ArcelorMittal SA (MT) 2014 Q3 法說會逐字稿

Thank you, and good morning and good afternoon to everybody. This is Daniel Fairclough from ArcelorMittal's Investor Relations Team. Thank you very much for joining us today on our conference call to discuss the third quarter 2014 results.

First, I'd like to remind you that this call is being recorded. We are going to have a brief presentation from Mr. Mittal and Aditya, and that will be followed by a Q&A session. Given that the call will be limited to an hour, we would appreciate that everybody limit themselves to just two questions at a time, please.

(Operator Instructions)

And once again, just to remind you that the call is being recorded. And with that, I will hand over to Mr. Mittal.

Thank you, Daniel. And good day to everyone, and welcome to ArcelorMittal's third quarter 2014 results call. I am joined on this call today by all the members of the Group management board.

Some opening remarks before I start today's presentation- I am pleased to say that once again our results demonstrate continued improvement in our operating performance. Against a backdrop of seasonally lower demand and lower iron ore prices, we have delivered both sequential and year-on-year improvement in EBITDA.

It is gratifying to see the further improved performance in Europe and the continual evidence of turnaround in our ACIS business.

On the subject of market conditions, despite the noise in the market, I remain cautiously optimistic on the outlook. North America remains strong, and in Europe we have not seen any signs of slowdown in our business. Indeed, our order entry for flat products in Europe is running between 5% to 10% above year-ago levels.

We also have some visibility into first quarter 2015 in the automobile steel order book, and that too is looking healthy. Q1 2015 orders in hand are higher than what we were achieving for Q1 2014 this time last year.

And finally on guidance, our full-year 2014 EBITDA guidance remains greater than $7 billion. Given the weaker-than-expected iron ore price, I think that being able to reiterate guidance is a significant positive. What we are losing in terms of mining segment performance, we are making up for it in the steel segment. So the overall picture remains one of improvement.

I will begin today's presentation with a brief overview of our third quarter results, followed by an update of our recent developments. I will then spend some time on the outlook for our markets, before I turn the call over to Aditya. He will go through the results in greater detail, and provide an update on our guidance for 2014.

As usual, I will start with safety. The lost time injury frequency rate in third quarter 2014 was 0.78 times, compared with 0.87 in second quarter this year, and 0.84 in third quarter 2013. On the left-hand side on the screen, you can see the clear progress we have made in recent years reflecting our continued focus on this priority.

As a company, we remain committed to the journey to have [zero harm]. There are two focus areas in 2014, contractor performance and the causes of the 2013 fatal accidents.

Moving to the next slide and the slide which gives an overview of the quarter 3 results, for me these numbers demonstrate that our focus on the correct drivers is delivering in terms of better results. On the top left of the slide, you can see our key priorities.

Firstly, we are making sure that we are capturing our shares of the demand recovery in our core markets. We have significant operating levers to each (inaudible). In Q3, our steel shipments were 3.9% over the same last year. European segment shipments were over 6% higher than 2013.

Secondly, we are focused on restoring our margins back to normalized levels. This comes to three factors. One, operating leverage to high shipments; second, cost optimization of our footprint investment in Europe and our ongoing management gains impact on variable costs; and third, operational improvement. This is largely in our ACIS business, which has not been achieving its potential in recent years.

I'm pleased to see that in Q3 overall margins were $6 per tonne higher than 2013, despite the iron ore price. Indeed, steel only margins were $19 per tonne higher than 2013.

The third key focus area is developing our core franchise businesses, in particular, global automotive. We are the market leader. We are confident that our solutions will make sure that steel remains the material of choice for automotive, and I will talk more on this later.

The fourth key focus area is mining. We have expanded our iron ore production base, and we are seeing significant benefits in terms of lower cost. Marketable volumes this quarter were 6% higher than Q3 2013, helping to reduce cash cost by 13%.

Finally, all of our strategic decisions are taken with reference to our target of lower net debt. We have made good progress in this area, and it remains a key focus. We will continue to remain very disciplined in terms of investment, both organic and inorganic, until our $15 billion target is achieved.

Moving to slide 5 where I want to talk a little bit more about the expansion of our steel margins. On an underlying basis, steel EBITDA increased by $19 per tonne as I said before, compared to the same period of 2013. In fact, with the exception of Brazil, all steel segments demonstrated improvement during the third quarter.

In NAFTA, margins showed a slight improvement over the same period of 2013 due to higher pricing and volumes, offset in part by higher fixed costs. My focus though is on the clear improvement from the weather-impacted first-half levels.

In Brazil, market conditions remain challenging, and we have again seen margins contract year on year. But similar to NAFTA, the results of the Brazil segments have improved related to the second quarter, demonstrating the benefit of the startup of the blast furnace number 3 at Tubarao. I'll remind you that blast furnace 3 is warranted to produce slab for export, primarily to Calvert, (inaudible) and has no impact on domestic supply.

In Europe, I'm again pleased to see the continued improvement in our results. EBITDA per tonne increased by $20 per tonne year on year. Even allowing for volume impacts, we can clearly see the continued benefits of our cost optimization efforts and improved market conditions.

I'm also encouraged by the results of the ACIS segment. CIS performance has been strong in Kazakhstan and particularly in Ukraine. Performance in South Africa remains clearly weak, so this is a key area of potential going forward.

Moving to the next slide on mining, first off I want to address the situation in Liberia. As an organization, our first priority is always the safety of our employees. Our operations have not been impacted by Ebola in that we continue to produce and ship in line with 5 million tonne target for 2014.

What has been impacted is the development of the second phase expansion project. In August, the contractors working on the project declared force majeure. And as well the project is progressing at a much slower than anticipated rate. It remains difficult to estimate the impact this will have on the project schedule. We are focused on getting back on track as soon as we can.

Turning back to the mining segment performance for the third quarter, market price shipments this quarter were 6.3% higher than the same period of 2013. This drove shipments for the first nine months to just under 30 million tonnes, which is 20% above last year's level.

As our volumes expand, unit fixed costs go down. This is on top of the ongoing streamlining, efficiency improvements and procurement savings. For the year, we expect overall iron ore production costs per tonne to decrease by 7%. Most of the cost reduction will come from those mines that are market-facing, which means which are market priced.

The benefits of higher volumes and lower unit costs are combining to somewhat offset the impact of lower iron ore prices on our mining segment performance.

Moving to auto franchise developments, next slide, this quarter we launched Fortiform. This is new range of cold formable advanced high strength steel that complements our existing range of products, including the hot formable Usibor. Combined, these steels are offering compelling light weighting solutions for our automotive customers.

We at ArcelorMittal continue to believe that the steel will remain the material of choice for automotive. Our solutions are sufficient to allow the manufacturers to achieve the required light weighting. And although more costly to produce than traditional steel, our advanced offering is still very attractive relative to the alternative light-weight materials.

As an example, 40% of the new Volvo XC90 is hot-formed steel. In its marketing, Volvo is focusing on not just the light-weighting, but the safety benefits of high-strength steel.

In the US, Chevrolet recently launched its toughnology concept for the 2015 Silverado light truck. It showcases the extensive use and advantage of advanced high-strength steel. ArcelorMittal will continue to invest in our industry-leading R&D effort and continue to invest in our capability to produce these products that it is clear our customers will continue to demand.

Moving to the theme of M&A, my overall message here is that our M&A strategy is about delivering and creating value. This quarter we sold our interest in Gallatin, a commodity [hot rolled coal] producer in the US. We have sold our 50% interest at a very attractive and cheap multiple.

By selling this non-core asset at an attractive valuation, we have made room in the portfolio for Calvert. If you look at these two deals as part of the same [exercise], we have achieved three objectives. We have significantly upgraded our asset portfolio in North America. We have supported our franchise business of steel for automotive. We have achieved this with no impact on our net debt.

Number two, Gallatin was non-consolidated and had no EBITDA effect. While the Calvert JV too is non-consolidated, there will be a consolidated EBITDA impact through our slab sales to the JV. And we have estimated this adds at least equal to $258 million annually once up at full speed. For me, this is clearly value-creating M&A.

Next I will discuss our market outlook. Our core markets, Europe and North America, continue to grow year on year. This particularly applies to the US where we have further upgraded our demand forecast for 2014.

As you can see on the chart on the left of this slide, the ArcelorMittal shipment record global PMI has pulled back slightly in recent months. This follows signs of weakness in some emerging markets, but most recent information show an overall uptick and points towards continued growth in demand for our steel.

In the US, steel demand continues to grow strongly. This reflects robust underlying growth and restocking. October PMI signals strong growth in manufacturing output, which is already above pre-crisis levels. Growth is buoyant in all major steel-consuming sectors, especially auto, machinery and now non-residential construction. Steel demand in US is higher than we anticipated at the beginning of the year, and we have raised our growth estimates for 2014 to over 8%.

Moving to Europe, it is clear in speaking to investors that there are growing concerns over weak headline GDP growth. However, while we remain cautious, we continue to expect a gradual improvement in European growth. (Inaudible) manufacturing PMI remains above 50, including a slight pickup in October. I can also point to our European order books, which so far shows no impact from the weaker market sentiment and are firmly higher than at this point last year. The weaker euro together with any stimulus from ECB should provide positive momentum in 2015.

Moving to China, the oversupplied real estate market continues to depress steel demand. So far this year, both property sales and newly started construction have declined around 9%. There continues to be growth in other steel-consuming sectors, notably auto. Percent of car assembly grew at a positive growth of 11% year to date. Then you have growth in machinery, railway investment and even ship building; these segments have stabilized.

But the negative impact of real estate and destocking at traders has caused us to cut our demand forecast around between 1.5% to 2% growth in 2014, as compared to 3% at the time of our second quarter results.

Turning to other emerging markets, Brazil is in recession, and has seen significant declines in steel demand during the last six months. Underlying demand has impacted by the World Cup, uncertainty over the elections, and the structural problems that have held back investments. But I believe the worst is behind us. Conditions are stabilizing, particularly in construction, and I do not foresee a further deterioration in overall steel demand.

As well, the ongoing crisis in the Ukraine is impacting CIS demand. But our units in the region are largely unaffected, and supported by currency depreciation, continue to be able to export into Middle East and African markets.

Overall, despite weakness in some markets, pushing global apparent steel consumption growth down to around 2.5% this year. Our exposure to growth in our core markets means we expect our (inaudible) steel shipments to increase by over 3%.

With this, I hand it over to Aditya who will discuss the financial results and guidance in more detail.

Thank you. Good afternoon. I'm on slide 11, where we show the EBITDA bridge from second quarter to third quarter 2014. EBITDA in second quarter on an underlying basis, was $1.853 billion, and in the [third] quarter it's $1.905 billion. The underlying figure for the second quarter excludes the $90 million litigation charge, as this will not recur in future periods.

As you can see, steel shipments were relatively stable this quarter. Volumes declined primarily in the European business, in line with normal seasonal trends, offset in part by an increase in the Brazil segment, following the restart of our blast furnace number 3 there.

So the key driver of the improved results this quarter was the positive $200 million price/cost effect coming primarily in NAFTA due to lower costs, as we no longer had negative weather impacts in Q3.

In our mining business the impact of the declining iron ore price is clear, although this was partially offset by improved cost performance. So the net impact was negative $108 million.

Moving around the bridge, you can see a negative $29 million impact in others. This largely represents translation losses following the strengthening of the US dollar.

Turning to slide 12, our P&L bridge from EBITDA to net income, we will focus on the chart in the upper half of the slide which shows the bridge for the third quarter. As expected, depreciation was stable this quarter at approximate $0.9 billion, as compared to the second quarter.

Moving to income from investments, associates and JVs, in Q3 our share of income was $54 million, compared with income of $118 million in the second quarter. The Q2 income included a $45 million dividend from our stake in Erdemir.

Moving to net interest, net interest was 12% lower in the third quarter, primarily due to savings incurred following the repayment of $800 million of convertibles upon their maturity back in May, as well as slightly higher interest income. We now expect full-year net interest expense to be approximately $1.5 billion, down from the previous $1.6 billion guidance level.

Foreign exchange and other net financing costs in Q3 were $657 million, as compared to $327 million for the second quarter. Third quarter was negatively impacted by $315 million foreign exchange losses as compared to a $2 million loss in the second quarter. This loss in the third quarter was primarily driven by the net impact of the 7.9% appreciation of the dollar, and its effect on our euro-based deferred tax assets, which was partially offset by its impact on our euro-denominated debt position.

The third quarter also includes $161 million of one-time expenses related to a Federal tax amnesty plan in Brazil, linked with the Siberbras case, which was settled during the quarter. It is important to mention that half of this charge was settled with tax losses, and the remaining balance will be paid in 30 monthly installments.

In the quarter we reporded net income of $22 million, quite comparable with the level of the second quarter.

Moving to slide 13 which shows EBITDA to free cash flow, this quarter free cash flow was negative, largely as a result of seasonal investment in working capital. This is normal in the third quarter, as we maintain production ahead of seasonally stronger demand.

On a days' basis, we maintained 54 days of working capital in Q3, and this would have been 57 days at stable exchange rates.

As we move along the waterfall, we also deduct a combined impact of our net financial costs, tax expenses and other items totaling $0.8 billion. This bar includes, amongst others, AOP and one-time Brazilian tax charges. After CapEx of $0.9 billion, we had negative free cash flow for the quarter of $0.4 billion.

Turning to slide 14, we show a bridge for the change on our net debt from the second quarter to third quarter. The main components of the debt increase during the quarter was a negative free cash flow, as described earlier, $0.4 billion in dividend payments, offset in part by small M&A proceeds of $61 million and $0.4 billion foreign exchange and others.

M&A totaled $61 million, primarily relating to proceeds from (inaudible) for divestment. And ForEx, that was primarily the impact of the weaker euro on the translation of our euro-denominated debt into US dollars. As a result of these movements, net debt increased by $0.4 billion during Q3 to end the period at $17.8 billion.

Let me now talk about guidance. I'm on slide 15. As you heard earlier, operating conditions remain favorable. The impact of declining iron ore prices in the mining segment is being offset by improvement in the steel business. Based on today's market conditions, we do not foresee a deterioration in our performance in the fourth quarter.

I expect us to achieve the volume targets we set at the beginning of the year, a 3% increase in steel shipments and a 15% increase in marketable iron ore volumes. Together with our ongoing cost reduction plans, this was driving better results in 2014. Despite the lower iron ore price, the Company still expects 2014 EBITDA to be greater than $7 billion.

I'm also able to tighten up our CapEx guidance, as we now expect 2014 capital expenditures to be approximately $3.8 billion. Finally, there is no change to our deleveraging priorities. We maintain the medium term $15 billion net debt target. And as operating cash flow improve and we receive the cash from Gallatin, I expect us to make progress toward this objective in the fourth quarter of this year.

With that, we'd be now happy to answer your questions. Thank you.

(Operator Instructions) Mike Shillaker, Credit Suisse

Yes. Thanks very much. So my two questions, please. First question, just looking forward, obviously you talked about Q4 being at a similar sort of level, I think, or no reason why it would be lower in Q4. So call Q4 $1.9 billion. Firstly, is there anything sort of odd about that, or one-off-y about that? And if not, that would kind of set up for around $8 billion next year, all things equal. Can you then give us any sort of form of guidance for next year?

Sorry, one word-- not guidance for next year, but help us out with any structural earnings improvements that you are looking at for next year, so we can actually-- because obviously iron ore is maybe not going to be as exciting as it was on the structural side. But what are you looking at for structural earnings improvement next year, so we can kind of get a feel for where we should be looking at, without taking a view on the cycle? It's point number one.

Second question, an obvious one really, can you give us an update on Ilva? It all seems to have gone a little bit quiet. I did hear, and I'm not sure whether this is correct, that JSW said on their conference call that they were no longer interested. But I'm not sure whether that's true. But can you give us an update on where we are?

Sure. Thank you, Michael. So in terms of Q4. Yes, you're right, we have said no further deterioration in performance in Q4. There are no one-offs in EBITDA in Q4. The gain on the Gallatin sale is captured in income from equity, as that's a non-consolidated entity. So there will be some gains below the EBITDA line, but not in the EBITDA line.

And in terms of structural improvements 2015, I think there are a few. And I'll just walk you through some of them. I guess the first point is that we are constructive on demand in the US and Europe, which is slower than the US, but still positive. And even in Brazil, where we expect improvement after a very tough year in 2014.

So there should be positive volume impact, and as you know in the steel business, we have a high operating leverage for volume. So that's a positive EBITDA driver. Excluding volume, we continue to drive performance through cost optimization. We still have some residual AOP benefits coming in 2015. We have a further 7% reduction in mining costs, as well continuation of our management gains program.

The third point I think is quite important as well, is we don't expect to repeat the cold weather and litigation as a tailwind. So if you remember in the first half of this year we had $350 million of costs in NAFTA which are not repeated to 2015. We also had US litigation of $90 million, so that itself is $440 million. Plus we had a C-5 furnace failure at Cleveland in the US as well. So there's about $500 million of costs that we incurred in the first half of this year which will not repeat in 2015.

And lastly, we also have two blast furnace impacts. Some of this we see in the third quarter, which we mentioned, which is the startup of blast furnace number 3 in Tubarao, which is exporting slabs into Calvert and other markets. That's been a positive driver of EBITDA in Q3, and that will continue to strengthen into Q4. And we see the full benefit of that in 2015.

Actually today we have relighted our blast furnace in Newcastle in South Africa. So we had cost of that in the second quarter, cost of that in 3Q and some cost in Q4. We'll see the full benefit of that in 2015. So I think, Michael, those are the key structural improvements that we are seeing in 2015 versus 2014.

In terms of Ilva, there's no further update at this point in time. We remain interested in Ilva. We think we can create value for ArcelorMittal shareholders. Nevertheless, we also remain very focused on ensuring that we do not move away from our priority to de-lever the balance sheet. And we've demonstrated through the Calvert acquisition and the sale of Gallatin that we're able to manage those investments and divestments quite well.

Okay. Thank you (inaudible)

Alessandro, JPMorgan

Good afternoon. And really congratulations on the results. My two questions, the first one is ACIS. The result has been really impressive in terms of expansion on margin. Can you give me a little bit more granularity? How much is related to restructuring effort and how much is coming from the FX?

And the second one, if you can actually compare the situation Q4 2014 versus Q4 2013 in terms of perception of the negotiation on contract with the automotive industry for next year, whether the weight of the iron ore price is as strong as it was in 2013, now that our [pattern] seems to be coming off, but not as strongly as it was last year. In other words, whether this proxy that was used for the settlement, the price is losing a little bit power. Thank you.

On the first one, with is ACIS, I think it's the combine effect of several factors, most of them is operational stability. And we are trying to run all the assets full, and filling the mills particularly from the value-add end. That is helping us.

We have captured the benefits offered by the foreign exchange, and that has helped us too, especially conserving the cost, and not allowing any (inaudible) to happen on that account. Then production market developments are also working in our favor. So these are some of the actions which we have taken and they are all bearing fruit.

Yes, Alessandro. On the other negotiations, it's very difficult for us to make comments about the overall trend there, pricing patterns there. And I would say that we pursue those negotiations really on a regional basis, based on the requirements of the OEMs in those markets based on the competitive environment, based on underlying trends in the spot markets and so on.

So I think we would foresee that that would continue to be a market where we're relative well-rewarded for the value that we provide to our customers across the board. But again, the specifics of individual regions or customers are things we can't comment.

Okay. Thank you very much.

Mike Flitton, Citigroup

Hi, there. Thanks for taking my questions. Just two from me. Firstly on mining, and then on-- again on ACIS. Just on the mining side, can you help us a little bit with the cash costs. I know you've been a little bit hesitant I guess to give costs previously, but just given the volatility in the market, it would be helpful for us and I think for investors as well to get a sense of where your cash costs are sitting at the moment. I know we have numbers from 2011 I think around $45 a tonne. But where would we be at the moment and perhaps for next year, given the cost reduction? Would you guys essentially be positive EBITDA at maybe $60 iron ore, if that were to come through?

Secondly, on ACIS, obviously it's performing very well. Do you anticipate seeing any impact from firstly the trade case with the US and Russian Steel? And obviously the development in the Russian economy which could push some steel previously consumed in house out into Europe and your other export markets. So any sort of pricing pressure or market share loss that might be anticipated there. Thanks.

Okay, on the iron ore cost, we don't give out the individual costs on that, but what I can say is that we're on target for the 7% cost reduction this year that we anticipated. We mentioned I think in 2011 $38 of the AMM (inaudible). But that is on target as well, which is good news. And that's coming from efforts on the volume side, but also the cost reduction procurement payments [inputs], and a little bit of ForEx expense as well.

In thinking about forward profitability, we get the benefits of Canada from improving the volumes where we have the stretch potential there, and so the cost reduction efforts and the cost there will go down further, below the $38 that we did announce previously.

And in Liberia, that is the other key marketable asset. And the cost there will be less than $30. And as we look to the phase 2 when that comes on we'll also get the benefit a better product, quality. We get scale benefits and the cost as well. So for those two key marketable assets, they should be in good position at more conservative pricing assumptions.

Yes. The fact that there are two moving parts as far as this market is concerned. We have the ruble weakness coming through. We have more steel now to be sold by Russian mills in the region or domestically. And also there is overall weakness in the economy coming through.

Still the moving parts on the other hand, there are some positives. Our own domestic currency is one positive. There are other markets which are developing, which is a positive. Middle East is still drawing materials. So it's a cost center play of these things, and we are constantly on the ball. And I think we have done so far well. And we'll be very vigilant going forward also on this account.

Okay. Just on the-- again, in terms of-- do you see headwinds increasing really in terms of the prospects for material to come from Russia into Europe as well as the ACIS region?

Yes. These factors are relatively new, have not started manifesting in any way. There is of course now seasonal impact also being setting through a bit toward the winter. So these are the factors which are very difficult to segregate each one of them, what impact which it's creating. But so far, we have not seen much impact coming through.

Perhaps I can just add to that. A few comments. First of all, in terms of just ACIS operating performance, I mentioned earlier that we are relining a blast furnace in our South African operations. So as that reline gets completed, we will see a positive benefit in our South African operations.

We continue to improve the base operation in CIS. We started that journey roughly 12 months ago with the vendor as well as with our new CTO, Marc Vereeke, which is showing improvement.

In terms of export pressure, I think if you see this year, we have seen significant increase in exports in our core markets, which is Europe as well as the US. But that has not prevented from the overall margin expansion in our steel business.

So I think there is clearly the impact of exports, which may continue. On the flip side, there are some trade actions which are starting up as well. But regardless of the increase in exports, the fundamentals are strong in the core markets in which we operate. We believe we can maintain [all these spreads].

Okay. Thank you.

Bastian, Deutsche Bank

Yes. Good afternoon, gentlemen. My first question is on the NAFTA numbers, which have [expanded] significantly, but still less than I guess than the $90 margin expansion which one of your major peers delivered. And I know there were probably a couple of one-offs in there. But I think you obviously changed the management here. Can you give us your view on why you see your numbers have been falling behind a little, and do you think that it will improve further in Q4 and Q1? Obviously having in mind that spot prices are down now and imports are up roughly 38%, meaning that prices might not recover meaningfully short term.

Then my second question is on the Brazilian business where the margin was down $20 versus the first half. So firstly here could you share with us what was the contribution from the blast furnace ramp up in Tubarao? And then secondly, looking at prices I guess Rebar I think is now down roughly $200 in the domestic market in October versus average Q3. And then hot rolled, corner, and some other grades are down more than $90 in the same period. So it seems like the price premium in Brazil (inaudible), so are not really restored in real terms. And you are apparently not seeing these trends, at least not yet. Can you share with us the trends and EBITDA drivers you expect in Brazil therefore going into the fourth quarter, maybe give a very early view whether you see the recovery in Brazil you're talking about happening in the first quarter already, given that that is obviously typically a weaker season in the quarter. Thank you.

Thanks. On the NAFTA numbers, I think we did see substantial improvement Q3 over the first half of the year. Mr. Mittal already talked about the issues that we had with the weather and so on in the first half of the year. So we came out of those well in the third quarter.

We had a more extended outage in Calvert than we expected. I think our results would have been even better marginally but for that.

Relative to competitors (inaudible) full pool, or (inaudible) I think the recovery was very strong and very evident compared to almost everybody [in the group] in North America. I think for the folks where the gap remained, despite our improvement, you'd have to look at some of the discussion of one-off benefits in Q3 and what's likely to-- whether there will likely be a reversal in Q4. And I think you're welcome to do that on your own.

I think moving to Brazil, you're right that we some weakness in the macro economy there that's showing up in the price realization as well. But I'd also stress that an awful lot of that in terms of dollar results has to do with the depreciation of the rei. And ultimately, that should be a very positive benefit for us. Already I can tell you if we look, without giving numbers away, if we look at our flat rolled operations across the globe, Tubarao has emerged as the real market leader in terms of our cost base, which puts some challenges on some of our other operations. But it's certainly an important aspect of that, besides the [furnace] being restarted has been the rei depreciation.

That immediately, the rei coming down immediately has an impact on the price realization in dollar terms. I think it also offers some opportunity for restoring the premium to some degree. But that's something that doesn't happen instantaneously, but certainly something we'll be looking to and trying to implement, I think, and expect to be able to implement as the months pass by.

And in terms of your specific question on blast furnace 3 start on impact on EBITDA, I don't want to get too specific. But I would say without the blast furnace impact you would see largely flat results in Brazil to slightly up. So I think the delta improvement, a large portion of that is the startup of the furnace in Tubarao.

Building on that, I think in the global slab market now, with the rei devaluation, with the iron ore price coming down, because as you know we purchase the iron ore in reals from Vale, that we have extremely competitive operation globally at Tubarao now for the world slab market.

Thank you. That's been very helpful. Now following up on that briefly, and complete agree obviously. I mean the real is a mess, as in for your Brazilian business and the cost competitiveness. But then obviously again looking at the Brazilian market, I think historically we obviously had this very high premium, and it seems like apparently the local market, given that the price has fell even quite significantly in real terms, have lost maybe some of the discipline they had before. And obviously now to continue to actually, I think, have the same profitability level, I guess you would generally need to raise prices in real terms and resume the discipline on the market, which so far at least, seems it has not happened. So don't you see the risk that possibly basically we see this trend flowing in possibly in the fourth quarter or not only in the first? Or are you confident that basically the price premium in real terms will basically be restored fairly soon?

I think we don't talk about discipline. I think what we look at is we have a very expensive distribution network. We are very close to our customers. We have very deep roots in the Brazilian economy. We have an extensive network of scrap collection, as well as the finished distribution channels and value-adding activities, bending and so on that I've described.

So we think that underlined value benefit that we bring to the customer base, that's what really supports the premium that we have in that market typically. And again, we have a surprising weakness in the Brazilian economy. We expect that-- some recovery to happen next year. I think despite the political developments, whoever won the election, I think it's clear that more pro-growth policies need to be implemented. The rei will help the development and performance of manufacturing customers and so on.

So I think because of that structural advantage that we have in Brazil, we will be able to restore those to appropriate levels with the--not immediately but over the next quarter or two I think.

But then basically everything else equal, it sounds like we probably will get a bit of this lagging effect resulting in some margin compression most likely in the fourth quarter. Do I understand this correctly?

I think we're getting way too specific on a particular segment and guidance into Q4. I think there are a lot of factors that impact performance. We talked about a blast furnace 3 ramping up. That's continuing to fourth quarter as well. There are a lot of businesses in our Brazil-- and we call it and neighboring countries-- so there's Argentina, there's a tubular business. There is a slab domestic. There's long domestic. There's flat exports, long exports, Trinidad as well as slab exports into Calvert.

Okay. Thank you.

Carsten, UBS

Thank you very much. My question, the first question also circles around NAFTA. Similar to Bastian, I just have a question. There is an improvement in NAFTA year over year, but I'm much more interested in quarter-on-quarter improvement. Because if I understood you correctly, you're at $290 million one-off last quarter. On that $277 million, that would give me somewhere around $460-470 million in EBITDA. And if I look at your shipments, shipments are up quarter on quarter. And sales per tonne are also up quarter on quarter. So I'm just wondering what happened in order to make this result not as good as it could be.

Second question is on the guidance. You reiterated your guidance of in excess of $7 billion in EBITDA. But you simply said that now the iron ore price guidance you gave before of $105, you don't mention them anymore. I would rephrase the question, what is the minimum iron price you have to get for the last quarter in order to make the excess of $7 billion? Thank you.

I think there's no need to refer to iron ore, because I think what we're saying is based on today's market conditions, we expect to have no deterioration in Q4 results. And if you do the math, as Michael had done it earlier, I think there's quite a lot room across $7 billion.

In terms of your question on NAFTA, I think you raise a valid point. I think if you go through the results, you will see that we talked about an outage in Calvert. We had to do repairs to the (inaudible) furnace and the hot strip mill. So that cost a bit of money as well as higher fixed costs.

Can you quantify the last one?

I think you've quantified the delta, so I would just flip the difference.

Okay. That's fair. Thank you.

Steve Benson, Goldman

Hi. My first question was just on Liberia. I understand the volumes target around 5 million tonnes. But I wondered what was happening on the cost side. Have you had higher costs in Liberia since Ebola? And what should we be expecting on the cost side of it next year, if we should be modeling roughly the same volumes?

Yes. On Liberia, the impact has not been on the tonnes, (inaudible). There is a small impact on the cost side from Ebola, which I estimate around $1.50 a tonne on the operation. Looking forward, we're anticipating similar volumes next year. And of course we're also looking at the cost to see how we mitigate that in the next year.

Okay, thanks. And my second question was just on the net debt target. I think it was the medium term target was originally given at the start of 2013. What is the definition of medium term? When can we expect, or do you expect to hit that?

Yes. So I think you're right. We have reiterated the target. And even in the beginning of 2013 we do not define what medium term was. We define the target at the catalyst for us to reevaluate how we allocate capital, and what we said that when we achieve $15 billion through free cash flow generation, we will have discussions with our Board on how we increase-- whether we increase CapEx-- growth CapEx, whether we increase dividends or we further de-lever. Part of the conversation with the Board would include how quickly we will regain our investment grade rating.

I would also highlight that within the year, we have had other impacts on the balance sheet. So at the beginning of this year we repaid an off-balance sheet perpetual debt, which was $650 million, and we settled various litigations Senegal, US, as well as the federal tax programs in Brazil. And when you add all of that, it's $1 billion.

On a like-to-like basis, excluding those effects, the balance sheet is a billion lighter than previously already.

Okay. Thanks very much.

Luc, Exane

Hi, gentlemen. One question if I may on Europe. If I look at Q3 versus Q2, it looks to me that EBITDA pattern has been dropping and being squeezed much higher than what I anticipated, given the lower iron ore cost environment. So if you could elaborate on the point at which we should see the full impact of this lower raw material cost in the division, and maybe elaborate on what was behind this. Because if I got it right, shipments were seasonally lower, yes, but much less than usual. Thank you.

Okay. I think there's a significant seasonal impact. So if you look at it, year-on-year basis, which I think captures the seasonal impact, you can see a $20 improvement. And when we look at the bridge of the $20 improvement in Europe, roughly $10 comes from the higher volume. And roughly $10 comes from the benefit of our management gains and cost programs.

In terms of inventory benefits or iron ore benefits, I think they're still marginal in third quarter versus the second quarter, i.e. the price environment is developing similar to our cost of inventory environment.

A follow-up question maybe with regards to the trend you foresee for Q4, if you could quantify destocking. I understand that you do not see much (inaudible) for that. But I suppose that you would expect some improvement in your working capital requirements. So should we factor in a full reversal of the working capital requirement built up over Q3?

I don't think this is related to destocking in the steel business. But generally, we build our working capital in the third quarter, and we tend to begin to release working capital in Q4. So I think an assumption that working capital movements in the second half would be neutral is fair.

Thanks.

Tony Rizzuto, Cowen

Yes. Thank you very much for taking my questions. Congrats, too, on the performance and being able to offset the weakness in the mining segment. So my first question is with regard to planned outages in the US. Are there any planned for the fourth quarter, or if you can give us any view into 2015 in say the first half of the year. I heard that you did some work at Calvert in 3Q. But if you could discuss that.

Secondly, an executive from another company indicated that the timing was not right with regard to filing of trade action against China on the cold rolled and coated side. I wonder how you feel about that. Is the timing right?

Fourth quarter, as you know Tony, is always the quarter where you do some extensive maintenance, because it's seasonally a softer quarter for production. So we have a variety of activities planned, typically at somewhat higher (inaudible) in the sense of overall R&M spend, but nothing-- no huge products, if you will, like the blast furnace work that we've done over the past couple years. And I don't think there's anything as major planned yet for 2015 either.

I would mention on the Calvert, the situation, we did take that facility down a touch, but (inaudible). It's literally the first planned outage in its history. It's been operating for four years, and we did find that we needed to do more extensive work than we had wanted to do. But again, I think given that we just acquired the facility, the first time in four years, it wasn't that dramatic a surprise.

I don't know if there's any major issues, major R&M projects that I can point to, either in the fourth quarter or into 2015.

On the trade cases, I think we're ever vigilant. But it's very difficult to comment on them. We prefer not to comment on individual cases. So I think we have certainly taken some important steps. As I said, we're always vigilant, but it's difficult to comment on particular cases.

Okay, Lou. I appreciate your sight, your insight. Thank you.

Philip, ABN AMRO

Yes. Good afternoon, gentlemen. Thanks for taking my questions. My first question is on Brazil. You have quite a few capital expenditure projects there. I was wondering how flexible you are to potentially put them on hold if the market deteriorates further. And also I was wondering if it's anything that's currently really of concern, or whether you think that you're really just continuing with this projects.

Then the second question is on the mining segment, and then mainly on the coal mines. Because coal price has also been coming down. And I was just wondering. I appreciate that you probably don't give an indication of what the cash costs are, but I was wondering if you could confirm whether they are still cash flow positive.

And if I may, maybe the last question, just to sneak that one in; working capital movement in Q4, should we expect a similar movement as last year?

So maybe I'll just answer the last question very quickly. So as I said earlier that we expect second half working capital movements to be largely neutral, which implies that the investment in the third quarter would be released in the fourth quarter.

Okay. Thank you.

And the capital projects in Brazil and in that whole region, as Aditya mentioned, there's other countries involved. (Inaudible) in no particular order, we're investing in a new drilling mill in Argentina. That will be up in 2015. I think that's on track, no reason to look at delay.

The biggest project is sort of a joint project you could say, there's one and half projects, if you will, a new wire rod mill at Monlevade. And then secondly, a related set of investments at Juiz de Fora, both long projects, both integrated long-product mills in Brazil. At Juiz de Fora, we're expanding the ability to produce Rebar, to allow some of the wire rod production that's done at Juiz de Fora to be transferred to Monlevade.

We are able to delay those projects to some degree. And in fact, we're looking at that option in our business plan for next year. We're very close to be done with both. So there's not a big advantage in that. But there are some economies that we're looking at, to start that up, for example in the second quarter, versus the first quarter. So we're looking at that now. Again, we haven't put together the business plan.

Finally on that, if we look at the growth that we expect next year in Brazil, even if modest, some recovery in construction markets and so on, we'd expect it still be (inaudible) the facilities. But we're looking at modest delays.

Finally in our Vega do Sul facility, which is a finishing facility for flat well products. We are moving around some investments to expand the capacity in the [cobuilding] area, as well as to produce our proprietary Usibor product, which is critical for advanced high-strength steel applications. As Aditya noted, both those are on track, and I think we have no concerns about the market's ability to absorb those investments.

Okay. On the coal mining, I'll take our Kazakhstan coal in the CIS that has competitively a very good cost position and is profitable on the market (inaudible) sales we make there. I think the issue is around Princeton in North America. As you know Appalachian coal is difficult to release [sea-going] prices to the export. We've been increasingly focusing that on the North American market. We've been making some mine plan adjustments and the like, which is lowering the cost for that. And I expect that is free cash flow positive going forward.

Okay. But at the moment it isn't?

At the back end of last quarter, it was free cash flow positive.

Okay. Thank you.

Rochus, Kepler

Hi. Thanks for taking the question. Sorry to get back to Carsten's questions on NAFTA. Regarding this delta, as it isn't an equity consolidated company, I wasn't sure how much that repair cost have really impacted your EBITDA contribution on the business. So I would consider that what is impacting negatively is that you couldn't ship the slab from Mexico or other US facilities down to Calvert, and that is costing-- this is hitting some performance. Can you clarify again? And is there any kind of a legacy effect still helping you in the fourth quarter, or is the fourth quarter purely a function of pricing and volume trends?

And then secondly on Europe, I think you're doing pretty well in European market. Whereas the market itself has clearly lost momentum. Is the strong performance-- are you gaining against your other European competitors or is this more a function that we start to see imports are being pushed back by the weakening euro?

And then on Brazil, probably one area where we start to get slightly more constructive into next year. What shall we think about any improvement or any change in earnings contribution as the delta in volumes is primarily coming from increased exports. So how much can we expect in terms of earnings delta as the export volumes are obviously by far less profitable than domestic volumes?

So in terms of Calvert, I think you have to recognize that the change in Calvert is also reflected through the selling price of slabs into Calvert, and that's how it comes into our EBITDA. So there is a JV portion as well. But the remainder of it comes through our slab sales. So we get a lower pricing for our slabs. So that's the cost of the working 3 furnace revamp has impacted our results in NAFTA.

I'll get Lou to talk about pricing volume into Q4, but just quickly I'll also take the chance to answer your question on Europe. So in terms of Europe, I think we still see fundamental demand being positive. I think when we look at our automotive order books, we see that the automotive market continues to do well. We see that into Q4. We see that into Q1.

And I think there is still some momentum left from the cost reduction programs that we have implemented. But I do not believe at this point in time that Europe has lost momentum. I think when we look at the overall order book of industrial and automotive, we still see that October order book is higher than we saw 12 months ago.

So perhaps there are concerns. We understand the concerns of stagnation or deflation. There are geopolitical uncertainties. But on the flip side, we do have a weaker euro. We have a lower interest rate environment. And we have the ECB doing asset purchases. And therefore, our base case remains that Europe will have positive [apparency] of consumption next year. Not as strong as 2014, but still should be decent in 2015.

On the pricing developments in North America, if I understood the question, we do see some modest and gradual softness in the last few weeks, let's say. But I think as you may know, there's been some recent announcements of price increases in fact being put in place. So I think we still see the underlying demand being very strong. Fourth quarter is normally a somewhat weaker quarter seasonally. But we're still seeing very good demand and good prospect for our shipments.

Again, maybe some slight downward adjustment, but nothing that's significant. And if anything, it was within the last few days these price announcements. I think if we look out beyond this period, certainly the imports are always a concern. But we do see some important steps. So Russia came up earlier. Russian exports to the US were up 500% the first nine months of this year. But September Russian exports to the US grew the same as the total similar year-to-date figure for 2013.

So I think you'll see some relief on that side of the equation as well.

On Brazil, I think the key drivers in 2015, I think we have spoken about it a lot. It is the blast furnace number 3 full ramp up. I think we are forecasting positive apparent growth in Brazil, so there's some volume improvement. And I think we spoke about the currency devaluation. And assuming that we can get back the price premiums, the currency devaluation is beneficial both for domestic business as well as for the export business.

I would say that certainly exports are, for any producer, rarely as attractive as the domestic market for a variety of reason. But given the cost base we have in Brazil now, we're seeing the best margins on slab (inaudible) that we've seen since 2008. So again, I think we feel that if there's even a modest recovery in Brazil, as we're expecting, that we should be able to get through that.

[Justina], Goldman Sachs

Good morning. Hello? Hi, okay. Great. So the first question that I had was on the dividend that you paid in the quarter. It was $380 million. And I know you guys had spoken about it before. But what can we expect as far as this cash outflow going forward?

And then the second question is just on the cash balance at the end of 4Q. I know you mentioned in the press release that you had repaid your 2015 bonds that I calculate are about $1.3 billion. And so if you've repaid those in 2014, the cash balance might go down temporarily, nothing that would concern me, but is it the Company's goal to in addition to the Gallatin proceeds, perhaps, tap the bond market again to replenish the cash balance?

Okay. So Justina, in terms of a dividend policy, I'm not sure what your question was. But out of the $380 million, there's approximately $40-50 million which are dividends paid to non-ArcelorMittal shareholders. This is our minority interest in Mines Canada, our Joint Venture in Brazil of (inaudible).

In terms of cash balance, I think all things being equal, cash would go down, but recognize that we talked about a release of the working capital in Q4. So free cash flow should be positive. So the business will be deleveraging as we enter into Q4. And you mentioned yourself, the proceeds of Gallatin.

And as you know, our customary policy is not to comment on future bond raisings.

Okay, thanks.

Seth Rosenfeld, Jefferies

Good afternoon. This is Seth Rosenfeld at Jefferies. A few questions on the outlook for managing your EAF capacity globally. Clearly scrap prices have significantly outperformed raw material prices for iron ore and coke and coal year to date. First, do you think this disparity is sustainable looking forward into 2015 and beyond?

And second, has this past period of scrap price strength led you to shift in either capacity from electric arc furnaces to blast furnaces in some regions where you do have dual capacity, just in order to avoid this higher scrap costs? Thanks very much.

So since scrap prices have come down already, especially this month, so the high price differential that you had between the [arc] furnace route and the hot metal route has compressed. We have dual capacity primarily in Europe, an arc furnace and hot metal. But they're not adjacent to each other, in the sense that on the long business, Western Europe is primarily arc furnace. And in Eastern Europe, it's primarily integrated.

And so we have not dialed down our furnace capacity, or dialed up integrated capacity. Clearly profitability of integrated has been higher than arc furnace. But we have not made capacity swings of that sort. Similarly in (inaudible), we have not really made capacity swings of that sort. We have maintained the level of production at our arc furnace operations in 2014.

I guess I could talk about the Americas, I think we're always under the-- I'm sure this is true all over the Company too. Everybody is always trying to optimize the balance between scrap and ore products, based on immediate economics in that region. So that goes on constantly.

But again, as Aditya indicated, we don't have tremendous opportunities to do that if we're going to stay in the market. But where the opportunity is there, we do it. So an example of over just the last quarter even would be in Brazil in fact, where in our long business, we have both integrated and electric furnace operations. And as the market has softened somewhat, we've ramped more of those operations that are integrated, because of the lower cost base they have from the electric furnaces.

But again, if that-- as the chips tweak, we'll adjust accordingly.

Great. Thank you very much.

Alex Hauenstein, MainFirst

Hello. Thanks for the (inaudible). First one question with regard to Brazil. You said that you think that the country might, let's say, see some modest improvement into next year. But if we would assume this is not the case, is there anything you could do to steer against the negative trend here going forward? I mean should we think about something more on the cost savings from and/or asset optimization here? Or what does the market structure allow here? It seems like after you might have turned ACIS successfully and it currently looks like, but this might be the next part of concerns and measures. Is that right in the way of thinking? Thank you.

I think we're always looking aggressively at the-- on our cost competitive. We do a lot of benchmarking internally. We do a lot of benchmarking on the results with competitors, certainly. So I think when the market is softer, then the scrutiny on those sorts of opportunities go up quite a bit.

Again, you can begin a long debate, somewhat philosophical about what are the prospects for Brazil. I think we're still, on an underlying basis, quite bullish about that economy. I think a lot of the obstacles are really political. And I think some of the messages in the last election, it's clear whichever party has won, some measures need to be taken to improve the growth rate. Already the exchange rate I think is going to have a very positive impact on a lot of our consuming industries. The manufacturing sector is much more competitive today.

And a lot of the easiest things for the government to undertake to improve growth have to do with infrastructure and spending. And these are things that actually are relatively steel-intensive. So they help our business.

So certainly if you want to paint a very black picture, then black consequences. But I think we certainly are working to manage through what we expect will be a difficult 2014, but then some recovery (inaudible).

Okay. Thank you.

[Dimitri], Morgan Stanley

Yes, hi. Two quick questions for you. Considering your new CapEx guidance for the year, I would assume your CapEx in the fourth quarter will be substantially higher than in the third quarter. Could you please explain us where the delta is going to come from? Is it the resuming CapEx in Liberia?

And also would you be able to quantify ForEx impact from weak performance of currencies in countries like Ukraine, Brazil, Kazakhstan, South Africa; and impact it had on the third quarter EBITDA?

Dimitri, we typically spend more in Q4. Not to be a cynic, but I think it's because the year is ending and everyone wants to spend their CapEx budget. Otherwise they lose it. And at the beginning of the year we usually spend less.

There's also the [FAS] effect, where we settle, (inaudible) to suppliers. So those are the two effects which cause us historically to have higher CapEx in Q4.

Liberia will actually be less CapEx this year than before, because as we announced earlier, due to Ebola, some of our contractors have announced force majeure. So the level of CapEx there will be slightly lower than we had anticipated. And that is why we will (inaudible) our CapEx to 3.8 to 4, we were suggesting. It's approximately $3.8 billion.

And I think there was another question-- foreign exchange and ACIS.

Yes, as I said before, the intention is to capture all the benefits that come through exchange rate, particularly on (inaudible). But as it should be expected, that benefit is there definitely. So it really is a testament to our guidance. Half of the improvement can be attributable to the currency benefits going through.

Okay. Thank you very much.

Jaap, ING

Good afternoon, gentlemen. Most of my questions are answered. I guess my remaining question would be, could you disclose the average realized price from iron ore in the quarter based on the sales you reported in the mining division? Thanks.

So we haven't really disclosed the actual average realized. It closely follows the reference. Clearly we have some lag effects. And I think you know the reference price.

Okay. Thanks.

Chuck Bradford, Bradford Research

Yeah, I've got a two-part question on tubular products. First of all, have you seen any effect on your orders because of the reduced energy cost? And then secondly, what kind of impact can we see from the reduced energy cost? How much oil, for example, do you burn in diesel and other things? That might be helped.

I mean it's a good question, Chuck, because I would say it's one of the-- and this is speaking primarily about NAFTA here. But it's one of the areas that we want to be monitoring, looking into next year. We've not seen any softening directly yet. But as we look at the broad range of markets. I mean I think we see kind of a green light on every market. And I wouldn't say we see evidence of softening in energy, but we've been thinking that that's a possibility, given the decline in the oil price.

But again, we haven't seen any evidence yet, but that's something to monitor, if you will. But I think that's again, no direct effect seem to be.

I think it's aligned with (inaudible) in the sense that we have not seen any effect for the moment. The market of energy is still going strong. So for the moment we have not seen any impact, maybe NAFTA, maybe Europe and the Middle East it continues to be strong.

Okay. My second question involves coking coal. Usually by now you've done your contracts for next year. Can you tell us how much lower the price will be? And at what level?

I think we're down a bit Chuck, but I can't get more specific than that.

Okay. Thank you.

[Alain], (inaudible)

Yes. Good morning. So I would have two questions, please. The first one is whether the slab for export concept is becoming again a variable proposition, beyond shipments to Calvert. And what's your view on the merchant slab market going forward?

And second question, just wondered if you have prepared yourself in terms of raw materials [or similar] inventories for the kind of weather we have had in the US last year?

I think we should be-- we should not take away from this call that the slab business on a global basis has become very attractive. I think that's the wrong conclusion. I think what we have been trying to say is that our operation in Tubarao are going well. Recognize that we were running this operation at less than design capacity at 5 million, now running it at 7.5 million tonnes. That does provide a benefit.

These slabs are going to Calvert. And the US market has a price premium, and that is helping the performance of this operation. So I don't think our views of the slab market have changed. I don't think there is a fundamental difference here. I think the benefit we're seeing in our result is the benefit of blast furnace 3 restart at Tubarao due to Calvert. And number two, clearly the devaluation is also helping.

Okay.

Cedar, Bank of America

Thanks very much. Guys, one question on the utilization rate situation in Europe. There's a perception in the market that there's a lot of overcapacity in the region, and yet margins are holding versus the raw material cost. Can you give us an idea of your own capacity that you could reasonably turn back on and what you need to see to take that decision? Thank you.

Thank you, Cedar. I think in terms of our strong metal, especially in Western Europe, we are running all of the blast furnaces that can be run. We're running 16 out of 16 blast furnaces in Western Europe. So really we cannot turn on any capacity. We have the opportunity to debottleneck, to improve operating performance, et cetera, et cetera, which we will continue to do to capture the growth.

We have leverage in Eastern Europe, and that will be dependent on how the Eastern European market shakes out.

Okay. Thank you.

Thank you for participating in third quarter's call, and look forward to be talking to you in the month of February.