Aditya Mittal, President and Chief Financial Officer, talks of a strong and important year for Mittal Steel.
2004 was a year of considerable progress in which Mittal Steel realised a number
of its long-term strategic goals. Dominated by a succession of acquisitions, the year saw the Company cement its position as the number one steel-maker in both Central and Eastern Europe (CEE) and Africa. But most significant was the combination of Ispat International with LNM Holdings to form Mittal Steel Company, and the subsequent merger with International Steel Group. This double merger has cemented our position as the largest and most global steel company in the world.
From a financial perspective, the combination of Ispat and LNM was highly beneficial for shareholders of Ispat International in terms of earnings enhancement, and had a significant positive impact on the record results the Company announced earlier this year.
Further assisted by strong global demand for steel, 2004 was a record year for the Company with operating income in excess of US$6 billion, net income of US$4.7 billion and earnings per share of US$7.31. Although this is not a direct comparison
given the changed structure of the business, it demonstrates clearly the strong financial profile of the Company. The merger with ISG has now completed and on a pro-forma basis for the year, revenues reached US$31.2 billion, operating income was approximately US$7.0 billion and shipments were 58 million tons.
Mittal Steel reported an industry-leading operating margin of 27.7 per cent for the year. This higher operating margin demonstrates the benefits of globalisation and consolidation. These tangible benefits extend across the key areas of purchasing and marketing. Our global position enables business units to procure their raw materials at better prices and from global suppliers, and to offer our customers a global solution worldwide. Similarly it has enabled us to build an unrivalled global knowledge base, which all operations benefit from through our active Knowledge Management and Continuous Improvement programmes.
The Company’s balance sheet is robust and reflects management’s determination
to maintain Mittal Steel’s investment grade standing in the years ahead. Liquidity is strong - with cash and cash equivalents of $2.6 billion at the end of the year. Net working capital at the year-end was US$1.2 billion. Significantly our credit rating has also been upgraded by the three leading credit rating agencies, to investment grade rating.
Our earnings were enhanced by the acquisition of several companies in 2004.
In March we completed the acquisition of Polskie Huty Stali, Poland’s largest steel producer. This was a highly strategic acquisition for the Company as it established us as the leading producer in Central and Eastern Europe; a region we believe is set to enjoy further economic growth and enhanced demand for steel. Significantly, it also saw Mittal Steel emerge as the second largest producer in Europe as a whole. We believe the CEE offers considerable growth potential, particularly in terms of moving up the value chain. With this in mind, we are implementing a substantial investment programme across the region aimed at further improving product mix and quality.
Having built this position of strength in Central and Eastern Europe, we started to
look at the opportunities in Southern Europe, namely Bosnia and Macedonia. In line with our strategy of building an integrated business model across each region we acquired iron ore mines, steel-making facilities and downstream finishing operations
in these markets, which create a natural vertically integrated business.
Meanwhile our three-year investment in South Africa’s largest steel producer, Iscor (now Mittal Steel South Africa) has proved highly beneficial to stakeholders
as the transfer of our technical capabilities led to substantial cost-savings at Iscor.
In June we received clearance from the South African competition authority to take control of the company. We have identified further ways for Mittal Steel South Africa to further enhance its performance, including increasing its production by up to 2 million tons.
We have also now completed the acquisition of ISG transforming us into
the leading producer in the US, one of the world’s key markets. This is an important acquisition for the Company and immediately transforms us into the largest player in the North American market. Mittal Steel and ISG share a similar operating culture and
we are confident that the integration process will be seamless.
Having acquired these companies, we are now focused on ensuring they realise their true potential. This is reflected in our Capital Expenditure Programme. In 2004 capital expenditure rose substantially to US$898 million and is scheduled to rise further in 2005 to around US$1.5 billion. Much of this capital expenditure is being invested in modernising our newly acquired facilities to enable them to move up the value chain and be competitive in the global market place. Major projects undertaken in 2004 included the installation of new continuous casters in Kazakhstan
and Romania, the re-commissioning of a coke oven battery and installation of a pulverised coal injection system in Poland, and the building of an HR degasser furnace in Mexico. The budget for the current year includes five major projects in Poland that will come on stream over the course of 2005 and 2006. Substantial investment is also planned for South Africa, Romania and Kazakhstan.
Looking ahead, we expect stable demand in 2005. Both selling prices and costs are expected to be higher than in 2004, but we expect to be able to maintain operating profit per ton at a similar level to 2004. There will be an increase in the effective tax rate, but, with a number of our operations in low tax areas, we expect the aggregate tax charge in 2005 to be in the region of 25 per cent. In all, we expect the Group’s global strategy and the diversity of the markets it serves to continue to yield substantial benefits in the year ahead.
The progress we have made over the past few years is considerable. In 2002,
we set out the goal of making this Company the world’s most admired steel institution. The merger of Ispat International and LNM Holdings to create Mittal Steel, and the subsequent combination with ISG, is a significant step in achieving
that goal. As a unified company Mittal Steel now has an exciting opportunity to establish a strong brand and build on it. Our aim is to make “MITTAL” synonymous
with excellence in all we do – and to further build on our position as a low-cost,
high-margin producer on a global scale.
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