Annual Report 2009

Texte intégral

(1)WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. Annual Repor t 2009.

(2) WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a.

(3) WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. Annual Repor t 2009.

(4) WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 2.

(5) ACERINOX Group in figures ..................................... 4 Letter from the Chairman ........................................ 6 1.– Directors’ Report of the Consolidated Group .... 13 1 World Production ........................................... 14 2. Raw Materials ................................................. 16 3. Markets ........................................................... 20 4. ACERINOX Group Productions ...................... 24 5. Excellence Plan ............................................... 26 6. Adjustment Plan ............................................. 27 7. Commercial Network ...................................... 28 8. Sales ................................................................ 29 9. Human Resources ........................................... 30 10. Financial Report ............................................. 31 11. Stock Exchange Market Report ..................... 33 12. Investments .................................................... 37 13. Economic Report of the Consolidated Group . 38 14. Board of Directors .......................................... 42 15. Important Events that have occurred after the closing of the year and foreseeable evolution ......................................................... 43 16. Management of the financial risk ................... 45 17. Additional information in view of 116-Bis article of the Stock Market Law ...................... 52 2.– Report of Corporate Social Responsiblity. ACERINOX Group ............................................. 55 3.– Financial Statements of the Consolidated Group .. 85 – Auditors’ Report ................................................. 87 – Consolidated Annual Accounts ......................... 89 4.– ACERINOX, S.A. and other Group Companies .......................................... 159 1. ACERINOX, S.A. ........................................... 160 1.1 Factory.................................................. 160 1.2 Environment ......................................... 161 1.3 Research and Development (R+D+I) ... 165 1.4 Sales ..................................................... 166 1.5 Investments .......................................... 167 1.6 Economic Report ................................. 167 1.7 Treasury Stock ...................................... 167 1.8 Risk Management ................................ 168 1.9 Important Events occurred after the year closing .................................... 173 1.10 Additional in view of 116-Bis article of the Stock Market Law ...................... 174 2. NORTH AMERICAN STAINLESS (NAS) ........ 177 3. COLUMBUS STAINLESS PTY. LTD. ............... 180 4. BAHRU STAINLESS ....................................... 182 5. ROLDAN, S.A. and INOXFIL, S.A. ................ 184 6. Commercial Companies ............................... 186 5.– Board of Directors. Management, Committees and Senior Management ............. 189 3. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. SUMMARY.

(6) MOST SIGNIFICANT DATA OF ACERINOX GROUP Melting shop production. Net Sales. Thousand Mt. 2,310. Million Euros. 6,901. 2,044 1,806. 5,051 2,993. 07. 08. 09. 07. E.B.I.T.D.A. Million Euros % over sales. 10.9%. 2000. 8000 7000. 655. Million Euros % over sales. 9.5%. 6000. 1500. 5000. 300. 4000. 5.9%. 1000. 07. 08. 0. 171. 3000. -165. 2000. -5.5%. 1000. 3.4%. 07. 08. -191 -6.4%. 0. 09. 09. (*) EBITDA is defined as the operating result excluding depreciation and provisions.. 2500 2000 1500. 2500. Operating result E.B.I.T. 526. 2000. Million Euros % over sales. 7.6%. 1000. 312. Million Euros EPS. 1.20. 1000. 500 0. 1500. Profit after taxes and minorities. 48. 07. 0.9%. -319. 08. -10.7%. -10. 500 0. 07. -0.04. -229. 08. -0.92. 09. 09. 2500 2000. Net cash flow. Investments. 441. 1500. 342. Million Euros. 1000. Million Euros. 231. 215 500. 111 0. -104 07. 08 07. 09. 4. 2500 2000. 8000 7000. 1500 1000. 6000 5000. 08. 09. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 500. 09. Gross operating result. 752 2500. 08.

(7) R.O.E.. 16.3. 13.5. 07. R.O.C.E.. %. -0.5 08. %. 1.6. -13.1 07. -11.3. 08. 09. 09. Book value per share December, 31st. Share value official close of the business year. 8.89. Euros. 7.95. Euros. 16.83. 7.03. 14.53 11.37. 07. 10 8. 08. 09. 07. Return to shareholders Dividend + Issue premium 0.45. 6. 0.48 0.03 0.45. 0.45. 08. 09. Net financial debt 20. Euros / Share. 15. 1,075 923. 939. 07. 08. Million Euros. 10 4. 0. 0. 07. 08. 09. 09. n Attendance bonus AGM.. Net financial debt / E.B.I.T.D.A.* 3.1. 0,4. No. of times. 1.2 -6.5. 0,3. 07. 08. 1000. 61.3. 800 600. 0,2. 40.0. %. 46.5. 400. 0,1 0,0. Net financial debt / equity 1200. 0,5. 200. 09. 0. 07. (*) E.B.I.T.D.A. is defined as the operating result excluding depreciation and provision.. 80 70 60 50. 08. 09. 5. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 5. 2.

(8) LETTER FROM ThE ChAIRMAN Dear Shareholder, In 2008 annual report we pointed out that the second half of the year had been the most complex and difficult of our Group history due to the effect of the economic crisis upon our sector. Nevertheless, year 2009 has exceeded all the negative expectations of the world economic behaviour. The world GDP decreases by 0.8% with strong slumps in the more developed economies, Japan –5.3%, Euro zone –3.9%, United States –2.5%, etc partially offset with positive progresses in the emerging countries of Asia, mainly China and India, but also Malaysia and others. Before the first signs of the crisis in 2008, there was no accurate and right forecast regarding its impact and its duration. This lack of forecast has accentuated the impact of the crisis. All the financial and economic parameters of the world economy have been brutally hit by the crisis.. The stainless steel participates in many areas: economic, capital goods, transport, automobile, construction, household appliances, etc and in all of them the impact and the fall of demand have been similar. The very same occurs regarding the geographical sphere, because demand plunged in all the areas of developed economy. The world production dropped by 5.2% in 2009, according to the International Stainless Steel Forum (ISSF) available data. This fall is added to the 6.9% drop occurred in 2008. In the developed countries the drops have been far higher, 23.6% in Europe, 26.9% in Japan, 16% in the U.S, etc, partially offset by the production increase in China, +26.8%. The first half of the year has undoubtedly been the worst one in the stainless steels history, with a 26.6% plunge of the world production and falling by 43.2% in Europe and by 51.8% in the United States. The apparent consumption decreased by more than 40% in Europe and in the United States. 6. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. For our sector the main impact has been the world slump of demand, particularly during the first half of the year..

(9) In this period Acerinox Group registered a negative results after taxes of minorities of 255 million euros. In the second half of the year there was, on the one hand an improvement of demand and on the other hand the measures taken the previous months began to have positive effects. Both in the third quarter as in the fourth one we have registered positive results, which are not enough to offset the results of the first half of the year. In the whole of the year results after taxes and minorities have been negative, -229.2 million euros. It is absolutely unusual in Acerinox Group history, which reflects the hugeness of the world economic crisis. We have tackled this fall of demand with a series of short term measures but with others which will improve our competitiveness in the long run, so that our position will be significantly strengthened when the situation gets fully stabilized The extraordinary measures taken by the Group, and also the improvements achieved by the Excellence Plan, allow us to be optimistic regarding the profit achievement by the Group, even when the effects of the economic recession would extend further than forecasted. The debt at the end of the year, 1,074.5 million euros, has increased in 136 million euros as a result of the investments carried out in 2009, 231 million euros, from which 115 million euros have been paid to the shareholders. The international credit restrictions have not affected the Group liquidity, which closes the year 2009 with 40% of the its financial lines available, with a banking “pool” very diversified and well balanced between its long term debt (51%) and its short term debt (49%).. This production drop, mainly caused by the demand fall, has forced the production plants to work under subactivity conditions, involving negative consequences. Among the taken measures to deal with the demand slump there are the working capital reduction, inventories reduction, staff adjustments, reduction of working hours, according to the law in force in each country. In these areas we have made interesting progresses. The working capital has decreased to 498 million euros during this year, mainly due to the inventories reduction and increase of the payment term to suppliers, partially compensated by an increase of the customers. The carried out effort to decrease inventories, 412 million euros, has completed the forecasted adjustment plan, having reached levels of inventories of material in process and finished products almost in the targets of minimum levels without breaking the supply chain. The Group staff has decreased in 412 persons (5.5%), partially counteracted by the incorporation of the new staff of Yick Hoe (206 employees) and the personnel of Barhu Stainless project (24 employees). In Campo de Gibraltar factory a temporal labour adjustment plan was implemented during 10 months of the year. This has. 7. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. The Group production, 1,806,357 Mt, is 11.6% lower than the output of the previous year..

(10) Letter from the Chairman. not involved a staff cut, apart from those of natural nature, but a reduction of the working time, which has been adjusted to meet demand. Our Group has continued developing the Excellence Plan 2009-2010, which is an ambitious program of internal benchmarking consisting of 10 parameters of control. The target is a recurrent saving of 133 million euros at the end of the period. At the end of 2009 we have steadily achieved 64% of the final target (85 million euros), apart from the intangible but enormously worthy aim of improving the internal exchanges and communication of the best practices regarding quality, processes, costs, etc. We are really satisfied of the benefits obtained from the implementation of this Excellence Plan. Independently and in parallel with the Excellence Plan, we have been carrying out a strong program to reduce fixed costs in the Group, aimed to tackle the crisis effects, which has allowed us to save other 82 million euros in 2009. In the complex scene, Acerinox share behaviour, with 27.8% appreciation, has been very satisfactory. One more year, it has behaved among the best values of IBEX-35, which has appreciated higher than the main markets of its environment. The behaviour of our value in years 2008 and 2009, through the greatest economic crisis from the Second World War, has been 36% better than the IBEX-35 and 62% higher than the average of its main competitors. The value of Acerinox share as of 31st December, 14.53 euros, is more than double higher than book value.. The investment system developed in this project, like those developed in the factories of Campo de Gibraltar and in the United States, is planned by stages so that it is self-financing y leading to an increased of value from the start up of the first phase. This process has proved to be really successful. In this case, up to the moment when the factory in its last stage includes the integrated production, we do no increase the capacity of the leading group, but during some years we will give increasing use of the production capacity currently available in the Group. We do not increase the stainless production capacity but we improve the use rate of the existing capacity. This feature of the investment is essential and distinguishes us from the projects currently under way and it dramatically minimizes the risks, both those concerning the project management and start up as those regarding the introduction in the markets, also improving the Group balance and its internal synergy. The first phase of Bahru Stainless, currently under way, with an investment increased to 370 million USD, will start its finishing operations this very year and the cold rolling operations are scheduled to start in the second quarter 2011. We are preparing the beginning of the second phase within this year. Our strategic plan is also developing according to other essential aspect of improving and enlarging our commercial network to reinforce our presence in the emerging areas and restructuring the current network to match the new patterns of demand, contributing to the target of bringing the final customers near to the supplying centers and going more deeply in the direct relationship with them. In this regard, in 2009 we have continued developing the project of service centers in Bolonia (Italy) and Pinto (Spain). Likewise, he have completed the acquisition of Yick Hoe in Malaysia, the biggest company of stainless. 8. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. Despite the delicate international economic and financial situation, we decided to continue with the investment in the construction of Bahru Stainless plant in Johor Bahru (Malaysia), with the development of the strategic plan without alterations, because the investment, is feasible in itself, considering all the benefits involved, irrespective of the cycle and considering the maturing periods of the investments are longer than the economic cycle..

(11) steel distribution in this country, which will significantly strengthen our presence in that area and will contribute importantly in the commercialization of the production of the new factory of Bahru Stainless. Despite the great impact involved in our negative results in year 2009, we consider that it is an exceptional fact occurred under also exceptional circumstances of generalized crisis in the economic, industrial and financial sphere. The company has the necessary foundation to return to positive results. In fact, from the third quarter 2009, already in the crisis scene, the results have been positive. During 2009 the financial strength of Acerinox Group has allowed to pay 112.2 million euros to the shareholders, redeem 5 million of shares and to maintain our investments plan of (231) million euros. For this reason, the Board of Directors has decided to propose the General Shareholders Meeting to keep a refund of 0.45 euros per share to the shareholder, the same amount as the previous year. It is proposed to divide this payment in 0.35 euros per share as a dividend on account to reserves on the 5th July and 0.10 euros per share as issue premium refund to be paid in October, as usual. The stainless steel is an extraordinary material, with a history of evolution in its use which is unique among the metals and alloys of industrial use, and for this reason, as soon as the international economic parameters improve, the stainless steel will recover it historical growth rate of the last 50 years, around 6% yearly. Under these circumstances, Acerinox Group, thanks to the development policy of previous years and the implementation of its strategic plan, is exceptionally well prepared for the new stage of recovery, which will strengthen our leading position in the world context. The distribution of our production assets, with integrated factories in three continents and a fourth one, currently in its initial stages, in the Asian continent, and with a wide commercial network worldwide, represent a unique structure in the sector.. This is the moment to say thank you to the Management Team and to all the Group staff for their attitude and cooperation during 2009.. Rafael Naranjo Olmedo Chairman and C.E.O.. 9. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 2009 has been an amazingly tough year, which has made us to carry out extraordinary efforts to deal with the special and negative conditions of the economic and financial environment. All the Group staff has behaved with the highest responsibility and with the most positive attitude before the measures which had to be taken to palliate the crisis effect..

(12) WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 10.

(13) 11. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. Senior ManageMent from left to right: Luis gimeno Valledor, Bernardo Velázquez Herreros, rafael naranjo olmedo, Miguel Ferrandis torres, José riestra Pita and José Luis Masi Sáinz de los terreros.

(14) WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a.

(15) WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 1 directors’ report of the consolidated group.

(16) Directors’ Rep or t of the Consolidated Group. 1. world production During 2009 the stainless steel world production has dropped by (5.2%) if compared with the output of the previous year.. The strong slump of demand started in the last quarter of 2008 (-37% with regard to the fourth quarter 2007) continued during the first and second quarter 2009. A recovery took place during the third quarter of the year although it did not consolidate in the last quarter of the year.. This production fall reflects the strong plunge of demand particularly during the first half of the year.. The production decrease has particularly affected the areas of Europe and America and on the contrary, in Asia there has been an increase due to the strong production rise in China (+26.8%).. The quarterly productions show the situation in years 2008 and 2009 according to ISSF data.. (thousand Mt). 1 Q.. 2 Q.. 3 Q.. 2008. 7,368. 7,421. 6,281. 4,843. 25,913. 2009. 4,830. 6,028. 7,021. (6,700)E. (24,579)E. -34.4%. -18.8%. 4 Q.. TOTAL. +12.4% (+38.3%)E. (- 5.2%)E. world production of stainless steel Thousand Mt. 30,000 28,000 26,000. 22,000. Compound annual growth rate Years 1950-2009: +5.5%. 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 50. 14. 60. 70. 80. 90. 00. 09. Source: VALE INCO, & ISSF. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 24,000.

(17) evolution of the stainless steel world production Million Mt.. 9.1. YEAR 2006 10.3. 2.6. 9.1. 3.0. YEAR 2008. 16.0. 15.1. +16.7%. 28.4. Europe and Africa. -2.0%. 27.8 Asia. YEAR 2009e. 2.3. 8.6. 2.7. 12.5. 24.3. YEAR 2007. 6.7. 15.9. 15.0. -6.9%. 25.9. 2.0. -5.2%. 24.6. America Statistical Source: Internacional Stainless Steel Forum (ISSF). 15. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. YEAR 2005.

(18) Directors’ Rep or t of the Consolidated Group. 2. raw materials 2.1 nickel After the year 2008, featured by strong and steady drops up to 70% in the nickel quotation in the London Metal Exchange (LME), the prices in the. 1st quarter 2009 got stabilized at levels under 10,000USD/Mt.. official nickel price in the l.m.e. (years 2008-2009) Average price: gash / three months. USD / Mt.. 35,000. 30,000. 25,000. 20,000. 15,000. 10,000. 5,000. J. F M A M J. J. A S O N D. In the 2nd quarter a rise started, which continued in August, when the prices reached top high levels of 21,100 USD/Mt. Prices kept more steadier levels during the 4th quarter, oscillating between 16,000 USD/Mt and 19,000 USD/Mt. It is to be highlighted that due to the stainless steel production decrease, nickel demand has. 16. J. F M A M J. J. A S O N D. been lower and thus, in 2009 the London Metal Exchange stocks doubled, going from 78,822 Mt in January to 158,010 Mt at the end of December, breaking the record figure of 151,254 Mt of year 2004. With the current stock level and the forecasted nickel production increases for 2010 and 2011, the offer and demand balance is expected to be positive.. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 0.

(19) official nickel price in the l.m.e. (years 1990 - 2009) Monthly average values (USD / Mt. Ni) 55,000 50,000 45,000 40,000 35,000 30,000 25,000. Average 1990–2005: 8,062 USD/Mt. Ni. 20,000 15,000 10,000 5,000 0. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 00. 01. 02. 03. 04. 05. 06. 07. 08. 09. 2.2 ferro-chrome the producers, who carried out adjustments and important cuts in productions, with the resulting fall of stocks.. The weakness of the raw materials market was also reflected in the ferro-chrome prices, which suffered a strong plunge, going from levels of 1.85 USD/Lb in the 4th quarter 2008, down to 0.79 USD/Lb in the 1st quarter 2009.. Due to the increase of the energy costs and the demand increase in the 3rd quarter, prices went up, reaching levels of 0.89 USD/Lb. Following this trend, the year was closed with a price of 1.03 USD/Lb.. In the 2nd quarter the weak demand continued, leading to a further decrease of prices, which fell to 0.69 USD/Mt. There was a reaction from. US¢ / Lb. Cr. 240 220 200 180 160 140 120 100 80 60 40 20 0. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 00. 01. 02. 03. 04. 05. 06. 07. 08. 09. 17. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. ferrochrome quarterly average prices (metal Bulletin).

(20) Directors’ Rep or t of the Consolidated Group. 2.3 molyBdenum During the first half of the year the molybdenum prices kept stable levels of around 9 USD/Lb due to the weak demand affecting both the stainless steel sector and the special steel sector.. end of August, reaching levels of 18 USD/Lb. It is to be pointed out that during this quarter China increased their imports of molybdenum. With the demand drop in the 4th quarter, prices dropped again, reaching levels of 11.90 USD/Lb at the end of the year.. In the 3rd quarter, at the beginning of July, an upward trend started for prices. They even doubled at the. molyBdenum prices (metals week). Weekly average price (USD / Lb. Mo.). 40 35 30 25 20 15 10 5. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 00. 01. 02. 03. 04. 05. 06. 07. 08. 09. Stainless steel scrap. 18. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 0.

(21) 2.4 carBon steel scrap The world crisis directly affected the construction and automobile sector and consequently the carbon steel production was cut by 8.1%.. top levels of 280 USD/Mt. Asia did not exert so much pressure upon the market and consequently the prices volatility was lower than in 2008, where prices reached levels of 650 €/Mt.. The carbon steel scrap demand fell and the prices kept bottom levels of around 210 USD/Mt and. price of carBon steel scrap hms 1&2 foB rotterdam. USD / Mt. 700 650 600 550 500 450 400 350 300 250 200 150 100 50 1998. 1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009. Source: Metal Bulletin. 19. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 1997.

(22) Directors’ Rep or t of the Consolidated Group. 3. markets The first half of 2009 can be considered as the worst one in the recent history of the stainless steels, with a world production plunge of 26,7%. This fall affected all the regions (Europe –41%, America –39% and Asia excluding China, -34%). The only exception is China which grew by 5%.. During the third quarter of the year the situation began to improve to worsen again in the last quarter of the year. According to the ISSF, the world stainless steel production in 2009 amounted to 24,2 million Mt, decreasing by 6.4% the output of the previous year.. stainless steel cold rolled sheet prices aisi. 304 2.0 mm (1999-2009) USD/Mt, final price, alloy surcharge included 7,000 6,500 6,000 USA. 5,500 5,000 4,500. GERMANY. 4,000 3,500 3,000. ASIA (since year 2008; average of China, Taiwan and South Korea). 2,500 2,000 1,500 1,000 00. 01. 02. 03. 04. 05. 06. 07. 08. 09. Source: Metal Bulletin Research “Stainless Steel Monthly”. europe: The consumption drop in virtually all the sectors has featured almost the whole first half of the year, with slight improvements during the second half in some sectors like the automobile in their countries due to the tax incentives promoted by some governments. Likewise, the expectant attitude of the consumers and the reduction of the available credit lines have affected the situation to a great extend. The reduction of inventories carried out by the producers and stockists has been extended to the whole of the year up to reaching minimum levels. 20. The base prices of sales were falling freely during the first quarter. Since April, the trend changed until the end of the Summer, when prices began to weaken again to improve slightly by the end of the year. Regarding long products, the production and consumption plunge has been stronger. Deliveries from European producers were almost 40% lower than the previous year. Imports also fell although not to such extent, by more than 30%.. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 99.

(23) stainless steel cold rolled sheet prices aisi. 304 2.0 mm. (1999-2009) € / Mt. German market. 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 99. 00. 01. 02. 03. Base Price. 04. 05. 06. 07. 08. 09. Alloy Surcharge. Source: MBR. The crisis of the European markets influenced Spain to the same extend, very affected by the construction sector weight which affected the domestic market seriously. Deliveries of cold. rolled flat products fell by 26.5% during 2009 and deliveries for hot rolled products dropped by 32.8%. Regarding long products (bars and wire rod), deliveries from the European producers fell further than 60% with regard to year 2008.. 21. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. spain:.

(24) Directors’ Rep or t of the Consolidated Group. united states: The situation of the North American market has followed a similar trend as in Europe, with a first half of the year feature by a strong weakness, and an improvement of demand and prices during the third and fourth quarter. The factories have gone on adjusting their productions to demand during the year and the inventories of the service centers have reached all time low levels. The prices in the United States have followed a similar progression to the above mentioned. regarding Europe with the peculiarity that the price plunge which started in 2008 was even more dramatic. In Summer the situation began to change. The price rise announced in September was accepted by the market and continued its progression until the year-end. Apparent consumption for flat products decreased by about 23% if compared with the previous year and it fell by 36% regarding long products.. stainless steel cold rolled sheet prices aisi. 304 2.0 mm. (1999-2009) USD / Mt. North American market. 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 00. 01. 02. 03. Base Price. 04. 05. 06. 07. 08. 09. Alloy Surcharge. Source: MBR. asia: Excluding China, the productions of the Asian factories fell by 24% with regard to year 2008. Nevertheless, in China production increased by 26.8%. The crisis in the financial markets has also affected this region but less than other economies and in the second half of the year there was an increase of stainless steel production and consumption.. 22. Regarding the prices in this area, during the first half of the year sales prices were higher than in other world areas, although after the Summer the price rises were much more shy and consequently at the end of the year the level of prices was below the level of Europe and America.. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 99.

(25) 23. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. Service Center in Gavá (Barcelona).

(26) Directors’ Rep or t of the Consolidated Group. 4. acerinox group productions In such a tough year as 2009, Acerinox Group production has been made matched to the market demand and to the established plans for reducing inventories. In this context, the geographical diversification of the productive assets and the wide commercial network present in the five continents have played. and essential role, making the best use of the demand improvements where they locally took place. The year began with a very low activity, as a result of the dramatic inventories reduction started in the last quarter of year 2008, not only in the stainless steel sector, but also along the whole supplying chain. 2009 1 Q.. 2 Q.. 3 Q.. 4 Q.. AccuMuLATed. Melting shop. 339.6. 435.0. 610.9. 421.0. 1,806.4. Hot rolling shop. 296.1. 382.3. 546.4. 403.5. 1,628.2. Cold rolling shop. 217.5. 208.2. 351.5. 294.1. 1,071.3. 31.0. 33.3. 39.9. 36.9. 141.1. Long product (Hot rolling) The second quarter production improved by 28% with regard to the first one. In the third quarter it increased by an additional 40.4%, reaching normal levels due to the recovery of demand in Asia, followed later on by the rest of the world. Nevertheless, it fell again by 31.1% in the third quarter, due to the urgency of the customers an stockists for closing the year with a working capital as low as possible.. In this context, ACERINOX Group has had a positive behaviour, better than the average of the sector, excluding China, reducing its production by 11.6% with regard to year 2008. It is to be highlighted the positive production increase of Columbus, 3.4%, which made the most of the improvement in the Asian markets.. production of acerinox group Mt. acerinox. nas. columBus. total. variation over 2008. Melting shop. 577,861. 682,235. 546,261. 1,806,357. -11.6%. Hot rolling. 485,274. 605,241. 537,718. 1,628,233. -9.3%. Cold rolling. 374,488. 430,814. 265,972. 1,071,274. -17.9%. rOLdAn. nAs. TOTAL. Variation over 2008. Hot rolling. 78,567. 62,525. 141,092. -30.2%. Finished products. 71,783. 56,800. 128,582. -30.9%. flat products. LOng prOducTs. 24. Year 2009. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. (Thousand Mt).

(27) production of acerinox group (thousand mt.) melting shop. hot rolling. cold rolling. long product. 2,750. 2,750. 2,000. 300. 2,500. 2,500. 1,800. 270. 2,250. 2,250. 1,600. 240. 2,000. 2,000. 1,400. 210. 1,750. 1,750. 1,200. 180. 1,500. 1,500 1,000. 150. 1,250. 1,250. 1,000. 1,000. 800. 120. 750. 750. 600. 90. 500. 500. 400. 60. 250. 250. 200. 30. 0. 0. 0 00 01 02 03 04 05 06 07 08 09. 00 01 02 03 04 05 06 07 08 09. Total. Acerinox, S.A.. 0 00 01 02 03 04 05 06 07 08 09. NAS. Columbus. 00 01 02 03 04 05 06 07 08 09. Roldan. quarterly evolution of acerinox group productions MELTING ShOp (Mt) 700,000 626,340. 605,722. 610,867. 600,000 500,000 434,962 400,000. 420,953. 339,574 284,375. 300,000 200,000 100,000 0. Q1. Q2. Q3. Year 2008. Q4. Q1. Q2. Q3. Q4. Year 2009. 25. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 527,419.

(28) Directors’ Rep or t of the Consolidated Group. 5. excellence plan 2009-2010 In February 2009 “the Excellence Plan 2009-2010” was brought out. It consists of 10 chapters, which include improvements of quality and process, inventories management, reduction of costs and better use of the synergies among factories and service centers of the Group. The results of the implementation of this program were estimated in recurrent savings of 133 million euros yearly, from the third year.. The geographical distribution of Acerinox Group, with 3 integrated factories with similar structure and size in three different continents, allows a unique opportunity in the sector to carry out these exercises of comparison. The exchanges of technical information among the experts of the different areas in all the factories are the perfect framework to the steady and continuous improvement of the quality, processes, efficiency and costs control. As of 31st December 2009, after 10 months of the plan application, 64% of the fixed targets on regular basis have been achieved and the forecasted savings are being obtained steadily. During 2010 we will continue working in this field to complete the whole plan. Due to the success of the “Excellence Plan 2009-2010” and although the period is not finished yet, new sections are being incorporated and new targets are being set, which are currently being studied and assessed.. 26. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. This plan is born as a result of an intense “benchmarking” internal program among the Group companies, sharing the best practices of each of them so as to improve the processes along the supplying chain and ambitious targets were established but also realistic as each of them has already been proved to be successful in one of the factories..

(29) 6. adJustment plan. These measures include the temporal labour adjustment plans, which affected 2,175 employees of ACERINOX factory in Campo de Gibraltar and 389 employees of ROLDAN factory in Ponferrada during 50% of their working time in both cases. Likewise, the Group staff was reduced in 412 employees, the working time of the own personnel was decreased and the subcontracting works were adjusted to the production needs always complying with the laws in force in each country.. The labour adjustment plan in Ponferrada has been extended to year 2010 in the same conditions. The adjustment plan of Campo de Gibraltar factory was presented in December to extend it for 4 months in the same conditions. an agreement with the Workers Committee has been reached with a wide support from most of the workers. At the time of drawing up this report it has been decided not to extend the labour adjustment plan since the factory is working almost at full capacity. It is to be highlighted the commitment and collaboration of the Workers Committees and the employees of ACERINOX and ROLDAN in the implementation of the labour adjustment plans, which have allowed to adjust the production and adapt it to the order book in each moment very quickly.. 27. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. It is important to establish the difference between the initiative of “the Excellence Plan 2009-2010”, which will give a new efficiency standard for the future and the programs of dramatic reduction of fixed costs, which have been carried out in every company of the Group, both commercial and productive, to counteract the effects of the world crisis and which have allowed to save 82 million euros..

(30) Directors’ Rep or t of the Consolidated Group. 7. commercial network During 2009 the enlargement of the warehouse in Birmingham (UK), and we started the construction of a new warehouse in Bolonia, Italy, which is expected to begin its operations by June of the current year.. remaining 75% and after the due diligences, the purchase contract was signed in March 2009. YICK HOE METALS has already a strong setting up in the Malaysian market, with a market share higher than 30%.. Likewise, we have finished the investments in the new cutting lines in the service center of Pennsylvania (US) and in Warsaw, (Poland).. During this year we have expanded our local Malaysian network with two new warehouses, in Kuala Lumpur and in Penang, which are already under operation.. Offices have also been opened in Mumbai (India) and in Wuxi, (China). Since 2003 ACERINOX had a 25% stake in the capital of YICK HOE METALS, the main stainless steel distributor in Malaysia. This fruitful alliance has allowed to export huge volumes of products from all the Group factories to this country. In December 2008 an agreement was achieved with the local shareholder to purchase the. With these investments we expanded the commercial network in the Malaysian market, which will distribute the products manufactured by Bahru Stainless. At present, the Group counts on 23 service centers, 34 warehouses and 27 commercial offices, with a total staff of 1,061 employees; 650 of them are working abroad.. Flat Products Facility Long Products Facility Service Center Warehouse Commercial Office. 28. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. commercial network of acerinox group.

(31) 8. sales The Group Net Sales, 2,993 million euros, is 40.7% lower than the invoiced figure of 2008 and it is the lowest in the last six years, as a result of the market. plunge, the reduction of deliveries and prices, much lower as a whole than the previous years.. evolution of acerinox group net sales Million e. 7,000 6,500 6,000 Consolidated Group. 5,500 5,000. Trading Companies. 4,500 4,000. N.A.S.. 3,500 3,000. 2,993. 2,500 2,000 1,510 1,104 984 752 196. 1,500 1,000 500 00. 01. 02. 03. 04. 05. Once more, Acerinox competitive advantage of being a global player, with integrated production in three continents and an important sales network in all the markets, involves flexibility to increase its. 06. 07. 08. Columbus Roldan + Inoxfil. 09. presence in the most active markets and to fit it in those going through more difficulties. For example, in 2009 Acerinox Group has increased its sales in Asia by 4.1 points.. geographical distriBution of acerinox group net sales year 2009. OCEANIA 0.3%. year 2008 EUROPE 40.8%. OCEANIA 0.1%. EUROPE 44.1%. AFRICA 5.8%. AFRICA 5.4% ASIA 17.7%. AMERICAS 35.8%. ASIA 13.6%. AMERICAS 36.4%. 29. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 0. ACERINOX S.A..

(32) Directors’ Rep or t of the Consolidated Group. 9. human resources. As a result of this, the total staff as of 31st December 2009 amounts to 7,328 employees, which means 2.4% lower than the staff at the end of year 2008.. 2009. 2008. Variation. ACERINOX, S.A.. 2,576. 2,667. -3.41%. N.A.S.. 1,340. 1,377. -2.69%. COLUMBUS. 1,736. 1,920. -9.58%. 24. 0. —. ROLDAN and INOXFIL. 586. 626. -6.39%. SPANISH TRADING COMPANIES. 411. 461. -10.85%. OvERSEAS TRADING COMPANIES. 655. 459. 42.70%. 7,328. 7,510. -2.42%. BAHRU STAINLESS. TOTAL grOup. 30. On the other hand, 230 new employees have joined the Group in Malaysia. 24 have joined Bahru and 206 work for Yick Hoe distribution network, who have joined Acerinox commercial network during this year.. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. The Adjustment Plan carried out by the Group in 2009 to face the consequences of the international economic recession, has involved staff reductions in all the Group companies. As a whole, 412 positions have been removed, which is 5.5% of the staff, which was already the tightest of our competitors..

(33) 10. financial report refunds to the shareholders ACERINOX financial strength has made it possible to keep its traditional policy of consolidating the increases of payment per share. Despite the world economic recession and its impact on the stainless dATe. steel sector, Acerinox has maintained the payment of 0.45 euros per share, which was increased in the exceptional year 2007.. iTeM. eurOs/shAre. TOTAL AMOunT eurOs. 5-01-09. 1st Interim Dividend Year 2008. 0.10. 24,969,291. 3-04-09. 2nd Interim Dividend Year 2008. 0.10. 24,930,455. 3-07-09. Complementary Dividend Year 2008. 0.15. 37,395,682. 5-10-09. Refund of Issue Premium. 0.10. 24,930,455. Total year 2009. 0.45. 112,225,883. This proposal contrasts with the decision of one third part of the IBEX-35 companies, which in 2009 have reduced or removed the dividend.. The amount paid to the shareholders during 2009 totaled 0.45 euros per share, equivalent to a yearly profitability of 3.96% with regard to the closing figure of the last day of 2008, which was. 11.37 euros per share. If the 0.45 euros are added to the yearly revaluation, the achieved yield of the last year would be 31.75%.. return to shareholders. 140,000 116,775. 120,000 100,000. 88,748. 88,230. 2005. 2006. 121,314 112,226. 80,000 60,000 40,000 20,000 0 2007. 2008. 2009. 31. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. Figures in tousand e.

(34) Directors’ Rep or t of the Consolidated Group. yearly return to shareholders in 2010. return to shareholders. According to the announcement of the 18th December 2009, the Board of Directors, in its meeting held on that date, resolved to propose to the next General Shareholders Meeting to keep the payment of 0.45 euros per share during 2010.. e / sahre 0.55 0.50 0.45. Consequently, if the Ordinary General Shareholders Meeting approves the dividend of 0.35 euros per share proposed by the Board of Directors for the 5th July 2010 and an issue premium refund of 0.10 euros per share to be collected in October 2010, the return to shareholders in the yearwill be 0.45 euros per share, the same amount paid in years 2007, 2008 and 2009 for the same concepts.. 0.40 0.35. 0.34. 0.34. 0.30. 0.08. 0.08. 0.45. 0.48 0.03. 0.45. 0.10. 0.10. 0.10. 0.35. 0.35. 0.35. 07. 08. 09. 0.25 0.20 0.15. 0.26. 0.26. 05. 06. 0.10 0.05. redemption of own shares. 0.00. From the 4,995,454 redeemed shares, 4,607,086 were bought in 2008. Out of them, 1,935 (which were not redeem in 2008) had been acquired with the authorization from the General Shareholders Meeting held on the 14th June 2007 and the rest, 4,605,151 shares, with the authorization of the General Shareholders Meeting held on the 27th May 2008. Also with the authorization of this. Treasury stock. 32. Attendance bonus AGM Issue Premium Refund. Dividend. General Shareholders Meeting, 388,368 shares were bought in March 2009. During 2008 and 2009 a total of 10,195,454 shares of ACERINOX were redeemed , equivalent to 2.0% and 1.96% of the share capital existing in each moment respectively. As of 31st December the number of shares amounted to 249.3 million. treasury stock As of 31st December 2009, Acerinox, S.A. has no shares in treasury stock.. nº of shares. Million euros. 31 December 2006. 0. 0. 31 December 2007. 320,898. 5.4. 31 December 2008. 4,607,086. 50.5. 31 December 2009. 0. 0. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. In the General Shareholders Meeting held on the 28th May 2009, it was approved a reduction of capital through the redemption of 4,995,454 of own share, equivalent to 1.96% of such capital, which was set in 62,326,136.50 euros, represented by 249,304,546 ordinary shares of 0.25 euros each. The purchasing cost in the continuous market of the redeemed shares amounted to 53,854,549.46 euros. These shares were excluded from quotation in Madrid and Barcelona Stock Exchanges on the 7th September 2009..

(35) 11. stock exchange information The behaviour of the world stock exchanges in year 2009 has been featured by a first quarter of free fall, as a result of the devastating effects of the international financial crisis and the general economic recession, with continuous downward reviews of the economic outlook. Nevertheless, since the month of March, the whole effect of the speed and the coordination of governments and central banks to reactivate the economy by means of reductions of rates, liquidity auctions and purchases of assets to inject resources to the systems, began to bear fruit and. the Stock Exchanges quoting in the worst scenario turn to replace the selling panic with purchasing euphoria. The scene is paradoxical. The stock exchanges go through one of the highest increases in their history, meanwhile the world economy still suffers the worst recession since the Second World War. The increase is particularly intense in the emerging markets, which plan a role more and more important in the global economy.. evolution of the stock exchange market acerinox and iBex 35 40%. Daily percentage data. Year 2009. +29.8% +27.8%. 30%. IBEX 35. 20% 10%. ACERINOX 0%. -20% -30% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec. The IBEX-35 has been one of the most satisfactory in its environment. After reaching a minimum of 6,817 points on the 9th March, the lowest since 2003, there is a reaction by more of 74% in the following quarters, which begins to offer signs of exhaustion in the fourth quarter, when it takes on a more stable behaviour. There is a yearly appreciation of 29.8%, against the 22.3% of the French index, 21.7% of the British one, 23.8% of the German index, 19% of the. Japanese one and 20.2% of the North American Dow-Jones. In this context, ACERINOX share behaviour, which in 2008 was slightly higher than the IBEX-35, has been in line with the Spanish selective one, appreciating by 27.8%, having one of the best behaviours of IBEX-35 companies by second consecutive year. And all this despite the fact that the exceptional 33. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. -10%.

(36) Directors’ Rep or t of the Consolidated Group. behaviour of the value among the metal companies in 2008 could have penalized Acerinox share for quoting with premium against its competitors.. evolution of the stock exchange market acerinox, s.a. and iBex 35. The long term behaviour of Acerinox share proves once more it singularity among the cyclical companies, due to the fact during 10 years it has appreciated by 46.8% against the IBEX-35 appreciation, only 2.6%. official close of the acerinox share e / Share. Weekly percentage data 150%. 25. 23.05. 100% 20. 50%. 14.53 15. 0%. 12.29. 11.37. 2.6%. 10. -50%. -100% 01. 02. 03. ACERINOX. 04. 05. 06. 07. 08. 09. 0 2005. 2006. 2007. 2008. 2009. IBEX 35. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 00. 34. 16.83. 46.8%.

(37) capitalization At the end of 2009 Acerinox share capitalization amounted to 3,622,395,053.38 euros, the third. best year after the outstanding 2006 and 2007.. market capitalization of acerinox, s.a. 2000 - 2009 Figures in million e 7,000 6,000 5,000 4,000. 3,622. 3,000 2,000 1,000 0 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009. profitability end of 2009 the appreciation status of Acerinox shares goes from 117.91% for those purchasing shares at the end of year 2000, to 31.75% for those purchasing them at the end of 2008. This proves the good return of the shares of our society in the medium and long term.. yield in % of acerinox shares, including returns to shareholders. Year. 2000. 1999. -15.66. 2000 on 31st December. ACERINOX Investment made. Investment made on the 31st December. 2001 2002 2003 2004 2005 2006 2007 2008. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009. -0.18. -3.91. 5.00. 32.83. 41.11. 153.23. 94.95. 44.65. 81.11. 18.86. 14.31. 25.17. 59.08. 69.17. 205.78. 134.77. 73.48. 117.91. -3.94. 5.46. 34.81. 43.54. 161.78. 100.32. 47.27. 85.73. 10.09. 41.58. 50.96. 177.85. 111.89. 54.96. 96.23. 29.48. 38.26. 157.04. 95.29. 42.00. 80.63. 6.94. 100.93. 52.07. 9.91. 40.47. 90.32. 43.37. 2.85. 32.22. -25.03. -46.64. -30.98. -29.59. -8.14 31.75. 35. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. The following chart shows the accumulated yearly profitability of Acerinox shares during the last ten years, including the payments to the shareholders, considering that the investment and the subsequent profitability calculation has been made on the last day of each year. With the exception of 2006 and 2007, we can see that at the.

(38) Directors’ Rep or t of the Consolidated Group. contracting shares and cash Acerinox shares were traded 254 days that the continuous market was operative in 2009, with a total contracting of 269,254,818 shares, 46.08% lower than the previous year, equivalent to 1.1 times of the number of shares making up the share capital at the closing of the year. The total contracted cash was 3,324,636,016.16 euros, decreasing by 52.82% with regard to year 2008.. The average daily contracting during 2009 was 1,060,058 shares, equivalent to 13,089,118 euros. During 2009 the lowest value was reached on the 5th March, 8 euros and the highest quotation was achieved on the 11th September, 15.55 euros per share.. contracts of shares and cash 700. 14,000. 600. 12,000. 500. 10,000. 400. 8,000. No. of shares (million). 300. 6,000. Effects (million €). 200. 4,000. 100. 2,000. 0. 0 2005. 2006. 2007. 2008. 2009. As of 31st December 2009 Acerinox share capital amounted to 62,326,136.50 euros, represented by 249,304,546 ordinary shares of 0.25 face value each. All of them are admitted to quotation in Madrid and Barcelona stock exchanges and are contracted in the continuous market.. 36. At the closing of 2009, the number of shares directly represented by Acerinox S.A. Board of Director totaled 65.24% of the share capital, against 60.78% of the previous year.. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. capital.

(39) 12. investments. During 2010 the 17th investment phase of the Campo de Gibraltar Factory will be completed, with important improvements and up-gradings in the main sections of the factory.. The expansions of the cold rolling sections in the factories of Middelburg (COLUMBUS) and Carrollton (NAS) were also concluded. 44% of the has been allocated in the construction of Johor Bahru factory (Bahru Stainless). This factory, the fourth integrated factory for flat products of Acerinox Group, will gather the major part of Acerinox investments in the following years and will balance the outputs of the remaining factories, which will strengthen even more Acerinox leadership in the stainless steel sector.. investments in the consolidated group. Thousand €. 2009. 2008. – ACERINOX, S.A.. 40,859. 92,669. – NAS. 45,996. 164,845. – COLUMBUS. 29,784. 54,808. 101,977. —. 1,682. 8,506. 138. 1,301. 10,449. 20,121. 230,886. 342,250. – BAHRU – ROLDAN and INOXFIL – SPANISH TRADING COMPANIES – OvERSEAS TRADING COMPANIES TOTAL. Bahru Stainless (Malaysia). 37. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. The financial strength of Acerinox Group has allowed us to maintain in the most difficult year in history the ambitious Strategic Investment Plan, which will help the Group to increase its efficiency and take the most advantage of the market recovery..

(40) Directors’ Rep or t of the Consolidated Group. 13. economic report Acerinox Group has registered a negative net result after taxes of minorities, 229.2 million euros.. evolution of the result after taxes and minorities acerinox group 550 500 450 400 350 300 250 200 150 100 50 0 -50 -100 -150 -200 -250. 503.0. 312.3. 154.5. 2005. 2006. -10.5 2008. 2007. 2009. -229.2. This result gives proof of the extreme difficulties which the sector is suffering during year 2009. Similarly to year 2008, the year can be divided into two year-halves clearly different. The world economic crisis and the halt of the industrial activity, together with the strong process of reduction of stainless steel inventories in the. factories and warehouses, were the main feature of the first half of the year, and the worst one in the stainless steel history. In the second half of the year the market situation improves, together with the joint effects of the Excellence Plan 2009-10 and the Adjustment Plan, which determined the change of trend of the Group results.. quarterly evolution ot the result after taxes and minorities. acerinox group Million e. 150 100. 87.9 66.7. 50 19.4 0 -50. 1Q. 2Q. 3Q. 4Q. 1Q. 2Q. 3Q. -29.2. -100. -93.0 -135.8. -150. -162.0 -200. 38. 2008. 2009. 6.4 4Q. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. Million e.

(41) minorities amounts to –348.6 million euros. The main magnitudes achieved in the year are the following:. The Group Net Sales, 2,993 million euros are 40.7% lower than the invoiced figure of the previous year. The EBITDA obtained during the year is –165 million euros. Result before taxes and 31st decemBer 2009 results cOnsOLidATed grOup. 2009. 2008. Net Sales. 2,993,409. 5,050,571. -40.7%. EBITDA (*). -165,007. 299,684. —. EBIT (**). -319,158. 47,971. —. Profit before taxes and minorities. -348,582. -16,746. 1981.5%. 125,090. 121,859. 2.7%. Gross Cash Flow. -223,492. 105,113. —. Profit after taxes and minorities. -229,206. -10,455. 2092.4%. Net Cash Flow. -104,116. 111,404. —. Depreciation. Variation. (*) EBITDA is defined as the operating result excluding depreciation and provisions. (**) EBIT is defined as the net operating result.. The Group EBITDA in the second half of the year, 117.2 million euros, has not been sufficient to offset the negative EBITDA of the first half of the. year. In the whole of the year and for the first time in its history Acerinox has registered a negative EBITDA, -165 million euros.. evolution of the consolidated group eBitda (*) 962.7. 1,000 900 800. 752.2. 700. 17.1. 600 500. 457.0. Average 2005 – 2009: 461.3 (9.3%). 400 300 200. 10.9. 5.9. 100 0 -100. 299.7. 10.8. 2005. 2006. 2007. 2008. -200. 2009 -5.5 -165.0. -300. (*) EBITDA is defined as the operating result excluding depreciation and provision.. 39. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. Million e (% over sales).

(42) Directors’ Rep or t of the Consolidated Group. The net financial debt at the end of the year, 1,074.5 million euros is 14.5% higher than in year 2008. It is not a significant increase considering a year when, despite the strong losses, the Group has carried out investment for an amount of 231 million euros and has paid directly or indirectly 115.5 million euros to its shareholders (112,2. million euros in dividends and 3.3 million euros in shares redemption). Calculated upon own funds, it is 61.3%. 47% of the total debt, 543.2 million euros, is long term, which guarantees the Group liquidity to finance the working capital and to keep the scheduled investments plan for the following years.. AsseTs 2009. 2008. non-current assets. 2,002.06. 1,844.84. 8.5%. current assets. 1,615.72. 1,881.89. -14.1%. – Inventories. 1,154.45. 1,388.38. -16.8%. 371.19. 373.37. -0.6%. Trade debtors. 304.17. 294.60. 3.3%. Other debtors. 67.01. 78.77. -14.9%. 90.09. 120.14. -25.0%. 3,617.79. 3,726.73. -2.9%. Million e. – Debtors. – Cash and other current assets Total Assets. Variation. LiAbiLiTies 2008. 1,752.52. 2,020.55. -13.3%. 800.07. 912.35. -12.3%. – Interest-bearing loans and borrowings. 543.18. 615.76. -11.8%. – Other non-current liabilities. 256.89. 296.59. -13.4%. 1,065.19. 793.84. 34.2%. – Interest-bearing loans and borrowings. 604.63. 402.76. 50.1%. – Trade creditors. 306.15. 245.08. 24.9%. – Other current liabilities. 154.42. 146.00. 5.8%. Total equity and Liabilities. 3,617.79. 3,726.73. -2.9%. equity non-current liabilities. current liabilities. It is important to highlight the working capital decrease in 498 million euros, mainly due to the significant reduction of inventories during the Million euros. Changes in inventories. 40. Variation. year, for an amount of 412 million euros according to this chart:. balance sheet variation. Adjustments (provisions). Translation differences. Total. 234. 140. 38. 412. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 2009. Million e.

(43) Year 2009. Year 2008. -348.6. -16.7. 46.6. 239.2. 125.1. 121.9. -118.9. 34.6. 40.5. 82.7. 497.6. 452.9. Changes in operating working capital (1). 285.4. 677.9. Others. 212.1. -225.0. -7.0. -179.4. 37.2. -102.6. -44.2. -76.8. net cash-flow from operating activities. 188.6. 496.0. Payments for investments on fixed assets. -230.4. -328.7. 1.9. 0.7. -228.4. -328.0. -39.8. 168.0. -3.3. -127.5. -112.2. -114.7. 108.9. -22.3. Changes in bank debt. 129.3. -71.4. Conversion differences. -20.4. 49.1. 38.2. 0.0. 1.9. 1.1. net cash-flow from financing activities. 33.5. -263.4. net increase / (decrease) in cash and cash equivalents. -6.3. -95.4. Opening cash and cash equivalents. 79.7. 167.3. 0.0. 7.8. 73.3. 79.7. Million euros. Result before taxes Adjustments for: Depreciation and amortisation Changes in provisions Other adjustments in the result Changes in working capital. Other cash-low from operating activities Income tax Financial expenses. Others net cash-flow from investing activities net cash-flow generated Acquisition of tresury shares Dividends payed to shareholders and minorities Changes in net debt. Attributable to minority interests Others. Effect of the exchange rate fluctuations on cash held closing cash and cash equivalents (1) Inventories + trade debtors – trade creditors. 41. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. cOndensed cAsh-fLOw sTATeMenT cOnsOLidATed grOup.

(44) Directors’ Rep or t of the Consolidated Group. 14. Board of directors During 2009 the Board of Directors was left by Mr. Juan March de la Lastra, director representing Corporación Financiera Alba, Mr. Junya Hayakawa, director representing Nisshin Steel and Mrs. Amparo Moraleda, independent director, all of them have left the Board due to the fact that their professional duties need full and intense dedication. Acerinox thanks all of them for their effort and wishes them the best of success in their brilliant professional career.. Financiera Alba, Mr. Ryo Hattori representing Nisshin Steel and Mrs. Belén Romana García, as independent Director.. To cover these vacancies and after the report issued by the Appointments and Remunerations Committee, Mr. Luis Lobón Gayoso was appointed as Board Director representing Corporación. After the above mentioned changes, the composition of the different committees delegated by the Board or Direction is as follows:. Mr. Lobón Gayoso and Mr. Hattori will also join the Executive Committee and the latter will also be a member of the Audit Committee. Mrs. Belén Romana takes on the chairmanship of the Audit Committee as independent Director, replacing Mrs. Moraleda.. executive committee Chairman: Members:. Mr. Rafael Naranjo Olmedo Mr. Oscar Fanjul Martín Mr. José Ramón Guerediaga Mendiola Mr. Santos Martínez-Conde Gutiérrez-Barquín Mr. Ryo Hattori Mr. Luis Lobón Gayoso. Chairman: Members:. Mr. José Ramón Guerediaga Mendiola Mr. Oscar Fanjul Martín Mr. Santos Martínez-Conde Gutiérrez-Barquín Mr. Braulio Medel Cámara. audit committee Chairwoman: Members:. secretary:. Mrs. Belén Romana García Mr. Clemente Cebrián Ara Mr. Fernando Mayans Altaba Mr. Ryo Hattori Mr. Diego Prado Pérez-Seoane Mr. Álvaro Muñoz López. The rest of the subjects of the Board of Directors are included in the Corporate Governance Report.. 42. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. appointments and remunerations committee.

(45) 15. other events occcured after the closing of the year. In the period elapsed during 2010 the Group order book has improved reaching higher levels than those existing during the fourth quarter and this has allowed to significantly improve the factories activity with regard to the previous year like period. 2. extension of the temporal labour adjustment plans in acerinox, s.a. campo de gibraltar factory and roldan s.a. factory in ponferrada After the favourable results obtained through the labour adjustment plan during 2009, its extension for the ten first months of 2010 was requested to the Labour Authorities with the support of most of the staff. The increase of the production orders has make it unnecessary to go on extending this labour adjustment. A similar measure was approved for Roldan S.A. factory in Ponferrada (León). These labour adjustments have not a definite nature, since we trust in a recovery of demand and activity in the future. 3. acerinox, s.a. Board of directors approves a code of conduct and good practices for the companies of the group. The Code, which coming into force date is 1st January 2010, can be found in the corporate web page (www.acerinox.es), which compiles and codifies the behaviour practices and rules that during the years have made ACERINOX to become a reference in fields like working atmosphere, continuous promotion and personal development, and which should guide these good practices in the future.. These rules standardize with the guidelines of the ruling bodies of the countries, where the companies of the Group are located, but they do not set different reaches according to the places where they will be applied, since the principles and standards which govern the Group practice are universals and cannot be limited in any way. 4. acerinox opens an office in indonesia According to ACERINOX Group policy of establishing with might and weight in the area which is to register the highest development and growth rates in the following decades, at the beginning of 2010 it was decided to open a new commercial office in Indonesia. Indonesia is the fourth more populated country in the world, around 240 million inhabitants, one of the highest growth rates of the planet, which is very close to Bahru Stainless located in the south of Malaysia, thus becoming a natural market for this factory. This commercial office in Indonesia will depend on ACERINOX SEA, which is the subsidiary which from Singapore leads the commercial development in the Asian South East. 5. staff contracting and training for the new factory of Bahru stainless The taking on staff progresses according to schedule and from the end of 2009 the new local contracted workers have begun their training in Campo de Gibraltar factory. From the Summmer the training practices are also carried out in Columbus plant in South Africa. This training is sponsored by the Malaysian government.. 43. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 1. the market situation.

(46) Directors’ Rep or t of the Consolidated Group. Due to the increasing importance of the exporting of technical assistance among the Group companies and mainly from the parent company, in February 2010 a new technical assistance contract has been signed. It improves the previous one and it includes Bahru Stainless, which, together with Columbus factory, will be the main recipient of this transfer of technology and know how. 7. sentences from the high court supporting the company performance In January 2010 the High Court has notified sentence partially assessing the appeal lodged by the company against the corporation tax administrative auditing of year 1988.. Actually the High Court declares the depreciation carried out by the company , 1.6 million euros per year (approximately), to be correct entailing the adjustment of the accrual and interest made by the tax auditor. Due to the fact that the reason justify the depreciation validation (with previous and favourable administrative uprising, it is expected that the High Court also declares to be correct the depreciations carried out during the years 1989, 1990, 1991 and 1992. ACERINOX assessments on the sentences executions give proof of the excess of provision for this reason, which amounts to 3.8 million euros.. The pier which will give service to Bahru Stainless factory (Malaysia). 44. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 6. new technical assistance agreement among the group companies.

(47) 16. management of the financial risk The Group activities are exposed to a number of financial risks: market risk (including the exchange rate risk, interest rate risks and prices risks), credit risk and liquidity risk. The Group seeks to minimise the potential adverse effects on the Group financial profitability through the use of derivative financial instruments and insurance contracting. The Group does not acquire financial instruments for speculative purposes.. To control the exchange rate risk of financial operations, the Group uses the financial derivatives as “cross currency swap”. All the insurance contracts of exchange negotiated by the Group comply with the conditions to be considered as instruments of cash flow coverage. Those which comply with such conditions have been accounted according to the assessment rule defined for the financial instruments at reasonable with changes in the results. 16.1. market risk. The Group operates internationally and consequently, it is exposed to foreign exchange risk arising from various currency exposures, mainly the US Dollar. The foreign exchange risk arises from trading transactions, financial and investment operations, and from transaction of financial statements, which functional currency varies from the consolidated Group presentation currency. To control the exchange risk arising from the trading transactions, the Group companies use forward contracts for sales and purchases, negotiated by the Group treasury department, according to the policies approved by the Management.. The reasonable value of the contracts of term exchange rate is the same as its market value as of balance date, that is to say, the current value of the difference between the insured price and the term price for each contract. The Group covers most of its trading and financial transactions in currency, and for this purpose each society at the beginning of the month and with a fornightly review, considers the loans in non local currency, the customers and suppliers balance in foreign currency, the forecast for purchases and sales in foreign currency for this period and the contracted exchange insurance. The Group can take into consideration the trading transactions to assess the total exposure when covering the financial transactions.. 45. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. 16.1.1 Exchange Rate Risk.

(48) Directors’ Rep or t of the Consolidated Group. Finally, the Group is exposed to a exchange rate risk as a result of the conversion of the individual financial statements, which functional currency is different from the presentation currency of the. Group and particularly the USD and the South African rand. The sensitivity of the euro variation against the USD and the rand, remaining steady the rest of the variables, is the following:. 2009. (thousand euros). usd 10% usd appreciation against e Effect on consolidated result after taxes Effect on equity. ZAr 10% usd depreciation against e. 10% ZAr appreciation against e. 10% ZAr depreciation against e. -3,630. 2,970. -3,369. 2,757. 121,523. -99,428. 36,839. -32,181. 2008. Effect on consolidated result after taxes Effect on equity. 46. ZAr. 10% usd appreciation against e. 10% usd depreciation against e. 10% ZAr appreciation against e. 10% ZAr depreciation against e. 14,003. -11,457. 848. -694. 131,129. -107,288. 35,595. 29,123. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. usd.

(49) 16.1.2 Interest rate risk. 16.1.3 price risk. The Group is financed in different countries, in various currencies (particularly euro, dollar and rand) with different maturities, mainly referred to a variable interest rate.. The Group is subject to three main kind of risks due to variation of prices:. As a result of the international financial crisis and the distortions introduced in the money markets, we face an additional risks which involves the increase of the risk bonuses or spreads. The Group has limited this risk with the balance between its long term and short term financing. Thanks to the emergency measures implemented by the main central banks during the crisis, the money rates have reached unusually low levels, offsetting the differential increases, being the financing cost lower than in the previous year. This effect has been more significant during the second half of the year, when our main reference rate, the EURIBOR, has had comparatively low levels.. If the interest rates had been 100 basis points higher, with the remaining variables unchanged, both the consolidated result after taxes and the equity would have been lower in 10.7million euros, mainly due to the higher financial expense for the variable rate debts.. 2. risk due to regional crisis. ACERINOX global presence with factories in three geographical area and with active commercial presence in five continents, allow to reduce its exposure to an specific area. 3. risk due to variation of the raw materials prices. The stainless steel market is characterized by the strength of demand, which has grown at an annual rate of approximately 6% for the last 50 years. In this period it is highly unusual that for three consecutive years the market has decreased, which shows the depth of the industrial world crisis. With end consumer levels stable, the control for the most part by independent stockists makes consumption appear volatile (in line with the fluctuations of the nickel quotation in the London metal Exchange). To reduce the risk derived from the majority control of the market by independent stockists, which policy of inventories accumulation/realisation affects the market, ACERINOX policy has been to develop a sales network which enables it to supply end customers with an ongoing bases by means of warehouses and service centres, through which the Group productions are channelled. This policy has allowed the Group to achieve a significant market share in the end customers’ sector and, therefore, making sales steady and consequently reducing this risk.. 47. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. Both our financial liabilities and our placings are exposed to the risk of the currencies changing. So as to manage this risk , the currency rate curve is regularly studied and sometimes derivative instruments are used in the form of financial exchanges, which can or cannot meet the conditions so as to being considered as instruments to cover cash flows. The reasonable value of the financial exchanges is the estimated amount the Group would receive or pay to close such financial exchange on the date of the balance, considering the current interest rates and the credit risk of its counterparts.. 1. risk due to variation of the prices of listed companies shares. The risks due to variation in the price of the listed companies shares is due to the shares owned by the Group of Nisshin steel, which is listed in Tokyo Stock Exchange. The Group does not use any financial tool to cover this risk..

(50) Directors’ Rep or t of the Consolidated Group. So as to solve the risk posed by the raw materials volatility, 85% of the Group Sales ( all sales in Europe, America and South Africa) are naturally hedged by applying an alloy surcharge which enables the fluctuations of nickel price in the London Metal Exchange during the period of the product manufacturing. With this hedge, a 10% reduction in the nickel quotation in the London Metal Exchange would alter the Group gross margin over sales by 1%. The assessment of the raw materials, material in process and finished products at average price, helps to reduce the costs volatility and consequently, to reduce the impact in the margins of the nickel prices fluctuations. The policy of orders commitments followed by the Group, involves a natural coverage regarding the raw material costs, due to the fact that every accepted order has a known risk. Nevertheless, the nickel price corrections in the London Metal Exchange determine the apparent consumption evolution according to the stockists expectations and the subsequent inventories realisation or piling. The main risk is still the volatility of the apparent consumption, which being an external factor, in beyond our control. An efficient management of the above mentioned solutions to the rest of the risks, allows to reduce the exposure to the risk as much as possible.. 48. 16.2 credit risk Credit risk is defined as the possible loss that could be incurred through failure of a customer or debtor to meet their contractual obligations. The Group exposure to credit risk is determined by the individual features of each customer and, where applicable, by the country risk policy where the customer operates. Due to the diversity of its customers and their countries, the Group does not have any individual, sector or geographical concentration of risk. The Group policy is to hedge its commercial and political risks either through credit insurance companies or through documentary credits and guarantees extended by the banks with AA rating in low-financial risk countries. Credit insurance covers between 85% and 90% of the commercial risks, depending on the insurance company, and 90% of the political risks. The Group main credit insurer has an A credit rating by Standard & Poor’s and a A2 rating by Moody’s. During year 2009 compensations amounting to 4.6 million euros were received in respect of receivables insurance policies. A risk committee is responsible for monitoring the Group credit policy. When required, the committee also performs an individual analysis of the customers credit worthiness, establishing credit limits and payment conditions. New costumers are looked into together with the insurance company before the Group presents its payment conditions and those customers who do not fulfil the requirements are invoiced in cash. Many of the customers have a longstanding relationship with the Group. Payment delays give rise to special monitoring of future deliveries, payment conditions, credit limits reviews and. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. The convenience to keep sufficient inventories level in our warehouses involves the risk that such inventories remain overvalued with regard to the market price, which the Group palliates trying to keep the inventories levels under control. During 2009 ACERINOX Group has reduced its inventories by 16.4%..

(51) credit enhancements, as appropriate in each of the cases. Title retention clauses, according to the prevailing laws in the customer’s country, enable goods to be recovered in case of payment failure. 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 the circumstances indicate doubtful collection.. Those financial assets which cannot be collected are considered individually as deteriorated, and by the part which is not covered. As of 31st December 2008 there were no trade receivables which have been renegotiated and reclassified as current. Any advances to suppliers of fixed assets are covered by guarantees issued by the supplier and confirmed by reputable banks. The Group only makes temporary cash deposits in banks with rating of AA or above. As of 31st December 2009, the liquid assets amounted to 73.2 million euros. 16.3 liquidity risk. The analysis of the aged debt is as follows: under 30 days, 40 million euros; between 30 to 60 days,4.6 million euros, between 30 and 90 days, 2 million of euros and more than 90 days 14 million euros. The Group has provisions for an amount of 6.5 million euros. Most of the debt is insured and it mainly consists of delays typical of the commercial activity. At the day of the annual accounts issuing, more than 65% has been collected. In view of the slowness in paying in all the sectors, we consider these figures to be very satisfactory, which confirm the success of the Group commercial risk policy.. In such complex scenario as the current one, featured by the lack of liquidity and the increasing of its price, the Group assures its solvency and flexibility by means of long term loans and the availability of cash. The Group cash is managed centrally in order to optimise resources, implementing “cash pooling” systems. In this way, the gearing is gathered in the Group head (90% of the total gearing). According to the cash flows and considering the investment plans, the Group has sufficient financing so as to face all its commitments and keep a level of non-used credit lines enough to have a hedge in face of any possible risk. Consequently, during years 2009 and 2008 there has not been any significant failure of payment or pending loan interest to be paid. The Group has approved lines for long and short term for an amount of 1,872 million euros, and approved lines for factoring without resource for 265 million euros. The used amount as of 31st December 2009 totals 1,148 million euros Regarding 2008, the amount of the approved financial lines amounted to 2,253 million euros, and the used amount totalled 1,019 million euros.. 49. WorldReginfo - ca7f1ceb-0c5f-4b7e-abd3-deb2e1f83a3a. Consolidated trade receivables as of 31st December 2009 amount to 304.2 million euros and net sales in 2009 total 2,993.4 million euros. 43% of the consolidated net sales have been carried out covering the credit risk with the insurance company. 5% have been invoiced in cash. 11% of consolidated net sales have been covered by means of confirmed letters of credit. 29% of the consolidated net sales (30% in year 2007) were generated by NORTH AMERICAN STAINLES INC, in its domestic market, with a collection period shorter than 30 days..