ArcelorMittal (MT)
Q3 2009 Earnings Call Transcript
October 28, 2009 10:30 a.m. ET

Executives

Lakshmi Mittal – Chairman and Chief Executive Officer
Aditya Mittal - Chief Financial Officer
Michel Wurth - Member of the Group Management Board
Gonzalo Urquijo - Member of the Group Management Board
Christophe Cornier - Member of the Group Management Board

Analysts

Michelle Applebaum - Steel Market Intelligence
Vincent Lepine - Exane BNP Paribas
Andrew Snowdowne - UBS
Michael Shillaker - Credit Suisse
Jeffrey Largey - JP Morgan
Alexandre Weinberg - Petercam
Rochus Brauneiser - Kepler Capital Markets
Ephrem Ravi - Morgan Stanley
Sal Tharani - Goldman Sachs

Presentation

Lakshmi Mittal – Chairman and Chief Executive Officer

Good morning and good afternoon to everyone. And welcome to ArcelorMittal''s third quarter results. As usual, I am joined by my GMB colleagues, Gonzalo Urquijo, Aditya Mittal, Michel Wurth and Christophe Cornier.

Before I start today''s presentation, let me give you a brief overview. It is now one year since we announced our response to the financial crisis, which was centered around cutting cost, reducing debt and working capital and also cut production. We set ourselves some very ambitious targets, but we are very pleased to be able to say that we have achieved the targets, we set ourselves three months ahead of schedule.

The other positive news today is that for the first time since the crisis began, we are reporting a net profit as a result of both market improvements and our own actions. That being said, the crisis is not over and the economic environment remains challenging.

The world economy is slowly recovering but remains extremely fragile. In particular, a full economic recovery in the developed world is likely to take several years.

Apparent steel demand is improving as de-stocking completes, but real demand recovery, particularly in Europe and the U.S., is not yet confirmed. Emerging economies, particularly China, have recovered more swiftly, but overproduction remains a threat.

Against this backdrop, we continue to be extremely prudent. We intend to keep our working capital as low as possible. We will only increase production in line with demand and we will continue with our cost reduction. Simultaneously, we will look to cautiously initiate a number of targeted growth projects in emerging markets.

Today, as shown in our agenda, after a brief introduction and overview, we will look at our health and safety performance, the current steel market, the progress made in our industry plan and new initiatives, our Q3 results and financial plan, followed by the performance of our divisions. Finally, we will discuss our guidance for the fourth quarter 2009.

During the third quarter, we maintained a stable health and safety frequency rate. Investment in health and safety has not been decreased in any way and this remains the first priority of the group.

We saw the first sign of recovery in the third quarter, operating at approximately 61% of capacity. We shipped 18.2 million tons during the quarter, which is 7% up compared to the second quarter. We reported EBITDA of $1.6 billion, in line with our guidance which is 30% higher than the second quarter.

We are pleased to report a positive net income of $0.9 billion and cash flow from operations of $2.4 billion. On the industrial financial plan targets, we have achieved $2.2 billion of annualized sustainable cost reduction in third quarter and we are ahead of schedule in terms of reaching $2 billion reduction by the end of 2009.

We further reduced our net debt by $1.3 billion to $21.6 billion and over the last 12 months, our net debt went down by $10.9 billion. Additionally, as I said, we reinitiated several selective growth projects focusing on the emerging markets. Finally, although we have seen an improvement in the demand for steel, we remain cautious. Our guidance for the fourth quarter EBITDA is between U.S. $2 billion up to $2.4 billion.

First, let''s quickly look at our health and safety performance, which has consistently improved over the last three years. Despite the crisis, we maintained our focus on safety during the quarter. Based on our own personal figures, the frequency rate remained at 1.6 injuries per million worked hours, consistent with the prior three quarters and much better than prior periods.

Improving our health and safety performance has been one of the first priorities of the group and remains one of its main successes to date. We have faced painful fatalities, but overall the initiatives and actions taken from the beginning have allowed us to improve our performance in this area. The journey towards zero accidents remain our -- remains our ultimate goal and we will continue our focus.