearly, today, the European price environment is similar to the Chinese domestic, so we're missing an important premium. However, the open macro situation remains uncertain. And so, clearly, if those factors improve, then that should be reflected in the overall steel market.

Okay.

So maybe now to Carsten at UBS.

All my questions have been answered. One question may be -- we have seen that, in the fourth quarter, you have taken out a great deal of capacity, predominantly in Europe. We're talking about 16 million to 18 million tonnes annualized. How much of this tonnage actually is already in the process of being ramped up again? Maybe you can answer this. Thank you.

I'm not sure where you get the 16 million to 18 million tonne capacity number. From what we have said, as you know, Liege and --

That's also temporarily idle. That's not only permanently. So, if you simply take the announcements you did in the fourth quarter, taking down not only Liege but also (inaudible) and so on and so forth -- if you add all that up and annualize that, you come between 16 million and 18 million tonnes which went out of the market. Most of this will be ramped up again in the first or, at latest, in the second quarter. I'm just curious to learn when will be that -- when this capacity comes back.

If you just look at our overall global steel production third quarter to fourth quarter, that was down by less than 1 million tonnes. And, if we were to take it from the second quarter to the fourth quarter of 2011, that's also down by about 1.6 million or 1.7 million tonnes.

So I don't want to -- I'm not sure what the base of your calculation is. I'm sure you can follow up with Daniel on that. But, just on production levels, we're down by less than 1 million tonnes compared to the third quarter. As I said earlier, our first half shipments are expected to be similar to the level of first half 2011. So production levels should also mimic that improvement in the market.

No. That's fine. I'll follow up with Daniel because it's more about the utilization rate than anything else.

Yes. I understand that. And, as we mentioned earlier, we want to move away from the utilization rates and focus upon shipment and production performance.

Okay. Fine. Thank you.

Okay. The next question we'll take is from Tim Cahill with Davy.

I just had two questions, please. My first question is just in relation to the underlying trends at Europe. Obviously, we're dealing with very uncertain times right now. But, yet, I think the general tone that you're striking today is cautious; yes, probably more optimistic than some of the commentators out there. Could you just maybe give us an underlying feel of the market, what you think is going to drive demand this year, as well as [what the downside risks] are to your guidance in 2012 and Europe specifically?

And then, secondly, in terms of US prices, you mentioned earlier in the call that scrap prices have come back a little bit. Obviously, Sparrows Point capacity is now back online. Steel price in the US has had a good run. So I was just wondering what maybe the downside risk is to the spot steels price over the coming three to six months. Or do you think the strong, underlying demand will support the US steel price? Thank you.

(Inaudible) 2012, we would be cautiously optimistic about the (inaudible) environment. In spite of all the Europe crisis and the impact on the global crisis, we are forecasting (inaudible) on a global basis to grow by 4.5% to 5%. That is a good position. Perhaps in the last quarter, it could not have been (technical difficulties) -- could not have been as optimistic as we are today on 2012.

We have also seen that there have been a lot of capacity idled or production reduced by various competition because the demand has gone down. And that meant that there is (inaudible) pricing environment which we are seeing. And, at the same time, we are seeing the sentiment improving in the market. And some of the leading indicators are also showing positive trends. In the beginning of this year, unemployment numbers are down, and a lot of restructuring going on various governments. So those risks are also getting reduced, which gives us some optimism to the year 2012.

You remember that, in 2011, the euro zone was in serious crisis than now. And it is in recession, technical recession now. We are not seeing a double-digit drop in the euro market. We are seeing 0% growth to 2% down. So things have improved, and I am cautiously optimistic about 2012. And I think that pricing environment should continue to stay better, as well as we are seeing that iron ore prices and (inaudible) should also be stable. Iron ore prices at this level, $243 or $242, we think can sustain. And, also, it can be sustained between $240 and $250.

Similarly, we are seeing the strong environment in euros. The energy market has strong (inaudible) and generated a lot of -- generated demand. (Inaudible) we are seeing the strong demand in the order position on the (inaudible) market. Housing market has already bottomed out. So we are seeing a positive trajectory all through the United States. Unless there is a big, negative turn in euro, I think that we are looking for a positive strength, slowly and (inaudible).

Thank you very much.

Okay. We'll take the next question from (Inaudible). Operator, if (inaudible) is not there, perhaps we can move on to Dave Martin at Deutsche Bank.

I had two quick ones for you, if I may. First, one clarification on mining. And sorry if I missed this related to the change to spot and contract sales. I'm just curious if you can quantify the EBITDA impact in the fourth quarter versus the third from the change to spot.

I think, by quantifying the EBITDA impact, you get a sense on price per tonne, and that's a scenario, we don't want to get too specific on. But I think, if you run some calculations, you can get very close to that level, within a few dollars. So, we have said that a portion of the contracts have moved, and I think you can calculate. I mean, we all know the spot market has changed $40. Based on that, you can see the volume of increase and back-calculate that. The cost change is not that dramatic to offset your calculations.

Okay. And then just, lastly, on the delta hedges and your shipment guidance for the first half of this year, should we assume that the delta gains in the first half will be pretty comparable to the first half of 2011?

To be honest, I don't -- Yes. I have the number for first half. I'm not sure what it was in 2011. We can probably get you that information. In the first half, we're expecting $270 million in terms of dynamic delta hedge.

$270 million for this year?

For the first half.

Yes. Okay. Great. Thanks.

And, approximately, I believe the first half is -- of 2011 was about $300 million; so, about $30 million lower in the first half of 2012 compared to first half of 2011.

Okay. Thank you.

So, we have time for one final question, which, Jeff from Macquarie, can you ask that, please?

Just to follow up on the dynamic delta hedge, when does that run out?

It runs out Q1 2013.

Okay. So it will flow through the course of this year, and then it continues into the first quarter of 2013? Or it's just done at the end of December?

Just Q1 2013. I can provide you -- in Q1 2013, it's approximately [$130], and the remainder is in 2012.

Okay. And, just as a reminder, is it cash or noncash?

It's noncash.

Right. Okay. Thank you.

Actually, the cash (technical difficulties) -- the cash was received by the Company -- it was received in 2008.

Right.

And the cash is no longer being received at this point in time, but the income is flowing through.

Great. Thanks.

So, there are no more questions, so thank you for participating in this call. And looking forward to be talking to you in the next quarter. Thank you. Have a good day.