Mittal hopes ’08 rosy picture will woo Arcelor

LONDON: Mittal Steel expects core earnings to rise by 70%, or $4.1bn, over the next three years, it said on Tuesday as it published a business plan intended to secure a takeover of rival Arcelor.

The world’s biggest steel producer, whose cash and shares offer for Luxembourg-based Arcelor is currently worth around e21.1bn ($26.5bn), said earnings before interest, tax, depreciation and amortisation (EBITDA) should reach $9.9bn in ’08, up from $5.8bn in ’05.

The forecast does not include the potential acquisition of Arcelor which on Monday rejected Mittal’s latest bid despite seeing Dutch-based Mittal’s earnings forecast last week. Mittal’s business plan is underpinned by market forecasts that demand for steel will continue to grow by 3.6% to 4.5% per year, offsetting the company’s assumption steel prices will fall 1.75% in real terms annually.

The firm expects to add $500m to EBITDA by ’08 by cutting energy use by 6% and forecast another $500m boost from raised productivity. Mittal Steel said it would not make any job cuts if it succeeded in buying Luxembourg-based rival Arcelor.
“We have very clearly announced that Mittal Steel/Arcelor does not bring any additional job cuts," CEO Lakshmi Mittal told reporters. Mittal Steel said earlier on Tuesday it expected to cut around 26,000 jobs at its existing businesses through natural attrition over the next three years.

Lakshmi Mittal also said talks between Mittal Steel and Arcelor management over a possible deal were likely to start later on Tuesday or on Wednesday. “This should put pressure on Arcelor which has been saying Mittal concentrates on volumes rather than margins.

This business plans shows this is not the case and should comfort people in holding Mittal’s shares,” a trader said. Rabo Securities analyst Richard Brakenhoff said: “Their guidance for ’08 is clearly above my targets. This is not only driven by higher sales volumes, but also as they are investing in trying to improve their product mix.”

Arcelor’s board favours an alternative tie-up with Russia’s Severstal. But on Monday it bowed to investor demands for a special vote which could derail that deal, and said it would talk to Mittal about a possible improved offer.

Mittal, 87% owned by the family of billionaire Lakshmi Mittal, has said it would make further improvements on corporate governance, but has ruled out improving the financial terms of its bid.

Mittal, which has led consolidation in the fragmented steel industry, is aiming to create a producer of more than 100m tonne of steel a year by combining the sector’s two-biggest players.

The firm said on Tuesday it expects to post EBITDA of around $7.3bn this year, including a second-half contribution of between $4.2bn and $4.4bn. Shipments for ’06 were likely to be around 60m tonne, it added.

“The outlook for the steel industry is positive, supported by strong global growth, especially from high-growth, developing markets,” Lakshmi Mittal said in a statement.