SOURCE: Arcelor SA

May 12, 2006 02:01 ET

Arcelor posts strong first quarter results confirming targets of its value plan

Luxembourg -- (MARKET WIRE) -- May 12, 2006 --Press release

Arcelor posts strong first quarter results confirming targets of its value plan

 
  * Strong 1st quarter results confirm consistency of business 
    model
  * Buoyant demand since end of Q1 with strong recovery of 
    pricing just starting
  * Performance driven by all Arcelor businesses with excellent 
    results for Long Carbon Steel and improved performance 
    for Stainless 
  * Q1 performance supporting successful implementation of 
    Arcelor's value plan
  * Integration of Dofasco smooth and beyond expectations with 
    results in line with forecasts
  * EBITDA : EUR 1,427 million
  * Net profit group share EUR 761 million

Luxembourg, May 12, 2006 - Arcelor delivered strong first quarter results in an improving demand environment with prices just starting to recover and marked by continuous high costs of raw materials. Since the end of the quarter demand growth has been accelerating and selling prices should improve starting in the second quarter.

Throughout the quarter, Arcelor further strengthened the structural competitiveness of its operations, with management gains at EUR 160 million consistent with the Arcelor 2006-2008 Value Plan targeting a normalized annual EBITDA of EUR 7 billion.

"This result achieved while the company is the target of a take-over attempt is the best proof of the commitment of all of Arcelor's 110000 employees to create value for our shareholders and to build the long term future of Arcelor." Joseph Kinsch, Chairman of the Board of directors, said.

Net result, group share, was EUR 761 million compared to EUR 949 million for the first quarter of 2005.

"This solid performance compared to last year's exceptional quarter demonstrates the ability of Arcelor to perform well in a context of massive materials cost increases and lower spot prices." said Arcelor CEO Guy Dolle.

In the first quarter the company continued to pursue expansion opportunities in markets with a high growth potential.

"The acquisition of Canadian steelmaker Dofasco and the agreements to take significant stakes in Chinese steel producer Laiwu and in Moroccan construction steel specialist Sonasid, all in this quarter illustrate well our external growth strategy," Guy Dolle said, adding: "These moves as well as organic growth initiatives such as the 50% increase of our slab production capacity in Brazil that will come on stream this year contribute to strengthen our global industry leadership position."

Dofasco, which has been consolidated from March 1, 2006, had no impact on results in the first quarter, due to IFRS purchase accounting but operating results in line with the forecast should positively contribute to earnings at the end of the second quarter.

Net debt rose to EUR 5,742 million at March 31, 2006 due to the acquisition of Dofasco, compared to 1,230 million at December 31st, 2005 while total shareholders equity (including minorities) reached 18,602 million.

Active portfolio management was pursued with the agreement, at the beginning of the second quarter, to sell the long stainless business Ugitech to Schmoltz& Bickenbach following the strong recovery of this activity.

Prospects

Excluding China, apparent world steel consumption growth should be +6 % this year after -1.5% in 2005. A stronger pressure on demand generates price increases on semi finished as well as on finished steel products.

Carried by a favourable global economic environment showing a sustainable growth,pattern demand for steel is now strong and rising, driven by consumer demand and inventory adjustments to more normal levels. In this buoyant environment that is also marked by higher raw materials prices, Arcelor has announced price increases for its flat carbon business for the third quarter and already from first quarter on for stainless steel products.

As a consequence, thanks to a very good demand in the second and the third quarters, Arcelor expects excellent performance and very strong results in line with its ambitious targets of value creation for shareholders.

Consolidated accounts for the first quarter of 2006

The Arcelor board of directors, chaired by Joseph Kinsch, reviewed the consolidated accounts for the first quarter of 2006.

At March 31, 2006, consolidated net result, group share, was EUR 761 million, versus EUR 949 million for the first quarter of 2005.

At EUR 9,565 million for the first quarter of 2006 compared to EUR 8,157 million for the same period last year, consolidated revenues increased 17.3% (10.8% on a comparable basis) reflecting essentially the full consolidation of Acesita (stainless in Brazil) and the integration of Dofasco as of March 1st.Consolidated gross operating result amounted to EUR 1,427 million, or 14.9% margin for the first quarter of 2006 versus EUR 1,700 million, or 20.8% margin for the same quarter last year.

Consolidated operating result amounted to EUR 1,091 million for the first quarter of 2006 versus EUR 1,390 million for the same quarter last year, or an 11.4% margin versus 17.0% respectively.

After a financial result of EUR -322 million, a positive contribution from associates of EUR 72 million and income tax of EUR 57 million, consolidated net result, group share, was EUR 761 million compared to 949 million for the first quarter of 2005. The strong increase in financial result is essentially the consequence of IAS 32 compliance leading to the recognition of the share price increase on the O.C.E.A.N.E. value (295 million). Very low taxes reflect the capitalization of tax losses carried forward of the Belgian perimeter (285 million) further to corporate legal restructuring.

Key Figures

 
In millions of   1st Quarter 2005     1st Quarter    Pro-Forma   
euros              (restated)**           2006      1st Quarter  
                                                       2006       
                                                     Including 3  
                                                   months Dofasco 
(Unaudited)                                                     
Revenues                    8,157          9,565          10,212
Gross Operating             1,700          1,427           1,564
Result                                                          
Operating Result            1,390          1,091           1,214
Net Result,                   949            761             826
group share                                                     
Earnings per                 1.55           1.23            1.33
Share (in euro)                                                 

Net Financial Debt

Net financial debt was EUR 5,742 million at March 31, 2006 compared to 1,230 million at December 31, 2005 reflecting the acquisition of Dofasco (Canada) which includes 765 million net financial debt of Dofasco.

Change in working capital requirements is essentially due to the consolidation of Dofasco (EUR 1.4 billion) as inventories have declined in volume.

At EUR 532 million for the quarter, capex (of which 261 million of growth capex mainly in Brazil) is in line with forecast.

Net financial debt/shareholders' equity ratio, including minority interests, was 0.31 at March 31, 2006 compared to 0.07 at December 31, 2005.

 
In millions of euros       December 31, 2005     March 31, 2006  
                                (restated)**        (Unaudited)    
                                                                
Shareholders' equity*                  17,431            18,602
Net financial debt                      1,230             5,742
Net financial debt/                      0.07              0.31
Shareholders' equity*                                           

* Including minority interests

Flat Carbon Steel

Consolidated Revenues amounted to EUR 5,381 million compared to 4,756 million for the first quarter 2005, (Europe EUR 4,450 million, Brazil 558 million, Canada 373 million compared to 4,280 million and 475 million for Europe and Brazil in 2005) or an increase of 13.2% (5.1% on a comparable basis). This increase is essentially explained by the consolidation of Dofasco as of March 1st 2006 and growing shipped volumes, particularly in Brazil.

Total shipments were 8,504 (including 433 thousand tons from Dofasco) thousand tons compared to 7,396 thousand tons for the same period last year or a 6.5% increase in Europe (6,720 thousand tons compared to 6,311 thousand tons in 2005) and 24.5% in Brazil (1,351 thousand tons compared to 1,085 thousand tons in 2005).

Consolidated Gross operating result amounted to EUR 780 million, of which 643 from Europe (921 million for 2005) and 137 from Brazil, (252 million in 2005) the contribution of Dofasco being zero due to purchase accounting method. Despite very high raw materials costs and lower average selling prices, margins for the first quarter 2006 were 14.4% for European activities and 24.6% for Brazil to be compared with 21.5% and 53.1% respectively for the same period in 2005.

Total Operating Result was EUR 589 million, for Europe contribution was 524 million or 11.8% margin and for Brazil 91 million or 16.3% margin. Contribution of Dofasco for the period was -26 million. This has to be compared with a total operating profit for the same period 2005 of 982 million, or 766 million, 17.9% margin for Europe and 216 million, 45.5% margin for Brazil.

Total crude steel production for the first quarter 2006 was 7,209 thousand tons for Europe compared to 7,805 thousand tons for the same period in 2005 and 1,259 thousand tons for Brazil in 2006 to be compared with 1,252 thousand tons for the equivalent period in 2005. Difference of production in Europe is due to the closure of one blast furnace in Liege (April 2005) and to a blast furnace relining in Gijon (Spain). Production at Dofasco amounted to 386 thousand tons in March.

Long Carbon Steel

Consolidated revenues amounted to EUR 1,875 million for the first quarter 2006, an increase of 19.6% (30.7% on a comparable basis).This includes 1,074 million for Europe, 717 million for Americas and 93 million for wire drawing activities and compares with EUR 1,562 million total revenues for the first quarter 2005, of which 938 million for Europe, 554 for Americas and 86 million for wire drawing. Variations take into account the full integration of Huta Warszawa, (September 1st, 2005) the divestment of rods and bars activities in Spain (July 31st, 2005) and divestment of small tubes by Acindar (Argentina) at the end of January 2006.

Total shipments were 3,458 thousand tons, including 2,187 thousand tons in Europe, 1,201 thousand tons in Americas and 70 thousand tons of drawn wire (Europe, US and South Korea), to be compared with respectively, 2,989 thousand tons, 1,877 thousand tons, 1,049 thousand tons and 63 thousand tons for the first quarter of 2005.

Total Gross operating result amounted to EUR 439 million, with 151 million, or 14.1% margin, contributed from Europe, 281 million or 39.2% margin from Americas and 7 million or 7.5% margin from drawn wire. For the same period last year, total gross operating profit was 330 million, including 126 million, 13.4% margin, from Europe, 195 million,35.2% margin, from Americas and 9 million,10.5% margin from wire drawing. Improved results are essentially due to increased volumes, a good control over costs and increased management gains. Results include 51 million from the tube divestiture at Acindar (Argentina).

Total Operating result was EUR 359 million. Europe contributed for 125 million or an 11.6% margin, Americas for 230 million or a 32.1% margin while wire drawing represents 4 million or 4.3% margin.

Crude steel production was 3,077 thousand tons (1,838 in Europe and 1,239 in Latin America) compared to 2,844 thousand tons for the same period of 2005 (1,679 thousand tons in Europe and 1,165 thousand tons in Latin America).

Stainless Steel and Alloys

Total Revenues for the first quarter 2006 were EUR 1,406 million compared to 981 million in 2005 which do not include Acesita. The first quarter of 2006 was characterised by a positive impact of volume and mix while base prices even if one notes an improvement in Europe going forward, remain low compared to the same period last year.

Shipments were of 603 thousand tons including Acesita for 169 thousand tons, compared to 578 thousand tons for the same period last year (on a comparable basis), or 403 thousand tons for Europe and 175 thousand tons for Acesita.

Gross operating result for the first quarter 2006 was EUR 114 million or 8.1% margin compared to 94 million, for the first quarter 2005. This positive evolution reflects the change in scope with the full consolidation of Acesita (74 million contribution for the first quarter 2006) as of last quarter of 2005 and higher selling prices in Brazil.

Operating result for the first quarter 2006 at EUR 76 million, or a 5.4% margin, compares to EUR 70 million, or 7.1% margin, for the same period of 2005.

Crude steel production for the first quarter 2006 was 713 thousand tons compared to 633 thousand tons in 2005 (on a comparable basis).

Turnaround of European activities will be completed during the second half with the ramp up of the Carinox (Charleroi, Belgium) new steel shop and the closure of the steel production at Isbergues (France).

Specialty Plates

Revenues for this activity (Industeel) was EUR 274 million for the first quarter 2006, compared to 243 million for the equivalent period last year. Gross operating result for the first quarter 2006 amounted to EUR 50 million or 18.2% margin, compared to 21 million or 8.6% margin, for the first quarter 2005. Operating result was EUR 45 million or 16.4% margin to be compared with 19 million or a 7.8% margin for the same period last year.

A3S (Arcelor Steel Solutions & Services)

Revenues for the first quarter of 2006 amounted to EUR 2,225 million compared to 2,056 million for the same period last year reflecting activity improvement starting at the end of the quarter except for the construction area which suffered from a long winter.

Shipments of the first quarter 2006 amounted to 3,691 thousand tons (of which 2,621 thousand tons sourced internally and 1,070 externally) compared to 3,208 thousand tons (2,438 thousand tons sourced internally and 770 externally) for the equivalent period last year.

Gross operating result for the first quarter 2006 at EUR 77 million, or a 3.5% margin compares to 98 million or a 4.8% margin, for the same period last year and translates higher costs of inputs, as well as a decrease of prices and a higher value of inventories.

Operating result was EUR 61 million, a 2.7% margin for the first quarter, to be compared with 79 million, 3.8% margin for the same period last year.

Revenues, Gross Operating Result and Operating Result by business

In millions                    1st Quarter 2005                 
of euros                         (restated)**
(Unaudited)       Revenues Gross Op.        %       Op.        %               
                              Result             Result         
Flat Carbon          4,756     1,173    24.7%       982    20.6%
Steel                                                           
Long Carbon          1,562       330    21.1%       266    17.0%
Steel                                                           
Stainless, &           981        94     9.6%        70     7.1%
Alloys Steel                                                    
A3S                  2,056        98     4.8%        79     3.8%
Others                 527        10     n.a.        -2     n.a.
Intra-Group         -1,725        -5     n.a.        -5     n.a.
Total                8,157     1,700    20.8%     1,390    17.0%

 
In millions                    1st Quarter 2006                 
of euros                                                        
(Unaudited)                                                     
                  Revenues Gross Op.        %       Op.        %
                              Result             Result         
Flat Carbon          5,381       780    14.5%       589    10.9%
Steel                                                           
Long Carbon          1,875       439    23.4%       359    19.1%
Steel                                                           
Stainless, &         1,406       114     8.1%        76     5.4%
Alloys Steel                                                    
A3S                  2,225        77     3.5%        61     2.7%
Others                 475        13     n.a.         2     n.a.
Intra-Group         -1,797         4     n.a.         4     n.a.
Total                9,565     1,427    14.9%     1,091    11.4%

This press release contains certain forward looking statements regarding anticipated market evolution and the future prospects of Arcelor. While these statements are based on the Company's best estimations as of the date hereof, actual results will vary as a function of market conditions, the action of competitors, consumer demand, steel prices, economic conditions and other factors.

** 2005 comparative information restated following the change in accounting policies in 2006.

Arcelor's consolidated financial information is prepared under the "International Financial Reporting Standards" ( IFRS ) as adopted by the European Union and applicable as of March 31, 2006. In this respect, the exclusion of certain provisions relating to hedge accounting, pursuant to the adoption of IAS 39 by the European Union, has no impact on the Group's consolidated financial information.

Arcelor is the number one steel company in the world with a turnover of 32.6 billion euros in 2005. The company holds leadership positions in its main markets: automotive, construction, household appliances and packaging as well as general industry. The company - number one steel producer in Europe and Latin America - ambitions to further expand internationally in order to capture the growth potential of developing economies and offer technologically advanced steel solutions to its global customers. In 2006, Arcelor employs 110,000 associates in over 60 countries. The company places its commitment to sustainable development at the heart of its strategy and ambitions to be a benchmark for economic performance, labour relations and social responsibility.

For more information visit www.arcelor.com

 
Corporate         Spain                 Investor Relations            
Communications    Igancio Agreda :      E-mail:                       
Tel.:             +34 94 489 4162       investor.relations@arcelor.com
+ 352 4792 5000   Oscar Fleites         Martine Hue: + 352 4792 2151  
E-mail:           France                00 800 4792 4792              
press@arcelor.com Sandra Luneau :       Toll free from the EU and      
Patrick Seyler :  +33 1 71 92 00 58     Switzerland                   
+ 352 4792 4455                         + 33 1 71 92 0090             
Jean Lasar :      
+352 4792 2359    


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