TUBACEX annual. report

Transcription

1 TUBACEX 2012 annual report

2 KEY FIGURES FOR THE CONSOLIDATED TUBACEX GROUP SALES GROSS OPERATING PROFIT (EBITDA) (18.38) OPERATING PROFIT (EBIT) (5.87) (35.41) NET PROFIT (6.55) (25.78) NET CASH FLOW (8.75) TOTAL ASSETS (1) EQUITY NET ASSETS/LIABILITIES NET FINANCIAL DEBT FINANCIAL PROFIT / (LOSS) (13.47) (9.29) (6.74) (7.29) (12.07) SHARE CAPITAL CAPITAL EXPENDITURE EBITDA / SALES (%) (4.95) OPERATING PROFIT / SALES (%) (1.62) (9.53) 8.29 NET PROFIT / SALES (%) (1.81) (6.94) 5.59 NET PROFIT / EQUITY (ROE) (%) (2.77) (10.70) NET PROFIT / ASSETS (ROA) (%) (1.12) (4.90) 5.57 PROFITS PER SHARE (PPS) in euros (0.049) (0.194) CASH FLOW / SHARE (CFPS) in euros (0.066) BOOK VALUE PER SHARE (in euros) DIVIDEND (in euros per share) LAST TRADING PRICE (in euros) MARKET CAPITALIZATION PRICE/ BOOK VALUE Times PER (Times) n.a. n.a (2) EV/EBITDA (times) n.a AVERAGE NUMBER OF EMPLOYEES 1,852 1,876 1,789 1,797 1,970 EMPLOYEES IN SPAIN 1,047 1,115 1,086 1,105 1,226 EMPLOYEES ABROAD (1) (2) Figures in millions of euros. ( ) Negative balances. Attributed to holders of equity instruments in the parent company. (Market Capitalization plus Net Financial Debt plus Minority Interests at year-end) / EBITDA. n.a.: not applicable.

3 LETTER FROM THE CHAIRMAN Dear shareholder, It is a great honor to address you one more year as the Chairman of TUBACEX to highlight the most important events that have taken place throughout 2012, a year in which we have continued the upward trend started in 2011 and during which we have seen a significant improvement in our performance. The 2012 financial year has unfolded in the midst of an environment of global economic deceleration, especially in the eurozone, which has suffered from greater difficulties than initially estimated, especially through the last part of the year. For our sector, manufacturing seamless stainless steel tubes, the high oil prices - which stood around 112 USD/barrel throughout the year - have been an invigorating agent promoting investment levels in the oil and gas, petrochemical and power generation sectors, which are our main clients. In this framework, the market for our tubes has continued i t s r e c o v e r y, r e c o r d i n g a n improvement in the demand, both in overall amounts as in price. Order intake has grown by 12% and total sales have increased by 9.4%, reaching a total of million Euros. The growth in sales has been especially significant in high value-added products, especially in tubes for oil and gas exploration and extraction, refining and power generation. In this respect, I would like to point out that around 20% of the Group's tube sales correspond to the new high value-added products developed by the company in the past years. Throughout the financial year we have continued to work on the improvement of our competitive position in the industrial, commercial and financial arenas, with the implementation of competitiveness, cost improvement and expenditure reduction plans in the Group's different units. Market recovery, the improvement in the product mix and the aforementioned efforts undertaken by the company to increase competitiveness, have enabled TUBACEX to raise its gross operating profit (EBITDA) up to million Euros, thus trebling profits, which have reached million Euros. We have also improved our profitability levels, with an EBITDA on sales that stood at 8.6%, contrasting with the 5.6% registered in We have continued to develop our Strategic Investments Plan to manufacture high value-added products, having allocated million Euros to this purpose during the financial year. These initiatives have enabled our new facilities to increase the manufacturing capacity of OCTG tubes, a product that is growing in relevance. At the end of the year, a new Pilger-type cold roller was installed in the Amurrio plant and a new state-of-the-art finishing line for OCTG tubes will be operational during We have also made significant investments in Salem Tube, our US subsidiary, to upgrade its industrial facilities. In the current financial year, during which we will celebrate our 50th anniversary, we have turned a new page. As I already mentioned last year, during 2012 and the first months of 2013 we have been drafting a Strategic Plan, with a term finishing at the end of 2017, which pursues the goal of following in this upward trend, i n c re a s i n g p ro f i t a b i l i t y a n d competitiveness and consolidating our global leading position. Additionally, the Board of Directors agreed last January to separate the positions of the Chairman and the CEO, which has resulted in the incorporation of Jesús Esmorís as the chief executive of the company. W i t h r e g a r d t o t h e performance of the current financial year, we expect to continue to tread the path of growing results. For this purpose, we will continue to support ourselves in the good performance of the demand for high value-added products from the oil and power generation industries, in the entry into service of the new OCTG tubes manufacturing facilities and in the progress of the competitiveness improvement programs that we have been implementing in the different Group plants. Álvaro Videgain Chairman videgain@tubacex.es 1

4 general report to shareholders

5 SOCIEDADES GENERAL REPORT FILIALES TO SHAREHOLDERS The recovery of the seamless stainless steel tube market, which began in 2011, continued during 2012, following the most difficult years of the global economic crisis. The increase in demand for high value-added products and operational improvements to the Group's industrial facilities in order to improve their competitiveness have enabled TUBACEX to increase its gross operating profit (EBITDA) by 68.3%, tripling profits. follows: The most significant financial data for the year is as *Consolidated sales amounted to million Euros, up 9.4% compared with *The gross operating profit (EBITDA) increased by 68.3%, reaching million Euros. *The consolidated operating profit (EBIT) stood at million Euros, compared with 6.50 million Euros for the previous year. *On the whole, the Group has tripled its consolidated net profit, which amounted to million Euros, compared with 3.66 million Euros recorded in Consolidated sales up 9.4% Oil prices, which act as a determining factor in the investment levels of the oil, gas, petrochemical and power generation industries, remained stable throughout the year at around 112 USD/barrel. These high oil prices, along with the increase in worldwide energy demand and a slight improvement in obtaining funding for new projects have contributed to increasing investments in the entire value chain for oil production and transformation and its derivatives, and therefore, growth in the market for the tubes manufactured by TUBACEX. Operating profit (EBIT) evolution Consolidated. Figures in millions of euros Economic Environment TUBACEX has developed its activity in an economic environment marked by the slow-down in worldwide economic growth, particularly in the Euro Zone, which entered into recession in the third quarter of the year. Furthermore, financial tension regarding the sovereign debt of European countries has persisted, particularly in the first half of the year. Net profit evolution Consolidated. Figures in millions of euros Dollar and Raw Materials 2012 In the currency markets, the Euro has depreciated against the dollar, with an average exchange rate of 1.28 USD in 2012, compared with 1.39 USD in This evolution increases the competitiveness of European export companies, as is the case of TUBACEX, although the exchange rate for the Euro with the USD remains high Profit triples to reach million Euros As far as the prices of the raw materials used by the Group are concerned, namely nickel, molybdenum and stainless steel scrap, significant falls were recorded in In the case of nickel, the average monthly prices fell by 23.4% in 2012, reaching 17,536 USD/tonne, compared with 22,894 USD/tonne in This fall in the price of raw materials unfavorably affects the company's results. 1

6 GENERAL REPORT TO STOCKHOLDERS Increased Demand for Tubes En este contexto, la demanda de tubos sin soldadurain this context, demand for seamless stainless steel tubes experienced an improvement in 2012, both in terms of quantity and price. The tube market for new investment projects evolved favorably, with important orders for tubes for oil and gas exploration and extraction, refining and power generation, all of which are high valueadded products. The tube distribution sector also showed positive performance, whereby the German market was the main destination whilst there was increased demand in other European countries, the United States and Asia. Order intake up 12%. Order intake increased by 12% with respect to 2011, highlighting orders for oil and gas exploration and extraction investment projects. Order intake for refining and power generation was also positive. The consolidated sales figure stood at million Euros, up 9.4% on 2011, due to the increase in volume and base price of tubes and the improved product mix, with greater emphasis on higher value-added tubes. In this respect, it must be pointed out that around 20% of the Group's tube sales correspond to new high value-added products developed by the company in recent years. ORGANISATIONAL STRUCTURE OF THE TUBACEX GROUP Chairman & CEO Tubos Mecánicos Chairman s Assistant TTA Tubacex Innovación Chief Operating Officer Sales & Marketing Vice President Production Manager TTI Acerálava Production Manager SBER General Manager Salem Tube Purchasing Manager Chief Financial Officer IT Manager Human Resources Manager 2

7 GENERAL REPORT TO STOCKHOLDERS Increased Profits This market improvement in demand and prices, together with the company's efforts to increase its competitiveness, have led to increased profitability. In this respect, it must be highlighted that TUBACEX has continued to develop action plans to improve its competitive position in the industrial, sales and financial fields, with the implementation of competitiveness, cost improvement and expenditure reduction plans in the Group's different units. EBITDA up 68.3%, reaching million Euros The company obtained a gross operating profit (EBITDA) of million Euros, up 68.3% on 2011, also improving profitability, with an EBIDTA on sales of 8.6%, compared with 5.6% for the previous year. The consolidated net profit for the financial year tripled to reach million Euros, compared with 3.66 million Euros in In spite of this significant increase, the results were negatively affected by the downward trend in the price of raw materials throughout the year, with a yearon-year drop of 23.4% in the case of nickel. Strategic Investments TUBACEX has continued its strategic investment scheme, aimed at developing production capacity in those segments requiring a higher level of expertise and with high added value, essentially within the oil, gas and power generation industries. TUBACEX continues developing its strategic investments Altogether, the company invested million Euros during 2012, of which the extension of the production capacity for oil and gas exploration and extraction tubes (OCTG) at the TTI plant in Amurrio can be highlighted. New Strategic Reflection TUBACEX has been developing its Strategic Plan over recent years, the objective of which has been to guarantee the company's future profitability and growth through the development of production facilities for high value-added products in sectors that are expected to grow, such as oil and gas exploration and extraction in extreme conditions (offshore and deep water extraction) and power generation at state-of-the-art plants. Gross operating profit (EBITDA) evolution Consolidated. Figures in millions of euros. Significant increase in demand for high value-added products As a result of these actions, there has been a change in the company's product mix, with increasing importance, around 20% of sales in 2012, on new high valueadded products that the company has incorporated into its portfolio in recent years. Having fulfilled the objectives of this plan, in 2012, the company has initiated a new strategic reflection process with a temporary horizon of 2018, focusing mainly on growth, increasing profitability and competitiveness and consolidating its global leading position. 3

8 GENERAL REPORT TO STOCKHOLDERS The new plan, which will be approved mid-2013, will aim to achieve growth and a global leading position, including a significant increase in the profitability and competitiveness of the business, and, consequently a significant increase in the stock value. Total assets evolution Consolidated. Figures in millions of euros. Events AfterYear-End The following significant events occurred after the year-end: On 9th January 2013, Atalaya Inversiones communicated the sale of all its stake in TUBACEX, along with the resignation of the Proprietary Director from the Company's Board of Directors On 13th January, Itzarri EPSV notified its position as a significant shareholder, with a 3.215% stake in the company. On 28th January, The TUBACEX Board of Directors appointed Jesús Esmorís as a new CEO, hence splitting the posts of Chairman and CEO, both of which had been held up to then by Álvaro Videgain, who remains as Chairman Stock Market Revaluation During 2012, TUBACEX share listing price registered a 6.4% gain, rising from Euros per share on the last day of trading in 2011 to Euros per share at the end of December The company's market capitalization at 31st December 2012 amounted to million Euros. At the beginning of April, the company Management and all of the trade unions with representation therein entered into a convention pre-agreement for Tubacex S.A., Tubacex Tubos Inoxidables and Acería de Álava, which will be applicable from 2013 to On the other hand, on 19th and 22nd April, CaixaBank communicated the sale of all its shareholding in TUBACEX, along with the resignation of the Proprietary Director from the Company's Board of Directors. Book value per share evolution Consolidated. Figures in euros

9 GENERAL REPORT TO STOCKHOLDERS TUBACEX GROUP BASIC INDICATORS SALES % % % NET PROFIT % 3.66 n.a. (6.55) n.a. EBITDA % % n.a. Consolidated TUBACEX. Figures in millions of euros. () Negative balances and figures. n.a.: not applicable PROFITABILITY RATIOS NET PROFIT/SALES % 0.75 n.a. (1.81) n.a. EBITDA/SALES % % 3.53 n.a. NET PROFIT/ASSETS % 0.58 n.a. (1.12) n.a. NET PROFIT/EQUITY % 1.53 n.a. (2.77) n.a. Consolidated TUBACEX. Figures in percentage. () Negative balances and figures. n.a.: not applicable RATIOS PER SHARE PERFORMANCE EARNINGS PER SHARE (EPS) % n.a. (0.049) n.a. BOOK VALUE/SHARE % % % DIVIDEND PER SHARE PER (Times) n.a. Consolidated TUBACEX. Figures in euros. () Negative balances and figures. n.a.: not applicable FINANCIAL RESULTS FINANCIAL RESULTS (13.47) (9.29) (6.74) (7.29) (12.07) FINANCIAL RESULTS/SALES (%) (2.53) (1.91) (1.86) (1.96) (1.80) Consolidated TUBACEX. Figures in millions of euros. () Negative balances and figures. 5

10 GENERAL REPORT TO STOCKHOLDERS 1.- COMMERCIAL ACTIVITY TUBACEX'S core business is the manufacture of seamless stainless steel tubes at its subsidiaries Tubacex Tubos Inoxidables (Spain), Schoeller Bleckmann Edelstahlrohr (Austria) and Salem Tube (United States) and the commercialization of these tubes through its broad sales network. It also sells, although to a lesser degree, stainless steel billets and round bars, manufactured by Acería de Alava, although the main purpose for these products is to provide raw materials to the Group's tube plants. Moreover, it manufactures stainless steel curved sections and tube fittings at its subsidiary, Tubacex Taylor Accesorios. Sales evolution Consolidated. Figures in millions of euros Consolidated sales reached million Euros From a commercial point of view, the 2012 financial year witnessed favorable performance, with an increase in demand for seamless stainless steel tubes in terms of quantity and price. Order intake increased by 12% with respect to the previous year, highlighting the significant increase in orders for high added-value tubes (particularly OCTG tubes and special high alloy nickel steel tubes) for the oil, gas and power generation sectors, particularly in the second half of the year. Sales in Europe up 2.1% The consolidated sales figure stood at million Euros, up 9.4% on 2011, when it stood at million Euros. This evolution is due to the increase in volume manufactured and the rise in base prices, along with the Group's improved product mix, with greater emphasis on high value-added tubes. Commercial Structure TUBACEX has a sales network with fourteen sales offices, complemented by an extensive network of agents, which covers the global market of seamless stainless steel tubes. The sales offices are responsible for sales in their respective markets. Notwithstanding, the Group has managers in charge of the new projects segment and for the highest value-added products, in the oil, gas and power generation sectors. These managers strengthen the activity of the sales network, providing highly specialized technical and sales support whilst improving relations with the endclients. Additionally the Group has its own warehouses in the different markets, whereby the most important ones are located in Spain, the United States, and France, through which the channel aimed at large distributors and replacement markets is strengthened. GEOGRAPHICAL BREAKDOWN OF REVENUES MARKET /2011 EUROPE % UNITED STATES - CANADA % ASIA % REST OF THE WORLD % TOTAL SALES % TUBACEX consolidated. Millions of euros. 6

11 GENERAL REPORT TO STOCKHOLDERS Sectors of Demand The main sectors demanding the tubes manufactured by TUBACEX are oil and gas, petrochemical and power generation, accounting for about 90% of the sales of seamless stainless steel tubes in The rest of the Group's sales are aimed at diverse sectors, such as the mechanical industry, aerospace, food, water desalination, electronics, capital goods and new technologies, among others. Strong growth in order intake for oil and gas exploration and extraction tubes, representing 51% of the total. Distribution Market. On the other hand, sales of seamless stainless steel tubes to the stockist and distribution market, the other sales channel for the Group's products, was favorable in 2012, particularly in the first half of the year. Order intake was up 11% in spite of the fact that the drop in the price of raw materials, particularly nickel, foresaw a fall in demand for stockist tubes, awaiting lower prices. This fact indicates that the increased final demand follows structural factors rather than speculative ones. Yet again, as in the previous two years, the German market was the main destination for stockist tubes, although other European countries, the United States, the Middle East and the Far East also registered good performance. The company sells its products either to the market for new investment projects in the entire value chain of the oil and power generation industry or through tube stockists and distributors. Seamless Stainless Steel Tube In the seamless stainless steel tube segment, the year was characterized by an improvement in the market, both in terms of price and quantity. In the first half of the year, the increased demand for standard products can be highlighted, whilst the second half saw a significant increase in orders of high value-added products. The Group's order book closed the year with the highest numbers since Project Market The tube market for new investment projects evolved favorably, backed by the high oil prices, which remained stable throughout the year at around 112 USD/barrel. This fact has been a key element in the reactivation of investment projects in the oil, gas, petrochemical and power generation sectors, the main clients for the tubes manufactured by TUBACEX. In this respect, it must be highlighted that demand for tubes for investment projects in the oil and gas exploration and extraction industry experienced a significant increase throughout 2012, with a large number of projects, particularly for OCTG tubes and tubes for offshore platforms. Order intake for investment projects in oil and gas exploration and extraction also grew considerably. As for power generation, order intake for investment projects also showed more modest growth, with a significant increase as of the third quarter. The refining sector performed well with important orders in Russia, the European Union and the Middle East. 7

12 GENERAL REPORT TO STOCKHOLDERS Geographical Markets. As far as the evolution of markets by geographical area is concerned, orders from Europe were reasonably stable throughout the year. The exceptional situation of the precision tube market must be highlighted, for which demand has increased throughout the year. The rest of the products have also evolved favorably. Revenue in North America fell by 20.7% The North American market performed worse than the previous year due to strong competition and the lack of investment projects in the months leading up to the presidential elections in November. However, Salem Tube, the Group's North American subsidiary, saw an increase in sales of 7.8% and an excellent level of profitability, due to its heavy specialization in high value-added products. The performance of the markets in the emerging countries improved throughout the year, with good performance in standard products during the first half of the year and an increase in order intake for high value-added products in the second half of the year. The Group has witnessed a clear evolution of orders in this sector, from standard products to those with greater added value. Orders from developing countries had the greatest individual weight for the year. Prices. As far as sales prices are concerned, it must be highlighted that they improved in 2012 with respect to Pressure has been more intense on standard products than high value-added products, which represent an increasing percentage of TUBACEX sales. Prospects for 2013 are also favorable regarding the evolution of prices. Prospects for In 2013, in addition to an improvement in the profitability of the standard product, TUBACEX will continue to focus its activity on high valueadded products. Regarding OCTG tubes, it is a product in clear expansion and further growth is foreseen over the forthcoming years, which is why the Group has increased its production capacity with new facilities at its Amurrio plant. On the other hand, order intake for special high alloy steels is also experiencing heavy growth and has reached historic levels, with particularly good performance of tubes for the off-shore market where the company continues to extend its range of products, from tubes for oil platforms to tubes for the manufacture of umbilicals and other equipment for underwater handling and extraction of hydrocarbons. As far as the manufacture of special steels for the petrochemical industry is concerned, the company expects to strengthen its position, taking advantage of the reactivation of investment projects which were slowed down due to the crisis. As for tubes for electric power generation boilers, the alliance with Vallourec & Mannesmann is enabling the company to introduce new developments that will increase sales and margins on this product. It is worth highlighting that the electric power generation market is undergoing a complete transformation and technological transition towards new and more efficient power generation systems whilst increasing requirements regarding the materials used, favoring seamless stainless steel tubes as they are the only ones with reliable performance in extreme pressure, corrosion and temperature conditions. TUBACEX GROUP IN THE WORLD TX CIS TX AMERICA TX CANADA SALEM TUBE TTI-LLODIO TTI-AMURRIO ACERÁLAVA TTA SBER POLAND TX HOLLAND SBER GERMANY SBER CZECH REPUBLIC TX FRANCE SBER SBER HUNGARY MIS COTUBES TUBOS MECÁNICOS TX ITALY TX MIDDLE EAST INDONESIA TX CHINA TX LATIN AMERICA Factories Sales Offices Distributors and Warehouses 8

13 GENERAL REPORT TO STOCKHOLDERS Stainless Steel Billet and Round Bar Besides supplying the Group's subsidiaries with raw materials, Acería de Álava is active in non-group markets, manufacturing rolled and forged stainless steel products in billets or round bars for other consumers of this raw material, mainly forging and machining companies. Although the steel sector underwent a strong adjustment in 2012, the market segment in which Acería de Álava operates has performed positively throughout the year. Total sales for the subsidiary amounted to million Euros in 2012, representing an increase of 13% in comparison with % of these sales for 2012 correspond to sales to companies that do not belong to the Group. Curve Sections and Tube Accessories Through its subsidiary, Tubacex Taylor Accesorios (TTA), the Group manufactures curve sections in stainless steel, carbon steel and alloys, as well as tube accessories. The market for this product saw a slight improvement in Demand has been homogeneous throughout the year, with significant order intake for investment projects in Russia. The evolution of demand has also been positive in Europe and Canada, but this has not been the case in the Spanish market, where there has been a halt in internal consumption of this product. Sales in this segment reached million Euros in 2012 up 18.9%. Sales by Markets In 2012, TUBACEX registered sales of million Euros, representing a year-on-year increase of 9.4%. Sales grew in Europe, Asia and the "rest of the world", whilst they fell in the North American market. In Europe, revenue has grown by 2.1% to million Euros, compared with million in Sales in Europe for 2012 represented 63.5% of total sales. U.S.A. and Canada 13.5% Geographical breakdown of TUBACEX in 2012 Asia 17.6% Rest of the world 5.4% Sales in the United States and Canada reached million Euros, down 20.7% on 2011, when they stood at million Euros. This fall is mainly due to the halt in investment projects in the months leading up to the North American presidential elections in November. Sales in this market began to recover as of December. Sales in the United States and Canada sales accounted for 13.5% of total sales in The highest growth in revenue was in Asia, reaching million Euros, up 104.9% compared with million Euros in The Asian market represented 17.6% of the Group's total sales for 2012 and has taken second place, ahead of the United States and Canada. Europe 63.5% Sales in Asia doubled to reach million Euros Finally, sales stood at million Euros in the "rest of the world", which represents an increase of 50.9% compared with million Euros in This increase is mainly due to the good performance of the Brazilian market, which accounted for two-thirds of the "rest of the world" sales. This area accounted for 5.4% of total revenue in

14 GENERAL REPORT TO STOCKHOLDERS.2.- INDUSTRIAL ACTIVITY The TUBACEX Group is one of the few seamless stainless steel tube manufacturers in the world with integrated production: stainless steel manufacturing, hot extrusion and finishing and cold rolling and finishing. For the development of its activity, the TUBACEX Group has a stainless steel manufacturing plant (Acería de Álava, in Amurrio), three hot tube extrusion plants (TTI Llodio and SBER in Ternitz, Austria), two cold rolling facilities (TTI Amurrio and SBER), an OCTG tube manufacturing plant (TTI Amurrio), an umbilical tube manufacturing plant (SBER), a cold drawing factory (Salem Tube, Greenville, United States) and a manufacturing plant for curved sections and tube fittings (TTA, in Arceniega). It also manufactures mechanical tubes (hollow bars) at the TTI Llodio and SBER plants. All products are made of stainless steel. The increase in order intake in 2012 has enabled the Group to increase its production ratios at all of its plants, which had previously been operating far below their capacity, particularly in 2009 and 2010, as a result of the global economic crisis. The company has continued developing its strategy to increase productivity, foster synergies between the different Group companies, focusing on reducing costs and increasing efficiency in purchases whilst improving the quality and competitiveness of the products and customer services. In this respect, the company has continued with the implementation of an ambitious project to improve the efficiency of internal process at the TTI Llodio plant, which will generate innovation in processes. The project, which is expected to terminate at the end of 2013 following three years of work, will change the flow of factory operations, allowing for significant improvements in efficiency, intermediate goods and competitiveness. TUBACEX has also continued its investments in the development of new manufacturing capacity for high value-added products. Raw Materials The essential raw materials used in the manufacture of stainless steel, produced at the Acería de Álava subsidiary and then processed into tubes at other Group factories, are nickel, molybdenum and stainless steel scrap, the prices of which have fallen significantly throughout the year. The price of nickel fell by 23.4% in 2012 The average monthly prices of nickel fell by 23.4% in 2012, until reaching 17,536 USD/tonne, compared with an average of 22,894 USD/tonne in The price of this metal began the year with sharp increases to begin falling in February and close the year in December at 17,160 USD/tonne. The price of nickel fell to below 16,000 USD/tonne in July and August. 40,000 36,000 32,000 28,000 24,000 20,000 16,000 12,000 8,000 4, EVOLUTION OF NICKEL PRICES AND DOLLAR EXCHANGE RATES ,771 9, , , ,250 37, ,111 DOLLARS/TON 14,795 21, ,894 EURO/DOLLAR ,

15 GENERAL REPORT TO STOCKHOLDERS 24,000 EVOLUTION OF THE DAILY TRADING RATE FOR NICKEL IN ,000 16,000 DOLLARS/TON 12,000 03/01/ /02/ /04/ /06/ /08/ /10/ /12/2012 The average price for molybdenum also fell by 17.7%, from 37,917 USD/tonne in 2011 to an average of 31,206 USD / tonne in The price on the last day of trading in December was 28,470 USD / tonne. Investment Throughout 2012, TUBACEX invested in technical facilities and machinery for a value of million Euros, particularly in those seeking to strengthen the strategic development of production capacity in those segments requiring a higher level of expertise and added value within the oil, gas and power generation sectors in which growth is higher, such as the exploration and extraction of oil and gas in extreme conditions (offshore and deep water extraction) and power generation at state-ofthe-art plants. Capital expenditure evolution Consolidated. Figures in millions of euros This ongoing investment policy is enabling the company to continue to undertake strategic investments (high value-added and technologically advanced products), and to maintain and renew its equipment, all of which is focused on enhancing costs, productivity and quality, making the TUBACEX Group's factories the most competitive in this area worldwide. Among investments made during the year, the extension of the manufacturing capacity of oil and gas exploration and extraction tubes (OCTG) at the TTI Amurrio plant can be highlighted. The company's objective is to increase the production capacity of these facilities due to the good prospects for the demand of this type of high value-added product for the oil and gas sector. Investment for the financial year amounted to million Euros At the end of the year, a new Pilger-type cold rolling machine was installed and a new state-of-the-art finishing line for OCTG tubes will be operational during The new facilities will operate continuously and will be fully automated Between 2008 and 2012, the Company invested million Euros in the development of the Strategic Plan It must be highlighted that this average annual investment of million Euros has been carried out in the midst of the global economic crisis, which shows the company's financial capacity. 11

16 GENERAL REPORT TO STOCKHOLDERS With this investment, along with other recent investments at different plants, TUBACEX aims to improve the product mix and increase the weight of high value-added products in total sales. Investment in a new dispatch warehouse at the Amurrio plant is also noteworthy. The TTI Amurrio plant increases its production capacity for oil and gas exploration and extraction tubes On the other hand, the North American subsidiary, Salem Tube, is implementing an extensive investment plan to improve its industrial facilities, including a new finishing warehouse which increases the quality assurance of the products and will improve the North American subsidiary's position in high added value niches, such as the aeronautics and nuclear industries. The remaining investments are aimed at diverse improvements linked to the efficiency of the key facilities in the manufacturing process of the different factories, maintenance and replacement of industrial equipment, quality improvement, increasing the added value of products, environmental friendliness and occupational safety. Environmental Management One of TUBACEX's main strategies is to protect the environment whilst going about its business activities. With this in mind, the Group is gradually introducing a system in each of its business units that minimizes the environmental impact of its activities (waste, atmosphere, water, noise, energy, etc.) through the use of clean, costeffective technologies and by implementing the necessary measures to prevent contamination in all of its operations, including emergency situations. All industrial facilities have ISO Environmental Management certification Consequently, the TTI, Acería de Álava, SBER and Salem Tube subsidiaries have and Environmental Management System in accordance with ISO issued by an accredited standardization and certification organization. Thus, the entire production process at the Group's Llodio, Amurrio, Ternitz (Austria) and Greenville (USA) plants, from the reception of raw materials and the production of stainless steel to the shipment of finished manufactured tubes, has now been approved by an environmental management accreditation body. Further information regarding the environmental actions undertaken during the year is available in Section 5 of the Corporate Social Responsibility Report within this Annual Report. 12

17 GENERAL REPORT TO STOCKHOLDERS 3.- INNOVATION Innovation is one of the key strategic aspects for the future development of the company, whereby, along with technological innovation, it has been working on the development of new ideas, concepts, products, services and management practices, with the aim of contributing to increasing productivity and business efficiency. The Group's efforts in this field are channeled through the Tubacex Innovación subsidiary, from where actions related to the development of production processes and new products, quality control, technical sales services, knowledge management, etc. are managed. This subsidiary, which belongs to the Basque Science and Technology Network, also fosters cooperation with other companies and Technological Centers and Universities in terms of R&D&I. In recent years, TUBACEX has fostered its innovative action, aiming much of its activity at the development and launch of new products with a higher level of expertise and added value for the oil, gas and power generation sectors, particularly in those in which further growth is expected, such as oil and gas exploration and extraction in extreme conditions (offshore and deep water extraction) and power generation at state-of-the-art plants. Main Activities throughout theyear In the field of new product development for the power generation sector, the marketing of new grades of advanced steel for use at state-of-the-art (ultra-supercritical) power stations has continued in Furthermore, a project for the industrialization of the shot peening technology is underway, which will enhance the features of the products developed. The Group is committed to the development of new products with greater technological value in the oil, gas and power generation industries For the oil and gas market, there has been a significant increase in activity in OCTG tubes. During 2012, TUBACEX continued developing the strategic agreement entered into with Vallourec & Mannesmann (V&M) in the areas of R&D&I and sales, to strengthen its supply of seamless stainless steel tubes for the oil, gas and power generation sectors. The companies have set up joint teams for the development of new products. 13

18 GENERAL REPORT TO STOCKHOLDERS On the other hand, the umbilical tube manufacturing plant in Austria has carried out diverse R&D activities to optimize the plant's industrial process. Likewise, TUBACEX carried out joint research activities throughout the year with the CEIT (Ik4), Tecnalia, CIDETEC (IK4) technology centers. Setting Up Tubacoat Within the activities carried out for the development of new products and technologies, TUBACEX has set up the Tubacoat subsidiary for the manufacture of steel tubes with a ceramic coating, using a global innovative technology. This company, in which TUBACEX is the majority shareholder, is the result of three years of R&D and is currently in the pre-industrial phase. The ceramic coating enhances the anti- corrosion and anti-abrasion features of the tube. Quality All of the Group's subsidiaries, whether industrial or trading companies, have ISO 9001:2000 certification for their production and marketing processes. Furthermore, the Group has product certification from the leading certification bodies in Europe, the United States and Japan, as well as the approval of the leading engineering companies and clients of the oil and gas, power generation, petrochemical, chemical and aerospace industries, among others. Among the activities in this field during the year, TTI approval as a materials manufacturer for marine applications, in accordance with the American Bureau of Shipping, and the renewal for TTI and Acería de Álava of their approval as manufacturers of materials for pressure equipment applications in accordance with the German Code and the Pressure Equipment Directive (PED) and nuclear applications in accordance with KTA , Section 2.4 are particularly noteworthy. 4.- FINANCIAL ACTIVITY TUBACEX has a net equity of million Euros, accounting for 37.2% of its total liabilities. The company's gross operating profit (EBITDA) for 2012 was million Euros, up 68.3% on the previous year. Agreements with Twelve Financial Institutions In July, the company successfully ended negotiations and signed bilateral agreements with twelve financial institutions, including the most important ones in the country, for a total amount of 160 million Euros. Agreements signed with twelve financial institutions These agreements refer to the extension of the due date of the credit lines that finance the company's operations, as well as refinancing the credit for investment in the development of manufacturing capacities for new products. The El EBITDA del for ejercicio the year ha increases crecido un by 68,3% 63.8% s The agreements for a total of 160 million Euros involve extending the due date of the credit lines by one to three years for a total value of 80 million Euros and the renewal of the rest of the existing credit lines. Furthermore, loans for a total of 50 million Euros have been refinanced over 5 years, with a two-year grace period. It has also continued with the adaptation of the quality system to OCTG tube requirements with the preparation of a Quality Manual in accordance with the requirements of the American Petroleum Institute APQ1 standard and client audits for this market. The TTA subsidiary has been approved as a manufacturer for Petrobas and has renewed its CRN/ABSA (Canada) certification and Aramco certification (Saudi Arabia). 14

19 GENERAL REPORT TO STOCKHOLDERS a The operation increases the financial stability of the company and shows the trust that financial institutions have in TUBACEX in these times of great macroeconomic uncertainties and lack of liquidity in the credit markets. Net Financial Debt Net financial debt for the year has increased from million Euros in 2011 to million Euros in 2012 as a result of the increase in the company's activity. The net financial debt over total liabilities ratio was 38.8%. 5.- HUMAN RESOURCES In 2012, the average size of the workforce in the companies that make up the TUBACEX Group was 1,852 employees. Of these, 1,047 people are employed at the Group's Spanish plants and 805 are employed in foreign subsidiaries. The average workforce has increased by 129 employees during the year. Personnel expenditure rose to million Euros in 2012, up 16.5% on the previous year. Equity / total liabilities ratio evolution Consolidated. Figures in % Personnel Expenditure Wages, salaries and similar Contributions to voluntary social welfare entities Social security Other social charges Benefit contributions TOTAL Figures in millions of Euros As a result of the Group's production under order model, the majority of the debt is allocated to funding its working capital. In this respect, it must be pointed out that the non-financial working capital amounts to million Euros on 31st December and well covers the net financial debt (111%). El Net EBITDA equity del accounts ejercicio for ha 37.2% crecido of the un total 68,3% liabilities s Having signed the aforementioned agreements, the long-term debt amounted has increased its weight in relation with total debt, increasing from million Euros in 2011 (15% of the total) to million Euros in 2012, which represents 47.1% of the total financial debt. Training 170 training courses were held in the Group companies throughout the year, which were attended by 2,277 employees. In total, over 21,615 training hours have been delivered, which represents a decrease of 4.6% compared with The number of hours spent in training per employee amounts to hours. During the year over 21,600 hours of training were held TUBACEX has allocated a total of 0.68 million Euros for training, up 6.2% on In the past five years, the company has devoted 3.48 million Euros to training its employees. Net equity evolution Consolidated. Figures in millions of euros Flexibility Agreement In July, an agreement was reached with the trade unions to improve competitiveness in terms of flexibility at the Tubacex Tubos Inoxidables and Acería de Álava subsidiaries. By means of this agreement, which will be incorporated into the next Collective Agreement, the Operations organization will be transformed, migrating towards a cell model, aiming production activity towards better customer service quality and cost efficiency

20 GENERAL REPORT TO STOCKHOLDERS The agreement will represent better versatility and professional development of human resources at the plants. Management Development Program The Management Development Program commenced in 2012, an ambitious year-long training program in which 25 managers will participate to be trained in areas related to the integral management of the company, covering aspects such as Finance, Operations, People, Sales, Strategy and General Management. TUBACEX average workforce in 2012 amounts to 1,852 employees The program will boast expert teaching staff from the leading business schools. Prevention of Occupational Hazards Like environmental management and quality excellence, occupational risk prevention is a priority strategic objective. TUBACEX has been developing an Prevention of Occupational Hazards Program based on the comprehensive safety philosophy since As a result of the work carried out over these years, the TTI, Acerálava and SBER subsidiaries have OHSAS certification for their occupational risk prevention management systems, placing them in a leading position among European companies in the continuous improvement of working conditions and occupational hazard prevention. Occupational risk prevention is a strategic element for the company Extensive information concerning prevention and all other aspects relating to human resources is provided in Section 3 of the Corporate Social Responsibility Report within this Annual Report. 16

21 subsidiaries

22 SOCIEDADES SUBSIDIARIES FILIALES TUBACEX is an industrial Group founded in 1963, whose main activity is the manufacture of seamless stainless steel tubes, with its head office in Llodio and industrial plants in the same town as well as in Amurrio and Arceniega (all three in the province of Álava), Ternitz (Austria) and Greenville (Pennsylvania, U.S.A.). The TUBACEX Group is the second worldwide manufacturer, and is vertically integrated in its operations (with its own steelworks, hot extrusion and cold rolling facilities). Similarly, the company has a unique marketing structure for its products on a worldwide level. In this regard, the Group has trading companies in Spain, France, Holland, Germany, Czech Republic, Hungary, the United States and Canada, in addition to sales offices staffed by its own personnel in Italy, Poland China, Brazil, Dubai and Russia, as well as sales representatives in over 30 countries around the world. Additionally, it has tube distribution warehouses in Spain, France, United States, China and Indonesia. ACERÍA DE ÁLAVA S.A. Acería de Álava S.A. (Acerálava) is a subsidiary that manufactures primary-processed stainless steel. Its main purpose is to supply raw materials to two of the Group's two hot tube extrusion subsidiaries, namely Tubacex Tubos Inoxidables and Schoeller Bleckmann Edelstahlrohr. TUBACEX TUBOS INOXIDABLES S.A. Tubacex Tubos Inoxidables S.A. (TTI) is the Group's flagship manufacturer and uses hot and cold processes to produce seamless stainless steel tubes. It has hot tube extrusion and finishing facilities in Llodio and a cold tube rolling mill in Amurrio. TTI sales up 25.4%, reaching million Euros. Over the course of the year it recorded sales of million Euros, representing a 25.4% increase on the previous year's figure which reached million Euros. TTI has a net equity of million Euros, which represents 17.6% of the company's total liabilities. The company, which has its production plant in Amurrio, is also active in non-group markets, manufacturing rolled and forged stainless steel products in billets and round bars for other consumers of this raw material, mainly forging and machining companies. Acerálava sales have risen to million Euros. In 2012, company sales reached million Euros, representing a 13% increase on 2011, when it recorded sales totaling million Euros. This subsidiary has a net equity of million Euros, accounting for 30.4% of the company's total liabilities. 1

23 SUBSIDIARIES SCHOELLER BLECKMANN EDELSTAHLROHR GmbH Schoeller Bleckmann Edelstahlrohr GmbH (SBER), has its industrial facilities in the Austrian city of Ternitz. The company is solely dedicated to manufacturing stainless steel tubes. The company, founded in 1840, became part of the TUBACEX Group in SBER sales up 15.2%, reaching million Euros. SBER specializes in the manufacture of smalldiameter tubes with a high value added, a complementary product in the Group's catalog, and boasts a solid position in the European market, particularly in Central and Eastern Europe. During 2012 the SBER Group recorded sales of million Euros, up 15.2% on 2011, when it recorded sales of million Euros. The Austrian subsidiary has a net equity of million Euros, accounting for 30.8% of the company's total liabilities. CORPORATE STRUCTURE OF TUBACEX GROUP TUBACEX S.A. Share Capital: 59.84m INDUSTRIAL COMPANIES TRADING COMPANIES OTHER COMPANIES ACERIA DE ALAVA S.A. 100% TUBACEX TUBOS INOXIDABLES S.A. 100% SCHOELLER-BLECKMANN EDELSTAHLROHR GmbH. 100% SALEM TUBE INC. (1) 100% TUBACEX TAYLOR ACCESORIOS S.A. 100% (1) Through Tubacex America Holding (2) Through SBER GmbH. (3) Through Tubos Mecánicos S.A. (4) Through Cotubes S.A. COTUBES S.A. 100% TUBOS MECÁNICOS S.A. 100% TUBOS MECÁNICOS NORTE S.A. (3) 100% TUBACEX EUROPE BV 100% TUBACEX AMERICA INC. 100% TUBACEX & COTUBES CANADA INC. (4) 100% SBER ALEMANIA GmbH (2) 100% SB PRAGA AS (2) 100% SB TUBE FRANCE (2) 80% SBER PHÖNIX Kft. (HUNGARY) (2) 100% HOLDING COMPANIES TUBACEX AMERICA HOLDING CORP. 100% PROPERTY COMPANIES SBER INMOBILIEN AG 100% SERVICE COMPANIES SB TECHNISCHES SERVICE GbmH (2) 100% SB TECHNISCHES SERVICE GbmH&Co KG (2) 100% TUBACOAT, S.L. 75% R&D&I METAUX INOX SERVICES S.A.S. 100% TUBACEX INNOVACION AIE 100% 2

24 SUBSIDIARIES SALEM TUBE Inc. Salem Tube Inc. is one of the Group's subsidiaries (through Tubacex America Holding) with industrial facilities in Greenville (Pennsylvania), and it is devoted to manufacturing cold-drawn seamless tubes in stainless steel and high-nickel alloys and super alloys. This subsidiary was founded in 1963 and became part of Tubacex in Salem Tube has increased its sales by 7.8% During 2012, Salem recorded sales of million Euros, up 7.8% on 2011 when sales stood at million Euros. The North American subsidiary has a net equity of million Euros, accounting for 85.6% of the company's total liabilities. DEMAND SECTORS FOR PRODUCTS MANUFACTURED BY THE TUBACEX GROUP Sectors TTI Spain SBER Austria SALEM USA ACERALAVA Spain TTA Spain Chemical and Petrochemical Energy Oil And Gas Mechanical Aeroespace Electronics Food Industry Technologies Forging Rerolling Long products Sections 3

25 SUBSIDIARIES TUBACEX TAYLOR ACCESORIOS S.A. Tubacex Taylor Accesorios S.A. (TTA) is a subsidiary based in Arceniega (Álava) that manufactures curved sections in stainless steel and other carbon and alloy steels, as well as tube fittings. It is, therefore, a perfect complement to the Group's tube-manufacturing subsidiaries, and contributes considerable value-added to the products they sell for industrial projects. TTA sales are up 19% TTA sales for 2012 amounted to million Euros, down 18.9% on the 8.80 million Euros recorded in GRUPO TUBOS MECANICOS Tubos Mecánicos Group is based in Barcelona and sells the so called mechanical tubes (hollow bars) in carbon steel for use in the manufacture of machined parts. It also sells tubes for hydraulic and pneumatic circuits, tubes for cylinders, lapped and pre-lapped items and chrome-plated bars, which are mainly used in the capital equipment industry. Tubos Mecánicos sales have risen to million Euros. The Group has warehouses in Alava, Barcelona, Madrid, Pontevedra, Valencia and Zaragoza. Its sales for the year rose to million Euros, down 9.1% on the 2011 figure of million Euros. Grupo Tubos Mecánicos has a net equity of million Euros, accounting for 60.5% of the company's total liabilities. TTA has a net equity of million Euros, accounting for 83.8% of the company's total liabilities. COTUBES S.A. Comercial de Tubos y Accesorios Especiales S.A. (Cotubes) is a Group company which acts as the master distributor of seamless stainless steel tubes. Cotubes has the most extensive stock of stainless steel tubes in the national market and one of the largest in Europe. It also sells billets and round bars manufactured by Acería de Álava and curved sections made by Tubacex Taylor Accesorios. Cotubes sales are up 8.5% Sales for this subsidiary amounted to million Euros in 2012, up 8.5% on 2011, which amounted to million Euros. Cotubes has a net equity of 7.79 million Euros, accounting for 19.1% of the company's total liabilities. 4

26 shareholders and the stock market

27 SOCIEDADES SHAREHOLDERS AND FILIALES THE STOCK MARKET TUBACEX share capital stands at million Eros, divided into 132,978,782 shares, each with a nominal value of 0.45 euros. All of the company's share capital is traded on the continuous market of the Spanish Stock Exchange. TUBACEX is quoted on the Madrid Stock Market. Throughout 2012 it has been quoted on the "IBEX MEDIUM CAP" index, which is made up of the 20 stocks with the greatest adjusted floating capital, excluded the stock listed on the IBEX-35. Stock Market During 2012, TUBACEX shares increased by 6.4%, from 1,865 Euros per share on the last day of trading in 2011 to Euros per share at the end of December The company's market capitalization amounted to 264 million Euros. The highest listed price of TUBACEX shares during the year was 2.35 Euros per share on 6th and 9th February. The lowest listing, on the other hand, was Euros per share on 23rd July. In 2012, million TUBACEX shares were traded, which was a decrease of 47.4% with respect to the number of shares traded in 2011, which reached million shares. During the same period, the average listing on the "IBEX 35" index fell 4.7%, while the "IBEX MEDIUM CAP" - the index on which TUBACEX was listed during the year - grew by 13.8%. Of the 35 companies that form part of the IBEX, seventeen recorded falls in the trading prices (ten of which suffered drops in excess of 20%), whilst only eleven companies recorded growth in excess of 6.4%, like TUBACEX. Market capitalisation evolution Figures in milllions of euros. During the year, million Euros in TUBACEX shares were traded These figures mean that there has been a 31.6% rotation during the year of the total number of the company's shares. As for effective contracting, it rose to million Euros, a figure 59.2% lower than the contracted volume in the previous year, when it rose to million Euros. TUBACEX shares were traded on the 256 market days, with average daily volume accounting for 164,369 shares and 318,943 Euros The company's market capitalization on 31st December 2012 stood at million Euros, up 6.4% with respect to the previous year-end, when market cap rose to million Euros. Shareholders According to information registered with the Spanish Securities Exchange Commission (Comisión Nacional del Mercado de Valores), the main shareholders in TUBACEX, at 31st December 2012, are as follows: Stockholder Number of Number of % of direct voting rights indirect voting rights Share capital (1) Bagoeta S.L. - 24,052, % (2) Caixa Bank S.A. - 11,742, % Atalaya Inversiones S.R.L. 6,653, % Cartera Industrial REA, S.A. 6,648, % (1) Direct stake is owned by Larreder S.L.U. (2) Direct stake is owned by Grupo Corporativo Empresarial de la Caja de Ahorros de Navarra S.A.U. 1

28 SHAREHOLDERS AND THE STOCK MARKET Treasury Stock There have been no movements in the company's treasury stock. As of 31st December 2012, the number of TUBACEX shares held by Group companies was 3,142,975, a figure that represents 2.36% of the capital. The average purchase price of these shares is 2.39 Euros. Analysts At 31st December 2012,eleven market analysts regularly covered TUBACEX. The latest reports by these firms include seven recommendations to "Buy"(64%), two as "Overweight" (18%), one as "Underweight" (9%) and one to "Sell" (9%). INDICADORES STOCK MARKET BURSÁTILES INDICATORS DE LOS OVER TRES THE ÚLTIMOS LAST THREE EJERCICIOS YEARS Último Last precio trading de price cotización (in euros) (en euros) Beneficio Earnings neto per por share acción (in euros) (en euros) (0.049) Precio/beneficio Price/earnings neto per share por acción (PER) (PER) (times) (veces) n.a. (1) (1) Enterprise value value /EBITDA Valor Book contable value per por share acción (in(en euros) Precio/valor Price / book contable value (times) (veces) Dividendo (in (en euros gross brutos per por share) acción) Dividendo/precio / share de price cotización (yield)(yield) (%) (%) n.a. n.a. n.a. Importe Total amount total del of dividendo (en (in millions millones of de euros) (2) (2) Dividendo/beneficio / net profit neto (Pay-out) (%) (%) n.a. n.a. n.a. (1) Stock market capitalisation plus net financial debt plus minority interests at year-end closing. (2) Of the net profits of the previous year. n.a.: not applicable () Negative balances and figures. TUBACEX EVOLUTION ON THE STOCK MARKET Share capital (in millions of euros) Face value of shares (in euros) Number of shares (thousands) 132, , ,979 Share price Maximum Minimum Last Annual appreciation (%) Trading frequency (%) Trading volume Millions of shares Millions of euros , Rotation (times share capital) Market capitalisation (in millions of euros) QUOTED SHARE PRICE OF TUBACEX COMPARED WITH THE IGBM Tubacex IGBM Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec 2

29 SHAREHOLDERS AND THE STOCK MARKET MONTHLY MONITORING OF TUBACEX SHARE TRADING IN 2012 (1) MONTH DAYS TRADED No, SHARES CASH AMOUNT ENERO 22 3,588,104 7,057, FEBRERO 21 6,045,392 13,351, MARZO 22 4,268,586 9,111, ABRIL 19 3,162,917 6,203, MAYO 22 4,330,324 7,161, JUNIO 21 1,949,767 3,071, JULIO 22 2,256,362 3,484, AGOSTO 23 1,949,850 3,311, SEPTIEMBRE 20 2,865,926 5,794, OCTUBRE 23 4,251,379 8,644, NOVIEMBRE 22 3,594,500 6,983, DICIEMBRE 19 3,815,474 7,472, TOTAL ,078,581 81,649, (1) Euros REPORTS OF TUBACEX RELEASED BY ANALYSTS IN 2012 (1) ANALYST MONTH RECOMMENDATION TARGET PRICE BPI January Buy 2.60 Santander January Buy 3.00 Ahorro Corporación February Buy 2.60 Mirabaud February Overweight 3.50 Nmas1 February Accumulate 2.30 La Caixa March Buy 2.60 BBVA March Unerweight 2.10 Banco Sabadell March Sell 2.25 Banesto April Buy 3.07 Cheuvreux April Overweight 2.55 Bankia May Buy 2.90 BPI June Buy 2.60 Santander June Buy 3.03 Banesto July Buy 3.07 Bankia July Buy 2.90 Mirabaud July Overweight 3.50 Nmas1 July Accumulate 2.30 Santander September Buy 2.75 BPI September Buy 2.60 Mirabaud September Overweight 2.60 Banesto September Buy 3.55 Banesto October Buy 3.55 La Caixa October Buy 2.80 BPI November Buy 2.60 Banesto November Buy 3.55 Bankia November Buy 2.90 Mirabaud November Overweight 2.60 Nmas1 November Buy 2.60 Ahorro Corporación December Buy 2.60 Santander December Buy 2.75 (1) Euros per share. 3

30 corporate social responsibility report

31 SOCIEDADES CORPORATE SOCIAL FILIALES RESPONSIBILITY REPORT The major changes that society has been undergoing in recent years highlight the fact that the company can no longer restrict its operations to industrial, commercial or financial concerns, but must seek to embrace a business concept in which social issues take up an increasingly prominent position on its values scale. The company is not an end in itself but a means of helping society to move forward, and now finds itself being required to make a more wide-ranging commitment not only to its shareholders, employees and customers, but to society as a whole. As an industrial company, it must also strive to respect the environment. In such a context, business ethics, good corporate governance, transparency, people management, knowledge, commitment to sustainability, support for culture as well as the need to contribute to the development of people and society become tremendously important factors and constitute an investment in the creation of value. The TUBACEX Group therefore believes it is necessary to incorporate these principles into its strategy to enable business objectives to be considered in conjunction with the expectations of the main players with whom the Group interacts (customers, employees, shareholders, investors, etc.). In doing so it can guarantee the responsible use of resources and the adoption of policies that take the company's immediate environment into consideration. Mindful of this, TUBACEX joined the United Nations Global Compact six years ago, a voluntary initiative of ethical commitment which requires companies from all over the world to embrace a set of principles of conduct and action in the areas of human rights, employment, environment and corruption as an integral part of their strategies and operations. The Global Compact, introduced in the middle of 2000 on the initiative of the Secretary General of the United Nations, seeks to promote the creation of a global corporate citizenship that enables business interests and processes to be reconciled with the values and requirements of civil society. Commitments to the principles of the UN Global Compact Human Rights 1. Support and respect the protection of human rights. 2. Make sure they are not complicit in human right abuses. Labour 3. Uphold the freedom of association and the effective recognition of the right to collective bargaining; 4. The elimination of all forms of forced and compulsory labour; 5. The effective abolition of child labour. 6. Eliminate discrimination in respect of employment and occupation. Environment 7. Support a precautionary approach to environmental challenges; 8. Undertake initiatives to promote greater environmental responsibility. 9. Development and diffusion of environmentally friendly technologies. Anti-Corruption 10. Active work against corruption. TUBACEX remains committed to the Principles of the Global Compact and every year informs about the progress made by sending the annual Progress Reports which are published and available on the website of the Spanish Global Compact Association (ASEPAM), created in This Report on Corporate Social Responsibility seeks to explain, in a summarized and transparent manner, the activities carried out by the TUBACEX Group in this field. 1

32 CORPORATE SOCIAL RESPONSIBILITY REPORT 1.- GOOD GOVERNANCE TUBACEX was one of the first Spanish companies to introduce good governance guidelines into its executive bodies. As early as 1994 it approved an Internal Stock Market Code of Conduct, and since 1995 it has been using the recommendations made in the Cadbury and Viennot reports to modify the way in which the board operates. These recommendations focus on reduced numbers of board members and executive board members, increased numbers of independent board members, the setting up of monitoring committees within the board, etc. In 1998 TUBACEX approved the Code of Conduct for the Board of Directors of Tubacex S.A., setting out basic organization and operating standards as well as a code of conduct for board members. In 2002, and following the recommendations made by the Aldama Commission, TUBACEX added information on the Articles of Association and the Board of Directors' Code to its website. Similarly, the Codes of Conduct for the Board of Directors and for the Annual General Meeting of Shareholders were modified during 2007 in order to bring them into line with the recommendations established in the Combined Code on Corporate Governance for listed companies, published in All points in the current TUBACEX Annual Report on Corporate Governance follow the principles established by Circular 4/2007, dated 27 December 2007, of the Spanish Securities Exchange Commission on the Annual Report on Corporate Governance of Listed Companies, which has repealed the prior circular and includes stricter transparency requirements. The Good Corporate Governance, which is part of this Consolidated Management Report, proves that the TUBACEX Group complies with practically all the existing recommendations in terms of good governance. It also lays out a commitment to continue incorporating into its activities all aspects that facilitate transparency in its management processes. 2.- CUSTOMERS The TUBACEX mission statement indicates, The people that make up this Group are committed to manufacturing and selling quality products with high added value and to becoming leaders in customer service as a differential factor. One of the company's mission statement pledges is to provide satisfaction for our customers and exceed their expectations. A relationship with the customer that is based on quality, service, cooperation and flexibility is, therefore, the pivot around which the Group's business rotates. In addition to the constant contact with customers enjoyed by the sales network, customer satisfaction surveys are also conducted every three years, which aims to fulfill the following objectives: * To measure the level of customer satisfaction with the company's products and services. * To make a comparison with the customer's other suppliers. * To identify which product and service attributes are most important for our customers. * To identify the customer's expectations. * To design improvement plans and actions designed to increase customer satisfaction levels. In addition to the survey, the company has also set out to confirm the opinions of customers by using objective indicators relating to the quality of the services TUBACEX provides. Both the customer satisfaction survey and the measuring and monitoring of indicators derive from the Total Quality Management Program the company has been developing and the latest edition of the ISO Standards. The latter require the setting up of a measurement system that enables an objective evaluation of performance in this area to be made. 3.- EMPLOYEES AND THEIR REPRESENTATIVES Workforce In 2012 the average size of the workforce in the companies that make up the TUBACEX Group was 1,852 persons. Of these, 1,047 people are employed at the Group's Spanish plants and 805 are employed in foreign subsidiaries. The workforce increased by 129 people during

33 CORPORATE SOCIAL RESPONSIBILITY REPORT Training Staff by professional category Category Senior Management Technical staff and middle management Administration staff Plant staff 1,323 1,198 TOTAL 1,852 1,723 Technical 13.7% Information technology 4.0% In 2012 a total of 170 training courses were held in the Group's companies. The courses were attended by a total of 2,277 employees. In total over 21,615 training hours have been taught, which represents an decrease of 4.6% compared to The number of hours spent in training per employee amounts to hours. Labor risk prevention 17.8% Training hours by area in 2012 (%) Management skills 15.9% Others 2.3% Production 18.3% During the year TUBACEX has developed a great number of training initiatives in the fields of quality and environment (20.1%), production (18.3%) and prevention of occupational hazards (17.8%), which have accounted for more than half of the training hours delivered in the different Group companies. Other prominent areas were training in management, technical, maintenance and IT. TUBACEX has allocated for training a total of 0.68 million euros. In these past five years, the company has devoted 3.48 million euros to train its employees. TUBACEX Training Plan Evolution Maintenance 7.9% Quality & Environment 20.1% Number of courses Number of people attending 2,277 1,891 1,619 Number of training hours 21,615 22,667 10,864 Training hours per employee Investment (in millions of euros) Ikaslan Program During 2012 we have continued with the development of the Ikaslan Program. This training program in the workplace targets young students of Advanced Vocational Training Modules in electronic and mechanic maintenance from the local Vocational Training centers. During 2012, the Program has had seven new participants, all mechanics. Once they have finished their training period in the Ikaslan Program, the participants will have priority in joining the staff - as permanent or temporary personnel - of the relevant maintenance departments. Recognition of professional competence Since its creation, TUBACEX has been cooperating actively with the Basque System of Recognition of Professional Competence for workers at Tubacex Tubos Inoxidables and Acerálava, advertising the program internally and issuing the relevant certificates. Through this program, the Basque Government, together with Vocational Training centers, wishes to provide workers who do not have qualifications but do have at least two years professional experience with approved certification and accreditation. In this way, their years of professional experience are placed on a level with official qualifications in their corresponding specialty areas. Collective agreement Currently there is a valid Collective Agreement in Tubacex S.A., Tubacex Tubos Inoxidables S.A. and Acería de Álava S.A. which was signed in December 2008 and is valid until 31 December This agreement establishes a labor framework with the agreement of the majority of the union representatives of the companies, thus facilitating the implementation of the necessary changes for the strategy of introducing products with higher added value. 3

34 CORPORATE SOCIAL RESPONSIBILITY REPORT Substitution Contract Upon signing this Collective Agreement the substitution contract that has been developed in the company since 2003 was extended. By virtue of this agreement, at age 60 workers are eligible for partial retirement, being replaced by younger workers. This is the third period in which the substitution contract is to be applied, and 171 people have requested it from 2009 to Trade union representation Since the last trade union elections, held in 2010 in Group companies Tubacex, TTI. and Acerálava, there are five groups that represent trade unions. From greater to lesser number of shop stewards, these are: STAT, LAB, CC.OO., ELA-STV and UGT. This corroborates the idea of free association that the Tubacex Group defends and which is clearly demonstrated in the trade union representation that exists. Prevention of occupational hazards The implementation of the Prevention of Occupational Hazards Program, based on the philosophy of integrated safety, continued at TTI and Acerálava during The 2012 Prevention Management Program was divided into 1,495 initiatives obtaining a compliance rate of 97.6% after successfully completing 1,307 actions and exceeding, as usual, the minimum compliance rate of 85%. In consequence to the implementation of the Program's actions 1,570 potential risks have been identified in TTI and Acerálava and 2,016 corrective actions have been planned for their implementation during the year. Of these, 1,702 actions have been executed, which has implied a cost of over 0.65 million euros. As a result of the work carried out over all these years, Tubacex Tubos Inoxidables S.A. (TTI), Acería de Álava S.A. (Acerálava) and SBER were awarded the OHSAS certification for their occupational health and safety management systems, placing them in a leading position among European companies in the continuous improvement of working conditions and prevention of occupational hazards. In April 2011, both TTI as Acerálava have renewed their certifications. In the application of this Program, more than 21,165 corrective and preventive actions concerning occupational safety were carried out between 1998 and 2012, involving an investment of 9.09 million euros. Another important aspect has been the training of the personnel in prevention and occupational safety. For this, over 41,200 hours of training have been taught in this period and has involved 9,700 employees. As regards accident rates, in 2012 they have dropped by 27% in TTI Amurrio, 16% in TTI Llodio, while in Acería de Álava they have increased by 10%. In the plants as a whole, 89% of accidents considered were classified as insignificant or acceptable, 9% were considered moderate risks and 1% were considered important. From the statistical analyses carried out, it must be highlighted that 33% of all accidents and 42% of those causing sick leave occurred as a result of handling materials. 24% of the injuries were caused by blows and concussions. Injured hands accounted for 35% of injuries and 36% of sick leaves. 4

35 CORPORATE SOCIAL RESPONSIBILITY REPORT Medical care TUBACEX has permission to operate in accordance with article 53 of the Medical Services Code, enabling the company doctor to issue prescriptions on the Spanish National Health Service on the company's premises without the employee having to go to the local health clinic. By applying articles 25 and 26 of the Occupational Hazards Prevention Act, the duties of protecting workers who are especially vulnerable to certain hazards and pregnant women are fulfilled. The company uses the services of the health insurance company, Mútua Asepeyo, to cover payments for accidents in the workplace and occupational illnesses. The company also has an annual contract with Mútua Asepeyo covering aspects such as the assessment of industrial hygiene and ergonomics in the workplace. We also hold agreements with Igualatorio Médico Quirúrgico, Clínica Oftalmológica Baviera, Clínica Londres, Centro Médico Ayala and Ergoactiv, all of which offer special conditions for our employees. Although the medical service is covered permanently, there is an action protocol by which treatment can be sought through the Mutua de Accidentes, the Clínica Intermutual or the Osakidetza (Basque Public Health Service) hospitals in the event of serious accidents. Reception program Reception programs are arranged by the Personnel Management and Organization Department, with the main purpose of facilitating the gradual integration of new staff into the company. These programs are designed depending on the position that the person joining the company is going to hold, and two basic types exist: individual programs and group sessions. Communication with the workforce TUBACEX has several upward and downward internal communication channels, among which we can highlight the following: * Section and Shift Operational Meetings: They are attended by production and administrative personnel, coordinated by their superiors. * Department meetings: held monthly, coordinated by the heads of department and attended by the persons with direct authority in the factories. *Other meetings complete the communication chain: Management Committee, Management Operational Meeting and Plant Operational Meetings. * Txosten: this is the name of an in-house journal that aims to directly reach each and every one of the Company's employees with information about important aspects of the Group's general operation. It appears on a monthly basis and is distributed together with employees' pay slips. In 2012, 14 issues were published. 5

36 CORPORATE SOCIAL RESPONSIBILITY REPORT 4.- SOCIETY Research and development The Company's R&D activity focuses mainly on improving manufacturing processes, developing new types of high value-added steel and researching the application of products manufactured by the Group in new industrial sectors. The company devotes around 3% of its turnover to Innovation, its subsidiary, Tubacex Innovación A.I.E. concentrates the Group's efforts in this area. Fuller information about the R&D activities of the Company is provided in the Innovation pages of this Annual Report. Business philanthropy During 2012 the company donated a total of 122,987 euros to a number of cultural, sporting and religious organizations, etc. This amount includes the contributions made as study grants to cover the main expenditure of students on internship in the Group. As the main patronage in the area of culture, TUBACEX sponsors the Guggenheim Museum in Bilbao, the Artium Museum in Vitoria, and the Annual Award of the Novia Salcedo Foundation. Traineeships TUBACEX has had a close relationship with diverse educational institutions, particularly those located within its area of influence, for many years. These relationships are set up on the basis of mutual benefit and materialized through temporary cooperation agreements which range from three months to one year. On implementation of the internship program during 2012, the Company has cooperated with the following institutions: Zaraobe Institute in Amurrio, Municipal Vocational Training Center in Llodio, Zabálburu (Bilbao), Elorrieta-Erreka Mari Vocational Training Center (Bilbao), Novia Salcedo Foundation, Adsis Foundation, Deusto Business University and Esden Business School. This year, 20 students have been admitted to the program. Investments in scholarships in 2012 have reached 110,987 euros. Cooperation with the university and other institutions In addition to the mentioned task of helping students gain work experience, several of the company's executives also work closely with the University's technical and business management departments to apply TUBACEX's knowledge and experience in training the professionals of tomorrow. In this sense, Company's executives gave several seminars and classes on management, finances, business strategy and the coaching program of the Business University and the Engineering School of Deusto during the year. Business associations TUBACEX currently sits on the boards of the Basque Business Circle, and is also a member of the Álava Business Association (SEA), Union of Steelmaking Enterprises (UNESID) and the Association for Progress in Management (APD). Similarly, it is a member of the Basque Innovation Agency (Innobasque) since its inception and it is a member of the Board of Trustees of Tecnalia and IK4 Technology Centers. Through its subsidiaries, the company is also a member of several export company associations such as AGEX, SIDEREX and FLUIDEX. On the other hand, TUBACEX subsidiaries belong to the Red Vasca de Ciencia y Tecnología, Non-Destructive Tests Association (AEND), the Basque Logistics Institute (IVE) and the Association of High Energy-Consuming Companies (AEGE). 6

37 CORPORATE SOCIAL RESPONSIBILITY REPORT Art collection Since the 1980's TUBACEX has been building up an art collection that now consists of around a hundred works by a wide range of renowned painters, including Delacroix, Gericault, Miró, Tàpies, Tarkoff, de Kooning, Poons, Schnabel, etc. As the company does not have the space or the resources to be able to exhibit the works on a permanent basis, it offered part of the collection to museums in the Basque Country, giving the public the chance to see the paintings in an appropriate setting. On the occasion of the opening of the Guggenheim Museum Bilbao in 1997, the company deposited two works, by Antoni Tàpies and Julian Schnabel, at the museum. In 1999 an agreement for the cession of 18 additional works by artists such as Joan Mirò, Willem de Kooning and Larry Poons was signed. Similarly, TUBACEX is one of the Trustees of the Guggenheim Museum Foundation and a member of the museum's Art Committee, a commitment that was renewed during the year. Moreover, since 2003 TUBACEX has been a corporate benefactor of the Artium Foundation at the Alava Museum of Contemporary Art. 5.- ENVIRONMENT TUBACEX has a priority strategy of improving environmental performance. Therefore, all of the Group's units systematically implement actions to minimize the environmental impact (waste, air, water, noise, power, soil, etc.) related to their activity in all operational situations, including emergency situations. Thus, in 2012, the company has implemented environmental investments and expenditure for a total value of 2.87 million euros. The subsidiaries Tubacex Tubos Inoxidables (2001), Acería de Álava (2002), Schoeller-Bleckmann Edelstahlrohr (2006) and Salem Tube (2008) currently have Environmental Management Systems in accordance with the ISO certification issued by an approved standardization and certification organization. Thus, the entire production process at the TUBACEX Group's Llodio, Amurrio, Ternitz (Austria) and Greenville (USA) plants, from the reception of raw materials and the production of stainless steel to the shipment of finished manufactured tubes, has now been approved by an environmental management accreditation body. In 2012, the company has worked on the closure of the procedures for achieving Effective Integrated Environmental Authorizations for the TTI plants in Llodio and Amurrio and for Acería de Álava. In this context, Tubacex has undertaken the preparation of supporting evidence for the Administration regarding their compliance with the environmental legal requirements specifically applicable to the Group, in addition to planning the necessary actions for compliance with the new requirements. TUBACEX continues to participate in the SID MIRAT project (within the scope of Act 26/2007on Environmental Liability), which started in 2010 and is led by UNESID. The main achievement of the year has been the approval of the risks assessment methodology sectorial proposal, by the Technical Commission for Environmental Damage Repair and Prevention of the Ministry of the Environment. This project continues now through the design of a tool allowing the direct application of the risks assessment methodology in companies of the sector. Moreover, during the year, Tubacex has continued to implement several projects and programs in order to ensure compliance with the identified legal requirements that are applicable to the Group's activity. In terms of environmental indicators in 2012 it is important to highlight, for all of the Group's plants, the increase in the percentage of recovered waste. 7

38 CORPORATE SOCIAL RESPONSIBILITY REPORT Integrated Environmental Authorizations The three production centers of TTI and Acería de Álava have the Integrated Environmental Authorization, including that related to the management of the steel outlet. Throughout 2012, different actions have been carried out to validate before the administration their compliance with the specified environmental requirements set out in the corresponding authorizations. Recycling As a steel manufacturer, the Group subsidiary, Acería de Alava, is obliged to conduct extensive recycling work. As a result, steel in this case stainless steel is continually reused and natural resources are exploited on a smaller scale. The company has recycled 81,753 metric tons of scrap metal in 2012, a figure 9,2% higher than in 2011 due to the increase in the activity during the year. The company decided to request a scrap manager certification for Acerálava after the approval in 2011 of the new regulations that consider scrap metal as waste. Upon receiving the competent authority's confirmation of the viability of the authorization, Tubacex will design and implement the work method focusing on the compliance with the requirements imposed by the Administration. Energy sources and saving Wherever possible, Group companies use clean energy in their manufacturing processes. At TTI electricity accounts for 51.8% of the energy used and natural gas for 48%, whereas only 0.2% comes from other energy sources. At Acerálava, meanwhile, natural gas accounts for 62% of the energy used; while 37.6% proceeds from electricity and 0.4% are from other sources. In 2012, the company has continued to make investments aimed at improving energy efficiency. Investments have been undertaken in pursuit of this goal, performing operational changes, replacing equipment (pumps, etc.), frequency inverters distribution, etc. Use of resources During 2011 we have carried out several initiatives aimed at improving control of industrial water consumption. We have also planned projects to improve the water utilization ratio in our facilities. Initiative and proposals also arise at the plants, aiming to minimize the consumption of raw materials, either through internal recycling or increasing their shelf life. Emissions In 2012, the company has conducted the emission programming and control in 17 of 46 emission points in TTI and Acería de Álava plants. Among the monitoring results, it is important to highlight that none of the 67 controlled parameters exceeded the legally established limits. In April 2012, a request for the allocation of free emissions rights (CO2) was filed for the period. The Spanish Office for Climate Change has confirmed the individualized allocation proposal and the Vice-Counselor for the Environment has approved the specific methodology to monitor GHG emissions during the period. Waste In the field of the management of waste produced in the plants during the year, it's important to highlight the measures focusing on seeking efficiency in the final destination of this waste. The alternatives are based both on cost reduction as well as on prioritization of waste recovery options, contrasting with their elimination. Similarly, it is noteworthy the continuity of projects seeking to recover waste with metallic content and its cost-effectiveness. Soil In 2012, as a result of the works at the plants, the excavated soil was characterized, enabling the drawing up of soil quality maps to continue. 8

39 CORPORATE SOCIAL RESPONSIBILITY REPORT Noise At the end of the year, all of the Group's plants have conducted noise monitoring based on modeling methods. The goals have been twofold: to validate compliance with the legal limitations, and to acquire knowledge of the situation that allows for planning and management of future improvements in this environmental vector. Capital expenditure During the year, the Group has made investments which have ultimately resulted in the reduction of environmental risks through the improvement of operational control and efficiency. The amount related to these investments stood above 850,000 euros. In parallel, the Group has invested over 2.02 million euros in environmental expenses, mainly allocated to environmental monitoring (emissions, discharges), waste management, environmental protection, environmental taxes, as well as advisory services and independent professional audits, among other issues. Steel and the Environment Acería de Álava forms part of Steel and the Environment (ACYMA), an association comprising all the Basque Country's steel manufacturers. One of its main functions is to ensure that the environment is correctly managed along with industrial waste produced in the sector. The companies in this association are committed to the strategic principle of sustainable development, which seeks to make the manufacture of steel products compatible with respect for the environment and improved quality of life. 6.- SHAREHOLDERS AND INVESTORS Shareholder structure At 31 December 2011, according to the Spanish Securities Exchange Commission (Comisión Nacional del Mercado de Valores), the major equity stakes in the company belongs to Bagoeta S.L. (18.09%,) Banca Cívica S.A. (8.83%), Atalaya Inversiones S.R.L. (5.00%) and Cartera Industrial REA, S.A. (5.00%). As at 31 December 2011, the number of TUBACEX shares held by Group companies was 3,142,975, a figure that represents 2.36% of the capital. Value creation The TUBACEX corporate strategy seeks to create value for the shareholder, as stated in the Code of Conduct for the Board of Directors, whose actions should be governed at all times by this principle. Financial analysts The economic and stock market evolution of TUBACEX is usually followed by several Spanish and foreign market analysts and stockbrokers, with whom the Company is in close communication through its Investor Relations Office. At the end of 2012, eleven analysts actively covered the company, issuing recommendations regarding its shares. The Shareholders and the Stock Market section of this Annual Report gives details of the reports published about the Company during the year. 7.- COMMUNICATION Transparency is one of the essential dimensions of Corporate Social Responsibility. Consequently, TUBACEX bases it communication with shareholders, the stock market, customers and, in general, the society in which it operates, on transparency. 9

40 CORPORATE SOCIAL RESPONSIBILITY REPORT Information for shareholders The Shareholder Office, created in 1998, responds to requests for information about the Company from shareholders and investors. This Office also deals with requests for information received from stockbroking companies and financial analysts wishing to write reports on the Group. Throughout the year a large number of inquiries were received, mainly by telephone and . Moreover, TUBACEX has been publishing a quarterly Shareholders' Information Bulletin since The Bulletin is distributed by and regular mail. It is also uploaded onto the Company's website, so anyone may access it. The Bulletin contains the Company's quarterly statements, as well as stock market information and any interesting news occurring during the quarter. Information to analysts The Company communicates with stockbrokers and analysts mainly through its Investor Relations Department. The Company attends to financial analysts by telephone and visits are also arranged to TUBACEX offices and vice versa. In their dealings with TUBACEX, analysts are provided with all the required information on the Company (company presentations, annual reports, financial statements, etc.), ensuring that they can compile their reports with sufficient information. Visits are also arranged to production plants if requested or if new facilities or machinery have been installed. Information for investors Aware of the importance of direct contact with fund managers, TUBACEX, in order for them to get to know the company in depth, has met with almost 100 investors throughout These meetings have been of many natures (industry conferences, conferences for small and medium enterprises, road-shows, etc.) and have enabled the company to present itself in many cities such as Madrid, London, New York, Frankfurt and Paris. Website The Company has a regularly updated website ( containing a vast amount of information. The Website has been thoroughly changed this year and is available in both Spanish and English. It has been structured in five main sections: TUBACEX Group, products and services, shareholders and investors, people and latest news. The new version of the Website is operational since April Moreover, SBER and Salem Tube subsidiaries have their own sites specific to their activity. The media TUBACEX enjoys a close relationship with the media, allowing it to keep its target audience informed of the company's latest developments. Given the company's activity, its strong international presence and its listing in the stock market, TUBACEX maintains a relationship with a diverse range of media: national and international business newspapers, local newspapers, national and regional newspapers, as well as general, economical and specialized journals, in addition to audiovisual and digital media. 8.- SUPPLIERS AND CONTRACTORS The TUBACEX Group bases its relationship with suppliers on the principles of quality, service, transparency, efficiency and financial prudence. Throughout 2012 the Group spent a total of million euros on supplies and purchases. The majority of this expenditure went on the procurement of the raw materials needed to carry out its activities, mainly stainless steel scrap, nickel and other metals used to manufacture stainless steel, such as chromium and molybdenum. 10

41 governing bodies

42 1 GOVERNING BODIES OF TUBACEX, S.A. Board of Directors Chairman and CEO Mr. Álvaro Videgain Vice President Mr. Juan Garteizgogeascoa Board Members Mr. Gerardo Aróstegui Mr. Gorka Barrondo Ms. Consuelo Crespo Mr. Xabier De Irala Mr. Antonio González-Adalid Mr. Juan Ramón Guevara Mr. Juan José Iribecampos Mr. Ignacio Marco-Gardoqui Mr. Juan José Muguruza Mr. Luis María Uribarren Secretary and Legal Adviser Mr. Pascual Jover Management Committee of TUBACEX, S.A. Chairman and CEO Mr. Álvaro Videgain Chief Operations Officer Mr. Guillermo Ruiz-Longarte Vice-president for Sales and Marketing Mr. Antón Azlor Production Manager of Acerálava and TTI Mr. Celestino Danis Production Manager of SBER Mr. Erich Hertner Chairman s Assistant Mr. Tomás Gastón Group Chief Financial Officer Mr. Gaizka González Purchasing and Procurement Manager Mr. Pedro Carbajo Human Resources Manager and Chief Operations Officer s Assistant Mr. Manuel Sarabia Innovation Manager Mr. Diego Herrero Management of Subsidiary Companies Mr. Erich Hertner, Mr. Paul Degenfeld and Mr. Juan Antonio García (General Managers of Schoeller Bleckmann Edelstahlrohr GmbH) Mr. Rufino Orce (CEO and General Manager of Salem Tube Inc.) Mr. José Carlos Villaescusa (General Manager of Tubacex Taylor Accesorios S.A.) Mr. Pedro Carbajo (General Manager of Cotubes S.A.) Mr. Gonzalo Gómez (General Manager of Tubos Mecánicos S.A.) Mr. Diego Herrero (General Manager of Tubacex Innovation A.I.E.)

43 profiles of the boards members

44 1 PROFILE OF THE BOARDS MEMBERS GERARDO ARÓSTEGUI Bachelor of Economics and Business Administration (University of Deusto). He began his career in TUBACEX S.A., where he held several positions until becoming General Sub-secretariat. He was Deputy General Director of BBV bank. In 1985 he joined Plus Ultra as Counselor-General Manager, a company in which he was appointed CEO in He has been the Executive Chairman at Aviva Grupo Corporativo and Aviva Vida y Pensiones, Chairman of Aseval, Bia Galicia, Unicorp Vida, Caja España Vida and General Vida. He was also the member of the Advisory Board of the Dirección General de Seguros y Fondos de Pensiones and a Counselor of the Consorcio de Compensación de Seguros, of Nacional de Reaseguros and the UNESPA. He is Chairman of Tinsa and Qualitasa, and Director of Resolution Ltd. and Resolution Holdings (Guernsey) Ltd. He is a director at TUBACEX since GORKA BARRONDO Bachelor of Economics and Business Administration, PDG by IESE and MBA by the Instituto de Empresa. Before joining Caja Castilla La Mancha in 2002 as Director of Treasury and Capital Markets, he accumulated a 17-year career in the financial sector, both in national and international banks, in the scope of financial management, markets and investment management. In 2007 he was appointed the Deputy Director for Finance and Asset Management. Currently he is the General Manager of Caja Castilla La Mancha. He is a member of the Boards of Ahorro Corporación S.A., Lico Corporación, S.A., Tinsa Tasaciones Inmobiliarias, S.A and Caja de Seguros Reunidos, Compañía de Seguros y Reaseguros, S.A. ("Caser"). He is Vice President of CCM Vida y Pensiones de Seguros y Reaseguros, S.A. and Chairman of Tactical Global Advisory, AV, SA. He is a director at TUBACEX since CONSUELO CRESPO Originally from Barcelona, she obtained a Bachelor of Science, specialized in Biology, and the Master's Degree in International Decentralized Cooperation "Peace and Development within the United Nations Framework" (UPV). After working for years as a coordinator in the Barcelona slums and with immigrant women in Vizcaya, she began to work with UNICEF in From 1994 to 2005 she was the Chairman of the UNICEF Committee in the Basque Country and since 2005 she is the Chairman of UNICEF- Spain. She is a member of Acciona S.A.'s Board of Directors. She is a member of the Jury of the Prince of Asturias Awards for International Cooperation and of the Governing Council of the University of Deusto. She is a director for TUBACEX since XABIER DE IRALA ESTÉVEZ Industrial Engineer and MBA by the La Salle University (The Philippines). He is a director for Iberdrola, Alestis Aerospace, Barceló and Deusto Business School; and Chairman of BBK Bank. He is Honorary Chairman and Founder of Exceltur, and a member of Cotec's Executive Committee and the Board of Directors of Innobasque and of the Board of Regents of APD. He has been the Chairman of Bilbao Bizkaia Kutxa (BBK) and the Fundación Vasco-Navarra de Cajas de Ahorro, Chairman of Iberia Airlines, Executive Vice President of Grupo ABB (Madrid), Vice President of Finance of General Electric CGR (Paris, London), CEO of GE Portuguesa (Lisbon) and CEO of General Eléctrica Española (Bilbao). He has been the Chairman of the International Air Transport Association (IATA) and of the European Airlines Association (AEA). He is a director at TUBACEX since JUAN ANTONIO GARTEIZGOGEASCOA A graduate in Economics (UPV). He holds a Master's in Quantitative Management (from the San Sebastián Higher Business School) and a Master's in Tax Consultancy (from the Madrid Business Institute). He has worked at Helisold S.A. and TALDE S.A., a venture capital company, and has been a board member of a number of the investee companies in this Group. In 1987 he founded FORETAX S.A., a company providing tax planning and consultancy, of which he is the main partner. He lectured on the Tax Consultancy Master's course at the University of Deusto. In 2005 he was appointed Deputy Chair of the Board of Directors of TUBACEX. He has been a director of TUBACEX since ANTONIO GONZÁLEZ-ADALID Naval Engineer by the Polytechnical University (Madrid) and Master in Economics and Business Management by the IESE (Barcelona). He is currently the Vice President and CEO of Cartera Industrial Rea S.A.. Before joining REA, all his career has been linked to the energy industry, having been the Financial Director for Enagas, INH and Repsol, Vice President of Drilling and Production and Vice President of Chemistry and director for Repsol, Gas Natural and Petronor. From 2002 to 2007 he was the Chairman of Enagás. He is the Chairman of the Association of Members of the IESE Business School and Vice President of the Lloyd's Register of Shipping Spanish Committee. He is a director at TUBACEX since JUAN RAMÓN GUEVARA Lawyer. Between 1985 and 1991 he was Councilor of Presidency, Justice and Development of the Autonomous Basque Government. During that time he held the position of Representative of the Basque Autonomous Community at the Conference of Local and Regional Authorities and of the Standing Committee and the Bureau of the Assembly of European Regions; as well as Co-Chairman of the Committee on Interregional Cooperation Euskadi-Aquitania. In 1991 he abandoned his political activity and rejoined his firm as Council. He is an Honor Member of the Instituto Internacional de Sociología Jurídica of Oñati and the Basque Institute of Criminology. He is a director at TUBACEX since 1994.

45 2 PROFILE OF THE BOARDS MEMBERS JUAN JOSÉ IRIBECAMPOS Originally from Arraste-Mondragón (Guipuzcoa), he participates in the whole process of creation and the subsequent consolidation of Grupo CONDESA, integrated by fourteen production plants dedicated to manufacture welded steel tubes in its various production variants, which are located in six different countries, five of which are in the European Union. Initially he was the General Director of this Group. Currently he is the Chairman of the parent company of the Grupo Bagoeta, S.L.. He is also the Chairman of Tecnoaranda, S.L., dedicated to the production, transformation and commercialization of steel sheets and derived products. He is a member of the Board of Directors of Tubos Reunidos S.A. He is a TUBACEX councilor since IGNACIO MARCO-GARDOQUI Bachelor of Economics and Business Administration (University of Deusto). He started his professional career in Brussels in the DG III of the European Commission. He has been the Sales Director of Tubacex Taylor Accesorios (TUBACEX Group), General Secretary of SPRI and Managing Director of EVE. He was also Executive Director at Morgan Stanley, Private Banking Director of La Caixa and Professor at the Deusto Business School. He has been an economic commentator for Grupo Vocento since 1991, a member of the Deusto University Governing Board and Member of the Boards of Schneider Electric España, Viscofan, Minersa and Iberdrola Ingeniería y Construcción. He is a director at TUBACEX since JUAN JOSÉ MUGURUZA Bachelor of Economics and Business, is specialized in Corporation Economics by the University of the Basque Country - UPV. He started his professional career in 1971, at Banco de Bilbao, where he occupied several positions such as Head of Market Studies (1980) and Regional Director for Galicia (1983). In 1989 he was appointed Regional Director of Barclays Bank in the north region, with headquarters in Bilbao. In 1993 he became part of La Caixa, where he has been General Manager for the north region, Deputy General Manager and Executive Director. On behalf of Caixa Bank, he is a director of MCC Sociedad de Promoción Empresarial and one of the Trustees of the Guggenheim Bilbao Museum. He is member of the TUBACEX Board since LUIS Mª URIBARREN Originally from Arraste-Mondragón (Guipuzcoa), he participates in the whole process of creation and the subsequent consolidation of Grupo CONDESA, integrated by fourteen production plants dedicated to manufacture welded steel tubes in its various production variants, which are located in six different countries, five of which are in the European Union. Since 1992 he is the CEO of this Group. During the period running from he was part of the Executive Committee of the Board of Directors of Banco de Vitoria. Until January 2010 he was a member of the Board of Directors of Tubos Reunidos S.A. He is a TUBACEX councilor since ÁLVARO VIDEGAIN Bachelor of Law and Bachelor of Economics and Business Administration (University of Deusto). He has developed practically his whole career at TUBACEX, which he joined in In 1992 he was appointed the CEO and General Director of the Company and in 1993 he took over as Chairman of the Board of Directors. He is a member of the TUBACEX Board since 1992.

46 SOCIEDADES ADDRESSES FILIALES OF SUBSIDIARIES T.T.I. - TUBACEX TUBOS INOXIDABLES S.A. Tres Cruces LLODIO (ALAVA - SPAIN) Tef.: Fax: / sales@tubacex.es ACERALAVA - ACERIA DE ALAVA S.A. Polígono Industrial de Saratxo AMURRIO (ALAVA - SPAIN) Tef.: Fax: aceralavasales@tubacex.es SBER GmbH. - SCHOELLER BLECKMANN EDELSTAHLROHR GmbH. A-2630 TERNITZ (AUSTRIA) Rohrstr. 1. Tel.: Fax: office@sber.co.at SALEM TUBE INC. 951 Fourth Street GREENVILLE (PA) USA Phone: Fax: sales@salemtube.com T.T.A. - TUBACEX TAYLOR ACCESORIOS S.A. Bº Arenaza, ARCENIEGA (ALAVA - SPAIN) Tef.: Fax: sales@tta.es COTUBES - COMERCIAL DE TUBOS Y ACCESORIOS ESPECIALES S.A. Polígono Industrial de Saratxo AMURRIO (ALAVA - SPAIN) Tef.: Fax: jalarrazabal@cotubes.es TUBOS MECANICOS S.A. C/ Hostal del Pí, nº 14 - P.L. Barcelonés ABRERA (BARCELONA - SPAIN) Tel.: Fax: tmbarcelona@tubosmecanicos.es METAUX INOX SERVICES S.A.S. Z.A.C. des Chesnes Nord rue des Combes SATOLAS&BONCE (FRANCE) Tel.: Fax: m.i.s@fr.oleane.com 1

47

48 BALANCE SHEETS TUBACEX, S.A. AND SUBSIDIARIES COMPOSING THE TUBACEX GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (Expressed in thousands of Euros) (Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Group (see Notes 2 and 32). In the event of a discrepancy, the Spanish-language version prevails.) NON-CURRENT ASSETS Notes (*) Intangible assets Note 7 34,033 35,319 Goodwill 18,375 18,375 Other intangible assets 15,658 16,944 Property, plant and equipment Note 8 173, ,253 Investments accounted for using the equity method Note 10 1,610 1,891 Non-current financial assets Note 11 1,494 1,046 Deferred tax assets Note 22 51,458 49,492 Total non-current assets 262, ,001 CURRENT ASSETS Inventories Note , ,680 Trade and other receivables Note , ,049 Trade receivables for sales and services 116, ,039 Other accounts receivable 33,227 25,119 Current tax assets Derivative financial instruments Note Current financial assets Note 11 8,185 15,978 Other current assets Cash and cash equivalents Note 15 20,739 12,091 Total current assets 412, ,954 TOTAL ASSETS 675, ,955 (*) Presented for comparison purposes only. The accompanying Notes 1 to 32 are an integral part of the consolidated balance sheet at 31 December

49 BALANCE SHEETS EQUITY AND LIABILITIES Notes (*) EQUITY Note 16 Shareholders' equity- Registered share capital 59,840 59,840 Share premium 17,108 17,108 Revaluation reserves 3,763 3,763 Other reserves of the Parent and of fully consolidated companies and companies accounted for using the equity method 165, ,880 Treasury shares (7,850) (7,850) Profit for the year attributable to the Parent 11,863 3, , ,396 Valuation adjustments Translation differences 1,606 1,381 Hedges (685) (1,599) 921 (218) Equity attributable to the Parent 251, ,178 Non-controlling interests Total equity 251, ,495 NON-CURRENT LIABILITIES Long-term provisions Note 17 6,124 5,111 Deferred income 2,120 2,903 Non-current financial liabilities 137,764 39,892 Bank borrowings Note ,233 39,738 Derivative financial instruments Note Employee benefits Note 21 14,513 15,378 Deferred tax liabilities Note 22 3,815 3,220 Other non-current financial liabilities Note 19 11,801 6,807 Total non-current liabilities 176,137 73,311 CURRENT LIABILITIES Short-term provisions Note 17 6,449 5,828 Current financial liabilities Note , ,547 Bank borrowings 153, ,441 Derivative financial instruments Note 12 1,257 3,106 Trade and other payables Note 20 85,494 79,774 Payable to suppliers 53,949 47,957 Other accounts payable 30,822 30,998 Current tax liabilities Note Total current liabilities 247, ,149 TOTAL EQUITY AND LIABILITIES 675, ,955 2

50 CONSOLIDATED INCOME STATEMENT TUBACEX, S.A. AND SUBSIDIARIES CCONSOLIDATED INCOME STATEMENTS FOR 2012 AND 2011 (Thousands of Euros) (Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Group (see Notes 2 and 32). In the event of a discrepancy, the Spanish-language version prevails.) Notes (*) Continuing operations: Revenue Note 6 532, ,602 ` +/- Changes in inventories of finished goods and work in progress Note 9 30,394 16,483 Capitalised expenses of in-house work on non-current assets Note 3-b Procurements Note 9 (333,194) (312,474) Other operating income Note 24 5,785 6,177 Staff costs Note 25 (108,575) (93,180) Other operating expenses Note 24 (81,156) (76,534) Depreciation and amortisation charge Notes 7 & 8 (19,236) (20,705) Profit from operations 26,547 6,502 Finance income 1, Finance costs (14,696) (9,992) Exchange differences (8) 2,058 Financial loss (13,483) (7,232) Result of companies accounted for using the equity method Note Profit (Loss) before tax 13,133 (418) Income tax Note 22 (1,040) 3,561 Profit for the year from continuing operations 12,093 3,143 Profit from discontinued operations - - Consolidated profit for the year 12,093 3,143 Profit (Loss) attributable to: - The Parent 11,863 3,655 - Non-controlling interests 230 (512) Earnings per share (in euros) - Basic Note 23 0,091 0,028 - Diluted Note 23 0,091 0,028 (*) Presented for comparison purposes only. The accompanying Notes 1 to 32 are an integral part of the consolidated income statement for

51 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME TUBACEX, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2011 (Thousands of Euros) (Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Group (see Notes 2 and 32). In the event of a discrepancy, the Spanish-language version prevails.) Notes (*) A) Consolidated profit for the year 12,093 3,143 B) Income and expense recognised directly in equity Cash flow hedges Note 12 1,294 (1,950) Tax effect Notes 12 & 22 (380) 527 Translation differences (832) 213 C) Transfers to profit or loss - - Total recognised income and expense (A+B+C) 12,175 1,933 Attributable to: - The Parent 12,014 2,497 - Non-controlling interests 161 (564) (*) Presented for comparison purposes only. The accompanying Notes 1 to 32 are an integral part of the consolidated statement of comprehensive income for

52 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS TUBACEX, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR 2012 AND 2011 (Thousands of Euros) (Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Group (see Notes 2 and 32). In the event of a discrepancy, the Spanish-language version prevails. ) Equity attributable to the Parent Equity Net profit Registered Share Revaluation Other Treasury (loss) Translation Cash flow Non-controlling Total share capital premium reserves reserves shares for the year differences hedges interests equity Balance at 31 December 2010 (*) 59,840 17,108 3, ,449 (7,850) (6,545) 1,116 (176) 1, ,715 Total recognised income/expense , (1,423) (564) 1,933 Other changes in equity Transfers between equity items (6,545) - 6, Other changes (24) (129) (153) Balance at 31 December 2011 (*) 59,840 17,108 3, ,880 (7,850) 3,655 1,381 (1,599) ,495 Total recognised income/expense ,863 (763) ,175 Other changes in equity Transfers between equity items ,655 - (3,655) Other changes (704) Balance at 31 December ,840 17,108 3, ,831 (7,850) 11,863 1,606 (685) ,954 (*) Presented for comparison purposes only. The accompanying Notes 1 to 32 are an integral part of the consolidated statement of changes in total equity for

53 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS TUBACEX, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR 2012 AND 2011 (Thousands of Euros) (Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Group (see Notes 2 and 32). In the event of a discrepancy, the Spanish-language version prevails.) Notes (*) Cash flows from operating activities: Profit for the year before tax 13,133 (418) Adjustments for: Depreciation and amortisation charge Notes 7 & 8 19,236 20,705 Exchange (gains) losses 8 (2,058) Change in write-downs and allowances Notes 13 & ,086 Finance income (1,221) (702) Finance costs 14,696 9,992 Share of results of companies accounted for using the equity method Note 10 (69) (312) Change in the fair value of financial instruments Note 11 (33) - Capitalised expenses of in-house work on non-current assets Note 7 (109) (133) Recognition of government grants in profit or loss Note 24 (995) (1,103) 45,404 27,057 Changes in working capital: Inventories Note 13 (24,972) (12,583) Trade and other receivables Note 14 (8,088) (18,924) Other current assets (476) (15) Trade and other payables Note 20 7,896 19,916 Other current liabilities (1,459) - Other non-current assets and liabilities (2,157) (2,395) (29,256) (14,001) Other cash flows from operating activities: Interest paid (14,005) (10,327) Income tax paid Note 22 (3,136) (2,611) Net cash flows from operating activities (I) (993) 118 Cash flows from investing activities: Proceeds from the disposal of property, plant and equipment and intangible assets Note 8 2,056 1,715 Proceeds from the disposal of financial assets Note 11 8,956 2,795 Interest received 1, Investments accounted for using the equity method Note Acquisition of property, plant and equipment Note 8 (33,404) (20,855) Acquisition of intangible assets Note 7 (83) (1,143) Acquisition of other financial assets Note 11 (472) (10,230) Other amounts received/(paid) relating to operating activities - (24) Net cash flows from investing activities (II) (21,376) (27,114) Cash flows from financing activities: Proceeds from issue of other non-current financial liabilities Note 19 4, Proceeds from issue of bank borrowings Note ,678 30,609 Repayment of bank borrowings Note 18 (76,325) (20,963) Grants received 678 1,973 Other amounts received/(paid) relating to financing activities - 3,458 Net cash flows from financing activities (III) 31,025 15,683 Effect of foreign exchange rate changes (IV) (8) - Net increase/(decrease) in cash and cash equivalents (I+II+III+IV) 8,648 (11,313) Cash and cash equivalents at 1 January Note 15 12,091 23,404 Effect of foreign exchange rate changes on cash Cash and cash equivalents at 31 December Note 15 20,739 12,091 (*) Presented for comparison purposes only. The accompanying Notes 1 to 32 are an integral part of the consolidated statement of cash flows for

54 1. DESCRIPTION AND ACTIVITIES OF THE PARENT NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS Tubacex, S.A. and Subsidiaries composing the TUBACEX Group Notes to the Consolidated Financial Statements for the year ended 31 December 2012 (Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Group (see Notes 2 and 32). In the event of a discrepancy, the Spanish-language version prevails. ) Tubacex, S.A. ( the Parent ) was incorporated as a public limited liability company for an indefinite period of time on 6 June 1963 and its registered office is in Llodio (Álava). Its company object is, inter alia, the manufacture and sale of special seamless (basically stainless) steel tubes and any other type of product related to the iron and steel industry or other similar activities in which the Group agrees to engage. However, on 1 January 1994, the Parent became a holding company and head of the Tubacex Group, without engaging in any production activities, since these are carried on by its subsidiaries. Tubacex, S.A. engages mainly in the holding of ownership interests (see Appendix) and in the rendering to Group companies of certain centralised and leasing services that are invoiced to them. Tubacex, S.A. is the Parent of a Group made up of the subsidiaries listed in the accompanying Appendix, which is an integral part of this Note. Tubacex, S.A. and its Subsidiaries (the TUBACEX Group) engage mainly in the manufacture and sale of special seamless (basically stainless) steel tubes. The shares of Tubacex, S.A. are listed on the Spanish Stock Market Interconnection System. 2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS a) Basis of presentation- The consolidated financial statements for 2012 of the TUBACEX Group were formally prepared by the directors: In accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, in conformity with Regulation (EC) no. 1606/2002 of the European Parliament and of the Council, including International Accounting Standards (IASs) and the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) and by the Standing Interpretations Committee (SIC). The principal accounting policies and measurement bases applied in preparing the Group's accompanying consolidated financial statements are summarised in Note 3. Taking into account all the mandatory accounting principles and rules and measurement bases with a material effect on the consolidated financial statements, as well as the alternative treatments permitted by the relevant standards in this connection, which are specified in Note 3. So that they present fairly the TUBACEX Group's consolidated equity and consolidated financial position at 31 December 2012 and the results of its operations, the changes in consolidated equity and the consolidated cash flows in the year then ended. On the basis of the accounting records kept by the Parent and by the other Group companies. However, since the accounting policies and measurement bases used in preparing the Group's consolidated financial statements (IFRSs) differ from those used by the Group companies (local standards), the required adjustments and reclassifications were made on consolidation to unify the policies and methods used and to make them compliant with International Financial Reporting Standards. The TUBACEX Group's consolidated financial statements for 2011 were approved by the shareholders at the Annual General Meeting of TUBACEX on 23 May The 2012 consolidated financial statements of the Group and the 2012 financial statements of the Group companies have not yet been approved by their shareholders at the respective Annual General Meetings. However, TUBACEX's Board of Directors considers that the aforementioned consolidated financial statements will be approved without any changes. b) Adoption of International Financial Reporting Standards (IFRSs) The TUBACEX Group's consolidated financial statements for the year ended 31 December 2012 were prepared in accordance with IFRSs, in conformity with Regulation (EC) no. 1606/2002 of the European Parliament and of the Council, of 19 July 2002, taking into account all the mandatory accounting principles and rules and measurement bases with a material effect, as well as the alternative treatments permitted by the relevant standards in this connection. In 2012 new accounting standards came into force and were therefore taken into account when preparing the accompanying consolidated financial statements. The amendments to IFRS 7, Financial Instruments: Disclosures - Transfers of Financial Assets became effective for the first time for annual reporting periods beginning on or after 1 July These amendments did not significantly affect the disclosure requirements relating to transfers of financial assets. 7

55 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS Standards and interpretations issued but not yet in force At the date of preparation of these consolidated financial statements, the following standards and interpretations had been published by the International Accounting Standards Board (IASB) but had not yet come into force, either because their effective date is subsequent to the date of the consolidated financial statements or because they had not yet been adopted by the European Union: Standard or interpretation IASB effective date European Union effective date IFRS 9, Financial Instruments 1 January January 2014 (*) IFRS 10, Consolidated Financial Statements 1 January January 2014 (*) IFRS 11, Joint Arrangements 1 January January 2014 (*) IFRS 12, Disclosure of Interests in Other Entities 1 January January 2014 (*) IAS 27, Separate Financial Statements (2011) 1 January January 2014 (*) IAS 28, Investments in Associates and Joint Ventures (2011) 1 January January 2014 (*) IFRS 13, Fair Value Measurement 1 January January 2013 (**) IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine 1 January January 2013 (**) Amendments to IAS 19, Employee Benefits 1 January January 2013 (*) Amendments to IAS 12, Income Taxes - Deferred Taxes Arising from Investment Property 1 January January 2013 (*) Amendments to IFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities 1 January January 2013 Amendments to IAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities 1 January January 2014 (**) Amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters 1 July January 2013 (**) (*) Early application permitted, together with the rest of the "package of new standards on consolidation". (**) Early application permitted. IFRS 9, Financial Instruments: Classification and Measurement IFRS 9 will in the future replace the current part of IAS 39 relating to classification and measurement. There are very significant differences with respect to the current standard, in relation to financial assets, including the approval of a new classification model based on only two categories, namely instruments measured at amortised cost and those measured at fair value, the disappearance of the current held-to-maturity investments and available-for-sale financial assets categories, impairment analyses only for assets measured at amortised cost and the nonseparation of embedded derivatives in financial asset contracts. In relation to financial liabilities, the classification categories proposed by IFRS 9 are similar to those currently contained in IAS 39 and, therefore, there should not be any very significant differences, except, in the case of the fair value option for financial liabilities, for the requirement to recognise changes in fair value attributable to own credit risk as a component of equity. Management considers that the future application of IFRS 9 could have a material impact on the financial assets and liabilities currently reported. At the date of these consolidated financial statements, the Group was analysing all the future impacts of adopting this standard and it will not be possible to provide a reasonable estimate of its effects until this analysis has been completed. IFRS 10, Consolidated Financial statements, IFRS 11, Joint Arrangements, IFRS 12, Disclosure of Interests in Other Entities, IAS 27 (Revised), Separate Financial Statements and IAS 28 (Revised), Investments in Associates and Joint Ventures IFRS 10 modifies the current definition of control. The new definition of control sets out the following three elements of control: power over the investee; exposure, or rights, to variable returns from involvement with the investee; and the ability to use power over the investee to affect the amount of the investor's returns. The Group is analysing how this new definition of control will affect the consolidated companies as a whole and does not expect it to give rise to any changes in the scope of consolidation or in the consolidation method used. IFRS 11, Joint Arrangements supersedes IAS 31. The fundamental change introduced by IFRS 11 with respect to the current standard is the elimination of the option of proportionate consolidation for jointly controlled entities, which will begin to be accounted for using the equity method. This new Standard will not have a material effect on the Group's consolidated financial statements as, since there are no joint ventures, companies are not proportionately consolidated. 8

56 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS IAS 27 and IAS 28 are revised in conjunction with the issue of the aforementioned new IFRSs. In the case of the Group, they will not have any impacts other than those discussed above. Lastly, IFRS 12 represents a single standard presenting the disclosure requirements for interests in other entities (whether these be subsidiaries, associates, joint arrangements or other interests) and includes new disclosure requirements. Accordingly, its entry into force will foreseeably give rise to an increase in the disclosures that the Group has been making, i.e., those currently required for interests in other entities and other investment vehicles. IFRS 13, Fair Value Measurement The purpose of this IFRS is to set out in a single standard a framework for measuring the fair value of assets or liabilities when other standards require that the fair value measurement model be used. IFRS 13 changes the current definition of fair value and introduces new factors to be taken into account; it also extends the disclosure requirements in this area. The Group has analysed the potential impacts that would result from the new definition of fair value on the measurement of assets or liabilities and it will foreseeably not give rise to any significant changes with regard to the assumptions, methods and calculations currently used. Amendments to IAS 19, Employee Benefits The main change introduced by these amendments to IAS 19 will affect the accounting treatment of defined benefit plans since it eliminates the corridor under which companies are currently permitted to opt for deferred recognition of a given portion of actuarial gains and losses. When the amendments come into effect, all actuarial gains and losses must be recognised immediately in other comprehensive income and the total plan deficit or surplus will be recognised in the consolidated balance sheet. Also, the interest cost and the expected return on plan assets are replaced in the new version by an amount of net interest, which will be calculated by multiplying the defined benefit liability (or asset) by the discount rate. The amendments also include changes in the presentation of cost components in the statement of comprehensive income, which will be aggregated and presented in a different way. The entry into force of these amendments will not have a significant impact for the TUBACEX Group. Amendments to IAS 12, Income Taxes - Deferred Taxes Arising from Investment Property The main change introduced by the amendments to IAS 12, Income Taxes is an exception to the general principles of IAS 12 which affects deferred taxes arising from investment property that is measured by the Group using the fair value model in IAS 40; in relation to the measurement of the deferred taxes, the carrying amount of the investment property will now be recovered entirely through sale. These amendments will not have any impact on the Group's consolidated financial statements. Amendments to IAS 32, Financial Instruments: Presentation, and to IFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities The amendments to IAS 32 introduce certain additional clarifications to the application guidance on the requirements of the standard for being able to offset a financial asset and a financial liability in the consolidated balance sheet. IAS 32 already indicates that a financial asset and a financial liability may only be offset when an entity currently has a legally enforceable right to set off the recognised amounts. The amended application guidance states, inter alia, that in order to meet this criterion, the right of set-off must not be contingent on a future event, and must be legally enforceable in the normal course of business, in the event of default and in the event of insolvency or bankruptcy of the entity and all of the counterparties. The parallel amendments to IFRS 7 introduce a specific section of new disclosures required for all recognised financial assets and financial liabilities that are set off; these disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. The entry into force of these amendments should not give rise to a change in accounting policies because the analysis the Group conducts regarding whether or not to offset certain financial assets and financial liabilities is in line with the clarifications included in the standard. The parallel amendments to IFRS 7 will foreseeably give rise to an increase in the disclosures made by the Group, which are the disclosures currently required for situations of this nature. 9

57 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS c) Functional currency- These consolidated financial statements are presented in euros, since this is the currency of the main economic area in which the Group operates. Foreign operations are accounted for in accordance with the policies established in Note 2-f. The detail of the equivalent value in thousands of euros of the assets and liabilities of the subsidiaries with functional currencies other than the euro at 31 December 2012 and 2011 is as follows: Equivalent value in thousands of euros Currency Assets Liabilities Assets Liabilities Brazilian real 9,489 8,987 7,363 7,176 Canadian dollar 816 2, ,194 US dollar 45,131 7,425 43,945 8,381 Total 55,436 18,535 52,197 17,751 The detail of the main foreign currency balances of subsidiaries is as follows: Equivalent value in thousands of euros Nature of the balances Assets Liabilities Assets Liabilities Intangible assets Property, plant and equipment 15,544-12,389 - Non-current financial assets and deferred tax assets 7,414-9,854 - Inventories 17,729-14,232 - Trade and other receivables 10,746-11,581 - Other current financial assets Cash and cash equivalents 3,693-3,782 - Non-current liabilities - 5,132-5,590 Current liabilities - 13,403-12,161 Total 55,436 18,535 52,197 17,751 d) Responsibility for the information and use of estimates- The information in these consolidated financial statements is the responsibility of the Board of Directors of TUBACEX. In the consolidated financial statements of the TUBACEX Group for 2012 estimates were occasionally made. These estimates relate basically to the following: The evaluation of possible impairment losses on certain assets (see Notes 7, 8, 10, 12, 13 and 14). The measurement of goodwill (see Note 7). The useful life of the intangible assets and property, plant and equipment (see Notes 7 and 8). The evaluation of possible losses on the committed order backlog. The analysis of net realisable values and the assessment of write-downs due to the slow movement of inventories (see Note 13). 10

58 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS The amount of provisions for contingencies and charges and the probability of occurrence and amount of any liabilities of undetermined amount or contingent liabilities (see Note 17). The assumptions used in the actuarial calculation of pension and other obligations to employees (see Note 21). The recoverability of deferred tax assets (see Note 22). Although these estimates were made on the basis of the best information available at 31 December 2012 on the events analysed, events that take place in the future might make it necessary to change these estimates (upwards or downwards) in coming years. Changes in accounting estimates would be applied prospectively in accordance with the requirements of IAS 8, recognising the effects of the change in estimates in the related consolidated income statements. Due to the uncertainty involved in any estimate based on future expectations in the current economic environment, differences might arise between projected and actual results. The importance of these estimates should be taken into account in any interpretation of the accompanying consolidated financial statements and, in particular, in relation to the recovery of goodwill, financial assets and tax assets recognised. At 31 December 2012, the directors of the TUBACEX Group considered that the Group did not have any material contingent liabilities other than those disclosed herein. e) Comparative information- As required by IAS 1, the information relating to 2011 contained in these notes to the consolidated financial statements is presented, for comparison purposes, with information relating to 2012 and, accordingly, it does not constitute the TUBACEX Group's statutory consolidated financial statements for f) Basis of consolidation- Scope of consolidation- The accompanying consolidated financial statements include the Parent and the companies over which it exercises control; control is defined as the power to govern the financial and operating policies of an investee so as to obtain benefits from its activities. The accompanying consolidated financial statements for the year ended 31 December 2012 were prepared from the separate accounting records at that date of Tubacex, S.A. (the Parent -see Note 1) and of the subsidiaries and associates listed in Appendix to these notes to the consolidated financial statements. Changes in the scope of consolidation- In 2012 and 2011 there were no changes in the scope of consolidation. Consolidation method- Subsidiaries are defined as companies over which the Parent has the capacity to exercise control; control exists when the Parent has the power to govern the financial and operating policies of an investee so as to obtain benefits from its activities. This control is presumed to exist when the Parent owns directly or indirectly more than half of the voting power of the investee or, even if this percentage is lower, when there are agreements with other shareholders of the investee that give the Parent control. The financial statements of the subsidiaries are fully consolidated with those of the Parent. Accordingly, all material balances and effects of the transactions between consolidated companies are eliminated on consolidation. Also, associates are companies over which the Parent is in a position to exercise significant influence, but not control or joint control. Usually this capacity arises because it holds -directly or indirectly- more than 20% of the voting power of the investee. In the consolidated financial statements, investments in associates are accounted for using the equity method, i.e. at the Group's share of net assets of the investee, after taking into account the dividends received therefrom and other equity eliminations, less any impairment of the individual investments (in the case of transactions with an associate, the related profits or losses are eliminated in proportion to the Group's ownership interest). Translation of financial statements denominated in foreign currency- The financial statements in foreign currencies were translated to euros using the year-end exchange rate method, which consists of translating all the assets, rights and obligations to euros at the closing exchange rates and the income statement items at the average exchange rates for the year. 11

59 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS The difference between the amount of the foreign companies' equity translated at historical exchange rates (except for the profit or loss for the year, which is translated as stated above) and the net asset value arising from the translation of the assets, rights and obligations at the closing exchange rates from 1 January 2004 is presented in equity under Translation Differences in the consolidated balance sheet, net of the portion of the difference that relates to non-controlling interests, which is recognised under Equity Non-Controlling Interests. Business combinations- The Group is considered to carry out a business combination when the assets acquired and liabilities assumed constitute a business. The Group accounts for each business combination by applying the acquisition method, which entails identifying the acquirer, determining the acquisition date -which is the date on which control is obtained- and cost of acquisition, recognising and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree and, lastly, recognising and measuring goodwill or gains from a bargain purchase. The costs incurred upon acquisition are recognised as an expense in the year in which they are incurred and, accordingly, they are not considered to be an increase in the cost of the business combination. The identifiable assets acquired and the liabilities assumed are measured at fair value at the acquisition date and non-controlling interests are measured at the proportional part of the interest in the identifiable net assets. In the case of step acquisitions, the acquirer revalues the existing investment at fair value on the date control is obtained, and recognises the related gain or loss in the consolidated income statement. In addition, transactions between the Parent and non-controlling interests (transactions subsequent to obtaining control in which the Parent acquires further ownership interests from non-controlling interests or disposes of investments without losing control) are accounted for as transactions with equity instruments. The Group recognises goodwill as of the acquisition date measured as the excess of: the sum of (i) the consideration transferred measured at acquisition-date fair value; (ii) the amount of any non-controlling interest; (iii) in a business combination achieved in stages, the acquisition-date fair value of the Group's previously held equity interest; and the net identifiable assets acquired and liabilities assumed. Where this difference is negative, the Group repeats the analysis of all the elements in order to determine whether the acquisition was made in highly advantageous conditions, in which case the difference is recognised in profit or loss. Loss of control- When the Group loses control over a subsidiary, it derecognises the subsidiary's assets (including goodwill) and liabilities and the non-controlling interest at the carrying amount thereof at the date on which control is lost. The consideration received and the interest maintained in the aforementioned company are recognised at fair value at the date on which control is lost and any difference is recognised. g) Correction of errors- In preparing the accompanying consolidated financial statements no significant errors were detected that would have made it necessary to restate the amounts included in the consolidated financial statements for ACCOUNTING PRINCIPLES AND POLICIES AND MEASUREMENT BASES APPLIED The principal accounting policies used by the TUBACEX Group in preparing its consolidated financial statements at 31 December 2012 and 2011 were as follows: a) Intangible assets- Goodwill- Goodwill arising on consolidation is calculated as explained in Note 2-f. 12

60 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS Goodwill is recognised as an asset when it arises in an acquisition for valuable consideration in the context of a business combination. Goodwill is allocated to the cash-generating units to which the economic benefits of the business combination are expected to flow and is not amortised. Instead, these cash-generating units are tested for impairment at least once a year using the methodology described in Note 3-c and, where appropriate, are written down. An impairment loss recognised for goodwill must not be reversed in a subsequent period. Greenhouse gas emission allowances- When acquired from third parties, emission allowances are recognised at cost less any accumulated impairment losses when entitlement thereto arises for the Group. Emission allowances received for no consideration or at a price substantially lower than their fair value are recognised at fair value. The difference between this value and any consideration given is recognised with a credit to "Deferred Income - Government Grants". The recognition in profit or loss of the amounts presented under "Other Operating Income" in the accompanying consolidated income statement is determined on the basis of the emissions released in proportion to the total emissions forecasted for the complete period for which they had been allocated (see Note 24). Emission allowances are not amortised. The Group derecognises emission allowances using the weighted average cost formula. Works of art- "Works of Art" includes works of art owned by the Parent which are measured at cost less the related impairment losses arising as a result of periodic appraisals by independent valuers. Works of art are not depreciated since it is considered that they do not suffer decline in value from the passage of time. Other intangible assets- Other intangible assets (mostly computer software) acquired by the Group are presented in the consolidated balance sheet at cost less any accumulated amortisation and impairment losses. Useful life and amortisation- Intangible assets with finite useful lives are amortised systematically on a straight-line basis over their estimated years of useful life (between five and ten years). For these purposes amortisable amount is understood to be acquisition or deemed cost less residual value. The Group reviews the residual value, useful life and amortisation method applied to the intangible assets at the end of each reporting period. Changes in the criteria initially established are accounted for as a change in estimate. b) Property, plant and equipment- Items of property, plant and equipment are carried at cost revalued, where appropriate, pursuant to the applicable legislation, including Álava Regulation 4/1997, and the surplus resulting therefrom, in accordance with IFRSs, was treated as part of the cost of these assets, less any related accumulated depreciation and impairment losses. Cost includes the expenses directly attributable to the acquisition of the assets. In-house work on non-current assets is measured at accumulated cost (external costs plus in-house costs, determined on the basis of in-house materials consumption, direct labour and general manufacturing costs calculated using absorption rates similar to those used for the measurement of inventories). In 2012 and 2011 the costs capitalised in this connection amounted to EUR 109 thousand and EUR 133 thousand, respectively, and were recognised under Capitalised Expenses of In-House Work on Non-Current Assets in the accompanying consolidated income statement. Property, plant and equipment upkeep and maintenance expenses are recognised in the consolidated income statement for the year in which they are incurred. However, the costs of improvements leading to increased capacity or efficiency or to a lengthening of the useful lives of the assets are capitalised. Items of property, plant and equipment are depreciated by allocating the depreciable amount thereof on a systematic basis over their useful life. For these purposes depreciable amount is understood to be acquisition or deemed cost less residual value. The Group calculates the depreciation charge separately for each part of an item of property, plant and equipment whose cost is significant in relation to the total cost of the item. 13

61 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS Items of property, plant and equipment are depreciated on a straight-line basis over their years of useful life, the detail being as follows: Years of estimated useful life Buildings Plant and machinery 5-20 Other fixtures, tools, furniture and other items of property, plant and equipment 5-10 At the end of each reporting period, the Group reviews the residual value and useful life of the various items of property, plant and equipment. Changes in the parameters initially established are accounted for as a change in estimate. In 2012 the Group re-estimated the useful life of certain items of property, plant and equipment, which led to a decrease of EUR 850 thousand in the period depreciation charge. In general, for items of property, plant and equipment requiring a period of over one year to get ready for their intended use, the capitalised costs include the borrowing costs incurred until the asset becomes operational, charged by the supplier or relating to funds borrowed specifically or generally that are directly attributable to the acquisition or production thereof. In 2012 the Group capitalised borrowing costs amounting to EUR 206 thousand to Property, Plant and Equipment in the Course of Construction" (2011: EUR 244 thousand). The Group assesses and calculates the impairment losses and reversals of impairment losses on its property, plant and equipment in accordance with the methods discussed in Note 3-c. c) Impairment of assets- At each reporting date, the TUBACEX Group reviews the carrying amounts of its non-current assets to determine whether there is any indication that these assets might have suffered impairment. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Recoverable amount is the higher of fair value less costs to sell and value in use. Value in use is deemed to be the present value of estimated future cash flows. If the recoverable amount of an asset is less than its carrying amount, the related impairment loss is recognised for the difference with a charge to Impairment and Gains or Losses on Disposals of Non-Current Assets in the accompanying consolidated income statement and a credit to Property, Plant and Equipment or "Intangible Assets", as appropriate, in the accompanying consolidated balance sheet. Impairment losses recognised for an asset in prior years are reversed when there is a change in the estimates concerning the recoverable amount of the asset, increasing the carrying amount of the asset, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised, except in the case of the impairment of goodwill, which must not be reversed. At the end of 2012 and 2011, after testing each of the cash-generating units composing the Group for impairment, the Group did not deem it necessary to recognise any impairment losses in this connection. d) Leases- Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified as operating leases. Finance leases In finance leases in which the Group acts as the lessee, the cost of the leased assets is presented in the consolidated balance sheet, based on the nature of the leased asset, and, simultaneously, a liability is recognised for the same amount. This amount will be the lower of the fair value of the leased asset and the present value, at the inception of the lease, of the agreed minimum lease payments, including the price of the purchase option when it is reasonably certain that it will be exercised. The minimum lease payments do not include contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor. The total finance charges arising under the lease are allocated to the consolidated income statement for the year in which they are incurred using the effective interest method. Contingent rent is recognised as an expense for the period in which it is incurred. Leased assets are depreciated, based on their nature, using similar criteria to those applied to the items of property, plant and equipment that are owned. 14

62 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS Operating leases Expenses resulting from operating leases are charged to income in the year in which they are incurred. A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments that are amortised over the lease term in accordance with the pattern of benefits provided. e) Financial instruments- Trade and other receivables Trade and other receivables are initially recognised in the consolidated balance sheet at the fair value of the consideration given, plus any directly attributable transaction costs, and are subsequently measured at amortised cost using the effective interest method. The required adjustments are recognised for the difference between the recoverable amount of accounts receivable and their carrying amount determined as indicated in the preceding paragraph. The Group recognises an allowance for debts in an irregular situation due to late payment, administration, insolvency or other reasons, after performing a case-by-case collectability analysis. In 2012 the net change in impairment losses on accounts receivable was a charge of EUR 402 thousand (2011: EUR 142 thousand) (see Note 14). The Group derecognises a financial asset when the rights to the cash flows from the financial asset expire or have been transferred and substantially all the risks and rewards of ownership of the financial asset have also been transferred, such as in the case of firm asset sales, factoring of trade receivables in which the Group does not retain any credit or interest rate risk, sales of financial assets under an agreement to repurchase them at fair value and the securitisation of financial assets in which the transferor does not retain any subordinated debt, provide any kind of guarantee or assume any other kind of risk. At 31 December 2012 and 2011, the Group had not derecognised any assets in this connection. However, the Group does not derecognise financial assets, and recognises a financial liability for an amount equal to the consideration received, in transfers of financial assets in which substantially all the risks and rewards of ownership are retained, such as in the case of note and bill discounting, recourse factoring, sales of financial assets subject to an agreement to buy them back at a fixed price or at the selling price plus a lender's return and the securitisation of financial assets in which the transferor retains a subordinated interest or any other kind of guarantee that absorbs substantially all the expected losses. At 31 December 2012 and 2011, the Group had not transferred any assets in which substantially all the risks and rewards of ownership are retained. Financial assets In accordance with the classification criteria established by IAS 39, the Group classifies its financial assets in the following categories: (1) Loans and other non-current receivables. Loans and other non-current receivables are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest method. The amortised cost is understood to be the initial cost minus principal repayments and any reduction for impairment or uncollectability. The effective interest rate is the discount rate that exactly matches the initial carrying amount of a financial instrument to all its cash flows. (2) Held-to-maturity investments. Financial assets with fixed maturity that the Group has the intention and ability to hold to maturity. These investments are also initially recognised at fair value and are subsequently measured at amortised cost. (3) Held-for-trading financial assets, classified as at fair value through profit or loss. These assets must have any of the following characteristics: - They have been classified as held-for-trading because they have been acquired to generate a profit through shortterm fluctuations in their prices. - They are financial derivatives provided that they have not been designated as part of a hedging relationship. - They have been included in this category of assets since initial recognition. (4) Available-for-sale financial assets. Available-for-sale financial assets are measured at fair value. This category includes financial assets acquired that are not held for trading purposes and are not classified as held-to-maturity investments or as financial assets at fair value through profit or loss. Substantially all these assets relate to equity investments. These investments are also presented in the consolidated balance sheet at their fair value which, in the case of unlisted companies, is obtained using alternative methods, such as comparisons with similar transactions or, if sufficient information is available, discounting the expected cash flows. Changes in fair value are recognised with a charge or credit to Valuation Adjustments in the consolidated 15

63 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS balance sheet until the investments are disposed of, at which time the cumulative balance of this heading relating to the investments disposed of is recognised in full in the consolidated income statement. Equity investments in unlisted companies, the market value of which cannot be measured reliably using alternative methods such as those indicated in the preceding paragraph, are measured at cost. Management of the TUBACEX Group decides on the most appropriate classification for each asset on acquisition. Cash and cash equivalents Cash and cash equivalents include cash on hand, demand deposits at banks and other short-term, highly liquid investments with current initial maturity, which are subject to an insignificant risk of changes in value. For these purposes, cash and cash equivalents include investments maturing in less than three months from the date of acquisition. Trade and other payables Accounts payable are initially recognised at fair value and are subsequently measured at amortised cost using the effective interest rate. The Group derecognises financial liabilities when the obligations giving rise to them cease to exist. Bank borrowings and other financial liabilities Bank borrowings and other financial liabilities are initially recognised at the proceeds received, net of transaction costs, i.e. equivalent to the subsequent application of the amortised cost model, for which the effective interest rate is used. Borrowing costs are recognised in the consolidated income statement on an accrual basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise (see Note 18). Derivative financial instruments Derivative financial instruments are initially recognised in accordance with the criteria described above for financial assets and liabilities. Derivative financial instruments that, pursuant to the criteria described below, do not qualify for hedge accounting are classified and measured as financial assets or liabilities at fair value through profit or loss. Derivative financial instruments that qualify for hedge accounting are initially recognised at fair value plus any transaction costs that are directly attributable to the arrangement thereof or less any transaction costs that are directly attributable to the issue thereof. The Group uses cash flow hedges. At the inception of the hedge, the Group designates and formally documents the hedging relationship and the objective and strategy for undertaking the hedge. Hedge accounting only applies when the hedge is expected to be highly effective from inception and in subsequent years in offsetting the changes in the fair value or cash flows of the hedged risk during the life of the hedge (prospective analysis) and the actual effectiveness of the hedge, which can be reliably calculated, is within a range of % (retrospective analysis). Additionally, in relation to cash flow hedges of forecasted transactions, the Group assesses whether such transactions are highly probable and whether they are exposed to changes in cash flows that might ultimately affect profit for the year. The Group only designates as hedged items the assets, liabilities and highly probable forecast transactions that involve a non-group third party. The portion of the gains or losses arising from measurement of the hedging instrument at fair value that is identified as an effective hedge is recognised temporarily as income and expenses in equity. The portion of the hedge considered to be ineffective and the specific gains or losses on or cash flows relating to the hedging instrument, which are excluded from the assessment of the effectiveness of the hedge, are charged or credited to "Finance Costs" or "Finance Income", respectively, in the consolidated income statement. When hedge accounting is discontinued, any cumulative loss or gain at that date recognised under Valuation Adjustments - Hedges is retained under this heading until the hedged transaction occurs, at which time the loss or gain on the transaction is adjusted. If a hedged transaction is no longer expected to occur, the gain or loss recognised under the aforementioned heading is transferred to the consolidated income statement. f) Treasury shares- The treasury shares held by the TUBACEX Group at 31 December 2012 and 2011, which amounted to EUR 7,850 thousand, were recognised at acquisition cost as a reduction of Equity - Shareholders' Equity in the consolidated balance sheet. 16

64 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS g) Inventories- Inventories are measured at the lower of cost (which comprises all costs of purchase, costs of conversion and direct and indirect costs incurred in bringing the inventories to their present location and condition) and net realisable value (which is the estimated selling price of inventories in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale). The formula used by the Group to calculate the cost of each class of inventories is as follows: a. Goods held for resale: at acquisition cost calculated using the weighted average cost method. b. Raw materials and goods held for processing: at weighted average cost. c. Finished goods and work in progress: at weighted average cost of raw and other materials used, including costs directly related to the units produced, as well as a systematically allocated portion of the fixed and variable indirect costs incurred during conversion of the inventories. In the measurement of inventories, costs linked to low production or idle plant were not capitalised. The cost of inventories is written down where cost exceeds net realisable value. For these purposes, net realisable value is taken to be: Raw materials and goods held for processing: replacement cost. However, the Group does not write down raw materials and other supplies if the finished products in which they will be incorporated are expected to be disposed of at or above production cost; Goods held for resale and finished goods: estimated selling price less the costs necessary to make the sale; Work in progress: the estimated selling price of the related finished goods less the estimated costs of completion and selling costs. Inventory write-downs and reversals are recognised under "Changes in Inventories of Finished Goods and Work in Progress" and "Procurements" in the consolidated income statement for the year. h) Foreign currency transactions and other obligations- The foreign currency asset and liability balances of consolidated foreign companies were translated to euros as explained in Note 2-f. The other non-monetary foreign currency asset and liability balances were translated at the exchange rate prevailing at each year-end, and the positive and negative exchange differences between the exchange rate used and the year-end exchange rate were recognised in profit or loss. Foreign currency transactions for which the TUBACEX Group decided to arrange financial derivatives in order to mitigate the foreign currency risk are recognised as described in Note 3-e. i) Current/Non-current classification - In the accompanying consolidated balance sheet debts due to be settled within twelve months are classified as current items and those due to be settled within more than twelve months as non-current items. j) Government grants- The Group companies recognise government grants received as follows: 1) Non-refundable grants, donations and legacies related to assets: these are measured at the fair value of the amount or the asset received, based on whether or not they are monetary grants, and they are taken to income in proportion to the period depreciation taken on the assets for which the grants were received or, where appropriate, on disposal of the asset or on the recognition of an impairment loss. 2) Refundable grants: while they are refundable, they are recognised as a liability. 3) Grants related to income: grants related to income are credited to income when granted, unless their purpose is to finance losses from operations in future years, in which case they are allocated to income in those years. If grants are received to finance specific expenses, they are allocated to income as the related expenses are incurred. Also, grants, donations and legacies received from the shareholders or owners do not constitute income and must be recognised directly in equity, regardless of the type of grant involved, provided that they are not refundable. 17

65 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS k) Employee benefit obligations- Pension obligations The Group has assumed certain obligations to employees which qualify for classification as defined contribution plans and take the form of contributions to a voluntary community pension entity (EPSV). Another part of these obligations was covered in prior years by arranging a singlepremium insurance policy. At 31 December 2012, these obligations amounted to EUR 5,574 thousand (31 December 2011: EUR 5,112 thousand) and were recognised under "Employee Benefits" in the accompanying consolidated balance sheet (see Note 21). Other long-term employee benefits Under the obligations assumed by certain subsidiaries to their employees, the Group is obliged to award long-service bonuses upon retirement and other benefits agreed-upon with the employees which are paid more than twelve months after the end of the period in which they accrue. The obligations assumed in this connection amounted to EUR 1,131 thousand at 31 December 2012 (31 December 2011: EUR 1,028 thousand) (see Note 21). Actuarial gains and losses arising from the Group's obligations to its employees are recognised under "Staff Costs" in the consolidated income statement. Hand-over contracts At 31 December 2012, "Employee Benefits" in the accompanying consolidated balance sheet included EUR 7,137 thousand (31 December 2011: EUR 8,547 thousand) relating to the present value estimated by the Parent's directors of future payments to be made to employees with handover contracts in December 2012 and This provision and its related discounting were recognised with a charge of EUR 776 thousand and EUR 93 thousand, respectively, to Staff Costs - Wages and Salaries in the consolidated income statement for 2012 (2011: EUR 458 thousand) (see Notes 21 and 25). Profit-sharing and incentive plans The Group grants incentives or shares in profits, which it recognises with a charge to the consolidated income statement when contractually obliged to do so or when an implicit obligation is created, the value of which can be reliably estimated. At 31 December 2012, these obligations amounted to EUR 2,132 thousand and were recognised under "Short-Term Provisions - Other Employee Benefits" in the accompanying consolidated balance sheet (see Note 17). l) Termination benefits- Under current legislation, the Group is required to pay termination benefits to employees terminated under certain conditions. Therefore, termination benefits that can be reasonably quantified are recognised as an expense in the year in which the decision to terminate the employment relationship is taken. The accompanying consolidated financial statements do not include any significant provision in this connection since no situations of this nature are expected to arise. m) Income tax- The expense for Spanish corporation tax and similar taxes applicable to the consolidated foreign companies is recognised in the consolidated income statement, unless it arises from a transaction whose results are recognised directly in equity, in which case the related tax is also recognised in equity. The current income tax expense is calculated by aggregating the current tax arising from the application of the tax rate to the taxable profit (tax loss) for the year, after deducting the tax credits allowable for tax purposes, plus the change in deferred tax assets and liabilities, and any tax loss and tax credit carryforwards. Deferred tax assets and liabilities include temporary differences measured at the amount expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and their tax bases, and tax loss and tax credit carryforwards. These amounts are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled. Deferred tax liabilities are recognised for all taxable temporary differences, unless, in general, the temporary difference arises from the initial recognition of goodwill. Also, deferred tax assets recognised for tax loss and tax credit carryforwards and temporary differences are only recognised if it is considered probable that the consolidated companies will have sufficient future taxable profits against which they can be utilised. Pursuant to IFRSs, deferred tax assets and deferred tax liabilities are classified as non-current assets and liabilities, respectively. 18

66 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS n) Provisions and contingencies- When preparing the consolidated financial statements the TUBACEX Group's directors made a distinction between: a) Provisions: credit balances covering present obligations arising from past events with respect to which it is probable that an outflow of resources embodying economic benefits that is uncertain as to its amount and/or timing will be required to settle the obligations; and b) Contingent liabilities: possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events not wholly within the control of the Group. The consolidated financial statements include all the provisions with respect to which it is considered that it is more likely than not that the obligation will have to be settled. Contingent liabilities are not recognised in the consolidated financial statements but rather are disclosed, unless the possibility of an outflow in settlement is considered to be remote. The compensation to be received from a third party on settlement of the obligation is recognised as an asset, provided that there are no doubts that the reimbursement will take place, unless there is a legal relationship whereby a portion of the risk has been externalised as a result of which the Group is not liable; in this situation, the compensation will be taken into account for the purpose of estimating the amount of the related provision that should be recognised. Provision for emission allowances- The expenses relating to greenhouse gas emissions are recognised systematically with a credit to the provision for emission allowances which is reversed on delivery of the related allowances granted by public authorities for no consideration or acquired in the market (see Note 17). The provision is calculated on the basis that the obligation will be settled: - Firstly, using the emission allowances transferred to the Parent's credit account at the National Emission Allowance Registry under a National Allocation Plan. The expense corresponding to this part of the obligation is determined on the basis of the carrying amount of the emission allowances transferred. - Then, by using the remaining emission allowances recognised. The expense corresponding to this part of the obligation is determined using the average price or weighted average cost of these emission allowances. - Since the Group has sufficient emission rights, it did not need to recognise any additional provisions for the need to acquire additional rights. ñ) Revenue recognition- Revenue from sales and services rendered is measured at the fair value of the assets or rights received as consideration for the goods and services provided in the normal course of the Group companies' business, net of discounts and applicable taxes. Sales of goods Sales of goods are recognised when substantially all the risks and rewards of ownership of the goods have been transferred, the Group does not retain control over them, revenue can be measured reliably and is likely to be received and the transaction costs incurred or to be incurred can be measured reliably. Interest and dividends Interest income from financial assets is recognised using the effective interest method and dividend income is recognised when the shareholder's right to receive payment has been established. Interest and dividends from financial assets accrued after the date of acquisition are recognised as income. 19

67 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS o) Environmental matters- The Group recognises environmental investments at acquisition or production cost, net of the related accumulated depreciation, and classifies them by nature in the appropriate Property, Plant and Equipment or Intangible assets accounts (see Notes 8 and 29). Expenses incurred in order to comply with the applicable environmental legislation are classified by nature under Other Operating Expenses in the accompanying consolidated income statement (see Note 29). Expenses arising from greenhouse gas emissions (Law 1/2005, of 9 March) are recognised at their fair value or at the cost of the rights allocated or acquired with a credit to the related provision account when these gases are emitted during the production process. p) Consolidated statement of cash flows- The following terms are used in the consolidated statement of cash flows, which was prepared using the indirect method, with the meanings specified: - Cash flows. Inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that are subject to an insignificant risk of changes in value. - Operating activities. The principal revenue-producing activities of the TUBACEX Group companies and other activities that are not investing or financing activities. - Investing activities. The acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents. - Financing activities. Activities that result in changes in the size and composition of the equity and liabilities that are not operating activities. The Group classifies interest received as cash flows from investing activities and interest paid as cash flows from financing activities. Dividends paid are classified as financing activities. q) Earnings per share- Basic earnings per share are calculated by dividing the net profit for the year attributable to the TUBACEX Group by the weighted average number of ordinary shares outstanding in the year, excluding the average number of TUBACEX shares held in the year. Diluted earnings per share are calculated by dividing the net profit or loss for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding in the year, adjusted by the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares of the Parent. At 31 December 2012 and 2011, basic earnings per share coincided with diluted earnings per share, since there were no potential shares outstanding during the years then ended (see Note 23). r) Discontinued operations- A discontinued operation is a sufficiently significant line of business that it has been decided to abandon and/or sell, whose assets, liabilities and net profit or loss can be distinguished physically, operationally and for financial reporting purposes. Income and expenses of discontinued operations are presented separately in the consolidated income statement. No line of business or business segment was discontinued in 2012 or s) Related party transactions- The Group performs all its transactions with related parties on an arm's length basis. Also, the transfer prices are adequately supported and, therefore, the Parent's directors consider that there are no material risks in this connection that might give rise to significant liabilities in the future. 20

68 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 4. DISTRIBUTION OF THE PROFIT OF THE PARENT The distribution of the Parent's profit for 2012 proposed by its directors is as follows: Distribution Thousands of euros Dividends 2,803 Total 2, FINANCIAL AND OTHER RISK MANAGEMENT POLICY The TUBACEX Group engages in activities that are exposed to various financial risks: market risk (including foreign currency risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The financial risk management policy adopted by the TUBACEX Group focuses on the uncertainty of financial markets and aims to minimise the potential adverse effects on the Group's financial performance. The Group uses derivatives to hedge certain risks. Risk management is controlled by the Group's Financial Department in accordance with the policies approved by the Board of Directors. This department identifies, assesses and hedges financial risks in close cooperation with the Group's administrative and financial departments. The Board of Directors sets policies for global risk management, as well as for specific matters such as foreign currency risk, interest rate risk, liquidity risk, the use of derivative and non-derivative instruments and investment of surplus liquidity. a) Market riska.1) Foreign currency risk- The Group operates in the international market and, therefore, is exposed to foreign currency risk on the transactions performed by it in foreign currencies, particularly the US dollar. Foreign currency risk arises on future commercial purchases of raw materials and sales of products in foreign currencies, recognised assets and liabilities and net investments in foreign operations. At 31 December 2012, if the euro had depreciated by 10% against the US dollar, with all other variables remaining unchanged, consolidated profit after tax would have been EUR 3,572 thousand lower (2011: EUR 966 thousand lower). The Group companies use forward foreign currency contracts arranged with banks to hedge the foreign currency risk arising from future commercial purchases of raw materials and sales of products in foreign currencies and recognised assets and liabilities. Foreign currency risk arises when the future commercial transactions and recognised assets and liabilities are denominated in a currency other than the Group's functional currency. The Group's Financial Department is responsible for managing the net position in foreign currencies using external foreign currency forward contracts. Note 12 contains a detail of the forward foreign currency purchase and sale contracts at 31 December 2012 and For reporting purposes, Group management designates external foreign currency contracts as foreign currency risk hedges on certain assets, liabilities or future transactions. The Group has various investments in foreign operations the net assets of which are exposed to foreign currency translation risk, especially in US dollars. The Group assumes the foreign currency risk on the net assets of its operations in the US since it is not representative of total assets. At 31 December 2012, net assets held in the US amounted to approximately EUR 37,706 thousand (2011: approximately EUR 35,564 thousand). a.2) Commodity price risk Since March 2007, the Group has used commodity price futures contracts whose expected maturity is in line with the commencement of production of each order so as to ensure the margins set on arrangement of the sale are obtained. 21

69 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS Additionally, commodity price risk is significantly offset by the implicit hedge provided by the alloy surcharges that the Group passes on to its customers. At 31 December 2012, had the price of nickel risen or fallen by 10%, consolidated purchases would have risen or fallen by approximately EUR 9,096 thousand (2011: approximately EUR 9,508 thousand). Additionally, had commodity prices as a whole risen or fallen by 10%, consolidated purchases would have risen or fallen by approximately EUR 18,349 thousand (2011: approximately EUR 19,551 thousand). a.3) Available-for-sale financial assets Market risk arises mainly from investments in investment funds classified as held for sale. The main objective of the Group's investment policy is to maximise returns on investments, while keeping risks under control. a.4) Investments in works of art The Group is also exposed to market risk due to its investments in works of art, which are recognised under "Intangible Assets" (see Note 7). The Group regularly commissions independent third party appraisals in order to identify potential unrealised losses. b) Credit risk- The Group does not have any material credit risk concentration. In order to hedge the credit risk on sales, the Group has a prudent hedging policy mainly with credit insurance companies in the event of not performing transactions with highly solvent customers. Derivatives transactions and spot transactions are only carried out with banks with high credit ratings. The Group has policies to limit the amount of risk with any given bank. At 31 December 2012, the exposure of the Group's assets to this risk is limited mainly to the committed collection rights recognised under "Trade Receivables for Sales and Services" and "Sundry Accounts Receivable", which total EUR 122,898 thousand (2011: EUR 119,969 thousand). Impairment losses amounting to EUR 2,797 thousand (2011: EUR 2,395 thousand) were recognised on part of these committed collection rights since the Group considered the recovery thereof as doubtful (see Note 14). At 31 December 2012, the past-due unimpaired committed collection rights recognised under these headings amounted to approximately EUR 26,328 thousand (2011: approximately EUR 37,404 thousand). The majority of these collection rights are less than two months past due and the Group does not consider their recovery to be doubtful, since normal business operations occasionally result in collection delays for reasons other than the risk of default. c) Liquidity risk- The Group's liquidity risk management policy is prudent and based on holding sufficient cash and marketable securities, the availability of financing through a sufficient level of available credit lines and sufficient capacity to settle market positions. The Group's Financial Department aims to maintain funding flexibility by making draw-downs against the credit facilities arranged. Notes 18 and 19 provide a detail, by maturity, of the non-current financial liabilities: - Loans and other interest-bearing liabilities relate mainly to credit facilities that are renewed after three years. - Current income tax liabilities will be settled approximately six months after 31 December The detail of Trade and Other Payables, by maturity, is as follows: Thousands of euros Within three months 77,411 74,850 Between three and twelve months 7,360 4,105 Total 84,771 78,955 22

70 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS d) Cash flow and fair value interest rate risk- Since the Group does not have any significant interest-earning assets, most of the income and cash flows from the Group's operating activities are largely unaffected by changes in market interest rates. The Group's interest rate risk arises from current and non-current borrowings. Debt issued at floating rates exposes the Group to cash flow interest rate risk. This risk is hedged using mainly interest rate swaps. Fixed-rate loans expose the Group to fair value interest rate risk. The financial structure of the TUBACEX Group changed in 2012, as indicated in Note 18, so that all its debt was tied to floating market interest rates tied to market indices, mainly Euribor. Current loans and other interest-bearing liabilities amounted to EUR 153,990 thousand at 31 December 2012 (2011: EUR 225,441 thousand). In 2012 the average balance of current bank borrowings was approximately EUR 151 million (2011: approximately EUR 239 million). In this respect, in 2012 a 5% rise or fall (2011: 5%) in the market interest rates would have given rise to a rise or fall, respectively, of EUR 735 thousand in profit after tax (2011: EUR 500 thousand). The fair values of the various consolidated balance-sheet categories do not differ substantially from their carrying amounts at 31 December 2012 and SEGMENT REPORTING a) Basis of segmentation- As described below, the Group is internally organised by operating segments, which are the strategic business units. The strategic business units have various products and services and are managed separately because they require different technology and market strategies. Information on the Tubacex Group's product portfolio, the markets in which it operates and its general sales conditions is provided on the Group's corporate website. At 31 December 2012 and 2011, the Group comprised the following operating segments, the main products and services of which are as follows: Seamless stainless steel pipes Carbon steel pipes b) Basis and methodology for segment reporting- The performance of the segments is measured on the basis of their profit or loss before tax. Segment profit is used as a measure of performance since the Group considers that this information is the most relevant when assessing the results of certain segments in relation to other groups operating in these businesses. In accordance with the basis for primary segment reporting set forth in IFRSs (IFRS 8, Operating Segments), the TUBACEX Group considered the two aforementioned business units as operating segments, since it considers that their organisational and management structures and their systems of internal reporting to their managing and executive bodies are such that the risks and returns are affected predominantly by the fact that their operations are performed in one or the other business area, taken to be all of the related products and services. Therefore, through segment reporting, the identifiable components of the TUBACEX Group characterised by being subject to risks and returns of a different nature to those corresponding to other operations carried on in other areas are identified. In this respect, based on historical experience, the following segments were defined: Seamless stainless steel pipes Carbon steel pipes 23

71 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS A continuación se presenta la información por segmentos de negocio: Thousands of euros Stainless steel pipe segment Carbon steel pipe segment Total consolidated Total segment revenue 513, ,781 18,918 20, , ,602 Depreciation and amortisation charge (19,057) (20,438) (179) (267) (19,236) (20,705) Reversal of impairment of intangible assets Inventory write-downs/reversals (Note 13) (406) 1, (356) 1,833 Finance income , Finance costs (14,463) (9,720) (233) (272) (14,696) (9,992) Share in profits of companies accounted for using the equity method Exchange differences (8) 2, (8) 2,058 Segment profit (loss) before tax 12,134 (2,980) 999 2,562 13,133 (418) Income tax expense (733) 4,211 (307) (650) (1,040) 3,561 Profit (Loss) for the year 11,401 1, ,912 12,093 3,143 Segment assets 634, ,173 38,786 38, , ,064 Investments accounted for using the equity method 1,610 1, ,610 1,891 Total segment assets 636, ,064 38,786 38, , ,955 Non-current investments in fixed assets 33,822 22, ,843 22,687 Total segment liabilities 406, ,332 15,331 16, , ,460 The business segments are managed at global level since the Group operates throughout the world, its main markets being Europe and the US. The main activities in Europe are carried on in Spain, Germany, Austria, France, Italy, the Netherlands and the United Kingdom. In geographical segment reporting, revenue and segment assets are based on the geographical location of customers and of assets, respectively. The information based on geographical location is as follows: a) The breakdown of sales by geographical area at 31 December 2012 and 2011 is as follows (in thousands of euros): Área Geographical geográfica area 2012 % 2011 % España Spain ,051 8,6% 8.6% ,366 9,1% 9.1% Resto of de Europe Europa ,836 54,8% 54.8% ,672 58,9% 58.9% Estados US Unidos ,770 12,2% 12.2% ,954 16,4% 16.4% Otros Other countries ,763 24,4% 24.4% ,610 15,5% 15.5% Total ventas sales , % , % b) The distribution, by geographical area, of net investments in non-current assets at 31 December 2012 and 2011 is as follows (in thousands of euros): Geographical area 2012 % 2011 % Spain 169, % 155, % Rest of Europe 78, % 80, % US 14, % 12, % Other countries % % Total non-current assets 262, % 248, % 24

72 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 7. INTANGIBLE ASSETS The detail of Intangible Assets and of the changes therein in 2012 and 2011 is as follows (in thousands of euros): Cost- Thousands of euros Other Greenhouse Works of intangible gas emission Goodwill art assets allowances Total Cost at 01/01/11 18,375 5,784 22, ,488 Additions - - 1, ,699 Disposals - - (24) (288) (312) Cost at 31/12/11 18,375 5,784 23,511 1,205 48,875 Additions Disposals (407) (407) Transfers Translation differences Cost at 31/12/12 18,375 5,784 23,733 1,045 48,937 Accumulated amortisation- Accumulated amortisation at 01/01/ (11,380) - (11,380) Charge for the year - - (1,463) - (1,463) Disposals Accumulated amortisation at 31/12/ (12,819) - (12,819) Charge for the year - - (1,348) - (1,348) Disposals Translation differences Accumulated amortisation at 31/12/ (14,167) - (14,167) Net impairment losses- Accumulated net impairment losses - (737) - - (737) Impairment losses (recognised)/reversed in the year Net intangible assets at 31/12/11 18,375 5,047 10,692 1,205 35,319 Net intangible assets at 31/12/12 18,375 5,047 9,566 1,045 34,033 (a) Goodwill- Goodwill arose mainly from the acquisition of the SBER Group and was allocated to the cash-generating unit composed of the companies located in Austria, which form a geographical cash-generating unit. The goodwill arising on the acquisition of the aforementioned group amounted to EUR 18,275 thousand in 2012 and The recoverable amount of the cash-generating unit was determined on the basis of the calculation of its value in use. These calculations use cash flow projections based on five-year financial budgets approved by management. Management determined the budgeted gross margin on the basis of past performance and expectations regarding the evolution of the market. The weighted average growth rates are consistent with the projections contained in industry reports. In 2012 cash flows for periods beyond five years were extrapolated using an estimated perpetuity growth rate of 0% (2011: 2%). The post-tax discount rate used in the cash flow projections was 8% in 2012 (2011: 7.94%) and reflected the specific risks of the cash-generating unit. This post-tax discount rate was equal to a pre-tax discount rate of 11.1% (2011: 11%). 25

73 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS The Group's directors consider that weighted average growth rates are consistent with the projections contained in industry reports and that the pre-tax discount rates used in the cash-flow projections are the same as those used by non-tubacex Group analysts and reflect the specific risks of the related cash-generating units. Based on the estimates and forecasts available to the Group's directors, the projected net cash flows attributable to this cash generating unit support the carrying amount of the goodwill recognised. Additionally, an increase of 100 basis points in the discount rate would not give rise to an impairment of the goodwill recognised. (b) Emission allowances- The detail of the fair value and initial value of the non-monetary grants relating to emission allowances received by the Group companies in 2012 and 2011 is as follows: Thousands of euros Fair value Initial value Fair value Initial value The changes in the number of allowances in 2012 and 2011 were as follows: Number of allowances Balances at 31 December ,766 Additions 39,457 Disposals (24,939) Balances at 31 December ,284 c) Works of art- Works of art comprise those belonging to the Parent. In 2012 the TUBACEX Group commissioned an independent expert appraisal of these works of art and the market valuation arising therefrom is in line with that recognised at 31 December Works of art are not depreciated since it is considered that they do not suffer decline in value from the passage of time. In 2012 the Group incurred EUR 250 thousand in research and development work (2011: EUR 447 thousand). These amounts were charged to the accompanying consolidated income statement. At 2012 year-end the Group had firm intangible asset purchase commitments amounting to EUR 20 thousand (2011 year-end: EUR 14 thousand). At 2012 year-end the Group had fully amortised intangible assets in use (mostly computer software) amounting to EUR 10,988 thousand (2011 year-end: EUR 10,928 thousand). Of the Group's intangible assets, at the end of 2012 and 2011 the following items were not being used directly in operations: Thousands of euros Valuation Cost adjustments Total Works of art 5,784 (737) 5,047 26

74 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 8. PROPERTY, PLANT AND EQUIPMENT The detail of Property, Plant and Equipment in the consolidated balance sheet and the changes therein in 2012 and 2011 is as follows: Cost- Thousands of euros Other fixtures, Advances tools, furniture and property, and other items plant and of property, equipment in Plant and plant and the course of Land Buildings machinery equipment construction Total Cost at 01/01/11 19,874 79, ,198 27,311 12, ,975 Additions ,381 1,982 8,158 20,988 Disposals - (12) (1,861) (2,419) - (4,292) Transfers (457) 128 6, (6,644) - Translation differences (13) 891 Cost at 31/12/11 19,439 79, ,534 27,830 13, ,562 Additions - 3,564 8,490 2,360 19,099 33,513 Disposals - (8) (817) (2,987) (2) (3,814) Transfers ,139 1,638 (12,809) (139) Translation differences (9) (60) (429) 5 (125) (618) Cost at 31/12/12 19,921 83, ,917 28,846 20, ,504 Accumulated depreciation- Accumulated depreciation at 01/01/11 - (58,167) (272,472) (18,600) - (349,239) Charge for the year - (1,575) (14,745) (2,922) - (19,242) Disposals ,292 1,273-2,577 Translation differences (61) (310) (34) - (405) Accumulated depreciation at 31/12/11 - (59,791) (286,235) (20,283) - (366,309) Charge for the year - (1,365) (13,599) (2,924) - (17,888) Disposals ,496-2,185 Transfers - (632) Translation differences Accumulated depreciation at 31/12/12 - (61,751) (298,282) (21,711) - (381,744) Net impairment losses- Accumulated net impairment losses Impairment losses (recognised)/reversed in the year Net property, plant and equipment at 31/12/11 19,439 20,009 99,299 7,547 13, ,253 Net property, plant and equipment at 31/12/12 19,921 21, ,635 7,135 20, ,760 In 2012 the most significant investments related to those made in Amurrio to increase the Group's capacity in oil country tubular goods (OCTG) through the launch of a new cold-rolling line, which will enable the Group to improve productivity and quality and reduce delivery times and intermediate stocks. The main investments in 2011 related to improving the efficiency of the key facilities of the Group's various industrial plants. 27

75 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS Umbilical pipes plant In 2010 a new umbilical pipe production plant in Austria entered into operation. This plant is used for the exploration for and extraction of oil under critical conditions in terms of pressure, temperature and corrosion. At 31 December 2012, the carrying amount of this plant amounted to approximately EUR 33.6 million. As indicated in Note 3-c, at each reporting date, the TUBACEX Group reviews the carrying amounts of its noncurrent assets to determine whether there is any indication that these assets might have suffered impairment. Since this plant did not reach expected levels of production in 2012, the Group estimated the recoverable amount of this asset. As in the case of the test for the impairment of goodwill (see Note 7), the recoverable amount of this cash-generating unit was calculated on the basis of its value in use. These calculations use cash flow projections based on five-year financial budgets approved by management. Management determined the budgeted gross margin for this plant on the basis of expectations regarding the evolution of the market. The weighted average growth rates are consistent with the projections contained in industry reports. In 2012 cash flows for periods beyond five years were extrapolated using an estimated perpetuity growth rate of 0% (2011: 2%). The post-tax discount rate used in the cash flow projections was 8% in 2012 (2011: 7.94%) and reflected the specific risks of the cash-generating unit. This post-tax discount rate was equal to a pre-tax discount rate of 11.1% (2011: 11%). The Group's directors consider that weighted average growth rates are consistent with the projections contained in industry reports and that the pre-tax discount rates used in the cash-flow projections are the same as those used by non-tubacex Group analysts and reflect the specific risks of the related cash-generating units. Based on the estimates and forecasts available to the Group's directors, the projected net cash flows attributable to this cash generating unit support the value of the non-current assets of the umbilical pipe production plant in Austria. Additionally, an increase of 100 basis points in the discount rate would not give rise to an impairment loss at the umbilical cash-generating unit. At 31 December 2012 and 2011, the Group had the following investments in property, plant and equipment located abroad (in thousands of euros): 2012 Gross Accumulated carrying Accumulated valuation amount depreciation adjustments Land and buildings 32,597 (16,985) - Plant and machinery 146,937 (86,168) - Other items of property, plant and equipment 6,296 (4,643) - Property, plant and equipment in the course of construction 5, Total 191,090 (107,796) Gross Accumulated carrying Accumulated valuation amount depreciation adjustments Land and buildings 32,386 (16,544) - Plant and machinery 134,867 (80,886) - Other items of property, plant and equipment 5,998 (4,431) - Property, plant and equipment in the course of construction 11, Total 184,782 (101,861) - 28

76 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS At the end of 2012 and 2011 the Group had fully depreciated items of property, plant and equipment still in use, the detail being as follows (in thousands of euros): 2012 Gross carrying amount Buildings 38,046 Plant and machinery 198,574 Other items of property, plant and equipment 11,526 Total 248, Gross carrying amount Buildings 37,306 Plant and machinery 189,403 Other items of property, plant and equipment 11,095 Total 237,804 Other disclosures As indicated in Note 9, at the end of 2012 the Group held items of property, plant and equipment under a finance lease. As a result of the impairment test conducted by the Group, the directors consider that there was no indication of impairment of the Group's assets at 31 December 2012 or At 31 December 2012, the amount payable to non-current asset suppliers was EUR 5,155 thousand (2011: EUR 2,234 thousand), and this amount was recognised under "Trade and Other Payables" in the accompanying consolidated balance sheet (see Note 20). At 2012 year-end the Group had firm property, plant and equipment purchase commitments amounting to approximately EUR 12,100 thousand (2011 year-end: EUR 4,938 thousand). At 31 December 2012 and 2011, the Group had pledged items of property, plant and equipment with a carrying amount of EUR 31,274 thousand as security for mortgage loans. The Group takes out insurance policies to cover the possible risks to which its property, plant and equipment are subject. At the end of 2012 and 2011 the property, plant and equipment were fully insured against these risks. 29

77 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 9. LEASES Finance leases At 31 December 2012, the Group, as the lessee under finance leases, had recognised leased assets with a carrying amount of EUR 1,880 under "Property, Plant and Equipment - Plant and Other Items of Property, Plant and Equipment". The agreement entered into in 2012 with the bank Caja Rural de Navarra for the acquisition of the main machine for the new OCTG business line (see Note 8) gave rise to the recognition of these assets under finance lease at 2012 year-end. At 31 December 2012, the Group had arranged with the lessor for the following minimum lease payments (including any purchase options), based on the lease currently in force, without taking into account the charging of common expenses, future increases in the CPI or future contractual lease payment revisions (in thousands of euros): Minimum finance lease payments 2012 Within one year 42 Between one and five years 748 After five years 210 Total 1,000 At 2011 year-end the Group had not arranged any finance leases. Operating leases At the end of 2012 and 2011 the Group had contracted with lessors for the following minimum lease payments, based on the leases currently in force, without taking into account the charging of common expenses, future increases in the CPI or future contractual lease payment revisions (in thousands of euros): Minimum operating lease payments Within one year Between one and five years 1,872 1,824 After five years - - Total 2,578 2,458 The detail of the operating lease payments recognised as an expense in 2012 and 2011 is as follows (in thousands of euros): Minimum lease payments Contingent rents paid - - Total

78 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 10. INVESTMENTS IN COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD The detail of the investments accounted for using the equity method at the end of 2012 and 2011 and of the changes therein in 2012 and 2011 is as follows: 2012 Thousands of euros Share of results of companies Beginning accounted for using balance the equity method (1) Dividends Ending balance Schoeller-Bleckmann AS (SB Prag) 339 (56) Schoeller-Bleckmann Edelstahlorhr Deutschland Gmbh (Sberd) (350) 530 Schoeller-Bleckmann Tube France (SBTF) Schoeller-Bleckmann Edelstahlorhr Phonix kft. 717 (45) Total 1, (350) 1,610 (1)Although the Tubacex Group exercises control over the above-mentioned companies, they were accounted for using the equity method due to their scant significance in relation to the fair presentation of Tubacex, S.A. and Subsidiaries Thousands of euros Share of results of companies Beginning accounted for using balance the equity method (1) Dividends Ending balance Schoeller-Bleckmann AS (SB Prag) Schoeller-Bleckmann Edelstahlorhr Deutschland Gmbh (Sberd) Schoeller-Bleckmann Tube France (SBTF) Schoeller-Bleckmann Edelstahlorhr Phonix kft Total 1, ,891 (1) Although the Tubacex Group exercises control over the above-mentioned companies, they were accounted for using the equity method due to their scant significance in relation to the fair presentation of Tubacex, S.A. and Subsidiaries. 31

79 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 11. FINANCIAL ASSETS The detail of Financial Assets in the consolidated balance sheet at 31 December 2012 and 2011 is as follows: Thousands of euros Non-current: Equity instruments Available-for-sale financial assets Loans Other financial assets 7 6 1,494 1,046 Current: Held-for-trading financial assets recognised at fair value 5,456 5,423 Debt instruments Other financial assets 2,729 10,051 8,185 15,978 At 31 December 2012 and 2011, the Group had recognised under "Loans" a loan of EUR 35 thousand granted to a related company (see Note 26). The financial assets classified as non-current available-for-sale investments relate to financial investments in medium- and long-term fixedincome investment funds. The carrying amount of the aforementioned investment funds is their fair value. The held-for-trading financial assets recognised at fair value in profit or loss are equity instruments. The amount recognised in this connection at 31 December 2012 and 2011 related to the net asset value of the investment funds, the acquisition cost of which amounted to EUR 5,446 thousand. These financial instruments are classified, in accordance with the categories established in IFRS 7, in level one of the fair value measurement hierarchy, which corresponds to quoted prices in active markets. In 2012 and 2011 the financial assets included under Current - Other Financial Assets related mostly to fixed-term deposits maturing in three months or more. The detail of the net gains and losses on financial assets is as follows: Thousands of euros Available- Held-for- Available- Held-forfor-sale trading for-sale trading financial financial assets Loans and financial financial assets Loans and assets (derivatives) receivables Total assets (derivatives) receivables Total Finance income applying the amortised cost method Change in fair value Impairment - - (229) (229) - - (135) (135) Net gains/(losses) recognised in profit or loss (229) (55)

80 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 12. DERIVATIVE FINANCIAL INSTRUMENTS The detail of the derivative financial instruments at 31 December 2012 and 2011 is as follows: 2012 Thousands of euros Notional amount Assets Liabilities Amount in Non- Nonthousands Unit current Current current Current Total speculative derivatives Forward sales of USD 1,950 USD Forward sales of GBP 4,587 GBP (4) Forward purchases of USD 22,735 USD (266) EUA/CER swaps (270) Hedging derivatives Cash flow hedges Interest rate swaps 59,281 Euros - - (531) (795) Forward sales of USD 13,000 USD Forward purchases of USD 7,964 USD (164) Commodity price swaps 3,111 USD Commodity price swaps 2,491 USD (28) (531) (987) (531) (1,257) 2011 Thousands of euros Notional amount Assets Liabilities Amount in Non- Nonthousands Unit current Current current Current Total speculative derivatives Forward sales of USD 18,540 USD (486) Forward sales of GBP 8,584 GBP (305) Forward sales of GBP 300 GBP Forward purchases of USD 12,487 USD EUA/CER swaps 79 Euros (22) (813) Hedging derivatives Cash flow hedges Interest rate swaps 59,531 Euros - - (154) (663) Forward purchases of USD 3,618 USD Commodity price swaps 10,204 USD (1,630) Commodity price swaps 833 USD (154) (2,293) (154) (3,106) These financial instruments are classified in accordance with the value measurement hierarchy established in IFRS 7, as they reflect other than quoted prices based on observable market data. 33

81 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS a) Forward foreign currency purchase and sale contracts- To manage foreign currency risk the Group has arranged various forward foreign currency purchase and sale contracts for its import and export transactions, respectively. At 31 December 2012, the Group had forward foreign currency sale contracts amounting to EUR 7,221 thousand (2011: EUR 24,146 thousand) that did not qualify for hedge accounting. The notional amount of the foreign currency held for trading was USD 1,950 thousand (2011: EUR 18,540 thousand) and GBP 4,587 thousand (2011: GBP 8,884 thousand). In all cases, these derivatives were arranged as foreign currency sale hedges. The detail at 31 December 2012 of the notional amounts of forward foreign currency sale contracts, by residual maturity and currency, is as follows: Thousands of euros Pounds Pounds US dollars sterling US dollars sterling Within one year 1,533 5,688 13,833 10,313 At 31 December 2012, the gains and losses recognised on speculative forward foreign currency sale contracts amounted to EUR 129 thousand and EUR 4 thousand, respectively (31 December 2011: EUR 2 thousand and EUR 791 thousand). At 31 December 2012, the gains on forward foreign currency sale contracts to which the Group applied hedge accounting amounted to EUR 463 thousand (there were no hedges of this type at 31 December 2011). Since these hedges were accounted for as cash flow hedges and the forecast hedged sales had not yet been recognised in the balance sheet at the reporting date, all the changes in value of these derivatives were recognised in equity. Also, at 31 December 2012, the Group had entered into speculative forward foreign currency purchase contracts with a notional amount of EUR 17,479 thousand (2011: EUR 9,244 thousand). At 31 December 2012, the value of the foreign currency held for speculative purposes was USD 22,735 thousand (31 December 2011: USD 12,487 thousand). In all cases, these derivatives were arranged as foreign currency purchase hedges. The detail at 31 December 2012 of the notional amounts of forward foreign currency purchase contracts, by residual maturity and currency, is as follows: Thousands of euros US dollars Within one year 17,479 9,244 At 31 December 2012, the gains and losses recognised on the speculative forward foreign currency purchase contracts amounted to EUR 12 thousand and EUR 266 thousand respectively (31 December 2011: gain of EUR 403 thousand). At 31 December 2012, the gains and losses on the future cash flow purchase contracts to which the Group applied hedge accounting amounted to EUR 8 thousand and EUR 164 thousand, respectively (31 December 2011: gain of EUR 180 thousand). Since these hedges were accounted for as cash flow hedges and the forecast hedged sales had not yet been recognised in the balance sheet at the reporting date, all the changes in value of these derivatives were recognised in equity. The fair values of these forward foreign currency purchase and sale contracts were estimated by discounting the cash flows on the basis of forward exchange rates available in public domain sources. 34

82 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS b) Commodity futures- To hedge the risks of volatility in the prices of the nickel used in its production process, the Group arranges futures contracts on the price of this commodity. At 31 December 2012, the notional amount of all the outstanding nickel futures contracts at 31 December was USD 5,602 thousand (31 December 2011: USD 11,037 thousand). The hedges outstanding at that date partially hedged the estimates of the initial payments for nickel purchases to be made in the first three months of The fair values of these nickel swaps were estimated by discounting cash flows, taking into account the difference between the market prices of this commodity available in public domain information sources at 31 December and the corresponding guaranteed fixed price in each contract. At 31 December 2012, the gains and losses recognised on commodity futures contracts qualifying as hedges amounted to EUR 125 thousand and EUR 28 thousand, respectively (31 December 2011: EUR 51 thousand and EUR 1,630 thousand). c) Interest rate swaps- The Group uses interest rate swaps to manage its exposure to changes in interest rates. The detail of the swaps outstanding at 31 December 2012 and 2011 is as follows: 2012 Notional amount in thousands of euros Commencement date Expiry date Interest rate 11,111 29/06/10 01/04/ % 5,000 01/01/12 31/12/ % 5,000 02/01/12 30/12/ % 3,000 20/01/13 20/07/ % 2,500 20/01/13 20/07/ % 5,000 02/01/12 30/12/ % 5,000 03/01/12 31/12/ % 1,750 22/12/11 22/06/ % 1,335 01/01/13 31/07/ % 4,000 27/01/13 27/07/ % 7,500 25/01/13 25/07/ % 8,085 30/01/14 31/07/ % 2011 Notional amount in thousands of euros Commencement date Expiry date Interest rate 15,000 31/12/10 31/12/ % 5,000 02/01/12 30/12/ % 15,000 30/12/10 31/12/ % 5,000 03/01/12 31/12/ % 2,000 22/12/11 22/06/ % 15,556 01/07/10 01/04/ % 35

83 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS d) Cash flow hedges- The amount of cash flow hedges was transferred in full from equity to profit or loss and the detail of the related lines in the consolidated income statement in which the amounts were recognised are as follows: Thousands of euros Gains/(Losses) Interest rate swaps: - Finance income/costs (741) (291) Commodity price swaps: - Raw materials used (1,580) 47 Foreign currency hedges: - Exchange differences (2,141) INVENTORIES The detail of "Inventories" in the accompanying consolidated balance sheet at 31 December 2012 and 2011 is as follows: Thousands of euros Goods held for resale 12,791 14,823 Raw materials and other supplies 72,635 75,029 Work in progress and semi-finished goods 84,816 68,256 Finished goods 72,577 58,743 Advances to suppliers 546 1,215 Write-downs (11,742) (11,386) 231, ,680 The changes in raw materials used, other consumables and goods held for resale in 2012 and 2011 were as follows: Thousands of euros Raw materials used, other consumables and goods held for resale- Net purchases 337, ,337 Changes in inventories (4,426) 3, , ,474 36

84 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS The changes in the write-downs of inventories in the accompanying consolidated balance sheet were as follows (in thousands of euros): 2012 Disposals or Beginning balance Additions Reversals reductions Ending balance Goods held for resale, raw materials and goods held for processing 4, (384) - 4,488 Work in progress 1, ,613 Finished goods 5,253 2,307 (1,919) - 5,641 Inventory write-downs 11,386 2,659 (2,303) - 11, Disposals or Beginning balance Additions Reversals reductions Ending balance Goods held for resale, raw materials and goods held for processing 5, (956) - 4,587 Work in progress 2,210 - (664) - 1,546 Finished goods 5, (1,371) - 5,253 Inventory write-downs 13,219 1,158 (2,991) - 11,386 Net purchases include those made in the following currencies other than the euro: Thousands of euros Currency US dollars 148, ,145 Canadian dollars - - Pounds sterling

85 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 14. TRADE AND OTHER RECEIVABLES The detail of this heading in the accompanying consolidated balance sheet is as follows: Thousands of euros Trade receivables for sales and services 119, ,944 Trade receivables from companies accounted for using the equity method (Note 26) Sundry accounts receivable 3,656 1,065 Tax receivables (Note 22) 29,571 24,054 Current tax assets , ,444 Less- write-downs (2,797) (2,395) Total trade and other receivables 150, ,049 The changes in the write-downs of trade and other receivables were as follows: Thousands of euros Balance at 1 January 2,395 2,253 Write-down for uncollectibility (Note 24) Reversals (Note 24) (247) (235) Diferencias de conversión - 7 Balance at 31 December 2,797 2,395 The detail of the balances receivable from public authorities at December 2012 and 2011, is as follows: Thousands of euros Sundry tax receivables: VAT receivable 28,823 23,587 Other items ,571 24, CASH AND CASH EQUIVALENTS The detail of this heading in the accompanying consolidated balance sheet is as follows: Thousands of euros Cash on hand and at banks 20,739 12,091 20,739 12,091 Cash and Cash Equivalents includes basically the Group's cash, short-term bank deposits and promissory notes with an initial maturity of three months or less. The bank accounts earn interest at market rates. There are no restrictions on the use of the balances. 38

86 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 16. EQUITY AND SHAREHOLDERS' EQUITY a) Share capital- At 31 December 2012 and 2011, share capital was represented by 132,978,782 fully subscribed and paid shares of EUR 0.45 par value each. All the shares carry the same voting and dividend rights, except for treasury shares, the voting rights of which are suspended and the dividend rights of which are attributed proportionally to the other shares. All the Parent's shares are listed on the Spanish stock market interconnection system. There are no restrictions on the transferability of the shares. At 31 December 2012 and 2011, Bagoeta, S.L., directly or indirectly held an ownership interest of % in the share capital of Tubacex, S.A. b) Share premium- This reserve is unrestricted. c) Legal revaluation reserves- The detail of the legal revaluation reserves is as follows: Thousands of euros Revaluation reserve Álava Regulation 4/1997 3,763 3,763 As permitted under corporate and commercial law, at 31 December 1996 the Group revalued its property, plant and equipment. Since the period in which the balance of this reserve could be reviewed by the tax authorities elapsed, the balance of this account may be used, at no tax cost, to: - Offset prior years' losses. - Increase capital, once the prior years' losses in the balance sheet have been offset and the related appropriations have been made to the legal reserve. - Make appropriations to restricted reserves, using the unused portion of the account balance. d) Other reserves- The detail of "Other Reserves" at 31 December 2012 and 2011 is as follows: Thousands of euros Legal reserve 11,968 11,968 Voluntary reserves: Other reserves of the Parent 54,115 52,585 Consolidated reserves 99,748 98,327 Total other reserves 165, ,880 39

87 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS Legal reserve- Under the Spanish Limited Liability Companies Law, the Company must transfer 10% of net profit for each year to the legal reserve until the balance of this reserve reaches at least 20% of the share capital. The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased share capital amount. Otherwise, until the legal reserve exceeds 20% of share capital, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose. This reserve had reached the legally required minimum at 31 December Other reserves of the Parent- These consist of unrestricted voluntary reserves. e) Treasury shares- At 2012 year-end the consolidated Group companies held the following shares of the Parent: Average Total cost of Par value acquisition acquisition No. of (thousands price (thousands shares of euros) (euros) of euros) Treasury shares at 2012 year-end 3,142,975 1, ,850 At the date of preparation of these consolidated financial statements, the Board of Directors had not taken any decision regarding the ultimate use of the aforementioned treasury shares. f) Valuation adjustments- Detail and changes- The detail of and changes in the accounts included in other comprehensive income in 2012 and 2011 were as follows: Thousands of euros Translation Cash flow Tax differences hedges effect Net Balances at 31 December ,116 (264) Income and expense recognised in the year 265 (1,984) 551 (1,168) Transfers to profit or loss - 34 (24) 10 Balances at 31 December ,381 (2,214) 615 (218) Income and expense recognised in the year (763) 1,295 (381) 151 Transfers to profit or loss Other changes Balances at 31 December ,606 (919) The tax effect relates to the cash flow hedges. Translation differences- The Group availed itself of the exemption relating to translation differences in IFRS 1, First-time Adoption of International Financial Reporting Standards and, accordingly, the reserves for translation differences included in other comprehensive income are those generated on or after 1 January

88 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS g) Dividends and restrictions on the distribution of dividends- In 2012 and 2011 Tubacex, S.A. did not distribute any dividends to its shareholders. h) Capital management policy- The objectives of the Group's capital management are to safeguard its ability to continue operating as a going concern so that it can continue to provide returns to shareholders, benefit other stakeholders and maintain an optimum capital structure to reduce the cost of capital. In order to maintain and adjust the capital structure, the Group may vary the amounts of the dividends payable to the shareholders, return capital, issue shares or sell assets to reduce debt. In line with other groups in the industry, TUBACEX controls its capital structure on the basis of its gearing ratio. This ratio is calculated by dividing net financial debt by equity. Net debt is calculated as the total amount of loans and other current and non-current interest-bearing liabilities, less cash and other cash equivalents and current financial assets. The ratios in 2012 and 2011 were calculated as follows: Thousands of euros Total financial debt 291, ,179 Less - Cash and cash equivalents / other current financial assets (28,924) (28,069) Net debt 262, ,110 Equity 251, ,495 Debt ratio 104% 99% 17. PROVISIONS Long-term provisions The TUBACEX Group mainly recognises under this heading its best estimate of probable tax debts, the exact date on which they will become payable is difficult to determine, but the related period is not expected to exceed five years. The amount recognised in this connection at 31 December 2012 was EUR 5,677 thousand (31 December 2011: EUR 4,666 thousand). Also recognised under this heading are provisions for environmental damage totalling EUR 421 thousand (31 December 2011: EUR 430 thousand) (see Note 29). Short-term provisions - The changes in Short-Term Provisions in 2012 and 2011 were as follows (in thousands of euros): Other Other employee Emission short-term benefits allowances provisions Total Balance at 31/12/10 2, ,897 8,474 Charge for the year 1, ,999 3,724 Amounts used for their intended purpose (891) (259) (2,383) (3,533) Reversals (511) - (1,257) (1,768) Transfers (1,072) - 3 (1,069) Balance at 31/12/11 1, ,259 5,828 Charge for the year 2, ,003 4,571 Amounts used for their intended purpose (981) (351) (1,559) (2,891) Reversals (340) - (719) (1,059) Transfers (294) - Balance at 31/12/12 2, ,690 6,449 41

89 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS "Other Short-Term Provisions" includes provisions for possible contingencies relating to trading relationships totalling EUR 1,917 thousand at 31 December 2012 (31 December 2011: EUR 2,461 thousand). The amount ultimately payable will be depend on the final outcome of discussions with the related customers. This heading also includes provisions for contracts for valuable consideration amounting to EUR 797 thousand (31 December 2011: EUR 526 thousand), entered into with customers whose supplies will terminate within one year. Guarantees provided The TUBACEX Group has provided bank guarantees amounting to EUR 4,746 thousand (2011: EUR 5,736 thousand) to secure the successful completion of certain transactions performed in the ordinary course of its business. The Group's directors consider that the probability of a material liability arising as a result of these guarantees is remote. 18. CURRENT AND NON-CURRENT BANK BORROWINGS The detail of this heading in the accompanying consolidated balance sheet at 31 December 2012 and 2011 is as follows: Non-current- Thousands of euros Bank loans 67,149 39,738 Short-term credit lines and loans 70, ,233 39,738 Current- Short-term credit lines and loans 84, ,975 Short-term maturities of long-term loans 6,366 17,295 Discounted bills and notes 2,210 2,503 Import financing 21,295 17,175 Export financing 39,174 35,321 Interest , ,441 In 2012 the TUBACEX Group entered into bilateral agreements with twelve banks for a total amount of approximately EUR 160 million. The agreements relate both to the extension of the maturity dates of the Group's credit lines financing its operations and the refinancing of loans for investments made in developing the manufacturing capacity for new products. The main features of the agreements reached with the banks are as follows: (i) Extension of the credit lines amounting to EUR 80 million from 12 months to 36 months and renewal of the remaining outstanding credit lines. (ii) Refinancing of loans amounting to EUR 50 million at five years with a two-year grace period. Certain of the refinancing agreements referred to above, amounting to EUR 20,726 thousand at 31 December 2012, include certain conditions and commitments assumed by the TUBACEX Group, salient of which is the fulfilment of various ratios relating to working capital, net financial debt to EBITDA and net financial debt to equity. At 31 December 2012, the Group's directors considered that these requirements were being met. Lastly, certain financing agreements include restrictions on the payment of dividends based on the ratio of net financial debt to EBITDA. The amount recognised for loans and other interest-bearing liabilities approximates their fair value. Effective weighted average interest in the second half of 2012, after the refinancing of loans arranged by the Tubacex Group with the banks, was approximately Euribor % (2011: Euribor %). 42

90 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS The remaining maturities of the loans and other interest-bearing liabilities under the related agreements at 31 December 2012 and 2011 were as follows: Thousands of euros Maturity Within one year 153, ,441 Within two years 16,947 15,208 Within three years 98,087 14,525 Within four years 12,511 8,359 Within five years 9,478 1,646 Other , ,179 The repayment of a portion of the loans and credit facilities amounting to EUR 12,896 thousand (2011: EUR 17,855 thousand) granted by banks to various Group companies, is secured by a mortgage on part of the property, plant and equipment. Also securing repayment are machinery, inventories and accounts receivable of the Austrian subsidiary amounting to EUR 31, 274 thousand, EUR 41,532 thousand and EUR 34,517 thousand, respectively (31 December 2011: EUR 31,274 thousand, EUR 39,340 thousand and EUR 31,660 thousand). The Group has been granted foreign trade and other credit facilities with the following limits (in thousands of euros): Undrawn Undrawn Limit amount Limit amount Foreign trade credit facilities 72,285 13,595 73,750 26,838 Credit facilities 82,494 8, ,598 22,535 Total 154,779 21, ,348 49,373 Effective weighted average interest in the second half of 2012, after the refinancing of loans arranged by the Tubacex Group with the banks, was approximately 4.35% (2011: 3.55%). The Group has arranged certain interest rate swaps to exchange the floating rate of several of its credit lines in order to ensure a fixed interest rate for hedged balances (see Note 12). 19. OTHER NON-CURRENT FINANCIAL LIABILITIES The detail of "Other Non-Current Financial Liabilities" at 31 December 2012 is as follows: Thousands of euros Non-current- Loans repayable at long term 7,376 6,199 Other 4, ,801 6,807 Loans repayable at long term relate to those granted by the Spanish Ministry of Science and Technology to two Group companies, with grace periods of between two and five years in the repayment of the principal, to finance various research and development projects at the two companies. These loans do not bear interest. 43

91 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS The remaining long-term maturities of these loans under the related agreements at 31 December 2012 and 2011 were as follows: Thousands of euros Maturity Within two years Within three years 1, Within four years 1, Within five years 1, Other 5,999 6,618 10,195 8,964 Less - interest cost (2,819) (2,765) 7,376 6, TRADE AND OTHER PAYABLES The detail of "Trade and Other Payables" at 31 December 2012 and 2011 is as follows: Thousands of Euros Trade payables: Third parties 53,540 47,518 Investments accounted for using the equity method ,949 47,957 Other payables- Remuneration payable 7,509 6,587 Social security taxes payable (Note 22) 1,965 1,709 Payable to public authorities (Note 22) 18,823 19,134 Short term maturities of repayable loans Other payables 2,141 3,170 30,822 30,998 Current tax liabilities ,494 79,774 "Remuneration Payable" at 31 December 2012 mainly included the payroll for December, which at the reporting date had not yet been paid, the payment of arrears under the collective agreement amounting to EUR 1,973 thousand and the amount relating to accrued holidays not yet taken amounting to EUR 1,234 thousand at the reporting date. 44

92 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS Disclosures on the payment periods to suppliers. Additional Provision Three. Disclosure obligation provided for in Law 15/2010, of 5 July. Set forth below are the disclosures required by Additional Provision Three of Law 15/2010, of 5 July: Amounts paid and payable at year-end (thousands of euros) Amount % Amount % Paid in the maximum payment period 590,746 90% 285,361 87% Remainder 67,523 10% 42,124 13% Total payments made in the year 658, % 327, % Weighted average period of late payment (days) Payments at year-end not made in the maximum payment period 1, The figures shown in the foregoing table in relation to payments to suppliers relate to suppliers that because of their nature are trade creditors for the supply of goods and services and, therefore, they include the figures relating to Payable to Suppliers and Other Accounts Payable - Sundry Accounts Payable under Current Liabilities in the consolidated balance sheet. Weighted average period of late payment was calculated as the quotient whose numerator is the result of multiplying the payments made to suppliers outside the maximum payment period by the number of days of late payment and whose denominator is the total amount of the payments made in the year outside the maximum payment period. The maximum payment period applicable to the Parent under Law 3/2004, of 29 December, on combating late payment in commercial transactions and pursuant to the transitional provisions contained in Law 15/2010, of 5 July, is 85 days in the period between the entry into force of the Law and 31 December 2011, and 75 days between 1 December 2012 and 31 December EMPLOYEE BENEFITS The changes in the obligations to employees in 2012 and 2011 were as follows (in thousands of euros): Long-term Hand-over defined contract benefit Retirement obligations obligations bonuses Other Total Balances at 31 December ,560 5,041 1, ,889 Reversals (397) - (53) - (450) Expense for the year ,207 Benefits paid (1,776) (529) (90) - (2,395) Reclassifications Balances at 31 December ,547 5,112 1, ,378 Reversals (91) - (41) (20) (152) Expense for the year ,000 Benefits paid (2,095) (528) (90) - (2,713) Reclassifications Balances at 31 December ,137 5,574 1, ,513 45

93 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS Hand-over contract obligations In prior years certain Group companies reached agreements with their employees, establishing various plans for the termination of employees who met certain conditions. The liability accrued by these plans was calculated by means of accepted actuarial methods, taking into account mortality assumptions based on the most recent tables in the country in question at 31 December The discount rate applied was 3% (2011: 3.5%) and the salary increase rate assumption was estimated for each company, at an average rise of 3%. Based on the estimates available to the Group's directors, the amount of the liabilities for hand-over contracts assumed by the Group would increase by approximately EUR 239 thousand, applying a discount rate of 1%. The obligations for hand-over contracts assumed by the Group amounted to EUR 7,137 thousand at 31 December 2012 (31 December 2011: EUR 8,547 thousand). The estimated amount payable in 2013 totals EUR 2,472 thousand (31 December 2011: estimated amount payable in 2012 of EUR 2,598 thousand). Insofar as the companies domiciled in Spain are concerned, the updated mortality tables on the date of the appraisal, legally recommended for this type of obligation, the PERM 2000 for men and the PERF 2000 for women based on experience in Spain, were used. Long-term defined benefit obligations This heading also includes certain statutory obligations to the employees of the SBER sub-group who joined the company prior to 1 January 2003 and that will arise on the date of retirement or when they leave the company for other reasons, pursuant to current legislation in Austria. The total liability accruing on this defined benefit plan was calculated by means of accepted actuarial methods, taking into account the mortality assumptions based on the most recent tables in Austria and amounted to EUR 5,574 thousand for 31 December 2012 (31 December 2011: EUR 5,112 thousand). The discount rate applied was 3.75% (2011: 4.75%) and the salary increase rate assumption was 2.75% (2011: 3%). Retirement bonuses Also included is the estimate of the accrued amounts payable in the future for certain retirement bonuses to the employees of the SBER sub-group payable upon completing 25,35 and 40 years of service to the company and consisting of one, two and three months' salary, respectively. At 31 December 2012, the accrued liability amounted to EUR 1,131 thousand (31 December 2011: EUR 1,028 thousand). Under certain circumstances, Austrian employment legislation allows employees who meet certain conditions to take partial retirement. Employees who avail themselves of this arrangement work 50% of the working day until the date of retirement and are paid 75% of their salary for a full working day, the additional 25% of the salary being borne by the Austrian social security authorities. The provision recognised by the Group in this connection at 31 December 2012 amounted to EUR 121 thousand (31 December 2011: EUR 127 thousand). 22. TAX MATTERS a) Current tax receivables and tax payables - The detail of the current tax receivables and payables is as follows (in thousands of euros): Thousands of euros VAT refundable 28,823 23,587 Other tax receivables Total tax receivables 29,625 24,054 VAT payable 12,199 11,406 Accrued social security taxes payable 1,965 1,709 Personal income tax withholdings payable 5,120 5,474 Other payables 1,504 2,254 Income tax payable Total tax payables 21,511 21,662 46

94 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS a) Reconciliation of the accounting profit to the taxable profit/tax loss The income tax expense/income recognised in 2012 and 2011 was as follows: Thousands of euros Current tax 3,413 1,920 Deferred taxes- Origination and reversal of temporary differences (2,373) (5,481) 1,040 (3,561) The reconciliation of the consolidated profit/loss before tax to the income tax expense (income) is as follows: Thousands of euros Profit/Loss before tax 13,133 (418) Estimated cumulative income tax expense at the tax rate of the Parent (28%) 3,677 (117) Permanent differences Unused tax credits recognised in the year - (4,247) Difference of income tax rates at subsidiaries Current year tax credits and tax relief (2,157) (17) Tax assets taken for tax loss carryforwards not recognised in prior years (3) (33) Prior years' adjustments (948) 43 Tax assets not recognised in prior years (40) (28) Expense due to the reduction of deferred tax assets Total tax expense (income) recognised 1,040 (3,561) The nature of the tax credits recognised in 2012 was as follows: Thousands of euros Investments in new non-current assets 2,014 2,417 Research and development activities - 1,075 Contributions to supplementary pension schemes Employee training Other ,157 4,264 47

95 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS b) Deferred tax assets and liabilities The detail at 31 December 2012 and 2011 of deferred tax assets and liabilities by type is as follows: Thousands of euros Assets Liabilities Due to provisions Due to obligations to employees 3,408 3, Due to other items (3,626) (3,155) Tax loss carryforwards 26,828 26, Unused tax credits and tax relief 19,266 17, ,185 48,812 (3,626) (3,155) Derivative financial instruments (189) (65) 51,458 49,492 (3,815) (3,220) In recognising deferred tax assets the Group bears in mind the following: - The Group considers it most likely that sufficient profits will be made in the future to enable it to offset the tax loss carryforwards recognised and, in this connection, the plan drawn up by the Group forecasts an increase in productivity, in sales volumes and, accordingly, in the profitability of the Group's core business. The Group will go ahead with the strategic investments envisaged in its 2012 Plan, with the development of new products with high added value in the oil, gas, electricity production and nuclear energy industries, which ensure a highly robust competitive position, once the international crisis has been overcome. - The business plan used by the Group to make the estimates that justify and support the recoverability of its deferred tax assets is in line with the market scenario and the specific features of the business. - Based on the foregoing, Group management considers that the recognition of these tax assets is justified, 2020 being the last year in which all of them are expected to be recovered. - The Group's directors consider this criterion to be appropriate. The detail of the changes in deferred tax assets and liabilities by type, recognised against the income tax income/expense in the consolidated income statement, is as follows: Thousands of euros Assets Liabilities Due to provisions - (560) - - Due to other items 228 (7) (472) (1,206) Tax loss carryforwards 389 1, Unused tax credits and tax relief 1,756 5, Total 2,373 6,687 (472) (1,206) The deferred tax assets known to the Parent but not recognised in the consolidated financial statements for 2012 amounted to EUR 3,083 thousand and relate to the tax losses of subsidiaries, for which there is no recoverability horizon in the near future (31 December: EUR 3,031 thousand). At 31 December 2012 deferred tax liabilities increased by EUR 56 thousand due to changes in exchange rates (2011: increase of EUR 121 thousand). 48

96 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS At the 2012 and 2011 reporting dates, the detail of the tax assets and losses to be offset recognised in the accompanying consolidated balance sheet, for which there is no expiry date for tax purposes, is as follows: 2012 Year arising Amount (Thousands of euros) , , , , , , Year arising Amount (Thousands of euros) , , , , ,482 26,439 The total amount of current and deferred income tax, relating to items directly charged or credited to other comprehensive income in 2012 and 2011, is as follows: Thousands of euros Cash flow hedges (Note 13) (531) 527 c) Years open for review and tax audits- Under current legislation, taxes cannot be deemed to have been definitively settled until the tax returns filed have been reviewed by the tax authorities or until the four-year statute-of-limitations period has expired. At 31 December 2012, the Group had all years since that ending at 31 December 2008 and following open for review by the tax authorities for the main taxes to which it is subject. Due to the tax treatment afforded to certain transactions, certain tax contingencies exist that could give rise to claims from the tax authorities in the event of an inspection, but which cannot be objectively quantified at the present date. However, the Parent's directors do not consider that any significant additional liabilities would arise that could materially affect the consolidated financial statements taken as a whole. Pursuant to the Income Tax Regulation of Álava, where the Parent is domiciled, if under the applicable rules for calculating the tax base, the latter is negative, its amount may be offset without any time limit in Álava and Vizcaya (fifteen years initially and successively after the year in which the loss was incurred at companies with registered offices in other parts of Spain), for which the amount may be apportioned in the proportion deemed fit. The tax loss will be offset when the income tax return is filed, without prejudice to the tax authorities' inspection powers. 49

97 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS The legislation for the settlement of 2012 income tax applicable to Tubacex, S.A., Acería de Álava, S.A., Comercial de Tubos y Accesorios Especiales, S.A., Tubacex Taylor Accesorios, S.A., Tubacex Tubos Inoxidables, S.A. and Tubos Mecánicos Norte, S.A., is Àlava Regulation 24/1996, of 5 July, which is in force, despite the various appeals filed in this connection, on which a final decision has not yet been issued. The Parent's directors calculated the income tax for 2012 and for the years open for review pursuant to the Álava legislation in force at the end of each year, since they considered that the final outcome of the various court proceedings and appeals filed in this connection would not have a significant impact on the consolidated financial statements taken as a whole. d) Asset revaluation - Álava Regulatory Decree 11/2012, of 18 December- Álava Regulatory Decree 11/2012, of 18 December, adopting various tax measures aimed at consolidating public finances and fostering economic activity, establishes the option, for entities liable for income tax, natural persons liable for personal income tax who carry on economic activities, and taxpayers liable for non-resident income tax operating in Álava through a permanent establishment, to revalue their assets. The adjustment of values that may be made under Álava Regulatory Decree 11/2012, of 18 December, is fully covered, as was the related former legislation, by the legal framework of the Fourth Directive 78/660/EEC of 25 July 1978, of the Council, on the annual accounts of certain types of companies, which in respect of this matter has not been amended and has been adopted in the exercise of internal sovereignty to which the Member States are entitled in defining the reporting framework applicable in the separate and consolidated financial statements of companies that are not admitted to trading on a stock market, within the meaning of Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of International Accounting Standards. At the date of formal preparation of these consolidated financial statements the Group's directors had not yet taken a decision regarding the option to restate balance sheets provided for in the aforementioned Regulatory Decree. 23. EARNINGS (LOSS) PER SHARE a) Basic earnings- Basic earnings per share are calculated by dividing the profit/loss for the year attributable to the Parent's shareholders by the weighted average number of ordinary shares outstanding during the year, excluding treasury shares Earnings/Loss attributable to the Parent's ordinary shareholders 11,863 3,655 Weighted average number of ordinary shares outstanding (Note 16) 129,835, ,835,807 Basic earnings per share (euros) The average number of ordinary shares outstanding was calculated as follows: Ordinary shares outstanding at 1 January 2012 and ,978,782 Effect of treasury shares (Note 16) (3,142,975) Weighted average number of ordinary shares outstanding at 31 December 2012 and ,835,807 b) Diluted earnings- Diluted earnings per share are calculated by adjusting the weighted average number of ordinary shares outstanding to reflect the conversion of all the dilutive potential ordinary shares. The Parent does not have any dilutive potential ordinary shares. 50

98 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 24. OTHER OPERATING INCOME AND EXPENSES The detail of Other Operating Income in the consolidated income statements for 2012 and 2011 is as follows: Thousands of euros Grants related to income Transfer of grants to income (Note 3-a) 995 1,187 Excessive provisions 177 1,151 Other income 4,116 3,500 5,785 6,177 Other Income includes the losses sustained from the fire that took place in the production facilities of a TUBACEX Group company in 2012, less the compensation agreed to with the insurance company. The detail of Other Operating Expenses in the consolidated income statements for 2012 and 2011 is as follows: Thousands of euros Operating lease expenses Repair and upkeep expenses 14,060 17,857 Independent professional services 7,106 8,393 Transport 11,200 9,898 Insurance premiums 1,617 1,651 Utilities 31,440 22,874 Taxes other than income tax Other expenses 13,737 14,562 Change in operating allowances (Note 14) ,156 76,534 "Other Expenses" mainly includes the expenses of commercial offices, employee transport expenses and the Tubacex Group's website maintenance costs. 25. STAFF COSTS The detail of Staff Costs in 2012 and 2011 is as follows: Thousands of euros Wages, salaries and similar expenses 76,909 67,648 Contributions to pension plans 1,869 1,533 Social security costs 22,246 17,875 Other employee benefit costs 5,551 4,917 Provisions for employee benefits (Note 21) 2,000 1, ,575 93,180 51

99 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS The average number of Group employees, by professional category, in 2012 and 2011 was as follows: Professional Category Senior executives Line personnel and middle management Clerical staff Manual workers 1,323 1,198 Total 1,852 1,723 Also, the distribution of the workforce, by gender and category, at the end of 2012 and 2011 was as follows: Professional Category Men Women Men Women Directors Executives Graduates Line personnel and middle management Clerical staff Manual workers 1, , Total 1, , RELATED PARTY TRANSACTIONS AND BALANCES Related party transactions The detail of the transactions with related parties in 2012 and 2011, the effects of which were not eliminated on consolidation, is as follows: 2012 Other Other operating operating Finance Finance Revenue Procurements income expenses income costs Schoeller-Bleckmann Group 3,758 (3,784) 547 (1,383) 1 - Other related companies- CaixaBank, S.A (1,473) 3,758 (3,784) 547 (1,383) 8 (1,473) 52

100 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 2011 Other Other operating operating Finance Finance Revenue Procurements income expenses income costs Schoeller-Bleckmann Group 1,403 (2,468) 989 (1,539) 1 - Other related companies- Banca Cívica, S.A (315) 1,403 (2,468) 989 (1,539) 2 (315) Related party balances The amount of the related party balances in the consolidated balance sheets is as follows (in thousands of euros): 2012 Balances receivable Balances payable Non-current Current Other non- Other financial financial current Trade and Derivative current Cash and liabilities - liabilities - Derivative Trade and financial other financial financial cash bank bank financial other assets receivables instruments assets equivalents borrowings borrowings instruments payables Schoeller-Bleckmann Group (409) Other related companies- CaixaBank, S.A (16,186) (1,717) (167) (16,186) (1,717) (167) (409) 2011 Balances receivable Balances payable Non-current Current Other non- Other financial financial current Trade and Derivative current Cash and liabilities - liabilities - Derivative Trade and financial other financial financial cash bank bank financial other assets receivables instruments assets equivalents borrowings borrowings instruments payables Schoeller-Bleckmann Group (388) Other related companies- Banca Cívica, S.A (9,073) (267) (9,073) (267) (388) The Parent's directors do not consider that there is a conflict of interest with CaixaBank, S.A. (formerly Banca Cívica, S.A.) 53

101 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 27. REMUNERATION OF EXECUTIVES The remuneration accrued by the key executives in the years ended 31 December 2012 and 2011, was as follows: Thousands of euros Current employee remuneration, executives 2,992 2,642 Post-employment benefits ,157 2,796 At 31 December 2012 and 2011, the Group's senior executives had not been granted any advances or loans. Post-employment benefits relate mainly to contributions made to a defined contribution plan at an EPSV. 28. DISCLOSURES RELATING TO THE PARENT'S DIRECTORS a) Remuneration of and balances with the Parent's directors- In 2012 the members of the Board of Directors earned remuneration amounting to EUR 781 thousand (2011: EUR 408 thousand) in the form of bylaw-stipulated emoluments and board and committee attendance fees. At 31 December 2012 and 2011, they had no balances of advances or loans from the Group. At 31 December 2012 and 2011, the Group did not have any pension or life insurance obligations to the former or current members of the Parent's Board of Directors, nor had it assumed any obligations in the form of guarantees on their behalf. b) Transactions outside the normal course of business or not on an arm's length basis performed by the members of the Parent's directors- In 2012 the Parent's directors did not perform any transactions with the Company or the Group companies that were outside the normal course of business or were not on an arm's length basis. 54

102 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS c) Ownership interests and positions held in other companies by the Parent's directors and persons related to them- The members of the Board of Directors of Tubacex, S.A. and the persons related to them do not hold any ownership interests in companies engaging in an activity that is identical, similar or complementary to the activity that constitutes the company object of Tubacex, S.A. The positions, functions and activities discharged and/or carried out thereat are as follows: Director Company Company object Positions and functions Álvaro Videgain Muro Acería de Alava, S.A. Manufacture of steel Chairman Comercial de Tubos y Accesorios Especiales, S.A. Marketing of tubes Chairman Salem Tube Inc. Manufacture of tubes Chairman Schoeller-Bleckman Edelstahlror Inmobilien AG Property development Chairman Schoeller-Bleckman Edelstahlror GmbH (SBER) Manufacturing and marketing of tubes Chairman Tubacex Taylor Accesorios, S.A. Manufacture of fittings Chairman Tubacex Tubos Inoxidables, S.A. Manufacture of tubes Chairman Tubos Mecánicos, S.A. Marketing of tubes Chairman Tubos Mecánicos Norte, S.A. Marketing of tubes Chairman Altx Inc. Manufacture of tubes Chairman Metaux Inox Services, S.A.S. Marketing of tubes Chairman Tubacex Innovación, A.I.E. R&D and quality management Chairman Red Distribuidora de Tubos y Accesorios, S.A. Marketing of tubes Chairman CFT Servicios Inmobiliarios, S.A. Property development Sole director Tubacoat, S.L. Marketing of tubes Chairman Luis María Uribarren Axpe Bagoeta, S.L. Manufacture of seamless steel tubes Chief Executive Officer Construcciones y Depuraciones, S.A. Manufacture of seamless steel tubes Chief Executive Officer Juan Garteizgogeascoa Iguain Tubacex Tubos Inoxidables, S.A. Manufacture of tubes Director Ignacio Marco-Gardoqui Ibañez Tubacex Tubos Inoxidables, S.A. Manufacture of tubes Director Juan José Iribecampos Zubia Bagoeta, S.L. Manufacture of seamless steel tubes Chairman Tubos Reunidos, S.A. Manufacture of tubes Director Also, Grupo Corporativo Empresarial de la Caja del Monte de Piedad de Navarra, S.A. holds ownership interests in Gapima Mecanizados, S.L. (12.45%), Saurecycling, S.L. (14%), Grupo Aluminio de Precisión, S.L. (19.9%) and International Metal Service, S.A. (5.15%) and discharges positions at the latter two companies. 29. INFORMATION ON THE ENVIRONMENT The Group's operations are governed by the laws on environmental protection ( environmental laws ) and workers' safety and health ( occupational safety laws ). The Group considers that such laws are substantially complied with and it also has procedures in place aimed at fostering and ensuring compliance. In the year ended 31 December 2012, the Group made investments for a net amount of approximately EUR 1,894 thousand (2011: EUR 1,457 thousand) and incurred expenses of EUR 2,026 thousand (2011: EUR 1,553 thousand) in environmental protection, consisting mainly of the removal of acids, repairs and upkeep, as well as advisory and audit services provided by independent professionals. In 2012 the Group did not receive any grants related to environmental protection (2011: EUR 68 thousand). At 31 December 2012, except for a provision totalling EUR 553 thousand, recognised under "Long-Term Provisions" and "Short-Term Provisions" in the accompanying consolidated balance sheet (2011: EUR 626 thousand) relating to one of the subsidiaries domiciled in the US, to cover the risk of water pollution (see Note 17), the amount of which was appraised by an independent valuer, the Group had not recognised any other provisions for possible environmental liabilities, since the directors consider that there are no material contingencies relating to possible lawsuits, indemnifications or similar circumstances. 55

103 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 30. FEES PAID TO AUDITORS In 2012 the fees for financial audit and other services provided by the auditor of the Group's consolidated financial statements, Deloitte, S.L., or by firms in the Deloitte organisation, and the fees billed by the auditors of the separate financial statements of the consolidated companies, and by companies related to these auditors as a result of a relationship of control, common ownership or common management, were as follows (in thousands of euros): 2012 Audit services 383 Other attest services - Total audit and related services 383 Tax counselling services 13 Other services 15 Total audit and related services 411 Also, fees billed by other auditors for audit services in 2012 amounted to EUR 25 thousand. In 2011, the auditors billed audit services amounting to EUR 400 thousand and non-audit services amounting to EUR 24 thousand. 31. EVENTS AFTER THE REPORTING PERIOD At its meeting on 28 January 2013 the Parent's Board of Directors resolved to appoint Jesús Esmorís Esmorís as the new managing director of the Tubacex Group and, accordingly, its CEO, discharging the offices of both chairman and CEO, which thitherto were held by Álvaro Videgain Muro, who will continue to hold the position of chairman of the Parent's Board of Directors, to which he was appointed in The ownership interests held by Jesús Esmorís Esmorís and by persons related to him, at companies engaging in an activity that is identical, similar or complementary to the Group's company object, as well as the positions, functions and activities discharged and/or carried out thereat are as follows: Director Company Company object Positions and functions Jesús Esmorís Esmorís Tubacex Tubos Inoxidables, S.A. Manufacture of tubes Chief Executive Officer Acería de Alava, S.A. Manufacture of steel Chief Executive Officer Comercial de Tubos y Accesorios Especiales, S.A. Marketing of tubes Chief Executive Officer Tubacex Taylor Accesorios, S.A. Manufacture of fittings Chief Executive Officer Tubos Mecánicos, S.A. Marketing of tubes Director Tubos Mecánicos Norte, S.A. Marketing of tubes Director Metaux Inox Services, S.A.S. Marketing of tubes Director Salem Tube Inc. Manufacture of tubes Director Altx Inc. Manufacture of tubes Director No other material events that are not described in the preceding notes took place after the reporting date. 32. EXPLANATION ADDED FOR TRANSLATION TO ENGLISH These consolidated financial statements are presented on the basis of the regulatory financial reporting framework applicable to the Group (see Note 2-a). Certain accounting practices applied by the Group that conform with that regulatory framework may not conform with other generally accepted accounting principles and rules. 56

104 NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS TUBACEX, S.A. AND SUBSIDIARIES DETAIL OF THE SUBSIDIARIES AT 31 DECEMBER 2012 AND 2011 APPENDIX Percentage of ownership interest Company Registered office Direct Indirect Line of business Acería de Alava, S.A. (a) Amurrio (Alava) 100% - Manufacture of steel Comercial de Tubos y Accesorios Especiales, S.A. (COTUBES) (a) Amurrio (Alava) 100% - Marketing of tubes Tubacex Taylor Accesorios, S.A. (a) Artziniega (Alava) 100% - Manufacture of accessories Tubacex Tubos Inoxidables, S.A. (a) Llodio (Alava) 100% - Manufacture of tubes Tubos Mecánicos, S.A. (a) Abrera (Barcelona) 100% - Marketing of tubes Tubos Mecánicos Norte, S.A. (a) Llodio (Alava) - 100% Marketing of tubes Red Distribuidora de Tubos y Accesorios, S.A. (R.T.A.) Llodio (Alava) 100% - Marketing of tubes Tubacex Innovación, AIE Llodio (Alava) 100% - Innovation development Métaux Inox Services, S.A.S. (b) Soissons (France) 100% - Marketing of tubes Tubacex & Cotubes Canada, Inc. Ontario (Canada) - 100% Marketing of tubes Schoeller - Bleckman Edelstahlrohr, GmbH (SBER) subgroup (a) Ternitz (Austria) 100% - Manufacture and marketing of tubes Schoeller - Bleckman Technisches Service, GmbH (SBTG) Ternitz (Austria) - 100% Technical assistance services Schoeller - Bleckman Technisches Service, GmbH & Co. KG (SBT) Ternitz (Austria) - 100% Technical assistance services Schoeller - Bleckman AS (SB Prag) Prague (Czech Republic) - 100% Marketing Schoeller - Bleckman Edelstahlrohr Deutschland, GmbH (SBERD) Düsseldorf (Germany) - 100% Marketing Schoeller - Bleckman Tube France (SBTF) Paris (France) - 80% Marketing Schoeller - Bleckman Edelstahlrohr Phönix Kft (SBERH) Budapest (Hungary) - 100% Marketing Schoeller - Bleckman Edelstahlrohr Inmobilien AG (a) Ternitz (Austria) 100% - Real estate company Tubacex America Holding corporation subgroup (a) Albany - New York (US) 100% - Holding company Altx, Inc. Albany - New York (US) - 100% Manufacture of tubes Salem Tube, Inc. Greenville-Pennsylvania (US) - 100% Manufacture of tubes Tubacex America, Inc. Houston (US) - 100% Marketing Tubacex, Inc. Houston (US) - 100% Holding and marketing company CFT Servicios Inmobiliarios, S.A. subgroup Llodio (Alava) 100% - Marketing of tubes Newco Metals BV Amsterdam (the Netherlands) - 51% Holding company Special Steels do Brasil Distribuçao de Acos, Ltda. Sao Paulo (Brazil) - 80% Marketing of tubes Tubacex Distribuçao de Acos, Ltda. Sao Paulo (Brazil) - 100% Marketing of tubes (a) (b) Audited by Deloitte. Audited by KPMG Auditores, S.A. This Appendix is an integral part of Note 1 to the consolidated financial statements for 2012 and should be read in conjunction therewith. 57

105 DIRECTORS' REPORT Tubacex, S.A. and Subsidiaries composing the TUBACEX Group Consolidated Directors' Report for the year ended 31 December 2012 Translation of a report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails was a year marked by the crisis in the euro area and the worrying slow-down of the global economy. However, the effects of the economic measures adopted by the main political and monetary authorities started to be felt at the end of the year. The first signs of improvement in the economic situation appeared in the third quarter, which enabled global growth to end the year at 3%, driven mainly by the emerging economies and by growth in the United States. This revival in the activity levels of the end users of seamless stainless steel tubes, even in the complex macro-economic and financial scenario briefly touched on above, fuelled demand for the products manufactured by the Tubacex Group. The recovery, together with the insistent efforts to improve competitive edge, enabled the Group to end 2012 with significant growth in profits and margins. The US kept up its GDP growth rate, which at 2.3% at year-end exceeded that of On the other hand, the euro area entered recession in the third quarter of the year and closed the year with negative growth of 0.4%. Activity in the periphery of the euro area was weaker than anticipated and certain signs of contagion of this weakness even started to be noticed in the core of the euro area. 1. GROUP BUSINESS PERFORMANCE IN 2012 To provide a detailed analysis of the performance of the main business variables in 2012, changes in the main consolidated income statement headings are examined below, together with the most significant events of the Group's financial, sales and industrial activity. However, the emerging economies have kept up considerable growth rates, underpinned by the strength of domestic demand, which partly cushioned the downturn in external demand caused by the economic situation in Europe and the US. Nevertheless, there are notable geographical differences. The Asian countries achieved considerable growth rates, despite being below the forecast and, once more, were led by China (+7.8%) and India (+4.5%). Other emerging economies, however, such as those of Latin America, closed the year with more moderate growth rates, which in some cases, as in Brazil (+1%), were far below the forecasts In this context of the global economy, investment in the oil, energy and petrochemical industries in 2012 increased with respect to The variables that determine the performance of investments in these industries (mainly the levels of energy demand, oil prices and access to financing by project promoters) improved in 2012, compared with 2011, which led to a boost in end demand and an expanded backlog. In the foreign currency markets the euro depreciated against the dollar, its average exchange rate in 2012 being USD 1.28, compared with the average of USD 1.39 in Despite the euro's ongoing strength in 2012, this depreciation ushered in a more favourable scenario for European export companies such as Tubacex. In the commodity markets, particularly in the case of the basic raw materials used in our business (nickel, stainless steel scrap, molybdenum and chromium), 2012 saw a continuation of the downward trend in prices. Average nickel prices, based on average market prices on the London Metal Exchange (LME) stood at USD 17,536 per tonne, down 23% on the average price in 2011, which was USD 22,894 per tonne. As regards annual performance, the price of nickel was not steady in The sharp rises at the beginning of the year subsequently dwindled until nickel ended the year at USD 17,160 per tonne, down 6% on The price of molybdenum, another of the main raw materials used in the Group's production process, also registered a fall in 2012, to stand at an average price of USD 31,242 per tonne, 18% below the average price of Also, the price of stainless steel scrap decreased slightly compared with As for oil prices, they remained steady at the levels of 2011, at around USD 112 per barrel, which underpinned the good performance of the market for investments in projects in the oil, gas and petrochemical industries, as well as that of electricity production (the main industries driving demand for seamless stainless steel tubes). 1 Analysis of the Group's consolidated income statement. Financial activity. Risk management policy. Commercial activity. Industrial activity. Competitiveness programme Strategic Plan.

106 DIRECTORS' REPORT 1.1. Analysis of the Group's consolidated income statement For comparison purposes, the main headings of the consolidated income statements for 2012, 2011 and 2010 (in millions of euros) are discussed below. Net sales Other income Changes in inventories Total operating amount Procurements and purchases Staff costs Outside and operating expenses Gross profit from operations Depreciation and amortisation charge and impairment losses Net profit/loss from operations Finance income Finance costs Profit/loss from ordinary activities Income tax Net profit for the year Non-controlling interests Profit/loss attributable to the Parent % From the standpoint of trends, an analysis follows of the most noteworthy of the changes in the consolidated income statement: - Sales rose by 9.4% in 2012, compared with the 2011 figure. This was due to the increase in volumes billed, improved base prices and a better Group product mix, attaching greater weight to products with higher value added. - The cost of procurements stood at 62.6% of net sales. This heading increased by 6.6% compared with 2011, driven by the growth in billing volumes, although its proportion of sales dropped from 64.2% in 2011 to 62.6% in Staff costs increased by 16.5%. The Group's headcount rose from an average of 1,723 in 2011 to an average of 1,852 in 2012, a net increase of 129 people. Salary increases at the Tubacex companies, Tubacex Tubos Inoxidables and Acería de Álava, were as provided for in the collective agreement governing the employment relationships of these companies until (in millions of Euros) 2011 % 2012 Although the Group's Other Operating Expenses" increased by 6.0% in 2012, the percentage they represent of the Group's sales figure decreased from 15.7% to 15.2%. This reduction was the result of intense initiatives aimed specifically at curbing the main current expense items, which the Group has been implementing since the beginning of % The increase in the Group's financial debt in 2012 was a logical consequence of the rise in business levels and the necessary financing associated with higher working capital (see point 1.2. of this report). Thus, net debt (calculated as explained in section 1.2. of this report) in 2012 increased by EUR 25.2 million. The production model of manufacturing to order means that most of the Group's debt is used to finance its working capital needs. - The slight increase in the Group's net borrowings, together with the arrangement for an extension of the debt maturities entered into in July led to an increase in the Group's financial loss in Also to be noted was the impact, albeit slight, that exchange rate differences had on this heading, a result of the Group's policy of monitoring the exposure of both sales and procurement costs to fluctuations in the various foreign currency exchange rates. These exchange rate differences gave rise to a loss of EUR 8 thousand in In the income tax line, the effective tax charge stood at 7.9%, compared with the tax income generated in 2011.

107 DIRECTORS' REPORT 1.2 Financial activity 1.3 The Parent's equity stood at EUR million at the 2012 reporting date, representing 37.2% of total equity and liabilities (2011: 38.1%). Its level of net debt (loans and other current and non-current interest-bearing liabilities less current financial assets and cash and cash equivalents) to equity stood at 104.1% compared with 99.0% in These ratios continue to reflect the Tubacex Group's financial soundness, despite the slight, logical worsening in 2012, due to higher borrowing requirements (EUR 26.7 million were invested in non-financial working capital to finance the higher business volumes). Risk management policy It is to be noted that in 2012 the Group stepped up its efforts to establish and monitor active risk management policies designed to mitigate the Parent's risk exposure to the main risks associated with its activity and, therefore, an issue of ongoing major relevance in the current complex macroeconomic climate. The main specific measures used by the Group to control its exposure to the risks associated with its activity are discussed in detail below: - Commodity price risks As usual, given the production dynamics of the Group, which manufactures products to order, the bulk of its borrowings are used to finance its working capital. At the 2012 reporting date, this (non-financial) working capital amounted to EUR million, thereby amply covering the EUR million of the Group's net borrowings at that date. It is to be noted that in 2012 bilateral transactions were entered into with twelve banks in order to extend the maturity dates of the borrowings. Thanks to these agreements, the weight of non-current borrowings in respect of total borrowings increased, to stand at EUR million, accounting for 47.1% of total borrowings, compared with EUR 39.7 million in 2011 (15.0% of total borrowings). The Group uses commodity price swaps with maturities that are arranged to match the programmed start of production for each order with a view to ensuring that the margins set when the sale is agreed are obtained. This control is particularly important for hedging fixed price orders. - Foreign currency risk. The Group operates internationally and is therefore exposed to foreign currency risk in transactions denominated in foreign currencies, particularly the US dollar. The Group companies use forward foreign currency contracts arranged with banks to hedge the foreign currency risk arising from future commercial purchases of raw materials and sales denominated in foreign currencies. In 2011, the stock market price of Tubacex's shares increased by 6.4%, a notably better performance than that of Spain's main stock market index, the IBEX-35, which slipped by 4.7%, but this was still below the performance of the IBEX MEDIUM CAP (which includes stock market capitalisation values more similar to that of Tubacex), which saw a revaluation of 13.8%. The main European and US indexes ended 2012 with notable rises, profiting from the investors' aversion to the stock markets of the peripheral European countries. Tubacex's share price rose from EUR per share at the end of 2011 to its 2012 closing price of EUR per share. The share price peaked in February at EUR 2.39 per share, whereas the lowest price was in July, at EUR 1.42 per share. Despite the dollar's slight recovery against the euro in 2012, its value against the single currency has remained historically low. This is an important factor to be taken into account since it has had an adverse effect on sales, as in prior years. In terms of Group profitability, however, the notable portion of procurements that are denominated in US dollars cushions the effect of the currently low levels of this currency against the euro. - Liquidity risk. The Group exercises prudent management of liquidity risk based on the maintenance of sufficient cash and marketable securities, the availability of financing through a sufficient level of committed credit facilities and sufficient capacity to settle market positions. In 2012 a total of million shares were traded on the stock market, which was 47.4% down on the number of shares traded in 2011 (79.95 million shares). This reduction was in line with that experienced across the board in the stock market. - Interest rate risk. The volume traded indicates a rotation of 32% of the Parent's total number of shares, numbering million. Actual trading in 2012 amounted to EUR 81.6 million, 59% down on 2011, when the value of shares traded in the year stood at EUR million. The Parent's stock market capitalisation at 31 December 2012 amounted to EUR million, representing an increase of 6.4% with respect to the end of 2011, when its capitalisation amounted to EUR million. The Group's interest rate risk arises from current and noncurrent borrowings. Debt issued at floating rates exposes the Group to cash flow interest rate risk. This risk is hedged mainly through IRSs. Fixed-rate loans expose the Group to fair value interest rate risk. In 2012 Tubacex's shares were included in the IBEX MEDIUM CAP index, comprising the 20 securities with the highest adjusted free-float capitalisation other than the thirtyfive securities in the "IBEX 35". As mentioned previously, this index rose by 13.8% in

108 DIRECTORS' REPORT 1.4. While the aforementioned activities were being undertaken, the necessary investments under the policies for improved efficiency at the Group's key industrial plants also went ahead with the renewal and maintenance of equipment, firmly established procedures for preventive maintenance at facilities and ongoing improvement and re-engineering of production processes in order to improve the quality and value added of our products and to ensure strict compliance with the environmental and industrial safety legislation. Commercial activity The Group's consolidated sales amounted to EUR million in 2012, 9.4% up on The main reasons for this performance are explained in point 1.1. above. The Group's sales by geographical area over the last three years were as follows (in millions of euros): 2012 (In millions of euros) /2011 Europe US Other countries % -19.0% +71.6% Total sales % 1.6. A strategic priority for the Tubacex Group since 2003 has been the ongoing implementation of its Competitiveness Programme at all its production units in order to improve operating margins and thus achieve competitive edge in productivity and costs. Throughout 2012 costs, including energy, outsourcing, staff structure (particularly temporary employees), outside services, cleaning, transport, maintenance, freight, tools and other overheads, have been closely monitored at all levels of the organisation. According to these figures, by market, 64% of sales are made in the European market, 12% in the US and 24% in other countries. In 2011 this distribution was 68%, 17% and 15% respectively. The fruits of this programme are evident from the changes in "Other Operating Expenses" in the Group's consolidated income statement, since the proportion in percentage terms of this item with respect to sales has continued to fall and decreased from 15.7% in 2011 to 15.2% in As may be seen, growth was particularly notable in "Other Countries". This growth was associated with the improved performance of the projects segment, particularly the oil extraction industry in geographical areas that are richer in this natural resource Strategy The pillars on which the Group's medium and long-term strategy are based are as follows: Another variable to be taken into account in the geographical distribution of revenue and which explains why Europe accounts for a high percentage of sales, is that in sales made by the Group to new facilities in the oil, gas and energy industries, the Group client engineering the project or manufacturing the equipment is frequently European (and therefore Europe is the sale destination) even though the final destination of the product may be a different geographical area Competitiveness programme - Increase the Group's profitability and sales volumes in its core business (seamless stainless steel tubes). - Focus on the projects market with a more specialised product mix. - Develop industrial improvements to increase the Group's productivity. - Retain the Group's competitive edge in Europe, insofar as market share and profitability are concerned. - Expand into markets with higher forecast growth in our industry, such as the Latin American and Asian markets. - Improve the Group's production potential with optimised industrial structure, tailored to and fitting the targets for production and unit cost per product, without incurring major expenditure. - Robust management and organisational structure appropriate for the targets and action plans of each geographical area. Organisation geared to achieving results. - Expand the products portfolio in niches of activity with higher value added. Industrial activity The investments and transfers made in facilities, machinery and tools in 2012 amounted to approximately EUR 33.5 million, as a whole, compared with the EUR 21.0 million expenditure in The considerable increase in this amount was due to the heavy investments made in 2012, particularly those aimed at improving the Group's product mix. The production facilities in Álava underwent major developments with investments made in the purchase of a new OCTG tube rolling mill, which has doubled the production capacity for this product. Also noteworthy in Álava was the investment made to build a new goods dispatch warehouse. The US subsidiary is also undergoing major development with the building of new facilities. 4

109 DIRECTORS' REPORT - Commercial excellence and customer service. - Boost innovation across the organisation, enabling us to become leaders in developing solutions for customers in the oil, gas and energy industries. The fastest growing economies in 2013 will once more be the emerging economies (5.5%), even though weak external demand will prevent them from attaining the growth rates of recent years. The manner in which the financial crisis develops in Europe, the fiscal cliff in the US and the cooling of China's economy will be decisive factors for the performance of world economy. In 2012 the Parent announced that it was in the process of rethinking its strategy with a 2018 time horizon. The pillars of this strategy re-think will continue to be profitable growth and honing competitive edge with a view to achieving a global leadership position. 2. As regards the currency market, the euro exchange rate against the dollar continued to be above USD 1.30 at the date of issue of this report, but it is generally agreed in the market that the dollar will gain in value in 2013, thanks to the relative strength of the US economy compared with that of the euro area. If so, this trend would be advantageous for the competitive position of European export companies, such as the Tubacex Group. GROUP SITUATION The sharp contraction of the global economy, coupled with the unprecedented financial crisis since the second half of 2008 has triggered a severe downturn in the investment levels of the industries consuming the Group's products (mainly oil, gas and energy). This slow-down led to a sharp decline in demand for the seamless stainless steel tubes, particularly in 2009, but also in Oil prices spiralled upwards in the initial weeks of 2013 to USD 120 per barrel of Brent, which had not occurred for over six months. These prices herald good prospects for investments in the oil, gas and energy industries. Indeed, the level of investments in these industries is expected to remain upbeat throughout In line with the situation described above, difficulties in the seamless stainless steel tubes industry are still anticipated in 2013, due to the macro-economic backdrop, but the trend towards recovery in 2012 in terms of demand volumes and prices will not lose momentum. Growth is likely in the projects segment due to increased expenditure in the oil, gas and energy industries, as well as growing requirements for high value added products able to withstand increasingly corrosive environments. In the distribution segment the outlook is also positive, particularly in Europe. The improved demand for seamless stainless steel tubes in 2011 did not flag in 2012, which, aided by relentless efforts to curb costs, enabled the Group to generate gross profit from operations of EUR 45.8 million in 2012, 68% up on 2011, and net profit attributable to the Parent of EUR 11.9 million, more than tripling 2011 profit. The Tubacex Group is fully confident of its strategic plan, underpinned by growth in products for which short and medium-term demand augurs well, due to the investment requirements in increasingly demanding environments at all levels of the value chain in the oil, gas and energy industries. 3. In this context the Tubacex Group considers that 2013 will be a year of improvement for the Group's profitability. This improvement will be based on higher billing levels compared with 2012, the launch of more value added products and the rewards reaped from our intense efforts in recent years to achieve competitive edge and curb costs. The longterm agreement entered into with the Vallourec Group in the field of R&D+i, technological development and commercial strategy is also a key factor that strengthens the commercial position and competitiveness of Tubacex at both short and long term. SIGNIFICANT EVENTS FOR THE GROUP AFTER THE REPORTING PERIOD The following events warranting disclosure took place after the 2012 reporting period: Changes took place among the Parent's significant shareholders. On 9 January 2013, Atalaya Inversiones informed the Spanish National Securities Market Commission (CNMV) of the sale of all its ownership interests in Tubacex, as well as its resignation as proprietary director on the Board of Directors. On 11 January 2013, Itzarri EPSV reported to the CNMV its acquisition of a significant ownership interest in Tubacex. 5. Given the specialised range of products on which the Tubacex Group focuses its business, its policy to boost R&D+I activities is key to maximising competitiveness and leadership in its product segment at medium/long term. In line with this strategy, the Group incorporated a new subsidiary in 2009, Tubacex Innovación AIE, whose company object is the development of innovation within the Group. On 28 January 2013, the Parent appointed Jesús Esmorís as managing director of Tubacex. 4. RESEARCH AND DEVELOPMENT ACTIVITIES One of the Group's main innovation milestones in 2009 was the agreement it entered into with the company Vallourec & Mannesmann ( V&M ), which provided for R&D+i activities to be undertaken jointly to develop products exposed to environments of extreme conditions within the oil, gas and energy production industries. OUTLOOK AND FUTURE PERFORMANCE OF THE GROUP'S BUSINESS LINES 2013 is expected to be a year of growth for the global economy, although this is likely to be more gradual than initially forecast. In 2012 this agreement with V&M was renewed and continued to be productive with major orders won in both the electricity production industry and in that of oil and gas extraction, which had a highly positive impact on the Parent's sales and margins. In the euro area the downturn is expected to continue in 2013, for two main reasons: (i) delays in the transmission of lower sovereign spreads and improved provision by the banks of liquidity to the private sector, and (ii) still-high uncertainty about the ultimate resolution of the crisis. However, it is probable that the uncertainties will start to dispel from the second half of the year onwards, provided that the projected political and financial reforms continue to be implemented. 5

110 DIRECTORS' REPORT Outside the scope of this agreement, also salient was the work carried out on new casing technologies applied to stainless steel tubes, various R&D projects to optimise the industrial process at the umbilical tubing plant in Austria, as well as research undertaken jointly with various technological centres The distribution of Tubacex, S.A. profit that the Board of Directors will propose for approval by the shareholders at the Annual General Meeting is as follows: Euros ENVIRONMENTAL ACTIVITIES As one of its priority strategies, the TUBACEX Group has undertaken to pursue its activities with an attitude of respect for the environment and, to such end, its policy is to establish a system of minimising the environmental impact of its industrial activity at all the Group's business units, through the use of clean, economically viable technologies and by establishing the necessary measures to prevent pollution in all its operations. Dividends To voluntary reserves 2,802,694 - Total 2,802, The main environment-related initiatives carried out in 2012 were as follows: 7. PROPOSED DISTRIBUTION OF PROFIT - The processing of the integrated environmental authorisations for TTI Llodio, TTI Amurrio and Acería de Álava was completed. - We continued to participate in the SID MIRAT project, led by UNESID, where the main milestone for the year was the approval by the Spanish Environment Ministry's technical committee for the repair and prevention of environmental damage, of the industry proposal for risk assessment methodology. This project continues with the development of a tool to enable the risk assessment methodology to be applied directly by companies in the industry. - Application was made for authorisation as waste manager of non-hazardous waste produced by Acería de Álava and confirmation of the feasibility of such authorisation was received from the competent body. - An application was made for the allocation of greenhouse gas emission allowances for no consideration for the period and the Spanish Climate Change Agency confirmed the individual allocation proposal. INFORMATION ON FINANCIAL INSTRUMENTS Note 11 to the consolidated financial statements provides detailed information on the foreign currency and commodity purchase and sale forward contracts, as well as interest rate swaps held by the Tubacex Group at 31 December OTHER DISCLOSURES Fees paid to auditors The audit fees for the professional services rendered at the Tubacex Group (at Spanish companies) amounted to a total of EUR 190 thousand in ANNUAL CORPORATE GOVERNANCE REPORT Set out below is the full text of the Annual Corporate Governance Report for 2012, approved by the Board of Directors of Tubacex, S.A, consisting of 57 pages and which is an integral part of the Consolidated Directors' Report for TREASURY SHARE ACQUISITIONS The number of treasury shares did not change in 2012 and amounted to 3,142,975 shares, representing 2.36% of the share capital. 6

111 TUBACEX Annual Report on Corporate Governance 2012 (In accordance with the model foreseen by Circular 4/2007, of 27 December, of the Spanish National Stock Market Commission) STANDARD ANNUAL REPORT ON THE CORPORATE GOVERNANCE OF PUBLICLY TRADED COMPANIES This Annual Corporate Governance Report forms part of the Management Report NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.