Shareholders Office
Santiago de Compostela, 100. 28035 Madrid (Spain)
a n n u a l r e p o r t 2 0 0 7
annual repor t
DOWLOAD EXCEL FILE
Summary
The ACERINOX Group in figures ... 4
Letter from the Chairman ... 6
1.- Directors’ Report of the Consolidated Group ... 11
1. World Production ... 12
2. Raw Materials ... 13
3. Markets ... 17
4. ACERINOX Group Productions ... 19
5. Commercial Network ... 21
6. Sales ... 23
9. Stock Exchange Market Report ... 27
10. Investments and R & D ... 32
11. Economic Report ... 33
12. The Board of Directors... 37
13. Important Events after the year end closing and their foreseeable Development ... 38
14. Management of the Financial Risk ... 40 15. Additional information regarding art.116b of the
- Auditors’ Report ... 71
- Consolidated Annual Accounts ... 74
4.- ACERINOX, S.A. and other Group Companies Directors’ Report ... 141
1. ACERINOX, S.A. ... 142
1.1 Factory ... 142
1.2 Environment... 143
1.3 Research and Development (R+D) ... 144
1.4 Sales ... 145
1.5 Investments ... 146
1.6 Economic Report ... 147
1.7 Application of Results Proposal ... 147
3. COLUMBUS STAINLESS PTY. LTD. ... 151
4. ROLDAN, S.A. ... 154
5. Commercial Societies ... 156
6. Important events after the year end closing and their foreseeable development... 157
7. Management of the financial risk ... 158
8. Additional information regarding the article 116b of the securities market law ... 162
5.- Board of Directors, Committees and Senior Management ... 165
Most significant data of ACERINOX Group
Melting shop production Net sales
E.B.I.T.D.A. E.B.I.T.
Profit after taxes and minorities Profit after taxes and minorities per share
Net cash flow Investments
Thousand Mt 2,242
05 06 07
2,588
2,310
Million Euros
4,214
05 06 07
5,637
6,901
Million Euros
%
415
05 06 07
958
655
9.9%
17.0%
9.5%
Million Euros
%
258
05 06 07
858
526
6.1%
15.2%
7.6%
Million Euros
154
05 06 07
503
312
Euros
0.6
05 06 07
1.9
1.2
Million Euros
266
635
441
Million Euros
270
177 48%* 215
222
Book value per share December, 31
stShare value official close of the business year
Net debt / Equity Return to shareholders
Dividend + Issue Premium
Net Debt / E.B.I.T.D.A.
P.E.R.
7.5
05 06 07
13.5
9.0
05 06 07
Euros 7.91
05 06 07
8.79 8.89
No. of times 20.7
05 06 07
11.9 14.0
No. of times 2.0
05 06 07
1.3 1.4
Euros
12.29
05 06 07
23.05
16.83
%
40.4
05 06 07
55.0
40.0 Euros/Share
0.34
05 06 07
0.45 0.45
Letter from the Chairman
Dear Shareholder:
I t is for me a great satisfaction to address to ACERINOX shareholders. Soon twenty years will have passed since I joined the Board of Directors of the Society and I finish this long period of time holding the position of Chairman, with non-executive nature, during some months.
During this year I have get to know thoroughly the Company running and I have been able to confirm the quality of its factory facilities, its international presence and the managerial culture, which define
the management of all its top executives.
2007 has been a difficult year for the stainless steel industry.
In the world stainless steel sector, 2007 has been featured by having two parts dramatically different.
The first half of the year, from January to May, when a high activity was developed as a continuation of year 2006. This situation changed completely with the nickel price plunge, which reached its all time high of 54,200 USD /Mt in the L.M.E.
in May and in a very short time plunged to 25,000 USD/Mt. The quick reaction of the market was a collapse of demand, which reduced dramatically the entry of orders to the stainless steel producers. On the other hand, the distribution sector carried out a heavy policy for reducing inventories, which resulted in a sharp fall of market prices. This situation lasted for the second half of the year, with market demand and price levels exceptionally low, which affecting virtually all the markets worldwide.
The world stainless steel production,
27.5 million Mt, was slightly lower
than the output in 2006 (when it
increased by 16.7%). Nevertheless,
the production has decreased in
every country, except in China,
way, China reinforces its position as the first stainless steel producer with 25.8% share of the world output.
This strong increase of production has weakened the Chinese market and also has led to high increase of the exports to more developed markets, U.S.A and Europe, and also contributing to their deterioration Both in the U.S.A and in Europe, the apparent consumptions have decreased with regard to the previous year. Nevertheless, we perceive that the real consumptions have remained to their normal previous levels.
In this complicated scenario, ACERINOX Group activity has evolved satisfactory, although it has been subject to the demand and the prices of our markets in every moment.
We have maintained our presence, and in certain cases improved, in the markets where we operate.
In line with the demand, our productions have also been lower than the previous year. Nevertheless, our melting production, 2.3 million tons and cold production, 1.5 million
At the end of 2008, our melting shop will have an installed capacity of 3.5 million tons (12.5% of the world production in 2007), allowing us to tackle with more competitiveness the new market needs.
The Consolidated Group net sales, 6,901 million euros, is 22.4% higher than the invoiced figure of the year before. The EBITDA, 654.8 million euros, decreases by 31.6%. Results after taxes and minorities, 312.3 million euros, decreases by 37.9%
over the previous year. We have carried out a provision for adjusting inventories to net realizable value for an amount of 97.4 million euros.
Even though, it is the second best result in the Group history.
The highest contribution to this results is that of NORTH AMERICAN STAINLES, with 65%, which has obtained the best result in its history.
ACERINOX, S.A contribution is 41%.
COLUMBUS has decreased its
contribution to the Group down to
9%, because its markets are more
vulnerable. The trading companies
have a negative contribution to
result because they have suffered
the direct impact of the slump of
market prices and because they have had to carry out the necessary policy to sell inventories over-valued with regard to the market price.
The situation has been getting normal by the end of the year, which allow us to face 2008 in good shape.
During 2007 ACERINOX share behaviour in the Stock exchange has also suffered the markets volatility, as it proves the fact that more than the half of Ibex-35 values have close the year with a quotation lower than the one they had on the 1st January.
During the last months of 2006, ACERINOX, which had registered a strong appreciation of its quotations, suffered a correction in the first quarter of the year, which was even harder in the last months in view of the economic uncertainty of the world financial crisis.
Nevertheless, our share behaviour in the Exchange market is very
favourable for those shareholders who value ACERINOX Group for its fundamentals and keep the shares for a long term. In a ten-year period, ACERINOX share has increased its value 2.5 times, this behaviour is 36% higher than the Ibex-35 and far higher than the main reference indexes.
The capitalization at the end of the year amounted to 4,367 million euros. The P/E as on 31st December was 13.98. The indebtedness, 922.6 million euros, has decreased by 26%, which is equivalent to 1.4 times the EBITDA of the year.
Following our traditional policy
of consolidating the dividend
increases of the previous years,
we propose to keep the dividend of
0.35 euros per share, which added
to the Issue Premium return, which
will be proposed to the General
Shareholders Meeting, means a
total refund of 0.45 euros per share
to our shareholders. This confirms
the 32.4% increase resolved the
previous year.
In 2007 ACERINOX Group profits have not reached the exceptional levels of the previous year, but despite a more complex economic environment, this annual report will show you that we have registered the second best results in the company history.
Consequently, we, shareholders should have to thank ACERINOX staff for its daily enthusiasm and dedication to get over all king of difficulties and to keep the Organization ready to undertake successfully our new future activities.
Although I will leave my position as Chairman and Board Director in the next General Shareholders Meeting, I will always feel very close to ACERINOX GROUP, which was founded by my father in September 1970 and both its staff and shareholders can count on me. I will always be at their disposal.
José María Aguirre González Chairman of the Board
of Directors
Directors’ Report of 1
1 . WORLD PRODUCTION
The stainless steel market behaviour has had two very different periods during 2007, The first half of the year the production activity reached the highest levels. In the second half of the year, the demand decrease in the market caused by the nickel price plunge, has reduced the factories activity, particularly in the third quarter.
The consequence is that all the world stainless steel producers have reduced their productions, with the only exception of China.
In this country, new facilities, derived from the investments programs of previous years, have come into operation. The result is a strong increase of its
production, 36%, achieving a total output of 7.2 million tons, which represent 25.8% of the world production.
Bringing these new capacities both in the local and foreign markets have contributed to the market deterioration.
The world production has amounted to 27,570,000 Mt, 2.9% lower than the previous year.
22.8 YEAR 2003
9.5 10.6
2.7
YEAR 2004
Europe and Africa Asia America
24.6
9.8 11.9
2.9
YEAR 2005
24.3
9.1 12.5
2.7
YEAR 2006
28.4
10.3
15.1 3.0
YEAR 2007
27.5
9.0 16.0
2.5
+7.5% -1.0% +16.7% -2.9%
EVOLUTION OF THE STAINLESS STEEL WORLD PRODUCTION
Statistical source: International Stainless Steel Forum (ISSF)
Million Mt.
ISSF estimates that stainless steel real consumption in this period has risen by 7%. This increase matches with the growth rated of the yearly stainless steel consumption in the last 50 years, 5.7%.
2 . RAW MATERIALS
2007 was featured by the high volatility of raw material prices, particularly the nickel value, which importance in the austenitic grades cost is enormous. Its influence in the price setting is very significant and, consequently, in the stainless steels demand.
2.1 Nickel
At the beginning of 2007, the nickel quoted at levels of 33,000 USD/Mt and it was expected that at any moment a correction could take place, because during 2006, starting from levels of 15,000 USD/Mt the quotation levels had more than doubled. The surprising fact was that during the first months the LME quotation went on
increasing to reach its record level in history, 54,200 USD/Mt for the cash value on the 16th May.
In June and July a strong correction took place, and nickel was quoted at 25,500 USD/Mt during August. In October and November it recovered and reached 33,650 USD/Mt and later, it decreased again to 26,000 USD/Mt, which was the price at the end of 2007.
Jan 25,000 30,000 35,000 40,000 45,000 50,000 55,000
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
OFFICIAL NICKEL PRICE IN THE L.M.E. (Year 2007)
Average price: cash / three months
This abrupt correction in the month of June affected the stainless steels demand, and consequently, the productions, mainly in the third and fourth quarters.
The same happens with nickel demand, which also decreases due to the reduced consumptions and the LME stocks automatically start to increase to reach levels of 48,000 Mt, which did not occur since the end of 1999.
USD/Mt.
In 2007 nickel production had exceeded consumption in 100,000 Mt, which helped to offset 50,000 Mt deficit, which had taken place in 2006.
With the starting of the new projects for nickel production in 2008, it is forecasted that in the nickel market there will continue to be a surplus of around 42,000 Mt.
We can also see that the LME nickel volume of transactions have not been affected either by the price
fluctuations or the productions and consumptions, due to the fact that de traded volume has been similar to that of the previous year, approximately 22 million Mt, about 16.5 times the yearly consumption.
This confirms once more, the nickel is considered a financial product and not a metal subject to the law of supply and demand.
0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E 2
4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34
22 Million Mt
1.44 Million Mt 1.33 Million Mt Transactions Production Consumption
NICKEL: L.M.E. TRANSACTIONS COMPARED WITH WORLD PRODUCTION AND CONSUMPTION
Million Mt.
2.2 Ferro-chrome
Ferro-chrome prices have also followed an upward trend during 2007. In the first quarter we started at levels of 0.75 USD/Lb, with a 10% increase during the second quarter and 22% rise during the third quarter. At the end of the year the price levels were around 1USD/Lb.Cr
The stainless steel production cuts, due to the lower demand and the nickel prices, did not affect the ferritic grades. As far as this type is concerned, 2007 productions been even higher than the outputs of 2006.
This fact has maintained high levels of demand for ferro- chrome. The producers have taken advantage of this situation to increase their prices.
0 89 20 40 60 80 100 120
06 05 04 03 02 01 00 99 98 97 96 95 94 93 92
90 91 07
FERROCHROME QUARTERLY AVERAGE PRICES (Metal Bulletin)
US¢ / Lb. Cr.
2.3 Molybdenum
Molybdenum prices have kept high levels, mainly due to the balance between supply and demand, which have been supported by the good situation enjoyed by the special steels.
During the first months of the year, prices increased by 35%, following the nickel and the stainless steel prices upward trend.
In the second half of the year, quite the opposite to the nickel price evolution, the prices have kept high, reaching levels of 33.50 USD/lb. Mo
With this price situation, the development in some markets devoted to austenitic grades with molybdenum, will be more complicated due to the fact that the addition of the three main components: nickel, chrome and molybdenum will result in a product with a very high final price, which will may limit the development of certain applications.
0 89 5 10 15 20 30 40
25 35
06 05 04 03 02 01 00 99 98 97 96 95 94 93 92
90 91 07
MOLIBDENUM PRICES (Metals Week)
Weekly average price (USD / Lb. Mo.)
2.4 Carbon steel scrap
The carbon steel scrap also increased its price by 30%
during the first quarter, reaching levels of 325 USD/Mt FOB Rotterdam. In the second quarter it begun to decrease to levels of around 280 USD/Mt at the end
of July. But at the year-end 2007 in rose again to 315 USD/Mt keeping an upward trend, supported by the good situation of the carbon steel sector.
50 1997 75 100 125 150 200 250 275 300 325 350
175 225
2005 2006 2004
2003 2002 2001 2000 1999
1998 2007
PRICE OF CARBON STEEL SCRAP HMS 1&2 FOB ROTTERDAM
USD / Mt Source: Metal Bulletin
3 . MARKETS
After year 2006, featured by a strong demand, which allowed the producers to work at full capacity and resulted in important increases in base prices, 2007 begins with high inventory levels and the available capacities of the factories with shorter terms.
The already commented volatility of the raw materials, mainly in the LME nickel quotation, led to a strength in demand until the middle of the year, with rising prices and speculative purchases.
The Stock levels, already high, leads to a lower demand, which trend gets accentuated with the plunge of the nickel quotation from the month of June, when the markets get to a standstill, beginning a policy of stock reduction, which would continue until the end of the year.
During the second half of the year, as a consequence of the low demand, base prices decreased strongly.
0 97 500 1,000 1,500
SOURCE: MBR 2,500
2,000 3,000 3,500 4,000 4,500 5,000
98 99 00 01 02 03 04 05 06 07
Base Price Alloy Surcharge
STAINLESS STEEL COLD ROLLED SHEET PRICES AISI. 304 2.0 mm (1997-2007)
€ / Mt GERMAN MARKET
3.1 Europe
According to EUROFER, the deliveries of European producers of cold rolled flat products has decreased by 14.1% against the 17.6% increase of the previous year.
Regarding hot rolled products, they decrease by 27.3%
if compared with 29% increase of the year before.
Besides, the imports from third countries into Europe increased, for cold products, by 24.2% with regard to the previous year. This is mainly due to the strong difference of prices between the European market and other areas, particularly Asia, and to the strength of the European currency.
From the month of June, a downward trend begun because of the price drop in Europe, which was matching with the price levels of other areas.
The long products evolution has also been similar to the nickel evolution. The wire rod apparent consumption decreased by 5.7% in 2007, with a 11.1% decrease in the deliveries from the European factories, while imports increased by 68.4%. The cold bar apparent consumption increased by 4.9%, with 22.3% increase of imports against European deliveries, which are the same as those of the previous year.
3.2 Spain
The Spanish market has followed the same trend as the European market. The deliveries of the flat products European producers have fallen by 12.3% if compared with the year before regarding cold flat products and 22.7% as far as hot rolled products are concerned.
Concerning imports coming from out of Europe, according to data by October, they also increased by 24.1% for cold flat products, if compared with the year before.
3.3 United States
The flat products apparent consumption in the United States fell by 15.7% against the 17.2% increase in the year 2006. Imports decreased by 9.8%, against 2006, when they increased by 35.8%.
The long products apparent consumption also decreased by 4.4% with regard to the previous year .
Inventories in the service centres have been reduced in the last part of the year to the lowest levels of the last two years, coming with a production decrease in the factories and a progressive price increase.
3.4 Asia
According to ISSF data, the stainless steel production in the area decreased in all the countries except China, where it increased by 36%, with a production of 7.2 million Mt. This almost offset the production drops in the rest of the world countries.
4 . ACERINOX GROUP PRODUCTIONS
Mt
FLAT PRODUCTS ACERINOX NAS COLUMBUS TOTAL Variation
over 2006
Melting shop 901,295 751,671 657,051 2,310,017 -10.8%
Hot rolling shop 751,959 649,533 638,691 2,040,183 -9.3%
Cold rolling shop 585,055 511,438 358,531 1,455,024 -8.8%
LONG PRODUCTS ROLDAN NAS TOTAL Variation
over 2006
Hot rolling shop 122,303 74,397 196,700 -21.9%
Total Acerinox, S,A,
Roldán, S,A, NAS Columbus
98 99 00 01 02 03 04 05 06 07 0
250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750
98 99 00 01 02 03 04 05 06 07 0
250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750
98 99 00 01 02 03 04 05 06 07 0
200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000
98 99 00 01 02 03 04 05 06 07 0
30 60 90 120 150 180 210 240 270 300
PRODUCTION ACERINOX GROUP (Thousand Mt.)
MELTING SHOP HOT ROLLING COLD ROLLING Long Product
Regarding flat products, the output reductions havebeen very similar in the three factories, located in three
different continents, which shows the high degree of globalization of our industry.
In line with the world situation, ACERINOX GROUP production reached maximum levels in the first half of the year and the output obtained was an all time high in a six month period. Nevertheless, the fall of demand of
the second half of the year decreased significantly our production, mainly in the third quarter.
In the whole of the year, the Group production has been lower than the output of the year before.
These productions place us as the second world producer of stainless steel, with 8.4.% share of the total production.
This position is guaranteed not only by our real productions of the last four years, but also by the production capacity currently installed, which is ready to be used when the market situation allows it.
With the investment plan of 437 million euros, which is currently under way and which equipment and installation will be completed during 2008 and at the beginning of 2009, our production capacity will have an important increase, which will allow us to face the future needs.
INSTALLED CAPACITY –ACERINOX GROUP
2007 2009
MELTING SHOP 3,089,000 3,500,000
HOT ROLLING FLAT PRODUCTS 2,888,000 3,100,000
COLD ROLLING 1,746,000 2,100,000
HOT ROLLING LONG PRODUCTS 312,000 400,000
Production Capacity year 2009 (Million Mt.)
Melting 1.4 Hot Rolling 1.2 Cold Rolling 0.9 Long Prod. 0.2
Melting 1.1 Hot Rolling 0.9 Cold Rolling 0.6 Long Prod. 0.2
Melting 1.0 Hot Rolling 1.0 Cold Rolling 0.6 With this investment program there will be an
improvement in the distribution of our capacities in the big geographical areas, where they are already installed and which is one of the most important assets of the Group.
This geographical distribution of the assets lay down an important structural difference with the biggest companies of our sectors.
5 . COMMERCIAL NETWORK
ACERINOX Group commercial network is one of the essential elements of its corporate strategy.
The necessary tool to maintain an stable presence in the main markets where we operate, is the establishment of new commercial offices, warehouses and service centres of our own.
This network is the necessary complement of the production facilities, which not only allows to channel the productions, but above all to bring closer the delivery bases to final costumers and to allow a more stable and closer relationship with them.
In ACERINOX, we promote continuously the strengthen and improvement of this commercial network.
At present, the Group owns 27 commercial offices, 34 warehouses and 20 service centres and 897 employees, out of which, 436 are working abroad.
In 2007 new warehouses in Seville (Spain) and Warsaw (Poland) have come on stream.
We have under construction three service centres in Oporto (Portugal), Wrightsville (Pennsylvania, USA) and Monterrey (Mexico).
We have decided a new investment program for a total amount of 58.7 million euros so as to upgrade and improve the commercial network. This program will affect Spain, Poland, Germany, Italy and the U.K., where a new service centre and a new warehouse is going to be constructed and a existing warehouse will also be enlarged.
Likewise, various cutting and polishing lines will be installed and the existing lines will be upgraded.
ACERINOX Polska warehouse (Warsaw)
Flat Products Facility (3) Long Products Facility (3)
Service Centre (20) Warehouse (34)
Service Centre under construction (3) Commercial Office (27)
Commercial Network of ACERINOX GROUP
6 . SALES
Net Sales of the Group have exceeded the previous all- time-highs, achieving a figure of 6,901 million euros, showing 22.4% increase over the invoiced figure of the year before, although this year this increase is not due to a bigger volume of tons, but to the higher prices, which has resulted from the nickel price impact.
The geographical distribution of these sales show a greater impact of the Group participation in the Asian countries, which increase by 17.1% of the total. On the other hand, we have kept a very satisfactory balance in our sales between Europe and America.
Likewise, there is a growth in Africa because of the consumption increase in South Africa and our participation in said market.
ACERINOX S.A.
Trading Companies Consolidated Group
N.A.S.
COLUMBUS ROLDAN + INOXFIL 6,901
3,421 2,648 2,392 1,520
598 0
1,000 2,000 3,000 4,000 5,000 6,000 7,000
98 99 00 01 02 03 04 05 06 07
EVOLUTION OF ACERINOX GROUP NET SALES
Million €
EUROPE 41.8%
AMERICAS 36.0%
ASIA 17.1%
AFRICA 5.0%
OCEANIA 0.1%
EUROPE 45.1%
AMERICAS 39.1%
ASIA 11.2%
AFRICA 4.5%
OCEANIA 0.1%
GEOGRAPHICAL DISTRIBUTION OF ACERINOX GROUP NET SALES
Year 2007 Year 2006
7 . HUMAN RESOURCES
As of 31st December 2007 ACERINOX Group staff amounted to 7,450 employees, which means, 246 more than at the end of 2006. The staff distribution by companies and subsidiaries is the following:
2007 2006 Variation
ACERINOX, S.A. 2,694 2,678 0.60%
NAS 1,316 1,227 7.25%
COLUMBUS 1,918 1,762 8.85%
ROLDAN and INOXFIL 625 676 -7.54%
SPANISH TRADING COMPANIES 461 456 1.10%
OVERSEAS TRADING COMPANIES 436 405 7.65%
TOTAL GROUP 7,450 7,204 3.41%
The higher increase has taken place in COLUMBUS, with 156 new employees, out of which, 100 are trainees taken part in a programme developed together with SEIFSA so
as to try to mitigate the high rotation of qualified staff in the country.
8 . FINANCIAL REPORT
8.1 Returns paid to shareholders during 2007
During 2007 ACERINOX has disbursed to its shareholders the following amounts on account on year 2007 in the form of dividends and issue premium:
DATE ITEM EUROS/
SHARE
TOTAL AMOUNT EUROS
4-01-07 1st Interim Dividend Year 2006 0.10 25,950,000
4-04-07 2nd Interim Dividend Year 2006 0.10 25,950,000
4-07-07 Complementary Dividend Year 2006 0.15 38,925,000
4-10-07 Refund of Issue Premium 0.10 25,950,000
TOTAL YEAR 2007 0.45 116,775,000
In 2007 ACERINOX has paid a total amount per share of 0.45 euros per share, which means an increase of 32.35%
with regard to the amount paid during 2006.
The share yearly profitability was 2.67% with regard to the closing value of year 2007, which was 16.83 euros.
0 20,000 40,000 60,000 80,000 100,000 120,000 140,000
2003
75,012 76,328
88,748 55.7%
88,230
116,775
2004 2005 2006 2007
RETURN TO SHAREHOLDERS
Figures in thousand €
8.2 Payments to Shareholders on account of year 2007
ACERINOX has disbursed the following amounts:
- 1st Interim dividend on year 2007 for 0.10 euros per share on the 4th January 2008
- 2nd Interim dividend on year 2007 for 0.10 euros per share on the 4th April 2008.
Should the General Shareholders Meeting approve a complementary dividend of 0.15 euros per share proposed by the Board of Directors and an Issue premium refund of 0.10 euros per share to be paid in the last quarter, the return to shareholders on account of year 2007, will be 0.45 euros per share, which is the same amount paid on account of year 2006, and 32.35% higher than 2005.
The pay-out of year 2007, including the Issue premium return and the dividend was placed at 89.3% for the parent company and 37.4% for the Consolidated group.
8.3 Treasury Stock
In December 2007, 320,898 shares were bought back with the authorization given by the General Shareholders Meeting held on the 14th June 2007 to the Board of Directors. As it was duly informed to the market, the redemption of these shares will be proposed to the General Shareholders Meeting
0.05 0.00 0.15 0.20
0.10 0.25 0.55
0.35 0.30 0.45 0.40 0.50
2003 0.29
0.08
0.21 0.34
0.08
0.26
0.34
0.08
0.26
0.45 0.10
0.35
0.45
0.10
0.35
2004
Dividend Issue Premium Refund
2005 2006 2007 RETURN TO SHAREHOLDERS
€ / Share
Own shares No. of shares
Million
€
31 December 2006 0 0
31 December 2007 320,898 5.4
9 . STOCK EXCHANGE MARKET REPORT
2007 stock exchange has been quite trouble. The concerns about the U.S. economy; the sharp rise of the raw materials prices, particularly the crude oil; the U.S. mortgage crisis , which turned into an international financial crisis; and in Spain, the strong properties correction have turned 2007 into a particularly difficult year for the markets.
The apparent good behaviour of IBEX-35, with an upward trend during 5 consecutive years and a 7.3%
rise in 2007 must be explained in detail in view of the
fact that more than half of IBEX-35 values closed the year with losses, which were particularly significant in banks, construction companies, and real state agent’s and those values with a average or small capitalization.
In view of the generalized uncertainty, the worldwide investors decided on undoing positions in values with high volatility and reduced floating capital, as is the case of ACERINOX, which quotation fell by 27% in the whole of the year.
IBEX 35 ACERINOX quotation
+7.3%
-27.0%
-30%
-20%
-10%
0%
10%
20%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
EVOLUTION OF THE STOCK EXCHANGE MARKET. YEAR 2007
Daily percentage data
ACERINOX share analysis must be necessarily compared with the previous year. In 2006, ACERINOX behaviour was very similar to the IBEX-35, even the exceptional appreciation which featured the last quarter. In the first months of 2007 said rise had a correction and from then,
the share has behaved similarly to IBEX-35 until the last quarter, when the quotation has been affected by the above mentioned factors. As it appears in the following graph the 2006-2007 period behaviour is similar to the IBEX-35.
+36.9%
+41.4% IBEX 35
ACERINOX quotation
1ºQ.06 2ºQ.06 3ºQ.06 4ºQ.06 1ºQ.07 2ºQ.07 3ºQ.07 4ºQ.07 -10%
80%
70%
60%
50%
40%
30%
20%
10%
0%
100%
90%
EVOLUTION OF THE STOCK EXCHANGE MARKET. YEARS 2006-2007
Daily percentage data
EVOLUTION OF THE STOCK EXCHAGE MARKET. YEARS 1998-2007
+109.3% IBEX 35 +148.2% ACERINOX S.A.
0 50 100 200 250
150
Monthly percentage data
If we pay attention to ACERINOX share long term behaviour, in the last 10 years ACERINOX share has appreciated by 148.2% at an annual growth rate of 10.5%. In the same
period, IBEX-35 increased by 109.3%, with 8.2% annual growth rate.
Likewise, ACERINOX share behaviour in the last ten years has not only been higher than the IBEX-35, as we have mentioned, but than the main reference indexes:
more than twice the Euro Stoxx 50 and Dow Jones
Industrials and five times higher than Nikkey 300 and Footsie 100.
-50% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 -25%
0%
25%
50%
75%
100%
125%
150%
175%
200%
225%
250%
275%
+148.2% ACERINOX. S.A.
+109.3% IBEX 35
+67.7% DOW JONES INDUSTRIALS +27.1% NIKEI 300
+25.7% FTSE 100 +73.8% EURO STOXX 50
COMPARISON OF THE MAIN WORLD INDEXES WITH ACERINOX QUOTATION. YEARS 1998-2007
Daily percentage data
9.1 Profitability
In the table attached next, we can see the yearly accumulated profitability, including the retributions obtained by ACERINOX shareholders during the last ten years, considering that capital entries and exits take place at the end of the year. Apart from the shareholders
who joined in ACERINOX capital in 2006, the profitability achieved at the end of 2007 range from 292.65% for those who joined in 1998 to 43.37% for those who joined in 2005.
Yield in % of the ACERINOX share, including return to shareholders Profitability at December, 31th
Año 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Investment made at December 31st
1997 -23.91 51.73 28.87 51.47 46.02 59.02 99.65 111.74 275.41 190.33
1998 103.32 72.10 102.98 95.53 113.29 168.78 185.30 408.86 292.65
1999 -15.66 -0.17 -3.91 5.00 32.83 41.11 153.23 94.95
2000 18.87 14.31 25.17 59.08 69.17 205.78 134.77
2001 -3.94 5.46 34.81 43.54 161.78 100.32
2002 10.09 41.58 50.96 177.85 111.89
2003 29.48 38.26 157.04 95.29
2004 6.94 100.93 52.07
2005 90.32 43.37
2006 -25.03
9.2 Market capitalization
ACERINOX Stock Market capitalization totalled the figure of 4,367,385,000 euros at the end of 2007,
which is the second highest capitalization figure, only surpassed by year 2006.
4,367 Compound annual growth rate: 15.9%
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Market capitalization of ACERINOX S.A. 1998-2007
Figures in million €
P/E value of ACERINOX share at 31st December was 13.98.
9.3 Share Contracting
In 2007 ACERINOX shares were traded in the Continuous market during the 253 sessions it was operative. A total amount of 634,722,707 were traded, which increase by 10.01% the number of shares traded the previous year, equalling to 2.44 times the number of shares of the Share capital.
The total effective capital traded amounted to 12,169,225,905.67 euros, which means 40.03%
increase with regard to the year before.
The daily average trading rate during year 2007 was 2,508,785 shares with a value of 48,099,707.14 euros.
0 10 20 30 40 50 60 70 80
Dec Nov Oct Sep Aug Jul Jun May Apr Mar Feb Jan SHARE CONTRACTING IN YEAR 2007
Million of shares
400 450 500 550 600 650
2003 2004 2005 2006 2007
Cash (million €)
1,000 3,000 5,000 7,000 9,000 11,000 13,000
No. of shares (million)
CONTRACTS OF SHARES AND CASH
Million of shares
9.4 Capital
On the 31st December 2007, ACERINOX Share Capital amounts to 64,875,000 euros and it is represented by 259,500,000 ordinary shares of 0.25 euros face value each one. All of them are quoted officially in Madrid and Barcelona Stock Exchanges and are traded in the Continuous Market.
At the closing of 2007, the total number of shares represented by the ACERINOX Board of Directors amount to 59.58% against 53.39% of the previous year, without considering the shares which the rest of shareholders delegate in the Board of Directors for each General Shareholders Meeting
10 . INVESTMENTS AND R & D ACTIVITIES
1. Investments
In 2007 ACERINOX Group has carried out investments in fixed assets for a total amount of 215 million euros.
Out of this amount, 46%, 99.4 million euros were invested in Kentucky factory.
52.3 million euros have been invested in the Campo de Gibraltar Factory, aimed to increase productivity, update
the facilities technology and improve the environmental and work safety conditions.
18 million euros have been invested in ROLDAN S.A. for the upgrading carried out in the rolling mills.
Likewise, the investments in the foreign subsidiaries have been increased.
Million € 2007 2006
- ACERINOX, S.A. 52.3 37.5
- NAS 99.4 99.4
- COLUMBUS 26.1 18.5
- ROLDAN and INOXFIL 17.8 8.5
- SPANISH TRADING COMPANIES 3.1 2.9
- OVERSEAS TRADING COMPANIES 16.5 9.9
TOTAL 215.2 176.7
2. R & D
To follow the research activities of the last years, during 2007 ACERINOX Group has carried out various R & D projects, mainly within European research programs (RFCS) and other national programs ( PROFIT - Industry, Commerce and Tourism Ministry and CDTI). For that purpose, about 3 million euros have been invested.
These projects are based on the following general guidelines:
• Study of the comparative study against corrosion of the different stainless steel types in different application conditions.
• Evaluation of the chemical composition adjustments and processes which have been carried out with austenitic and ferritic grades, trying to bring into line the maximum saving in raw materials, with the necessary requirements of manufacturing and final properties.
11 . ECONOMIC REPORT
The result after taxes and minorities achieved by Acerinox Group in the year 2007, 312.3 million euros,
is the second all time high in our history, only surpassed by 2006 results.
0 100 150
2003 2004 2005 2006 2007 125.6
302.9
503.0
312.3
154.5 500
450 400 350 300 250 200 550
Spanish GAAP
IAS EVOLUTION OF THE RESULT AFTER TAXES AND MINORITIES ACERINOX GROUP
Million €
It is a satisfactory result in view of the difficulties suffered by the sector in a year characterized by the contrast between two semesters of opposite sign: the first half year with a strong increase in demand as a result of the nickel quotation rise in the L.M.E and the second half of the year featured by a demand halt in view of the nickel plunge in said market. The correction of more than 29.000 $ per Mt in the nickel price has affected not only the market demand but also the producers margins, particularly those like Acerinox , which commercial strategy needs warehouses to allow to have an stable
presence in the main markets so as to be able to supply the customers locally.
ACERINOX Group has achieved in the year the best half-yearly result of its history, 411.6 million euros from January to June, and its worst half-yearly result of all times, from July to December, - 99.24 million euros, after having carried out a provision of 97.4 million euros for adjusting inventories to net realizable value.
2003 2004 2005 2006 2007
-125 225 200 175 150 125 100 75 50 25 0 -25 -50 -75 -100 250
38.6 39.3
26.5 21.2 55.7
81.9 85.4 79.9 76.8 81.6 37.9
-41.8 23.2
78.4 169.9
231.6 210.2
201.3
12.8
-112.0
QUARTERLY EVOLUTION OF THE RESULT AFTER TAXES AND MINORITIES. ACERINOX GROUP
Million € Years 2005 and 2006 armonized by IAS
The Group net sales, 6,901 million euros is a new all time high and 22.4% higher than the previous all time high, achieved the previous year. Results before taxes and
minorities, 458.7 million euros, is 42.7% lower than the year before as a result of the mentioned adjustments.
CONSOLIDATED GROUP 2007 2006 Variation
Net Sales 6,900,883 5,637,227 22.4%
EBITDA 654,791 957,776 -31.6%
EBIT 526,254 858,412 -38.7%
Profit before taxes and minorities 458,686 800,482 -42.7%
Depreciation 128,586 131,776 -2.4%
Gross Cash Flow 587,272 932,258 -37.0%
Profit after taxes and minorities 312,304 502,991 -37.9%
Net Cash Flow 440,889 634,767 -30.5%
The previously mentioned results after taxes and which was slightly better than the excellent profit
Filiales comerciales extranjeras Filiales comerciales
nacionales OVERSEAS trading
companies
-20 -10 0 10 20 30 40 50 60 70
SPANISH trading companies Roldán and Inoxfil
Columbus ACERINOX
NAS 64.7
40.8 9.1
5.7 -8.4
-11.9
CONTRIBUTION TO THE RESULT AFTER TAXES AND MINORITIES CONSOLIDATED GROUP (%)
YEAR 2007
The contribution to the Consolidated results after taxes and mintorities is led by NORTH AMERICAN STAINLESS once more, with 64.7%, followed by ACERINOX, S.A.
with 40.8%. COLUMBUS contribution, 9.1%, has been affected by its dependence on the semi-products sales, which we are correcting with the new investments and also a stronger presence in the more vulnerable markets. Our subsidiaries of long products, ROLDAN
and INOXFIL have contributed a worthy 5.7% in a year particularly difficult. The commercial subsidiaries have had a worse behaviour because their inventories prices have suffered the sharp fall of the market in the second half of the year.
CONSOLIDATED GROUP 2007 2006
Cash Flow per share 1.70 2.45
Earning per share 1.20 1.94
Gross margin 21.5% 33.0%
EBITDA 9.5% 17.0%
EBIT 7.6% 15.2%
ROE 13.5% 22.1%
ROCE 16.3% 24.3%
GEARING 40.0% 55.0%
Net Debt / EBITDA 1.41 1.31
Book Value at 31-Dec-06 8.89 8.79
The main financial indications obtained in the year and their comparison with the previous year are the following:
The gearing ratio, 40%, has significantly decreased as a result of the fact that the Group indebtedness has fallen
to 922.6 million euros. The indebtedness related with the Year EBITDA, 1.4 times, is still very favourable.
0 100 200
2003 2004 2005 (IAS) 2006 (IAS) 2007 (IAS) 900
800 700 600 500 400 300 1,000
310.6
10.7
638.7
15.8 415.4 9.9
957.8
17.0 654.8
9.5 EVOLUTION OF THE CONSOLIDATED GROUP (E.B.I.T.D.A.) CONSOLIDATED GROUP
Million € (% over sales)
The previous graph showing the EBITDA evolution proves that 2007 has been, in absolute terms, the second best year in our history and besides, it has been achieved with the worst percentage margin over sales of
the last years, due to the previously mentioned troubles, but it clearly shows the Group potential in a year of more stability in the market.
Average 2003-2007 595.5 (12.6%)
12 . THE BOARD OF DIRECTORS
The Board of Directors resolved to appoint Mr. Jose María Aguirre Gonzalez as Chairman and Mr. Rafael Naranjo Olmedo as Chief Executive Officer, who started to hold their positions from the General Shareholders Meeting, held on 14th June 2007. These positions have been held by Mr. Victoriano Muñoz Cava, who ended his mandate as Board Director. Mr. Victoriano Muñoz Cava was appointed Honorary Chairman.
Besides, Mr. Kazuo Hoshino ended his mandate as Board Director representing the shareholder Nisshin Steel.
To cover these vacancies, the Board Of Directors, after the report of the Appointments and Retributions Commission, proposed to the General Shareholders Meeting, the appointment of Mr. Fernando Mayans Altaba, Mr. Yukio Nariyoshi and Mr. Clemente Cebrián Ara as new Board members.
Other matters of the Board of Directors appear in the Report of Corporate Governance.
Campo de Gibraltar
13 . IMPORTANT EVENTS AFTER THE YEAR - END CLOSING AND THEIR
FORESEEABLE DEVELOPMENT.
13.1 Market Evolution
After the 31st December 2007 and until the moment of closing this annual report, we are witnessing a improvement in the world markets with regard to the situation of great drop of demand and weakness of prices in the second quarter of 2007. Demand has improved with a better book of orders for the factories and with base price increases for flat products, which likewise, improve our expectations for the next months.
Undoubtedly this improvement has help to reach an stability of the nickel prices during the first months of 2008 and the market inventories level relatively low, which has stimulated demand. A factor, which can affect this tendency is the announce attempt by the ferro- chrome producers to increase strongly this alloy price. If this becomes effective, it will have a negative impact on costs and possibly in prices.
13.2 The labour agreement
On the 13th March 2008 the XVII Labour Agreement for the Campo de Gibraltar factory was signed. This agreement has been being negotiated since January and was finally approved in March. It affects 2,225 employees and it is a significant step for the social and work stability for the period 2008-2012.
13.3 Investment Plan for the Campo de Gibraltar factory
Likewise, it has been announced the Investment Plan approval for the Campo de Gibraltar Factory (XVII Phase) for the next two years for a total amount of 45.6 million euros. An important part of it (22%) will be allocated for
improvements regarding work safety and environment.
The rest will be allocated to improve and upgrade the production equipment.
13.4 Treasury Stock
During the first months of the current year, we have continued to purchase own shares, having announced on the 12th February 2007, that we own 2% of the share capital in treasury stock. Besides the Board of Directors informed about its intention to propose in the General Shareholders Meeting the redemption of said shares.
13.5 Investment in Malaysia
On the 6th March 2008 ACERINOX, S.A. and NISSHIN STEEL announced the decision to construct a new stainless production plant in Malaysia. This decision was taking after carrying out a feasibility study and after having considered different alternatives.
It will be located in Johor Bahru (Malaysia), in a 140 Has (350 acres) land by the sea.
The plant will be constructed with high efficiency criteria, similar to those of North American Stainless in Ghent (Kentucky – U.S.A), owned by ACERINOX.
The new plant will be constructed in successive stages and in the last one it will be an integrated stainless steel production plant, with a melting capacity of 1 million Mt/year and 600.000 Mt/year of cold rolled production.
The estimated total investment amounts to 1,500 million USD.
The first stage, which investment will total 320 million USD, already approved, will consist of a cold rolling mill with a 1.500 mm width Sendzimir, a combined annealing and pickling line, an skinpass and a finishing shop. Its production capacity will amount to 240.000 Mt/year, out of which 182,000 Mt/year will be cold rolled production.
Its construction will start immediately after having finished the legal proceedings. The put into operation is forecasted for 2011. During the construction and assembly stage many local workers will be employed and local companies and when the plant is on stream it will create about 300 direct jobs in the first stage.
For this project, a new society will be incorporated in Malaysia, where ACERINOX will hold a majority stake.
In this area ACERINOX GROUP has a strong commercial presence for many years, which will be definitely consolidated by this investment.
ACERINOX and NISSHIN STEEL, which already have a long cooperation together for 38 years, show in this way their firm decision to continue with this alliance and to open new fields of mutual cooperation.
With this investment, ACERINOX and NISSHIN STEEL will enhance significantly Malaysia development, its exports and the stainless steel market expansion in the ASEAN countries, contributing to offer a close supply source, with competitive materials manufactured with the highest quality levels.
For ACERINOX GROUP this factory in Malaysia, once completed, will be added to the other three factories in Spain, the United States and South Africa and will increase the Group installed capacity to 4.5 million Mt.
This decision represents a very important strategic step in ACERINOX GROUP development, improving the assets distribution, which is already unique in the sector.
Visit to the lands for the new Malaysia factory
14 . MANAGEMENT OF THE FINANCIAL RISK
The Group’s activities expose it to a variety of financial risks: market risk (including exchange rate risk, interest rate risk and price risk), credit risk and liquidity risk. The Group seeks to minimise potential adverse effects on the Group’s financial performance through the use of derivative financial instruments and insurance.
The Group does not acquire financial instruments for speculative purposes.
1. Market risk
1.1 Exchange rate risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily the US Dollar. Foreign exchange risk arises from commercial transactions, financial and investment operations, and from translation of financial statements in functional currencies distinct from the consolidated Group’s presentation currency.
To manage foreign exchange risks arising on commercial transactions, Group companies use forward currency sale or purchase contracts, transacted with Group treasury, in accordance with policies approved by management.
Not all exchange rate insurance contracts entered into by the Group comply with criteria for cash flow hedge accounting. Those contracts which do not comply with these criteria have been accounted for as financial instruments at fair value through profit or loss.
The fair value of forward exchange contracts is their market price at the balance sheet date, which is the present value of the difference between the hedged price and the forward price for each contract.
As the Group hedges most of its commercial transactions carried out in foreign currencies, exposure to exchange rate risk mainly arises due to the translation of individual financial statements in functional currencies distinct from the Group’s presentation currency, particularly the US Dollar and the South African Rand. Based on data at 31 December 2007 and holding all other variables constant, if the US Dollar had appreciated by 10% against the Euro at year end, consolidated profit after tax for 2007 would have increased by Euros 22,250 thousand (Euros 21,432 thousand in 2006), and equity by Euros 119,329 thousand (Euros 113,864 in 2006), due to changes in translation differences.
If, however, the US Dollar had depreciated by 10%
against the Euro, consolidated profit after tax for 2007 would have been reduced by Euros 18,205 thousand (Euros 17,535 thousand in 2006), and equity by Euros 97,633 thousand (Euros 93,161 thousand in 2006).
The South African Rand has a lesser impact, due to the smaller contribution of Columbus Stainless to consolidated results. If the South African Rand had appreciated by 10% against the Euro at year end, consolidated profit after tax for 2007 would have increased by Euros 1,133 thousand (Euros 9,448 thousand in 2006), and equity by Euros 43,234 thousand (Euros 46,713 in 2006). If the South African Rand had depreciated by 10% against the Euro, consolidated profit after tax for 2007 would have been reduced by Euros 927 thousand (Euros 7,730 thousand in 2006), while equity at 31 December 2007 would have been Euros 35,373 thousand lower (Euros 38,219 thousand less in 2006).
1.2 Interest rate risk
The Group is exposed to interest rate risk due to the volatility of interest rates in the countries in which it
operates. As part of its external financing, the Group has obtained loans in several countries and currencies which are referenced to various interest rate indices. To mitigate part of these risks, especially the long-term risk, the Group contracts interest rate swaps permitting the exchange of debt at a variable interest rate for debt at a fixed interest rate.
The derivative instruments used by the Group comply with effectiveness conditions to be considered cash flow hedges.
The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current credit worthiness of the swap counterparties.
If at 31 December 2007 interest rates had been 10 basis points higher, with the remaining variables unchanged, both consolidated profit after tax and equity would have decreased by Euros 992 thousand (Euros 1,254 thousand decrease in 2006), mainly due to a higher interest expense on variable-rate borrowings.
Consolidated profit after tax is less sensitive to interest rate fluctuations in 2007 than in 2006, due to the decrease in the Group’s variable-rate borrowings.
1.3 Price risk
The Group is exposed to two types of risk based on price variations:
Risk due to changes in the market price of securities it owns in quoted companies
Risk due to changes in prices of raw materials
The risk of price fluctuations in quoted securities relates to the shares held by the Group in Nisshin Steel, which is traded on the Tokyo Stock Exchange. The Group has not hedged this risk with derivative financial instruments.
If the quotation of Nisshin Steel had been 100% higher, with the remaining variables unchanged, the impact on the income statement and equity would have been an increase of Euros 2,497 thousand (Euros 2,971 thousand in 2006).
Risk of changes in prices of raw materials
The stainless steel market is characterised by healthy demand, which has grown at an annual rate of approximately 6% for over 50 years. With end consumer levels stable, control of this market for the most part by independent warehousers makes consumption appear volatile (in line with fluctuations in the quotation of nickel on the London Metal Exchange).
To reduce the risk deriving from majority control of the market by independent warehousers, and the impact on the market of the warehousers’ inventory stockpiling/
realisation practices, the Acerinox Group’s policy has been to develop a sales network that enables it to supply end customers on an ongoing basis by means of warehouses and service centres through which the Group’s production is channelled. This policy has enabled the Group to achieve significant market share in the end customer segment and, therefore, stabilise sales and reduce the risk deriving from changes in prices of raw materials.
To resolve the risk posed by the volatility of raw materials, 85% of Group sales (i.e. all sales transacted in Europe, America and South Africa) are naturally hedged by applying an alloy surcharge that enables fluctuations in the quotation of nickel on the London Metal Exchange to be passed on to customers during the period in which the order is being manufactured. With this hedge, a reduction of 10% in the quotation of nickel on the London Metal Exchange would alter the Group’s gross sales margin by only 1%.
The convenience of maintaining sufficient inventory levels in our warehouses entails the risk that these
inventories might become over-valued in comparison to market prices and which the Group tries to mitigate by maintaining control over inventory levels.
The valuation of raw materials, work in progress and finished goods at average cost helps to reduce cost volatility and, consequently, to decrease the impact of nickel price fluctuations on margins.
The main risk continues to be the volatility of apparent consumption levels, which, being an external factor, is beyond the Group’s control. Efficient management of the aforementioned solutions for the remaining risks helps to reduce exposure to this risk in so far as it is practicable.
In 2006, following the exceptional rise in the price of nickel, the Group entered into certain raw materials derivatives (collars) in order to minimise the risk of an impact on the income statement from a sudden change in the quotation of nickel on the London Metal Exchange.
No transactions of this type have been carried out in 2007.
2. Credit risk
Credit risk is defined as the possible loss that could be incurred through failure of a customer or debtor to meet contractual obligations.
The Group’s exposure to credit risk is determined by the individual characteristics of each customer and, where applicable, by the country risk where the customer operates. Due to the diversity of its customers and the countries in which it operates, the Group does not have any individual concentration of risk, whether sector- related or geographical.
The Group hedges its commercial and political risks either through credit insurance companies, or through documentary credits and guarantees extended by banks with an AA rating in low-financial risk countries. Credit
insurance covers between 85% and 90% of commercial risks, depending on the insurance company, and 90%
of political risks. The Group’s main credit insurer has an A credit rating by Standard & Poor’s and an A2 rating by Moody’s.
During 2007 compensation of Euros 1,375 thousand was received in respect of receivables insurance policies (Euros 1,041 thousand in 2006).
A risk committee is responsible for monitoring the Group’s credit risk policy. Where required, the committee also performs an individual analysis of customers’ credit worthiness, establishing credit limits and payment conditions. New customers are analysed in conjunction with the insurance company prior to the Group proposing its general payment conditions. Payment in cash is required of customers that do not meet credit conditions.
A longstanding commercial relationship links the Group with many of its customers. Payment delays give rise to special monitoring of future deliveries, payment conditions, credit limit reviews and credit enhancements, as appropriate.
Title retention clauses, in line with prevailing legislation in the customer’s country of operation, enable goods to be recovered in the event of payment default.
On occasions, the Group also uses other financial instruments to reduce credit risk, such as factoring operations. The Group derecognises factored assets when the risks and rewards of those assets have been substantially transferred.
The Group makes valuation adjustments to trade receivables where necessary to provide for insolvency risk, to cover aged debts or when circumstances indicate doubtful collection.
