2012 FINANCIAL REPORT

Transcription

1 2012 FINANCIAL REPORT Article L I of the French Monetary and Financial Code and Articles et seq of the AMF's General Regulations Contents Page STATEMENT REGARDING THE 2012 FINANCIAL REPORT 2 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS 3 SHARE CAPITAL, OTHER EQUITY INSTRUMENTS, RESULTS AND OTHER INFORMATION FOR THE PAST FIVE FINANCIAL YEARS 39 STATUTORY AUDITORS ATTESTATION ON SOCIAL AND ENVIRONMENTAL DISCLOSURES AND LIMITED ASSURANCE ON SELECTED DATA 40 DESCRIPTION OF THE SHARES BUY-BACK PROGRAMME FOR CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, FEES PAID TO STATUTORY AUDITORS 106 STATUTORY AUDITORS' REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS 107 PARENT COMPANY FINANCIAL STATEMENTS AT DECEMBER 31, STATUTORY AUDITORS REPORT ON THE PARENT COMPANY FINANCIAL STATEMENTS 136 REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS FOR AUDITORS REPORT ON THE REPORT OF THE CHAIRMAN OF THE BOAD OF DIRECTORS 148 This 2012 Annual Financial Report is a non-official translation into English of the Rapport Financier Annuel 2012 issued in French language and is provided solely for the convenience of English-speaking users. This report should be read in conjunction with and construed in accordance with French law. Recylex 6, place de la Madeleine F Paris Administrative office: 79 rue Jean-Jacques Rousseau F Suresnes Cedex Tel.: Fax:

2 STATEMENT REGARDING THE 2012 FINANCIAL REPORT I hereby confirm that, to the best of my knowledge, the financial statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the financial position and results of the Company and all companies included in the consolidated group, and that the enclosed management report provides a true and fair view of the business trends, results and financial condition of the Company and all companies included in the consolidated group, together with a description of the main risks and uncertainties that they face. Yves Roche Chairman and Chief Executive Officer 2

3 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS YEAR ENDED DECEMBER 31, 2012 The shareholders of Recylex SA (hereafter, the "Company") have been invited to a Combined General Meeting to hear the report on the activities of the Company and its subsidiaries in the financial year to December 31, 2012 and to consider for approval the annual parent-company and consolidated financial statements for that period. The Statutory Auditors will present in their reports all necessary information concerning the accuracy and conformity of the parent-company and consolidated financial statements for that period. The Chairman of the Board of Directors provides a report, enclosed within this Annual Report, on the composition of the Board of Directors and in particular the application of the principle of balanced representation of men and women on the Board of Directors, the conditions for the preparation and organization of its work, and on the internal control and risk management procedures introduced by the Company pursuant to Article L of the French Commercial Code (the "Chairman's Report"). 1. THE RECYLEX GROUP In this report, except where otherwise stated, "Group" shall mean the Company and those companies consolidated by it as defined in Article L of the Commercial Code. The Recylex Group was created in 1988 through the merger of the non-ferrous metals division of German company Preussag (now TUI) and the French company Peñarroya. The Recylex Group, whose activities are spread over eleven production sites in France, Germany and Belgium, is a key player in industrial recycling. Its main activities are: Recycling of lead, mainly from used car and industrial batteries; Recycling of plastic (polypropylene) mainly from used battery casings and other industrial waste such as car parts and construction waste); Recycling of zinc from electric steel mill dust and production of zinc oxides from the recycling of old zinc; Production of special metals used primarily in the electronics sector, the optical industry and cutting-edge technologies. The Recylex SA parent company, whose registered and administrative offices are located in France, conducts two activities: that of a holding company and an operational business processing used lead-acid batteries on two sites in Escaudoeuvres (Nord) and Villefranche-sur-Saône (Rhône) Market conditions Globally, economic and industrial conditions remained weak in As a result, commodity prices were highly volatile throughout the year, and fell overall relative to However, the trend improved in the fourth quarter of 2012, when lead and zinc prices were higher than in the year-earlier period. However, the Group's industrial activities in 2012 were only affected to a limited extent by this price volatility. Overall, the quantities of materials recycled by the Group were the same as in Key features and businesses of the Group Details of other key features of the Group are provided in Section 1.3 of this report. The development of its business activities by segment during 2012 are described below Lead Lead prices were again subject to a very high level of volatility in In January 2012, the price topped the 1,740 per tonne mark. The low for the year was seen in June when prices dropped below 1,400 per tonne, with the high coming at close to 1,800 per tonne in October. At December 31, 2012, the price of lead was 1,774 per tonne. The average lead price in 2012 of 1,603 per tonne was nevertheless 7% lower than the average of 1,722 in 2011 Battery processing In the lead segment, the Group's battery processing plants handled around 156,200 tonnes of batteries in 2012, an increase on the 2011 figure of around 148,600 tonnes. 3

4 The purchase price of used batteries rose further as a result of strong demand from the recycling sector. Smelting and refining The Group's lead production at its two smelters (Weser-Metall GmbH in Nordenham, Germany and FMM SA in Anderlecht, Belgium) amounted to 152,300 tonnes in 2012, compared to 126,400 in This 20% increase in lead production came, notably, from the technical improvements at the Weser-Metall GmbH plant in Nordenham made over the past 18 months, which increased the availability and efficiency of the smelter. As a result, no maintenance closures were necessary during The Nordenham smelter thus set a new record for the highest production volumes since it opened in Commercial conditions, particularly premiums on lead sales and treatment charges for lead concentrates, were similar to the level of Prices for silver (a by-product from the Nordenham smelter) were lower than in 2011, as was the market price for sulfuric acid, another by-product at Nordenham. The very good industrial performance at Nordenham offset the deterioration in overall market conditions relative to Against this background, revenues in the Lead segment grew by 6% relative to 2011, and there was a significant increase in operating income before non-recurring items. Pending a ruling by the Algerian customs authorities on export conditions for materials produced by Eco- Recyclage, 33.33%-owned by Recylex SA, the company has decided to suspend exports of materials produced by its battery processing plant. As a result, 6,400 tonnes of batteries were processed in 2012, compared to around 10,000 tonnes in Given the productivity improvement for the Group in this segment, this suspension of exports did not have a significant impact on the Lead segment Zinc Zinc prices were also highly volatile. In January 2012 prices rose to above 1,650 per tonne before slipping back to below 1,400 per tonne at the end of June They then hit 1,622 per tonne in early October before dropping to 1,381 per tonne at the end of October. The average zinc price for 2012 was 1,514 per tonne, 4% below the 2011 average of 1,574 per tonne. Taken as a whole, the Zinc segment saw a 3% fall in revenues and an increase in operating income before nonrecurring items, due largely to technical improvements in the Waelz oxides business. The Zinc segment's performance varied between business areas. Waelz oxides In Waelz oxide production, the Group s two facilities (Harz-Metall GmbH in Germany and Recytech SA (50%- owned) in France) processed 181,500 tonnes of electric steel mill dust, allowing the production of 74,100 tonnes of Waelz oxides in 2012 (compared to 182,400 tonnes of dust processed and 75,500 tonnes of Waelz oxides produced in 2011). The Recytech SA plant completed its planned six-week maintenance closure in May and June The 8.5% increase in revenues and the significant improvement in operating income before non-recurring items came notably from the improvements at the Harz-Metall GmbH plant in Germany, which allowed improved extraction of zinc from the materials processed, and from an improvement in commercial conditions relative to 2011 Zinc oxides The zinc-bearing waste recycling business (zinc oxide production at the Norzinco GmbH plant in Germany) saw a slowdown due to weaker demand, particularly in the automobile and chemicals sectors. Zinc oxide production totaled approximately 22,600 tonnes in 2012 compared with around 24,800 tonnes in Revenues were therefore down by 10% compared to Plastics In the Plastics segment, the Group s two subsidiaries - C2P SAS in Villefranche-sur-Saône, France and C2P GmbH in Oker, Germany - produced 12,100 tonnes of polypropylene, slightly less than the 12,700 tonnes produced in the previous year. Despite challenging economic conditions, revenues in this segment rose by 6% compared to Growth was particularly attributable to the French business, due to the commercial measures taken early in 2012 (new clients in the automobile sector) and improvements in the product offering (higher added value products and clients) which allowed an increase in average sales prices. As a result, operating income before non-recurring items was higher in 2012 than in

5 1.2.4 Special Metals The merger of the production assets and staff of the two German subsidiaries, PPM Pure metals GmbH and Reinstmetalle Osterwieck GmbH, that make up this segment took effect on January 1, The Special Metals segment was affected by a sharp drop in demand, particularly in the area of cadmium telluride, due to the difficulties of the photovoltaic panel industry in Europe, as well as in high purity arsenic and germanium. Revenues were therefore sharply down, falling 21% compared to Against this background, profitability fell significantly, and operating income before non-recurring items failed to reach the break-even point over 2012 as a whole. The PPM subsidiary will focus its efforts on developing sources of secondary supplies and seeking out new operational and commercial synergy with other Group businesses Other key developments and major events The Group's key developments and major events in 2012 primarily concerned developments in legal proceedings against the Company and the implementation of the Company's continuation plan Ongoing litigation involving Recylex SA Lawsuits filed against Recylex SA by former employees of Metaleurop Nord SAS (a Recylex SA subsidiary in liquidation) and by the liquidators of Metaleurop Nord SAS remain ongoing. A document summarizing the developments in legal proceedings against Recylex SA can be found on the Group s website ( News Legal proceedings schedule) Former employees of Metaleurop Nord SAS Former non-managerial employees On June 27, 2008, the industrial section of the Lens labor tribunal found that Recylex SA was the co-employer of 493 former non-managerial employees of Metaleurop Nord SAS, and granted to each claimant 30,000 in damages and 300 in expenses. However, the labor tribunal decided to include these sums, totaling around 14.9 million, in the liabilities payable in installments by Recylex SA in accordance with the terms of its continuation plan approved by the Paris Commercial Court on November 24, The Company appealed against these decisions. On December 18, 2009 (460 rulings given) and December 17, 2010 (8 rulings given), the Douai Appeal Court partially upheld the labor tribunal's decisions and granted damages totaling approximately 12.6 million to 468 unprotected former employees, ordering that these sums be included in Recylex SA's liabilities, payable in installments within the framework of its continuation plan. In accordance with the Company's continuation plan, 56% of these damages, or approximately 7.1 million, corresponding to the first seven installments of the plan (November 2006 to November 2012) have been paid to date. The balance, totaling approximately 5.6 million, will be paid in installments in accordance with the Company's continuation plan until November On September 28, 2011, the Cour de Cassation rejected the final appeals lodged by Recylex SA against the Douai Appeal Court's 460 rulings of December 18, 2009 concerning unprotected former employees, together with the appeals submitted by 22 protected former employees, thus making the Douai Appeal Court s rulings final. On January 15, 2013, the Lens labor tribunal industry section referred the cases submitted in 2010 by 137 former non-managerial employees of Metaleurop Nord SAS, not party to the original claims, to a hearing on Tuesday April 2, It should be noted that the damages claimed, for a total of around 6.9 million, have been fully provisioned in the Company's accounts. Former managerial employees On September 15 and 30, 2009 and February 26, 2010, the management section of the Lens labor tribunal granted to each of the 91 former managerial employees of Metaleurop Nord SAS an identical sum of 30,000 in damages and 300 in costs, ruling that Recylex SA had been their co-employer, and ordered that the sums should be included in the liabilities of Recylex SA, payable in installments under its continuation plan. The Company appealed against these decisions. 5

6 On December 17, 2010, the Douai Appeal Court partially upheld the Lens labor tribunal's decisions, ruling that Recylex SA was a co-employer of the former managerial employees of Metaleurop Nord SAS. The Appeal Court granted to 84 unprotected former managerial employees damages of between 20,000 and 50,000 and 500 in costs, totaling approximately 3.6 million, and ruled that these sums should be included in the liabilities of Recylex SA payable in installments under its continuation plan. Recylex SA decided to appeal against these decisions before the Cour de Cassation. In accordance with the terms of the plan, 56% of these damages, or a total of around 2 million, corresponding to the first seven installments of the plan (November 2006 to November 2012) have been paid to date. The balance, totaling approximately 1.6 million, will be paid in installments in accordance with the Company's continuation plan until November On September 12, 2012, the Cour de Cassation rejected the final appeals lodged by Recylex SA together with the appeals lodged by 6 protected former employees, against the rulings handed down by the Douai Appeal Court on December 17, 2010, thus making these rulings final. On January 15, 2013, the Management section of the Lens labor tribunal decided to include damages of 50,000 and costs of 400 for each of the 48 unprotected former managerial employees (not party to the initial claims) and 30,000 in damages and 400 in costs for one unprotected former managerial employee (not party to the initial claims) in the liabilities of Recylex SA. Recylex SA has decided to appeal against these decisions. However, the tribunal rejected claims from 6 protected former managerial employees (not party to the initial claims). It should be noted that the damages claimed, for a total of around 3 million, by 55 former managerial employees of Metaleurop Nord have been fully provisioned in the Company's accounts The liquidators of Metaleurop Nord SAS: The suit brought by the liquidators of Metaleurop Nord SAS, claiming the repayment by Recylex SA of 50 million of Metaleurop Nord SAS' liabilities, was rejected on February 27, 2007 by the Béthune Regional Court, in which the Court found that Recylex SA was not the de facto manager of Metaleurop Nord SAS. The liquidators have appealed against the ruling. The Douai Appeal Court ordered a stay of proceedings on November 18, 2008 and invited the parties to bring the matter before the Conseil d'état for a judgment on a point of law. Recylex SA had raised an objection of inadmissibility, on the grounds that the liquidators did not declare their claim in accordance with the legal requirements as part of the Recylex SA administration proceedings on November 13, The liquidators claimed the existence of a legal provision which excused them from doing so. In its ruling of May 20, 2011, the Conseil d Etat ruled that the exception of illegality raised by Recylex SA was unfounded and consequently rejected its request for an assessment of legality. On September 19, 2012, the Douai Appeal Court upheld the ruling of February 27, 2007 by the Bethune Regional Court which found that Recylex SA was not the de facto manager of Metaleurop Nord SAS. The liquidators have decided to lodge an appeal before the Cour de Cassation. It should be noted that the sums claimed with respect to Metaleurop Nord SAS's liabilities are not included in the continuation plan approved by the Paris Commercial Court on November 24, 2005, nor covered by provisions in the consolidated or parent company financial statements of Recylex SA, given the judgments in favor of Recylex SA (initially by the Bethune Regional Court and confirmed by the Douai Appeal Court on appeal) and that, should the outcome of the case go against Recylex SA, resulting in a significant increase in its liabilities, the enforcement of the continuation plan could be jeopardized Recylex SA's continuation plan The Group continues to give the highest priority to meeting the commitments made by Recylex SA under its continuation plan, approved by the Paris Commercial Court on November 24, 2005, with objectives of equal importance being the continuation of its businesses with the maintenance of its 681 employees (at December 31, 2012), assumption of its environmental responsibilities and the repayment of outstanding frozen liabilities of some 17.4 million ( 20.2 million before elimination of intragroup debts) on a three-year schedule until To this end, the seventh installment under the plan was paid on November 23, 2012, for a sum of approximately 4.6 million ( 5.4 million before elimination of intragroup debts) European Commission investigation into the lead recycling sector On October 2, 2012, Recylex SA announced that it was subject to an inspection by the Directorate General for Competition of the European Commission as part of similar inspections conducted in several European Union member states, in the area of purchasing of used batteries and other lead-bearing waste. 6

7 The fact that the Commission is carrying out such inspections does not prejudge the outcome of the investigation currently in progress. The Recylex Group is cooperating fully with the European Commission and its services as part of this investigation Group results Pursuant to EC regulation no. 1126/2008 adopted on November 3, 2008, the Recylex Group has prepared its consolidated financial statements for the year to December 31, 2012 in accordance with the International Financial Reporting Standards (IFRS) as adopted in the European Union. The scope of consolidation did not change in The production assets and staff of the PPM Pure Metals GmbH (PPM) and Reinstmetalle Osterwieck GmbH (RMO) subsidiaries were merged within the same legal entity. PPM transferred its production assets (other than real estate) and staff to its wholly-owned subsidiary RMO with effect from January 1, During the first quarter of 2012, the RMO subsidiary changed its company name to "PPM Pure Metals GmbH", while also continuing with RMO's high-purity arsenic activities under the "RMO" brand name, and the PPM subsidiary changed its company name to "Recylex Grundstücksverwaltungs GmbH". The Recylex Group generated consolidated revenues of million in 2012, up 3% compared with 2011, driven primarily by growth in revenues from the Lead segment. Revenues in the Lead segment were million versus million in The increase was mainly due to the substantial increase in lead volumes, and was in spite of the 7% fall in lead prices over the same period. This good performance was the result of strong growth in selling volumes, resulting from productivity gains at the Nordenham smelter, which produced more than 142,000 tonnes, the highest annual figure since it came into service. It was also caused by the low base for comparison in the fourth quarter, since the Nordenham smelter did not shut down in 2012 whereas a three-week maintenance shut-down occurred in the fourth quarter of The Zinc segment sustained a fall in revenues to 81.5 million in 2012 compared with 83.8 million in 2011, mainly as a result of the 4% drop in zinc prices (in euros) over the period. The Zinc segment's 2012 performance varied between business areas. Zinc recycling saw a sharp fall in demand for zinc oxides in However, the production of Waelz oxides was boosted by increased recovery of zinc from processed material and higher selling prices. The Group benefited from improved production processes at German subsidiary Harz-Metall GmbH, enabling it to recover more zinc from recycled material, and also from improved commercial terms. The plant operated by Recytech - which is 50%-owned by Recylex - experienced a six-week maintenance shut-down in the first half of 2012, in which almost a third of its kiln was replaced. Revenues in the Special Metals segment accounted for 5% of the Group's consolidated total in 2012, and amounted to 23.1 million. This represents a 21% decline relative to the 2011 figure of 29.2 million. The fall was due in particular to lower demand for arsenic and cadmium telluride, along with a more modest decline in germanium. This segment is highly cyclical, and its 2012 performance reflects sluggish demand from the semiconductor sector and the major difficulties of the European photovoltaic industry. Revenues in the Plastics segment accounted for 3% of the Group's consolidated total in 2012, and amounted to 13 million. This represents a 6% increase relative to the 2011 figure of 12.3 million, and was achieved in tough economic conditions, particularly in the auto industry. C2P-France, the French subsidiary specializing in recycling polypropylene, saw selling volumes increase due to commercial efforts starting in early 2012 resulting in new customers in the auto sector, and an improved product range leading to higher-value-added products and customers and an increase in average selling prices. The Group made a consolidated net loss of 6.6 million in 2012, as opposed to net income of 0.05 million in The consolidated net loss for 2012 breaks down as follows: - Operating income before non-recurring items: 7.9 million. - Other operating income and expenses: million. This net expense primarily concerns additions to provisions for the remediation of old mining sites and the L'Estaque site ( 3.9 million), as well as 1.3 million of expenses incurred in 2012 for the remediation of an abandoned industrial area in Oker, Germany (see section of this report). - Net financial items: million. 7

8 This net expense mainly reflects discounting effects on provisions and liabilities ( 2.2 million), the increase in the fair value of debt arising from the clawback clause ( 1.5 million) and interest expenses ( 1.2 million). - Tax expense: 2.6 million. The main changes in the balance sheet between 2011 and 2012 were as follows: Inventories: million The reduction in the net value of the Group's inventories since December 31, 2011 is the result of a sharp fall in volumes of raw materials at the Group's main lead smelter operated by subsidiary Weser-Metall GmbH in Germany The based for comparison at December 31, 2011 was high due to a scheduled maintenance shut-down in December Trade receivables: million The increase in trade receivables relates primarily to the higher volume of sales in the lead and zinc segments in the fourth quarter of 2012 relative to the fourth quarter of Cash and cash equivalents: million The reduction in cash and cash equivalents at December 31, 2012 was mainly due to investments ( 9.8 million), the payment of the seventh installment of the Recylex SA continuation plan ( 4.6 million after elimination of intragroup debts) and debt repayments ( 5.5 million). Cash generated by the Group's operations in 2012 totaled 19.9 million, but was not enough to cover the aforementioned cash requirements. Other current assets: million The increase in other current assets in 2012 was mainly due to the increase in downpayments on deliveries of lead concentrates for the Group's main smelter in Germany in December 2012; the delivery schedule differed from that seen in the fourth quarter of 2011, when the smelter was shut down for scheduled maintenance. Provisions for pension and post-retirement obligations (current and non-current): + 10 million The increase in provisions for pension obligations amounted to 7.8 million, and arose from the Group's early application of the 2011 amendment to IAS 19 Employee Benefits. Applying this amendment gave rise to the immediate recognition of actuarial gains and losses and past service costs, along with an increase in pension provisions as a balancing entry to consolidated reserves (disapplication of the corridor method). Shareholders' equity: million The reduction in shareholders' equity was mainly due to the after-tax impact of the Group's early application of the amendment to IAS 19 Employee Benefits, as explained under "Provisions for pension and post-retirement obligations" above, for 7.8 million, along with 6.6 million of losses for the financial year. Interest-bearing borrowings (current and non-current): million This reduction relates mainly to repayments of borrowings by the Group's subsidiaries in Germany. Capital expenditure In 2012, the Recylex Group's capital expenditure was 9.4 million, primarily for the maintenance and improvement of industrial facilities. The distribution of this investment by business segment was as follows: - Lead: 4.7 million, - Zinc: 3.9 million, - Special Metals: 0.6 million, - Plastics and Infrastructure: 0.2 million. Financial debt At December 31, 2012, the Group's total financial debt was 1.9 million, of which 0.7 million was current and 1.2 million non-current. In addition to the Group's financial debt, there are rescheduled debts under the Recylex SA continuation plan introduced in November

9 Total debt under the continuation plan stood at 17.4 million on December 31, 2012 (excluding intragroup debts and before discounting) to be paid over three years. In this context, the seventh installment under the continuation plan, for a sum of approximately 4.6 million (after elimination of intragroup debts) was paid in November The eighth installment under the continuation plan, which is due to be paid in November 2013, is approximately 4.6 million (after elimination of intragroup debts), of which 2 million represents damages awarded by the Douai Appeal Court to former employees of Metaleurop Nord SAS. The amount before elimination of intragroup debts is 5.4 million. The Company's continuation plan, approved by the Paris Commercial Court on November 24, 2005, provides for creditors choosing option 1 of the continuation plan, which entails the abandonment of 50% of their claim, to benefit from a clawback clause provided (i) that they informed the Company by recommended letter within six months of the judgment approving the plan and (ii) that the plan is not reformulated prior to its expiry (on November 24, 2015). This clause provides, under the conditions mentioned above, that from and including December 31, 2015, Recylex SA will allocate 20% of its cash at December 31 of each subsequent financial year (including 2015) to repayment of the waived debt on a pari passu basis between the creditors, with no limit on the duration of such repayments. Three creditors requested the benefit of the clawback clause, and the total amount of debt covered by the clause amounts to 19.2 million. The Company assessed the fair value of this debt at December 31, 2012 at 5.4 million, recording the amount on the balance sheet at that date as "Other non-current liabilities" as a balancing entry to other financial expense. (See Note 18.2 to the consolidated financial statements for more information on the measurement of this liability) Material post-balance sheet events As part of its policy of remediating former industrial sites, Recylex SA made a decision in 2010 to demolish buildings at its Rieux site in order to offer potential buyers a clear site. After receiving an offer to buy the site in October 2012, the Company sold it for 850,000 net of transfer taxes in February No other events that may have a material impact on the Group's activities or its economic and financial position occurred between the end of the 2012 financial year and the date of this report Expected developments and outlook Lead and zinc prices increased in early 2013 relative to the same period of 2012 and the average seen in the fourth quarter of The lead price remained in the area of $2,300 ( 1,760) per tonne and the zinc price above $2,000 ( 1,530) per tonne. In the used lead-bearing battery collection market, demand for recyclable materials remains very strong from the recycling sector, and this is continuing to push up their prices. In the Lead segment, the volume of used batteries processed in early 2013 was in line with the Group's targets, and broadly the same as that seen in early A maintenance shut-down of Weser-Metall GmbH's smelter in Nordenham, Germany is scheduled for three weeks from early March There was no maintenance shutdown in 2012, and the most recent shut-down occurred in the fourth quarter of In the Zinc segment, the volume of electric steel mill dust processed in early 2013 remained at a level that allowed the Group's Waelz oxide production plants to operate at full capacity. On the other hand, demand for zinc oxides remained relatively weak. In the Plastics segment, sales volumes in early 2013 remained satisfactory. In Special Metals, the recovery has yet to be confirmed Research & Development Various research and development projects were undertaken by the Group's German subsidiaries in At the Weser-Metall GmbH's lead smelter in Nordenham, several projects to enhance the industrial process and recover by-products were initiated. These projects are intended to make the smelter more profitable. In 2011, Harz-Metall GmbH in Germany initiated its first studies into an industrial process aiming to process materials contained in old waste heaps at the Oker site. This project continued in Harz-Metall GmbH is also working on improving the industrial performance of its Waelz oxide kiln. PPM, which specializes in producing special metals, carried out various projects in 2012 to develop its sources of materials and its recycling processes, and sought new operational and commercial synergies with the Group's other activities. 9

10 1.8. Description of the main risks and uncertainties to which the Group is exposed The Group has carried out a review of the risks that could have a materially negative effect on its business activities, its financial situation or its results and believes that, on the basis of the information presently available to it, there are no significant risks other than those set out below Financial risks The Group specializes in zinc, lead and plastic recycling and special metals, and is exposed to currency and interest-rate risk and the risk of fluctuations in commodity prices. The Group is also exposed to other risks, such as counterparty risk and liquidity risk. The Group has defined a policy and created a procedural manual in order to measure, manage and control its market risk exposure. This policy prohibits any speculative positions from being established in the market and consists of using derivatives to hedge part of the Group's exposure to risks arising from the fluctuation in commodity prices. Procedures have been put in place by Group companies where risks have been identified. Financial instruments are traded on the over-the-counter market with a highly rated counterparty. The Group primarily uses futures and options. Derivatives cover existing and anticipated financial and commercial exposure. Derivative positions are tracked on a fair-value basis. Exposure to currency risk and commodity risk is managed locally by the Group companies concerned. Interest-rate risk Most of the Group's long-term debt is in Recylex SA, the holding company, and its subsidiaries Recylex GmbH, Weser-Metall GmbH and PPM GmbH. The production assets and staff of PPM GmbH and RMO GmbH were combined into a single legal entity called PPM GmbH with effect from January 1, Given the Group s situation at December 31, 2012, its debt chiefly comprises rescheduled liabilities under Recylex SA s continuation plan and a loan taken out by PPM GmbH. Only this latter loan is at floating rate. The debt resulting from the continuation plan does not bear interest. The Group uses interest-rate derivatives to hedge interest-rate risk on one floating-rate loan and floating-rate credit facilities. Currency risk The Group is exposed to currency risk arising from the transactions conducted by its subsidiaries in various currencies other than their functional currency, with some procurement contracts being denominated in dollars. The Group's policy is not to hedge this currency risk. At December 31, 2012, the Group had no dollar-denominated commodity derivatives hedging euro-denominated sales. All commodity derivatives are now denominated in euros. Commodity risk The Group is exposed to the risk of fluctuations in metal prices, especially lead and zinc, as well as silver (a byproduct mainly from the processing of lead at the Group's main smelter in Germany). Lead and zinc prices are quoted in US dollars on the London Metal Exchange and silver prices on the London Bullion Market Association (LBMA). The Group has no influence on the price of these metals, and is therefore exposed to fluctuations in their value. Exposure results from sales of metals whose production is based on primary and secondary raw materials (such as used lead-acid batteries), where the price these materials was set at a different time. For that reason, hedges are taken out to cover any time lag between purchase and sale and to cover inventories. From time to time, the Group uses hedging instruments to protect its margins. Hedges for lead and silver were taken out in Counterparty risk The Group is exposed to credit risk in the event that a counterparty fails. The Group's credit risk policy varies from segment to segment. 10

11 - Credit risk linked to trade receivables Based on the information at its disposal, the Group does not anticipate any third-party failures that may have a material impact on its financial statements. However, given the current economic and financial situation, which remains particularly difficult and uncertain, failures among Group customers cannot be ruled out. In the lead segment, the Group maintains commercial relations with a limited number of customers proven to be financially sound, to which the payment times granted are very short. However, for reasons set out above relating to the current exceptional economic and financial environment, the Group cannot completely rule out the possibility of failures among its customers. In the lead and zinc segments, the Group can hedge some of its accounts receivable by selling them to a factoring company under non-recourse factoring contracts. At December 31, 2012, the Group had sold 22.3 million of receivables to a factoring company, compared with 15.3 million in Credit risk linked to cash and cash equivalents and derivatives Currency and commodity hedging transactions and cash investments are made with prime financial institutions with long-term credit ratings of AA- and A+ from Standard & Poor's as at December 31, However, in view of the current financial context in the banking sector, which remains difficult and uncertain, the failure of financial institutions cannot be entirely ruled out. Liquidity risk The Company has prepared cash forecasts for 2013 based on the information available to it, including outlays linked to the outstanding installments due to creditors under the continuation plan during the 2013 financial year and expenditure relating to its commitments for the remediation of former mining sites and the L'Estaque site. The Group's subsidiaries have also submitted cash flow projections for each by cash pool for These projections are based on metal prices that are lower than the 2012 average. Forecasts show a reduction in cash over the course of 2013, mainly because of environmental charges and liabilities to be repaid, but do not show any short-term financing requirement. However, it is very difficult to make medium-term projections given the volatility of metal prices and the difficulty of predicting trends in both prices and the economic outlook. As regards the cash flow of parent company Recylex SA, it should be noted that: - there is no pooling of Group cash at the level of Recylex SA; - dividends paid to Recylex SA are likely to be very limited due to the tax consolidation system for the Group's German subsidiaries. Within the context of the tax consolidation system concerning corporation tax and business tax in Germany, agreements providing for the transfer of losses and income ("Ergebnisabführungsvertrag") have been signed between some of the Group's German subsidiaries. This results in the offsetting of losses and income at the level of the parent company of the Group's German subsidiaries, i.e. Recylex GmbH, a wholly-owned subsidiary of Recylex SA. According to this system, all tax-consolidated companies must transfer all of their income to the taxconsolidating company, Recylex GmbH. However, if a loss is recognized, the consolidated company is entitled to compensation from the consolidating company. Any payments of dividends by Recylex GmbH to Recylex SA therefore depend on the financial situation of all of the German subsidiaries involved in the tax consolidation system, and not just on Recylex GmbH's situation; - bank loans taken out and credit facilities used by certain subsidiaries in Germany are subject to covenants limiting the payment of dividends to Recylex SA on the basis of cash flow generated by all of the Group's German subsidiaries. Following the adoption of the continuation plan by the Paris Commercial Court on November 24, 2005, Recylex SA s debt was rescheduled (see Note 18 to the consolidated financial statements). In accordance with its continuation plan, the Company has made the first seven installments to repay its creditors, representing a total of 45.2 million at December 31, Following the Douai Appeal Court's rulings of December 18, 2009 and December 17, 2010, the damages granted to 552 former employees of Metaleurop Nord SAS, totaling 16.2 million ( 12.6 million for former non-managerial employees and 3.6 million for former managerial employees), have been included in the continuation plan. On December 18, 2011 and December 12, 2012, the Cour de Cassation rejected the appeals submitted by Recylex SA against these rulings, which therefore became final. The total amount paid to these former employees to date is 9.1 million 11

12 Non-discounted rescheduled debt, together with the repayment calendar (before elimination of intragroup items) is as follows: (in millions of euros) Liabilities at Payments in Liabilities at Payments in Payments in Payments in 12/31/ /31/ Initial plan 16.5 (3.4) 13.1 (3.4) (4.5) (5.2) Compensation to former Metaleurop Nord nonmanagerial employees 2) 7.1 (1.5) 5.6 (1.5) (2.0) (2.0) Compensation to former Metaleurop Nord managerial employees 3) 2.0 (0.4) 1.6 (0.4) (0.6) (0.6) Total rescheduled debt 25.6 (5.4) 20.2 (5.4) (7.1) (7.8) At December 31, 2012, total liabilities under the Company's continuation plan, after inclusion of damages awarded by the Douai Appeal Court to former Metaleurop Nord SAS employees, was 20.2 million ( 17.4 million after elimination of intragroup items), compared with 13.1 million excluding these damages payments ( 10.3 million after elimination of intragroup items). Furthermore, in 2010, 192 former managerial and non-managerial employees of Metaleurop Nord SAS who were not party to the proceedings initiated in 2005 made claims totaling 9.96 million. The damages claimed have been fully provisioned in the Company's accounts (see Notes 1 and 14 to the consolidated financial statements). On January 15, 2013 the Lens labor tribunal industry section referred the cases submitted by 137 former nonmanagerial employees of Metaleurop Nord SAS to a hearing for pleading on Tuesday April 2, On January 15, 2013, the Management section of the Lens labor tribunal decided to include damages of 50,000 and costs of 400 for each of the 48 unprotected former managerial employees and 30,000 in damages and 400 in costs for one unprotected former managerial employee in the liabilities of Recylex SA. However, the tribunal rejected claims from 6 protected former managerial employees. The Company intends to challenge both the admissibility and the merits of these applications. If a final award were to be made against the Company, the damages would be added to the Company's rescheduled debt under the continuation plan and would cause the Company's cash position to deteriorate by the same amount. Such an increase in scheduled payments under the continuation plan could generate an external short-term financing requirement, depending on developments in market conditions. It is important to note that no provision has been recognized in Recylex SA's financial statements for the amount claimed by the liquidators of Metaleurop Nord SAS for repayment of the liabilities of Metaleurop Nord SAS up to 50 million (see Note 1 to the consolidated financial statements) and the amount is not included in the Group's five-year cash flow forecast ( ), in the light of the Bethune Regional Court's rejection of this claim on February 27, 2007 and the confirmation of this decision on September 19, 2012 by the Douai Appeal Court, which found that Recylex SA was not the de facto manager of Metaleurop Nord SAS. The liquidators have decided to appeal against this decision by the Douai Appeal Court. Should this latter appeal, which is currently pending before the Cour de Cassation, result in an unfavorable outcome for Recylex SA causing a significant increase in its liabilities, the Company's available cash would no longer be sufficient to cover installments to repay creditors under the continuation plan or the Company's commitments to remediate former mining sites and the former L'Estaque site (see Note 38 to the consolidated financial statements) Operational risks The Group's production sites, and Group entities operating lead smelters in particular, are exposed to the risk of production stoppages due to incidents such as power cuts or shortages of essential materials. Each Group subsidiary has taken measures to protect against all such risks, such as preventive maintenance, the creation inventories of essential items and other operating procedures. Changes in the laws and regulations of countries in which some of the Group's suppliers are located, especially relating to export controls, may create a risk to the Group's sourcing of supplies. At present, the Group's main clients are located in Europe. However, in the event of a decline in European demand, the Group has the capacity to serve a non-european client base by developing export activities Legal risks The Group's operating structures consist primarily of French simplified joint stock companies ("sociétés par actions simplifiées" or SAS) and German limited liability companies (GmbH). Management of the Company and 12

13 its subsidiaries as legal entities, as well as the legal risks to which they may be exposed, is the responsibility of their respective management teams, assisted by in-house lawyers and external advisors. The main legal proceedings initiated against the Company are described in Section 1.3.1, and the financial consequences of these proceedings are described in Section "Liquidity risk" of this report Environmental risks As regards the sustainable development of its business, the Group pays particular attention to the impact of its activities on the environment and the health and safety of its employees and local residents, and to its strict compliance with the laws and regulations that define operating standards and good working practices. All Group sites whose recycling activities are liable to have an impact on the environment require authorization from the local environmental authorities, and compliance with these authorizations is an absolute priority. The sites of Weser-Metall GmbH (lead), Norzinco GmbH (zinc) and PPM (special metals) in Germany are Seveso II classified. The classified facility likely to make the most significant contribution to the Group's environmental performance is the Weser-Metall GmbH facility in Nordenham, Germany. Specialized consulting firms are appointed to assess risks within the Seveso regulatory framework. An emergency plan has been prepared in relation with local authorities. However, no risk of explosion that may cause damage to people living near the Group's sites has been identified. The Group is also responsible for the remediation a number of old industrial and mining sites inherited from the two companies which founded the Group in 1988 (the German company Preussag AG, now TUI AG, and the French company Peñarroya), most of which were never operated by the Group. Management of operational risks relating to the environment, health and safety is the responsibility of the managers of the Group's subsidiaries and facilities. In each entity, a Quality, Health and Safety and Environment officer reports to these managers Insurance As part of the Group's risk management procedures, the Company and its subsidiaries have taken out insurance cover against accidental risks through insurance brokers. Damage, operating loss and liability insurance has been taken out by the Company for French subsidiaries, by the subsidiary Recylex GmbH for the Group's German subsidiaries and by FMM for the Group's Belgian subsidiary. In addition, insurance has been taken out covering the environmental liability of the Group's German subsidiaries up to 10 million, as well as their environmental liability concerning the prevention and remediation of environmental damage up to 6 million per claim per year. While the Company considers that the insurance taken out at Group level is sufficient to provide satisfactory cover for risks incurred in connection with its activities, it could prove insufficient to offset certain losses resulting from exceptional damage or exceptional economic and financial circumstances, which would have a negative impact on its financial situation Sustainable development The Group's sustainable development policy The Group has been transformed from a primary producer of lead and zinc (from metal concentrates) into a recycling business. It now mostly processes waste into secondary raw materials, since metals can be recycled indefinitely. Because the Recylex Group is involved in recycling and waste recovery, anticipating and preventing of risks relating to the health of employees, ensuring the safety of industrial facilities and protecting of the environment are at the heart of the strategy and business culture promoted by the Group. The Group's sustainable development policy is to: - Protect the environment by complying with applicable regulations; - Protect the health of employees; - Maintain sustainable performance. 13

14 The Group's undertakings under its sustainable development charter are as follows: - Controlling and reducing the impact of activities on the natural environment; - Involving local and national stakeholders; - Improving working conditions for employees; - Identifying, defining and implementing effective risk management; - Assessing and improving processes to prevent occupational illnesses and work-related accidents; - Designing, maintaining and operating installations in a reliable and effective manner that respects the environment; - Identifying and optimizing reductions in energy consumption Sustainable development reporting French law no (known as the "Grenelle II" law) was passed on July 12, 2010, and includes new reporting obligations in terms of sustainable development. In addition, decree no relating to companies' transparency obligations as regards social, environmental and societal matters was published on April 24, The Company has therefore continued its process of formalizing its reporting of social, societal and environmental data ("Sustainable Development Reporting" process). A user guide prepared by the Group sets out and describes the process, definitions and methods to be used in Sustainable Development Reporting, and a methodological note is provided for each indicator including definitions and calculation methods. This is used as an in-house guide for the Group's various sites and is disseminated, understood and applied at all stages of the data preparation and reporting process. This user guide is also used as a reference framework for external audits on the Group's Sustainable Development Reporting, as a result, it is accessible to readers of the Group's Annual Report on request Reporting indicators and scope Each indicator that forms part of the Group's Sustainable Development Reporting has been selected by the Group's departments, working together with the managers of Group subsidiaries and establishments, on the basis of its relevance to the Group's activities and business areas. The process for setting out a formalized Sustainable Development Reporting process was initiated in 2011 and continued in This process included selecting additional indicators depending on their relevance relative to the Group's activities and determining their definitions and calculation methods as part of the regular review of the Group's user guide. The scope of Sustainable Development Reporting covers data relating to the parent company and all of its subsidiaries within the meaning of Article L of the French Commercial Code or the companies it controls within the meaning of Article L of the Commercial Code, excluding companies in which Recylex SA owns less than 40% of the share capital given the Company's limited operational control over these entities 2. In addition, companies with no staff are excluded from the scope of social reporting, and companies with no operational activity are excluded from the scope of environmental reporting. Former mining concessions and closed sites are only included in the descriptive part of environmental reporting. The full consolidation method is used. If a company falls within the scope as defined, 100% of its social and environmental data are included, regardless of the percentage of the company that the Group actually owns. Any restrictions in terms of businesses or geographical zones to be included in the scope with respect to certain indicators are set out in the user guide. Changes in scope - such as those resulting from acquisitions, disposals, start-ups and the discontinuation of businesses - are taken into account from the date they take effect. Recytech SA, which is 50%-owned by the Company, has formed part of the Sustainable Development Reporting scope since The 2011 indicators and data published in this report have therefore been adjusted relative to those published in the 2011 report so as to include social, environmental and societal data relating to Recytech SA. Methods defined in-house can set limits for certain indicators as a result of: - differences between the laws of the various countries in which the Group has sites, particularly as regards employment and welfare law, - difficulties in answering questions relating to certain indicators for legal or political reasons, - a lack of accurate measurements (e.g. relating to activities that generate emissions or waste), or estimations. 1 All requests may be sent by via the Company website ( or by letter sent to the company's head office at 79, rue Jean-Jacques Rousseau, Suresnes 2 A list of all of the Company's subsidiaries within the meaning of Article L of the French Commercial Code or the companies it controls within the meaning of Article L of the Commercial Code is provided in Note 37 to the consolidated financial statements for the period ended December 31,