EuroBusinessMedia (EBM): Arcelor, the world's largest steel company, just reported earnings for the first half. Guy Dollé, welcome. You are the CEO of Arcelor. What is your analysis of the company's performance in the first half? Are you satisfied with these results? And can they be explained mainly by higher selling prices?
Guy Dollé (GD): We are very satisfied with and very proud of these fantastic results. EBITDA grew €500 million, and net profit grew €500 million, compared to the first half of last year. These results are not just due to the sales price increase. If we take a global look at Arcelor, the increase of sales prices, after the increase in the price of raw materials, only accounts for a couple million euros of our overall improvement. The improvements are mainly due to cost savings (including synergies), and also to volume increases, and to a lesser extent to perimeter changes, in particular the consolidation of our Argentinian business. Of course, it's different if we look at the situation business by business: for DTT [distribution processing, transformation and trading] and for long carbon steel, sales price increases make a huge contribution to our improvement. But for flat carbon steel, the sales prices in the first half do not compensate the increase in the price of raw materials.
EBM: Where do we stand on prices today? And what is your outlook for prices in the second half of the year?
GD: For carbon steel, which is a major issue, we have accomplished a price increase of €100 to €120 in the third quarter -- for quarterly contracts, of course. We believe that there is room for minor price increases in the fourth quarter, and we will implement them. [The price increases] will range from €20 to €30 depending on the level of prices, because it is not exactly the same situation for each product or each country. For the other businesses - long and stainless - there still is room for small price increases, but not quite as much as for flat carbon steel.
EBM: Where do we stand on the yearly or the multi-year contracts today?
GD: Clearly, our margin for yearly and multi-year contracts is decreasing because of the increase in the price of raw materials. We have already announced that for next year we intend to implement a 20% price increase for packaging. And for the other yearly contracts, we have the same increase in mind.
EBM: You are in the process of acquiring CST in Brazil. What is your next step? Does your plan to merge all of your Brazilian assets into a single entity still hold?
GD: First, we must buy up the outstanding shares covered under the CST shareholders' agreement. Starting next September, we will also buy out the Acesita shares held by pension funds. This will enable us to consolidate CST by the middle of next year, at the end of May 2005, or thereabout. Our model is to set up, by the end of the process, a holding company which will own 100% of our three businesses: long with Belgo Mineira, flat with CST and Vega do Sul, and stainless with Acesita. This holding company will be listed on the Bovespa stock exchange, and Arcelor will detain between 55% and 60% of the shares. This company will be one of the 'blue chip' stocks of the Bovespa, with a market cap over $3 billion.
EBM: You have just raised more than €1 billion. Aside from your Brazilian projects, are there any other expansion projects?
GD: Of course. Our expansion in Brazil will account for close to $1 billion, out of the €1.17 billion we have raised (i.e. nearly $1.4 billion). That means that we still have possibilities for future growth. And of course, we can also take advantage of the huge debt reduction we have already accomplished, in particular in this first half of the year. Since the birth of Arcelor, we have decreased our debt by more than €3 billion, which means that each month we decreased our debt by €100 million. That means we are now in a position to grow -- our gearing ratio is only 38% -- and as you know we have projects, mainly in developing countries. We are interested in Turkey, but we also have other projects outside of Europe.
EBM: You have disposed of a whole string of assets recently. Are the asset disposals over now, or is there yet more to come?
GD: We still have some disposals on the agenda for the second half of this year. We also have to find a solution - disposals or partnerships - for our non-core assets in stainless, which are mainly: long stainless steel, alloy, and our plate business.
EBM: The Chinese economy seems ready to slow down. What is the foreseeable impact in the steel industry?
GD: You wouldn't guess that from the growth in Chinese steel consumption, which increased more than 20% during the first half of the year. I think that isn't sustainable. It is much better for China and the world economy, and the steel business in particular, that China's consumption should slow down a little bit. I think that 10% would be much better. We saw a softening of the market in May and June. The increase of Chinese steel consumption has led to price increases in freight, scrap metal and coal.
EBM: Looking at the big picture, what signals are you perceiving about the strength of the global economic recovery?
GD: It is going very well in Asia and also in North America. It has improved in Europe. In our business: +3% in apparent and final demand compared to the previous year. I think that things are improving, even if some months give us different signals regarding the recovery in Europe.
EBM: And finally, halfway through the year now, can you give us greater detail and confirmation of your full year targets and forecasts?
GD: I have already said that this year will be the best in the past decade. In the second half of the year we will benefit from the price increases we have achieved for flat carbon steel, which will compensate the increase in the price of raw materials. We will have a negative seasonal effect in the second half compared to the first half; our EBITDA will be close to the level we had in the first half, which means that it will be a very, very good year.
EBM: Guy Dollé, CEO of Arcelor, thank you very much.
