Summary. The ACERINOX Group in figures 6. Letter from the Chairman 8

Transcription

1 ANNUAL REPORT 2005

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3 Summary 3 The ACERINOX Group in figures 6 Letter from the Chairman 8 1. Directors Report of the Consolidated Group Productions Raw Materials Markets Sales Human Resources Financial Report Stock Exchange Market Report Investments of the Consolidated Group Economic Report of the Consolidated Group Board of Directors Important Events occurred after the closing of the year and foreseeable evolution Report on the Research and Development activities Information Technologies Financial Statements of the Consolidated Group 39 - Auditors Report 40 - Consolidated Annual Accounts ACERINOX, S.A. and other Group Companies Directors Report ACERINOX, S.A Factory Environment Research and Development (R+D) Sales Investments Economic Report Application of Results Proposal NORTH AMERICAN STAINLESS (NAS) COLUMBUS STAINLESS PTY. LTD ROLDAN, S.A Domestic Trading Companies Overseas Trading Companies Board of Directors, Committees and Senior Management 107

4 4 The ACERINOX Group in figures Spanish GAAP IAS

5 5 Spanish GAAP IAS

6 6 Letter from the Chairman Dear Shareholder, The evolution of the stainless steels world market has been completely different in the two semesters of year In the first half of the year, the upward trend of the raw material prices, which started in year 2002, was maintained. In the second quarter of the year, it was perceived some slowing down in the booking of orders because of the vertigo due to the high prices, particularly nickel and molybdenum, which have never remained so high during such a long period of time. During the Summer there was a noticeable reduction of stocks and a worldwide price drop, which was so dramatic that exceeded 2001 s and went on during the whole second semester. The exorbitant prices reached by the raw materials, which mean more than 75% of stainless steel cost, are unjustified due to the fact that there have ever been a single moment of shortage, just speculation. If this situation goes on, it would jeopardize the continuation of the stainless steels average growth rate, 6%, maintained in the last 55 years. The INTERNATIONAL STAINLESS STEEL FORUM (ISSF) has been adjusting its 2005 forecast downwards. The world stainless steel production had a negative growth by 1%, which had not happened since year 2001, with positive increases in China and India, although much lower that those expected, and with decreases in the rest of Asia, Europe, America and Africa. Moreover, if we add the world economy slowing down and the capacity increases of stainless steel production worldwide, particularly the unparalleled increases in China, it is fully understandable the tenseness and the price sharp fall that

7 7 took place in all the markets. This sharp fall reached its highest virulence in the fourth quarter, in spite of the fact that there was certain recovery of the nickel quotation in the London Metal Exchange from the month of November, which was completely illogical if it would have followed the supply demand balance. In this context, during this year ACERINOX Group has grown by 7.6% in flat cold rolled products and by 4.6% in long products. The output reached by the three melting shops of the Group totalled 2.24 million metric tons, which, in spite of being 3.8% lower than the figure obtained in 2004, places us as the second world producer, with a 9.2% market share. This output reduction is basically due to our South African melting shop, 21%, which was much affected by the lack of hot coil orders from the Far East since the month of May. The Spanish melting shop production is only a 1% lower and on the contrary, the North American output is 11% higher. Once again, NORTH AMERICAN STAINLESS (NAS) stands out as the most influential company of ACERINOX Group, despite the apparent consumption decrease in the US stainless steel market and despite of the imports increase due to the US dollar appreciation. In the first quarter of the year the Billet Continuous Caster came into operation, which integrates the long product process. In March 2006 N.4 Sendzimir rolling mill started up and the Nº2 Electric Furnace is going to come into operation in the third quarter. Both of them will increase to 1 million tons the annual capacity of our Kentucky factory, which will turn into the most comprehensive and competitive factory in the world. In 2005 NAS has also progress substantially in ACERINOX traditional policy consisting in bringing its products closer to warehouses and final customers. For this purpose, it has to be highlighted the opening of a service centre in California, the setting up of NAS CANADA INC, which will have a service center in Toronto and the construction of another service center in Atlanta, which will be in addition to Chicago center in operation since year Palmones factory in Campo de Gibraltar has evolved very positively. 91.5% of its tangible fixed assets are already redeemed and the yearly investments, 38 million euros in year 2005, guarantee its high level of competitiveness. Because of the above mentioned reasons and of the Rand strength, COLUMBUS has been unable to maintain its upward trend of the last three years. Nevertheless, with some small investments carried out in the Melting Shop, the annual production capacity has been raised to 1 million tons, which will be available when the market situation improves. Our long product subsidiary company, ROLDAN, S.A. and the stainless steel wire producer, INOXFIL, S.A. have evolved well in a downward market, very affected by the imports from Asia.

8 8 Our commercial societies have been deeply affected by the sharp fall of prices, which has damaged the companies with stocks. Said companies benefit from the opposite situation, as it was the case in year ACERINOX Group Turnover during year 2005 totalled 4,213.6 million euros, which is the highest in our history and 4.3% higher than the invoiced figure of At the end of the year an extraordinary provision to adjust the inventories value to the net realisable value amounting to 41.6 million euros was carried out. Profit after Taxes and Minorities of ACERINOX Group amounts to million euros, which means a 49% decrease with regard to the record year However, it is higher than the figure obtained in year 2003 and 2001, when the market fall was not so sharp. Net Cash Flow, million euros was 39.2% lower than the previous year. NAS increases once more its percentage contribution to the Group positive results with 69%, followed by ACERINOX S.A with a 36% contribution and ROLDAN, S.A with a 7%. COLUMBUS and the whole of our Trading Companies had a negative contribution during 2005,though. Financial ratios, being lower that those of 2004, are still a good example to be followed in the world stainless steel sector, even more in such a difficult year. During the year investments amounting to 270 million euros have been carried out and a Buy Back of 42 million euros has also been made. During year 2005 the shareholders have been paid a total of 88.7 million euros, which means 0.34 euros per share, which is a 17.2% higher than the previous year, equivalent to a 2.8% profitability with regard to the quotation at the end of the year. The share book value, 7.9 euros, has increased by 17.8% over the previous year, or by 7.4% should the I.A.S (International Accounting Standards) have been applied in It stands to reason than with the bad news in the world stainless steel sector our share has only appreciated by 4.1%, which is lower to the IBEX-35 appreciation, 18.2%. Nevertheless, if we take into account a 5 year period, our 51.3% appreciation is much higher than the 17.8% of IBEX-35. At the end of the year the market capitalization amounted to 3,189 million euros, with an average growth rate of 10.3% in the last ten years. It is our intention to go on rewarding our steady shareholders with a good profitability in the medium and long term. We have begun year 2006 with stocks levels returned to normal and with a clear recovery of the world demand. It is to be highlighted that stainless steel base prices are at minimum levels, which are improving month by month, but with very high prices for raw materials. In the short term, there is overcapacity in the stainless steel production in Europe, Japan, Korea, Taiwan, South Africa and

9 Letter from the Chairman 9 Brazil, with no possibility, as it occurred in the past, to place the majority of that surplus in China. Nevertheless, the situation in the medium term is much more optimistic for the following reasons: It stands to reason that raw material prices would have to come down, due to the new workings that are going to start at the end year 2006, which will mean a surplus in an already well supplied market. Consequently, the world stainless steel market will be boosted and new applications will be developed, starting again the replacement process for other alternative materials. The mills and stainless steel facilities, which are less competitive, will close up, as it has already begun to happen. Some scheduled enlargement projects will be cancelled or delayed. The per capita consumption in countries like China and India, which will be followed by other countries with a big population, will grow at a high rate, as it has happened in all developing countries when they have reached a certain Gross Domestic Product (G.D.P). ACERINOX Group, with a production capacity of 3 million tons at the end of 2006, owning very competitive factories and with a recognized technology and experience in stainless steel, is splendidly ready to take advantage of the opportunities that will undoubtedly arise in the future, with the absolute aim of continuing creating value for our shareholders.. Victoriano Muñoz Cava Chairman and Chief Executive Officer

10 ACERINOX Steering Committee

11 11 1. Directors Report of the Consolidated Group 1 Productions 2 Raw Materials 3 Markets 4 Sales 5 Human Resources 6 Financial Report 7 Stock Exchange Market Report 8 Investments of the Consolidated Group 9 Economic Report of the Consolidated Group 10 Board of Directors 11 Important events occurred after the closing of the year and foreseeable evolution 12 Report on the Research and Development activities 13 Information Technologies

12 12 1. Productions 1.1 Flat products ACERINOX Group productions have been very different in the two semesters of year In the first one, production followed the upward trend of the previous years in all the factories of the group, with a 17.2% increase in the melting production over the first semester of On the contrary, the second semester productions were affected by the adjustment of stocks in all international markets and the scheduled biennial halt for maintenance and improvement in the melting shop and hot rolling mill in our Campo de Gibraltar Factory. Besides COLUMBUS factory, South Africa, has been deeply affected by the lack of hot coil orders for the cold re-rollers in the Far East. (Mt) ACERINOX NAS COLUMBUS Total Difference on 2004 Melting Shop 909, , ,877 2,241, % Hot Rolling 780, , ,378 2,012, % Cold Rolling 609, , ,550 1,469, % The whole production of the three melting shops of the Group, 2,241,602 Mt, means a 3.8% decrease with regard to the previous year, but, despite this fact, we turn into the second stainless steel producer in the world, with a 9.2% share. Hot rolling production falls by 2.9%. Cold rolling output rises by 7.6%, highlighting NAS contribution to this increase. Flat Product Production of ACERINOX Group (Thousand Mt.)

13 Directors Report of the Consolidated Group Long products The apparent consumption fall in the European market has also affected ROLDAN, S.A, which production shows a 4.3% decrease, while NAS has continued its upward trend in long products production, showing a 27.5% increase. (Mt) ROLDAN, S.A. NAS Total Difference on 2004 Hot Rolling 129,727 67, , % Long Product Production of ACERINOX Group (Thousand Mt..)

14 14 2. Raw Materials Since year 2004 prices of raw materials have been very high and have never been held at these levels for such a long time. As raw materials mean more than 75% of the stainless steels costs, they do have a decisive influence in the formation of prices and in the stainless steels stock growth and reduction processes Nickel Official Nickel Price and Inventory Level in the L.M.E. ( ) (Thousand Mt.) Until the month of June, the nickel quotation in the London Metal Exchange (L.M.E.) continued the upward trend which had begun three years earlier and reached record levels of around 17,750 USD/Mt, more than double than the 8,062 USD/Mt, which is the average price of the last sixteen years. In the second half of the year, there was a sharp fall down to 11,500 USD/Mt in the beginning of November, next followed by a recovery, and ending the year at 13,380 USD/Mt. Official Nickel Price in L.M.E. Year 2005

15 Directors Report of the Consolidated Group 15 The LME deals cannot be taken as a reference of the metal supply and demand. In 2005, with a world consumption of 1.26 million tons, deals amounting to 19 million tons were carried out in the London market. The investment funds, which have an excess of liquidity, are doing business in the London derivatives Market and in the last years they have intensified their nickel deals, which have increased the volatility of this metal even more. For this reason, and although there has never been any shortage in the market, and in spite of the fact that at the end of the year the LME stocks have reached the highest levels in the last six years, the prices have been held on record levels. Nickel: L.M.E. Transactions / Production and Consumption Worldwide

16 Ferrochrome The ferrochrome is not quoted on the LME and consequently, its deals follow the supply - demand balance. Ferrochrome Quaterly Average Prices (Metal Bulletin) In the first quarter of the year, it maintained a price level of 74 USD/Lb of chrome reached at the end of year In the second quarter it showed a 6% increase, reaching a price of 79 USD/Lb Cr, which is the highest three months level of the last 15 years. In the third quarter, it went down to 74 USD/Lb Cr, following the drop of the demand of stainless steels. In the fourth quarter, it fell to 69 USD/Lb Cr; this trend still remains during the first quarter of Ferrochrome Quaterly Average Prices (Metal Bulletin)

17 Directors Report of the Consolidated Group Molybdenum After the molybdenum prices had been quadrupled in the year 2004, this upward trend went on, reaching its highest historical peak of 39.2 USD/Lb. Next, it went down to 25 USD/Lb at the end of the year, following the market retraction of the molybdenum stainless steel grades, which could not take such high prices for many applications; nevertheless said prices had been maintained at steady levels of around 4 USD/Lb for many years. Molybdenum Price (Metals Week) 2.4 Carbon Steel scrap Following the general trend of the iron and steel market, the carbon steel scrap prices have been kept in check during 2005, after the strong increases shown in the two previous years. By the end of the year they reached a level of 200 USD/Mt for grade HMS 1, F.O.B. Rotterdam, which is lower than the level of 240 USD/Mt at the end of Price of Carbon Steel scrap (Metal Bulletin) HMS 1 (monthly average values FOB Rotterdam)

18 18 3. Markets The world economy has grown at a 4.8% rate, which is lower to the 5.3% of the previous year and that of the Industrial Production was a 3.2%, which is much lower that the 4.7% reached in year Raw material prices, which had never maintained such high levels for two years, have made the stainless steel stocks in stockists and final consumers to go on rising in almost all markets during the first quarter of 2005, as they have done during the whole year In the second quarter, the worldwide traders begun to feel the frenzy because of the stainless steels final prices, derived from the high prices of raw materials. This fact, in addition to the overcapacity of the worldwide production, led to a dramatic reduction of warehouses and tubists purchases in the third and fourth quarter. This situation triggered the sharp fall of prices, which due to its strength and speed, was even worse than the price drop suffered in year 1995 and Stainless Steel Cold Rolled Sheet Prices AISI ,0 mm ( )

19 Directors Report of the Consolidated Group Europe In year 2005, the GDP growth of the Euro zone decreased from 2.1% in 2004 down to 1.3%. Besides, the Industrial Production Index fell from 1.9% down to 1.2 % (E-15). Apparent consumption for flat products in the European Union (15) showed a 8.3% decrease. This decrease and the production capacity increases in Europe and Asia, particularly in China, which is still an important export market for European producers, triggered a sharp fall of the stainless steel base prices, despite its output reductions and the 7.5% decrease of exports to third countries. At the end of the year, the stock levels seem to have returned to normal and the demand is beginning to get liven up in the beginning of Stainless Steel Cold Rolled Sheet Prices AISI ,0 mm ( ) Something similar has occurred in the European market for long products, which apparent consumption has dropped by 13.1% as far as wire rod is concerned. On the other hand, cold bar apparent consumption showed a 1.7% increase, mainly due to the 24.0% increase of the imports from third countries, particularly from India, which has caused a stock increase and a dramatic deterioration of prices 3.2 Spain Although during year 2005 the Spanish economy has shown a good growth of 3.4%, more than double than that of the Euro Zone, its GDP has just grown by 0.1% (+1.8% in 2004), clearly behind the 1.2% of the Euro Zone (+1.9% in 2004) and reflecting a dangerous loss in competitiveness. This situation is derived from the inflation differential accumulated since our country was incorporated to the Euro Zone. Flat products apparent consumption was 6.5% lower, which had not occurred since year The stainless steel Spanish market remains in third position among the European markets.

20 United States The US GDP shows a 3.5% increase, but it was lower than the 4.2% of the previous year. Meanwhile, the Industrial Production Index decreased by a 3% with regard to the outstanding 4.2% of year Flat products apparent consumption experienced a decrease, from the excellent +11.8% of the year before to a 10.5% (until November), with the subsequent drop of prices, although it has been not so pronounced as in other markets. Regarding long products, the apparent consumption decreased by 10.2% for wire rod and increased by 15.4% for cold bar, although as in Europe, it is a result from the strong increase by 48.5% of the cold bar imports; that is why, opposite to the case of flat products, we are afraid that the stocks of this product have increased. The apparent consumption of angles has fallen by 26.6%. Stainless Steel Cold Rolled Sheet Prices AISI ,0 mm ( )

21 Directors Report of the Consolidated Group Asia One more the world economy has been boosted by China. Its G.D.P grew by 9.9% and its Wholesale price Index showed a 15.9% increase. Apparent consumption of stainless steel reached, according to the Special Steel Producers Association in China, 5.5 million Mt, with a 16.7% increased over Domestic production, 3.2 million Mt, was 33.7% higher. Despite this strong increase, 3.1 million Mt were imported, while 400,000 Mt were exported. Until the month of May the Asian markets enjoyed the good situation of the year before, but a fast stock reduction process took place, which led to a price deterioration. For the first time in year 2005 Asia stainless steel production exceeds the 50% of the worldwide output. Evolution of Stainless Steel World Production Statistical Source: International Stainless Steel Forum (ISSF) Million Mt.

22 22 4. Sales The Group s invoiced figure, 4,214 million euros, 4.3% higher than that of 2004, breaks a record despite the lower production in the melting shop as a result of the increase cold rolled products sales, with higher added value, and the high prices of the raw materials. Evolution of Net Sales of ACERINOX Group The geographical distribution of the net sales shows Acerinox Group upward progression in America, basically thanks to NAS penetration in the North American market. Geographical Distribution of ACERINOX Group Net Sales In order to reinforce our presence in the North American market, we have set up NAS CANADA Inc, with its head office in Toronto. Besides, capital increases have been carried out in our European subsidiaries of ACERINOX FRANCE, ACERINOX ITALY, ACEROL PORTUGAL and ACERINOX SCANDINAVIA, and also in ACERINOX PACIFIC so as to strengthen our commercial presence in China.

23 Directors Report of the Consolidated Group 23 Commercial Network of ACERINOX Group Flat Products Facility (3) Long Products Facility (3) Service Centre (15) Service Centre under construction (3) Warehouse (31) Warehouse under construction (1) Commercial Office (27)

24 24 5. Human Resources The workforce of the Group at the end of 2005 was of 6,695 employees, which means an increase of 187 employees (+2.9%) during the year. The distribution by Companies and subsidiaries is as follows: % ACERINOX, S.A. 2,387 2, NAS 1,116 1, COLUMBUS 1,696 1, ROLDAN, S.A. + INOXFIL, S.A Domestic trading companies Foreign trading companies TOTAL 6,695 6, The highest increase belongs to NORTH AMERICAN STAINLESS, as a result of the production increase and the starting of new facilities ACERINOX, S.A. workforce has been increased with 56 employees, basically in the Campo de Gibraltar Mill. The commercial subsidiaries in Spain, and principally in the foreign subsidiaries have increased their staffs as a result of the new INOXCENTER logistic centre in Tarragona and the higher activity chiefly in the service centres of ACERINOX ITALY and ACERINOX SCANDINAVIA. On the 4 th August 2005 the Ilmo. Los Barrios Council awarded the Medal of the Town to ACERINOX, S.A. and to its workers and appointed its Chairman, Mr. Victoriano Muñoz Cava, as Los Barrios Honorary Citizen, as acknowledgement of his contribution to the progress and development of El Campo de Gibraltar during the last thirty five years.

25 Directors Report of the Consolidated Group Financial Report 6.1 Share Buy-back In the General Shareholders Meeting held on 9th June 2005, it was approved a reduction of capital by means of Buy- Back of 3,700,000 shares, after which said capital was 64,875,000 euros, represented by 259,500,000 ordinary shares at a face value of 0.25 euros per share. For this purpose, 42,007,766 euros were allocated. The Buyback shares were excluded from quotation in Madrid and Barcelona Stock Exchange on the 4 th July Returns payed to Shareholders During the year 2005, ACERINOX S.A. has disbursed to its shareholders the following amounts: Date Item Euros / Share Total amount Euros st Interim Dividend year nd Interim Dividend year 2004 Complementary Dividend year 2004 Refund of Issue Premium On account of year ,07 18,424, ,424, ,140, ,760,000 Total year ,748,000 The total amount per share of 0.34 euros paid to the shareholders during the year 2005, means a 17.24% increase with regard to the previous year and a profitability increase of 2.88% against the quotation of euros at 30 th December If this is calculated on the quotation of euros at 30 th December 2005, the profitability would be of 2.77%.

26 Returns to Shareholders belonging to year 2005 ACERINOX, S.A. has disbursed the following amounts: One Refund of Issue Premium on 5th October 2005, for an amount of 0.08 euros per share. A first Interim Dividend of the year 2005, for an amount of 0.07 euros per share on the 4 th January A second Interim Dividend of year 2005, for an amount of 0.07 euros per share on the 4 th April Should the General Shareholders Meeting approve the complementary dividend of 0.12 euros per share, proposed by the Board of Directors, then the return to shareholders on account of the year 2005 would be 0.34 euros per share, a 19.3% higher than that paid on year Return to Shareholders The pay-out of the Consolidated Group during year 2005, including the Issue Premium and dividend, will be placed at 57.1%.

27 Directors Report of the Consolidated Group Stock Exchange Market Report As in the two previous years, the Spanish Stock Exchange behaviour in 2005 was very positive. The IBEX-35 appreciates by 18.2%, which confirms the 17.4% appreciation of 2004 and the 28.2% of year Evolution of the Stock Exchange Market. Year 2005 This good behaviour takes place in spite of the following circumstances: the weak economic growth in Europe, the continuous revaluation of the crude oil prices, which have been reaching historical peaks, until they have reached its maximum quotation of 68 USD/ barrel of Brent, and the already announced change in the European monetary policy, with the first rise of rates in the last five years of 25 points in December, up to 2.25%, which is still lower than the eight rises in the price of money established by the North American Federal Reserve, which has taken the rates at 4.25%. In the first two months of the year, the evolution of our share was very positive, but afterwards it began a downward trend due to the bad prospects of the market. In November we can see the first signs of a recovery, which continues in the first months of In the whole year, ACERINOX share has appreciated by 4.1%.

28 28 The average appreciation of the five previous years was 51.3%, which is much higher if compared with the 17.8% IBEX-35 appreciation. Five Years Evolution of the ACERINOX share and the Index IBEX-35 If we refer to the closing change of year 1995, which was euros per share (adjusted to the splits carried out in 1998 and 2004), the following graphic shows the annual profitabilities compared to the official close of year 1995 year. At the end of 2005, ACERINOX shares appreciation was of %. If we furthermore include the accumulated return from the 1 st January 1996, the profitability would rise up to %, which means that it has quadrupled in ten years. Profitability of the ACERINOX shares with regards to the official close of the year 1995

29 Directors Report of the Consolidated Group 29 The capitalization of ACERINOX at 31 st December 2005 rose to 3,189,255,000 euros, which is a record value in the Company s history and it has to be pointed out that in the last five years we have been breaking the closing figure of the year before. Market Capitalization of ACERINOX, S.A. ( ) During year 2005 ACERINOX shares have been traded in the 256 sessions operated in the Continuous Market. The number of traded shares amounted to 552,399,045 equivalent to 2.12 times the number of shares of the Share Capital. The total effective amounts to 6,548,323 euros, more than double than the stock market capitalization of the company, with a 10.22% increase over the year before. The daily average of traded shares during year 2005 amounts to 2,157,808, equivalent to 25,579,388 euros. The P.E.R. value of ACERINOX share at 31 st December was 20.6 Official close of ACERINOX share on the last day of the year

30 30 8. Investments of the Consolidated Group In 2005 ACERINOX GROUP has carried out investments for a total amount of 270 million euros. From said amount, 47.6 million euros come from a financial investment for the purchase of an additional 12% of COLUMBUS STAINLES INC. capital, and million euros come from the investments of the fixed assets, which can be broken down as follows: Million Euros Financial investment Fixed Assets investment ACERINOX, S.A NAS COLUMBUS ROLDAN+INOXFIL Domestic Trading Companies Overseas Trading Companies TOTAL

31 Directors Report of the Consolidated Group Economic Report of the Consolidated Group The Year 2005 results clearly show not only the unparalleled deterioration occurred in the market in the second semester of 2005, but it also proves the strength of our Group to face such difficult circumstances. Thousand of Euros Variation NIIF Published Annual Report Hypothesis IAS Published Annual Report Hypothesis IAS Net Sales 4,213,559 4,041,044 4,035, % +4.4% Gross Operating Result (EBITDA) 415, , , % -34.4% Net Operating Result (EBIT) 257, , , % -48.8% Result before Taxes and Minorities 228, , , % -54.0% Depreciation 111, , , % -13.5% Gross Cash Flow 339, , , % -45.7% Result after Taxes and Minorities 154, , , % -50.7% Net Cash Flow 266, , , % -39.8% The Group Net Sales in the year 2005 amounts to 4,213.6 million euros, which is the highest turnover in our history, and 4.3% higher than the record figure achieved in The E.B.I.T.D.A value, million euros, is the third highest value in our history, only behind years 2004 and Nevertheless the percentage upon sales, 9.9% is the lowest in the Consolidated Group history (last fifteen years). The result after taxes and minorities, million euros, is 49% lower than the figure of 2004, and only lower than the results obtained in the above mentioned four years. At the end of the year, the Group companies has been carried out an extraordinary provision to adjust the inventories value to the net realisable value, for an additional amount of 41.6 million euros. The Gross Profit, million euros, shows a 53.4% decrease if compared with the figure achieved in 2004, but it is the fifth highest in our history (only behind years 2004, 2002, 2000 and 1995).

32 32 Evolution of the result after Taxes and Minorities Consolidated Group Spanish GAAP IAS It must be pointed out NORTH AMERICAN STAINLESS contribution to the consolidated net result of our Group, with a 69%, followed by ACERINOX, S.A., with a 36% and ROLDAN with a 7%. The domestic subsidiaries have a slightly negative contribution, -0.4 %, like COLUMBUS STAINLESS, -4.9% and the foreign subsidiaries decrease it even more, -6.4%. Contribution to the result after Taxes and Minorities (%)

33 Directors Report of the Consolidated Group 33 The main magnitudes obtained in the year and their comparison with the year before: Consolidated Group 2005 NIIF Published Annual Report 2004 Variación Hypothesis IAS Published Annual Report Hypothesis IAS Cash Flow per Share % -39.0% Earning per Share % -50.0% Gross Margin 29.3% 34.3% 34.2% -14.7% -14.4% Gross Operating Result Margin (EBITDA) Net Operating Result Margin (EBIT) 9.9% 15.8% 15.7% -37.6% -37.2% 6.1% 12.4% 12.5% -50.7% -50.9% Return on Equity (ROE) 7.5% 17.1% 16.2% -56.1% -53.5% Return on Capital Employment (ROCE) 9.0% 20.6% 19.3% -56.4% -53.6% Debt to Equity (GEARING) 40.4% 38.2% 34.7% +5.9% +16.6% Book Value (December 31 st ) % +7.4% These ratios show the impact of the market conditions in 2005 but they continue to be a reference of profitability and efficiency in our sector. The Group Net Indebtedness, million euros, is million higher, as a result of: the investments of the year (270.1 million euros), the higher needs of Working Capital as a result of the high prices of raw materials and the Buy-Back carried out by ACERINOX, S.A. (42 million euros). The share book value at 31 st December amounts to 7.91 euros, which is 17.8% higher, against the value reached on the 31 st December 2004 (7.4% if we would have applied the I.A.S in year 2004), even in such a difficult year as 2005.

34 Board of Directors On 12th April 2005 Mr. Kosei Ishida submitted his resignation as a Board Director representing NISSHIN STEEL, after having been decided his transfer to Japan. So as to cover this vacancy and after the report from the Appointments and Remuneration Committee, the Board of Directors resolved to appoint Mr. Fumio Oda as Board Member by cooption in the Board Meeting held on 27th April Moreover, on 9th June the Director representing METAL ONE, Mr. Susumu Komori, handed in his resignation. The General Shareholders meeting held on said 9th June, altering the articles of association, resolved to enlarge the number of Board Directors from fourteen to fifteen, after the report of the Appointments and Remuneration Committee, appointing Mr. Diego Prado Pérez-Seoane and Mr. Saburo Takada and ratifying Mr. Fumio Oda s appointment. Due to the resignation of Mr. Ishida, there was a vacancy in the Audit Committee. The Board of Directors, after report from the Appointments and Remuneration Committee, resolved to include Mr. Fumio Oda as a member of said Committee. Other aspects of the Board of Directors and of the Governance of the Society, are included in the annual report of the Corporate Governance. ACERINOX Board of Directors visit to South Africa factory, 3 rd November 2005

35 Directors Report of the Consolidated Group Important events occurred after the closing of the year and foreseeable evolution During the first months of year 2006 the stainless steels stocks have returned to normal and the demand has recovered worldwide. Base prices, which were at minimum levels, are improving month by month. The LME Nickel quotations have again risen to above 15,000 USD/Mt, almost doubling the average values of the last fifteen years, which without any doubt damages the stainless steel sector and its development. 12. Report on the Research and Development Activities One of the main targets of ACERINOX Group activities of research in the last years is the improvement of the production processes, allowing the improvement of the stainless steels properties and quality, their adaptation to certain uses and needs of the market and a reduction of the production costs. The activities in this subject are developed for the whole Group in the Research and Test Centre José María Aguirre Gonzalo, in the Campo de Gibraltar Factory, which has a long experience and tradition. The total figure invested by the companies of the Group in year 2005 amounts to 3 million euros. It is important to point out the constant support and technical assistance that we are giving our customers, not only in the search of new applications for the stainless steel but also in its use. Research and test center José María Aguirre Gonzalo Electrical measurement of corrosion Climatic chamber

36 Information Technologies In this particular field, ACERINOX has pioneered and developed production, management and sales integrated systems using its own technology. Since 1986 ACERINOX international sales network has in real time information about the state of the orders, available stocks for sale and the necessary applications to enter new orders. In 1990 the whole network of Service Centres and Commercial subsidiaries was integrated with the factories and Madrid head offices; COLUMBUS was incorporated into the system in May With the aim of integrating and homogenize all the Group processes, at present we are carrying out a project of implementing an only system of management for both the finance and administration sections, which will enhance even more the operation and maximum use of the Group synergies

37 37 2. Financial Statements of the Consolidated Group 1. Auditors Report 2. Consolidated Annual Accounts

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41 Cuentas Anuales Consolidadas 41 ACERINOX, S.A. AND SUBSIDIARIES CONSOLIDATED ANNUAL ACCOUNTS at 31 December 2005

42 42 CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED BALANCE SHEET ASSETS (In thousands of Euros at 31 December 2005 and 2004) Note Non-current assets Intangible assets 8 15,356 10,693 Goodwill 8 69,124 69,124 Property, plant and equipment 9 1,586,957 1,359,660 Investments accounted for using the equity method 10 2,149 1,575 Non-current assets available for sale 11 4,631 4,956 Non-current financial assets Deferred tax assets 26 25,156 5,540 Other non-current assets 1,116 1,296 TOTAL NON-CURRENT ASSETS 1,704,525 1,453,081 Current assets Inventories 12 1,292,098 1,333,121 Trade and other receivables , ,184 Current financial assets 11 30,856 16,872 Income tax receivable 26 9,366 20,365 Other current assets 8,488 2,578 Cash and cash equivalents 14 81,287 35,242 TOTAL CURRENT ASSETS 1,942,460 1,996,362 TOTAL ASSETS 3,646,985 3,449,443

43 Cuentas Anuales Consolidadas 43 LIABILITIES (In thousands of Euros at 31 December 2005 and 2004) Nota Equity Share capital 15 64,875 65,800 Share premium , ,849 Reserves 15 1,401,464 1,194,736 Translation differences 15 90,424-43,411 Profit for the year 154, ,360 Interim dividend 15-19,281-18,424 Treasury shares EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT 1,945,039 1,785,910 Minority interests , ,788 TOTAL EQUITY 2,051,389 1,936,698 Non-current liabilities Deferred income 16 1,654 1,641 Interest-bearing loans and borrowings ,732 83,432 Other provisions 18 26,895 28,001 Deferred tax liabilities , ,536 Other non-current liabilities 19 1,434 1,900 TOTAL NON-CURRENT LIABILITIES 509, ,510 Current liabilities Borrowings , ,975 Trade and other payables , ,829 Current financial liabilities Current income tax liabilities 20 4,107 15,837 Provisions 6,350 2,864 Other current liabilities 19 85,900 83,730 TOTAL CURRENT LIABILITIES 1,085,899 1,231,235 TOTAL EQUITY AND LIABILITIES 3,646,985 3,449,443

44 44 2. CONSOLIDATED INCOME STATEMENT (In thousands of Euros at 31 December 2005 and 2004) Nota Net sales 22 4,213,559 4,035,769 Other operating income 23 11,633 11,218 Self constructed assets 23 4,551 4,287 Change in inventories of finished goods and work in progress 12 90, ,014 Supplies -3,085,908-2,923,750 Personnel expenses , ,025 Amortisation and depreciation 8,9-111, ,212 Change in provisions 25-45, Other operating expenses , ,128 OPERATING PROFIT 257, ,369 Financial income 27 4,500 12,106 Financial expense 27-51,464-34,213 Exchange gains 27 7,637 14,462 Measurement of financial instruments at fair value 27 9,310 0 Share in profits of associates PROFIT BEFORE INCOME TAX 228, ,510 Income tax 28-72, ,754 Other taxes -2,751 0 PROFIT AFTER INCOME TAX 152, ,756 Net result on discontinued operations PROFIT FOR THE YEAR 152, ,756 Profit attributable to minority interests 1,573-19,396 NET PROFIT ATTRIBUTABLE TO THE GROUP 154, ,360 Basic profit per share (in Euros) 0,59 1,19

45 Cuentas Anuales Consolidadas CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (In thousands of Euros at 31 December 2005 and 2004) Equity attributable to the shareholders of the Parent Share capital Share premium Reserves Translation differences Treasury shares Minority interests TOTAL EQUITY Equity 01/01/ , ,905 1,233, ,313 1,715,387 Other movements 0 Net income recognised directly in equity Profit for ,360 19, ,756 Total profit for the year , , ,756 Dividend for ,665-39,665 Interim dividend for ,424-18,424 Distribution of share premium -21,056-21,056 Acquisition of treasury shares 0 Disposal of treasury shares 0 Change in minority interest Translation differences ,411 9,425-33,488 Other movements Total equity 01/01/ , ,849 1,489,672-43, ,788 1,936,698 Cash flow hedges, net of tax 0 Interest and exchange rate hedges 2,142 2,142 Application of IAS from 1/01/2005 3, ,567 Profit from disposal of treasury shares Currency translation differences 0 Net income recognised directly in equity 0 0 5, ,810 Profit for ,468-1, ,895 Total profit for the year , , ,705 Dividend for ,544-49,544 Interim dividend for ,281-19,281 Distribution of share premium -20,760-20,760 Share capital reduction ,083 42,008 0 Acquisition of treasury shares -43,900-43,900 Disposal of treasury shares 1,892 1,892 Acquisition from minority shareholders -4,299 3,329-46,645-47,615 Translation differences 1, ,506 3, ,413 Other movements Total equity 31/12/05 64, ,089 1,536,651 90, ,350 2,051,389

46 46 4. CONSOLIDATED CASH FLOW STATEMENTS (In thousands of Euros at 31 December 2005 and 2004) Cash flows from operating activities Cash receipts for sales of goods and services rendered 4,879,549 4,291,050 Cash paid to suppliers for goods and services received -4,197,056-3,662,017 Payments to employees -234, ,358 Interest paid -51,827-40,487 Income tax paid -158, ,944 Net cash from operating activities 237, ,244 Cash flows from investing activities Proceeds from sale of property, plant and equipment 1,050 1,382 Disposal of subsidiary interests -606 Interest received 1,579 1,096 Dividends received Acquisition of property, plant and equipment -200, ,389 Acquisition of intangible assets -1, Acquisition of subsidiary, net cash acquired -47,616 0 Acquisition of other investments Net cash from investing activities -246, ,978 Cash flows from financing activities Acquisition of treasury shares -43,900 Disposal of treasury shares 2,048 22,591 External financing receipts 557, ,006 Repayment of external financing -383, ,303 Dividends paid to the shareholders of the Parent -57,773-54,799 Distribution of share premium -20,760-21,056 Net cash from financing activities 52,825 3,439 Net increase in cash and cash equivalents 44,245 22,705 Cash and cash equivalents at beginning of the year 35,242 13,038 Effect of exchange rate fluctuations on cash held 1, Cash and cash equivalents 81,287 35,242

47 Cuentas Anuales Consolidadas NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1 - General Information Company name: Acerinox, S.A. Incorporation: Acerinox S.A. was incorporated with limited liability on 30 September Registered offices: Calle Santiago de Compostela, nº 100, Madrid - Spain. Statutory activity: the manufacture, transformation and commercialisation of stainless steel products carried out either directly or through its subsidiaries. The Acerinox Group has two flat product stainless steel factories (in Spain and South Africa), a flat and long product stainless steel factory in the United States and two long product factories in Spain in addition to a network of commercial subsidiaries throughout Spain and abroad engaged in the transformation and commercialisation of all its products. Financial year: the financial year of Acerinox S.A and all its Group companies comprises the twelve-month period from 1 January to 31 December. Formulation of the consolidated annual accounts: These consolidated annual accounts were formulated by the board of directors of Acerinox S.A. on 22 February Note 2 - Significant accounting policies 2.1 Statement of compliance The consolidated annual accounts of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations endorsed by the European Union (EU-IFRS). All mandatory accounting policies that have a significant effect on the preparation of these consolidated annual accounts have been applied. All accounting policies have been consistently applied to the years ended 31 December 2005 and 2004, except for the exemptions permitted by first time adoption to IFRS, which are detailed in note 5. A detailed explanation of the transition to IFRS and the effects of applying those standards are included in note Bases of preparation of the consolidated annual accounts The accompanying consolidated annual accounts of the Group have been prepared by the board of directors of the Parent company to present fairly the consolidated equity, the consolidated financial position at 31 December 2005, as well as the consolidated results from its operations and changes in consolidated equity and cash flows of the Group for the year then ended. The consolidated annual accounts are presented in Euros rounded to the nearest thousand. They are prepared on the historical cost basis, except for the following assets and liabilities, which have been measured at fair value: derivative financial instruments and financial instruments held for trading. All accounting policies have been consistently applied to the years ended 31 December 2005 and 2004, except for the exemptions permitted by first time adoption to IFRS, which are detailed in note 5. The preparation of the consolidated annual accounts in conformity with IFRS requires management of the parent company to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates are based on historical experience and other factors which are considered appropriate. The Group may modify these estimates in light of subsequent events or changes in circumstances. Aspects which involved a greater degree of judgement or for which the assumptions and estimates are significant for preparation of the consolidated annual accounts are detailed in note 4. Risks assumed by the Group which could have an effect on future years are identified in note 3.. All accounting policies have been consistently applied by the Group to the years ended 31 December 2005 and 2004, except where specified.

48 48 The accompanying consolidated annual accounts have been prepared on the basis of the individual accounting records of the Company and the companies forming the Acerinox Group. The consolidated annual accounts include certain adjustments and reclassifications made to bring the accounting and presentation principles followed by different Group companies into line with those of the Company. The consolidated annual accounts for 2004 were approved by the shareholders at their annual general meeting held on 9 June The Group s consolidated annual accounts for 2005 are pending approval at the shareholders general meeting. Nevertheless, the directors of the Company consider that these consolidated annual accounts will be approved by the shareholders without significant changes. 2.3 Going concern and accruals basis The directors have prepared these consolidated annual accounts on a going concern basis. Income and expenditure are recognised on an accruals basis, irrespective of the dates of collection or payment. 2.4 Basis of consolidation a) Subsidiaries Subsidiaries are entities in which the Group has the ability to control financial and operating policies. This is generally where the Group holds more than half of the voting rights. The financial statements of subsidiaries are included in the consolidated annual accounts from the date that control commences to the date that control ceases. The Group takes potential voting rights into account when measuring the level of control which it has over Group companies and, consequently, the method of consolidation. Subsidiaries which comprise the Acerinox Group and are consolidated at 31 December 2005 are listed in note 6. Minority interests in Group equity are recognised in the consolidated balance sheet while their share in Group s results is recognised under profits/(losses) attributable to minority interests in the consolidated income statement. Losses attributable to minority shareholders which exceed the carrying amount of their interest are recognised by reducing the carrying amount of the Parent company s investment The excess of cost of acquisition over the fair value of the Group s share of the identifiable net assets of subsidiaries acquired is recorded as goodwill on the date of acquisition. If the cost of acquisition is less than the fair value of the Group s share part of the fair value of the identifiable net assets of the subsidiary acquired, attributable to the Group (i.e. discount on acquisition) the difference is recognised directly in the consolidated income statement in the year of acquisition. Since the Group has opted to apply the exemption permitted by IFRS 1 for business combinations prior to the date of transition (1 January 2004) (see note 5.2), goodwill generated from these acquisitions has been calculated by reference to the carrying amount of the assets acquired. b) Associates Associates are entities over which the Group has significant influence in financial and operating decisions, but not control or joint control over such decisions. This is generally where the Group holds between 20% and 50% of voting rights. The financial statements of associates included in the consolidated annual accounts are accounted for using the equity method. The Group s share of its associates post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. The excess of cost of acquisition over the fair value of the Group s share of identifiable net assets of the associate is considered as goodwill at the date of acquisition. If the cost of acquisition is less than the fair value of the Group s share part of the fair value of identifiable net assets of the associate acquired (i.e. discount on acquisition) the difference is recognised directly in the consolidated income statement in the year of acquisition. As the Group has opted to apply the exemption permitted by IFRS 1 for acquisitions prior to the date of transition (1 January 2004) (see note 5.2), goodwill generated from these acquisitions has been calculated by reference to the carrying amount of the assets acquired. If an associate s equity is negative as a result of losses incurred, investment will be recorded in the Group at nil value, providing the Group is not required to provide financial support to the associate. c) Balances and transactions eliminated on consolidation All significant balances and transactions between consolidated companies and unrealised gains from these transactions have been eliminated in the consolidation process. Unrealised losses on transactions with third parties are eliminated to the extent there is no evidence of impairment. Unrealised gains arising from transactions with associates are eliminated to the extent of the Group s interest in the entity.

49 Cuentas Anuales Consolidadas Translation differences i) Functional and presentation currency ii) iii) The annual accounts for each Group company are expressed in the functional currency of the underlying economic environment in which the entity operates. The consolidated annual accounts are presented in Euros, which is the functional and presentation currency of the Company. Foreign currency transactions and balances Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Euros at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the consolidated income statement. Non-monetary assets and liabilities denominated in foreign currencies and recorded at historical cost are translated to Euros using the exchange rate prevailing at the date of transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Euros at the foreign currency exchange rate ruling at the date the fair value was determined, with any translation difference included as part of the profit and loss in fair value. Translation differences on non-monetary items such as capital instruments held at fair value through profit or loss are reported as part of the fair value gain or loss. Translation differences from non-monetary items, such as capital instruments classified as available-for-sale financial assets, are included in the revaluation reserve in equity. Information on the risks assumed by the Group as a result of exchange rate fluctuations as well as derivative and hedging instruments employed to mitigate these risks is included in Note 3.1. Financial statements presented in foreign currencies The financial statements of Group companies which are stated in a different currency to the presentation currency are translated to Euros as follows: assets and liabilities, including goodwill and fair value adjustments to the fair value on acquisition of foreign entities, are translated at the closing rate ruling at the balance sheet date; income and expenditure from nonhyperinflationary economies is translated at the average exchange rate for the period. Translation differences are recognised separately in equity under translation differences. As permitted by IFRS 1: first time adoption of IFRS, the Group has opted to record a nil balance in translation differences at the date of transition to IFRS. 2.6 Intangible assets a) Goodwill Business combinations are accounted for by applying the purchase method. Goodwill generated on acquisitions subsequent to 31 December 2003 accounted for using this method represents the positive difference between the cost of acquisition and the fair value of the Group s share of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiaries. Goodwill generated on acquisition of associates is included under investments in associates. In respect of acquisitions prior to this date, goodwill is included on the basis of its historical cost, less accumulated amortisation under the prevailing Spanish accounting principles at the date of acquisition. This amount is considered deemed cost of goodwill at the transition date. The Group has taken advantage of the exemption permitted under IFRS-1, and not to reappraise the business combinations prior to 1 January 2004 for the purpose of preparing the Group s opening balance sheet under IFRS. In subsequent acquisitions of additional interests in subsidiaries over which the Group already exercised control, net assets are incorporated at cost (see also note 6.2). Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised but is tested annually for impairment, in accordance with IAS 36 (see note 2.8). Goodwill is allocated to cash-generating units for the purposes of impairment testing. Negative goodwill arising on an acquisition of a business combination is recognised directly in the consolidated profit and loss account. b) Research and development expenditure Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the income statement as an expense as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible, the Group has sufficient resources to complete development and sufficient future cash flows are expected to be generated to recover the costs. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads.

50 50 Development expenditure with a finite useful life is capitalised and is not amortised while in process. Upon successful completion of the project, the capitalised expenditure is transferred to industrial property and amortised over a five-year period. In the event of changes in the circumstances permitting to the capitalisation of the project expenditure, the unamortized balance is expensed in the year the changes arise. c) Software The costs incurred in acquisition and adapting of computer software licenses to an specific use are capitalised. Costs associated with developing or maintaining computer software programmes are recognised as an expense and when incurred. Costs incurred by the Group that are directly associated with the production of identifiable and unique software products, and likely generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include employee costs in developing the software and an appropriate portion of relevant overheads. d) Emission rights CO2 emission rights are recognised as an asset and stated at cost of acquisition. Rights acquired free of charge under the national allocation plan by virtue of Law 1 of 9 March 2005 are initially measured at replacement cost, which is generally the market value of the rights at the time of their receipt. A capital grant is recognised for the same amount and included under deferred income. Emission rights are not amortised but expensed when used. Provision is made as appropriate to reflect any reduction in the market value at the end of each year, and to the extent that that the carrying amount is not considered recoverable through the generation of sufficient income to cover all costs and expenses. Provisions are released when the causes leading to the valuation adjustment have ceased to exist. A provision for liabilities and charges is created for expenses related with greenhouse gas emissions. This provision is maintained until the obligation is cancelled, through the certificates of rights delivery. These expenses are accrued as greenhouse gases are emitted. The related provision, is determined and will be cancelled, as follows: 1. Firstly, through emission rights transferred to the Company under the National Allocation Plan, which are then used to cancel actual emissions in proportion to the total forecast emissions for the entire period to which they have been allocated. The expense relating to this part of the commitment is determined based on the book value of the transferred emission rights. 2. Secondly, through the remaining emission rights recorded. The expense corresponding to this part of the commitment is usually stated at the average cost or average weighted cost of the emission rights. 3. In the event that gas emissions necessitate the acquisition of additional emission rights because actual emissions exceed the transferred rights under the National Allocation Plan, or through other emission rights acquired a provision is made for the shortfall in rights. The expense is determined using the best estimate of the amount necessary to cover the shortfall in emission rights. When a expense is recorded for rights acquired free of charge, the corresponding deferred income is taken to operating income. Detailed information on emission rights received and consumed this year is included in note 8 on intangible assets. e) Amortisation Amortisation is charged to the income statement on a straight-line basis over the estimated useful live of intangible assets. Intangible assets are amortised from the date they are available for use. Goodwill and expenditure on development underway are tested annually for impairment. Estimated useful lives are as follows: - Industrial property: 5 years - Software: 5 years - Patents and trademarks: 5 years

51 Cuentas Anuales Consolidadas Property, plant and equipment a) Owned assets Items of property, plant and equipment are stated at deemed cost less accumulated depreciation and any impairment losses. The deemed cost of property, plant and equipment at the transition date includes, in addition to the cost of acquisition, revaluations carried out as permitted by local accounting principles applied prior to 1 January 2004, as well as the part of goodwill arising from acquisitions of subsidiaries prior to 1 January 2004 which was assigned to net assets. Historical cost includes expenditure that is directly attributable to the acquisition of the items concerned. Financial expenses of loans directly related with financing the construction of property, plant and equipment, as well as translation differences deriving from loans in foreign currency with terms of over twelve months used to finance investments, are capitalised as part of the cost until the asset enters service. Improvements to existing assets which extend the useful lives of those assets are capitalised. Repairs and maintenance costs are expensed when incurred. From 1 January 2004 to 31 December 2004, the cost of property, plant and equipment includes the net expense / income at the date of maturity of forward currency contracts used taken out to hedge purchases of tangible assets. From 1 January 2005, this cost also includes translation gains or losses related to effective cash flow hedges of acquisitions of property, plant and equipment in foreign currency, transferred from equity at the date of accounting recognition of the item of property, plant and equipment. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Expenses relating to the replacement or renewal of parts of certain items of property, plant and equipment are recognised as an acquisition of a new asset and the replaced asset is written off. The Group keeps spare parts for production installations and machinery are carried as inventory for one year from acquisition. Spare parts not used in this period are transferred to property, plant and equipment, and depreciated on the same basis as the machinery to which the spare part relates. The net carrying amount of the spare part is written off when it is used to replace a damaged part. b) Leased assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. An operating lease is a lease other than a finance lease. Property acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and provisions for impairment losses. Lease payments are expensed on a straight-line basis over the lease term. The total payment obligations to pay deriving from the lease, net of finance charges, are recognised as a long-term payable. c) Investment property Investment properties, comprising Group-owned buildings, are held to earn long-term rentals and are not occupied by the Group. Investment properties are initially measured at cost, including associated transaction costs. Subsequently, the Company applies the same criteria as for property, plant and equipment. d) Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of the assets. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Land is not depreciated. Estimated useful lives are as follows: - Buildings 5-40 years - Plant and equipment 5-25 years - Other intangible assets 3-10 years

52 Impairment losses The carrying amounts of the Group s assets, other than investment properties, inventories and deferred tax assets and liabilities, are reviewed at each balance sheet date to determine whether there are any indications of impairment. If any such indication exists, the asset s recoverable amount is estimated. The recoverable value of goodwill, which is not amortised, is estimated at each balance sheet date. Provisions derived from impairment of an asset are recognised whenever the carrying amount of the asset, or its corresponding cashgenerating unit, exceeds its recoverable amount. Provisions for asset impairment are recognised in the income statement. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less selling costs and its value in use. Value in use is the present value of estimated cash flows, applying a discount rate which reflects the current market valuation of the time value of money and the specific risks of the asset in question (for example: current effective market interest rate). For assets that do not generate cash inflows themselves, the recoverable amount is determined for the cash-generating unit to which the asset belongs, considered as the lowest level for which there are separately identifiable cash flows. Provisions for impairment losses recognised in prior years are reversed only if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. However, the new carrying amount cannot exceed the carrying amount which would have been obtained, net of depreciation, had no impairment loss been recorded. Provisions for impairment of goodwill cannot be reversed. 2.9 Financial assets From 1 January 2004 to 31 December 2004 financial assets include interests in entities that are neither subsidiaries nor associates, as well as financial assets held for investment purposes, investments held to maturity and other securities. Financial investments are initially recognised at cost and include additional direct costs. Provision is made for permanent impairment losses by reducing the carrying value of the financial asset in question. Current assets also include investments and securities acquired as short-term investments, which are measured at the lower of cost and market value. From 1 January 2005 the Group classifies its financial assets in accordance with the following categories: a) Financial assets at fair value through profit or loss b) Held-to-maturity investments c) Loans and receivables d) Available-for-sale financial assets The classification depends on the purpose for which the investments were acquired. Management determines the classification of the Company s investments when they are initially acquired and re-evaluates this designation at each reporting date. Acquisitions and disposals of investments are recognised when the Group commits to purchase or sell the asset in question. Investments cease to be recognised as such are derecognised when the rights to receive cash flows from the investments have matured or been transferred and the Group has substantially transferred the risks and rewards of ownership. The fair value of quoted securities is determined by reference to the quotation value. The fair value of financial securities which are not quoted in OTC markets is calculated by reference to discounted future cash flows. a) Financial assets at fair value through profit or loss A financial asset is classified in this category if acquired principally for the purpose of resale in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets held for trading are classified as current assets and measured at fair value. Changes in fair value are recorded directly in the income statement. b) Held-to-maturity investments Included in this catecory are financial assets, not being derivatives, with fixed or determinable payments and fixed maturities that the Group s management has the intention and ability of holding to maturity. These are initially recognised at fair value, including direct costs incurred in the transaction, and subsequently measured at amortised cost, using the effective interest rate method. c) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are only classified as non-current assets when their maturities are greater than 12 months after the balance sheet date. Loans and receivables are initially recognised at fair value, including direct costs incurred in the transaction, and subsequently measured at amortised cost, using the effective interest rate method.

53 Cuentas Anuales Consolidadas 53 d) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are not classified in any of the other categories. They are stated at fair value, with any resulting gain or loss being recognised directly in equity, except for impairment losses and foreign exchange differences, which are taken directly to the income statement. Share capital investments included in this category whose market value cannot reliably be defined are measured at acquisition cost, as permitted by IFRS, reduced, where applicable, by the corresponding provision when the attributable underlying carrying amount is lower. In the case of sales of available-for-sale financial assets, accumulated gains from changes in fair value and recognised in equity are derecognised against the income statement Trade receivables Trade receivables are stated at their acquisition cost less impairment losses. A provision for impairment of trade receivables is created when there is objective evidence that the Group will not be able to collect all amounts due. The amount of the provision is the difference between the asset s carrying valueand the present value of estimated future cash flows, discounted at the effective interest rate. Insurance exists for certain receivables, covering up to 90% of their balance. Discounted notes and bank advances are recorded until maturity under trade debtors and short-term borrowings, unless the risks and rewards associated with the assets have been substantially transferred, in which event they are derecognised. Due interest in the value of transactions with maturities greater than 12 months is deferred and imputed to the income statement according to financial criteria Inventories Inventories are stated at the lower of cost and net realisable value. Cost (of acquisition or production) is determined as follows: - Raw materials and other supplies, at average weighted cost. - Finished products and work in progress, at the average weighted cost of raw materials and other supplies, incorporating applicable direct and indirect labour costs and general manufacturing costs based on normal operating capacity (added value). Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and applicable variable selling expenses Cash and cash equivalents Cash and cash equivalents include cash balances, call deposits with banks and other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts, although included as cash and cash equivalents for the purpose of the statement of cash flows, are shown within borrowings in current liabilities in the balance sheet Share capital Share capital solely comprises ordinary shares. Costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Costs directly attributable to the issue of new shares for the acquisition of a business are included in the cost of acquisition as part of the consideration for the acquisition. Until 31 December 2004 treasury shares acquired by the Company are included under that title in assets and require a separate nondistributable reserve to be set up for the same amount. Treasury shares acquired to reduce share capital are shown as a deduction against shareholders equity until such time on the share capital reduction is effected and whereupon the share capital is written down by the par value of the shares and the difference is deducted from reserves. From 1 January 2005, when a Group company purchases the Company s shares (treasury shares), the consideration paid, including any directly attributable costs (net of income taxes), is deducted from equity attributable to the Company s shareholders equity until the shares are cancelled, reissued or disposed of. Where these shares are subsequently sold or reissued, any consideration received, net of any directly attributable transaction costs and the related income tax effects, is included in equity attributable to the Company s shareholders equity Capital grants Government grants are recognised in the balance sheet at the original amount awarded when there is reasonable assurance that they will be received and that the Group will comply with the conditions attached.

54 54 The Group has only received grants related with the acquisition of intangible assets and property, plant and equipment. These are included under non-current liabilities and recognised in the income statement on a straight-line basis over the expected lives of the respective assets Loans and interest-bearing borrowings Borrowings are recorded at their initial cost, which coincides with fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds received (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability until at least 12 months after the balance sheet date Employee benefits Certain Group companies have assumed the following commitments with their employees: a) Defined contribution plans A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Certain Group companies pay contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. No provisions are made for defined contribution plans since they do not generate future obligations for the Group. b) Defined benefit plans Existing commitments may be classified as: Early retirement benefits: certain Group companies have undertaken to pay indemnities to employees who opt to take early retirement. Supplements: these plans are commitments agreed with certain Group employees to supplement their remuneration once their service is completed. These benefits have been established based on local legislation in certain countries, contracts signed to that effect, or as included in collective labour agreements prevailing in certain Group companies. Accrued commitments are calculated as the present value of accumulated benefits accrued by employees at the balance sheet date, using actuarial assumptions. In most cases, calculations are carried out by independent experts. The Group s companies record, where applicable, the corresponding provisions to cover these commitments. When the commitments have been externalised and no amounts are pending payment to the insurance companies, no provision / advance is recognised, unless significant differences arise between the present value of the commitments and the payments made. c) Other post-employment obligations Some Group companies provide post-retirement healthcare benefits to their retirees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using an accounting methodology similar to that for defined benefit pension plans. Actuarial gains and losses arising from adjustments to reflect past experience, and changes in actuarial assumptions, are charged or credited to income when they arise. d) Share-based compensation The Group does not have any share-based compensation plans. e) Termination benefits These relate to commitments arising when employees service is discontinued. Generally, termination benefits are payable when employment is terminated before the normal retirement or contract expiry date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises these benefits when it is demonstrably committed to terminating the employment of current employees with a detailed formal plan which cannot be withdrawn, or to providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits which are not payable in the twelve months following the balance sheet date are discounted to their present value.

55 Cuentas Anuales Consolidadas Provisions The Group recognises provisions when: (i) it has a present obligation (legal or constructive) as a result of past events; (ii) it is more likely than not that an outflow of resources embodying economic benefits will be required to settle the obligation; and (iii) a reliable estimate can be made of the amount of the obligation Trade payables Trade and other payables are stated at cost, that is at the fair value of the consideration received Income tax Income tax on profit for the year comprises current and deferred tax. Current tax is the estimated tax payable on the taxable income for the year using tax rates enacted or substantially enacted at the balance sheet date and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that sufficient future taxable profits will be available. Such reductions are reversed, should there be a recovery in the expectation of sufficient future taxable profits against which to use the balances written off. Since 1998 the Parent company has filed consolidated tax returns. By virtue of the agreement adopted by shareholders at their annual general meeting on 28 May 2003, Acerinox, S.A. and subsidiaries, registered in Spain, form part of a consolidated tax group on an indefinite basis, with the exception of Metalinox Bilbao, S.A. and Inoxidables de Euskadi, S.A., which file individual tax returns Revenues a) Goods sold and services rendered Revenue from the sale of goods is recognised in the income statement when all significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods. Operating income is recognised net of taxes, rebates and discounts and after having eliminated sales within the Group. b) Rental income Rental income from investment property is recognised in the income statement on a straight-line basis over the term of the lease. c) Interest income Interest income is recognised using the effective interest method. d) Dividends Income from dividends is recognised when the Group s right to receive payment is established. Note 3 - Financial risk management The Group s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest risk and price risk), credit risk and liquidity risk. The Group seeks to minimise potential adverse effects on the Group s financial performance through the use of derivative financial instruments. Detailed analysis of the Group s derivatives at year end is included in note 21. The Group does not acquire financial instruments for speculative purposes. Until 31 December 2004, operations which fulfil the conditions of hedge accounting, as defined by the Group s risk management policy, are classified as hedging operations. The remaining operations are designated as for trading. The Group recognises deri-

56 56 For financial instruments designated as interest rate hedges, the difference in the interest rate is recognised in the income statement, under financial expenses, on an accrual basis, offsetting the impact of the hedged transaction. Derivate financial instruments designated as trading instruments are measured at market value at year end. The difference between the nominal value of the contract and its fair value, if this is lower, is recognised in the income statement under financial expenses. From 1 January 2005 onward, derivatives are recognised at their fair value, both on initial recognition and subsequently. At the inception of a hedging operation the Group designates and documents the hedging relation, as well as the objective and strategy assumed by the Group with regard to the hedge. The Group also documents its evaluation, at the inception of the hedge and continuously afterward, of whether the derivatives used in hedging transactions are effective for the purpose of covering changes in fair values or cash flows from hedged items. The accounting method used for each type of derivative, is explained below. 3.1 Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily the US Dollar. Foreign exchange risk arises from commercial transactions and financial operations. To manage their foreign exchange risk, Group companies use forward contracts, transacted with Group treasury, in accordance with policies approved by management. Derivative financial instruments are recognised initially at cost, which is the same as fair value, and subsequently at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged. The effective part of the gain or loss on the financial instrument is initially recognised in equity and subsequently in the profit or loss for the year or years in which the hedged transaction has impacted the result. The fair value of forward exchange contracts is equivalent to their quoted market price at the balance sheet date, that is the present value of the quoted forward price. 3.2 Interest rate risk In certain cases the Group uses derivative financial instruments and interest rate swaps to hedge its exposure to cash flow interest rate risks. The financial derivatives used by the Group to hedge its exposure to interest rate risks are initially recognised at cost, which matches fair value, and subsequently at fair value. These derivatives used by the Group meet the effectiveness requirements for consideration as cash flow hedges and the resulting unrealised gain or loss therefore is recognised based on the nature of the item hedged. The effective part of the gain or loss on the financial instrument is initially recognised in equity and subsequently in the profit or loss for the year or years in which the hedged transaction impacts the result. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current credit worthiness of the swap counterparties. 3.3 Price risk The Group is exposed to fundamental two types of price fluctuations risks: 1) of price fluctuations in quoted securities. 2) of fluctuations in prices of raw materials and sales contracts. The prices of certain raw materials used by the Group in its production process are quoted on the London Metals Exchange, and are therefore subject to constant fluctuations. The Group is exposed to risks on the purchase of its material supplies and its sales contracts. The Group does not use financial instruments to hedge these types of risks. 3.4 Credit risk The Group does not have any concentrations of credit risk, in view of to the diversity of the custormers and the countries in which it operates.

57 Cuentas Anuales Consolidadas 57 Trade receivables are measured at their nominal value, less provision for bad debts in respect of overdue balances and when circumstances indicate doubtful collection. Insurance has also been contracted for certain trade receivables, covering up to 90% of their balance. The Group also uses other financial instruments to reduce credit risk, such as factoring operations. The Group derecognises factored assets when the risks and rewards of those assets have been substantially transferred. 3.5 Liquidity risk The Group has no difficulties in obtaining sufficient funds to settle its financial instruments commitments. The Group has sufficient liquidity and funding to meet all of its commitments. The Group has agreed short-term and long-term credit facilities amounting to Euros 1,772,418 thousand. Euros 646,155 thousand has been drawn down on these facilities at 31 December 2005 (Euros 622,975 thousand at 31 December 2004). Note 4 - Accounting estimates and judgements Accounting estimates and judgements are continuously assessed and are based on factors including historical experience and expectations of future events which are considered reasonable Important estimates The Group makes estimates and judgements regarding the future. The resulting accounting estimates could differ from actual corresponding results. The main estimates are as follows: a) Estimated impairment of goodwill and other assets The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2.6. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates, for example regarding the purchase prices of raw materials or market sale prices, which are highly volatile. b) Useful lives of plant and machinery The Group s management determines the estimated useful lives and corresponding depreciation charges for its plant and machinery based on valuations carried out by the corresponding experts. These could alter significantly as a result of technical innovations. Management regularly reviews the depreciation charge and adjusts it when estimated useful lives are different from those applied previously or amortises or writes off technically obsolete or non-strategic assets which have been abandoned or sold. Fixed assets representing technical production units for specialised use in the production process are depreciatedon the basis of five shifts of use, recognising the effective use of these assets. c) Pension benefits The present value of pension commitments for those Group companies which such commitments depends on a number of factors which are determined on an actuarial basis using a number of assumptions. The assumptions used to determine the net cost (income) for pensions include the expected long-term rate of return on the corresponding assets related to the plan and the discount rate. Any change to these estimates will have an effect on the amount recorded for pension commitments. Other key assumptions for pension commitments take into account current market conditions. Further information is included in note d) Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in active markets is determined by using valuation techniques mainly based on market conditions existing at each balance sheet date and in the extent that the financial information is available to carry out such valuations. 4.2 Important judgementsin applying of accounting policies Although these estimates were based on the best available information available at 31 December 2005, future events may require these estimates to be modified (increased or decreased) in subsequent years. Any change in accounting estimates are recognised prospectively in the corresponding consolidated income statement, in accordance with IAS -8.

58 58 Note 5 - Transition to ifrs 5.1 General information As explained in note 2, these are the Group s first consolidated annual accounts prepared in accordance with IFRS. The Group has applied IFRS 1 in preparation of these accounts is the first year in which the Group has submitted its consolidated annual accounts based on IFRS. The last annual accounts submitted based on Spanish accounting principles related to the year ended 31 December The consolidated annual accounts at 31 December 2005 and the comparative information for the year ended 31 December 2004, except with regard to the application of IAS 32 and 39, have been prepared on the basis of the accounting principles included in note 2. In preparation of these first consolidated annual accounts based on IFRS, the Group has adjusted the amounts presented in the latest annual accounts prepared on the basis of Spanish accounting principles. As permitted by application of IFRS 1, which governs first-time adoption of IFRS, the Group has applied all the obligatory exemptions and certain optional exemptions on the retroactive application of IFRS. 5.2 Exceptions to the retroactive application followed by the Group The Group has opted to apply the following exemptions to the retrospective application of IFRS. a) Business combinations The Group has applied the exemption foreseen in IFRS 1 regarding business combinations. Consequently, business combinations which occurred prior to 1 January 2004 (the date of transition) have not been restated. b) Fair value as deemed cost The Group has opted not to measure any items of property, plant and equipment at fair value. However, certain items of property, plant and equipment were revalued in accordance with certain local legislation. As permitted by IFRS 1, the Group has opted to consider the revalued amount of property, plant and equipment as the deemed cost of these assets. c) Employee benefits The Group has opted not to apply the corridor approach and recognises all accumulated actuarial gains and losses at 1 January d) Cumulative translation differences As permitted by IFRS 1, the Group has opted to derecognise accumulated translation differences at 1 January 2004 and reclassify these to distributable reserves. e) Compound financial instruments The Group has not issued any compound financial instruments and consequently this exemption is not applicable. f) Assets and liabilities of subsidiaries, associates and joint ventures This exemption is not applicable. g) Restatement of comparative information under IAS 32 and 39 The Group has opted to apply this exemption and therefore both standards are only applied from 1 January The necessary adjustments between Spanish accounting principles and IAS 32 and 39 have been considered and recognised at 1 January The main differences in criteria between the former Spanish principles applied to the comparative information for 2004 and IAS 32 and 39, as well as the effects of the transition to this standards, are detailed in note 5. h) Designation of financial assets and financial liabilities The Group has reclassified various securities as available-for-sale investments and as financial assets at fair value through profit or loss from 1 January The adjustments relating to IAS 32 and 39 in the opening balance sheet at 1 January 2005, the date of transition to these IFRS, are detailed in note 5.. i) Share-based payment transactions The Group has not engaged in any share-based payment operations and consequently this exemption is not applicable. j) Insurance contracts The Group has decided not to apply this exemption. k) Dismantling liabilities included in the cost of property, plant and equipment The Group does not have any dismantling liabilities and therefore the exemption is not applicable. l) Initial valuation of financial assets and liabilities at fair value The Group has not applied the exemption foreseen by the amended IAS 39 with regard to the initial recognition of financial instruments for which no active market exists at fair value through profit or loss. Therefore, this exemption is not applicable.

59 Cuentas Anuales Consolidadas Reconciliation of IFRS to Spanish GAAP Summary of adjustments to equity (Expressed in thousands of Euros) 1 de January 2004 Note 31 de December 2004 Equity under Spanish General Chart of Accounts 1,658,064 1,766,523 Effect of translation at historical closing exchange rate - on translation of financial statements -76,044 a - on consolidation adjustments 3,679 a Transfer to equity of establishment costs -474 b -230 Amortisation of goodwill 5,529 c Minority interests 121,197 d 151,566 d Negative consolidation differences 4,811 e 4,811 e Unrealised positive differences taken to income statement 1,218 f 1,441 f Adjustment to provisions 301 g 1,390 g Tax adjustments 2,594 h 5,812 h Other movements IFRS equity 1,715,387 1,936,697 Note The most significant differences in net equity at 1 January 2004 and 31 December 2004 and in the income statements for 2004 under IFRS are as follows:: a) Effect of application of closing exchange rate: on 1 January 2004 the Company changed the criteria for translation to Euros of the financial statements of the consolidated companies with a presentation currency other than the Euro, from using the non-monetary method to the closing exchange rate method, as permitted by IAS 21. b) Transfer of establishment costs to equity: under IFRS establishment costs are not considered an asset and consequently have been adjusted. c) Amortisation of goodwill: from 1 January 2004 under IFRS goodwill is not amortised but tested annually for impairment. As a result of the aforementioned adjustment, the carrying amount of goodwill has been reduced by Euros 5,529 thousand at 31 December 2004 and amortisation of goodwill has been derecognised by the same amount in the year ended 31 December d) Minority interests: under Spanish accounting principles, minority interests were presented as a separate item under liabilities in the consolidated balance sheet. From 1 January 2004, the Group s date of transition to IFRS, minority interests are presented as a reduction in the Group s equity. e) Negative consolidation differences: under Spanish accounting principles, the differences arising as a result of eliminating investments against the corresponding equity of the investment at the date of the acquisition were assigned to the value of the consolidated entity s assets and liabilities. The residual negative amount (negative goodwill) was recorded as a liability. This negative consolidation difference, once the fair values of the acquired assets and liabilities have been reconsidered, has been adjusted against equity in accordance with IFRS. f) Unrealised exchange gains taken to income: under Spanish accounting principles, unrealised net gains resulting from the translation of balances in foreign currency at year end were deferred until maturity. Under IFRS criteria, these gains have been recognised in the statement of income / equity. g) Provision adjustments: certain provisions of subsidiaries, maintained under Spanish accounting principles do not qualify as such under IFRS and have been derecognised. h) Tax effect: the effect of the above-mentioned adjustments is to modify deferred tax liabilities based on the local tax rate of the Group company to which the conversion adjustment relates. At the transition date, the Company has also recognised the tax impact of certain consolidation adjustments, the effect of which was not considered previously as it was not material to the consolidated financial statements as a whole. The impact of the adjustments for conversion to IFRS on the income statement are detailed in the following note:

60 Reconciliation of results (Expressed in thousands of Euros) 31 December 2004 Note Profit under Spanish General Chart of Accounts 302,913 Elimination of establishment costs 244 b Elimination of goodwill amortisation 5,529 c Exchange differences 223 f Elimination of provisions 1,089 g Tax adjustments 3,218 h Other movements 144 Profit under IFRS 313, Adoption of IAS 32 and 39 on 1 January 2005 The Group has opted to apply the exemption from restating comparative information applying IAS 32 and 39. As a result, the necessary adjustments between the Spanish General Chart of Accounts and IAS 32 and 39 have been considered and recognised at 1 January A reconciliation of net equity between 31 December 2004 and 1 January 2005 is as follows: Description of adjustment In thousands of Euros Balance at 31 December ,936,698 Derivative financial assets 863 Financial assets at fair value through profit or loss 3,811 Tax effect -1,334 Balance at 1 January ,940,038 The Group has reclassified investments included in other categories under Spanish accounting principles to financial assets at fair value through profit or loss, and has restated these at fair value. Under Spanish accounting principles, these investments were stated at historical cost. The effect of this adjustment is Euros 3,811 thousand and modifies deferred tax liabilities based on a tax rate of 35%. As mentioned in note 3, the Group uses cash flow and interest rate hedging instruments. Under Spanish accounting principles and until 31 December 2004, the Group recorded derivative financial instruments at cost. From 1 January 2005 onward, derivatives are recognised initially and subsequently at fair value. Any gains or losses arising from changes to the fair value of cash flow and interest rate hedging instruments classified as effective are recognised in equity. Note 6 - Consolidated group 6.1 Subsidiaries and associates At 31 December 2005, in addition to Acerinox, S.A., the consolidated Acerinox Group includes 34 fully consolidated subsidiaries and 2 associates accounted for under the equity method.

61 Cuentas Anuales Consolidadas 61 Fully Consolidated companies Country 2005 Interest Cost (in thousands of Euros) % of nominal value Interest Held by ACERINOX (SCHWEIZ) A.G. Mellingen -Switzerland % ACERINOX S.A KPMG ACERINOX ARGENTINA Buenos Aires - Argentina % ACERINOX S.A KPMG ACERINOX AUSTRALASIA Sidney - Australia % ACERINOX S.A KPMG ACERINOX BENELUX Brussels - Belgium % ACERINOX S.A KPMG ACERINOX BRASIL Sao Paulo - Brazil % ACERINOX S.A ACERINOX DEUTSCHLAND GMBH Langenfeld - Germany 20, % ACERINOX S.A KPMG ACERINOX FRANCE S.A.R.L. Paris - France 17, % ACERINOX S.A KPMG ACERINOX ITALIA S.R.L. Milan - Italy 28, % ACERINOX S.A KPMG ACERINOX MALAYSIA Johor - Malaysia 4, % ACERINOX S.A KPMG ACERINOX NORWAY A/S Oslo - Norway 2, % ACERINOX S.A KPMG ACERINOX PACIFIC LTD. Wanchai - Hong Kong 10, % ACERINOX S.A KPMG ACERINOX POLSKA Warsaw - Poland 6, % ACERINOX S.A % Inoxidables Euskadi ACERINOX SCANDINAVIA AB Malmoe - Sweden 31, % ACERINOX S.A KPMG ACERINOX SOUTH EAST ASIA PTE.LTD. Auditor Singapore - Singapore % ACERINOX S.A KPMG ACERINOX U.K. Birmingham - UK 17, % ACERINOX S.A KPMG ACEROL LTDA. (PORTUGAL) Maia - Portugal 15, % ACERINOX S.A KPMG ACIMETAL S.A. Terrasa (Barcelona) Spain 2, % ACERINOX S.A BDO Audiberia COLUMBUS Middleburg - South Africa 279,615 76% ACERINOX S.A KPMG CROMWELD Staffordshire - UK % Columbus D.A. ACERINOX CHILE S.A. Santiago de Chile - Chile 7, % ACERINOX S.A KPMG INOX RE Luxemburg 1, % ACERINOX S.A BDO Audiberia INOXCENTER CANARIAS S.A. Telde (Gran Canaria) - Spain % INOXCENTER S.A % Acimetal BDO Audiberia INOXCENTER S.A. Barcelona - Spain 10, % ACERINOX S.A BDO Audiberia INOXFIL S.A. Igualada (Barcelona) - Spain 6, % Roldan s.a BDO Audiberia INOXIDABLES DE EUSKADI S.A. Vitoria - Spain 2, % ACERINOX S.A BDO Audiberia INOXIDABLES DE GALICIA S.A. Vigo (Pontevedra) - Spain % Inoxmetal BDO Audiberia INOXMETAL S.A. Zaragoza - Spain 1, % ACERINOX S.A BDO Audiberia INOXPLATE Maia - Portugal 7, % Acerol Portugal METALINOX BILBAO S.A. Galdácano (Vizcaya) - Spain 2, % ACERINOX S.A BDO Audiberia N.A.S. LONG PRODUCTS Kentucky - U.S.A. 5, % Roldan s.a KPMG NEWTECINVEST AG Zug - Switzerland 4, % ACERINOX S.A KPMG NORTH AMERICAN STAINLESS INC. Kentucky - U.S.A. 526, % ACERINOX S.A 4, % N.A.S. Long Products ROLDAN S.A. Ponferrada - Spain 17, % ACERINOX S.A BDO Audiberia NAS CANADA. INC Canada 4, % North American Stainless Inc. 10, % ACERINOX S.A KPMG 2005 Interest Associates Country Cost (in thousands of Euros) % of nominal valuel Interest Held by BETINOKS Turquía % ACERINOX S.A YICK HOE Malasia % ACERINOX S.A

62 62 The activities of the Group companies are as follows: North American Stainless, LP.: manufacture of flat and long stainless steel products. Columbus Stainless (PTY), Ltd.: manufacture of flat and long stainless steel products. Roldan, S.A.: manufacture of long stainless steel products. Inoxfil, S.A.: manufacture of stainless steel barbed wire. Inox Re: reinsurance broker. Remaining companies: marketing of stainless steel products. Investments relating to 2004 are presented below: Fully Consolidated companies Country 2004 Cost (in thousands of Euros) Interest % of nominal value Interest Held by ACERINOX (SCHWEIZ) A.G. Mellingen -Switzerland % ACERINOX S.A KPMG ACERINOX ARGENTINA Buenos Aires - Argentina % ACERINOX S.A KPMG ACERINOX AUSTRALASIA Sidney - Australia % ACERINOX S.A KPMG ACERINOX BENELUX Brussels - Belgium % ACERINOX S.A KPMG ACERINOX BRASIL Sao Paulo - Brazil % ACERINOX S.A ACERINOX DEUTSCHLAND GMBH Langenfeld - Germany 20, % ACERINOX S.A KPMG ACERINOX FRANCE S.A.R.L. Paris - France 13, % ACERINOX S.A KPMG ACERINOX ITALIA Milan - Italy 23,643 99% ACERINOX S.A 276 1% INOXIDABLES EUSKADI ACERINOX MALAYSIA Johor - Malaysia 4, % ACERINOX S.A KPMG ACERINOX NORWAY A/S Oslo - Norway 2, % ACERINOX S.A KPMG ACERINOX PACIFIC LTD. Wanchai - Hong Kong % ACERINOX S.A KPMG ACERINOX POLSKA Warsaw - Poland 6, % ACERINOX S.A % INOXIDABLES EUSKADI ACERINOX SCANDINAVIA AB Malmoe - Sweden 21, % ACERINOX S.A KPMG ACERINOX SOUTH EAST ASIA PTE.LTD. Auditor KPMG Singapore - Singapore % ACERINOX S.A KPMG ACERINOX U.K. Birmingham - UK 17, % ACERINOX S.A KPMG ACEROL LTDA. (PORTUGAL) Maia - Portugal 10, % ACERINOX S.A KPMG ACIMETAL S.A. Terrasa (Barcelona) Spain 2, % ACERINOX S.A BDO Audiberia COLUMBUS Middleburg - South Africa 232,000 64% ACERINOX S.A KPMG CROMWELD Staffordshire - UK % COLUMBUS P.W.C. D.A. ACERINOX CHILE S.A. Santiago de Chile - Chile 7, % ACERINOX S.A KPMG INOX RE Luxemburg 1, % ACERINOX S.A BDO Audiberia INOXCENTER CANARIAS S.A. Telde (Gran Canaria) - Spain % INOXCENTER % ACIMETAL BDO Audiberia INOXCENTER S.A. Barcelona - Spain 10, % ACERINOX S.A BDO Audiberia INOXFIL S.A. Igualada (Barcelona) - Spain 6, % ROLDAN S.A BDO Audiberia INOXIDABLES DE EUSKADI S.A. Vitoria - Spain 2, % ACERINOX S.A BDO Audiberia INOXIDABLES DE GALICIA S.A. Vigo (Pontevedra) - Spain % INOXMETAL BDO Audiberia INOXMETAL S.A. Zaragoza - Spain 1, % ACERINOX S.A BDO Audiberia INOXPLATE Maia - Portugal 7, % ACEROL PORTUGAL KPMG METALINOX BILBAO S.A. Galdácano (Vizcaya) - Spain 2, % ACERINOX S.A BDO Audiberia N.A.S. LONG PRODUCTS Kentucky - U.S.A. 5, % ROLDAN S.A NEWTECINVEST AG Zug - Switzerland 4, % ACERINOX S.A KPMG NORTH AMERICAN STAINLESS INC. Kentucky - U.S.A. 526, % ACERINOX S.A 3, % N.A.S. LONG PRODUCTS ROLDAN S.A. Madrid - Spain 17, % ACERINOX S.A BDO Audiberia KPMG

63 Cuentas Anuales Consolidadas Participacion Associates Country Cost (in thousands of Euros) % of nominal valuel Interest Held by BETINOKS Turkey % ACERINOX S.A YICK HOE Malaysia % ACERINOX S.A 6.2 Changes in the consolidated Group Nas Canada NAS Canada was incorporated in February 2005, with head offices in Ontario. The company was initially incorporated by means of a share capital contribution by Nas Inc, which owned 100% of the shares. On 23 December 2005 Acerinox, S.A. adquired from Nas Inc. a 30% of this subsidiary. The new company is engaged in the marketing of stainless steel products. Columbus At 31 December 2004, Acerinox owned 64% of Columbus Stainless. On 13 May 2005, Acerinox S.A. acquired a further 12% stoke increasing its total stoke to 76%. This investment has been acquired at its underlying carrying amount at the date of acquisition and therefore has not generated any goodwill. 6.3 Share capital increases The following share capital increases were carried out in consolidated companies in (Expressed in thousands of Euros) COMPANY Number of shares Capital increase (in thousands of Euros) Acerol Portugal 1 quota 5,000 Acerinox Italia 1 quota 5,000 Acerinox Francia 275,000 4,125 Acerinox Pacific 120,000 10,226 Acerinox Escandinavia AB 95,000 10,069 Nas Canada, Inc. 51,000 14,415 TOTAL 48,835

64 64 Note 7 - Segment reporting The Group s structure is based on business segments, therefore considered to be the primary segment, while geographical segments are considered to be secondary. A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. The types of products sold by the Group s different business segments are as follows: Flat stainless steel products: slabs, coils, plates, flats, circles and sheets. Long stainless steel products: bars, wires and fermachine. Others: comprising other stainless steel products not included in the above segments. Segment results, assets and liabilities include all items directly or indirectly attributable to a segment. Inter-segment sales prices are established in accordance with normal commercial terms and conditions governing non-related third parties. 7.1 Business segments Segment results for the year ended 31 December 2005 are as follows: (Expressed in thousands of Euros) 2005 Flat product Long product Others Adjustments Total Income statement Ordinary income 3,793, , , ,098 4,229,743 Sales between Group sectors -235,243-18, ,098 0 Total ordinary income 3,558, , , ,229,743 Gross operatingprofit 374,801 40, ,417 Depreciation -97,427-14, ,774 Change in provisions -43,195-2, ,716 Impairment losses 0 Net financial costs -31, ,712 Profit before tax 202,937 24, ,215 Tax on earnings -66,522-8, ,320 Consolidated profit for the year 136,415 15, ,895 Balance sheet Segment assets 3,203, ,079 88,564 3,644,836 Fixed tangible assets 1,414, ,942 1,586,957 Investments in associates 2,149 2,149 Unattributed assets 0 Total consolidated assets 3,205, ,079 88, ,646,985 Segment liabilities 1,344, ,501 45,520 1,595,596 Unattributed liabilities 0 Total consolidated liabilities 1,344, ,501 45, ,595,596 Investments in fixed assets 215,488 7, , figures are as follows:

65 Cuentas Anuales Consolidadas 65 (Expressed in thousands of Euros) 2004 Flat product Long product Others Adjustments Total Income statement Ordinary income 3,666, , , ,045 4,051,275 Sales between Group sectors -242,236-14, ,045 0 Total ordinary income 3,424, , , ,051,275 Gross operating income 557,510 70,514 5, ,386 Depreciation -113,817-15, ,212 Change in provisions Impairment losses 0 Net financial costs -14,461-1, ,720-6,860 Profit before tax 428,372 54,056 5,362 8, ,510 Tax on earnings -142,187-19,071-1, ,754 Profit for the year 286,185 34,985 3,857 7, ,756 Balance sheet Segment assets 3,012, ,789 91,096 3,447,614 Property, plant and equipment 1,208, ,966 1,359,660 Investments in associates 1,829 1,829 Unattributed assets 0 Total consolidated assets 3,014, ,789 91, ,449,443 Segment liabilities 1,208, ,498 41,626 1,297 1,512,746 Unattributed liabilities 0 Total consolidated liabilities 1,208, ,498 41,626 1,297 1,512,746 Investments in property, plant and equipment 184,440 5, , Geographical segments AData relating to geographical segments in 2005 is presented below: (Expressed in thousands of Euros) 2005 Europe US Africa Asia Others Total Income from goods by destination 1,768,624 1,620, , ,086 52,446 4,213,559 Income from goods by origin 1,797,465 1,587, , ,213,559 Segment assets by origin 1,474,714 1,395, ,795 38, ,646,985 Fixed tangible assets by origin 264, , , ,586,957 Investments in property, plant and equipment at origin 2004 figures are as follows: 70, ,611 28, ,510 (Expressed in thousands of Euros) 2004 Europe US Africa Asia Others Total Income from goods by destination 1,743,436 1,427, , ,759 16,142 4,035,769 Income from goods by origin 1,722,698 1,369, , ,035,769 Segment assets by origin 1,389,814 1,174, ,916 10, ,449,443 Fixed tangible assets by origin 233, , , ,359,660 Investments in property, plant and equipment at origin 53,665 59,856 76, ,166

66 66 Note 8 Intangible assets Details of the main intangible assets and movement therein are shown below: (Expressed in thousands of Euros) COST Emission rights Industrial property Development costs Other SUBTOTAL Goodwill Balance at 1 January ,890 3,478 11,025 30,393 69,124 Acquisitions 0 3 2, ,249 Transfers 0 1, Disposals Translation differences Balance at 31 December ,994 5,115 12,003 34,112 69,124 Acquisitions 2,333 2,201 2,368 6,902 Transfers 0 3,523-3, Disposals Translation differences Balance at 31 December ,333 20,517 3,793 14,401 41,044 69,124 ACCUMULATED AMORTISATION & IMPAIRMENT LOSSES Emission rights Industrial property Development costs Other SUBTOTAL Goodwill Balance at 1 January , ,348 20,536 0 Acquisitions 0 1, ,451 Transfers 0 1, Disposals Translation differences Balance at 31 December , ,290 23,419 0 Acquisitions 0 1, ,267 Transfers Disposals Translation differences Balance at 31 December , ,281 25,688 0 CARRYING AMOUNT Emission rights Industrial property Development costs Other SUBTOTAL Goodwill Cost at 1 January ,890 3,478 11,025 30,393 69,124 Accumulated amortisation and impairment losses 0-10, ,348-20,536 Carrying amount at 1 January ,702 3, ,857 69,124 Cost at 31 December ,994 5,115 12,003 34,112 69,124 Accumulated amortisation and impairment losses 0-13, ,290-23,419 Carrying amount at 31 December ,865 5,115 1,713 10,693 69,124 Cost at 31 December ,333 20,517 3,793 14,401 41,044 69,124 Accumulated amortisation and impairment losses 0-14, ,281-25,688 Carrying amount at 31 December ,333 6,110 3,793 3,120 15,356 69,124

67 Cuentas Anuales Consolidadas 67 Amortisation for the year is shown under amortisation and depreciation in the income statement. The Acerinox Group does not have any intangible assets with undefined useful lives, except for goodwill. Research and development costs directly recognised as expenses for the year and taken to the income statement amount to Euros 2,201 thousand (Euros 2,261 thousand in 2004). Emission rights In accordance with the national plan for allocation of emission rights, approved by virtue of Law 1 of 9 March 2005, Acerinox, S.A. has received free of charge a total of 813,705 rights, 271,235 for each of the three years included in the plan ( ). The Company has consumed 258,001 rights in 2005, equivalent to the emission of 258,001 tonnes of CO2, and therefore it has not been necessary to acquire any rights in the market. The Group foresees the consumption of 282,644 rights in end of 2006 and Movement in emission rights during the year has been as follows: (Expressed in thousands of Euros) Number of rights Valuation (in thousands of Euros) Opening assignation 271,235 2,333 Acquisitions Disposals Closing balance 271,235 2,333 The expense for the year for the emission of greenhouse gases totals Euros 2,219 thousand and is included under other operating expenses. This amount is the value assigned to the rights consumed in the year end, which is equivalent to the market value of the rights on allocation. There are no futures contracts for the acquisition of emission rights in the Group. No significant contingency exists in respect of forecast fines for this item. 8.1 Goodwill impairment testing Goodwill for Euros 69 million essentially comprises the goodwill which arose on the acquisition of the controlling interest in Columbus in This goodwill has been assigned to the Group s cash-generating units (CGU) based on the country of operation and business segment (South Africa flat product). The recoverable amount of a CGU is calculated of the basis of value in use. These calculations are based on cash flow projections from the financial budgets approved by management which cover a period of five years. Cash flows subsequent to this five-year period are extrapolated using the estimated growth rates indicated bellow. The rate of growth does not exceed the average long-term growth for the business in which the CGU operates. Forecast volumes of sales and production are based on the current capacities of existing machinery and equipment. Management determines projected gross margins based on past performance and forecast market development. Average weighted growth rates are in line with the forecasts included in industry reports. The discount rates used are before tax and reflect the specific risks of the relevant segments. The key assumptions used in calculating value in use are as follows: Budgeted gross margin 6.6% Weighted average growth rate (*) 2.5% Discount rate applied (**) 11.0% (*) Used to extrapolate cash flows subsequent to the budget period. (**) Discount rate applied before tax According to the estimates and projections available to the Group s directors, the forecast net cash flows attributable to this CGU fully support the value of the goodwill recognised for the acquisition of Columbus as well as net assets. It is not foreseeable that any reasonably likely change to the aforementioned estimates could result in the value of the goodwill and the net assets not being supported by revalued cash flows.

68 68 Note 9 - Property, Plant and Equipment (P.P & E.) Details of property, plant and equipment and movement in 2005 and 2004 are shown in the following table (Expressed in thousands of Euros) COST Land and buildings construcciones Plant and machinery Other p.p & e. Assets under construction TOTAL Balance at 1 January ,963 1,693,520 88, ,073 2,444,164 Additions 5,299 28,209 9, , ,917 Transfers 34, ,306 9, , Disposals ,154-6, ,307 Translation differences -9,198-25, ,914-45,041 Balance at 31 December ,409 2,011, ,474 51,869 2,576,720 Additions 13,778 83,372 19, , ,941 Transfers 15,505 53,854-8,006-61, Disposals -99-3,103-8, ,005 Translation differences 24, ,475 2,062 4, ,156 Balance at 31 December ,780 2,281, ,568 95,868 2,948,782 ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES Land and buildings construcciones Plant and machinery Other p.p & e. Assets under construction TOTAL Balance at 1 January , ,987 48, ,108,141 Allowance 12, ,366 13, ,763 Impairrment losses Reserval of impairment losses Transfers 0 1,511-1, Disposals , ,385 Translation differences -1,696-12, ,459 Balance at 31 December ,694 1,006,280 57, ,217,060 Allowance 11,613 85,938 11, ,508 Impairrment losses Reserval of impairment losses Transfers Disposals ,333-2, ,498 Translation differences 3,701 34,805 1, ,758 Balance at 31 December ,664 1,125,687 67, ,361,825 CARRYING AMOUNT Land and buildings construcciones construcciones Plant and machinery Other p.p & e. Assets under construction TOTAL Cost 1 at January ,963 1,693,520 88, ,073 2,444,164 Accumulated depreciation and impairment losses -143, ,987-48, ,108,141 Carrying amount at 1 January , ,533 40, ,073 1,336,023 Cost 1 at December ,409 2,011, ,474 51,869 2,576,720 Accumulated depreciation and impairment losses -153,694-1,006,280-57, ,217,060 Carrying amount at 31 December ,715 1,005,688 45,388 51,869 1,359,660 Cost 1 at December ,780 2,281, ,568 95,868 2,948,782 Accumulated depreciation and impairment losses -168,664-1,125,687-67, ,361,825 Carrying amount at 31 December ,116 1,155,879 40,094 95,868 1,586,957

69 Cuentas Anuales Consolidadas 69 Depreciation for the year is included under amortisation and depreciation in the income statement. Finance leases At 31 December 2005 the gross value of capitalised finance leases is Euros 3,658 thousand (Euros 3,551 thousand at 31 December 2004) and the net value is Euros 2,935 thousand in 2005 (Euros 3,167 thousand in 2004). Guarantees At 31 December 2005 certain land owned by the subsidiary North American Stainless, Inc. has been pledged as collateral for financing obtained from banks. Work in progress Details of the investments classified as work in progress are as follows: (Expressed in thousands of Euros) Buildings 31,317 22,511 Plant and machinery 59,346 22,830 Other fixed assets 3,117 5,173 Advances 2,088 1,355 TOTAL 95,868 51,869 Assets located outside Spain Details are as follows: (Expressed in thousands of Euros) Cost Accumulated depreciation Cost Accumulated depreciation Land and buildings 249,343-44, ,164-33,297 Plant and machinery 1,430, ,288 1,198, ,327 Other property, plant and equipment 41,571-21,828 40,709-15,255 Fixed assets in progress 88,834 37,914 TOTAL 1,810, ,326 1,483, ,879 Commitments At 31 December 2005 the Group has signed contracts for the acquisition of new equipment and installations for Euros 100,313 thousand. Capitalisation of interest and exchange gains and losses A total of Euros 2,006 thousand was capitalised in respect of interest and exchange losses in 2005 (Euros 11,406 thousand in 2004), comprising Euros 2,128 thousand of interest (Euros 10,480 thousand in 2004) and Euros 122 thousand of exchange losses (gains of Euros 926 thousand in 2004). Asset disposals A loss of Euros 428 thousand on the sale or retirement of property, plant and equipment has been recorded under other operating expenses in the 2005 income statement (Euros 1,434 thousand in 2004). The gain on the sale or retirement of property, plant and equipment totals Euros 47 thousand and is recognised under other operating income in the 2005 income statement (Euros 492 thousand in 2004). Environment Property, plant and equipment used for the purpose if minimising the environmental impact and protecting and improving the environment at 31 December 2005 are as follows:

70 70 (Expressed in thousands of Euros) Nature and destination Gross value Accumulated depreciation Gross value Accumulated depreciation Water treatment 44,668 14,706 38,075 11,294 Acid neutralisation 24,140 12,033 15,137 9,369 Gas emission treatment 38,379 31,220 35,466 29,958 Automatic additions system 21,333 6,124 3,967 3,299 Other 37,195 19,896 50,773 20,504 Total 165,715 83, ,418 74,424 Investment property Acerinox, S.A. has leased certain floors of one of its buildings to third parties, thereby obtaining income of Euros 314 thousand (Euros 303 thousand in 2004). The market value of these investment properties is Euros 8.1 million at 31 December 2005 (Euros 7.8 million in 2004). Other information Group companies have taken out various insurance policies to cover the risk of damage to their property, plant and equipment. The coverage of these policies is considered sufficient. Note 10 Investments accounted for under the equity method Movements in 2005 and 2004 are as follows: (Expressed in thousands of Euros) Opening balance 1, Interest in profit Translation differences Balance at 31 December 2,149 1,575 The Group s investment in its main associates, none of which are quoted companies, and financial information on these associates, is presented below: (Expressed in thousands of Euros) 2005 Country Assets Liabilities Equity Profit / (loss) % interest Betinoks Turkey 1, , % Yick Hoe Metals Malaysia 36,776 29,498 5,744 1,534 25% 2004 Betinoks Turquía 1, ,011 25% Yick Hoe Metals Malasia 27,647 22,776 2,738 2,133 25%

71 Cuentas Anuales Consolidadas 71 Note 11 - Other investments The Group also has the following investments: (Expressed in thousands of Euros) Long-term investments Available for sale financial assets 4,631 4,956 Short-term investments Financial assets at fair value through profit or loss 28,870 13,739 Others 1,986 3,133 Total 30,856 16, Available-for-sale financial assets At 31 December 2005 and 2004 available-for-sale financial assets mainly include the Euros 4,616 thousand investment (Euros 4,616 thousand in 2004) in the unquoted company Mexinox, with head offices in Mexico. The Group owns 4.5% of this company. As permitted by IAS 39, available-for-sale financial assets are measured at cost, as their fair value cannot be reliably measured because the necessary information is not available at the reporting date. Based on information from the company s financial statements, no impairment loss has been recognised Financial assets at fair value through profit or loss Financial assets held for trading and therefore measured at fair value through profit or loss include Acerinox s investment in the Japanese company Nisshin Steel, a company quoted on the Tokyo stock exchange. The Group owns 1.09% of this company. Nisshin shares restated at market value in 2005 amounts to Euros 11,320 thousand and included under revaluations of financial instruments at fair value in the 2005 income statement (zero in 2004, as the Group has chosen not to apply IAS 32 and 39 retroactively and therefore, the comparative amount has been taken to equity at 1 January 2005, as shown in the table below). Movement in the year is as follows: (Expressed in thousands of Euros) Balance at 31 December ,739 Adoption of IAS 32 and 39 3,811 Balance at 1 January ,550 Adjustment to fair value 11,320 Balance at 31 December ,870 Note 12 - Inventories Details at 31 December are as follows: (Expressed in thousands of Euros) Raw materials and consumables 266, ,972 Work in progress 266, ,475 Finished goods 749, ,474 Other supplies 63,352 11,369 Advances Provisions -53,794-9,254 TOTAL 1,292,098 1,333,121 The cost of goods sold is Euros 3,545 million in 2005 (Euros 3,181 million in 2004). Losses recognised on measurement of inventories at net realisable value total Euros 41,608 thousand in No losses of this kind were recognised in At 31 December 2005 and 2004 no inventories are pledged as collateral for repayment of debts or commitments contracted with third parties.

72 72 Commitments At 31 December 2005 the consolidated Group has commitments to purchase raw materials for Euros 706,722 thousand (Euros 754,005 thousand in 2004). No firm sales commitments exist at this date, although there are formal orders for which the Group does not foresee any problems impeding delivery by the agreed dates. Note 13 - Trade and other receivables Details at 31 December 2005 are as follows: (Expressed in thousands of Euros) Trade receivables 495, ,316 Trade receivables due from associates 904 3,310 Personnel Public entities 28,266 20,027 Other receivables 5,192 7,097 Provision for bad debt -9,463-9,880 TOTAL 520, ,184 The Group has made a provision of Euros 520 thousand in 2005 (Euros 1,319 thousand in 2004) for impairment of its trade receivables. The loss has been included under changes in provisions in the income statement. There is no concentration of credit risk in respect of trade receivables in the remaining segments given the Group s large number of customers distributed around the world. In addition, most export sales are covered by insurance companies. Certain Group companies ceded receivables of Euros 168,168 thousand to banks in exchange for cash during the year ended 31 December These amounts have been derecognised in the accounting records since they comply with the conditions established in IAS 39. Receivables ceded to banks and derecognised in the balance sheet totalled Euros 305,410 thousand in Note 14 - Cash and cash equivalents Details at 31 December 2005 are as follows: (Expressed in thousands of Euros) Cash and banks 28,992 26,494 Short-term bank deposits 52,295 8,748 TOTAL 81,287 35,242 The effective interest rate on short-term bank deposits is 4.3% for the US Dollar and 2.30% for the Euro (2.30% for the Euro in 2004) and the average maturity of these deposits is 15 days. At 31 December 2005 there are restricted bank balances of Euros 871 thousand (Euros 656 thousand in 2004) in guarantee of financing received. Note 15 - Equity 15.1 Share Capital Movement in shares in circulation in 2005 and 2004 is as follows: Nº shares (thousands) Ordinary shares (thousands) Treasury shares (thousands) Share capital (in thousands of Euros Share premium (in thousands of Euros) At 1 January ,800 65, , ,905 Nº of shares after reduction in par value 263, ,200 Disposal of treasury shares -661 Distribution of share premium -21,056 At 31 December , , , ,849 Reduction in share capital -3,700-3, Distribution of share premium -20,760 At 31 December , , , ,089

73 Cuentas Anuales Consolidadas 73 At 1 January 2004 share capital comprised 65,800,000 ordinary shares with a par value of one Euro each. At their general meeting on 10 June 2004, the shareholders of the Parent company agreed to reduce the par value of the shares from one Euro per share to Euros 0.25 per share, simultaneously increasing the number of shares from 65,800,000 to 263,200,000 shares, without modifying share capital, which continued to total Euros 65,800,000. These shares were fully subscribed and paid. At the same general meeting, shareholders agreed to return contributions to the Company s shareholders with a charge to the share premium of Euros 0.08 per share, once the par value reduction referred to in the preceding paragraph was completed, resulting in a total amount of Euros 21,056 thousand. At 31 December 2004, therefore, share capital comprised 263,200,000 ordinary shares with a par value of Euros 0.25 each. On 13 May 2005 the Company acquired the 3,866,666 shares in Acerinox, S.A. (1.47% of share capital) held by Highveld Steel & Vanadium, at an average price of Euros per share. At the general meeting held on 9 June 2005, the shareholders approved a reduction of share capital through the redemption of 3,700,000 treasury shares. As a result share capital totalled Euros 64,875,000, represented by 259,500 ordinary shares with a par value of Euros 0.25 each. The redeemed shares were excluded from trading on the Madrid and Barcelona stock exchanges on 4 July The Company has recognised the redemption of these shares with a Euros 925 thousand charge to the share capital account and the rest, up to the price of acquisition of the aforementioned 3,700,000 shares, has been charged to reserves. The remaining 166,666 shares were sold on the market for a profit of Euros 156 thousand which is included in reserves. Consequently, at 31 December 2005 the Parent company s share capital comprises 259,500,000 ordinary shares with a par value of Euros 0.25 each, fully subscribed and paid. All the shares have the same rights with no statutory restrictions on their transferability. All the shares are quoted on the Madrid and Barcelona stock exchanges. At 31 December 2005 the only holders of 10% or more of the share capital of Acerinox, S.A. are Nisshin Steel Co. Ltd., Alba Participaciones S.A. and Feynman Capital S.L Share premium and voluntary reserves The share premium is subject to the same restrictions and may be used for the same purpose as the voluntary reserves of the Company, including conversion into share capital Other reserves Other reserves include the following items: (Expressed in thousands of Euros) Legal reserve Revaluation reserve Accumulated earnings reserve TOTAL Balance at 1 January ,160 21,834 1,198,375 1,233,369 Dividend distribution for ,665-39,665 Interim dividend for ,424-18,424 Other movements 1,032 1,032 Balance at 31 December ,160 21,834 1,141,318 1,176,312 Profit for , ,360 Application of IAS 32 & 39 at 1 Jan ,340 3,340 Fair value of hedging instruments 2,142 2,142 Disposal of treasury shares Dividend distribution for ,544-49,544 Interim dividend for ,281-19,281 Transfer Reduction in share capital -41,083-41,083 Acquisition of additional shares -4,299-4,299 Other movements 1,135 1,135 Balance at 31 December ,975 21,834 1,347,374 1,382,183

74 74 a) Legal reserve The legal reserve has been created in compliance with article 214 of the Spanish Companies Act, which requires that companies transfer 10% of each year s profits to a legal reserve until this reserve reaches an amount equal to 20% of share capital. At 31 December 2005 and 2004 the Company has appropriated an amount equal to 20% of share capital to this reserve. The legal reserve is not distributable to shareholders and if used to offset losses, in the event that no other reserves are available, it must be replenished with future profits. b) Revaluation reserve.c) In accordance with Royal Decree Law 7 of 7 June 1996 in relation to urgent tax measures and the promotion of economic activity, the Company has revalued its property, plant and equipment. The amount of the reserve equates the revaluation net of capital gains tax of 3%. The period for inspection by the tax authorities was three years from 31 December Since no inspection has taken place, the balance on the reserve may now be used to eliminate losses or to increase the Company s share capital. After ten years the balance may be transferred to freely distributable reserves to the extent that the capital gains have been depreciated or the related assets transferred or derecognised. The balance on this account cannot be distributed, either directly or indirectly until the gains have been realised. Reserve for accumulated gains This reserve includes: c.1) ) Reserve for fair value and hedging: comprising accumulated net variations in the fair value of assets classified as available-for-sale, until these items are sold or derecognised, and accumulated net variations in the fair value of cash flow hedging instruments related to transactions considered highly probable of not yet having taken place. c.2) Reserve for accumulated gains: this item includes the reserves of both fully consolidated companies and those accounted for under the equity method, as well as other Parent company reserves different to those mentioned in the previous paragraphs. At 31 December 2005 the Group has restricted reserves and accumulated gains amounting to Euros 26,244 thousand (Euros 26,983 thousand at 31 December 2004). Details of these reserves by Company are included in note Translation reserve Translation reserves comprise all foreign exchange differences arising from the translation of the financial statements of Group companies and associates whose functional currency differs from the Group s presentation currency. Movement in this account is included in the consolidated statement of changes in equity. Details of the accumulated translation reverve by company at the 2005 and 2004 year ends are as follows: (Expressed in thousands of Euros) Group Companies Acerinox (Schweiz) A.G Acerinox Argentina Acerinox Australasia Acerinox Brasil 36 1 Acerinox Malaysia Acerinox Norway A/S Acerinox Pacific Ltd Acerinox Polska Acerinox Scandinavia AB -1, Acerinox South East Asia Pte.Ltd Acerinox U.K Columbus 29,652 17,769 Cromweld 17 5 D.A. Acerinox Chile S.A. 2, N.A.S. Long Products N.A.S. Canada -7 Newtecinvest AG 7 65 North American Stainless Inc. 57,182-60,957 TOTAL 90,268-43,298 Associates Betinoks Yick Hoe TOTAL

75 Cuentas Anuales Consolidadas Details of reserves and results by Group company The contributions to reserves and results by Group companies at 31 December 2005 and 2004, as well as the part corresponding to minority interests, are as follows: (Expressed in thousands of Euros) Reserves Profit / (loss) Minority interests Reserves Profit / (loss) Minority interests ACERINOX, S.A 885,411 55, , ,169 ACERINOX (SCHWEIZ) A.G. 4, ,494 1,027 ACERINOX ARGENTINA 1, , ACERINOX AUSTRALASIA ACERINOX BENELUX ACERINOX BRASIL ACERINOX DEUTSCHLAND GMBH 458-6, ACERINOX FRANCE S.A.R.L. 1,764-1,577 1, ACERINOX ITALIA S.R.L. 2,940-8,153 1, ACERINOX MALAYSIA -89 2, ACERINOX NORWAY A/S ,265 7,126 1,006 ACERINOX PACIFIC LTD ACERINOX POLSKA ACERINOX SCANDINAVIA AB 8, ,432 5,704 ACERINOX SOUTH EAST ASIA PTE.LTD ACERINOX U.K. 2, ,187 ACEROL LTDA. (PORTUGAL) 3,459-2,026 3, ACIMETAL S.A. 3, , COLUMBUS 63,263-7,607-93,800 35,344 31, ,933 CROMWELD D.A. ACERINOX CHILE S.A ,034 INOX RE INOXCENTER CANARIAS S.A. 4, , INOXCENTER S.A. 19,990-1,610-1,276 17,020 2,947-1,427 INOXFIL S.A. 6,196 1, ,219 1, INOXIDABLES DE EUSKADI S.A. 7,540 1,041 7, INOXIDABLES DE GALICIA S.A. 5, , INOXMETAL S.A. 2, , INOXPLATE METALINOX BILBAO S.A. 18, ,381 2, N.A.S. LONG PRODUCTS -1, , N.A.S. CANADA 1-60 NEWTECINVEST AG 3, ,150 7,474 NORTH AMERICAN STAINLESS INC. 243, ,107-8, , ,466-6,781 ROLDAN S.A. 55,522 8, ,907 13, BETINOKS YICK HOE TOTAL 1,347, , ,350 1,141, , ,788

76 Dividends The directors of Acerinox, S.A. will propose to the shareholders at their annual general meeting that the profits of the Parent company be distributed as follows: (Expressed in thousands of Euros) Profit after tax 71, ,238 Distribution Dividends 67,470 68,432 Voluntary reserves 4,054 34,806 TOTAL 71, ,238 Dividend per share 0,26 0,26 On 3 November 2005 the Company s board of directors approved the distribution of a dividend of Euros 18,165 thousand on account of the profit for 2005, which is recognised under Interin dividend paid diring the year in the consolidated balance sheet at 31 December This dividend was distributed on 4 January The provisional accounting statement prepared by the directors in accordance with article 216 of the Revised Spanish Companies Act, demonstrating that sufficient cash was available for distribution of the dividend, was as follows: Thousands of Euros Cash available at 30 September ,592 Plus: Forecast cash increases between 30 September 2005 and 4 January 2006 Collections on operating activities 613,762 Realisable 12, ,620 Less: Cash decreases forecast between 30 September 2005 and 4 January 2006 Payments for Returns of share premium to shareholders 20,760 Investments in fixed assets 8,200 Operating activities 459,695 Short-term payables 115, ,225 Forecast cash available at 4 January ,987 The directors consider that Acerinox, S.A. will have sufficient liquidity with regard to this dividend until November 2006, one year following the board s approval of the distribution of the dividend on account of the profit for Earnings per Share Basic earnings per share are calculated by dividing net profit (attributable to the Group) by the weighted average number of ordinary shares in circulation during the year, excluding ordinary shares purchased and held by the Group.

77 Cuentas Anuales Consolidadas 77 (Expressed in thousands of Euros) Net profit 154, ,360 Nº ordinary weighted average shares in circulation 261,391, ,200,000 Profit per share (in Euros) 0,59 1,19 The Group has not issued any financial instruments which give access to capital or convertible debt and therefore diluted earnings per share are the same as basic earnings per share. The average number of ordinary shares is determined as follows: (Expressed in thousands of Euros) Issued ordinary shares at 1 January 263,200 65,800 Effect of reduction of equity -3,700 Weighted average number of ordinary shares 261, ,200 Shares in circulation at 31 December 259, ,200 Note 16 Deferred income Movement in outright government grants is as follows: (Expressed in thousands of Euros) Balance at 1 January 1,641 2,187 Grants awarded 2,333 Taken to income -2, Translation differences Balance at 31 December 1,654 1,641 Deferred income includes grants received by North American Stainless, Inc. for investments in fixed assets. These grants are imputed to the income statement on a straight-line basis over a period equal to the useful lives of the financed assets. Grants awarded also includes amounts in respect of emission rights assigned free of charge in accordance with the National Allocation Plan which have not been consumed in the present year. (Note 8) The Group considers that it has met or will meet all the conditions for receipt of these grants in the period stipulated and therefore no significant contingencies exist in connection with the grants obtained. Note 17 Interest-bearing loans and borrowings Details at 31 December 2005 are as follows: (Expressed in thousands of Euros) Bank loans Finance lease liabilities Total non-current debt Bank loans Total current debt

78 78 In 2005 loans fall due as follows: (Expressed in thousands of Euross) & subsequent TOTAL Borrowings 646,155 76, ,167 5, ,476 Finance lease liabilities 1,411 1,411 Total long-term debt 646,155 77, ,167 5, ,887 Loans by currency are as follows: (Expressed in thousands of Euros) Non-current debt Current debt EUR 101, , ,704 USD 60,513 81,379 67,574 74,593 ZAR 101,891 2, , ,678 TOTAL 263,732 83, , ,975 Borrowings at variable interest are referenced to Libor, Euribor and Jibor rates. The average effective interest rate for long-term bank debt is 7.80% for the Rand, 4.69% for the US Dollar, and 2.79% for the Euro (3.75% for the US Dollar in 2004). Details of loans by interest rate are as follows: (Expressed in thousands of Euros) Non-current debt Current debt Fixed 7,629 12, Variable 256,103 70, , ,975 TOTAL 263,732 83, , ,975 El valor razonable y en libros de las deudas no corrientes al 31 de diciembre es el siguiente: (Expressed in thousands of Euros) Carrying amount Fair value Carrying amount Fair value Borrowings 262, ,830 81,379 81,379 Liabilities for finance leases 1,411 1,411 2,053 2,053 TOTAL 263, ,241 83,432 83,432 Far values are based on market prices or cash flows discounted at 2.07% in 2005, a rate based on that existing in the market for remunerated liabilities of a similar nature. At 31 December 2005 the Group has credit facilities with banks with a maximum available limit of Euros 1,772 million, of which Euros 646 million were drawn down at that date. The fair value of short-term debt is the same as the carrying amount. The maximum credit facilities available limit in 2004 totalled Euros 1,202 million and the amount drawn down was Euros 707 million at 31 December The maturity of certain loans is dependent on compliance, over the term of these operations, with certain ratios based on the consolidated financial statements of the Acerinox Group. At 31 December 2005 these conditions have been met. Variable interest rate loans are reviewed at least once a year Finance leases Details of minimum payments and the present value of finance lease liabilities, by maturity date, are as follows:

79 Cuentas Anuales Consolidadas 79 (Expressed in thousands of Euros) Minimum payments per lease Interest Principal Minimum payments per lease Interest Principal Less than 1 year to 5 years , ,369 More than 5 years TOTAL 1, ,411 2, ,053 The Group s finance lease contract conditions do not include any contingent rents. Note 18 Provisions and employee benefits Details of non-current provisions included in the balance sheet for 2005 and 2004 are as follows: Loans to employees 12,187 11,548 Other provisions 14,708 16,453 TOTAL 26,895 28, Employee benefits Defined contribution plans In accordance with local legislation, certain Group companies make contributions to pension plans managed by external entities. An expense of Euros 10,727 thousand (Euros 10,928 thousand in 2004) has been recognised for the year under personnel expenses in respect of such plans Defined benefit plans Details of provisions for employees benefits, by type of commitment, are presented in the following table: (Expressed in thousands of Euros) Pension plans 4,165 4,229 Early retirement bonuses 1,210 1,485 Long service bonuses Post-employment obligations 6,447 5,481 TOTAL 12,187 11,548 The Company pays insurance premiums to cover the commitments acquired in respect of certain Group employees. The total amount of such payments made in 2005, which coincides with the expense recognised in the consolidated income statement for the year, is Euros 219 thousand (Euros 3 thousand in 2004) Provisions Movement in non-current provisions in 2005 is as follows: (Expressed in thousands of Euros) Litigations CO2 Other provisions Total At 31 December , ,453 Provision 110 2, ,536 Application -4,281-4,281 Reversal At 31 December ,034 2, ,708 Applications in 2005 essentially comprise the payment of Euros 3,128 thousand in relation to the matter mentioned in note 28.2.

80 80 Litigation On 14 January 1997 the tax authorities raised additional assessments on the Company in respecto of income tax, VAT and personal income tax (withholdings) for the period 1988 to These were primarily in relation to discrepancies in amortisation, provisions, tax deduction limits and obligations to withhold certain expenses on account of export activity. The Company did not accept the assessments and therefore prepared the corresponding allegations which led to the cancellation of the above-mentioned assessments and the raising of new assessments on 23 July 1997, as well as the preparation of new settlements by the Chief Inspector on 30 December 1997, which were appealed before the Central Administrative and Economic Court. The partial assessments on the part of this court were appealed before the Supreme Court in Madrid and their partial assessment ruling has been appealed before the High Court. In the opinion of Company management and based on consultation with their legal and tax advisors, the declarations made regarding the taxes subject to inspection were correct and therefore no significant additional liabilities are expected to arise in relation with the tax assessments contested by the Company and all measures available under prevailing legislation will be taken to avoid such liabilities arising. Note 19 Other current liabilities Other current liabilities essentially comprise various short-term provisions for supplies and other operating expenses. Note 20 Trade and other payables Details of this caption in the consolidated balance sheet at 31 December are as follows: (Expressed in thousands of Euros) Suppliers 267, ,292 Personnel 13,233 14,171 Suppliers of property, plant and intangible assets 7,450 3,033 Tax and social security 17,234 18,044 Dividends payable 18,165 18,424 Other payables 19,185 14,865 TOTAL 342, ,829 Note 21 Financial instruments In its activities, the Group is essentially exposed to three types of risk: exchange rate risk, interest rate risk and risk of changes in prices of raw materials. The Group uses derivative financial instruments to hedge its exposure to certain risks Interest rate risk At 31 December 2005 the Group has entered into the following interest rate swaps: Notional value contracted Amount pending Maturity Variable to fixed rate US Dollars 30 million US Dollars 30 million 2006 Variable to fixed rate US Dollars 50 million US Dollars 25 million 2007 Variable to fixed rate US Dollars 30 million US Dollars 21 million 2009 Interest rate swaps contracted at 31 December 2004 are as follows: Notional value contracted Amount pending Maturity Variable to fixed rate US Dollars 30 million US Dollars 30 million 2006 Variable to fixed rate US Dollars 50 million US Dollars 33.3 million 2007 Variable to fixed rate US Dollars 30 million US Dollars 27 million 2009

81 Cuentas Anuales Consolidadas 81 At 31 December 2005 fixed interest rates are 2.72% (same as in 2004) and the main variable rates of interest are referenced to Euribor, Libor and Jibor. The derivatives contracted comply with the conditions of effectiveness for consideration as cash flow hedges and therefore resultant gains or losses on their measurement at fair value have been assigned to equity. The fair value of financial swaps is based on the market value of equivalent financial instruments at the balance sheet date. No gains or losses have been recognised for this item in 2004, since the Group has made use of the exemption permitted by the standard for first application of IFRS and chesen not to apply IAS 32 and 39 in Exchange rate risk The Group operates in a large number of countries and invoices in various currencies. Therefore the Group uses forward purchases and sales in foreign currency to cover transactions in these currencies, mainly US Dollars. Derivatives of this nature do not always comply with conditions for consideration as effective hedging instruments in accordance with IAS 39. At 31 December 2005 Euros 2,011 thousand has been recognised in the income statement, under financial expenses, for measurement of these derivatives at market value. No gain or loss has been recognised for this item in 2004 as the Group has availed of the exemption permitted by the standard for first application of IFRS and has opted not to apply IAS 32 and 39 in The Group also uses these instruments, in certain cases, to hedge investments in fixed assets. Derivatives of this nature comply with the conditions for consideration as effective hedging instruments in accordance with IAS 39. At 2005 year end, a hedging reserve of Euros 2,142 thousand has been recognised in equity. The Group has insurance contracts for foreign currency operations which provide it with a total coverage for a notional amount of Euros 1,020 million, of which Euros 192 million are used at 31 December The notional amount of total coverage contracted in 2004 was Euros 1,020 million and Euros 257 million were used at 31 December All of the Group s forward currency purchase and sale contracts have a term of less than one year. Details by currency of the notional values of forward contracts are as follows: Assets Liabilities Assets Liabilities USD 80,879 30, , ,245 EUR 51, ,458 3,088 GBP 7,649 12,100 SEK 318,000 The fair values of these forward contracts are based on the market values of equivalent instruments Options Acerinox, S.A. has an option expiring on 31 December 2006 for the acquisition of up to the remaining 24% of Colombus Stainless Inc. The respective exercise price is the value of the 24% interest at the date of the company s incorporation, that is, Euros 94,250,000, adjusted for the same percentage appreciation as experienced by Acerinox, S.A. shares over Euros 10 in the thirty trading days prior to the exercice of the option. Note 22 Ordinary revenues Details of ordinary revenues in 2005 and 2004 are as follows: (Expressed in thousands of Euros) Sales of goods 4,212,222 3,941,766 Services rendered 1,337 94,003 Self constructed assets 4,551 4,287 Income for operating leases Income from grants and subsidies Income from disposal of property, plant and equipment and intangible assets Other income 11,094 10,087 TOTAL 4,229,743 4,051,274

82 82 Note 23 Changes in trade provisions Details in 2005 are as follows: 2005 Change in provision for impairment of inventories 41,608 Change in other provisions for inventories 2,932 Change in provision for bad debt 103 Change in other provisions 1,073 TOTAL 45,716 Note 24 Personnel expenses Details of personnel expenses in 2005 and 2004 are as follows: (Expressed in thousands of Euros) Wages and salaries 221, ,485 Social security 42,026 40,178 Contributions to defined contribution plans 10,727 10,928 Indemnities Change in provision for employee benefits 4,021 5,594 Other personnel expenses 10,994 8,824 TOTAL 289, ,025 The headcount at 31 December 2005 and 2004, by professional categories, is as follows: Graduates Administration Labourers 5,027 4,849 TOTAL 6,695 6,508 Note 25 Other operating expenses Details are as follows: (Expressed in thousands of Euros) Rental costs 1,328 1,826 Production costs 377, ,829 Commercial expenses 89, ,944 Other operating costs 56,931 41,564 Taxes other than income 4,086 4,313 Sale of property, plant and equipment and intangible assets 438 1,559 Other extraordinary expenses TOTAL 528, ,128

83 Cuentas Anuales Consolidadas 83 Note 26 Net financing costs Details are as follows: (Expressed in thousands of Euros) Interest income 4,079 2,482 Dividend income Net gain on remeasurement of investments at fair value through profit or loss Income from disposal of Parent treasury shares 8,329 Exchange gains 39,942 41,948 Other financial income 705 TOTAL FINANCIAL INCOME 53,752 54,054 Interest expense 51,464 34,213 Losses on remeasurement of financial instruments at fair value Exchange losses 32,305 27,486 Other financial expense TOTAL FINANCIAL EXPENSE 83,769 61,699 9,310 NET FINANCING COSTS -30,017-7,645 Note 27 Income tax 27.1 Income tax expense Details of the income tax expense are as follows: (Expressed in thousands of Euros) Current tax 63,270 86,296 Deferred tax 9,299 77,458 Total income tax 72, ,754 A reconciliation of the income tax expense recognised in the income statement and accounting profit is presented below: (Expressed in thousands of Euros) Net profit for the year 154, ,360 Minority interests -1,573 19,396 Income tax 72, ,754 Other taxes 2,751 Profit before tax 228, ,510 Income tax using the domestic corporation tax rate 35,00% 79,875 35,00% 173,779 Effect of tax rates in foreign companies 2,365-2,789 Non-deductible expenses Tax incentives not recognised in the income statement -9,249-7,610 Adjustments from prior years -850 Tax credits used Total income tax 72, ,754

84 84 The weighted average tax rate applicable in 2005 is 31.80% (32.98% in 2004). The variation in the effective tax rate is due to changes in the tax rates applied to certain companies in foreign jurisdictions and the existence of permanent differences Deferred tax assets and liabilities The deferred tax assets and liabilities recognised are attributable to the following items: (Expressed in thousands of Euros) Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities Balance at 1 January 5, ,536 4,740 98,459 Expense / (income) for the period 18,562 27, ,258 Taxes recognised directly in equity Changes in exchange rate 1,054 21,585-10,181 Other changes Balance at 31 December 25, ,982 5, ,536 Deferred tax assets and liabilities originated as follows: (Expressed in thousands of Euros) Assets Liabilities Net Intangible assets 2,744 3,230 2,744 3,230 Property, plant and equipment 206, , , ,134 Financial assets -1, , Inventories 2,236-2,236 0 Other assets 1,741 3,483 1,741 3,483 Provisions 7,461 5, ,616-5,540 Other liabilities -6,162 4,344 1,899 10,506 1,899 Unused tax losses 22,639-22,639 0 Deferred tax assets / liabilities 25,156 5, , , , ,996 Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and where these relate to taxes levied by the same tax authority. In accordance with Spanish tax legislation, losses declared may be carried forward to be offset against profits of the fifteen subsequent accounting periods, the amount being distributed as considered appropriate. Losses are offset when the tax declarations are filed, without prejudice to the tax authorities power of inspection. At 31 December 2005 the Group has tax losses available for offset as follows: (Expressed in thousands of Euros) Available through , ,902 No date 33,248 TOTAL 60,137 The tax effect of loss carryforwards has been capitalised at an amount of Euros 22,639 thousand. The Group had no losses pending offset at 31 December In accordance with current legislation, taxes cannot be considered definitive until they have been inspected and agreed by the tax authorities or before the inspection period of four years has elapsed.

85 Cuentas Anuales Consolidadas 85 At 31 December 2005 the parent company and subsidiaries have open to inspection by the tax authorities all main applicable taxes since The directors do not expect that any significant additional liabilities will arise in the event of inspection. Due to the various possible interpretations of prevailing legislation, additional liabilities could be identified in the event of inspection. Nevertheless, the Company management considers that any additional liabilities that might arise would not have a significant impact on these consolidated annual accounts. Note 28 Commitments and contingencies Details of the Group s significant contingencies are as follows: 28.1 Guarantees The Group has contingent liabilities for bank and other guarantees, mainly with the governments of the countries in which operates, for Euros 33 million (Euros 39 million in 2004). The Management of the Group does not expect that any significant liabilities will arise as a result of these guarantees in addition to the liability recognised described in note ECSC treaty On 6 February 1998, the European Commission notified the Company of its decision relating to a procedure for application of article 65 of the ECSC treaty (Case IV Alloy Surcharge), whereby it imposed a fine of ECU 3,530,000 for a breach of the aforementioned article. The Company lodged an appeal against this decision with the European Court of First Instance on the grounds that the application of an alloy surcharge of between 10% and 15% of the price of stainless steel in the European market is not a standard practice, and that this system has been applied since prior to Spain s incorporation in the European Community. On 13 December 2001 the Court partially accepted the appeal and reduced the fine to Euros 3,136,000. A further appeal was filed against this decision. On 14 July 2005 a ruling was handed down whereby Acerinox, S.A. was ordered to pay Euros 3,127,606. Full provision had been made for this contingency at 31 December 2004 (see note 18) SMS Following a significant delay in the supply of steel equipment from the supplier SMS, the subsidiary Nas Inc. applied the contractually-agreed penalties, withholding payment of part of the purchase price. In response to SMS s formal complaint in connection with this action, and its request to raise the price due to alleged essential changes in the purchase order, the matter was submitted to arbitration. As a result of this arbitration, on 1 October SMS s petition to raise the agreed price was rejected, although its right to receive the withheld payments was recognised. In 2005 Nas settled all outstanding amounts. The impact of this arbitration on the 2005 income statement was US Dollars 7.8 million. Note 29 Balances and transactions with related parties 29.1 Identity of related parties The consolidated financial statements include transactions with members of the board of directors, key management personnel and associates accounted for using the equity method Balances and transactions with related parties a) Associates Details of balances and transactions with associates during the years ended 31 December 2005 and 2004 are as follows: (Expressed in thousands of Euros) Purchase of goods 425 Sales of goods 27,124 8,494 Services rendered Services received Operating lease contracts 58 Trade and other receivables 8,324 10,476 Suppliers and other payables 465

86 86 b) Remuneration of key management personnel Short-term remuneration received by the five members of senior management which are not members of the board of directors of Acerinox, S.A. amounted to Euros 2,110 thousand in In 2004, the three members of senior management received short-term remuneration of Euros 1,062 thousand Information regarding members of the board of the directors of the Parent company In 2005 members of the board of directors of Acerinox, S.A., including those which held key management positions, received Euros 4,096 thousand for fixed allowances, bonuses for attending board meetings and fixed and variable (based on profits from the prior year) salaries (Euros 2,897 thousand in 2004). Commitments with members of the board have been accounted for correctly and are adequately covered through insurance contracts. The Company has extended no loans or advances to members of the board of directors at 31 December At 31 December 2005 the members of the board of directors do not hold, nor have held during the year then ended, any interest or positions or carried out any functions in companies with identical, similar or complementary statutory activities to that of Acerinox, S.A. and its group of companies, except for the following directors: Mr. Victoriano Muñoz Cava and Mr. Rafael Naranjo Olmedo, who each hold 2,000 shares in Arcelor, Mr. Kazuo Hoshino (Chairman of the board of directors of Nisshin Steel, Co. Ltd.), who holds 58,000 shares in Nisshin Steel, Co. Ltd., and Mr. Fumio Oda, who holds 17,000 shares in Nisshin Steel Co. Ltd. All transactions carried out between members of the board of directors and the Company or Group companies have been ordinary transactions at market conditions. Note 30 - Audit fees During the years ended 31 December 2005 and 2004, KPMG Auditores, S.L., the auditors of the consolidated annual accounts of the Group and other companies related to KPMG Auditores, S.L. (as defined by the Spanish Ley de Medidas del Sistema Financiero, have invoiced the Company net fees for professional services as follows: (Expressed in thousands of Euros) Audit services Audit-related services Other services 13 The amount detailed in the above table includes the total fees for services provided in 2005 and 2004, irrespective of the date of invoice. Other audit firms have invoiced certain subsidiaries for audit services amounting to Euros 106 thousand in 2005 and Euros 102 thousand in Note 31 Subsequent events No significant events have occurred between 1 January 2006 and the date of preparation of these consolidated annual accounts.

87

88 88

89 89 3. ACERINOX, S.A. and other Group Companies Directors Report 1. ACERINOX, S.A. 2. NORTH AMERICAN STAINLESS (NAS) 3. COLUMBUS STAINLESS PTY. LTD. 4. ROLDAN, S.A. 5. Domestic Trading Companies 6. Overseas Trading Companies

90 90 1. ACERINOX, S.A. Los Barrios Factory Management Team 1.1 Factory The productions of the Campo de Gibraltar factory, were limited in year 2005 basically for the following causes: The really poor conditions of international market in the second half of the year. The two scheduled biennial halts for 16 days in the melting shop and for 17 days in the hot rolling mill. These halts took place between the months of October and November because this is the period of the year when the electricity is more expensive. The ending of exporting billets to the United States due to the fact that NAS is already producing billets in its Kentucky factory. In the annual investments program, which is carried out with the aim of increasing productivity and update the facilities with technological advances, this year the Melting Shop has been given priority and the following investments have been carried out: The whole modification of Nº. 2 Electric Furnace. The installation of an oxygen lance in Nº 2 AOD converter. New turret in the slab continuous casting Two new crane bridges of 220/70 Mt.

91 ACERINOX, S.A. and other Group Companies Directors Report 91 And in the hot rolling mill: New equipment for fume extraction in the roughing mill and in the finishing mill. New regulation equipment for the slab furnace and new furnaces for the finishing mill coilers. In the whole of the year the melting shop production amounted to 909,101 Mt, a 1.2% lower than the output of the previous year. From said production, 147,569 were billets, a 30.6% lower than the year before due to the ending of the exports of billets to the United States. The hot rolling mill processed 780,070 Mt, a 9% higher than the previous year. The cold rolling production totalled 609,999 Mt, a 6.8% higher than in ships docked in the port and the dock movement totalled 1,003,491 Mt. The workforce of the Campo de Gibraltar factory at the end of 2005 amounted to 2,005 employees. 1.2 Environment ACERINOX, S.A. has always followed a policy of sustained development compatible with the environment protection. Regarding this matter: The Certification for Environmental Management (ISO 14001) has been renewed for three more years for the Campo de Gibraltar factory. During the year, 3,505,470 euros have been invested in equipments for the environment protection. Concerning purification, treatment, salvage and removal of waste, environmental expenses amount to 17,993,698 euros. Regarding gas emissions (Kyoto Protocol), the biennial halt in the melting shop and in the hot rolling mill and the lower activity of the factory during the fourth quarter of the year, have given us a margin on the assigned rights by the Department of Industry totalling 13,234 Mt of CO 2, which will allow us to cover a possible deficit in Taking into account that the assignment is not sufficient for a year of normal activity in the factory and even less for future production increases, we are studying thoroughly the advances in energy saving schemes.

92 Research, Development and Innovation During year 2005, 2,137,882 euros have been invested to carry out eight R+D projects, six of them were European research projects (V Program Marco, CECA and RFCS) and the other two (which cover six research lines as a whole) in domestic programs (PROFIT, Department of Trade, Industry and Tourism and C.D.T.I). We have received CECA subsidies totalling 239,547 euros and the C.D.T.I financing an amount of 603,125 euros. The essential aspects of these projects have the following targets: Optimisation of the stainless steels production processes, which allow to improve the mechanical, surface and quality properties and also the service properties. Study of the stainless steel behaviour against corrosion in different aggressive environments. The application of stainless steel in the road transport industry and in the food industry. 122,343 euros have been invested in equipments. Thanks to the cooperation agreements with the universities of Cádiz, Málaga and the E.T.S.I. of Sevilla, 14 scholarship holders with a degree have helped ACERINOX Research staff and have taken part in these activities. 1.4 Sales In 2005 ACERINOX, S.A turnover amounted to 1,603.3 million euros, was a 7% lower than the invoiced figure in the previous year. The figure invoiced in the domestic market, million euros, was 3.9% higher, while the invoiced figure in the export markets, million euros, was 13.5% lower. Geographical Distribution of ACERINOX, S.A. Net Sales

93 ACERINOX, S.A. and other Group Companies Directors Report Investments The investments carried out by ACERINOX, S.A. in year 2005 amounted to 132,397,932 euros, with the following breakdown: 38,036,779 were invested in the Campo de Gibraltar factory. 86,637,671 account for financial investments - 47,614,669 were invested in the purchase of an additional 12% of COLUMBUS STAINLESS, which was carried out in the month of June. - 34,695,753 were put it on a capital increase in ACEROL (Portugal), ACERINOX FRANCE, ACERINOX ITALY, ACERINOX SCANDINAVIA and ACERINOX PACIFIC. - 4,327,249 were invested in the setting up of NAS CANADA Inc. 5,522,779 were invested in equipment for the service centres, head offices and data processing department. 2,200,703 were invested in R+D. Apart from the above mentioned investments, ACERINOX, S.A. has allocated 42, euros to the reduction of capital with buy back. Packing line Los Barrios Factory

94 Economic Report The invoiced figure in the year, 1,603.3 million euros, has been 7% lower that the turnover achieved in the year before. At the end of the year extraordinary provision has been carried out for an additional amount of 27 million euros: The provision to depreciation of stocks amounts to 16.7 million euros. The provision to depreciation in the shareholding of ACERINOX in various subsidiary trading companies, as a consequence of their losses in the year, amounts to 10.3 million euros. ACERINOX, S.A. has received dividends for an added amount of 36.8 million euros from the following companies: NAS, ACERINOX NORWAY, NEWTECINVEST and ROLDAN, S.A. The Gross Profit achieved by ACERINOX, S.A. in the year totalled 80,937,560 euros, a 45.6% lower that the gross profit obtained in After application of rebates, tax depreciation of the investments in fixed assets and tax adjustments and after deductions based on the dividends from the Group companies for an amount of 2,750,654 euros, a Corporation Income Tax will be accrued of 6,662,946 euros, with a net profit of ,960 euros, which is 30.7% lower than that of The allocation to depreciations made in the year, 29,151,767 euros, has been 36.3% lower than that of The percentage of fixed assets depreciated in the Campo de Gibraltar factory rises to 91.4%. (Euros) Variation Sales 1,603,287,581 1,724,275, % Depreciation 29,151,767 45,779, % Gross Result 80,937, ,759, % Net Result 71,523, ,237, % Gross Cash Flow 110,089, ,539, % Net Cash Flow 100,675, ,017, % 1.7 Application of Results Proposal Net Profit of the Year 71,523,960 Euros Application: Dividends 67,470,000 Euros Voluntary Reserve 4,053,960 Euros

95 ACERINOX, S.A. and other Group Companies Directors Report NORTH AMERICAN STAINLESS (NAS) NAS Steering Committee In a very unfavourable frame, with a 10.5% decrease in the flat products and 10.2% in wire rod apparent consumption, NAS has continued evolving and strengthening in year 2005 as one of the leader companies in the North American market. The melting shop produced 767,624 Mt, which is 11.1% higher that the output achieved the year before. During the first quarter of the year the new billet continuous caster came into operation. It was constructed by DANIELI and it integrates the long product process in the Kentucky factory, which has turned into the most complete mill in the stainless steel sector, which hopefully will become soon the most competitive one. Billet Continuous Caster

96 96 The hot rolling mill processed 708,962 Mt, which means a 3.3% increase with regard to the previous year. The cold rolling mill totalled 537,429 Mt, which is 13% higher than the figure obtained the year before. Long products hot rolling mill achieved an output of 67,059 Mt, which means a 27.5% increase if compared with the production in Net Sales totalled 1,981 million USD, which is 16% higher with regard to the turnover achieved the year before. The result after taxes, million USD, was 20.7% lower to the figure of the previous record year and the net cash flow, million USD, was 11.1% lower. The enlargements of the Kentucky factory are taking place according to the schedule: Zm cold rolling mill, contracted with SEJAL (Japan), will come into operation in March Nº2 Electric Furnace, produced by VAI (Austria), will start up in the last quarter of 2006, and production capacity of the melting shop will rise to one million tons. Nº 2 coil grinding machine, built by FATA (US), will start up in January Nº 4 Zm Structure Nº 2 Electric Furnace

97 ACERINOX, S.A. and other Group Companies Directors Report 97 During 2005 NAS has advanced by amazingly in the policy of approaching and giving fast service to the market, which has always been so successful for ACERINOX Group and which is already succeeding from year 2002 in Minooka (Illinois) with: equipped with cutting lines from the month of May. The building of a centre in Atlanta (Georgia), which will come into operation in June or July The start up of the service centre of Agua Mansa, in Los Angeles, (California) in the month of August. The enlargement of Minooka service centre (Illinois), with a Cut to Sheet line in the month of November The setting up of the company, NAS CANADA INC., with a service centre in Guelph, (Toronto), which has come into operation in January 2006 and will be All these service centres will have areas and facilities for the warehousing of stainless steel long products. Minooka Service Centre (Illinois) Agua Mansa Service Centre (California) Toronto Service Centre (Canadá) Atlanta Service Centre (Georgia)

98 98 3. COLUMBUS STAINLESS PTY. LTD. COLUMBUS Steering Committee COLUMBUS has been the industrial company of ACERINOX Group, which has been most affected by the stainless steel market fall, due to the following reasons: It is a company purely exporter. 50% of its production are hot coils to be sold to cold re-rollers, most of which are mainly in the Far East. Its currency, the Rand, has been overvalued and in spite of the fact that during the year it has depreciated 12.1% against the US Dollar, it has Evolution of the South African Rand vs USD and Euro (Years )

99 ACERINOX, S.A. and other Group Companies Directors Report 99 appreciated by a 2.9% against the euro. During the last four years, since ACERINOX purchased and took charge of COLUMBUS, the Rand has appreciated by 46.5% against US Dollar and by 28.4% against euro. This overvaluation is particularly damaging for a company like COLUMBUS, which exports more than the 80% of its production. This also affects the stainless steel domestic consumption, which until year 2001 was growing at an annual rate of 10% and last year decreased by 6.7%. The South African processing sector, which exported a great part of its production and in particular the container producers and tubists, is going through a very difficult time. Due to the fact that South Africa does not have stainless steel scrap, COLUMBUS is forced to contract very important nickel supplies yearly. The above mentioned collapse in hot coil sales and the fall of the nickel quotation from the month of May to October, occurred simultaneously and it has led to very important losses. The melting shop, with the important investment carried out from the first quarter of the year, has a yearly capacity of one million tons, which will be ready to be produced when necessary. During this year the production totalled 564,877 Mt, which is 21.3% lower that the previous year. The hot rolling mill has produced 523,378 Mt, which is 21.8% lower than the year before and the cold rolling shop, which products have a much wider range of markets and customers, achieved an output of 322,550 Mt, a 1% higher than the previous year. Exit Section Nº2 Annealing and Pickling line Nº3 Slitting line

100 100 The invoiced figure during the year amounts to 7,161 million rands (911.2 million euros), which means a 15.5% decrease with regard to the turnover of the year before. Results totalled 92 million rands (-11.7 million euros), against the results achieved in year 2004, which amounted to million rands (+51.7 million euros). These results include a provision for adjusting stocks for an amount of 73.4 million rands (9.34 million euros). These losses come from the second semester of the year. Evolution of COLUMBUS result after taxes Net cash-flow of +134 million rands (+17 million euros) is 77% lower than that of the previous year.

101 ACERINOX, S.A. and other Group Companies Directors Report ROLDAN, S.A. ROLDAN Steering Committe After the record historial year as 2004, the world market of long products was deeply affected by the adjusting of stocks and the overall drop of apparent consumption of all stainless steels from the second quarter Besides, this market was really distorted by the imports from third countries, specially, those coming from India. In this context, ROLDAN S.A. factory of Ponferrada obtained 127,523 Mt of finished products, showing a 4% decrease if compared with the previous record year. During the year the investments in the factory totalled 5.6 million euros and the environmental expenses rose to 2.6 million euros. Peeling line

102 102 At the end of the year a provision for stock depreciation was carried out for an amount of 1.9 million euros. The invoiced figure, 322 million euros, was 6.5% higher thanks to the increase of the alloy surcharges, which were partly offset by the reduction of the base prices. Net profit, 7.04 million euros, was 48% lower than the figure obtained in 2004 and net cash flow, 13.3 million euros, was 39% lower, but still higher than the share capital, which amounts to 11.9 million euros. At 31 st December 2005, 80% of the fixed assets were depreciated and the gearing was 9.2%. An investment program of 20 million euros is being studied. This program will be carried out between years 2006 and 2007, when the company holds its 50 th anniversary of its foundation. These investments are mainly aimed to the modernization of the hot rolling mills, which will allow increases of profitability and metallic yield as well as important energy savings. Its subsidiary company INOXFIL,S.A., stainless steel wire producer sited in Igualada, has had a very difficult year due to the plunged international market, which has been really damaged by imports, many of them subsidized and mainly coming from India, South Korea and China. Its output, 20,705 Mt was a 16.2% lower than the production obtained in The invoiced figure, 57.8 million euros, was 7.5% lower. Net results amounting to 223,854 euros, show a 89% decrease with regard to the previous year. Nevertheless, the cashflow, more representative in this case for the high level of depreciation and because its modern facilities, amounts to 2.49 million euros, which was 56% lower that the cash-flow of the previous year, but it is an outstanding figure if compared with its share capital of 4.8 million euros. Investments totalling 1.4 million euros were carried out during the year.

103 ACERINOX, S.A. and other Group Companies Directors Report DOMESTIC TRADING COMPANIES GRUPINOX Steering Committee The domestic trading companies have suffered the dramatic deterioration of the market during this year, with a 6.4% decrease of flat products apparent consumption and the drop of prices for all stainless steel products. Thousand Euros Net Sales Net Result Net Cash-Flow ACIMETAL 41, INOXCENTER 302,953-3,615-2,589 INOXCENTER CANARIAS 6, INOXIDABLES DE EUSKADI 111, ,318 INOXIDABLES DE GALICIA 30, INOXMETAL 17, METALINOX 85, TOTAL 596,533-4,262-1,680 Sales amounted to million euros, which is 5.4% higher that the figure of the previous year, though. The joint net result is a loss of 4.3 million euros, with a net cashflow of 1.7 million euros.

104 OVERSEAS TRADING COMPANIES The overseas trading companies have also been deeply affected by the market situation, particularly the European companies due to a 9.2% decrease of the apparent consumption and the sharp fall of prices, which has led most of them to lose money. The Italian and the German Markets have been the most damaged by these tough conditions. Thousand Euros Net Sales Net Result Net Cash-Flow ACERINOX ARGENTINA 3, ACERINOX AUSTRALASIA ACERINOX BENELUX ACERINOX BRASIL ACERINOXCHILE 24, ACERINOX DEUTSCHLAND 236,688-7,483-6,125 ACERINOXFRANCE 135, ACERINOX ITALIA 294,840-9,104-8,255 ACERINOX MALAYSIA 69,200 2,188 2,188 ACERINOX NORWAY 2,412 1,265 1,295 ACERINOX PACIFIC ACERINOX POLSKA ACERINOX PORTUGAL 43,450-2,120-1,767 ACERINOX SCANDINAVIA 237, ACERINOX SCHWEITZ 26, ACERINOX SEA ACERINOX UK 105,481-1, INOXPLATE NAS CANADA TOTAL 1,182,622-16,067-10,774 The whole of their net sales, 1,183 million euros, is 16.7% higher than the year before. The joint net result is a loss of 16.1 million euros and the negative cash flow amounts to 10.8 million euros. Important extraordinary provisions to adjust the inventories value to the net realisable value have been carried out amounting to 13.9 million euros.

105 Board of Directors, Committees and Senior Management