ArcelorMittal SA (MT) 2014 Q4 法說會逐字稿

Good morning and good afternoon, everybody. This is Daniel Fairclough from the ArcelorMittal Investor Relations team. Thank you very much for joining us today on this conference call to discuss the fourth quarter and full-year 2014 results. We will have a brief presentation from Mr. Mittal and Aditya followed by a Q&A session. The whole call should last about one hour, maybe just over one hour. So we are limited by time so if I can ask each person to restrict themselves to two questions in the first instance, we would appreciate that. (Operator Instructions) With that, I will hand over the call to Mr. Mittal.

Thank you. And good day to everyone and welcome to ArcelorMittal's fourth quarter and full-year 2014 results call. I am joined on this call today by all the members of the Group Management Board and Bill Scotting, Head of our Mining. Before I begin the presentation, I would like to make three key points. My opening point is improvement. I'm pleased to say that once again our results demonstrate continued improvement in our operating performance. Despite a backdrop of significantly lower iron ore prices, we have delivered higher EBITDA in 2014. Particularly gratifying is the improved performance in our Europe and ACIS segments. My second point is progress. We have made notable progress on our strategic objectives during the year. We shipped more steel, we increased steel margins by $15 per tonne, we expanded mining volumes, and reduced costs.

We reduced net interest costs significantly and together with a focus on working capital and CapEx efficiency, we delivered good cash flow performance. Positive free cash flow allowed net debt to fall to its lowest level since the ArcelorMittal merger. Our balance sheet is in a good shape. My third point is on the outlook. While there are challenges in some markets, we are a diversified business and overall volumes continue to grow. Yes, the iron ore price has declined further in recent months; but lower oil prices, lower freight rates, and weaker exchange rates offset this to some extent. We will continue to improve our cost position both in steel and mining. All these factors considered, I expect EBITDA within a range between $6.5 billion to $7 billion in 2015. I will begin today's presentation with a brief overview of our fourth quarter 2014 results followed by an update of our recent development.

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 and targets for 2015. As usual, I will start with health and safety. The lost time injury frequency rate in 2014 remained at 0.85 times. On the left hand side, you can see the clear progress we have made over the past eight years demonstrating our commitment to this priority, but we must continue to improve. A specific focus in 2015 will continue to be on training of the human factor that are positively impacting health and safety behavior, contractor performance, as well as on actions to avoid repetition of past fatal accidents. Turning to 2014 highlights shown on slide number 4. As I mentioned in my opening remarks, in 2014 we delivered improvement in our underlying profitability with 8.5% growth in EBITDA.

Steel shipments increased in line with our expectations at 3%. Our steel margins rose by $14 per tonne reflecting our cost optimization efforts and the benefits of lower raw material prices. Our market-priced iron ore shipments grew by 13.2% to just under 40 million tonnes. Yes, we did report a net loss in the year 2014, but this is largely the result of non-cash effects such as the impairment of our China Oriental investment. Stripping these effects out, we would have had a positive net income in 2014. This is better reflected in our cash flow performance. Again, we were free cash flow positive in 2014 allowing us to close the year with a net debt of $15.8 billion. I want to spend a few more minutes on the improvement in our underlying profitability on slide 5.

As I stated earlier, EBITDA increased for the Group by 8.5% year-on-year basis. Clearly, the lower iron ore prices was a headwind and as you can see, the mining segment EBITDA contracted sharply, but this was offset by a strong improvement from the steel segments. The steel EBITDA rose by 27.3% year-on-year and remember, this would have been higher still had it not been for the increased cost associated with the extreme weather in North America at the beginning of 2014. So as a Group, we have made steady progress towards our target of $150 per tonne, but there's clearly more to be achieved. Further improvements are expected to be generated through our continued cost optimization efforts; the benefits of our focused investments in steel, the improvement of our AACIS segment, and the benefits of operational leverage to steel volume recovery.

While this may well take time, it is important to recognize the progress we are making, particularly within our steel business. Next slide number 6, I want to talk in little more detail about the expansion of our steel margins. When I compare both fourth quarter performance and full-year performance with last year, I find it encouraging that with the exception of Brazil, all the steel segments have reported higher per tonne profitability. In Europe, I'm again pleased to see the continued improvement in [ARM] results. Fourth quarter EBITDA per tonne was $15 per tonne higher than year ago levels. For the year as a whole, the margin improved by $18 per tonne. I think this clearly demonstrates the results of our cost optimization efforts as well as better market conditions. The results of our ACIS segments also show clear progress.

Fourth quarter 2014 EBITDA increased $29 per tonne as compared with fourth quarter 2013. Similarly for the year as a whole, we improved the margin by $23 per tonne. Looking at Brazil performance on a per tonne basis draws the wrong conclusions. Market conditions remain challenging, but performance has improved from third quarter levels. Comparing the fourth quarter with the same period of 2013, the weakness in the domestic market has been partially offset by higher slab export volumes following the restart of the third blast furnace in Tubarao back in July. These slab exports are lower margin than domestic sales so do have a dilutive impact in terms of EBITDA per tonne. But overall, EBITDA in Brazil segment was 10% higher in fourth quarter 2014 than the same period of 2013. The result for the year as a whole was down only marginally as compared to 2013 level in Brazil.

Turning to our mining segment on slide 7. During 2014, our market priced iron ore shipments increased by 13.2% to 39.8 million tonnes. For 2015, we expect another 5% growth primarily driven by further debottlenecking at Mines Canada partially offset by lower marketable shipments from Brazil. At AMMC, which is Canadian Mine, we are seeing the benefits of the expanded capacity. For the full year, we produced 23.3 million tonnes, nearly 30% higher than 2013. But in fourth quarter we also hit 26 million tonne production run rate, above the nameplate capacity of 24 million tonnes. So, this was a strong quarter and really highlights the potential of Mines Canada to stretch its production. On Phase 1 operation Liberia, continues to produce and ship at the 5 million tonne rate. The development of second phase remains delayed due to the ongoing Ebola situation.

The force majeure remains in place making it difficult to estimate the impact this will have on the project schedule. Cost performance in 2014 in the mining was good, a particular highlight was Mines Canada where fourth quarter costs were at 25% below the average level of 2013. This cost improvement reflects not only the benefits of higher volumes, but the ongoing streamlining efficiency improvements and procurement savings. I expect further improvement in 2015, overall iron ore unit costs are expected to decline by at least a further 10% or more. Now, I want to spend few moments recapping on the progress of our global automotive franchise. Last year we shipped 13 million tonnes of steel to the automotive industry making us the Number 1 supplier. The markets we are serving are growing. Projections for vehicle production to reach 103 million vehicles in 2018, that is 19% above 2014 levels. This arising is more from China.

We have the capacity, product portfolio, and reputation to ensure that we capture our share of this growth. As you know, during 2014 we acquired ArcelorMittal Nippon Sumitomo Calvert, the state of the art finishing facility in Alabama. Since taking ownership, we have made solid progress and the integration of Tubarao Mexico and Indiana Harbor as slab suppliers to the joint venture is progressing. But it will still be some time before we are delivering high volumes to the target customer base. So far, Calvert is approved on 157 of 182 identified automotive qualification packages with 20 or more new qualifications that are targeted in 2015. At ArcelorMittal, we remain confident that steel will remain the material of choice for automotive. We are the leader in providing lightweighting products and solutions to our automotive customers and believe these offerings are very attractive relative to ultimate materials.

On slide 9, I will discuss the topic of CapEx. CapEx on maintenance levels remain very selective and focused on supporting and developing our franchise steel businesses. In 2014 our CapEx spend was $3.7 billion, of which $2.8 billion was maintenance and $900 million was growth. CapEx spend in 2014 was higher than that of 2013 due to extensive completion of relines. We have relines at Newcastle blast furnace No. 5, Temirtau blast furnace No. 3, Ukraine blast furnace No. 6, and Indiana Harbor blast furnace No. 7. For 2015, CapEx is expected to be lower at $3.4 billion. Our spend on growth CapEx will be lower and it's focused on a few selective steel projects. Before I turn to the outlook, I want to spend a moment recapping on the progress we made in 2014 on our strategic priorities, targets, and objectives we set out at our 2013 Investors Day.

Starting with EBITDA, we have a medium term target of achieving $150 per tonne. We are progressing along our roadmap. Despite the impact from iron ore, we increased EBITDA per tonne on an underlying basis to $90 per tonne in 2014. In 2013 we established a medium term shipment target of 95 million tonnes. This is an important driver as we have significant operating leverage to higher volumes. In 2014 the Group shipments increased by 3% in line with our expectations due to expansion in our core markets of NAFTA and Europe. Moving to net debt. Despite the repayment of $700 million perpetual, net debt in 2014 declined to its lowest point since the ArcelorMittal merger. We expect to remain free cash flow positive in 2015 and make further progress towards our target. Moving to management gains. It is essential in this environment that we continue to drive costs out of the business.

We set out a three-year plan to achieve $3 billion of improvements. Two years into the plan and we have achieved run rate saving of $2.1 billion so we are on track. Finally on iron ore, due to the Ebola situation, we will not hit the 84 million tonne iron ore capacity target by the end of this year. In this environment, our priority has to be on reducing cost and I think we are doing a good job in this regard. Next, I will discuss our market outlook. As you can see on the chart on the right hand side of this slide, ArcelorMittal shipment weighted global PMI has stabilized over the past few quarters. But importantly, it has been consistently above critical 50 level. This indicates continued growth in demand for our steel. Real underlying demand continues to grow across our key developed markets. I expect real underlying demand to continue growing particularly in the auto machinery and non-residential construction sector as well as domestic appliance in United States.

Moving to Europe, we expect cheaper oil to boost consumer spending while the weaker euro will help manufactured exports so I continue to expect European demand to grow in 2015. Indeed our European business is seeing good order flows for the first quarter and continuing improvement over the same period of last year. Chinese industrial indicators continue to point to deceleration. Demand from the real estate remains weak, but overall I expect underlying real demand to remain positive even growth in other steel consuming sectors; notably passenger car assembly, machinery, railway investment, and the expected pickup in shipbuilding this year. Brazil demand seems to be stabilizing at a low level. The major casualty of weaker oil price is Russia, which is moving into a severe recession. Now on slide 12, I want to highlight our forecast for apparent consumption growth in our Q regions. After all it is apparent rather than underlying demand that will drive our shipments in 2015.

Starting with US, due to the impact of restocking in 2014, I would not expect further apparent demand growth in 2015 rather I expect it to stabilize at what is a high level similar to we were in 2007. In Europe, I expect that continued real underlying demand to translate into our further positive apparent demand growth in 2015 within a range between 1.5% up to 2.5%. In the third quarter we had given the range between 1.5% and 2%. In Brazil, we expect apparent consumption to recover somewhat following the significant contraction in 2014. On a global basis, we are forecasting apparent steel consumption to increase by approximately between 1.5% up to 2% this year. Given the Company's specific geographical and end market exposures, we expect ArcelorMittal shipment to increase between 4% and 5% in 2015. Approximately half of the increase will follow as a result of the completion of the Newcastle reline in South Africa as well as the full-year effect of the restart of blast furnace No. 3 in Tubarao, Brazil.

Now, I will hand over this call to Adit, who will discuss the fourth quarter 2014 financial results and 2015 guidance in detail.

Thank you. Good afternoon and good morning to everybody. Let's start with slide 14, which is the EBITDA bridge. Here we show the EBITDA progression from $6.7 billion in 2013 on an underlying basis to $7.3 billion in 2014. This shows an underlying improvement of 8.5% during the year with improved steel performance offset by weaker mining performance and foreign exchange headwinds. Steel shipments improved during the year contributing to a $0.5 billion increase in EBITDA. Volumes have primarily improved in Europe and NAFTA business. The key driver of the improved steel result this year is the positive $1.1 billion steel price cost effect. We can see the benefits in Europe, AACIS, and Brazil offset by weaker NAFTA performance, which has been impacted by the one-off weather impacts in the first half of 2014.

In our mining business, as you can see, the impact of the lower iron ore price is clear although this was partially offset by improved cost performance with the net impact a negative $0.9 billion. The expansion of ArcelorMittal Mines Canada is also a significant contributor to the expanded mining volume, which contributed $0.2 billion for the year. Moving along the bridge, you can see a negative $0.2 billion impact from others. This represents translation losses following the strengthening of the US dollar against Brazil and Europe primarily. Moving to the next slide on page 15, we show the EBITDA progression from 3Q to Q4 2014. Again, overall steel performance has improved during the quarter despite steel shipments declining in Europe, NAFTA, and AACIS as this was more than offset by improved price cost impact with significant improvement in our businesses in Brazil, Europe, and NAFTA.

Mining performance deteriorated during the quarter primarily due to the impact of declining iron ore price offset in part by improved cost performance with a net negative impact of $121 million. Moving along the bridge, we can see a negative $89 million impact from others. This again represents translation losses following the strengthening of the dollar. Moving to slide 16, we show our P&L bridge. We will focus on the chart in the upper half of the slide, which shows the bridge to fourth quarter. During the quarter, the Company booked impairment charges of $264 million. We also booked an impairment of our investment in China Oriental. This led to a loss from investments associated with joint ventures in the fourth quarter of $380 million as compared with income of $54 million in Q3. Net interest was also lower, it was 5% lower in Q4 primarily due to savings following early redemption of US bonds.

Foreign exchange and other net financing costs in Q4 was $549 million as compared to $657 million for the third quarter 2014. Foreign exchange and other net financing costs for the quarter were negatively impacted by $316 million of foreign exchange losses, which are largely non-cash and relate to the impact of the US dollar appreciation on euro denominated deferred tax assets. We reported a net loss of $1 billion for the fourth quarter driven by these non-cash impairments and ForEx impact as just discussed. If we exclude impairments and other non-recurring items, net income would have been breakeven. Moving to slide 17, we will discuss cash flow performance for the year. As you can see on the left hand side of this chart, we show the net debt bridge between 2013 and 2014.

During the year, we have managed to reduce net debt by $0.3 billion from the $16.1 billion at the end of 2013 to $15.8 billion at the end of 2014. The improved cash flow has come from improved results, working capital efficiency, and reduced net interest expenditure during the year. In addition, we repaid $0.7 billion of perpetual securities and made dividend payments of $0.5 billion, which was offset by M&A inflow and positive impact from ForEx. As a result, we had the lowest level of net debt since the merger. Our expectations is that we will remain free cash flow positive in 2015 and as a result, while net debt is expected to follow a normal seasonal pattern, we will make overall progress towards the medium term net debt target of $15 billion.

Let me now talk about our guidance and targets for 2015. This is on slide 18. For the Group as a whole, we expect EBITDA within the range of $6.5 billion to $7 billion. We expect profitability from the steel business to be broadly similar to 2014 levels. We expect our steel shipment volumes to increase by 4% to 5%. Half of this increase follows the completion of the Newcastle blast furnace reline late last year and the full-year impact of the restart of the third blast furnace at Tubarao. The improvement in volumes together with improved cost performance are expected to offset the impact of lower transaction prices as well as the headwind of translation. Moving to the mining segment. Assuming that current market conditions hold for the rest of the year, we will have a significant negative impact from iron ore prices.

However, we would expect at least one-third of this impact to be offset by a moderate increase in volumes; but more importantly, improved cost performance including the benefits of foreign exchange, energy, and freight. Moving below the EBITDA line. You should expect a decline in net interest costs of approximately $100 million and a reduction in CapEx of around $300 million on a year-on-year basis. As a result, even at the bottom end of EBITDA guidance range, I would expect the Company to be free cash flow positive. Our guidance on net debt would be as follows. Expected to follow the normal seasonal pattern, including an increase in Q1, that over the course of the year we will make progress towards our target of $15 billion.

That concludes our remarks and we'd be happy to answer your questions. Thank you.

(Operator Instructions) Mike Shillaker, Credit Suisse.

First of all, just looking at the steel market, obviously there seems to be a big market share war going on in the export market right now given the Russian cost curve move, the Chinese appear to be running for cash, and at the moment the corrective action of steel prices seems to be no sort of immediate respite to or no immediate floor to where the steel price goes. So first and foremost, what do you think gives? Do you think the Chinese cut output, do you think the Russians implement export restrictions or similar, or do you think the steel price keeps falling? The second part of the same question is within that context, what steel market is effectively baked into your guidance? Is it steady state as of where we are now, do you a bake in a deterioration going forward, or do you actually bake in any kind of improvement? So, that's question number one. And question number two is on the net debt side, can we expect any further material net working capital reduction coming through this year? Noted on the last quarter there was around $1 billion or so, but can we expect further working capital reductions ahead? Thanks.

In terms of your declining steel market scenario, I think that's more aggressive than what we are seeing. We're seeing transaction prices under pressure in NAFTA and in slab exports. But in Europe we continue to focus on improving margins and we continue to make progress on that. When you look at Brazil, even though we have a weak macro economic situation, we continue to make progress in terms of maintaining margins and growing our business in Brazil. In terms of just answering your question on exports, I think even in 2014 there was a significant increase in Chinese exports, steel EBITDA grew by 27%. So far today, we have not yet seen the impact of Russian exports into Europe, I expect that to occur.

But we do have a business which is catered to high-end customers in Europe, which require short lead times, higher service offerings, important quality requirements. On top of that, the euro has weakened so it's not such an attractive export destination and Europe has actually become even more competitive in the export market. So, I don't see such significant impacts as you characterize. Plus in the US, I mean Lou can talk about it a bit more, I think the situation is exacerbated because of the inventory overhang rather than the flood of imports. Moving to your question on what is our steel guidance on EBITDA. I think the guidance reflects current market conditions. If you look at it on a regional basis, Europe follows a normal seasonal pattern i.e. the second half is slightly weaker than the first half.

In terms of NAFTA, we forecast that this inventory overhang will reduce as the quarters go by and is more a first half phenomena than a second half phenomena and the price environment as well as the volume environment should normalize. In AACIS, we continue to do a good job in our operations in South Africa and Ukraine. Kazakhstan has its own issues because the currency regime has not normalized to the levels that we see in its neighboring countries i.e. the Kazakh tenge has not devalued in line with the Russian ruble. We expect Kazakhstan to become more competitive and that again is a second half phenomena. So without getting very specific, I think that provides with you a flavor of how we are seeing the global markets.

In terms of net working capital, I think in Q4 we always have a release and in Q1 we always have a build. Overall net working capital released about [$370 million] in cash. Not providing a specific number for 2015, but I think some of the trends are very similar. I think transaction prices are lower in the commodity sphere so that provides a release of working capital. Volumes are slightly higher that we are budgeting in 2015 versus 2014, that will be an investment. And the level of efficiency we achieved in 2014, I don't expect a similar increase in the efficiency in 2015. So I do expect working capital to be positive, but I think it's too early to give a specific number on that. I think the key point is that within our EBITDA guidance range, we expect to be free cash flow positive.

Lou, can you comment on US?

So I think just to reinforce what Aditya said, we have a situation where we have excess inventory to some degree driven by the surge in imports, but that has built up as well. I think the most recent statistics for the service center segment is about 2.7 months on hand, the normal or stable level should be 2.3 months so that's not a dramatic oversupply or dramatically excess inventory, but we are in a process particularly given the imports flow coming in of working through that. So, the underlying demand we think is positive. As this inventory overhang gets through, then we think that underlying demand should take over and drive some recovery in that market.

(technical difficulty)

We've got a couple contracts, I don't know that it's appropriate to comment on them individually. But to a certain extent, the larger contract is not driven by world iron ore prices, but it is variable related to some price indices in the US; an important aspect of it as an isolated variable is energy costs in fact as well as the finished product price of some of our products.

Thank you.

Mike Flitton, Citigroup.

Firstly on Brazil, I'm just wondering about the guidance for 1% to 2% apparent steel consumption. In the context of potential electricity rationing, which we're hearing more about and becoming more of a base case certainly at our houses, what is the risk to these numbers if you do see electricity rationing? How much of that risk is actually included in those numbers and if it is not included, what could be the impact? I mean could we actually see a negative number there, potentially 5% down, 10% down? That will be the first question. Secondly, on iron ore a little more strategically in terms of integration and your strategy of being integrated, given the iron ore price moves we've seen, I mean how much value do you still see from being integrated? Does the question arise regularly whether you should still integrate it or is it the case at the moment you still think there's a lot of low hanging fruit in the cost base to keep this as a sustainable business if we have continued weak iron ore prices? Thank you.

Lou, will you like to answer on Brazil?

I think Brazil, it's a very good question, but I would say our perspective there is based on recognizing we've had relatively weak macroeconomic conditions in Brazil for at least the past couple of years. I think with the new government being in place now, there have been some I think very well received appointments of ministers in the economics area. Some of the steps they are taking in fact may suppress demand in the short term, but I think they are very important for the fundamental growth of the economy there. So, there's some positive signs. I think that [as per] Mr. Mittal's comments that we see some growth areas because we saw reduced inventories last year, you don't need to see significant growth to see some uptick in apparent consumption, than this year.

On the drought front and electricity challenges there, we actually are relatively self sufficient in electricity and we've been able to sell electricity into the grid. That's been a material contributor to some of our results last year. But certainly if the drought continues, then we all face the risk that there would be some cutbacks that would be imposed and the longer-term effects, we'll have to see about that. I would also point out though that roughly half of our volumes in Brazil are exported so that there's still room for us to perform well and maintain shipment levels even should the growth in Brazil be a bit less than what we expect in our projections.

On the iron ore vertically integrated business, clearly we have two kind of iron ore business. One, which is part of our steel business and second, we have the marketable iron ore. And this vertically integrated iron ore or the coal facilities are part of our value chain, which cannot be separated from the steel business because if there is no iron ore, there is no steel business in those places and if there's no steel business, there cannot be business for the mining. They are in the same locations and they are very far from alternate solutions. Even if we have to close our mines in Kazakhstan or Ukraine, the alternate solution is prohibitive to produce steel and they are located very conveniently and very close to the operations and similarly those mines are very far for exporting so find another customer.

So, I would like that this should be considered as a part of the same value chain and we have seen that they have been very value created in the past and we have a challenge at this time maybe in Kazakhstan where the iron ore prices have dropped, but the currency has not aligned itself to the neighboring countries. But in places like Ukraine where this integrated iron ore business is helping to improve the competitiveness because the currencies have depreciated, at the same time we have continued to improve our cost bases in Ukraine and in Kazakhstan. So, I think this vertically integrated model in these countries is a very sound model and we will continue to pursue this.

At the same time on the marketable iron ore, we see the opportunities to grow like Canada where we have already released the capacity of expansion. When this business was approved, it was not based on $100 price of iron ore, it was valued on $70s. And now with the change of the currencies, reduction in the oil price, energy price, freight cost; as Adit said in his comment that one-third of this fall in price can be offset by these positive external factors. And plus, we will continue to initiate further cost reductions and production improvement to bring Canadian mines to first quarter. So there are lot of efforts going on and there are opportunities here and at the same time, vertically integrated business model is sound for these companies.

Okay. Thank you very much.

Alessandro, JP Morgan.

One, taking a look basically on what you just said that you expect steel margin expansion to continue in Europe. Is it also including the distortion of the FX in translation from euro into US dollar? And the second one, just would like to get your position on this kind of first signs emerging of potential anti-dumping cases against Chinese, in Asia, in India and also Russia; apparently Turkey is pushing for a kind of probe into the dumping of Russian material. What is your position on these cases? If we compare this to the stainless steel that actually is enjoying an investigation already from Europe because apparently I mean I can't really see the major difference. There is a lot of material that is flowing through Europe; but on the cash cost basis, stainless steel is significantly more competitive in China than actually carbon steel is on the cash cost side and also considering that the renminbi has not really depreciated much versus the US dollar? Thank you.

Well, I don't provide a specific guidance on Europe I think as we get dragged on to providing segment guidance. So I won't be very precise in answering your question because if I am, I almost imply what the EBITDA for Europe would be in 2015. I can give you a sense of what are the drivers. So, I think one of the key drivers in Europe is continued volume growth. We continue to see the Eurozone doing relatively well so in other words, we are cautiously optimistic on the prospects of Europe in 2015. Various segments, auto even construction is showing marginal growth, machinery showing marginal growth supported by all the economic factors, which we discussed in our presentation. We are also seeing that there is positive price cost effects in Europe. Our costs are still coming down, prices are stable to moving up.

We see also more value in exports because now we get dollars as we export and that translates into more euros per tonne. Our expectation is that these positive factors would outweigh the negative translation impact and therefore Europe should be a good story in 2015. In terms of anti-dumping, I think everyone is very vigilant. It is very important that we have a fair trading environment for steel business on a global basis. We are also vigilant on carbon steel. The level of imports, as I mentioned earlier to Michael, has not really increased that much in Europe so far. Maybe it has to do with the euro weakness which we saw in Q4, for example the Russian imports were down and so far we have not seen the immediate impact. I'm not suggesting that it won't happen, I think it will happen and clearly the appropriate focus is there. In terms of the US, I don't know if Lou would like to make any comments.

We clearly have a very substantial surge of imports. We are over 30% in January still and that's a tremendous concern within the industry I think in Washington, et cetera. So, people are working very hard to see if we can address that. Obviously some of the developments in the marketplace might tend to help us out on that front, but I think people as always in the US, they are very aggressive and active on that front.

Is it possible to assume that I mean if the things do not improve in the short term, we might be seeing an action as the one that is being carried against the deals which you import in the US?

I think what is fair to say at this point in time because some of these things are confidential is that our guidance is not assuming any trade actions.

Thank you very much.

Jeff Largey, Macquarie.

I wanted to just sort of return to the mining business. I was just curious I guess specifically with Liberia Phase 2, I mean where do we go from here? I mean the project is kind of spinning its wheels given the Ebola breakout. I don't know how long it necessarily takes to say remobilize the construction efforts there, but I'm just wondering if we're looking at bringing on more capacity in a market that's kind of already awash in iron ore and obviously you guys already have some substantial exposure there. So, that's kind of just my first question about sort of the continued iron ore expansion and the strategy going forward.

In terms of Liberia, as mentioned in force majeure we have the Ebola there. I don't have a line of sight on that. It is improving month by month, but there is still regional risk and the World Health still advises against non-essential travel there. We were doing the offshore activities, onshore really curtailed to de minimis. We are now written to some contractors, we've completed a lot of the critical offshore activities; but until I have a clear line of sight on the Ebola, we can't resume or start new activities at this point in time and we don't envisage the imminent remobilization. Of course, we'll update when we have a line of sight on that. Nevertheless Liberia is still a good prospect for us. We have the resource base, it should be low cost operation, we have the infrastructure. The issue in the DSO is product quality, we are upgrading it. If we get rid of the discounts in the market, we will then have a premium quality (inaudible) for the market. So, the strategy for that still remains there, we assess the approach as the Ebola situation evolves.

Your second question?

On the second question, I mean this is probably not an easy one to answer. But I'm just trying to understand when it comes to currency, if we look at like the strengthening US dollar versus if all else is equal, I mean is this a net benefit or is it a net negative for you? I know granted there's a lot of moving parts, you have currencies moving all over the place; but I just want to try get a sense. Generally speaking, we're seeing weaker currencies against the US dollar, what does that mean net-net?

I think on a net-net basis for 2015, we are suggesting that that's negative because when you look at just our guidance framework, we talked about the two positives being volume and cost; this is I'm talking about steel; which should offset the translation impacts as well as weaker transaction prices in a flat market. When we talk medium to longer run, we can speculate, but it really depends on what is the rate of inflation in the countries in which these currencies are devalued. Maybe to provide a little bit more color on how we think about it, I think there are three impacts that occur. The first is what we just spoke about, that's the translation impact. For ArcelorMittal in 2015, that's most pronounced in Europe and in our Brazilian results.

That's primarily because those are predominantly local or regional economies, they have local revenue bases and they have some dollar cost, but they are primarily local cost base facilities. And then you translate their EBITDA, you might have their EBITDA as increasing because they become more competitive on a translation basis, that can be a negative headwind. The second impact, which is also usually quantifiable, is the impact on businesses that we have which are dollar-based revenues. So if you look at it on a global basis, it's really two or three things. It's AACIS, which is predominantly dollar based followed by our Mines Canada business or Liberia and then followed by even the fast growing Canada, which actually has a significant dollar exposure because it is in the NAFTA market. Those businesses are beneficiaries in 2015 and we talked about the impact of mining in 2015 having a lower cost base.

As a result, clearly in AACIS we will see benefits of a weaker Ukrainian currency in 2015 (inaudible) results. As I mentioned earlier, Kazakhstan has not had that benefit yet, hopefully it occurs in the second half. The third is the indirect benefit. I mean I talked about the negative benefit on Europe and Brazil being translation, but fundamentally Europe has become much more competitive and so has Brazil and this should promote a higher rate of growth if nothing else. In terms of steel consumption, these economies are more competitive in terms of exports and using local products. So net-net in 2015, we have a negative headwind due to translation. But in the medium to longer run, this should be positive for us because more than 50% of our businesses are in non-dollar environment and as they become more competitive, overall ArcelorMittal should benefit.

Okay, great. That's very helpful. Thank you.

Seth Rosenfeld, Jefferies.

This is Seth Rosenfeld at Jefferies. I want to go back to mining if I can. Wondering if you can give a bit more color on your ability to cut operating cost with iron ore prices down like $35 per tonne year-over-year versus the 2014 average. You noted you expect a third of this with falling operating costs and FX and freight. Just given your past guidance of average iron ore OpEx of about $45 per tonne, that would imply about a 25% reduction. When I think about that versus what we've heard from your other mining peers, that seems a bit punchy perhaps targeting 10%, 15%. Can you just give us a bit more color between operating costs, freight, and FX? Where you see that really playing through to drive margin expansion or margin protraction in your mining business? Thank you.

Bill can provide a little bit more detail. I'll just describe it on a higher level. I think if you look at 2014, we had very similar performance where average prices for iron ore were $38 down and we had good cost performance in our mines. We talked of a 7% cost reduction and we can see that flow through because we did not have the full impact of the price reduction. When we look at 2015, apart from the continuing cost programs, we have a cost program which is worth 10% on an operating basis i.e. $4 a tonne; we had the benefits of FX, freight, and oil. And the combined benefit of FX, freight, and oil are the remaining $8 which gets you to the one-third number plus there's a volume as well and so that's why we are projecting that we should on an EBITDA basis be able to offset in excess of one-third of the impact of the price fall. Bill, can perhaps provide you with a little bit more color.

Underneath that, I mean a key one is Mines Canada because of its [softness] situation in the portfolio. You just saw it in the presentation there. We are making progress there. We were down in Q4 substantially, we expect to go down further next year. Part of that is through incremental volume coming there, another 2 million to 3 million tonnes, but equally there's improvements on the cost side. So we've been doing a lot on the operations, we're getting improvements in weight recovery, the stripping ratio will come down a little bit. This is all on the back of work we've done on the mine plan in the last 12 months to 18 months. We're getting efficiencies in terms of energy consumption, cycle times, the spirals have helped with the weight recovery and on top of that, we've got a global cost reduction program which is addressing SG&A, contractors, rentals, that sort of thing. So, it's a lot of effort and detail to drive that cost further down.

And I guess second question looking over at the NAFTA business, I was wondering if you can give us a bit more color on how you might be able to offset the falling steel price environment given your predominantly vertically integrated production base there I assume you have the natural hedges to either fall in iron ore scrap. I understand that Europe has the key focus of cost cutting programs historically. Is there a potential to begin a significant cost reduction program in NAFTA looking forward, something looking at your operating platform by region or on the operating cost side? Thank you.

I think looking at our NAFTA cost base, we still see some significant benefits in terms of input prices falling even if we are on the steel side in the US on the flat rolled side about 50% or so vertically integrated. So, we're still exposed to iron ore prices and metallics prices benefit from the energy prices coming down and so on. So, there are some good positives that can help offset any downward movement in sales prices. Now because of the way we account with weighted average costing, then that takes some time to work through the income statement, but the benefits are genuinely there. I think as Aditya mentioned, we have I think roughly 30%, 35% of our business between US and Canada is at Dofasco.

They benefit substantially from the currency movement so that continues to be a very healthy business. We're always working on the cost front and Mr. Mittal mentioned some broader initiatives on purchasing et cetera so that's always ongoing. I think we also feel that, although it's not something you can implement in a quarter, there are significant opportunities for us to rationalize our footprint. As you know, the US operations 10 years to 12 years ago were several different companies. There are still good opportunities over time we think to optimize that asset base and pull some costs out of the system through that. Again, that's a bit longer term, but clearly the opportunity is there, somewhat akin to the asset optimization program that we pursued in Europe.

If I can be cheeky, could you comment anymore on which of those assets or which of those regions or product areas there'll be the most overlap potential?

No, I think it's less on the market segments than it is let's say utilization of finishing assets. That's probably as far as I could go on that.

Thank you very much.

Carsten Riek, UBS.

My two questions circle around US. First one, US Calvert, you said it will take some time until you actually ship reasonable volumes to the automotive industry. Can you give the timeframe, what that reasonable time mean and what prevents you actually from shipping these significant volumes because it looks like you have most of the approvals at hand? Second question, the steel price drop in the US quite substantial, a lot of people fear that your EBITDA is completely wiped out over the next one or two quarters. How flexible is actually your iron ore contract structure in North America or let's rephrase it, what percentage of your iron ore contracts in the US you would consider at arm's length? Thank you.

If I address Calvert to start with, I didn't quite understand if you said shifting products because we're not doing that to shift orders from the north.

No, shipments not shifting.

No. I think this takes time to get qualified for parts and it requires us to bid on new parts that are emerging so this is something that takes time. I think we would look to certainly 2016. We already saw some good improvement in our automotive shipments out of Calvert in 2014. I think as TK had announced the sale of that asset, basically all that work more or less stopped. I think we'll see significant increases next year and even into 2017 before we say we've really kind of fully got into the loading from the automotive sector that we want to have in that business. We expect it to be quicker on the energy markets, particularly line pipe and so on, depending on what happens with energy prices and activity in that segment, but that's another area where we need to go through some qualifications process. So given the softness in the market because of the inventory adjustment right now and given that we don't have the contract business that we're aspiring to have and that we will have at Calvert, that does make it a bit challenging in the current environment.

Looking forward, I mentioned this inventory adjustment. I think this is something we just have to work our way through. Again, we think the underlying demand, the real demand in the US continues to be strong so sometime in the first half of the year we'd expect that inventory adjustment to be behind us and then we'll see that underlying demand come through. I think as I mentioned, we do have significant reductions in some of our input prices, again it takes a little time to flow to the income statement because of the way we account for it through weighted average costing. Finally, I think there was a question about iron ore and again, I would just repeat that we have a couple contracts and it's really with Cliff. They're somewhat complex, but by far the most significant one does have variability built into it not related to the iron ore price, but to other drivers that I would say also help provide some relief on that front as well.

Okay. So you can't say what percentage of your iron ore contracts you would consider more or less flexible because that was the real question?

It's about 80%.

That's mark-to-market 80%, right.

I was just going to say that's on the contracts as well so obviously it's not --.

Not all of our iron ore is contract based.

I got it. Thank you very much.

Philip Ngotho, ABN AMRO.

My first question is, sorry to return back again, but on iron ore price. I was just wondering if you can maybe indicate at what iron ore price you might actually start reconsidering the investments or the expansions of Liberia and Baffinland? And also related to that, the mid-term target is $150 EBITDA per tonne, but of course you communicated that last year when the iron ore price was high. I was just wondering if you could give a bit of guidance how much of the mid-term EBITDA per tonne you think would be if we just looking at the steel businesses so without the impact of any iron ore price increase? And my last question is on Brazil. Earlier it was mentioned that there was a material impact from selling surplus electricity on the grid. I was wondering what exact that contribution will be because this year I believe the Brazilian government has lowered the cap so the impact will of course be lower?

On the iron ore, if I understood the question. To go forward with Liberia, we always had conservative price forecast taken into account so at these levels, it's still something that we see value adding when and if we go forward and fundamentally it's a low cost mine and a high quality product. The constraint at the moment is the Ebola situation and the line of sight on that.

In terms of the long-term target, I think a fair assumption is $120 of EBITDA per tonne for steel. When we look at what we're doing in these markets, we can see underlying improvement. Europe is still below the levels of demand that we're seeing today in North America. In North America, Lou has alluded to some rationalization in the finishing end of the business. We are also witnessing pressure in the export market so that impacts our slab business, et cetera, et cetera. So the combination of all those factors, which we had discussed previously; (inaudible), management gain, AOP; our medium to long run target for steel does remain at $120 per tonne.

So, that was $120 per tonne, right?

That's right. I think we don't necessarily have to give a number on that.

Yes. And I think as we just discussed that, I don't even want to give a number on Brazil, I think this was a benefit we saw, a windfall if you will in Q4 and you're right that the government has put some caps on sales into the grid. We'll see how that works, but that would not eliminate certainly but would affect cap. The benefit we have from being a net energy producer particularly at our facility in Tubarao.

Okay. Thank you.

Rochus Brauneiser, Kepler.

A brief follow-up on NAFTA please. I guess based on what you said in terms of operating conditions, obviously it's getting worse before it's getting better and looking at your margin in Q1, probably if HRC drops in the direction of $500, probably your profitability gets somewhat squeezed further. Are you having any significant production cuts in place or are you considering any production outages like US steel has previously announced? Maybe can you comment on that? And maybe on Tubarao, I guess this is providing a lot of volume upside. Can you give us any sense of a production number, is it like 7 billion tones(sic) or more you're targeting there and where is the slab growth in 2015 going to? Is this kind of you're targeting NAFTA or how much would be in the rest of the global slab market? And then finally on AACIS, could you give us a bit of a better sense on what's on going in Ukraine? I guess there has been some issues if that's correct that you have to use now the local gas company rather than taking your own choices with significantly higher gas prices and a lot of electricity disruptions happening right now. Where do you can get compensation for such kind of factors and where do you actually get the core supply for Kryvyi Rih right now?

To start with NAFTA, again I think you're right, we have to get through this period if you will. But I would point out again we have a very rich customer mix and product mix, I mean we have a lot of contract business, a lot of automotive business, et cetera. So we're certainly affected by the spot market, but it's not our bread and butter there. In terms of production cuts, we are in this kind of environment where the orders entry is slow because of the people working through the inventory. It makes no sense to try to pump volume into that environment. So, we are in fact metering some of our blast furnaces. That's the approach we're taking. I think that will have a material effect on the volume levels and maybe even comparable to banking a furnace, but the approach is more to meter the ones that we're operating to run them at a somewhat slower rate.

So we are responding let's say in aggregate or in terms of the effect similarly to other producers in North America, but again more through running the existing assets a bit slower. We think that's a bit more efficient given that we don't expect this inventory adjustment to go on and on and on that that's a more efficient way to be able to come back when the market requires it. In terms of Tubarao, as we brought back the No. 3 furnace, now we're operating all three furnaces and the capacity of that facility, its proven production level is 7 million tonnes. We think that with the right tweaking and good operating practices et cetera, we can get it beyond that, but 7.5 million tonnes would be a target and an objective, but 7 million tonnes is a good number and the No. 3 furnace represents about a little over 2 million tons of production.

I think we probably are the largest supplier to the world slab market between our operation in Mexico and Tubarao; but the increment that the No. 3 furnace represents is ultimately if when Calvert is operating at a full level, that's the volume that Calvert would require and absorb. So certainly our longer-term goal and an important outlet for that production even for this year is that a lot of that material goes to Calvert. Again between Mexico and Tubarao, what goes to Calvert, that depends on the markets being served, et cetera; but I think the net effect for our exposure to the slab market once you factor of Calvert operating is relatively modest.

Davinder, would you like to comment on Ukraine?

Ukraine in 2014, we saw stable operations for most of the time. It was only in December that because of the electricity supply disruptions, we saw some effect on our production and in January also, we did have some impact carrying through. But since then we have recovered from these two setbacks, the supply of electricity is normal and our operation and the supply lines are operating normal as we speak. On natural gas, I think it's not a big lever whether we are buying through the government nominated agencies or through the private agencies. What is more important here is that we have strong programs of reducing our natural gas consumption, we have strong cost reduction programs, and what matters is that we are very focused on banking our foreign exchange benefits here. This is mostly export driven unit and there are many levers, which we are able to pull. Thank you.

Okay. Maybe just a housekeeping question. On your financial and I guess you guided on net interest expenses, any possibility to give us a sense where you on average see the other financial line progressing in 2015?

You mean which are the financial line, finance costs?

Everywhere you have other banking costs, derivative effects, and so on?

So the issue with that line is ForEx, which is that line captures the ForEx volatility on our balance sheet and in 2014 that was particularly high as we said, the euro weakened and we have a large portion of deferred taxes. Excluding ForEx, we tend to guide to roughly $1 billion or less. That captures interest on pension, bank fees, any other costs that we may have.

Okay. That's very helpful.

We're running a little bit short on time now. I think we've got about 15 minutes to run so we'll get through as many questions as possible. Tim Huff, RBC.

I just had two quick questions on the financials. One on the balance sheet, you've indicated that you like to make further progress towards $15 billion medium-term net debt target in 2015. Do you intend to try and hit or do you think it's possible to hit that $15 billion given working cap seasonality by end of the first half of 2016? And the second bit was on cash flows, it's helpful on the free cash flow guidance. But in a weaker pricing environment than you currently anticipate, would you be willing to cut CapEx in order to stay free cash flow positive in either 2015 or 2016? Thank you.

Tim, we are always focused on reducing net debt and the target remains and we're going to make progress in 2015 as well and expect to make progress in 2016 as well. To provide a timeframe on when we achieve that is not what we are trying to do. What we are trying to do is provide you with a framework on what the business is doing and how we are investing and cutting cost and developing the business. In terms of CapEx, CapEx guidance is $3.4 billion; roughly $2.8 billion to $2.9 billion is maintenance so there's $500 million in growth. The delta change between 2014 and 2015 is reduction in Liberia, Bill talked about that earlier, due to Ebola. At this point in time, we do not believe that there's any requirement to cut CapEx further. We expect even at the bottom end of our guidance range to be free cash flow positive.

Luc Pez, Exane.

One follow-up on Liberia. Could you remind us how many CapEx you've spent so far on the project and what remains to be spent? And additionally to that, how much do you need to spend each quarter for the project to be up and running and how fast and how costful would it be to restart the project here? That's my first question.

Your question is on how much CapEx we have spent to date on Liberia. Expenditure to date is $792 million for Phase 2. And I don't want to get drawn into a specific number for 2014. I mentioned it's considerably less than last year and $792 million was over the last two years so you can make an estimate on ballpark what that number is.

Okay. And second question is with regards to your volume guidance because even if I do restate for South Africa restart and Brazil restart, it turns up to me that your guiding on plus 2% to plus 2.5% growth in shipments, which seems a bit optimistic with regards to your own apparent steel consumption forecast. So, do you mean that you're willing to gain market share and be aggressive there? Thanks.

That's a good question. I think we have to be careful because apparent steel consumption in these markets represents the whole mix and as we highlighted, we are the leader in automotive, we are the leader in high-value added products, and we see those markets growing stronger or better than perhaps other segments. We see that in the US for example, our automotive production is up year-on-year driven by low energy, we see that in Europe as well. So, there is a mix effect. And beyond that, I don't want to comment anymore because our commercial strategy is proprietary.

Thank you.

Tony Rizzuto, Cowen.

[US] was targeting $30 per tonne iron ore all-in costs and there was increasing downward pressure on all raw material inputs and there seems to be difficulty in knocking out the higher cost capacity so we seem to be in a new world here on hot roll prices. Lou alluded to longer-term opportunities for rationalization, I'm hoping that maybe you can expand on that or perhaps on more of a strategic level, do you think we're entering a period where the onus may indeed be back on the more disciplined players in the market because the other guys just don't seem to be able to take capacity out? Just wondering about your thoughts there.

I think those are some very tight dicey questions for me to try and answer on this call. The one point I would say on the market in the US, again we recognize that a lot of the input prices are coming down and just as you describe, that inevitably is going to have some effect on the finished product prices. But we are also in a pretty significant now inventory related adjustment, we've seen these many cycles several times in the past and I think it's a little bit risky to extrapolate from that adjustment process to what the more stable environment's going to be. So again, we have to get through this.

I think the wild card is if you continue to have these sustained imports, but I think even there's some response there in a sense that I think if that continues, then the pressure in Washington will go up quite substantially. But once we're through this inventory adjustment, then I think we'll be in a more stable environment. Again, the underlying demand continues to be relatively healthy in North America so I wouldn't extrapolate too much from the environment we're in right now, which is really kind of an adjustment process and many downcycle inventory adjustment that we've seen several times in the past with the similar kind of an impacts and look like a buyers' strike if you will in the spot market.

My second question is do you guys plan any specific maintenance outages on either blast furnaces or hot strip mills in the US in either the first or second half of the year at this point?

We do have a scheduled rebuild, if you will, not a full-fledged reline; but significant work on one of the furnaces at Indiana Harbor that had been scheduled now really for a couple of years for some time this July. Otherwise there's no particularly dramatic maintenance outages or upgrades that are planned. In the traditional operations in the US, obviously you're always doing that kind of work and you're going to always try to time that as appropriate based on the market conditions and move some of those outages around so we'd continue to do that. But the only major work is again this summer on one of the smaller blast furnaces actually in Indiana Harbor.

Thanks very much, Lou. Appreciate it.

Phil Gibbs, KeyBanc Capital Markets.

I just had a question on the Chinese demand forecast that you had for 2015 and it's been publicized that their apparent consumption was down in 2014 maybe to the tune of 3%. So how are you seeing that growth evolve this year with the fact that the property markets look like a headwind and maybe you can elaborate on some of the comments that you made that you're seeing signs of stabilization in China post the stimulus because I don't think anyone's really touched upon that?

As per our analysis, Chinese apparent steel consumption in 2014 was negative 0.7% not 3% and the real consumption was up 1.5%. And for 2015, we think that Chinese apparent steel consumption will be in the range of positive 2% and real steel consumption about 0.7%. And though China's economy has slowed down, the housing market is low, and the lending is tight; we still think that now the focus is shifting to different segments that is the building of rail infrastructure, auto demand is strong, machinery demand is strong; so we are saying that this demand will generate from the different product mix other than the construction industry, et cetera.

Okay. Are you seeing at this point Chinese mills come offline in January before the Lunar New Year at this point in time and what do you anticipate after that?

We hear that between 2014 and 2015 China will cut capacity by 80 million tonnes and how much it happens before the shutdown, it is difficult to guess at this time. We will know in next couple of weeks whether they have really shut down during the holiday and they are not going to come back, but clearly they are under tremendous pressure. If you have seen in our impairment in 2014 balance sheet coming from China Oriental where we have invested because they're not making money and clearly all the exports what they are doing on marginal cost basis, they are subsidized. So, there is a tremendous pressure and we see that plus China government is starting to comment on improving the environmental conditions on all the steel companies. So, we hope that gradually at least there will be no increase in new capacities and people will start tapering off closing down some of the capacities; at some point in 2018, we will see the balancing of supply and demand. That is our best estimate at this time.

Thank you very much.

Steve Benson, Goldman Sachs.

The first one was just on the guidance framework so just a clarification. The $6.5 billion to $7 billion, that's based on iron ore at today's price? And did I hear correctly earlier in the call that after this destocking has finished in the US, you would expect prices at some point later in the year to be higher than where they are at the moment? I'm not trying to pinpoint a quarter, but that's baked into your guidance to get to $6.5 billion to $7 billion?

I think there was a question on how is first half versus second half and what I suggested what was baked in our guidance was that the NAFTA segment should do better in second half versus first half because this is an inventory overhang and the inventory overhang should ease as the months go by, second half should have better volumes and with that comes better prices. AACIS should also perform better in second half, there's lot of pressure on our Kazak operations because it's not as competitive as its Russian counterparts so we expect that pressure to ease. And in terms of Europe, we said the second half is seasonally weaker than the first. That is also baked into our guidance. And your question on iron ore is correct, yes, it is based on current market conditions.

Okay. And the second one was just on asset disposals. Is there anything else near term that you're looking at? Not to name names, but are there other asset disposables possible in the first half of this year?

So, we have a continuing program and there have been certain transactions that have also been announced and those benefits should also come through in the first half. But our guidance framework is that we will be free cash flow positive and that clearly excludes the benefits of asset sales. So, any asset sales would help us further reduce net debt. We continue to look at our portfolio and as we make progress on that, we will update you accordingly.

Okay. Thanks very much.

Bastian Synagowitz, Deutsche Bank.

My first one is on your guidance, how much retainable cost savings out of the total $900 million targeted managed gains have you baked into your guidance and then is this is fully separate to the initiatives you have mentioned in the mining business earlier? Even if you give us maybe a broad range, that would be very helpful. And secondly, on the balance sheet or pension specifically I guess, probably asset returns in the US and then also FX probably have been in your favor; on the other side, interest rates in Europe have probably been pushing up the European number in euro terms so a lot of moving parts. Maybe you could help us out on how the independent number has moved relative to the $8.7 billion number you reported last year? Thank you.

So in terms of management gains, first of all it's between both steel and mining, the $900 million. I think it's not appropriate for us to comment what exactly the number is. Historically, we had being seeing progress made and we can see that very clearly for example in our European performance where we had a very focused program on delivering better results. And when we look at what we have done in AACIS, we have a turnaround underway which is also helping. In terms of the overall number, 2014 is negative compared to 2013 i.e. we have an increase. The net increase number is approximately $800 million and this is through three geographies; US, Canada and Europe. It's a combination of factors, but it's primarily driven by lower discount rates.

Okay, got it. I mean just to follow-up again on the cash cost savings, so does it mean you've got this $900 million, but I really wonder so roughly how much of that, I mean I think in the past you've been giving probably retention rate of maybe closer to 30% so I wonder whether this is roughly what is really in your guidance. And then also given that you apparently have some additional initiatives, I would guess that probably the mining initiatives you have been speaking about earlier are probably not really included in the management gains, is that correct?

Daniel, you want to say something.

I think rather than getting too focused, Bastian, on how much of that $900 million we're expecting to retain and what are the sort of additional cost improvement we are expecting in the business in 2015 and what the split and breakdown is. I think the important takeaway from our guidance is that we are confident that we've got enough cost improvement to come through in 2015 to offset the headwinds that we've talked about. The price headwind in North America, the headwind to slab export business, and importantly the translation headwind particularly in Europe. So, I think that's the important thing that we've got enough confidence in our cost improvement in 2015 to offset those.

Okay. Thank you.

Jaap Kuin, ING.

On the medium-term guidance shipments target, 95 million tonnes, I was just wondering is it possible to realize that within your existing operations basically all your furnaces are currently running or do you really need to reopen additional furnaces to reach that medium-term goal? Thank you.

This is primarily based on debottlenecking. It's not based on the start-up of furnaces. So you can see that we are planning to increase shipments by 4% to 5% in 2015, part of that includes Tubarao furnace, which was down. But if you exclude the Tubarao effect, you're still looking at roughly 2.5 million tonnes to 3.2 million tonnes and that's in one year. So, we have the capability to debottleneck the missing assets to run them at even more optimum levels, reduce our cost base, and therefore we have the gain. As you know, there's quite a significant gain as we ship more steel, roughly about $200 million. We saw that come through our EBITDA in 2014 as well. So, 95 million tonnes achieved through debottlenecking measures.

Okay. Thank you.

So, this concludes our call this afternoon and thank you very much for participating on this call and looking forward to be talking to you next quarter. Have a good day. Thank you.