SOURCE: Arcelor SA

July 28, 2005 02:37 ET

Arcelor SA announces 1st Half Results-1

Luxembourg -- (MARKET WIRE) -- July 28, 2005 --

PRESS RELEASE

2005 First Half Results

Arcelor delivers very strong results and becomes number 1 steel player in Brazil and Latin America

-         Net result: EUR 1.9 billion

-         Responsible market behaviour

-         Inventories back to normal for long carbon, normalizing 
          for flat carbon

-         Significant price increase of raw materials

-         Creation of Arcelor in Brazil

-         Excellent set of numbers expected for 2005

Arcelor delivers very strong results, despite a more difficult business environment: weak European demand and a surge of imports lead Arcelor to reduce shipments and production during the first half of the year. In order to adjust its market supply to the bare needs of an overstocked market and accelerate depletion of inventories, Arcelor cut back production in Europe by 1.5 million tons in flat and long carbon steels. These production cuts were more significant in the second quarter than in the first three months of 2005. Inventory levels for flat carbon steels are expected to come back to normal levels by the end of the summer.

Arcelor was able to structurally improve its profitability level despite significant increases of raw materials costs which occurred progressively starting April 1st, 2005 and a more difficult economic environment.

Arcelor in Brazil

Arcelor consolidates its controlling stakes in Belgo, CST and Vega do Sul through the combination of Belgo, CST and Vega do Sul in a single entity. This move creates the largest steel player in Brazil and in Latin America. This company will be listed at the Sao Paulo Stock Exchange (BOVESPA).

Luxembourg, July 28, 2005 - The board of directors of Arcelor met on July 27, 2005 under the chairmanship of Joseph Kinsch. It reviewed the consolidated financial statements for the second quarter of 2005 and approved the Group consolidated financial statements for the first half of 2005.

At June 30, 2005, consolidated net result, group share, was EUR 1,937 million, versus EUR 865 million for the first half of 2004.

With EUR 16,778 million for the first half of 2005 compared to EUR 14,593 million for the same period last year, consolidated revenue increased despite a sharp drop in volumes due to production cuts and a reduction in European shipments (total shipments decrease on a comparable basis: 2.6 million tons, or 1.7 million for flat carbon and 0.9 million for long carbon steels) This evolution reflects the overall good level of average steel prices, and the positive effects of the consolidation of CST and Acindar for the first six months of 2005.

Geographical breakdown of revenue was as follows: total Europe: 76% (EU 25 and others Europe), South America: 10%, North and Central America: 9%, Rest of the world: 5%.

Consolidated gross operating result amounted to EUR 3,383 million for the first half of 2005 versus EUR 1,779 million for the same period last year, or a 20.2% margin compared with 12.2% last year despite very significant cost increases due to high raw materials prices incurred progressively as of April 1st.

Consolidated operating result amounted to EUR 2,643 million for the first half of 2005 versus EUR 1,237 million for the same period last year, which corresponds to a 15.8% margin versus 8.5%.

After a financial result of EUR-79 million, a contribution from associates of EUR 165 million (including Dillinger Hutte (DHS), for EUR 78.4 and Acesita for EUR 27 million) and income tax of EUR 519 million, the consolidated net result, group share, at EUR 1,937 million, more than doubled compared to EUR 865 million for the first half of 2004.

Key Figures

In millions of euros     1st Half  1st Quarter   2nd Quarter  1st Half
                             2004       2005        2005        2005
Revenue                    14,593      8,136       8,642      16,778
Gross Operating Result      1,779      1,697       1,686       3,383
Operating Result            1,237      1,388       1,255       2,643
Net Result, Group share       865        934       1,003       1,937
Earnings per Share (in EUR)  1.76       1.52        1.64        3.16

Net Financial Debt

Net financial debt decreased by EUR 699 million to EUR 1,813 million at June 30, 2005 compared to EUR 2,512 million at December 31, 2004 and EUR 2,271 at March 31, 2005.

Cash-flow from operations amounted to EUR 2,004 million over the first six months of 2005. The variation of working capital needs over this period is mainly due to the high prices of inputs and increased average selling prices. Continuous management efforts have allowed a tight control of inventories in tonnage. Capital expenditure (EUR 728 million) remain low in Europe and include expansion expenses at CST. Free cash flow was used to pay EUR 477 million of dividends in May 2005 and to repay debt.

Net debt-to-equity ratio (including minority interests) decreased to 0.12 at 30 June 2005, from 0.20 at the end of 2004 and 0.17 at the end of the first quarter of 2005.

In millions of euros      December 31, 2004  March 31, 2005  June 30, 2005
Shareholders' equity*            12,317         13,462          14,785
Net financial debt                2,512          2,271           1,813
Net financial debt/
 Shareholders' equity*             0.20           0.17            0.12
* Including minority interests

Flat Carbon Steel

Revenue for the Flat Carbon Steel sector was EUR 9,665 million. This compares with EUR 7,690 million for the first half of 2004, the 25.7% increase (12.7% on a comparable basis) being essentially due to the consolidation of CST (EUR 1,003 million). Total shipments decreased by 10% to 15,116 thousand tons from 16,644 thousand tons for the first half of 2004 (CST accounted for 2,420 thousand tons for the same period of 2004 and 2,337 thousand tons for the first six months of 2005).

Following a severe drop in apparent consumption during the first six months of the year due to excess inventory and the production cuts decided in February, shipments to general industry were reduced by 22.6%, while deliveries to the automobile markets increased by 2.5%.

Compared to the first half of 2004, average selling prices for the same period of 2005 have increased by 22.1% due to price increases of the 1st quarter for the spot markets and to the yearly contracts negotiated at the end of 2004 (40% of total volumes, including CST, are contract sales).

Gross operating result was EUR 2,381 million, or 24.6% margin for the first half of 2005, compared to EUR 884 million, or 11.5% margin, for the same period of 2004. Despite cost increases essentially due to raw materials and incurred for a large part during the second quarter as well as to production stoppages, the consolidation of CST (EUR 511 million), management gains, positive variances coming from restructuring initiated in the past year and positive currency effects have limited negative impacts on the margins.

Operating result amounted to EUR 1,964 million, or a 20.3% margin for the first half of 2005, compared to EUR 592 million, a 7.7% margin for the same period last year.

Total crude steel production for the first half year of 2005 was 17,057 thousand tons (including CST for 2,481 thousand tons) compared to 15,407 thousand tons for the same period of 2004. For the same periods, crude steel production in Europe was respectively 14,576 thousand tons and 15,407 thousand tons, or a 5.4% decrease (6,772 thousand tons during the second quarter 2005 compared to 7,804 thousand tons for the first quarter 2005, or 13% decrease).

One blast furnace in Liege was decommissioned on April 30, 2005 (1.7 million tons crude steel equivalent per year), in the context of the "Apollo" restructuring plan.

Long Carbon Steel

Revenue for the Long Carbon Steel sector was EUR 3,186 million, which compares with EUR 2,927 million for the first half of 2004 (6% on a comparable basis). This was primarily due to the integration of high-quality assets (Acindar, consolidated as of May 1st, 2004) for the full six months of 2005 and an average selling prices increase of 19% compared to the first half of 2004.

Due to the high inventories situation and some seasonal effects during the first quarter in Europe leading to a market supply adjustment, total shipments diminished by 10.1%, from 6,873 thousand tons for the first half of 2004 to 6,178 thousand tons for the first six months of 2005. For the same period of 2005, shipments in Europe were reduced by 23.4% compared to 2004 (3,965 thousand tons and 5,179 tons respectively).

Gross operating result for the first half year reached EUR 656 million, or 20.6% margin, compared with EUR 538 million or 18.4% margin for the same period last year. Despite the decrease in shipments, performance improved, reflecting the very good contribution of assets in the Americas and more specifically of Acindar. Scrap costs for Europe have decreased considerably and margins were maintained.

Operating result was EUR 518 million, a 16.3% margin for the first half year, compared to EUR 440 million or a 15% margin for the same period of 2004.

Total crude steel production amounted to 5,889 thousand tons for the first half of 2005 compared to 6,305 thousand tons for the same period last year, taking into account additional 321 thousand tons from Acindar and the divestment of Acierie de l'Atlantique ADA (Bayonne, France) (368 thousand tons). For the same periods, production in Europe was respectively 3,585 thousand tons and 4,599 thousand tons, or a 22.1% decrease (including ADA divestment).

Stainless Steel and Alloys

Revenue for the Stainless Steels and Alloys sector for the first half year 2005 was EUR 1,975 compared to EUR 2,401 million for the same period of 2004, after several divestments (Thainox, Techalloy, TEVI, Matthey US and J&L for 210 million) as well as the transfer of the Specialty Plate activity to the sector " others". The positive effect (+ 3.6% on a comparable basis) is mainly due to higher alloy surcharges while base prices have been under strong pressure these last months.

Shipped volumes amounted to 778 thousand tons for the fist half 2005 compared with 1,202 thousand tons last year (823 thousand tons on a comparable basis), the 35.3% decrease reflecting essentially divestments and transfer of activities; J&L and Thainox shipments amounted to 142 thousand tons in 2004 and the transfer of the Industeel Plate activity amounted to 255 thousand tons in January 2005. Volumes at comparable scope were 5.5% lower.

Gross operating result reached EUR 151 million for the first half of 2005, a 7.6% margin, compared to EUR 109 million, or a 4.5% margin, for the same period last year. Positive squeeze due to rising alloys surcharges did not offset negative mix effects, impact of lower shipments and production stops. The result also comprises charges due to capitalization of the Carinox project charges.

Operating result, at EUR 59 million, a 3% margin, for the first half of 2005 compares to EUR 42 million, a 1.7% margin, for the first half of 2004

Crude steel production amounted to 834 thousand tons for the first half of 2005, compared with 1,400 thousand tons for the same period last year which included divested units (409 thousand tons).

A3S (Arcelor Steel Solutions and Services)

Revenue of the sector was EUR 4,403 million for the first six months of 2005 compared to EUR 3,997 million for the same period last year. This variation is due to positive price effects which have compensated negative volume and mix effects due to low activity levels and shipments.

Shipped volumes amounted to 6,865 thousand tons (5,087 sourced from Arcelor) for the first half 2005 compared with 7,498 thousand tons (5,324 sourced from Arcelor) last year.

Gross operating result, at EUR 176 million for the first half of 2005 compares with EUR 247 million for the first half of 2004 and the operating result, at EUR 106 million for 2005, compares with EUR 188 million for the same period of 2004.

Inventories of the sector have significantly decreased and can be considered to be at normal levels.

Revenue, Gross Operating Result and Operating Result by business sector


In millions of euros                 1st Half 2004 
                    Revenue  Gross Op.    %      Op. Result    %       
                               Result        

Flat Carbon Steel    7,690      884     11.5%       592     7.7%          
Long Carbon Steel    2,927      538     18.4%       440      15%          
Stainless & Alloys   2,401      109      4.5%        42     1.7%          
A3S                  3,997      247      6.2%       188     4.7%          

Arcelor Steel Solutions &
Services
Others                 532       -3      n.a.       -29      n.a. 
Intra-Group         -2,954        4      n.a.         4      n.a. 
Total               14,593    1,779     12.2%     1,237      8.5%         




In millions of euros                 1st Half 2005
                    Revenue  Gross Op.    %     Op. Result    %
                              Result

Flat Carbon Steel    9,665   2, 381     24.6%     1,964     20.3%
Long Carbon Steel    3,186      656     20.6%       518     16.3%
Stainless & Alloys   1,975      151      7.6%        59      3.0%
A3S                  4,403      176      4.0%       106      2.4%

Arcelor Steel Solutions &
Services
Others                 990       20      n.a.        -3      n.a.
Intra-Group         -3,441       -1      n.a.        -1      n.a.
Total               16,778    3,383     20.2%     2,643     15.8%

Outlook

In the frame of a satisfactory overall development of the global economy in 2005, economic growth seems likely to slow to 3.2% for the year, following a growth rate of 4.1% observed for 2004. Within this context, North America, Asia and Latin America, excluding Japan and Europe (EU 15) continue to show dynamic trends preventing any excessive slowdown in economic activity.

Business prospects

After several quarters of growth of apparent consumption leading to a global oversupply of steel markets and high inventories, the growth rate of apparent consumption will remain on average below real steel consumption.

In order to help rebalancing this situation aggravated by growing imports and low activity in Europe, Arcelor decided in February to adjust its shipments to fit the real needs of the markets and therefore implemented significant production cutbacks both in flat and long carbon products.

Increasing orders, for long products, these last weeks, indicate that inventories are back to normal. Flat carbon steel inventories are adjusting and should be back to normal levels at the end of the third quarter as imports have started decreasing under the influence of a stronger US dollar and with selling prices stabilizing after a two months of strong pressure.

To reach a situation of balancing the market, Arcelor will pursue production cuts during the third quarter, as seasonal effects due to the summer vacation period tend to slow down activity. As a consequence, the third quarter will be a trough period not allowing any selling price increases for commodities on the spot markets in an environment of higher unit costs caused by the surge of raw material prices and a lower level of activity.

Having covered a substantial amount of its European deliveries through annual contracts, taking advantage of its large footprint in Latin America, and after strong results for the first two quarters, Arcelor remains confident in the outcome of 2005 and Group results for the year, despite extremely difficult market conditions.

Arcelor is announcing today the creation of Arcelor in Brazil, combining Belgo (long carbon steel), CST (flat carbon steel) and Vega do Sul (cold rolling and galvanizing line for automotive and other applications), becoming the number 1 steel player in Brazil and Latin America with one of the most competitive production bases in the world, thus ensuring sustainable growth and profits for the Group.

Arcelor is a leading player of the global steel industry. With a turnover of 30 billion euros in 2004, the company holds leading 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. Arcelor employs 95,000 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.

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.

Arcelor prepares its consolidated financial information under International Financial Reporting standards ("IFRS") since 2002. Revised IFRS standards are applicable as from 2005 in the perspective of the deadline fixed by the European Union. Those changes have had no impact on the Group consolidated financial position of the first semester and should not have significant impact on the Group consolidated financial position of the next quarters.

Corporate                         Investor Relations
Communications

Tel: +352 4792 5000               Martine Hue:       +352 4792 2151

E-mail :                                             00 800 4792 4792
press@arcelor.com                                    (toll-free number
                                                     from EU and
                                                     Switzerland)

Patrick Seyler:       +352 4792 2360                 +33 1 41 25 98 98
Luc Scheer :          +352 4792 4455                 E-mail:

                                   Investor.relations@arcelor.com

Jean Lasar            +352 4792 2359
(France)

Sandra Luneau:        +33 1 41 25 65 04
(Spain)

Ignacio Agreda:       +34 94 4894162
Oscar Fleites:        +34 985 1260 29

Arcelor S.A.  19, avenue de la Liberte    L-2930 Luxembourg

www.arcelor.com




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