ArcelorMittal SA (MT) 2016 Q1 法說會逐字稿

Hi, good afternoon everybody. This is Daniel Fairclough from ArcelorMittal Investor Relations team. Thank you for joining us today on our conference call to discuss the first quarter 2016 results. First of all, I'd like to remind you that this call is being recorded. We will have a brief presentation from Mr. Mittal and Aditya, followed by a Q&A session. The whole call today should last about one hour. (Operator Instructions)

So with that I will hand over the call to Mr. Mittal.

Thank you, Daniel. Good day to everyone and welcome to ArcelorMittal's first quarter 2016 results call. I'm joined on this call today by Aditya Mittal, CFO and CEO of Europe; Simon Wandke, EVP Mining; Davinder Chugh, Senior EVP, CEO of Africa and the CIS; and Jim Baske, EVP and CEO ArcelorMittal NAFTA Flat Rolled; and Genuino Christino, VP and Head of Finance.

I would like to begin with some introductory remarks. Firstly, I want to make a comment on the operating environment. Clearly the market conditions have improved since we reported full-year results in early February. Rising steel prices in China have supported prices globally and this has been further supported by the rebound in iron ore and steel scrap prices. In terms of the short-term demand outlook, for our core markets this remains positive.

Although the momentum is positive, the steel price environment remains fragile, particularly given the excess production capacity in China.

The Chinese government has announced plans to tackle this excess capacity, but it will take time. ArcelorMittal will be closely monitoring the levels of imports into our core markets and we will continue our efforts to work with governments to ensure that our world-class domestic steel assets are given the necessary protection from unfair competition.

Secondly, I want go update you on our Action 2020 plan. In the United States, we continue to focus on the streamlining and optimizing our operations, building on the core strengths of each facility. In Europe, we are progressing with a transformation plan. The rationalization of duplicated resource is underway. The Cluster Leading Plants are now established and we are in the process of moving processes and sources away from the satellite finishing sites.

Now, I will begin today's presentation with a brief overview of our first quarter 2016 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 Adit. He will go through the results in greater detail and provide an update on our guidance and targets for 2016.

As usual, I will start with safety. The lost time injury frequency rate in Q1 2016 improved to 0.72 times as compared to 0.83 times in fourth quarter 2015 and 0.88 times in first quarter 2015. We can see the clear progress we have made in recent years, reflecting our continued focus on this priority. As you can see, frequency rate today is over 75% lower than the level back in 2007, post merger. As reported during fourth quarter 2015, ArcelorMittal launched the Take Care training program, a flagship program for health and safety, performance improvement in Europe. I'm pleased to see benefits, as we recorded lowest frequency rates in Europe during the quarter, but we must continue to improve. As a company, we remain committed to the journey towards zero harm and must ensure that all levels of the organization are focused on this primary objective.

Moving to the operating and financial highlights for the first quarter, as summarized on slide number 4. We've reported EBITDA of $900 million for Q1 2016. As we guided at our fourth quarter results in February, our first quarter 2016 steel performance was negatively impacted by the lagged effect of steel prices falling to multiyear lows. This impact has been partially offset by an improvement in steel shipments following the end of the destock in the US and Europe. Our mining business EBITDA remained stable in first quarter 2016, as cost improvement and higher realized prices offset seasonally lower shipments.

We have reported a net loss of $400 million in first quarter 2016. Excluding the exceptional deferred tax charge, the adjusted net loss of $200 million for Q1 2016 compares to an adjusted net loss of $400 million in fourth quarter 2015. As expected, there was a normal seasonal investment in working capital during the first quarter. Together with a negative ForEx impact of $500 million, this led to an increase in net debt to $17.3 billion. Clearly the reported net debt at the end of first quarter does not yet reflect the proceeds from the successful capital increase or from the sale of our stake in Gestamp.

Moving on to the Mining segment performance on slide 5, Mining EBITDA in first quarter 2016 remained stable as compared to fourth quarter 2015. This result was also just 14% below as of first quarter 2015. Considering a 23% drop in the iron ore reference price, this shows a significant improvement in our mining operations.

Market priced iron ore shipments declined 17% year-on-year. This reflects the revised focus on our most competitive operations. As you will remember, we closed the Volcan Mine in Mexico, and we have downsized our operations in Liberia. At the same time, we continue to increase production at our most competitive operation. Mines Canada production in first quarter 2016 increased by 7% year-on-year.

We have continued to implement aggressive cost-cutting measures, and as a result, we expect to remain on track to achieve our full year 2016 unit cash cost reduction of 10% year-on-year basis. Importantly, these measures have enabled the mining free cash flow breakeven level to reduce to $40 per tonne [ex] China.

Moving to slide 6, and the highlight of our steel performance. During the first quarter 2016, our steel-only EBITDA declined by 18.1% as compared to fourth quarter 2015. This was primarily driven by the lag effect of lower average steel selling price, about 8.7%, which was offset in part by steel shipments, positive 8.8%. The standout segment was NAFTA, improving underlying demand and an end of destocking supported a 19.2% increase in shipments. Costs also improved, but were offset in part by lower steel selling price, about 10.1%.

In Brazil, our performance continue to decline. EBITDA was negatively impacted by lower volumes, about 14%. Average steel selling price also declined significantly, about 16%, due to weak demand as well as Tubular business, following the currency devaluation in Venezuela.

In Europe, volumes improved again, following the end of destocking, but this impact was more than offset by the lag effect of weak steel prices, about 6.7%. Finally, we had a stable performance in ACIS division, as improved steel volumes and costs were offset by weak steel prices which were about 10.2%.

Let me now address demand. The ArcelorMittal shipment weighted global PMI has continued to remain above 50, indicating growth in demand for our steel. Our forecast for apparent steel consumption growth in our core markets of Europe and US remain as they were in February. Notably, though, we have again cut our forecast for Brazil. Given the ongoing recession in Brazil, the outlook for steel demand remains depressed. We now forecast a further 10% to 12% drop in apparent steel consumption this year compared to our previous estimate of 6% to 7% decline. Our view of demand in China, on the other hand, has marginally improved. Since the start of the year, we have seen stronger domestic sales and an acceleration of infrastructure spending supporting steel demand. Sentiment has also improved. Compared to our previous forecast of a modest demand contraction, we now forecast China apparent demand in 2016 to be flat relative to 2015.

On slide 8, I would like to highlight some of the key strategic progress we have made in 2016. Firstly, with the successful completion of the right issue, we now have one of the strongest balance sheets in the industry. Secondly, we have improved our ability to convert EBITDA to free cash flow through the reduction of the cash required by the business. The Company remains focused on operational excellence and the Action 2020 plan is now underway. And shareholders have voted at the AGM this week for a new long- term incentive plan for the employees that will only pay out if the EBITDA and cash flow improvement targets are achieved. Finally, we continue to make progress on portfolio optimization. We have recently sold our US long products division that is Vinton and LaPlace, and addressed our non-performing steel assets.

Before I move on, I would like to take a moment to update you on some progress in our global automotive franchise. At Calvert, I'm pleased to report we have completed the phase of the slab yard expansion of Bay 4 and minor installations for Bay 5, which will increase coil production up to 4.6 million metric [ton] per annum. Operations are ramping up well, our qualification package continue to increase and utilization rates continue to move higher.

Our lightweighting products and solutions to our automotive customers continue to be recognized by our customers. This was once again reflected by the highest achievable Supplier ranking by Ford and Supplier of the Year Award from GM. We remain confident that steel will remain the material of choice for automotive. ArcelorMittal will continue to invest in the development of solutions for our customers and in our industrial capability to supply these solutions.

Now I will hand it over to Adit to discuss financial results in greater detail.

Thank you. Good afternoon and good morning everybody. Starting with slide 10, moving to our P&L bridge from EBITDA to adjusted net loss. I will focus on the chart in the upper half of the slide, which shows the bridge for this quarter. Depreciation charges of $652 million were lower this quarter as compared to $807 million in Q4 2015. This is primarily due to the lower depreciation base, following the asset impairments booked in Q4 2015 and there was also a ForEx impact. If exchange rates remain as they are, then you should anticipate a full year depreciation charge of approximately $2.8 billion, lower than our previous guidance of $3 billion.

Moving to loss from investments in associates, JV and other investments, the loss for Q1 2016 shown as $5 million, excludes the $329 million gain booked on the disposal of Gestamp. This compares to a loss of $47 million in Q4 2015. Net interest expense this quarter was higher at $332 million as compared to $312 million in Q4 2015. This was due to lower interest income. Other net financing loss in Q1 2016 of $98 million compares to the other net financing loss of $238 million for Q4 2015. Excluding the deferred tax asset charge of $676 million, the underlying taxes and non-controlling interest this quarter, the charge was $16 million. As a result, we recorded adjusted net loss in Q1 2016 of $176 million, as compared to an adjusted net loss of $375 million for Q4 2015.

Next, we turn to the waterfall, taking us from EBITDA to free cash flow on Slide 11. During the quarter, we had a $1.2 billion seasonal investment in operating working capital. The third bar shows the combined impact of net financial costs, tax expenses, and other items totaling $0.4 billion.

Cash outflow from operations of $0.7 billion compared with a CapEx of $586 million, resulted in a negative free cash flow this quarter of $1.3 billion. If we add the CapEx amount of $586 million to financial charges of $429 million, we get to just over $1 billion. Given CapEx is slightly below guidance this quarter, it's clear that we're on course for the $4.5 billion breakeven level we guided to at the start of the year.

Turning to slide 12, we show a bridge for the change in our net debt from Q4 to Q1. The main components of the debt movement during the quarter is the negative free cash flow $1.3 billion, driven by working capital investment of $1.2 billion. There was an M&A inflow, primarily from the proceeds of the partial disposal of the Company's stake in Stalprodukt, and proceeds from the right issue in South Africa.

Dividends of $6 million were paid out to minorities and foreign exchange, and others had a negative impact of $456 million. The ForEx loss consists of $336 million, primarily due to the euro appreciation against the dollar, and $118 million mainly coming from the devaluation in Venezuela.

The combined result of these movements is a net debt increase to $17.3 billion at the end of Q1 2016. Given the effect of the sale of ArcelorMittal's stake in Gestamp for approximately $1 billion, right issue proceeds and the premium paid for early prepayment of bonds, pro forma net debt would be approximately $13.3 billion at the end of the quarter.

Let me now turn to the last slide, which is on page 13. So let me provide you with an update on our guidance and targets for 2016. The Company continues to expect 2016 EBITDA to be in excess of $4.5 billion. The impact of the improving steel spread environment is expected to be fully reflected in the results for second half 2016. At the same time, the Company's cash requirements in 2016 are expected to total $4.5 billion.

As guided to you in February, the components of this reduction are lower CapEx spend, lower Interest expenses, no dividend in respect of the 2015 financial year and lower cash taxes. The improving steel market conditions are likely to consume working capital this year. Our current estimate is approximately $0.5 billion. Allowing for this investment, the Company still expects to be free cash flow positive in 2016.

That concludes our presentation. And now we're happy to answer your questions.

(Operator Instructions) Mike Shillaker, Credit Suisse.

Two questions if I may. The first question, just on the guidance. I guess the guidance in the last quarter was for more than $4.5 billion at spot. And if I read it correct, the cash flow breakeven plus the $500 million of working capital build, and you expect to be free cash flow positive means that the guidance effectively moved up to at least $5 billion of EBITDA for this year. In the meantime, obviously, the spot market since then around the world has moved up pretty dramatically. So, could you possibly give us more concrete guidance, given you have a full-year guidance, you must have a view on the second half of the year. So can you give us more concrete guidance on the second half of this year? Or, if you're not going to do that can you at least give us any reason why other than timing, which is a lag on spot, and then the lag on contracts? Any reason why other than timing -- your full volume would not effectively ultimately see the steel price increases that we are seeing, for example in the press and then on the screen right now, so that we can just be sure that we're not missing anything in terms of the calculation, obviously backing out iron ore increases, scrap and similar. So that's the first question.

The second question I guess is on China. Can you give us a little bit more overview on China, because obviously the market has turned around dramatically from a pricing perspective? As you say, I think Mr. Mittal that you still only expect apparent demand to be flat this year, which doesn't really seem conducive to a major -- almost doubling of the steel price in China and the major pickup in the iron ore price. So what do you think is going on? There is obviously a lot of risk out there that this has been speculative. So can you give us a feel for what you're seeing in China, or what you're feeling out of China, and also the risk of the duration, is this all going to roll over in the second half of the year, and therefore we're going to seek more exports out of China, falling export prices et cetera, et cetera. So your view on that would be much appreciated. Thank you.

Adit will answer on your guidance, and then I'll pick up this China question, Michael.

So, Michael, if you remember, in February, we had issued our annual guidance, which was EBITDA in excess of $4.5 billion and more importantly, we'd be free cash flow positive. The reason why we announced this in February was we were doing a right issue and we wanted to demonstrate to the market that at spot prices we would be free cash flow positive. And that was the logic behind the guidance. We don't really want to be updating our guidance on a quarterly basis, or providing specific guidance on how we've performed in the first half versus the second half. I think it's fair to say that your resumption on what becomes the new guidance if there is a working capital build of $0.5 billion is correct. We expect to be free cash flow positive and that source of cash would come from EBITDA not from any other place.

In terms of timing of prices, I think that's the only issue, there is no other issue in the business. We are able to translate prices in the marketplace into our business. But because of the mix of semester contracts, quarterly contracts, annual contracts, as well as the time lag that is inherent in order-taking and delivery of product, there is a lag in our results. So the prices that we see today, the full impact of that will be in the second half, and there will be some impact in 2Q, but not entirely.

Thank you Adit. On China, clearly the outlook about China for 2016 has improved. We see from CISA's announcement, ASC for this year, minus 4% to [5%], now they're talking about zero to 0.5%, and this is also in line with our expectation. When we were in Q3, Q4 of last year, the spread was pretty low between the raw material to (inaudible) price and we said even in February that they were not sustainable. And subsequent to this couple of things have moved. One that Chinese government stimulus credit relaxation, all this -- and then since the prices were very low in January, February, there was destocking and suddenly we find that inventory levels were low. So all this have led to sudden restocking phase in March and the growth continued in March, production was the highest. And so, all this have led to price increase in iron ore and scrap and finished goods. While prices were undershot in Q3, Q4 when the spread was $87, $85, which was very low and unsustainable, I think now at this time, our belief is that this has overshot, means that this may be correcting itself going forward.

So we should not really get excited about this price increase in China, $180 to $200 movement in six to eight weeks and this is only six to eight weeks. However, their exports are continuing. China over-capacity is still adjusting, though Chinese government have announced a lot of actions from putting this into their five year plan, announcing social fund, targeting lower CO2 emissions from the steel companies, tightening the credit given to the smaller unviable and the smaller steel companies and forcing states like (inaudible) to really shutdown those capacities which were supposed to be closed.

And then at the same time, we keep on hearing some blast furnaces, smaller private blast furnaces reopening. So China will continue to be volatile and this over shooting of the price should not be taken as sustainable. There would be some correction and looking at the historic numbers, $150 and $170 is more sustainable than $200, $220 kind of scenario. However, good news is that, the price have not overshot in our core markets, where we think that this price movements will be more sustainable, the economy is looking good, the demand, the apparent steel consumption in Europe and America, we are forecasting growth of 2% this year in USA, 3% overall in ASC. This year we have forecast 3.6% in Europe -- 1% plus-minus in Europe and 2% to 3% in USA. In NAFTA, we are saying apparent steel consumption will grow 2% to 3%. And these markets have also been more steadier and also there has been trade cases launched, some determined, some under investigations. So all this put together we see that there will be more steadier environment in Europe and in our core markets, while there could be some volatility in China, and there could be more exports in one month and lower exports in other month.

So China will remain over-capacity issue and there will be some threat of dumping in some of the markets. So I see that this is the pricing environment in Europe and USA and in China. Brazil will remain in recession, the demand is pretty low, lower by 30% comparing with 2013. Prices in flat is low in Brazil, lower than even IPP and long is -- the demand is low, political environment is very unstable, and CIS markets are in spot, they'll remain in the spot and South Africa is announcing some trade actions. So this is the global scenario where we're at this time in the pricing.

Just a quick follow-up if I may. First of all, Mr. Mittal, does that mean a falling China and a stable to rising US and Europe means that you expect a material increase in exports out of China in the second half of the year, because antidumping can only do so much and as we saw with Section 201 in 2002, if the price differentials get to certain levels, even antidumping doesn't work and especially in Europe where it's not so aggressive? And then this year, as a follow-up to your point, can you just remind us, the contracts that are for negotiation in July, I guess you'd be expecting a fairly reasonable increase in the July contracts. Is it fair to say that, including the July contract increase and spot markets by Q4, the tail end of Q3 and Q4, we should see prices 100% in the P&L, ex-Jan 1 contracts, which are yet to be renegotiated next year? Thanks.

If you look at the European price, I do not see that should affect much in the Europe, in our core markets. If you look at the difference in the domestic -- in the China price and the Europe price, there is not much of a gap. And even if you look at China and United States, the gap is not much to warrant lot of imports from China. Plus trade cases are already showing some results in cold rolled in United States. So there will be trade case determination, come sooner or later, but there is an impact already in positive way in Europe and America. But China's over-capacity will continue to be concerning and as well as the threat of dumping is not going to go away, but there would be some moderation, which (inaudible).

Michael, in terms of your question on contracts and pricing, I think you will see the full impact in the second half for the contracts that are to be negotiated in July. But there is a portion, which are annual, which have already been negotiated, so the impact of that we will see in 2017. That is primarily a NAFTA phenomenon. There is some annual contracts in Europe as well whose positive impact you will see in 2017. So barring that, all the other contracts that are being negotiated from today onwards you will see that impacting the second half.

Tony Rizzuto, Cowen.

One has been pretty much answered, the one about the guidance. But I wonder if you could -- regard to trade cases in Europe, could you bring us up to date with where they stand, including the timeline and what are next important dates and when are the final determination is expected? Thank you, very much.

So, if you go through the investor presentation that we just went through, the page after my guidance actually details all the trade cases, both in Europe and the US, and has a lot of information. But simply put, for Europe cold rolled duties are applicable as we speak, that was decided basically in February. Hot roll is to be announced in Europe. And we are expecting provisional measures post the summer of this year. The documents say November, but I would expect it to be sooner -- rather sooner than November, rather than later. We also have achieved the provisional measures on rebar, and we have just launched a quarter plate case as well in Europe. So those are the major highlights in Europe. So what you can see, if you look at the chart, clearly Europe is behind the United States, but it's catching up slowly.

Cedar, Bank of America.

Just one question from me. The question on European and US capacity. A lot of people are questioning the sustainability of the price increase you've seen in these regions. And you're talking to prices being more reasonable or sustainable in your view. Can you talk to what capacity you have idle in Europe and in the US that you could ramp up in a reasonable amount of time, and also maybe your perception of what capacity there is idle in these markets with peers, because I think there is a perception that this wave of capacity that could be turned on domestically in these markets, and I'm not so sure that's actually a real reflection of reality? Thank you.

In terms of Europe, we are running all of our blast furnaces. There is not much more that we can do in terms of cranking out capacity, apart from running them more efficiently, which we're trying to achieve on a daily basis. I'll get Jim to answer the question in terms of North America.

Yes, from our capacity standpoint, we have one blast furnace that's idle right now. So that's the remaining capacity that we still have available.

And what is that capacity, if you could detail that?

It's an annual 1.5 million metric tonnes.

And if you want to ramp that up, you decide that profitability supported that, how long would it take before those tonnes were in the market?

On the decision to ramp up, we can bring the blast furnace up fairly quickly. So it will depend on the actual decision date that we make.

Seth, Jefferies.

A couple of follow-up question on the US market, focused on Calvert. Can you just walk us in a little bit more detail of the current ramp-up stages of the plant and try to quantify the earnings benefit you're seeing within the NAFTA operations, given the mix of equity [accounted] operations directly at Calvert, plus the fully consolidated slab supply part of the business?

And then separately for the US autos market, can you just discuss a little bit how you see your market share progressing there, both for autos (inaudible) more broadly in the flat business, reflecting Cedar's question? Your two largest blast furnaces [appear to have] a great deal of capacity in the second half 2015, how much market share do you think you're taking in light of their past closures and perhaps from the auto OEM side, are you a lot more competitive now with the perception that your balance sheet is much stronger than many of your peers? Thank you.

I'll take a stab at some of the questions and then I'll get Jim to provide you with further detail. So just talking about like Calvert, I'll address the accounting aspects. So the joint venture earns has a variable earning within a very tight band, based on capacity utilization. The rest of the earnings get transferred to ArcelorMittal through the slab supply. So whatever P&L Calvert is making beyond the earnings power of the equity that the joint venture companies have invested is beyond that the rest of the P&L responsibility rests with ArcelorMittal. That's how it flows into our EBITDA. I mean Calvert has ramped up very well in Q1, we can see that the levels of production are much higher than what we saw in Q4. We also had the lag of the slabs, so slabs were much higher priced in Calvert, as we bring down the inventory levels, we work through all of that and we see the improved profitability.

I'm going to get Jim to walk you through the specifics of what we're doing in Calvert, in terms of the investments we're making to further ramp up and improve our automotive capabilities.

Look, we're not going to comment specifically on market share in the US. We clearly have underutilized capacities, such as Calvert, and that has an actual place in the market and slowly Calvert is achieving its natural place in the market, which I think is very usual and is to be expected.

In terms of the OEMs, I don't (technical difficulty) balance sheet, the differentiator is product capability and product innovation and clearly we are a leader there. As you know, we have the [use of our] technology, we have a significant R&D presence, we're spending [$10 million] a year and we continuously develop new products every year, every quarter and so we are a leader in terms of advanced high strength steel, third generation steel, and Calvert is the best platform for us to produce that.

And one quick follow-up question. Can you just discuss further slab supply? Obviously there's been huge volatility in the input cost for your slabs agreement linked versus (inaudible). Can you just talk a little about of how you're seeing the cost of slabs progressing into Q2, and when you should expect the spot price to hit your cost base at Calvert? Thank you.

So again there is a lag on the slab as well, because they are priced based on hot rolled prices in the US, minus a specific delta and then it has to be shipped, it actually would be stored in inventory. They have to be processed and sold and that's when you see the cost base hit. So it's going to be a third quarter, fourth quarter phenomenon versus second quarter phenomenon.

Jim, you want to say about Calvert?

Yes, just some specifics on Calvert's ramp-up. The hot mill obviously is the critical facility. And just from a first quarter versus fourth quarter standpoint, we've had a 22% increase in our throughput rate. So we're making definitely some strides there. We use a term called work ratio, and industry-wide that term is used and we had a 12% improvement quarter-over-quarter.

From a shipment standpoint, we improved over fourth quarter by 25%, a 25% increase in shipments, which was also higher than our business plan. One of the keys to Calvert is the auto ramp up and our plans this year is to increase our auto shipments by 62% and we're on plan or ahead of plan by already approving 216 out of 227 submitted automotive qualifications. So all in all, the ramp-up is going far beyond play.

Rochus, Kepler.

I have a follow-up on the NAFTA space. I guess seeing that your average realized price was down $70 per tonne, the EBITDA improvement looks quite astonishing, as your crude steel production was only up 10%. Was there any other factor than the positive tailwind from Calvert which was supporting your results? And on the same token, when I look at your long product performance, it appears that now for the third consecutive quarters, your volumes are down double-digit, despite a construction market still looking healthy. What is your view on the whole year in terms of long product shipments in the US and for the NAFTA shown as a whole.?

Could you also talk a little bit more about your US asset optimization plan? I guess now as you have signed a labor contract, maybe you can talk a little bit more what is the plans you are planning to do in terms of downstream optimization? Can you give us the updated number of savings you are expecting from there? And, maybe, do you have a ballpark number for the asset closures you have done over the last six months, including the last one in Spain, including in Trinidad, do you have a number, what is the EBITDA effect from that -- most recent asset closures? That's it.

Okay, I'll try to remember the myriad of questions there. I think you started out with the Calvert, or overall NAFTA EBITDA. Yes, NAFTA EBITDA, as shown in our presentation, the shipment volume was up 19% quarter-over-quarter. We also had a much improved cost performance in quarter-over-quarter. And the third issue is the Calvert issue, which I discussed before, significantly improved performance in Calvert. The negative was the price, 10% realized price, difference between the quarters.

Trying to remember the question as it came under from a long standpoint --

I can help you there Jim. You know we had done some asset optimization in the long business, we have shut down our long business in the US. So the shipment impact that you are seeing is the result of scope change versus a fundamental change in our business.

As far as the basic labor agreement in AMUSA, we would not want to comment on the details of that agreement until the labor contract is ratified out of respect for the ratification process, which is determined by the USW. We're thinking it will be three to four weeks. Throughout the process of negotiations we have been discussing with the USW the need for optimization of our operating footprint.

Alessandro, Berenberg.

I actually have three. I really would like to force you to give a guidance fully understandable. But just as an exercise on the operational leverage, if we take a look at the steel margins, the raw material cost as of today, just literally a snapshot, and we try to analyze the run rate with no legacy of contract already signed with basically no lag effect, what [day] that would be on a normalized basis?

The second one is related to a very important deadline for the European steel industry, which is the privatization of ILVA and the deadline for the submission of the binding bids is May 30. If you could give a bit more color what kind of thoughts you have? Apparently you are one of the potential bidder. If you can give us an idea on how much weight the individual plan might have over the potential financing, or the cash outflow for an acquisition, if there's an [available need]?

And the third one is related to the current antidumping investigation on HRC in place. We have a significant presence at the moment, because one of the reason for TATA Steel to decide to pull out of the UK asset was also the significant imports of steel from China, which has basically killed the market. Do you think that these precedents can actually be used instrumentally to get harsher sanction if compared to those that we're seeing preliminary level on February 12? Thank you very much.

You're a very sharp analyst, I'm sure you can figure out our snapshot of EBITDA. As a company, we have provided you with the guidance framework. I think Michael asked that question earlier and I went through it in great detail with why the logic, what we're doing. We don't want to be mark-to-marketing our guidance every quarter. Suffice to say that I would not take what we announced as a guidance as a negative declaration of ArcelorMittal, but to understand and appreciate that we have highlighted that guidance is expected to be in excess of $4.5 billion.

In terms ILVA, look we don't want to be engaging in M&A speculation either. To the extent that there is something material to report to you, we will inform our shareholders appropriately. I would just add that we're very conscious post the right issue and the sale of our stake in Gestamp that we do want to have a sector-leading balance sheet. And therefore any decision to invest capital would be very prudent and we'd make sure that we would not impair the credit metrics of our balance sheet.

In terms of antidumping, HRC and plate, clearly the European community is much more focused on ensuring there is a fair level playing field in terms of trade. The exact determinations or the percentages of duty is actually based on the evidence you provide, and it's based on the extent that China is dumping into our markets. There is a calculation behind that. There is the lesser duty rule that has not been changed yet, which also has an impact on the calculation. And the third is the profit margin in the steel business. So the calculations, I think are much harder to impact, but that political will to do something on these cases, as well as the market economy status for China is clearly much greater now.

Aditya, just to clarify, I was not really trying to get a revision of the guidance for EBITDA. Just simply not even remotely really targeting this. I mean, just really on operational leverage there is a significant amount of hurdles that you have to face before you can actually get a clear view on the guidance. But if you really take the spot at the moment, on annualized basis clearly is not reflecting at all on 2016. Just as an exercise on the operational leverage of ArcelorMittal, would you also -- do you have an idea?

Alessandro, I don't think we will be providing that flavor to the market. You're free to make your own report.

Ioannis, RBC.

Most of my questions have been answered, but I would just like to clarify a couple of things. First, in terms of the annual contracts, could you give an indication on what sort of tonnage we're talking about? You're saying in NAFTA you have about 5 million tonnes of total contract volumes, a year of about 7 million tonnes. So how much is actually annual contracts? And that will be the first question.

So, ballpark, your numbers are right. I would say Europe is approximately 8 million. Now, part of it is semester contracts, but 8 million tonnes is the contracted automotive volume, plus we have some other semester contracts to other OEMs as well.

A couple of things again on the working capital build that you suggest it's about $0.5 billion. Is it based on spot steel and iron ore pricing, and what's the assumption on steel shipments year-over-year?

So, steel shipments are expected to be flat year-on-year. We have not changed our guidance on that. As you see, we have not fundamentally altered our demand picture on a global basis. The core markets in which we operate, except for Brazil remain in positive territory, and that's good news for ArcelorMittal.

When you look at working capital, you have to look at Q4 versus Q4 2015, in terms of the shipment impact, and primarily what you're really comparing is December 2016 versus December 2015. And in our assumption, we have assumed that base prices are higher, and that the shipment level is also higher.

And just the last question. If I can actually push a bit on the steel demand forecast, apparent steel demand forecast for China in 2016. You're guiding to flat to down 1%, but you seem to be indicating that the real demand will actually be weaker and that will be partially offset by some restock. Could you give a rough split on what you have in mind at this stage?

At this stage, what we are seeing, apparent steel consumption down zero to minus 0.5% and real steel consumption down 2%, that's where we are seeing some restocking.

Philip, ABN AMRO.

I have two questions. One brief one is on the working capital inflow that we saw this quarter. I was wondering if you could give a bit of an idea how much of it is due to higher prices and how much due to seasonal effects in terms of volumes.

And then my second question is a bit more of a general question. I'm wondering if I look into the data, the imports into Europe, the [Eurof] data. The February data still does not really show relief in imports into Europe. And I'm wondering has the picture changed in March-April, I mean what you are hearing from the business given the announcements of provisional measures in February? And also I was wondering if you see any threat of steel imports increasing the remainder of the year, until provisional measures on HRC are announced late in 2016. I was wondering if you could give a view on that.

So in terms of working capital, in Q1 we tend to build working capital. If you looked at Q1 of last year, there was actually an even greater amount of working capital build, so this is primarily seasonal. We've not just seen the impact of higher prices in our books. Maybe there is a small impact, but not -- nothing significant. So it's primarily volume related, inventory related build.

In terms of your second question on imports, you're absolutely right, imports in Europe are still trending upwards. January, February it was 29% higher year-on-year compared to the previous period. I can't speculate on how imports will pan out, but I think the fact that imports continue to rise in Europe demonstrate that it remains critical for the European Commission to act and ensure there's a fair level playing field in terms of trade.

And have you had any intel on how volumes have developed in March, April, I don't know -- from within the business? Sorry, imports, do you have a view or any intel on how the imports have been in March, April?

We should wait for the data.

(inaudible), Morgan Stanley.

Just one quick question I have on your NAFTA business. So basically in terms of the performance there, is there anything that you can replicate in Europe, for instance, or do you see anything that prevents you from replicating this performance in Europe in terms of cost optimization or product mix improvements that would explain the divergent performance Q-on-Q? Thank you.

Well first of all it would be nice to have Calvert in Europe and we don't have an asset like Calvert in Europe that exists now at [Bourbon] in the United States of America. And that's in s ramp-up. But I think Europe will do better in Q2, we can see that the lag effect that we have suffered in Q1 will partially unwind in Q2. We continue to make progress in terms of our transformation program in Europe and that is running as per plan.

Carsten, UBS.

Most of my questions have been answered. Two questions left, the first on ACIS. With flexi prices right now at about [$470, $475] HRC, are that also prices you realize right now and for the rest of the year, because it looks ACIS seems to be quite exposed to steel price increases and hence margin expansion? That's the first question.

And then the second one, I would like to dig a little bit into NAFTA. Was there any lower cost on inventory involved in the NAFTA profitability, because it just looks like that NAFTA went up even though it had almost the same kind of conditions, lower sales prices, higher volumes like Europe and Europe simply dived. Something I can't really reconcile here. Thank you very much.

I think Jim has answered the NAFTA question in detail. I mean, I think the mistake everyone is making is, if you look at the volume, I mean the increased volume in NAFTA is 20%. I mean that's very significant increase in volumes and in Europe it's 10%. I mean just look at the impact of a 20% volume increase, plus you add up Calvert ramp up. That's how the math comes out. Davinder?

Yes, as far as pricing is concerned, we are all observing that the global steel prices have turned around since productivity, since early March. And currently steel prices are standing nearly $100 or more as compared to February let's say. And CIS, both the places in Ukraine and Kazakhstan, traditionally we run shorter order books and we are monitoring the price movements very closely and order books carefully also to keep the operations running stable and also to harvest these price movements to the best.

As far South Africa is concerned, we run a relatively longer order book there than the CIS unit. Therefore, the lag kicks in, in South Africa and the effects will flow through little later than CIS units.

The Q1 results do not reflect, therefore, as far as ACIS combined is concerned Q1 results do not reflect the global price movements. But we expect Q2 will capture partially these impacts and Q3 should capture most of it. So that's what we're doing in ACIS.

Roger, JPMorgan.

Thank you very much for taking my questions. Again, mostly have been answered. I just want to know, if you could talk in general about what role you see taking in -- the Company taking in consolidation in the steel industry, just in general terms. And could you lay out -- you mentioned that you even want to impair the credit metrics. But you're having to delay a little bit more. Does that mean that you would be willing to increase your net debt levels as long as you could identify an EBITDA uplift that was strong enough to sort of offset that?

The second question is just on your CapEx expectations for 2017. Given the strength in pricing that we've seen, is there any scope to increase CapEx to take advantage of the fact that you would be generating a stronger operating cash flow, maybe some of the stuff that you previously didn't see as being on the table, might be on the table again.

And then just thirdly, on the working capital uplift that you talked, $0.5 billion, could you just give a little bit more sensitivity around that? You mentioned it was to do with the variance in price and volume between sort of December last year versus this year. Could you give us a sensitivity, if prices are 10% higher than you expect, how much more would that add to that working capital uplift, and clearly if volumes were 10% higher than you expect, how much would that add to that working capital uplift?

In terms of consolidation, clearly we believe consolidation is good for the global steel industry, starting with China where we need further consolidation, as well as capacity rationalization.

In terms of the impact on our balance sheet, we don't expect to materially increase our net debt level. So that's not the expectation that you should have. We are very focused on continuing to delever and lower our net debt levels on a going forward basis.

In terms of CapEx, the CapEx plan that we have is not impairing our ability to produce steel, compete in our markets or develop more automotive grades. So I do not personally expect to see significant increase in our CapEx amounts. The thing that could change CapEx amounts would be more on the ForEx side, because we have been benefited significantly weaker currencies in Brazil, and Ukraine, and Kazakhstan, South Africa, even the euro is much weaker than the dollar, and our CapEx levels have come down. So overall, fundamentally, the focus of our business remains on maintaining our assets to a level of very high quality. We continue to invest in our automotive franchise and we do have CapEx left over to capture certain opportunities.

In terms of working capital, I would suggest that two points. The first is that this is a one-time build up, so clearly this is not ongoing. So to the extent that prices move up again, there may be another one, but if they don't, then we don't have to continue to invest in working capital. A rough sensitivity is prices plus 10% is about $250 million, volumes up 5% is about $300 million. And this assumes average prices. So includes contracts and it's just not spot.

Both $250 million and $200 million, is that what you said?

$300 million for volume.

$300 million. Okay. Thank you.

And 5% for volume.

Alright, for 5% move. Okay, thank you very much.

Bastian, Deutsche Bank.

I've got just two quick questions left. The first one is a follow-up on Calvert. How good is your visibility for rolling out volumes in the high-end automotive product segment? In other words how much or your volumes are already covered under framework contracts and how much capacity or spare capacity have you left to contract? I imagine that given that this is a very distinguishing plan in your global product lead and this product segment anyways, you should see almost -- I guess it'll raise more of your customers to lock in volumes with you.

My second question was just a housekeeping one on your financial expenses. Your guidance for interest expense is unchanged at $1.1 billion, but you obviously had bought back some debt and we've seen quite a bit of volatility in the fixed rates. I assume that the $1.1 billion interest charges includes premium for the debt buyback. Could you please give for us an early update on what we should expect for the net interest line and also for the other financial expenses on a roll-forward basis, after your bond buybacks and the recent FX movements? Thank you.

First of all, on your Calvert questions. Yes, the automotive opportunity that we see were specifically targeting the Gen-3 advanced high strength steels. We have two major capital improvements, one on the [CA] line and another on a hot dip galvanizing line to reach that next level of expectations from the automotive people, as well as we have recently converted one of our lines to make a press-formable material there from an automotive standpoint. As I mentioned earlier, we have expectations of our auto volume ramp up as I mentioned earlier in the call and to continue to drive that forward.

Could you give us a bit of color on what -- it's just already contracted of your, say, prospectus capacity?

At this given point, from a contracted standpoint, are you saying our contracts specifically for this year or what we see as our future automotive portfolio?

What you see as your future automotive portfolio?

Again, as I said earlier, we have a ramp up plan and to continue to move to a higher percentage of our mix in Calvert of the automotive market.

I think there's some discomfort here to provide the specific numbers and we don't want to provide competitive intelligence.

So in terms of your questions on interest expense and ForEx etcetera. So we have guided for interest expense to be approximately $1.1 billion from 2016. So that reflects the proceeds from the right issue, as well as the sale of Gestamp.

In terms of the ForEx line, excluding the ForEx impacts that will be a charge for pension and other expenses of about $600 million per annum. So lower than what was previously guided to, primarily because pension costs were coming down. Other costs in the system are also reducing as we bring down our global cost. And the net debt impact is approximately $130 million of the debt buyback so far.

Luc, Exane.

Hi, gentlemen, thank you for taking my questions, but most of these have been answered.

Phil, KeyBanc.

I just had a question on NAFTA credit conditions and when you look at your customers, have you had to be more selective, notably the service centers as credit conditions have tightened for a lot of the industry?

Phil, no that's not been an issue in the business, we've not had to tighten credit conditions so far.

Anything in Europe that's notable either?

I think in Europe the worst is kind of behind us. I think we saw some of that in 2014, 2015, we saw something in the tubular business, we see something in the wire business. But other than that we are okay. We are also being on top of credit in Brazil, and more or less, we are managing through that as well.

And then I just have a quick one, and I apologize if you've discussed it. But how much you're NAFTA sheet business is annually priced versus cold spot or lag spot? Thanks, so much.

If you're talking about an actual fixed annual contract, we look at about 40% in the USA and about 47% to 50% in Dofasco.

[Christian], SocGen.

Just, let me think, Brazil, I was wondering the improvement of the US prices. I mean are you able to have to leverage on this, perhaps, even via slabs, like visa contracts have improved to alleviate some of the difficult profitability down there?

Second thing with the lesser duty rule that we're talking about, I think some of the politicians in Europe, including the Finance Minister was keen to have that rule taken out. I mean are you confident on whether this may happen or do you think we should not too much bank on this?

And the last thing is -- maybe I'm wrong, but I think (inaudible) was saying that coal prices did not quite overshoot the way steel and the iron ore prices have and you seem to be more comfortable with that. Is this is a more upside risk on coal prices, is that what you're saying? Thank you.

Sorry, I have not understood, Christian, your first question on the interplay between Calvert and slab purchase price?

In term of your operations in Brazil, are you able to send some tonnage of lesser quality steel into the US, where prices have been improving, the same way if you want that [Tissan] is able to sell slabs on to Calvert?

We are sending slabs, but not lesser quality steel. We are sending slabs from Tubarao as well as from our operations in Mexico and some slabs from Indiana Harbor into Calvert. So we have various sources of slabs going into our operations at Calvert. In terms of the lesser duty rule, I think we're all working hard to have it removed. At this point in time I cannot point to substantial development or progress, so that still remains work in in progress. Maybe in terms of coal, I'm going to get Simon to talk about to the extent we can on coal prices.

So in terms of seaborne coking coal prices, the market has been in acceleration over the recent months -- couple of months with regard to China, consensus and we've seen the sentiment rising in China as spot prices which tend to get reported, but we've also seen quarterly increase in the Japan, Korea, Taiwan price. I think the current outlook is steady supply, demand has slightly improved, but not dramatically. And so the current price up is seem to have some downside risk in our opinion on the seaborne side.

Okay. (inaudible) But the question is, are you not able to increase volume amount of Brazil which normally would be serving the domestic market in order to find new volume, preferably in the US or in such markets?

So we're shipping out in Brazil, we still run our flat finishing facility there to grow at full rates and the steel that we cannot sell into Brazil, we do export. In Q1 those shipments are down, but that's primarily technical reasons. It's not a lack of a market and to the extent that Calvert continues to ramp up, they will be more and more volume that we can take from our own facilities into Calvert.

Patrick Morton, Macquarie.

It appears over the last few years, your realized pricing especially in NAFTA and Europe has outperformed benchmark pricing in this downturn. Is there a risk -- I know I assume that relates mostly to product mix improving the quality of [advanced] high strength steels et cetera. Is there a risk as the benchmark steel price rebounds your outperformance ends? Is there a risk that that outperformance starts to compress or do you feel like you'll still sustain rising premiums relative to benchmark prices? Thanks.

I think that's a valid question. We see in our own business that the strongest impact of the price rises occur, first in the ACIS business and then in the long business and then in the flat business in Europe and in North America. And that's because the contract business tends to be sticky. It also helps us in downturns, because the prices don't come down as much. And clearly, as prices move up rapidly it takes time to -- for that to work through the contract business. So I would characterize that as more lag effects. Fundamentally in the medium to long run the benefit of a contract business is that you are getting more revenue per tonne, because you are providing franchise products.

Thank you everyone for participating in the first quarter results call and look forward to talking to you soon. Thank you. Have a good day.